TIDMITV
RNS Number : 5613R
ITV PLC
09 March 2021
ITV plc
Full year results for the year ended 31 Dec 2020
Carolyn McCall, Chief Executive, said:
"Throughout this last year, we have all been dealing with the
effects of the pandemic. As the UK's largest commercial network,
we've worked hard to fulfil our responsibility as a source of
reliable and trusted news and to deliver some of the best
entertainment into the country's homes.
"I'm proud of the work of all our colleagues and thank them for
their dedication, creativity and hard work to successfully manage
our way through the crisis while continuing to invest in our
strategy. Our production teams were very innovative in restarting
productions quickly and safely in the UK and internationally, while
our commercial colleagues inspired advertisers to restart their
marketing campaigns.
"Good progress has been made in delivering our strategic
priorities with the rollout of our programmatic addressable
advertising platform, Planet V, to agencies to a very positive
response; the acceleration of the transformation of the ITV Hub;
BritBox UK is ahead of plan hitting half a million subscriptions in
January 2021; and BritBox US increased its subscriptions by 50%
over the year - we now have over 2.6m subscriptions globally across
all our SVOD services.
"While total revenues and profits were down our financial
performance was ahead of expectations driven by a strong end to Q4
and our firm control over costs.
"We are encouraged by the roadmap out of lockdown. We are seeing
more positive trends in the advertising market in March and April
and the majority of our programmes are now back in production.
However, there remains uncertainty in all markets around the world
with the potential risk of lockdowns, which if they materialise
will affect revenues. We are committed to taking further cost out
of the business while further investing to accelerate the delivery
of our strategy and digital transformation. We have restructured
the Broadcast business to create the Media and Entertainment
Division to better respond to changing viewing habits. ITV Studios
is well positioned to take advantage of the continued strong growth
in the demand for quality content internationally."
2020 Financial performance has been materially impacted by
COVID-19
-- Total external revenue was down 16% at GBP2,781m
- ITV Studios total revenues were down 25%, impacted by the
disruption to the majority of our productions from March
- Total Broadcast revenues were down 8%, with total advertising
down 11% despite VOD advertising up 17%
-- Adjusted Group EBITA was down 21% at GBP573m which is better
than external expectations, driven by the strong end to Q4 and
tight cost control delivering GBP116m of overhead savings of which
GBP21m are permanent
- ITV Studios adjusted EBITA was down 43% to GBP152m, impacted
by the decline in revenue and the costs associated with COVID-19
safety measures
- Broadcast adjusted EBITA was down 9% to GBP421m, with the
decline in advertising partly offset by the reduction in the
programme budget
-- Adjusted EPS was 10.9p, down 22%
-- Statutory EPS was 7.1p, down 40%
Operational update:
ITV Studios
-- 2020:
- With the determination and innovation of the team, ITV's
productions started to resume from the summer under our strict
safety protocols
- We have invested in our creative development and creative
talent as we have further strengthened our UK and international
business and continue to diversify our customer base
-- SnowPiercer for TNT and Netflix has been recommissioned for a
third series and Love Island is now in 20 countries
-- 2021:
- Our key strategic focus is to internationalise our formats,
grow our scripted business and increase our commissions for OTT
platforms
- In spite of the restrictions in place, as of today we have
about 90% of programmes back in production
- We are monitoring and evaluating the situation but with the
prevalence of the virus we do expect that there may be some
continued disruption and delay with increased costs due to safety
protocols
Total advertising revenue (TAR):
-- 2020:
- TAR finished the year well, with Q4 up 3% against the same
period in 2019, as ITV continues to work closely with advertisers
to develop innovative and effective marketing campaigns
-- 2021:
- As expected the advertising environment in Q1 is
challenging
- We forecast TAR to be down around 6% in Q1, with strong growth
in VOD up around 14%, assuming there is no change in the current
planned restrictions
- We are now seeing more positive trends, with March expected to
be up around 8% and April expected to be up between 60% and 75%,
with the four months to the end of April up between 5% and 7%
Viewing:
-- 2020
- Total ITV viewing was up 1%
- Due to the lack of VOD volume drivers, such as Love Island,
fewer soaps and no major sporting events, online viewing was down
5%
- ITV Family share of viewing (SOV) was down 4% partly impacted
by the volume of the BBC's news output during the year, fewer
episodes of the soaps and less new content due to the pause in
productions
- ITV main channel had its third biggest SOV in a decade, with a
16.7% SOV
-- 2021
- Our strong schedule is delivering mass audiences and key
demographics including The Pembrokeshire Murders, Finding Alice,
The Bay, Dancing On Ice and The Masked Singer
- The programme budget will increase to GBP1.1bn in line with
historic levels
- We are assessing the appropriate allocation of the NPB between
linear and advertiser funded video on demand (AVOD) to balance our
ability to deliver mass audiences and increase on-demand
viewing
- We expect our focused investment in the user experience and
content of the Hub to drive good viewing on the Hub over the full
year, assuming the schedule is not further disrupted
Direct to Consumer
-- 2020
- Good performance from BritBox UK which is ahead of our
business plan hitting 500,000 subscriptions in January 2021
- We have increased BritBox US subscriptions by 50% over the
year and we now have over 2.6m subscriptions across all our SVOD
products globally
- Interactive revenues were strong with good demand for ITV's
competitions and the further development of ITV Win
-- 2021
- Continue to roll out new original content on BritBox UK
including The Beast Must Die, The Secrets of the Krays and Spitting
Image series 2 and BritBox will launch on Amazon
Cost savings
-- 2020
- We have taken tough action on our costs and delivered GBP116m
of cost savings, ahead of the guidance of GBP60m. Of this GBP21m
are permanent savings, ahead of the guidance of GBP10m.
-- 2021
- We will now deliver around GBP100m of annualised permanent
overhead cost savings by 2022 (from 2019), compared to our previous
guidance of GBP55 to GBP60m. Around GBP30m of these savings will be
delivered in 2021.
Further amplifying ITV's social purpose, raising awareness and
inspiring positive change
-- Multiple campaigns to help improve physical and mental
health, including Eat Them To Defeat Them, The Daily Mile and
Britain Get Talking
-- ITV has committed to become a Net Zero carbon business by
2030 and we are a signatory to TCFD
-- ITV's Diversity Acceleration Plan is making progress
including running external diversity campaigns, such as Black
Voices and Black History Month, as well as internal campaigns such
as Step Up 60 and additional apprenticeship positions
Delivering our strategic priorities and accelerating our More
Than TV Strategy
-- ITV Studios is one of the largest independent producers
globally. We continue to strengthen our pipeline of new and
returning scripted and unscripted shows and increasingly diversify
our customer base
-- We have restructured the broadcast business to create the
Media and Entertainment division with two business units -
Broadcast and On-demand - to better reflect and serve changes in
viewer habits and to streamline ways of working
-- We have further strengthened the ITV Hub which has 33m
registered users, up 6%; expanded its content by extending the
catch up window and adding short form content; and improved the
user experience with increased personalisation and the continuous
Hub redesign
-- We have successfully rolled out Planet V to the majority of
the large agencies; Samsung TV Plus is confirmed as Planet V's
first third party publisher partner
-- International rollout of BritBox is progressing well with the
successful launch of BritBox in Australia in Q4 2020. South Africa
is due to launch in 2021 and further roll out will follow
-- We have made good progress in our digital transformation to
improve our agility and efficiency and to better support our
increasingly digital business
ITV has good access to liquidity and its financial position
remains robust
-- Reported net debt of GBP545m at 31 December 2020 (31 December
2019: GBP893m), which is unusually low, benefitting from a
favourable working capital position, deferred VAT payments and is
before earnout payments which we anticipate paying in 2021
-- Reported net debt to adjusted EBITDA leverage of 0.9x (31
December 2019: 1.2x)
-- Strong cash conversion of 138% reflecting a favourable
working capital position from the reduction in stock and the
deferral of VAT payments. This will unwind in 2021 and so taking
2020 and 2021 together, profit to cash conversion is expected to be
80% to 85% over the two years
-- Total liquidity of GBP1,497m comprising cash of GBP668m and
committed undrawn facilities of GBP829m
-- The Board recognises the importance of the dividend to our
shareholders and intends to restore dividend payments as soon as
circumstances permit. The Board will balance shareholder returns
with our commitment to maintain investment grade metrics over the
medium term, to continue to invest behind the strategy and with the
ongoing uncertainty with COVID-19
Outlook:
-- The macro outlook remains uncertain but as of today we are
seeing an improvement in advertising market trends with TAR
expected to be up around 8% in March, and expected to be up between
60% and 75% in April, and the majority of programmes are now back
in production
-- We continue to monitor our performance very carefully and
control our cash and costs tightly
-- Our colleagues remain our overriding priority and we continue
to take steps to protect their health, safety and wellbeing
-- While we are managing and mitigating the impact of COVID-19,
we remain very focused on executing our More Than TV strategy,
accelerating our digital transformation and ensuring we emerge
stronger and more resilient
-- The creation of our Media and Entertainment business enables
us to better respond to changing viewing habits and ITV Studios is
well positioned to take advantage of the continued strong demand
for quality content internationally
Results webcast and Q&A:
ITV's results webcast is now available on www.itvplc.com in the
Reports Centre at
www.itvplc.com/investors/results-centre/reports-and-results-archive/2020.
In addition a live Q&A will be held for investors and analysts
at 9am today. The Q&A can be accessed via
itv.zoom.us/webinar/register/WN_tmK94RDVQgSpM2X0V8RpxQ and you are
now able to pre-register.
Notes to editors
1. Unless otherwise stated, all financial figures refer to the
12 months ended 31 December 2020, with the change compared to the
same period in 2019.
2. Group financial performance
2020 2019 Change Change
12 months to 31 December GBPm GBPm GBPm %
-------------------------- ----- ----- ------ -------
ITV Studios total revenue 1,370 1,822 (452) (25)
-------------------------- ----- ----- ------ -------
Total advertising revenue 1,577 1,768 (191) (11)
-------------------------- ----- ----- ------ -------
Broadcast non-advertising
revenue 313 295 18 6
-------------------------- ----- ----- ------ -------
Broadcast total revenue 1,890 2,063 (173) (8)
-------------------------- ----- ----- ------ -------
Total group revenue 3,260 3,885 (625) (16)
-------------------------- ----- ----- ------ -------
Internal supply (479) (577) 98 17
-------------------------- ----- ----- ------ -------
Group external revenue 2,781 3,308 (527) (16)
-------------------------- ----- ----- ------ -------
Total non-advertising
revenue 1,683 2,117 (434) (21)
-------------------------- ----- ----- ------ -------
Group adjusted EBITA 573 729 (156) (21)
-------------------------- ----- ----- ------ -------
Group adjusted EBITA
margin 21% 22%
-------------------------- ----- ----- ------ -------
Statutory EBITA 561 693 (132) (19)
-------------------------- ----- ----- ------ -------
Adjusted EPS 10.9p 13.9p (3.0)p (22)
-------------------------- ----- ----- ------ -------
Statutory EPS 7.1p 11.8p (4.7)p (40)
-------------------------- ----- ----- ------ -------
Dividend per share - 8.0p (8.0)p -
-------------------------- ----- ----- ------ -------
Reported net debt as
at 31 December* (545) (893) 348 39
-------------------------- ----- ----- ------ -------
* including IFRS 16 liabilities
3. Total advertising, which includes ITV Family NAR, online VOD
and sponsorship, is forecast to be down around 6% in Q1 with
January down 9%, February down 15% and March up around 8%. Early
indications are that total advertising revenue will be up between
60% and 75% in April, with the four months to the end of April up
between 5% and 7%. Figures for ITV plc are based on ITV estimates
and current forecasts.
4. Broadcast key performance indicators
Change
12 months to 31 December 2020 2019 %
---------------------------------- ------ ------ ------
ITV Total viewing (hrs) 16.6bn 16.3bn 1
---------------------------------- ------ ------ ------
ITV Family Share of Viewing (SOV) 22.2% 23.2% (4)
---------------------------------- ------ ------ ------
Long form online viewing (hrs) 482m 506m (5)
---------------------------------- ------ ------ ------
ITV Hub registered user accounts 32.6m 30.8m 6
---------------------------------- ------ ------ ------
-- ITV Total viewing is the total number of hours spent watching
ITV channels live, recorded broadcast channels within 28 days,
third party VOD platforms, ITV Hub on owned and operated ad funded
platforms and ITV Hub+.
-- SOV data based on BARB/AdvantEdge. SOV data is for
individuals and is based on 7 days (C7). ITV Family includes: ITV,
ITV2, ITV3, ITV4, ITV Encore, ITVBe, CITV, ITV Breakfast, CITV
Breakfast and associated "HD" and "+1" channels. All viewing on a
TV set, therefore includes catch up and Hub on television.
-- Long form online viewing is the total number of hours ITV VOD
content is viewed on owned and operated ad funded platforms, and
Hub+ viewing on owned and operated platforms, based on data from
Crocus.
-- A registered user account is an individual viewer who has
signed up to the ITV Hub using one email address. The individual
has to have been active within the last 3 years to remain a
registered user.
-- % change for performance indicators is calculated on unrounded numbers.
5. 2021 full year planning assumptions
The following planning assumptions for 2021 are based on our
current best view but may change depending on how events unfold
over the year.
Profit and Loss impact:
-- Total schedule costs are estimated to be around GBP1.1
billion
-- Total essential investment of around GBP25 million in 2021,
which includes GBP10 million as previously guided, the phasing of
2020 investments which fall into 2021 and GBP13 million of
additional investment to accelerate our strategy
-- Total BritBox UK venture losses are expected to be around the
same level as 2020 and will decline thereafter
-- Overhead cost savings are expected to be around GBP30 million
in 2021. We will deliver around GBP100m of annualised permanent
overhead cost savings by the end of 2022 (from 2019) compared to
our previous guidance of GBP55 million to GBP60 million over that
period
-- Adjusted interest is expected to be around GBP36 million,
which is in line with 2020
-- The adjusted effective tax rate is expected to be between 18%
and 19% in 2021 and 2022, and then move to around 25% over the
medium term
-- The translation impact of foreign exchange, assuming rates
remain at current levels, could have an adverse impact of around
GBP25 million on revenue and around GBP3 million on profit
-- Exceptional items are expected to be around GBP25 million,
mainly due to acquisition related expenses, restructuring and
reorganisation costs, and reducing our transponder capacity
Cash impact:
-- Tax will reflect the payment of GBP75 million of deferred VAT
from 2020
-- Total capex is expected to be around GBP75 million as we
further invest in our digital transformation
-- The cash cost of exceptionals are expected to be around
GBP190 million, largely relating to accrued earnouts which includes
the final earnout payment for Talpa
-- Profit to cash conversion is expected to be around 30% in
2021, as the favourable working capital position in 2020 unwinds.
Taking 2020 and 2021 together, cash conversion is expected to be
80% to 85% over the two year period in line with historic
levels
-- Total pension deficit funding contribution for 2021 is
expected to be around GBP75 million
6. This announcement contains certain statements that are or may
be forward looking statements. Words such as "targets", "expects",
"aim", "anticipate", "intend", or the negative of these terms and
other similar expressions of future performance or results, and
their negatives, are intended to identify such forward-looking
statements. These forward-looking statements are based upon current
expectations and assumptions regarding anticipated developments and
other factors affecting ITV. Although ITV believes that the
expectations reflected in these forward-looking statements are
reasonable, it can give no assurance that these expectations will
prove to have been correct. 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.
They are not historical facts, nor are they guarantees of future
performance; actual results may differ materially from those
expressed or implied by these forward-looking statements. 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) the general economic, business, political,
regulatory and social conditions in the key markets in which the
Group operates, including the duration and severity of COVID-19
impacts on ITV's colleagues, business, partners and customers, (ii)
a significant event impacting ITV's liquidity or ability to operate
and deliver effectively in any area of our business, (iii) a major
change in the UK advertising market or consumer demand, (iv)
significant change in regulation or legislation, (v) a significant
change in demand for global content, and iv) a material change in
the Group strategy to respond to these and other factors. Certain
of these factors are discussed in more detail elsewhere in this
announcement and in ITV's 2020 Annual Report including, without
limitation, in ITV's approach to risk management.
Forward-looking statements speak only as of the date they are
made and, except as required by applicable law or regulation, ITV
undertakes no obligation to update any forward-looking statements,
whether written or oral that may be made from time to time, whether
as a result of new information, future events or otherwise. Nothing
in this statement should be construed as a profit forecast.
7. The financial information set out above does not constitute
the Company's statutory accounts for the year ended 31 December
2020 but is derived from those accounts. Statutory accounts for
2019 have been delivered to the registrar of companies, and those
for 2020 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
For further enquiries please contact:
Investor Relations
Pippa Foulds +44 20 7157 6555 or +44 7778 031097
Faye Dipnarine +44 20 7157 6581
Media Relations
Paul Moore +44 7860 794444
Jenny Cummins +44 7595 106670
Chief Executive's Report
ITV took swift action from the very beginning of the pandemic
and worked with real determination to successfully manage and
mitigate the impact of COVID-19 while continuing to invest in our
future. Our overriding priority was the physical safety and mental
wellbeing of our colleagues, while they were working from home or
on furlough, or while they were producing programmes. (See Response
to COVID-19 section for further details)
ITV Studios has been very innovative and agile in restarting
productions and our commercial teams have worked closely with
advertisers to produce creative marketing solutions and attract new
advertisers to TV. Throughout the pandemic, ITV has been on air
informing and entertaining the nation.
Despite the disruption, and our focus on conserving cash, we
have protected our strategic investment and are making good
progress in executing our strategy. ITV Studios is continuing to
strengthen its creative pipeline and diversify its customer base;
we are implementing the Hub Acceleration plan which is delivering
improvements in the user experience and content; Planet V has been
successfully rolled out to the majority of major agencies, to a
very positive response; BritBox UK is ahead of its plan hitting
500,000 subscriptions in January 2021; and BritBox US increased its
subscriptions by 50% over the year.
We are well placed to continue to deliver our strategy despite
the current uncertainty. As a world class global production
business, ITV Studios is well positioned to take advantage of
strong growth in demand for quality content. The restructure of the
Broadcast business creating Media and Entertainment (M&E)
enables us to better respond to changing viewer habits and we will
continue to manage our costs tightly. We have identified further
permanent overhead cost savings across the business which will be
delivered in 2021 and 2022. These will more than fund additional
investment opportunities we have identified to further accelerate
the delivery of the strategy.
"Despite the disruption, and our focus on conserving cash, we
have protected our investment and are making good progress in
executing our strategy."
2020 Financial highlights
ITV's operational and financial performance in 2020, as
expected, was materially impacted by the COVID-19 pandemic.
Government imposed lockdowns and containment measures in the UK and
internationally caused us to stop productions for a period of time
and COVID-19 protocols have increased production costs as we have
returned to production. It has also resulted in a significant
decline in the demand for advertising.
Total external revenue was down 16%, with total advertising
revenue (TAR) down 11% in spite of online video on demand (VOD)
advertising revenue being up 17% in the year. ITV Studios revenue
was down 25%.
Adjusted EBITA declined 21% to GBP573 million, inspite of the
benefit of GBP116 million of cost savings. ITV Studios adjusted
EBITA declined by 43% and Broadcast adjusted EBITA declined by 9%.
The margins of both businesses have been significantly impacted by
the decline in revenue, ongoing fixed costs and our essential
investments to support the delivery of our strategic priorities.
Adjusted EPS declined 22% to 10.9p. Statutory EBITA was down 19% to
GBP561 million and statutory EPS decreased by 40% to 7.1p.
Despite the decline in profits, we were highly cash generative
in 2020, with profit to cash conversion of 138%. At 31 December
2020 our reported net debt (including IFRS 16 liabilities) was
GBP545 million (31 December 2019: GBP893 million) which benefited
from the deferred VAT payments and is before earnout payments that
we anticipate paying in 2021. Our reported net debt (including IFRS
16 liabilities) to adjusted EBITDA was 0.9x (31 December 2019:
1.2x).
We remain committed to investing in our key priorities and value
drivers to deliver organic growth in line with our strategy. We
will balance this investment with returns to shareholders, with our
commitment to maintain investment grade metrics over the medium
term and the ongoing uncertainty with COVID-19. The Board
recognises the importance of the dividend to our shareholders and
intends to restore dividend payments as soon as circumstances
permit.
ITV purpose
Our purpose and our culture defines ITV. Our purpose is to be
More than TV. We connect millions of people every day, make content
they can't get enough of and we reflect and shape the world we live
in... and we do all this through the power of creativity.
Our colleagues are always our priority - we are also focused on
all our stakeholders: our viewers, subscribers, customers and
partners; citizens; legislators and regulators; programme
participants and others we work with; and our shareholders and debt
investors.
The pandemic has amplified the enduring value of ITV as a Public
Service Broadcaster. We contribute to our culture and society,
creating shared national moments, highlighting difficult issues,
and running programmes and campaigns for mental and physical
wellbeing. We make programmes by us, for us and about us across the
whole of the UK, available for free to everyone. We contribute to
the health of democracy, providing trusted, impartial and high
quality local and national news. And we play an important part in
economic growth, investing in regional creative economies and the
independent production sector.
Our strategic vision
In 2020 we undertook a review of our strategy in light of the
challenges created by COVID-19. The conclusion was that COVID-19
was accelerating some of the trends already identified. For
example, increasing viewership of streaming, and increased demand
for content. This has meant the key change in the strategy is in
the pace of execution particularly in transforming the business
digitally, in order to be able to continue to manage the challenges
and take advantage of opportunities.
Our goal is to be a digitally led media and entertainment
company that creates and brings our brilliant content to audiences
wherever, whenever and however they choose.
Our strategy will continue to evolve but we remain focused on
three priorities:
-- Growing our UK and global production business
-- Transforming our Broadcast business, now called Media and
Entertainment, and
-- Expanding and strengthening our now established Direct to
Consumer (DTC) relationships
These are supported by embedding data, analytics and tech across
the business; ensuring we own and manage rights efficiently;
continuing to build upon our strong partnerships in the UK and
internationally; and delivering our social purpose strategy.
Being an integrated producer broadcaster gives us a competitive
advantage. It provides Studios with a bedrock of core commissions
and a formidable promotional engine for its content; it enables
cross promotion and 360 degree monetisation of Studios content
across our business models; secures access to great content for
ITV's channels, advertiser funded video on demand (AVOD) and SVOD
businesses; and all this helps attract and retain the best creative
talent in the industry.
We are making strong progress in delivering our strategy and we
continue to focus on the speed of delivery in each of the four
pillars of the business that drive value.
Firstly, ITV Studios is a world class international production
company. It is the largest commercial producer in the UK, one of
the largest producers in the Europe and one of the largest
unscripted producers in the US. Therefore, it is in a strong
position to benefit from the growing demand for quality content
internationally. We expect the global content market to continue to
grow 3 to 5% per annum - predominantly driven by OTT platforms.
Secondly, our linear channels. They have a unique ability to
drive live mass audiences which continue to be an important part of
marketing campaigns and TV remains the media delivering the highest
return on advertising investment.
Thirdly, in the rapidly growing AVOD market, the ITV Hub is
capturing the shift to online viewing and strong demand for online
advertising. The rollout of Planet V provides advertisers with
targeted advertising in a brand safe environment.
And finally, DTC. BritBox UK enables ITV to monetise our Best of
British content in the UK in collaboration with other PSBs. And
internationally with the BBC we are able to take advantage of high
growth markets for British content. We now have over 2.6 million
SVOD subscriptions globally across our services. In addition, we
are able to drive revenues from our IP ownership and ITV Win, as
consumers are increasingly willing to pay to engage with a trusted
brand and its content.
Social purpose is an integral part of delivering our
strategy
It is increasingly clear that companies with a strong and clear
purpose drive increased value. Our ESG strategy is an integral part
of delivering our purpose and our business goals. ITV does much
more than entertain - it makes a difference to British culture in a
way that global competitors can not.
We have a unique ability to drive meaningful change, raising
awareness and inspiring positive change through the massive reach
of our platforms. Our social purpose strategy is built around four
areas: Better Health, Diversity & Inclusion, Climate Action and
Giving Back. 2020 highlights include:
Better Health: physical and mental health
-- Our healthy eating campaign, Eat Them to Defeat Them,
encourages children to eat vegetables; we have supported the Daily
Mile since 2019; and we have been working with Public Health
England and the government on encouraging healthy behaviours during
the pandemic
-- We relaunched our mental health campaign Britain Get Talking
during the COVID-19 pandemic, encouraging people to stay connected;
6.4 million people started a conversation as a result
Diversity & Inclusion:
-- Our focus for 2020 was particularly on improving
opportunities for people from Black, Asian and Minority Ethnic
backgrounds and to increase representation for those with a
disability, where our target has increased by 50%
-- We have appointed a Group Diversity Director and launched our
Diversity Acceleration Plan across ITV on and off screen. This sets
out steps ITV will take to deliver measurable change. We will
report on progress annually.
Climate Action:
-- We have set an ambitious target to be net zero carbon
emissions by 2030. We will do this is by reducing the emissions we
control by 46% and reducing emissions we influence, such as
business travel and the products and services we use, by 28%. In
addition we are one of the founding signatories of the Media
Climate Pact and among the first to join The Climate Pledge and Ad
Net Zero. We are working with our commercial partners to help them
deliver their environmental strategies and we have increasingly
used our programmes to raise awareness, inform and inspire
sustainable habits.
Giving Back:
-- During the pandemic we have helped raise over GBP3.6 million
for NHS Charities Together and raised GBP9.3 million for UNICEF on
Soccer Aid 2020. And we continue to encourage our colleagues to use
their three paid days a year for volunteering and have put in place
online volunteering opportunities.
Strategic progress in 2020
We have made good progress in delivering our strategic
priorities in 2020 but as expected our performance has been
significantly impacted by COVID-19.
Growing UK and Global Productions
We paused our productions systematically in March to enable them
to resume quickly and to minimise the costs of disruption. With the
innovation and dedication of the ITV Studios team we continued to
produce our daytime schedule and News and started to resume
productions from the summer. ITV worked closely with the UK
government and the industry to develop a set of protocols to
minimise health and safety risks during production. There remain
operational challenges with producing content particularly large
entertainment programmes and multi-location dramas. However we are
working hard on overcoming these and have delivered large scale
entertainment programmes such as Love Island in the US, I'm A
Celebrity in the UK and dramas such as The Bay in the UK and Paris
Police 1900 in France. The majority of programmes are now back in
production.
We have further strengthened our talent, which remains
absolutely key to building a successful Studios business. Most
recently, Nicola Shindler, the multi-award winning producer has
launched a scripted label within ITV Studios UK, and we have
increased our shareholding in Danish Producer, Apple Tree
Productions, to a controlling interest.
Despite the pandemic, we have maintained our development budget
and focused on further building the creative pipeline. We continue
to build our portfolio of scripted programmes which we have
targeted as an area of growth. We saw real success in the US with
Snowpiercer for TNT which has been recommissioned for a third
series; Good Witch for Hallmark has been renewed for a seventh
season; The Pembrokeshire Murders for ITV which launched with 12.5
million viewers; and The Serpent on BBC which has had 31 million
streams on the iPlayer. In Europe we are continuing to produce for
OTT platforms and local broadcasters with programmes such as
Suburra and Balthazar.
In 2020, we reorganised our international distribution and
commercial business to strengthen our position as a creator,
producer and distributor of world-leading formats. We have a
portfolio of world-class brands which we continue to strengthen and
protect. Love Island has now been sold in 20 countries, up from 13
in 2019. The Chase formats continue to travel internationally, most
recently commissioned in the US by ABC and is now in 16 countries.
We have a number of new formats that have been developed, including
Rat In The Kitchen and Let Love Rule.
We have further diversified our customer base as we have
strengthened our relationships with OTT platforms, particularly in
the US, where we have development projects with all the main OTT
platforms for scripted and unscripted content. We produced a number
of programmes for them in 2020, including the fifth season of Queer
Eye, The Big Flower Fight, and Suburra for Netflix, Love Island
France for Amazon and Becoming for Disney+. We have also sold
international rights to a number of significant dramas, including
Snowpiercer and The Serpent. Since 2017 we have tripled our
distribution revenues from OTT platforms.
Transforming Broadcast (Media and Entertainment)
Our priority at the start of the pandemic was to keep ITV on air
and the ITV Hub and BritBox fully operational. While our schedule
was impacted by production stoppages we continued to broadcast 10
hours of live Daytime and News programming each weekday. This
played a key part in providing viewers with accurate and
trustworthy information, and a broad schedule of entertainment and
drama to provide an escape from it. Total ITV viewing was up during
the year, although our online viewing was down, impacted by no
summer Love Island, fewer episodes of the soaps and no major
sporting event. Excluding the impact of Love Island and the soaps,
online viewing was up over 5%.
While the viewing landscape changed during the pandemic, with
people streaming more content than ever before, ITV's extensive
offering of linear television channels, the ITV Hub and BritBox,
gave viewers the choice in how, where and when they consume
content, while continuing to provide advertisers with mass
simultaneous reach, alongside a more targeted advertising
proposition.
We have restructured Broadcast to create the Media and
Entertainment division, with two business units - Broadcast and
On-Demand. Broadcast is focused on delivering live mass audiences
and On-Demand is focused on driving digital viewing through our
digital products - both advertiser funded on ITV Hub, ITV2, ITVBe
and CITV, and DTC through SVOD, as well as our interactive
business. This new structure will enable us to: better serve
changing viewer habits; be more agile and flexible; drive mass
audiences and digital viewing; ensure we have the appropriate
allocation of resources between broadcast and AVOD; further develop
our digital capabilities; and streamline the ways we are working to
improve productivity and reduce cost.
ITV is the home of mass quality reach which is recognised by the
industry. As viewing and advertising becomes more fragmented, the
scale and reach of advertising that television, and particularly
ITV, delivers becomes increasingly valuable. We provide a safe,
trusted, measured and transparent environment in which to
advertise. In 2020 we delivered 94% of all commercial audiences
over 5 million.
Advertising demand has been significantly impacted by the
crisis, but our Commercial team continues to deepen its
relationship with our advertisers and agencies to create innovative
and relevant marketing opportunities which started before COVID-19.
We use the breadth of our experience, creativity and our unique
platform, to bring new campaigns and brands to television.
Throughout the COVID-19 pandemic we provided frequent webinars and
teach-ins to over 3,000 customers; marketing support and digital
content; consumer insight to help advertisers stay close to their
customers; and made booking with ITV more flexible.
We have created a number of specific initiatives to help
advertisers, which include ITV AdVentures for digitally native
brands; ITV Backing Business, our B to B initiative, supporting
businesses; and ITV Home Planet - an initiative for sustainable
brands to tell their environmental stories and encourage viewers to
reduce their carbon footprint.
We have further improved the ITV Hub, which now has 33 million
registered users, up 6% year-on-year, as we deliver the Hub
acceleration plan. Our investment has been focused on redesigning
the interface to improve the overall user experience; further
personalisation; increased distribution; and strengthening the
content available, including the extended catch-up window, full
series drops and short form.
We are continuing to successfully roll out Planet V to the
majority of large agencies, to a very positive response. With our
tech partnership with InfoSum, advertisers are also able to add
their own first party data to campaigns in a secure and compliant
way. And we have confirmed that Samsung TV Plus will be our first
third party publisher partner.
Expanding Direct to Consumer
Our DTC business has seen a positive uplift from COVID-19. We
have delivered good growth in our interactive revenue as we have
improved the ITV Win platform and extended our competitions. We
have however had to temporarily close all our live events and
tours.
We have also seen strong growth in our SVOD products. BritBox UK
is ahead of plan hitting 500,000 subscriptions in January 2021 and
conversion and churn rates are tracking in line with our
expectations. We have strengthened its content with the successful
launch of the first original 'Spitting Image' and Film4 content and
extended its distribution, with the roll out of the EE/BT deal. The
service is now available on around 20 million devices and its brand
awareness is over 90%. This presents a real opportunity for us to
grow our subscriber base as we further improve our content
offering.
Subscriptions for BritBox US have continued to grow strongly, up
50% in the year and the service is profitable. We successfully
launched BritBox in Australia in Q4. Hub+ continues to perform well
with around 410,000 subscriptions.
Priorities for 2021 and beyond
We have clear priorities for this year and beyond as we continue
to execute our strategy.
In Studios, key in the short term is to continue to produce
safely and at scale. At the same time we are focused on further
building and monetising our strong pipeline of programmes
internationally; growing scripted; creating global formats that
travel and return; and diversifying our customer base as we create
more programmes for streaming platforms. In 2021 we expect to
double our revenues from OTT platforms. We will continue to look at
opportunities to further grow our creative talent.
We expect ITV Studios to perform well in 2021 but it will
continue to be impacted by national lockdowns, social distancing
and other COVID-19 measures.
Across M&E we need to achieve the right balance between
delivering mass live audiences and growing our digital viewers.
Therefore we will be testing and trialling our content windowing
strategy and the appropriate allocation of the programme budget
between our linear channels and AVOD. We have a strong schedule
lined up for 2021 including the Euros, Finding Alice, The Bay,
Unforgotten, The Masked Singer, Saturday Night Takeaway, and Love
Island. Some of these programmes have already aired and performed
very well driving mass audiences and light viewers.
We are continuing to deepen our strategic and creative
relationships with advertisers and are also exploring linear
addressable opportunities.
In addition, we are launching a Media for Equity fund, where we
will take minority stakes within early stage digital and
direct-to-consumer businesses, in return for advertising inventory.
The scheme will serve as an innovative opportunity for
entrepreneurial companies to accelerate their growth and establish
their brands by accessing ITV's unique reach and scale.
To drive On-Demand viewing and increase engagement with light
viewers, we will further strengthen the Hub to make it a
destination and not just a catch up service; focusing on its
continuous redesign; leveraging our data capabilities; and
trialling a new content strategy to further strengthen it with more
originals and exclusive programming.
We will also continue to roll out Planet V in self-serve and
build further third party partnerships.
In DTC we are further growing BritBox UK - strengthening the
content offering and exploring opportunities to expand its
distribution, with the confirmed launch on Amazon in 2021. We have
an exciting slate of originals in 2021, which include The Beast
Must Die and The Secrets of the Krays in H1.
We are working through the planning for a phased roll out of
BritBox internationally, with South Africa due to launch in 2021
and more markets following thereafter.
Digital transformation
Digital transformation is key to unlocking success in many areas
of our strategy and therefore to accelerate our strategy we need to
fast forward our digital transformation.
This is not only the digital transformation of our products to
respond to changing viewing habits, including the Hub, Planet V,
SVOD, but also how we work. Transforming our internal systems,
processes and behaviours to support a digital business, be more
agile and efficient and ensure our colleagues have the digital
tools to drive the most effective ways of working. Our culture is
key - having the right mindset and capabilities will enable us to
achieve this more quickly.
We are transforming our core systems, digitising end to end
processes more widely and adopting digital ways of working. We are
making good progress with new systems and processes in place, such
as Talent Pay and FreeCon; Smart Working, an initiative started
before COVID-19 has been accelerated with good results.
Investments and cost savings
Throughout the pandemic we have continued to invest behind our
strategic initiatives in the ITV Hub, Planet V, BritBox, data and
technology.
In 2018, we set out our GBP60 million essential investment plan
over three years to 2021, which is on track with cumulative
investments to date of GBP48 million. In 2021, in addition to the
original planned investments of GBP12 million, we have highlighted
a further GBP13 million of investments to accelerate the delivery
of our strategy, which will be funded by further cost savings.
In 2020, we delivered GBP116 million of cost savings, well ahead
of our planned GBP60 million for the year. Of this, GBP21 million
were permanent as we have challenged the cost base line by line and
in particular relate to contract renegotiation and headcount
savings from reorganisational changes. The temporary savings were
in relation to steps taken to mitigate the impact of COVID-19
including: a reduction in executive and non-executive director pay
of 20%; a suspension of performance-related cash bonuses; the
furlough of colleagues during the height of the pandemic; and the
natural decrease in non-essential spend, such as travel and
entertainment.
We are now targeting GBP100 million of annualised permanent
overhead cost savings by 2022 (from 2019), compared to our previous
target of GBP55 million to GBP60 million over that period. We
expect to deliver around GBP30 million of these savings in 2021
with savings coming from our new operating model, the increased use
of technology and data, digitising end to end processes and
increased smart working.
The venture loss of BritBox UK was GBP59 million in line with
our guidance of GBP55 million to GBP60 million.
Colleagues
Our colleagues are key to the success of ITV and delivering our
strategy. I am incredibly proud of the way our colleagues have
responded to the crisis and worked with such determination and a
real sense of purpose.
We want ITV to have an inclusive culture, where everybody can
perform at their best, realise their full potential and thrive. The
ITV Way provides all our colleagues with the guiding principles of
how we like to work in order to achieve this and to deliver our
strategy. We have five active colleague networks and in 2020 we
launched the Diversity Acceleration Plan to increase the pace of
progress in this area.
Regulation
In late 2020, Ofcom published its review of public service
broadcasting, ahead of making recommendations to government by the
summer as to how the system might be maintained and strengthened.
It has concluded that there is now an urgent need for a new
framework to support an effective transition to public service
media (PSM), straddling online and broadcast TV. We are fully
engaged with Ofcom and government as part of this process,
particularly in relation to the need for reform of the rules
governing prominence, inclusion and fair value for PSB on all major
platforms.
In 2020, the government announced it would introduce a 9pm
watershed ban on TV advertising of High Fat Salt and Sugar (HFSS)
products and similar protection for children viewing adverts
online. It also announced it would bring in equivalent restrictions
for online advertising, in parallel, by the end of 2022. Whilst we
remain fully engaged with this process - and continue to believe
that there is a strong, evidence-based case for alternatives to the
pre 9pm ban - we nonetheless face significant loss in relation to
HFSS advertising revenue. The government has also issued a call for
evidence in relation to gambling, ahead of the launch of a full
review of the Gambling Act 2005, expected later this year. The call
for evidence was very broad encompassing the industry as a whole,
though advertising may well be part of the review.
Outlook
We have taken difficult decisions to deal with the crisis, but
they have enabled us to continue to invest in and successfully
execute our strategy. There is much we have learnt in the crisis
including how to work very effectively remotely - from presenting
news to remote editing - and we will continue to learn and iterate
as we digitally transform the business. Certain parts of our
business such as DTC have seen a positive uplift from COVID-19
which we will further build upon.
We are encouraged by the roadmap out of lockdown and are seeing
more positive trends. The majority of ITV Studios programmes in the
UK and internationally are back in production, although with the
prevalence of the virus there may be some further disruption. The
lockdown in Q1 has impacted the demand for advertising, with TAR
expected to be down around 6% in Q1. However, March is expected to
be up around 8% and April is expected to be up between 60% and 75%,
with January to April up between 5% and 7%. This assumes there is
no change in the current planned restrictions.
We monitor our performance very carefully and the risks
associated with COVID-19 and are very focused on tightly managing
our costs and cash.
Delivering the More than TV strategy puts ITV in a good position
to respond to changing viewing habits and to take advantage of the
continued strong demand for quality content internationally. We
have strong foundations across our four pillars of the business and
are clear about what we need to do to ensure we emerge as an even
more resilient, digital and future facing media and entertainment
business.
Carolyn McCall
Chief Executive
Response to COVID-19
We address the impacts posed by the pandemic through our
COVID-19 response governance structure, coordinated by a crisis
project management office reporting to the Management Board. This
addresses the unprecedented challenges, operational uncertainty and
risks created by the pandemic. Reporting to the crisis project
management office, we have working parties focused on the
significant areas of concern. The health and safety of our
colleagues and individuals involved in our productions is our
overriding priority.
COVID-19 governance structure
This structure and approach remains in place today as we
continue to address the challenges created by the pandemic.
The Board: Oversight and regular updates (weekly in the height
of the crisis)
Management Board: Oversight and weekly updates (daily at height
of crisis)
Crisis PMO & Strategy: Co-ordinating response across the
business and reporting to the Management Board
Working groups focused on the following areas:
Situation analysis
Regular conversations with government and external advisers to
understand how the crisis is playing out medically, politically and
economically.
Cash and Costs
Modelling our financial position across a range of scenarios
(informed by situational analysis), developing costs mitigation and
cash management.
Revenue
Developing and implementing plans to continue identifying
opportunities and mitigate against negative sales impacts.
Tech and Ops
Invoking existing business continuity plans to ensure critical
operations can continue through the crisis.
People and Comms
Putting in place processes and responses that protect our people
and support the wider community.
The severity of COVID-19 and the ongoing uncertainty it posed
meant that we needed to take a series of measures to increase our
resilience, manage the business for the long term and protect the
interest of all our stakeholders. These included:
Situational analysis
As the situation with COVID-19 evolved we have continued to keep
an open dialogue with the Government and Department for Digital,
Culture, Media and Sport to understand the risks associated with
the crisis and also put forward our views on measures which could
support the industry. This has included successful engagement on
issues, such as financial support for the freelancer population,
work restriction exemptions for key production and operational
staff and production pandemic insurance.
We constantly review the medical situation to understand further
measures we can introduce to keep our colleagues safe. We have
engaged medical advisers to support us in developing these
measures.
Cash and Costs
In response to the uncertainty and challenges to our revenue
streams presented by COVID-19, ITV took swift action to preserve
cash, reduce costs and manage working capital in the business.
These actions included:
-- Reducing Executive Directors and Management Board salaries
along with the fees of the Board from April to the end of
October
-- Recruitment and pay freezes across the business, except in
the case of critical roles
-- Cancelling the 2020 bonus for the entire Company
-- Furloughing colleagues as appropriate
-- Restricting non-essential travel and other expenses
-- A commitment to reduce the Broadcast programme budget by at
least GBP100 million
-- Agreements with ITV pension trustees and tax authorities to
delay at least GBP150 million of payments out of the first half of
2020 and into the second half of 2020 and 2021
-- Withdrawal of the 2019 final dividend and the intention to
pay 8p for the full year 2020 was withdrawn
We will continue to track our financial performance against a
range of scenarios and internal and external analysis.
Revenue
See section on 'Strategic progress in 2020' for details on
actions taken to mitigate against the impact of the pandemic and
identify opportunities.
Technology and Operations
By rapidly flexing to home working in early March, our critical
technology and operations have remained uninterrupted. Our
Technology team has worked closely with the business to ensure all
colleagues have access to the necessary technology and support to
allow them to continue performing their roles as normal.
People and Communications
Protecting the health, safety and wellbeing of our colleagues
and individuals involved in our productions continues to be our
overriding priority.
The majority of our colleagues continue to work from home,
benefiting from the investment we have made in technology and
systems. Those colleagues who are working on site - in our offices,
our studios and on location are protected by robust safety
protocols. We currently have no staff who are on furlough.
To enable our colleagues to remain feeling connected to and
engaged with the wider business, purpose and aims, we have held
fortnightly CEO led vodcasts (weekly for 12 weeks in the height of
the crisis) covering a range of topics and involving management
from across the business. We have leveraged our existing tools to
further support the mental wellbeing of our colleagues during this
time, and also launched new ones, such as Big White Wall, a mental
health peer-to-peer platform accessible to all staff. We regularly
review our support programmes with colleagues to ensure we are
providing practical, useful and easily accessible support.
See our 'Social Purpose' section which will be available on our
2020 Annual Report, for the actions we undertook to support our
communities.
Key Performance Indicators (KPIs)
We define our KPIs to align our performance and accountability
to our strategic priorities. As we continue to evolve our strategy,
our KPIs may be redefined to ensure they remain appropriate to our
business and our priorities. In 2018, we set targets or strategic
ambitions for our KPIs for three years to 2021 (where appropriate
to do so).
In 2020, the performance of all our KPIs and the delivery of
corresponding targets has been impacted by the COVID-19 pandemic.
Further detail is included in the following tables and within our
Operating and Performance Review.
ITV Group
Adjusted EPS(1)
De nition
Adjusted EPS represents the adjusted profit for the year
attributable to equity shareholders. Adjusted profit is defined as
profit for the year attributable to equity shareholders after
adding back exceptional items and including high-end production tax
credits. Further adjustments include amortisation and impairment of
assets acquired through business combinations, net financing costs
and the tax effects relating to these items. It reflects the
business performance of the Group in a consistent manner and in
line with how the business is managed and measured on a day-to-day
basis.
Performance
Adjusted EPS decreased by 22% from 13.9p to 10.9p. This was
predominantly due to the decline in total advertising revenue
(TAR), and Studios revenues and margin as a result of the impact of
COVID-19.
2020 10.9p
22% decline in 2020
Total non-advertising revenues
De nition
Total non-advertising revenue is total ITV revenue (including
internal revenue) excluding advertising revenue (being net
advertising revenue (NAR), VOD and sponsorship). This is an
important measure as we continue to rebalance the business away
from our reliance on advertising.
Performance
Non-advertising revenue decreased by 21% in 2020 to GBP1,683
million, driven almost entirely by the decline in ITV Studios total
revenue by 25% to GBP1,370 million due to productions pausing in
March as a result of the pandemic. Offsetting this were increases
in Direct to Consumer revenue of 4% to GBP87 million, SDN revenue
of 6% to GBP73 million, and other Broadcast revenue (which includes
BritBox UK) of 8% to GBP153 million.
2020 GBP1,683m
21% decline in 2020
Target
3 years to 2021
Grow by at least 5% CAGR
Cost savings
De nition
Cost savings are permanent savings to the business. In 2020,
this also includes temporary savings as a result of the COVID-19
pandemic. Managing our cost base is key as we aim to run our
business as efficiently as possible and fund investments in line
with our strategic priorities.
Performance
We delivered GBP116 million of cost savings in 2020 which was
ahead of the target of GBP60 million for the year. Of the cost
savings achieved GBP21 million are permanent and GBP95 million are
temporary savings.
Since 2019, we have delivered a cumulative GBP46 million of
permanent cost savings. In 2021, we will deliver around GBP30
million of permanent cost savings, with total cumulative cost
savings of around GBP100 million by 2022. This is GBP40 million -
GBP45 million more than our original guidance of GBP55 million to
GBP60 million over this period.
Target
4 years to 2022
Deliver GBP55-GBP60 million run-rate of savings by 2022
Profit to cash conversion(1)
De nition
This is our measure of our effectiveness of cash generation used
for working capital management. It is calculated as our adjusted
cash flow as a proportion of adjusted EBITA (see definition within
Studios adjusted EBITA margin). Adjusted cash flow, which reflects
the cash generation of our underlying business, is calculated on
our statutory cash generated from operations and adjusted for
exceptional items, net of capex on property, plant and equipment
and intangible assets, and including the cash impact of high-end
production tax credits.
Performance
Profit to cash conversion was 138% in the year, driven by a
large working capital inflow arising from a reduction in programme
stock (where we delivered programmes but were unable to continue
producing) and the timing of VAT payments which have been deferred.
This is expected to unwind in 2021.
2020 138%
Target
3 years to 2021
Maintain at around 85%
1. A full reconciliation between our adjusted and statutory
results is provided in the Alternative Performance Measures
section.
Grow
UK and global production
Total Studios revenue growth
De nition
Total Studios revenue measures the scale and success of our
global studios business. It includes revenues from programmes sold
to ITV Broadcast (M&E), which as an integrated producer
broadcaster, is an important part of our business.
Performance
ITV Studios total revenue declined by 25% to GBP1,370 million.
This was impacted by the pause in global productions due to the
COVID-19 pandemic which caused a significant delay in the delivery
of productions. The subsequent social distancing and health and
safety protocols that have had to be implemented, have caused
further delays to productions, particularly scripted.
Total organic revenue at constant currency (which excludes 2019
acquisitions and assumes exchange rates remain consistent with
2019) was also down 25%. There was a GBP3 million unfavourable
currency impact in the year.
2020 GBP1,370m
25% decline in 2020
Target
3 years to 2021
Grow by at least 5% average CAGR
Studios adjusted EBITA margin(2)
De nition
This is the key profitability measure used across the Studios
business. The profile of adjusted EBITA margin differs for
production and distribution activities, and further varies with
each production due to genre and maturity. Adjusted earnings before
interest, tax and amortisation (EBITA) is calculated by adding back
exceptional items and including high-end production tax credits. It
reflects the underlying performance of the business and provides a
more meaningful comparison of how the business is managed and
measured on a day-to-day basis. The margin is calculated based on
total ITV Studios revenue.
Performance
ITV Studios adjusted EBITA margin was 11% (2019: 15%), impacted
by the lost revenue, ongoing fixed costs within the business, and
incremental costs associated with social distancing guidelines and
health and safety protocols in productions.
2020 11%
4% point decline in 2020
Target
3 years to 2021
Maintain at 14% to 16%
2. A full reconciliation between our adjusted and statutory
results is provided in the Alternative Performance Measures
section.
Total production hours
De nition
Total hours of programming produced is an important measure of
the scale and success of our global studios business. It measures
the number of hours produced across all genres and geographies for
ITV and other broadcasters and platform owners.
Performance
The number of hours of content produced by ITV Studios declined
by 15% to 7,120 hours. This was driven by the pause in global
productions and the subsequent delay in deliveries.
2020 7,120 hrs
15% decline in 2020
Target
3 years to 2021
Grow to 10,000
Transform
Broadcast (M&E)
Total advertising revenue
De nition
Total advertising revenue measures all our advertising revenues
and includes ITV Family NAR, VOD, sponsorship and other advertising
revenues.
Performance
Total advertising revenue declined by 11% to GBP1,577 million.
There was strong growth in online revenues, up 17%, but this was
more than offset by a decline in NAR, sponsorship and creative
partnerships revenues, all of which were impacted by the
pandemic.
2020 GBP1,577m
11% decline in 2020
Strategic ambition
To grow total advertising in a flat NAR market
Online revenue growth
De nition
Online revenues are advertising revenues from VOD via the ITV
Hub. With the investment in the ITV Hub and the significant growth
of viewing on the ITV Hub these are now a material part of our
advertising revenues and an important measure of our success.
Performance
Online revenue continued to grow strongly, up 17% in the year,
despite the uncertainty caused by the COVID-19 pandemic.
2020 17%
Target
3 years to 2021
Double digit growth per annum
Total ITV viewing(1)
De nition
Total ITV viewing is the total number of hours spent watching
ITV channels live and recorded within 28 days, third-party VOD
platforms, ITV Hub on owned and operated and ad-funded platforms,
ITV Hub+, and managed YouTube channels.
Performance
Total ITV viewing grew by 1% to 16.6 billion hours with more
viewing across our live linear channels. This was driven by our
good schedule and also benefited from lockdown restrictions in the
UK. Total broadcast viewing (broadcast channels including TV VOD)
was up 6% with growth on: the BBC (for news and daily government
briefings); Channel 4 (for The Great British Bake Off and
Gogglebox); and Sky (for box sets and football). Including
unmatched viewing (SVOD, YouTube, games consoles), total TV set
viewing was up 15%, driven by growth to SVOD platforms.
External source: BARB/Advantage, Crocus and third-party
platforms
2020 16.6bn hrs
1% increase in 2020
Strategic ambition
To maintain total viewing(1)
1. Maintain total viewing compared to the 2015 - 2018 average of 16.8 billion hours.
ITV Family share of viewing (SOV)
De nition
Keeping our free-to-air proposition strong with unrivalled
commercial audiences, is vital for the Broadcast business, and ITV
Family SOV helps measure this. ITV Family SOV is the total viewing
audience over the year achieved by ITV's family of channels as a
proportion of total television viewing, including the BBC
Family.
Performance
ITV Family SOV declined 4% to 22.2% in 2020. Within this, ITV
main channel was down 1% to 16.7%, which is the third biggest SOV
in a decade. ITV's other channels were down 13% to 5.5% which was
driven predominantly by ITV2 due to no summer Love Island and a
lower volume of the soaps/new content. While our daytime linear
viewing was strong in 2020, our share of peak hours was impacted by
the increased news output on the BBC, fewer episodes of the soaps
and a lower volume of new content.
External source: BARB/AdvantEdge
2020 22.2%
Strategic ambition
Above 21%
Online viewing
De nition
Online viewing is an important indicator of our online success
as it measures how long viewers are spending online watching
long-form content(2) . It is calculated as the total number of
hours ITV VOD content is viewed on owned and operated ad-funded
platforms and ITV Hub+ viewing.
Performance
The ITV Hub and ITV Hub+, is the online home for our family of
channels and content. While viewing on the ITV Hub has grown
rapidly in prior years, online viewing in 2020 declined by 5% to
482 million hours. This was significantly impacted by no summer
Love Island, less episodes of the soaps, no major sporting event
and a lower volume of new content in the year. We expect an
increase in online viewing in 2021.
External source: Crocus
2020 482m hrs
5% decline in 2020
Target
3 years to 2021
Double digit growth per annum
2. Long-form is content which is more than ten minutes in length.
ITV Hub registered user accounts
De nition
A registered user is an individual viewer who has signed up to
the ITV Hub and have been active in the last three years. The size
of our viewer online reach is key for our advertising
proposition.
The target of 30 million registered user accounts was achieved
in 2019.
Performance
The ITV Hub grew the number of registered user accounts by 6% to
32.6 million in 2020. This growth continues to be driven by our
high-quality content and good user experience, which has been
supported and enhanced by a process of continued improvement and
investment in the year.
The ITV Hub helps ITV reach valuable light viewers and younger
audiences, who are increasingly using the ITV Hub for simulcast as
well as catch-up. Simulcast viewing hours were up 13%
year-on-year.
2020 32.6m
6% growth in 2020
Target
3 years to 2021
Increase to 30 million
Brand consideration
De nition
UK public perception of the ITV brand as measured by YouGov. Our
brand perception is very important as we look to attract light
viewers to ITV and build a Direct to Consumer business.
Performance
Brand consideration in 2020 was 50%, down three percentage
points on 2019. This was driven by the absence of key content in
the schedule which would normally have a positive impact (sport,
dramas, key entertainment), along with strong competition from the
SVOD platforms who significantly benefited from marketing during
the pandemic. All PSBs saw a decline in their brand consideration
during 2020. ITV's brand consideration for light viewers declined
by two percentage points.
External source: YouGov
2020 49.6%
3% pts decline in 2020
Target
3 years to 2021
Increase to 60% for all adults
Expand
Direct to Consumer
Direct to Consumer revenue
De nition
Direct to Consumer revenue is a key measure of the success of
our strategy. It measures revenue generated directly from
relationships with a customer through the purchase of goods and
services, and entry into competitions. This excludes BritBox
revenues.
Performance
Direct to Consumer revenue grew 4% to GBP87 million in 2020.
Growth was predominantly driven by an increase in competitions
revenue which benefited from strong daytime viewing during the
year. Offsetting this was the absence of pay per view boxing
matches in the year, and the closure of the majority of our live
events from March 2020 in line with government restrictions, which
adversely impacted this revenue stream.
2020 GBP87m
4% growth in 2020
Target
3 years to 2021
Grow to at least GBP100 million
Paying product relationships
De nition
We aim to grow ITV's Direct to Consumer revenues through
increasing the number of people who pay for an ITV product as well
as increasing spend per customer. This KPI measures the total
number of paying relationships we have with consumers.
Performance
Paying product relationships declined by 7% to 7.8 million in
2020. The excludes relationships from BritBox.
The decline in the year was largely due to the absence of pay
per view boxing matches, and a reduction in the average number of
Hub+ subscriptions and lower live event attendees, both of which
were impacted by travel restrictions, nationwide lockdowns in the
UK, and for ITV Hub+ in particular, no summer Love Island, less
requirement for downloading for EU portability, and a lower volume
of new content in the year.
2020 7.8m
7% decline in 2020
Target
3 years to 2021
Grow to 10 million
Operating and Performance Review
ITV's operational and financial performance in 2020 was
materially impacted by the COVID-19 pandemic, which caused the
majority of productions to pause and a significant decline in
advertising demand. Despite this, ITV continued to make good
progress in executing its strategy, building a digitally led media
and entertainment company.
Key nancial highlights
See Alternative Performance Measures for a full reconciliation
between our statutory and adjusted results.
Group external revenue
GBP2,781m
-16% (2019: GBP3,308m)
Total advertising revenue
GBP1,577m
-11% (2019: GBP1,768m)
Total non-advertising revenue
GBP1,683m
-21% (2019: GBP2,117m)
Adjusted EBITA
GBP573m
-21% (2019: GBP729m)
Adjusted EPS
10.9p
-22% (2019: 13.9p)
Statutory EPS
7.1p
-40% (2019: 11.8p)
Reported net debt
GBP545m (2019: GBP893m)
ITV's operational and financial performance in 2020 was
materially impacted by the COVID-19 pandemic, with government
imposed lockdowns and containment measures in the UK and
internationally negatively impacting productions and causing a
significant decline in the demand for advertising. Despite the
disruption and challenges created, we worked with purpose and
determination to successfully manage our way through the crisis
while investing in our future. The significant value of being an
integrated producer broadcaster was evident during 2020 and enabled
us to continue investing in and delivering our key strategic
priorities. Within ITV Studios, we further invested in creative
talent and our content pipeline, and across the business focused on
digitally transforming the business externally and internally.
We have restructured the Broadcast business to create a new
Media and Entertainment division to better reflect and serve
changing viewing habits; the delivery of the ITV Hub acceleration
plan remains on track; Planet V (our programmatic addressable
advertising platform) was successfully rolled out to the majority
of major agencies; content and distribution on BritBox UK were
extended, along with the international roll out of BritBox in
Australia, and, we augmented our data and analytics team.
The global lockdown restrictions during 2020 drove an increase
in viewing and demand for content across all platforms. ITV
Studios' strong position in the international market, with its
diversity in scripted and unscripted content production, enviable
talent pool, development pipeline, and strength in relationships
with broadcasters, distribution networks and platform owners was
critical during this time. It was able to capitalise on the demand
for content from broadcasters and OTT platforms for both new and
library content. While this revenue stream is small, it helped to
partly offset some of ITV Studios' overall revenue decline from the
delay in productions. SVOD platforms, who have been less
financially impacted than FTA broadcasters during the pandemic have
continued to commission new content, which ITV Studios has been in
a good position to serve.
Our Broadcast business, while seeing a decline in advertising,
saw an increase in total viewing in 2020 with people watching more
linear television during lockdown restrictions. Our schedule was
impacted during the pandemic but we continued to broadcast live
daytime and news programming that played a key part in providing
viewers with accurate and trustworthy information, and a broad
schedule of entertainment and drama to provide an escape. While the
viewing landscape changed during the pandemic, with people
streaming more content than ever before, ITV's extensive offering
of linear television channels, the ITV Hub and BritBox, gave
viewers the choice in how, where and when they consume content,
while continuing to provide advertisers with mass simultaneous
reach, alongside a more targeted advertising proposition.
Group financial overview
We measure performance through a range of metrics, particularly
through our alternative performance measures and KPIs, as well as
statutory results, all of which are set out in this report.
The COVID-19 pandemic significantly impacted our two main
sources of revenue - production and advertising - which were both
down in 2020. Total ITV revenue decreased by 16% to GBP3,260
million (2019: GBP3,885 million), with external revenue down 16% at
GBP2,781 million (2019: GBP3,308 million). Total advertising
revenue was down 11% to GBP1,577 million (2019: GBP1,768 million)
driven by a decrease in NAR, partly offset by online VOD
advertising revenue which was up 17% in the year. Total
non-advertising revenue was down 21% to GBP1,683 million (2019:
GBP2,117 million), of which ITV Studios was down 25% at GBP1,370
million (2019: GBP1,822 million).
Network schedule costs were GBP156 million lower in the year at
GBP935 million (2019: GBP1,091 million), and this coupled with the
delivery of GBP116 million of overhead cost savings, more than
offset the decline in TAR in the year. The GBP116 million of cost
savings delivered was ahead of our planned GBP60 million. Of this,
GBP21 million were permanent and GBP95 million were temporary. The
permanent savings include contract renegotiations across the
business and headcount savings from reorganisational changes,
particularly in ITV Studios. The temporary savings were in relation
to steps taken to mitigate the impact of COVID-19, including a
reduction in executive and non-executive director pay of 20%, a
suspension of performance-related cash bonuses, the furlough of
colleagues during the height of the pandemic, and the natural
decrease in non-essential spend such as travel and entertainment.
Since 2019, we have delivered a cumulative GBP46 million of
permanent cost savings. In 2021 we will deliver around GBP30
million of permanent cost savings, with total cumulative cost
savings of around GBP100 million by 2022 (from 2019). This is GBP40
million to GBP45 million more than our original guidance over this
period. We continue to take a systematic multi year approach to our
cost saving programme which is increasing in its effectiveness as
it matures.
Our essential investments to support our strategic priorities
totalled GBP16 million in the year which was slightly lower than
our planned GBP18 million due to timing. This will unwind in 2021,
and our essential investments will be GBP25 million, GBP13 million
ahead of our previous guidance as we accelerate the delivery of our
strategy. BritBox UK venture loss was GBP59 million which was in
line with our guidance of GBP55 million to GBP60 million.
Adjusted EBITA declined 21% to GBP573 million (2019: GBP729
million), with a 43% decline in ITV Studios adjusted EBITA and a 9%
decline in Broadcast adjusted EBITA. The margins of both businesses
have been impacted by the decline in revenue, ongoing fixed costs
and our essential investments to support the delivery of our
strategic priorities.
Adjusted financing costs were down GBP4 million year-on-year to
GBP36 million and our adjusted tax rate was 18% (2019: 18%).
Adjusted EPS declined 22% to 10.9p (2019: 13.9p).
Statutory EBITA was GBP561 million, down 19% (2019: GBP693
million), which was marginally lower than the decline in adjusted
EBITA due to a decrease in production tax credits in the year.
Total exceptional items were GBP114 million (2019: GBP22 million)
and includes costs relating to COVID-19, the impairment of sports
rights, and an onerous contract provision.
Statutory financing costs were GBP44 million which was down in
2020 due to the inclusion of Eurobond buyback costs in 2019 (2019:
GBP68 million). Our reported effective tax rate was 13.5% (2019:
9.8%) and statutory EPS decreased by 40% to 7.1p (2019: 11.8p). See
the Finance Review for further detail.
We have good access to liquidity. At 31 December 2020, we had
cash and committed undrawn facilities totalling GBP1,447 million,
including unrestricted cash of GBP618 million. Our profit to cash
conversion was 138% (2019: 87%). At 31 December 2020 our reported
net debt (including IFRS16 liabilities) was GBP545 million (31
December 2019: GBP893 million) which benefited from the deferred
VAT payments and is before earnout payments which we anticipate
paying in 2021. Our reported net debt (including IFRS 16
liabilities) to adjusted EBITDA was 0.9x (31 December 2019:
1.2x).
We continue to maintain tight control over cashflow and costs
whilst continuing to pay our suppliers on the agreed terms. Our
objective is to run an efficient balance sheet and manage our
financial metrics appropriately, consistent with investment grade
metrics over the medium term. Our priority remains to invest in our
key assets and value drivers in line with our strategic priorities
and balance this investment with the returns to shareholders. The
Board recognises the importance of the dividend to our shareholders
and intends to restore dividend payments as soon as circumstances
permit.
A range of scenarios reflecting ITV's principal risks, including
those arising from the ongoing COVID-19 pandemic, have been
modelled and considered in the assessment of the longer-term
viability of ITV. See our Viability Statement.
ITV Studios
ITV Studios is the largest commercial producer in the UK, as
well as one of the largest producers in Europe, and one of the
largest independent unscripted producers in the US. With a combined
content library of over 46,000 hours, it is also one of the largest
distributors in the UK.
Growing UK and global productions is central to ITV's More than
TV strategy, with ITV Studios aiming to be a leading creative force
in global content production and distribution. As ITV Studios
creates more content, our linear and on-demand channels in the UK
provide a platform to showcase our programmes before distributing
them further in the UK and internationally. In addition, we have
built significant scale in the key creative markets around the
world that also drive content revenues, creating and producing
programmes and formats that return and travel.
At the start of 2020, the international distribution and
commercial exploitation business of ITV Studios was reorganised
from an operational perspective to strengthen ITV Studios' position
as a creator, producer and distributor of world-leading programmes.
The new structure focuses on three centres of excellence - the
Creative Network, which boosts creativity across ITV Studios'
unscripted format labels to increase the potential of developing
global hit shows; Global Entertainment, which brings together
international unscripted format sales and exploitation across the
group under one roof, and Global Distribution, which focuses on the
international distribution of finished tape versions of both drama
and unscripted programmes. The three centres of excellence will
work closely together and with ITV Studios' UK and international
production businesses.
Resilient and diverse production and distribution businesses in
a challenging year
Performance in our different production territories can be
impacted by phasing and in a normal year, we manage this risk
through our portfolio. COVID-19 impacted the production business
differently in each territory due to restrictions varying by
country, and different customer bases, however, through the
resilience and diversity of each territory, we were able to
mitigate some of the negative impact caused by the pandemic.
While the majority of our productions were paused in mid-March,
the teams focused on remote post-production, creative development
and growing the creative pipeline. We did not cut development spend
during 2020 and this places ITV Studios in a strong position to
meet the increasing global demand for content. Our scale means that
we were able to manage risks effectively when restarting
productions, and the safeguards in place have enabled us to be more
resilient in subsequent lockdowns, continuing to producing
content.
During the first government lockdown in the UK, with the
innovation, creativity and dedication of our production teams, we
were able to keep producing our daytime shows. In addition, we
filmed other shows without a studio audience, including The Graham
Norton Show, The Martin Lewis Money Show and Saturday Night
Takeaway, and we made Isolation Stories a short four-part drama
written, filmed and edited during the UK lockdown. Differing
country restrictions also enabled us to continue filming in some of
our international locations, including the Netherlands (Koffietijd
- daily morning talk show), Germany (The Chase) and Australia (The
Voice and The Chase).
ITV worked closely with the UK government and the industry to
develop a set of protocols to minimise COVID-19 health and safety
risks to our talent, participants, colleagues and crew during
content production. We have undertaken risk assessments on all
productions since the start of the pandemic, and have developed
procedures outlining how the protocols should be applied to each
production globally. This has enabled us to continue to produce
large scale entertainment formats, such as Love Island in the US,
and I'm A Celebrity...Get Me Out Of Here! in both the UK and
Australia.
Despite the challenges presented by COVID-19, ITV Studios was
able to build upon its global profile of being a leading creator,
producer and distributor of content, and shaping the path for
longer-term revenue growth by focusing on the following key
areas:
Strengthening creative talent
A key part of ITV Studios investment strategy is to strengthen
and retain our creative talent and despite the challenges caused by
the pandemic, we continued to do this successfully during 2020. ITV
Studios US entered into several new partnerships aimed at further
building and strengthening the US business and establishing it as a
leading independent television studio in the highly competitive US
market. Within scripted, ITV Studios America has partnered with
Tomorrow Studios and Nick Weidenfeld to launch Work Friends, an
animation label, which secured its first commission for HBO Max
called 10-Year-Old-Tom. ITV Studios America also invested in a new
drama label run by acclaimed producer Tony To (Band of Brothers)
and Dan Sackheim (True Detective) called Bedrock Entertainment.
Within unscripted, ITV America partnered with production label
Nobody's Hero, created by Christopher Potts and Jonty Nash, (Nailed
It! and Sugar Rush for Netflix) to develop and produce unscripted
content and formats, working alongside the ITV team.
In the UK, award-winning producer Nicola Shindler (Happy Valley,
Last Tango in Halifax, It's A Sin, The Stranger) joined ITV Studios
UK launching a new scripted label focusing on producing premium
drama for the UK and international market.
During the year ITV Studios also expanded its existing
production partnership with Boomerang TV in Spain, giving Boomerang
exclusive production rights to a large selection of the ITV Studios
formats catalogue. The Spanish market has a strong demand for
non-scripted programming and is a bridge towards other Spanish
speaking countries. Altresmedia has since commissioned ITV formats,
Love Island and game show, Divided, to be produced by Boomerang TV
in Spain.
In March 2021, ITV Studios International stepped up its
investment in Apple Tree Productions in Denmark to take a
controlling stake.
Growing scripted
While ITV Studios is predominantly unscripted in terms of scale,
scripted is an area of higher growth driven by demand from the OTT
platforms, and we also are seeing increasing demand from platforms
internationally for original long-form and secondary rights. Part
of our strategy within ITV Studios is to build a scripted business
of scale and we have boosted this through the recent talent deals
mentioned previously and we will look at further investments in
other key scripted markets to continue to take advantage of the
demand for local scripted content.
Many of our scripted labels are creating and producing
high-quality content with global appeal for FTA and OTT platforms,
including Mammoth Screen, creators of The Serpent, McDonald &
Dodds, Victoria, World on Fire and Poldark, and World Productions
creators of Line of Duty, Save Me, The Pembrokeshire Murders, Vigil
and Bodyguard. Our international scripted businesses Cattleya in
Italy and Tetra Media Studio in France, also create and produce
long-running and new critically acclaimed foreign-language dramas,
including Paris Police 1900 and Balthazar in France, and Gomorrah,
Suburra, Zero Zero Zero and Summertime in Italy.
Diversifying customer base particularly with local and
international OTT platforms
As the demand from OTT platforms grows, this presents a
significant opportunity for ITV Studios to diversify its customer
base and grow revenues. In the US, we have strengthened our
relationships with SVOD platforms, having both scripted and
unscripted development projects and commissions in place with all
the major platforms. A third of US scripted revenues now come from
OTT's. Our UK and International Studios (aside from Italy) remain
more reliant on local broadcasters, and going forward they will
harness the strength and position of the ITV Studios group and key
creative talent, to develop their relationships with these
platforms. Original hours supplied to OTT platforms increased by 4%
in 2020, with scripted and unscripted programmes including; Queer
Eye, Suburra, The Big Flower Fight and Snowpiercer
(internationally) all for Netflix, Love Island France for Amazon -
the first reality show on the service and Becoming for Disney+. New
commissions for future broadcast by OTTs include Spy Amongst
Friends for BritBox UK, Cowboy Bebop and One Piece for Netflix,
Physical for Apple TV, along with several other titles in progress
with HBO Max, Netflix, Hulu and Amazon. We expect that in 2021 we
will double our revenues from OTT platforms.
Producing more content for, and distributing more content to OTT
platforms will impact our working capital going forward due to the
upfront cash requirements and the extended payment profile from the
OTTs. In addition, it limits the ability for us to maximise margins
on high-value scripted titles as the OTT platforms invariably want
worldwide rights for original commissions.
We balance our financial exposure through building a portfolio
of customers and programmes, across genres and their content life
cycle, with successful international dramas offsetting the risk
that we will not recover the full deficit on every show. This
efficiently uses the rights windows of our content to maximise
monetisation opportunities.
Globalising and maximising the value of key formats and
monetising our strong pipeline of programmes
Our Global Formats business includes a large portfolio of some
of the world's most successful entertainment and factual
entertainment formats that return and travel, many of which are
made globally through ITV Studios' production bases. We are very
focused on developing, managing and exploiting our global formats
to maximise IP revenues. We have a portfolio of world-class brands
which we continue to protect and strengthen each year, including
(number of countries the format has been sold to, to date is
included in brackets); The Voice (70+ countries), Love Island (20
countries), The Chase (16 countries), Beat The Chasers (5
countries), Four Weddings (20+ countries), I'm A Celebrity...Get Me
Out Of Here! (11 countries) and Come Dine With Me (40+ countries).
These formats continue to generate strong mass audiences for our
clients, with I'm A Celebrity...Get Me Out Of Here! in the UK
having one of its best viewing performances in 2020, and Beat The
Chasers in the UK and Netherlands, and The Chase in the US all
launching successfully on their respective channels/networks.
We have several new formats recently commissioned in our UK, US
and International production bases that have the potential to be
future global hits. These include UK formats; Moneyball, and Rat In
The Kitchen, which has had its first commission in the US to be
produced by ITV America. In addition, Let Love Rule, an ITVS
Netherlands format produced by ITVS Sweden and ITVS UK
(commissioned as The Cabins for ITV2), and also commissioned in
Belgium.
Building on the success of key franchises, we are also focusing
on expanding our production hubs, driving further sales of formats
by supporting productions in a cost- effective and safe environment
(e.g. Love Island, I'm A Celebrity...Get Me Out Of Here!). During
2020 we acquired the unscripted formats catalogue from Elk
Entertainment, which includes the formats and IP of 65 titles, as
we look to continue building our creative strength and monetisation
capabilities.
In 2020 across our Global Formats business we sold 56 (2019: 62)
different formats internationally, 14 of which were sold to three
or more countries (2019: 14).
Through our Global Distribution business, we focused on
exploiting our 46,000+ hour library of global scripted and
unscripted content assets and maximising the value of primary and
secondary windows with FTA, Pay TV, SVOD and AVOD customers. We are
investing in ITV Studios produced content (including Vigil, Line of
Duty, Vera, and McDonald & Dodds), selective third-party
content (including A Year on Planet Earth, and Harry Palmer: The
Ipcress File) as well as executing high profile English and local
language drama deals, in turn attracting more opportunities and
talent. We also sell an increasing amount of content to BritBox UK
and BritBox internationally. Going forward we will look at how we
drive long-term revenues from new AVOD market entrants such as
Tubi, and Pluto, as well as continuing to exploit new rights
opportunities including stacking and box sets.
2020 2019 Change Change
Twelve months to 31 December GBPm GBPm GBPm %
ITV Studios UK 535 725 (190) (26)
------- ------- ------ ------
ITV Studios US 234 271 (37) (14)
------- ------- ------ ------
ITV Studios International 343 508 (165) (32)
------- ------- ------ ------
Global Formats and Distribution 258 318 (60) (19)
------- ------- ------ ------
Total ITV Studios revenue 1,370 1,822 (452) (25)
------- ------- ------ ------
Total ITV Studios costs (1,218) (1,555) 337 (22)
------- ------- ------ ------
Total ITV Studios adjusted
EBITA* 152 267 (115) (43)
------- ------- ------ ------
ITV Studios adjusted EBITA
margin 11% 15%
------- ------- ------ ------
* Includes the benefit of production tax credits.
Twelve months to 2020 2019 Change Change
31 December GBPm GBPm GBPm %
Sales from ITV
Studios to
Broadcast and
DTC 472 573 (101) (18)
----- ----- ------ ------
External revenue 898 1,249 (351) (28)
----- ----- ------ ------
Total ITV Studios
revenue 1,370 1,822 (452) (25)
----- ----- ------ ------
* Includes the benefit of production tax credits.
Twelve months to 2020 2019 Change Change
31 December GBPm GBPm GBPm %
Scripted 354 520 (166) (32)
----- ----- ------ ------
Unscripted 773 1,018 (245) (24)
----- ----- ------ ------
Core ITV* and Other 243 284 (41) (14)
----- ----- ------ ------
Total ITV Studios
revenue 1,370 1,822 (452) (25)
----- ----- ------ ------
* Core ITV includes the soaps and daytime shows produced by ITV
Studios for the ITV main channel.
ITV Studios financial performance in 2020
ITV Studios started 2020 with good momentum, expecting a good
slate of programme deliveries over the full year and to see revenue
growth and a stable margin being delivered. The COVID-19 pandemic
changed this outlook, causing around 230 of ITV Studios productions
globally to be paused or impacted as a result of country lockdowns
and restrictions on working practises. While the majority of
productions were able to resume in the second half of 2020, the
delay in production and delivery of a number of our programmes
caused ITV Studios total revenue to decline by 25% in 2020 to
GBP1,370 million (2019: GBP1,822 million), with external revenue
down 28% to GBP898 million (2019: GBP1,249 million). Total organic
revenue at constant currency was down 25%. There was a GBP3 million
unfavourable impact from foreign exchange in the year.
Due to the pause in productions, the number of hours delivered
in 2020 was down 15% year-on-year to 7,120 hours, this was lower
than the decrease in total revenue of 25%, due to the mix of
productions that were delivered. While the year-on-year decrease in
scripted production hours was lower than the decrease in unscripted
hours, scripted is of higher value and therefore had a more
significant impact on revenue in the year. Scripted revenue was
down 32% to GBP354 million (2019: GBP520 million), with unscripted
revenue down 24% to GBP773 million (GBP1,018 million) in the
year.
Reflecting our presence in key global production markets, 56% of
ITV Studios' revenue was generated outside the UK. This was
marginally lower than the prior year (2019: 58%).
Adjusted EBITA was down 43% year-on-year at GBP152 million
(2019: GBP267 million), with the adjusted EBITA margin at 11%
(2019: 15%) and a GBP1 million favourable impact from foreign
exchange. While ITV Studios is a largely variable cost business,
the decline in margin reflects the lost revenue, ongoing fixed
costs in the business, investments of GBP8 million in line with our
strategic priorities, and costs associated with social distancing
guidelines and health and safety protocols in productions. This
more than offset the GBP63 million of overhead cost savings
delivered in the year (GBP50 million of which are temporary and
GBP13 million permanent). While guidelines remain in place globally
to mitigate the transmission of COVID-19, our productions will
continue to be impacted by increased costs to adhere to social
distancing and safety protocols. Going forward we will improve the
use of technology and data to drive cost and revenue efficiencies,
taking steps to digitalise processes and use remote editing more
routinely.
ITV Studios UK
As the largest commercial producer of content in the UK, ITV
Studios UK is made up of nearly 30 production labels, with a
diverse range of scripted and unscripted titles for the UK's PSBs
and OTT platforms. The business is built upon many long-running and
recurring titles, the majority of which are sold to the Broadcast
business for transmission on ITV's family of channels, ITV Hub and
BritBox UK. The core portfolio includes daytime programmes such as:
Good Morning Britain, This Morning, Loose Women; the soaps:
Coronation Street and Emmerdale; and entertainment programmes such
as The Voice, Love Island and I'm A Celebrity...Get Me Out Of Here!
ITV Studios UK's share of original content on ITV main channel was
up at 68% (2019: 65%), however, this is based on a lower available
network programme budget year-on-year.
In 2020, total ITV Studios UK revenue was down 26% to GBP535
million (2019: GBP725 million), and also down 26% on an organic
basis. Internal sales to Broadcast and Direct to Consumer was down
18% across the year, with the first quarter of 2020 benefiting from
the return of Saturday Night Takeaway and the new winter series of
Love Island. From the end of Q1, the rest of the year was
subsequently impacted by COVID-19 with the delay and cancellation
of productions. This included a lower number of episodes of
Coronation Street and Emmerdale delivered to Broadcast across Q2
and part of Q3, no summer series of Love Island and, a lower volume
of drama deliveries compared to 2019, with several planned
deliveries delayed into 2021. Deliveries in 2020 included: Saturday
Night Takeaway, The Bay, Beat The Chasers, The Pembrokeshire
Murders, The Voice Kids, The Chase, I'm A Celebrity...Get me Out Of
Here! and the winter series of Love Island.
Internal deliveries in the first half of 2021 should include new
and returning programmes, Unforgotten, McDonald & Dodds, Grace,
Vera and the first series of The Cabins.
Off-ITV revenues (productions for non-ITV channels in the UK)
decreased by 39%, impacted by the delay of planned deliveries,
combined with strong comparatives from the delivery of 2019
high-end scripted commissions, including Noughts & Crosses,
World on Fire, Poldark and Harlots. Offsetting this, was growth
from new and returning deliveries in 2020, such as: The Big Flower
Fight for Netflix; The Serpent, Four Lives and Ghosts all for BBC;
and Back and Friday Night Dinner for Channel 4. Deliveries in the
first half of 2021 should include: Line of Duty, Vigil and The
Graham Norton Show all for the BBC; and 24 Hours in A&E and
Countdown for Channel 4.
ITV Studios US
ITV Studios US is a scaled production business, providing
content to all the major networks and cable channels in the US,
along with every major SVOD platform. It has a good foundation of
core programmes, including unscripted titles with multiple seasons
and a high volume of episodes, which, combined with the output from
our investment in scripted content over the last few years, has
enabled the business to grow its presence significantly in a highly
competitive market. This diversity of content and customer base has
enabled ITV Studios US to mitigate some of the impact seen from the
pandemic. In addition, a number of programmes were remotely
post-produced during this time, many of which were delivered in the
first half of 2020.
ITV Studios US total revenue declined by 14% to GBP234 million
(2019: GBP271 million) and 12% to GBP238 million when adjusted for
the unfavourable foreign exchange impact. Within ITV Studios
America (scripted), deliveries included Snowpiercer S2 to TNT and
S1 to Netflix, and Good Witch S6 to Hallmark. ITV America
(unscripted) deliveries included: Cannonball to NBC and USA, Crank
Yankers to Comedy Central, Love Island S2 for CBS, and Becoming to
Disney+ along with core unscripted titles: Alone, Marriage Bootcamp
and First 48, all delivered in the year. Offsetting this was strong
comparatives in 2019, which included the delivery of two seasons of
Hell's Kitchen to Fox.
ITV Studios America has several larger scripted programmes which
should deliver in 2021, these include Physical for Apple TV,
10-Year-Old Tom for HBO Max, Cowboy Bebop for Netflix, the third
season of Snowpiercer for TNT, and the seventh season of Good
Witch. Within ITV America, deliveries expected in 2021 include Love
Island S3, Rat In The Kitchen for TBS, The Chase for ABC, and
Forged in Fire for History.
The development and commissioning pipeline for the ITV Studios
US is strong, with several large scale unscripted commissions in
progress with existing and emerging SVOD platforms, which have the
potential for multiple series.
ITV Studios International
ITV Studios International has production bases in Australia,
Germany, France, the Netherlands, the Nordics, and Italy, where we
produce original scripted and unscripted content, as well as local
versions of key formats developed through our Global Formats
business.
Revenue within ITV Studios International declined by 32% to
GBP343 million (2019: GBP508 million), and by 32% to GBP342 million
when adjusted for the favourable impact of foreign currency. While
the pause in productions impacted most of our territories, the
decline was also driven by strong comparatives in 2019 which had
deliveries of high-end scripted titles, such as Zero Zero Zero and
Gomorrah in Italy, and Profilage and Une Belle Histoire in France.
Deliveries in 2020 included: Love Island France for Amazon; Suburra
and Vampires for Netflix; Paris Police 1900 for Canal+, Masantonio
for Mediaset; and Romulus for Sky Italia.
Productions across all our international bases have largely
resumed, but with many of our large entertainment franchises being
filmed but with no audience. We have scripted productions in France
and Italy underway but there remain challenges operating under
COVID-19 restrictions. We have a good diversity of shows in our
portfolio across multiple territories and we continue to strengthen
the depth of our offering.
In 2021 we will continue to focus on growing our European
scripted business to allow us to benefit from the increasing demand
for locally produced content with global appeal. Deliveries
expected in the first half of 2021 should include Summertime for
Netflix, The Voice in France and Netherlands, The Voice Kids in
Germany, Love Island in Germany and I'm A Celebrity...Get Me Out Of
Here in Australia and Germany.
Global Formats and Distribution
Global Formats and Distribution revenues were down 19%
year-on-year to GBP258 million (2019: GBP318 million), with nil
impact from foreign exchange. Much of this decline was driven by
Global Formats, which had strong comparatives due to a number of
multi-year deals secured for The Voice in 2019, and other
unrepeated 2019 format licensing deals. Global Distribution saw
increased catalogue sales due to high demand for our content
globally as networks and platforms tried to fill gaps in their
schedule left by the delay in productions during the year. However,
this was offset by the delay of new scripted and unscripted content
in the year. Classic British scripted titles such as Marple, Vera,
Endeavour, Victoria and Poldark sold well, with many territories
relicensing old seasons of programmes. We also benefited from the
international distribution of Snowpiercer to Netflix and Little
Birds to Starz, Bodyguard entering its second window rights, the
distribution of natural history titles such as Wild Tokyo and
India's Wild Karnataka and global sales of Emmy and Golden Globe
award-winning Schitt's Creek. Unscripted titles such as The Graham
Norton Show, 24 Hours in Police Custody and Autopsy USA also sold
well.
In 2021, the full pipeline of new content for Global
Distribution will be dependent on whether COVID-19 restrictions
continue to impact the filming of productions. However, we have a
strong slate of new scripted titles including Grace, Line of Duty,
Vigil and The Serpent, and finished tapes sales of unscripted
formats including The Voice, Love Island, Hell's Kitchen, The Chase
and Come Dine With Me, all delivering across a number of different
territories. We will also start the pre-selling third-party
productions including international spy drama, Harry Palmer: The
Ipcress File, and A Year On Planet Earth, a new natural history
series.
Broadcast (M&E)
ITV, through our family of free-to-air channels and platforms,
offers unique audience scale and reach, as well as more targeted
demographics demanded by advertisers. The ITV Hub, the online home
for content on our family of channels, has grown rapidly over a
number of years, driven by viewers' appetite for our content on
catch up, VOD and simulcast. Through our Direct to Consumer
business, we are building relationships with consumers who are
increasingly willing to pay to engage with our brands, content and
intellectual property (IP). This is through SVOD, competitions,
voting, live events, gaming and merchandising. Data and technology
are key to evolving our broadcast business and driving revenue
growth and new revenue streams.
The media market environment in which we operate is dynamic. The
viewing and advertising landscape is evolving rapidly and becoming
increasingly competitive, and our Broadcast business is constantly
adapting. COVID-19 accelerated some of the changes we were already
seeing presenting both challenges and opportunities. Our strategy
is designed to mitigate the long-term impact of changing viewing
patterns, and we are increasing the pace of implementation.
As part of our More than TV strategy and to better reflect and
serve changing viewing habits, the Broadcast business has been
restructured, creating a new Media and Entertainment division which
is effective from 1 April 2021 with two business streams -
Broadcast and On-Demand. The Broadcast business will remain the
home of ITV main channel and will continue to deliver ITV's USP of
mass simultaneous reach and unmissable content. The On-Demand
business will focus on digital product development and digital
growth for ITV, providing new content that appeals to audiences who
already do most or all of their viewing on demand, and will serve
it to them in whatever way they want to access it.
Continuing to deliver unrivalled audiences
ITV's on-screen viewing in 2020 benefited from lockdown
restrictions in the UK, with more people at home watching linear
television. Total ITV viewing (which combines live viewing of ITV
channels, recorded and VOD) was up 1%, with ITV main channel share
of commercial impacts (SOCI) up 2% to 25.8% (2019: 25.3%). ITV main
channel SOV and ITV Family SOV, however, declined by 1% and 4%
respectively to 16.7% and 22.2% (2019: 16.9% and 23.2%) partly
impacted by the volume of news output on the BBC, fewer episodes of
the soaps and less new content as a result of COVID-19. Despite
this, ITV main channel had its third-biggest SOV in a decade.
Total broadcaster TV viewing (live and catch up viewing to
broadcast channels including TV VOD) was up 6% in the year,
benefiting from the increase in viewing on the BBC, along with
Channel 4 (with increased viewing for The Great British Bake Off
and Gogglebox), and Sky (due to increased viewing for its box sets
and football). Total TV set viewing, which includes unmatched
viewing (content that cannot be matched to broadcast TV such as
SVOD, YouTube, games consoles) was up 15% and driven by the
significant increase in viewing on SVOD platforms during the year
(Source: BARB).
With the lack of on-demand viewing drivers such as the absence
of summer Love Island, fewer episodes of the soaps, lower volumes
of new content following the pause in production and no major
sporting event, online viewing (which measures the total number of
hours viewers are spending online) on the ITV Hub was down 5%
year-on-year. Within this, simulcast viewing hours were up 13% in
the year, as more viewers used the ITV Hub as a destination for
live viewing via connected TVs and streaming devices. The growth of
the ITV Hub is a key part of our strategy. We have a number of
initiatives focused on improving the user experience and content to
help drive strong viewing over the coming year. Further details are
included in the ITV Hub section. In addition, as part of the
restructure of the Broadcast business, we will assess the
appropriate allocation of the network schedule cost between our
linear channels and AVOD to balance our ability to deliver mass
audiences and increase on-demand viewing.
On average the number of minutes of television viewers watched
per day in 2020 was 192 minutes (C7 total broadcast TV including
catch up), up 5% on the previous year (2019: 183 minutes), this is
the first time growth has been seen in total broadcast TV viewing
since 2010. Despite the decline in SOV and online viewing, ITV
delivered record-breaking audiences both in linear and on-demand,
with programming such as Des, Quiz, I'm A Celebrity...Get Me Out Of
Here! and The Chase. During the day, most of our daytime shows had
their strongest viewing in years, including Good Morning Britain,
This Morning and Loose Women. However, during peak hours, our share
of linear viewing was impacted by the factors mentioned previously
and the significant increase in viewing on SVOD platforms,
particularly amongst 16-34s. While younger viewers are watching
less linear television than they used to, television still reaches
on average, around 80% of young people each week. Through
delivering great content such as Saturday Night Takeaway, winter
Love Island and Gordon, Gino and Fred: Road Trip, we were able to
reach them both through linear and online, with ITV main channel
being the most-watched channel for 16-34s in 2020 (Source: BARB C7
viewing).
On ITV main channel, Coronation Street and Emmerdale maintained
their position as the UK's two largest soaps, with Coronation
Street increasing its audience year-on-year. We successfully aired
a range of new programmes, including four of the top five
most-watched new dramas such as Des - ITV's biggest new drama ever,
White House Farm and Van Der Valk; new entertainment shows,
including The Masked Singer and Beat The Chasers - the two biggest
new entertainment series launches in 13 years; and successful
factual entertainment, including; Bradley Walsh & Son: Breaking
Dad, Gordon, Gino and Fred: Road Trip, and Long Lost Family: Born
Without A Trace. We continue to drive significant audiences with
our returning brands such as The Voice, Britain's Got Talent, and
I'm A Celebrity...Get Me Out Of Here! - which was the most-watched
entertainment series of the year. Our news programming performed
well, with our national weekday bulletins increasing their share
year-on-year. Viewing was however impacted by the decision to
cancel or postpone the majority of sporting tournaments and live
entertainment shows including the European Football Championships,
horse racing and the summer series of Love Island. The delay in
delivery of a number of programmes, particularly scripted, arising
from the pause in production in ITV Studios and other indies also
had an impact on viewing.
We continue to target the demographics most highly demanded by
advertisers - particularly young and male audiences - through our
family of channels and online.
On ITV2, SOV and SOCI for 16-34s were down 27% and 25%
respectively, with the cancellation of the summer series of Love
Island and less new content, having a significant impact on the
schedule. Despite this, ITV2 remained the most-watched digital
channel for 16-34s for the fourth year in a row. This was helped by
the winter series of Love Island, Ibiza Weekender, and several
box-office films.
On ITV3, ABC1 adults SOV was up 6% in the year due to the strong
slate of classic dramas which appealed to the increased number of
people at home looking for quality content to watch. Programmes
included Downton Abbey, Midsomer Murders and Vera, as well as
repeats of Emmerdale and Coronation Street.
On ITV4, Male SOV was down 1%, impacted by the loss of sport in
the schedule, such as the Isle of Man TT, Tour of Britain and
Yorkshire and the Snooker Tour Championship. The return of live
sport with snooker and horse racing in June helped to mitigate some
of this viewing decline.
We have a strong schedule in 2021 with new and returning dramas
including: The Pembrokeshire Murders, Finding Alice, Grace,
Viewpoint, The Bay, Marcella, Unforgotten, McDonald & Dodds and
Vera; and new and returning entertainment including: The Masked
Singer, Saturday Night Takeaway, The Cabins, and the summer series
of Love Island. Our sporting schedule includes the Rugby Six
Nations and the rescheduled European Football Championships, along
with the FA Cup which we will start broadcasting in the second half
of 2021.
While there remains a risk that some programmes due to broadcast
during the year, may be delayed due to continued COVID-19
restrictions, being an integrated producer broadcaster puts us in a
unique position enabling us to work with ITV Studios to develop
filming plans on key programmes, and to source additional library
content for our channels.
Spontaneous consideration amongst all adults and light viewers
was down 3.3 percentage points and 2.5 percentage points
respectively year-on-year, mainly impacted by the growth in SVOD
brands during the pandemic. Our decline was less than that of the
BBC demonstrating the high-quality of our content and the positive
impact of our marketing investment.
Growing and enhancing our AVOD and SVOD propositions
Our AVOD proposition is the ITV Hub in the UK and our SVOD
propositions are ITV Hub+, BritBox UK, BritBox International in the
US, Canada and Australia, and Cirkus in the Nordics, Germany,
Austria and Switzerland.
ITV Hub
The ITV Hub has 32.6 million registered user accounts (31
December 2019: 30.8 million) and is available on 28 platforms, and
is pre-installed on the majority of connected televisions currently
sold in the UK.
During 2020, despite the challenges presented by the COVID-19
pandemic, we continued to invest in, and deliver the Hub
acceleration plan which is a key part of the More than TV strategy.
There has been a process of continued enhancement and improvement
in the ITV Hub over the last two years, focused on redesigning the
interface on all platforms to further improve the overall user
experience, increasing personalisation, prominence and distribution
to make it a destination for viewing our content, and integrating
BritBox UK, to make the transition to the service seamless. We have
also redesigned the ITV News online site. During 2020 we
strengthened the content available through extending the catch up
window for content from 30 days to 12 months; trialling short-form
content on iOs and itv.com; showing live exclusive events such as
British Touring Cars, and had the re-run of the 1996 European
Football Championship and the 2003 Rugby World Cup. We also
launched a 'Continue Watching' option, a recommendations rail, and
a 'My List' function.
Our investment in the ITV Hub in 2021 will be focused on further
accelerating its growth to make the ITV Hub a destination, not just
catch up service, along with rolling out the redesign across
connected TVs. We plan to trial a new windowing strategy which will
include: increasing the number of dramas series we make available
in full on the ITV Hub once the first episode launches on linear -
such as Finding Alice, The Bay and Marcella; having exclusive
content including spin-offs from large entertainment shows such as
The Masked Singer and Saturday Night Takeaway; and increasing the
curation of content using our vast archive. We will also focus on
the increased distribution of the ITV Hub on new platforms and TVs.
In 2021 we would expect our investment to drive an increase in
online viewing and monthly active users.
ITV Hub+
The ITV Hub+ offers an ad-free subscription version of the ITV
Hub with content download capability. The number of subscriptions
at the end of December 2020 was c410,000 which was broadly in line
with 2019. The absence of key programming, a lower volume of new
content along with travel restrictions resulting in people not
requiring download functionality or EU portability, all had an
impact on our ability to drive new subscriptions in the year. We
continued our process of improvement on ITV Hub+, launching an
annual subscription pass, incorporating programme download
functionality on Android devices and integrating in-app purchases
on Amazon. At 31 December 2020, EU portability on ITV Hub+ was
disabled as the Brexit transition period ended. In 2021 we would
expect the return of key entertainment shows and sport to
positively impact our Hub+ subscriptions and we will focus on other
initiatives including embedding Google Play billing in the app and
creating more upselling opportunities for ITV Hub+ within the ITV
Hub.
BritBox
BritBox UK has seen good growth in subscriptions in the year,
and as expected, the lockdown restrictions along with the increase
in content and distribution of the service, increased the number of
customers signing up for the free trial period. We have continued
to see strong subscriber appeal and in January 2021 we had over
500,000 subscriptions, which was ahead of our business plan.
Conversion and churn rates are in line with our plan. Distribution
of BritBox UK was extended during the year, with the roll out
through BT and EE, the service now available on over 20 million
devices and to 65% of streaming households. It has also reached
over 90% brand awareness in the UK (Source: YouGov). We are
continuing to explore opportunities to expand the distribution of
BritBox UK and are working with a number of platforms to enable
this. During the year Channel 4 and Film4 content became available
on the platform and we saw the launch of our first original
commission, Spitting Image, which helped drive a ten-fold increase
in subscriptions to the service. Spitting Image has been
recommissioned for a second series in 2021, with four original
dramas, and one factual expected to launch on the service across
2021 and 2022. The first will be The Beast Must Die, and Secrets of
the Krays in the first half of 2021, followed by Magpie Murders,
Crime and A Spy Amongst Friends. The content pipeline for BritBox
UK is healthy with further originals currently in development.
Our international BritBox joint venture with the BBC is
currently available in the US, Canada, and Australia, and provides
an ad-free SVOD service offering the most comprehensive collection
of British content available in those territories. Subscriptions
have grown strongly, increasing by 50% in the US and Canada in
2020. We now have over 1.7 million BritBox subscriptions
internationally. We are planning a phased roll out of BritBox in up
to 25 countries, with South Africa expected to launch in 2021. The
countries we have identified are those where research indicates we
could launch the service profitably, managing our SVOD rights more
effectively and drive more value from them. Our funding for the
next phase of the roll out will be from our share of BritBox US
cashflows, which is a profitable service, and we will undertake a
full business case review for each territory before deciding to
launch.
Across all our SVOD services (including Hub+) we now have over
2.6 million subscriptions globally.
Strong linear and online advertising proposition
While the COVID-19 pandemic and uncertain outlook led
advertisers to reduce their total advertising spend, our Commercial
team continued to work very closely with advertisers and agencies
during the year to create relevant and innovative marketing and
advertising opportunities. They helped brands to market themselves
in a way that was socially responsible and reflected the mood of
the nation. During the height of the pandemic, the team hosted
weekly webinars reaching over 3,000 customers and sent weekly
updates to all our customers during this time. We removed the late
booking penalty for advertisers and had no charges for making
amendments to existing campaigns to give advertisers as much
flexibility as possible during the uncertain backdrop. ITV Creative
remained operational and was able to help advertisers film and
produce campaigns. Some of the innovative campaigns we were
involved in included BT providing technology tips in the wake of
the pandemic, The People's Ad Break, Waitrose Pick For Britain, and
Just Eat taking over an ad break to support Britain Get Talking,
our mental health campaign.
Television remains one of the most efficient and effective
mediums for advertisers to achieve mass reach and in 2020, ITV
delivered 94% of all commercial audiences over three million and
over five million. As viewing and advertising become more
fragmented, the scale and reach of advertising that television, and
particularly ITV, delivers becomes increasingly valuable. We
provide a safe, trusted, measured and transparent environment in
which to advertise, and television generates the highest return on
investment of any media. With the significant increase in
television viewing volumes, combined with the decline in
advertising revenue, there was 50% to 60% deflation in the cost of
television advertising during the height of the pandemic compared
to before the pandemic. With the proven return on investment which
television offers, we set up ITV AdVentures, aimed at encouraging
digitally native brands to advertise on television for the first
time, including car insurance brand By Miles, pregnancy app Peanut,
business-to-business comparison site Bionic, and Butternut Box, a
subscription service dog food brand.
The focus going forward will be to continue to build deep
strategic relationships with our advertisers and the Commercial
team has a number of initiatives underway to help drive this. This
includes ITV Backing Business, making it as flexible as possible
for British businesses to advertise on television, providing them
with marketing support and a wealth of resources to help them
return to growth. We also forged partnerships between Backing
Business and established advertisers, such as NatWest's business
banking unit, as they launched a competition for small businesses
to win advertising creative; and with Facebook Portal to help
people connect with their friends and families over Christmas. In
addition, we created ITV Home Planet, a new initiative for
sustainable brands to encourage viewers to reduce their carbon
footprint, with Quorn (meat substitute brand) becoming ITV's first
brand partner.
During 2021 we will also continue to explore linear addressable
advertising opportunities.
Online video advertising on the ITV Hub delivers targeted
demographics in a high-quality, trusted and measured environment
for advertisers. We have now rolled out Planet V, our scaled
programmatic addressable advertising platform, to the majority of
major agencies, with around 85% of all customer orders now managed
on the platform. Planet V is designed and deployed as a
self-service platform for advertisers and agencies, enabling them
to plan and buy ITV Hub inventory seamlessly and cost effectively,
create bespoke audiences, add their first party data and monitor
their campaigns via a custom built user interface. Our Commercial
business is therefore able to offer our clients the best of both
worlds, mass audiences with simultaneous reach on linear channels,
and addressable targeting at scale around our premium inventory on
the ITV Hub. We have also agreed our first third-party partnership
with Samsung Plus TV for their inventory to be plannable and
buyable via Planet V.
We have recently invested in InfoSum, a data and identity
infrastructure company, to augment Planet V's first party data
capabilities. Infosum allows us to merge advertisers first-party
data with ITV's data, in a secure and compliant way. This will
enable more granular targeting and measurement across ITV's premium
video inventory, providing the capability to build new and more
powerful audience segments, at scale, unique to each
advertiser.
To provide more insight into the effectiveness of television
advertising, ITV has joined Channel 4 and Sky to launch a new total
television advertising measurement system in the UK. CFlight
(designed by NBCU in the US) is a post-campaign online evaluation
tool, using combined linear television and Broadcaster VOD (BVOD)
data to show advertisers and media agencies what the overall
advertising exposure is for television advertising, including reach
and frequency metrics. This will give advertisers and agencies a
unique view of the coverage achieved by their commercial campaigns
across both linear and BVOD. We expect this to be available during
2021.
Broadcast financial performance in 2020
Broadcast total revenue was down 8% in the year at GBP1,890
million (2019: GBP2,063 million). This decline was entirely driven
by a decrease in total advertising revenue which was down 11% to
GBP1,577 million (2019: GBP1,768 million) in 2020. Within this VOD
advertising revenues up 17%. Broadcast non-advertising revenues
were up 6% in the year to GBP313 million (2019: GBP295 million)
with growth across all areas. Further detail on the year-on-year
movement in revenue is detailed below.
Total costs within Broadcast were down 8%, primarily driven by
lower schedule costs, which were down 14% to GBP935 million (2019:
GBP1,091 million) due to the cancellation or delay of programming
impacted by the pandemic. This included the UEFA European Football
Championship, the summer series of Love Island, a reduction in
episodes of the soaps and the delay of some scripted titles into
2021. It is expected that schedule costs in 2021 will return to
previous levels of around GBP1.1 billion. Variable costs were up
20% at GBP161 million (2019: GBP134 million), mainly driven by
costs for marketing and content for BritBox UK and higher
interactive costs associated with the increase in revenue and prize
costs in the year. Broadcast infrastructure and overhead costs
decreased by 1% to GBP373 million, with additional overhead costs
associated with BritBox UK and Planet V, along with investments of
GBP8 million in data, the ITV Hub, ITV Hub+ and technology in line
with our strategic priorities. This was offset by GBP53 million of
cost savings made across Broadcast (GBP45 million of which are
temporary and GBP8 million are permanent).
The 2020 net investment in BritBox UK was GBP49 million (2019:
GBP19 million) with venture losses of GBP59 million (2019: GBP21
million), both of which were in line with expectation. We
anticipate that as we build BritBox UK's subscriber base, it will
remain in the net investment phase for several years.
Broadcast adjusted EBITA (excluding BritBox UK) was down 1% to
GBP480 million (2019: GBP483 million), with a margin of 25% (2019:
23%). Total Broadcast adjusted EBITA (including BritBox) was down
9% to GBP421 million (2019: GBP462 million), with a 22% margin
(2019: 22%).
Within exceptional items we have included a GBP23 million
impairment to sports rights, reflecting the impact of COVID-19,
along with changing forecasts of audience mix and revenues for
certain sporting events. We have also included a GBP19 million
onerous contract provision for one of our satellite transponders
which we are no longer utilising. See the exceptional items note
within the Finance Review for further detail.
Total advertising revenue (TAR)
At the start of 2020, there was good momentum in total
advertising with revenues in Q1 up 2%, preceded by two-quarters of
growth in the second half of 2019. However, the COVID-19 pandemic
had a severe negative impact on advertising demand from Q2. The
announcement of the UK government imposed lockdown and containment
measures in March, caused an almost immediate decline in
advertising, with many brands reducing, or stopping their
advertising spend completely. Total advertising in Q2 2020 was down
43%, the most severe decline in the history of TV. We saw trends
improve in Q3 with TAR down 7% and in Q4 with TAR up 3%, as
advertisers spent more in advance of Christmas with confidence
boosted from the commencement of the roll out of the COVID-19
vaccine.
Most advertising categories decreased their spend during 2020,
with categories such as Airlines and Travel, Entertainment and
Leisure, and Retail being the hardest hit as travel restrictions
were imposed and shops, leisure facilities and showrooms were
closed. While the spend from online brands (excluding gambling)
also declined in the year, they declined less than most categories
and we did see increased spend from social networking brands, OTT
platforms and food delivery brands, who benefited from people being
at home. Government, Charities and Other, Publishing and
Broadcasting, Cosmetics and Toiletries, and Household Stores were
key categories which grew spend in the year.
VOD advertising revenue on the ITV Hub was up 17% in the year,
with the second half of 2020 seeing strong demand from
advertisers.
The current advertising environment remains challenging, and the
tightening of restrictions at the end of 2020 and further national
lockdown introduced at the beginning of January 2021, has impacted
Q1 2021 with TAR expected to be down around 6%, with March up
around 8% and April up between 60% and 75%, with January to April
up between 5% and 7%. This assumes there is no change in the
current planned restrictions.
Direct to Consumer
Direct to Consumer (DTC) generates revenue directly from the
customer and includes ITV Hub+, competitions, merchandise, live
events and gaming. DTC revenue does not include BritBox UK (which
is included within Other Revenue) or BritBox US/Australia (which is
included within JVs and Associates).
In 2020, DTC revenue increased by 4% to GBP87 million (2019:
GBP84 million) predominantly due to an increase in competitions
revenues which performed strongly across the schedule. Daytime was
particularly important, which corresponded with the increase in
viewers, and also programming such as Saturday Night Takeaway and
I'm A Celebrity...Get Me Out Of Here! Our rebranded competitions
portal, ITV Win, has seen a significant uplift in traffic in the
year, with an increasing proportion of competitions revenue being
generated through it. We will continue to extend the offering and
marketing around ITV Win in 2021.
Partly offsetting some of the DTC growth in the year, was the
absence of pay per view boxing revenues included within the 2019
comparatives, along with a decline in live events revenue. All our
live events were closed in line with government restrictions from
March. Events such as the Coronation Street set tour and Emmerdale
village tour and studio experience are linked to our production
sets and therefore are likely to remain closed until social
distancing guidelines are eased further. Our branded Ninja Warrior
Experiences around the UK are managed by third parties and opened
briefly when restrictions were relaxed. Our I'm A Celebrity...Get
Me Out Of Here! leisure attraction in the UK which was due to
launch in 2020, has been delayed until the first half of 2021.
These initiatives help build relationships directly with our
viewers and, while the current environment has impacted our ability
to generate revenues, we will continue to have a focused approach
to opportunities in this area. With the restructure of Broadcast,
gaming, live events and merchandising revenues around our IP will
move to Global Formats and Distribution within ITV Studios from
2021. The impact to Broadcast from the reclassification of this
revenue stream will be small.
SDN
SDN generates revenue by licensing multiplex capacity to
broadcast channels, radio stations and data providers on digital
terrestrial television (DTT) or Freeview. Currently, the SDN
platform utilises the radio spectrum licensed to it to provide
capacity for 18 broadcast channels and a number of data and radio
services.
SDN customers include ITV and third parties, with external
revenue (non-ITV) increasing by 6% in the year to GBP73 million
(2019: GBP69 million), driven by the launch of two new video
streams in January 2020.
SDN's current multiplex licence expires towards the end of 2022.
The Government is currently consulting on the future of the SDN
licence (as well as most of those held by Arqiva, the BBC and
Channel 4). The consultation indicated that the Government is
seeking to renew the licence and not to hold an open competition,
though the period of the possible renewal is not yet determined.
The Government recognises the need to ensure that Ofcom can
undertake the renewal of these licences sufficiently in advance of
their expiry in 2022, and is aiming for the amended legislation to
come into force during 2021.
In 2022 and 2023, some long-standing contracts which were agreed
at the peak of the DTT capacity market ten years ago will come to
an end, which we expect these to revert to current market
rates.
Other revenue
Other revenue includes revenue from platforms, such as Sky and
Virgin, and third-party commissions, e.g. for services we provide
to STV, along with subscription revenue for BritBox UK. This is up
8% year-on-year to GBP153 million (2019: GBP142 million)
predominantly due to BritBox UK which has seen good growth since
its launch in 2019 and has benefited during the pandemic. A
reduction in third-party commission due to the corresponding
decline in NAR in the year partly offset this growth.
2020 2019 Change Change
Twelve months to 31 December GBPm GBPm GBPm %
Total advertising revenue 1,577 1,768 (191) (11)
------- ------- ------ ------
Direct to Consumer 87 84 3 4
------- ------- ------ ------
SDN 73 69 4 6
------- ------- ------ ------
Other revenue 153 142 11 8
------- ------- ------ ------
Broadcast non-advertising
revenue 313 295 18 6
------- ------- ------ ------
Total Broadcast revenue 1,890 2,063 (173) (8)
------- ------- ------ ------
Network schedule costs (935) (1,091) 156 14
------- ------- ------ ------
Variable costs (161) (134) (27) (20)
------- ------- ------ ------
Broadcast infrastructure
and overheads (373) (376) 3 1
------- ------- ------ ------
Total Broadcast costs (1,469) (1,601) 132 8
------- ------- ------ ------
Total Broadcast adjusted
EBITA* 421 462 (41) (9)
------- ------- ------ ------
Total adjusted EBITA margin 22% 22%
------- ------- ------ ------
BritBox UK venture loss** 59 21 38 -
------- ------- ------ ------
Adjusted EBITA Broadcast
(ex BritBox UK) 480 483 (3) (1)
------- ------- ------ ------
Adjusted EBITA margin (ex
BritBox UK) 25% 23%
------- ------- ------ ------
* There are no adjusting items within Broadcast EBITA.
** BritBox UK venture loss includes the cost of advertising on
ITV, and the acquisition of programmes from ITV Studios. The
venture loss better reflects the stand-alone performance of
BritBox.
Alternative Performance Measures
The Annual Report and Accounts includes both statutory and
adjusted measures (Alternative Performance Measures or APMs), the
latter of which, in management's view, reflect the underlying
performance of the business and provide a more meaningful
comparison of how the business is managed and measured on a
day-to-day basis.
Our APMs and KPIs are aligned with our strategy and business
segments and together are used to measure the performance of our
business and form the basis of the performance measures for
remuneration. Adjusted results exclude certain items because, if
included, they could distort the understanding of our performance
for the period and the comparability between periods. The Audit and
Risk Committee has oversight of ITV's APMs and actively reviews,
revises and approves the policy for classifying adjustments and
exceptional items. Further detail is included below.
Key adjustments for adjusted EBITA, profit before tax and
EPS
Adjusted EBITA is calculated by adding back exceptional items
and high-end production tax credits to EBITA. Further adjustments,
which include the gain/loss on the sale of non-current assets,
amortisation and impairment of assets acquired through business
combinations and investments, and certain net financing costs, are
made to remove their effect from adjusted profit before tax and
adjusted EPS. The tax effects of all these adjustments are
reflected in the adjusted tax charge. These adjustments are
detailed below.
Production tax credits
The ability to access tax credits, which are rebates based on
production spend, is fundamental to our Studios business when
assessing the viability of investment in green-lighting decisions,
especially with regards to high-end drama. ITV reports tax credits
generated in the US and other countries (e.g. New Zealand, Italy,
Canada and Spain) within cost of sales, whereas in the UK tax
credits for high-end drama must be classified as a corporation tax
item. However, in our view all tax credits relate directly to the
production of programmes. Therefore, to align treatment, regardless
of production location, and to reflect the way the business is
managed and measured on a day-to-day basis, these are recognised in
adjusted EBITA. Our cash measures, including profit to cash
conversion and free cash flow are also adjusted for the impact of
production tax credits. Further detail is included in the Finance
Review.
Exceptional items
These items are excluded to reflect performance in a consistent
manner and are in line with how the business is managed and
measured on a day-to-day basis. They are typically material gains
or losses arising from events that are not considered part of the
core operations of the business, though they may cross several
accounting periods. These include, but are not limited to, costs
directly related to the impact of COVID-19, impairment of sports
rights, acquisition-related costs, reorganisation and restructuring
costs, non-routine legal costs (e.g. legal costs related to items
which are themselves considered to be exceptional items), and
onerous contracts. We also adjust for the tax effect of these
items. Further detail is included in note 2.2.
Acquisition-related costs
We structure our acquisitions with earnouts or put and call
options, to allow part of the consideration to be based on the
future performance of the business as well as to lock in and
incentivise creative talent. Where consideration paid or contingent
consideration payable in the future is employment-linked, it is
treated as an expense (under accounting rules) and therefore part
of our statutory results. However, we exclude all consideration of
this type from adjusted EBITA, adjusted profit after tax and
adjusted EPS as, in our view, these items are part of the capital
transaction and do not form part of the Group's core operations.
The Finance Review explains this further. Acquisition-related
costs, including legal and advisory fees on completed deals or
significant deals that do not complete, are also treated as an
expense (under accounting rules) and therefore on a statutory basis
form part of our reported results. In our view, these items also
form part of the capital transaction or are one-off and material in
nature and are therefore excluded from our adjusted measures.
Restructuring and reorganisation costs
Where there has been a material change in the organisational
structure of a business area or a material initiative, these costs
are highlighted and are excluded from our adjusted measures. These
costs arise from significant initiatives to reduce the ongoing cost
base and improve efficiency in the business to enable the delivery
of our strategic priorities. We consider each project individually
to determine whether its size and nature warrant separate
disclosure.
COVID-19 related costs
These are direct incremental costs incurred exclusively as a
result of COVID-19 and include; costs associated with closure of
ITV Studios productions and their subsequent restart in a safe
environment, and additional costs incurred to maintain the
production of daytime and news programming during the government
imposed lockdown.
Impairment of sports rights
COVID-19 has impacted our planned 2020-21 sporting schedule.
This combined with the consequential impact on TAR, changing
forecasts of audience mix and revenues for certain sporting events
has resulted in a material impairment to our sports rights. It is
not possible to split the impairment between that caused by
COVID-19 and underlying market movements.
Onerous contracts
A contract is considered onerous when the unavoidable costs of
the contract exceed the revenues associated with it. In 2020 we had
a significant onerous transmission contract relating to committed
costs of transmission capacity on a satellite transponder that is
no longer used in the Broadcast business. There are no revenues
associated with this capacity as there are no channels on the
relevant satellite transponder.
Amortisation and impairment
Amortisation and impairment of assets acquired through business
combinations and investments are not included within adjusted
earnings. As these costs are acquisition-related, and in line with
our treatment of other acquisition-related costs, we consider them
to be capital in nature as they do not reflect the underlying
trading performance of the Group. Amortisation of software licences
and development is included within our adjusted results as
management consider these assets to be core to supporting the
operations of the business.
Net financing costs
Net financing costs are adjusted to reflect the underlying cash
cost of interest for the business, providing a more meaningful
comparison of how the business is managed and funded on a
day-to-day basis. The adjustments made remove the impact of
mark-to-market gains or losses on swaps and foreign exchange,
one-off fees and premiums relating to the buyback of bonds, imputed
pension interest and other financial gains and losses that do not
reflect the relevant interest cash cost to the business and are not
yet realised balances.
Other Alternative Performance Measures
Total revenue
As an integrated producer broadcaster, we look at the total
revenue generated by the business including internal revenue, which
is the sale of ITV Studios programmes to Broadcast and Direct to
Consumer. ITV Studios selling programmes to the Broadcast and
Direct to Consumer businesses is an important part of our strategy
as an integrated producer broadcaster and it ensures we own all the
rights to the content.
Twelve months 2020 2019
to 31 December GBPm GBPm
External revenue
(Reported) 2,781 3,308
----- -----
Internal supply 479 577
----- -----
Total revenue
(Adjusted) 3,260 3,885
----- -----
Net pension deficit/surplus
This is our defined benefit pension scheme surplus or deficit
under IAS 19 adjusted for other pension assets, mainly gilts, which
are held by the Group as security for future unfunded pension
payments for four Granada executives and over which that pension
scheme holds a charge. See note 3.7 of the financial
information.
Profit to cash conversion
This is the measure of our effectiveness of cash generation used
for working capital management. It is calculated as our adjusted
cash flow as a proportion of adjusted EBITA. Adjusted cash flow,
which reflects the cash generation of our underlying business, is
calculated on our statutory cash generated from operations and
adjusted for exceptional items, net of capex on property, plant and
equipment and intangible assets, and including the cash impact of
high-end production tax credits.
Prior to 2020, any movement in our non-recourse receivables
purchase agreement was included in our profit to cash conversion
calculation. From 2020 onwards, any such movement will be excluded.
We regard any drawing on this agreement as a form of funding and
believe that cash generated from funding activities should be
excluded from our profit to cash conversion calculation. This gives
a better measure of the underlying working capital performance of
the business. At 31 December 2019 the amount sold under the
non-recourse receivables purchase agreement, and therefore included
in our profit to cash conversion was GBP100 million. At 31 December
2020 no receivables were sold.
Adjusted free cash flow
This is our measure of adjusted free cash flow after we have met
our financial obligations. It takes our adjusted cash flow and
removes the impact of net interest, adjusted cash tax (which is
total tax paid adjusted to exclude the receipt of production tax
credits) and pension funding. A full reconciliation is included in
the Finance Review.
Covenant net debt and covenant liquidity
Covenant net debt is our leverage as defined in our revolving
credit facility (RCF) agreement. This calculation is materially
different to how we define reported net debt and is relevant in
demonstrating we have met required RCF financial covenants at our
reporting date. Prior to 2020, we disclosed adjusted net debt as an
APM which better reflected how credit rating agencies looked at our
balance sheet. As the methodology to calculate net debt differs by
credit rating agency, replicating this calculation is not deemed
necessary going forward.
2020 2019
At 31 December GBPm GBPm
Reported net
debt (including
IFRS 16 lease
liabilities) (545) (893)
----- -----
Impact of IFRS
16 105 89
----- -----
Long-term trade
and other payables (54) (61)
----- -----
Other pension
assets 62 58
----- -----
Covenant net
debt (432) (807)
----- -----
Covenant net
debt to adjusted
EBITDA** 0.7x 1.1x
----- -----
Cash and cash
equivalents 668 246
----- -----
Undrawn RCF 630 630
----- -----
Undrawn CDS
facility 199 300
----- -----
Covenant liquidity* 1,497 1,176
----- -----
* Total liquidity is defined as: unrestricted cash and cash
equivalents plus undrawn committed facilities.
** Adjusted EBITDA is defined per the facility agreement. The
Finance Review includes further detail on our covenant ratios.
Reconciliation between statutory and adjusted results
2020 2020 2020 2019 2019 2019
Twelve months to 31 Statutory Adjustments Adjusted Statutory Adjustments Adjusted
December GBPm GBPm GBPm GBPm GBPm GBPm
EBITA(1) 561 12 573 693 36 729
---------- ------------ --------- ---------- ------------ ---------
Exceptional items
(operating)(2) (118) 118 - (84) 84 -
---------- ------------ --------- ---------- ------------ ---------
Amortisation and impairment(3) (87) 68 (19) (74) 63 (11)
---------- ------------ --------- ---------- ------------ ---------
Operating profit 356 198 554 535 183 718
---------- ------------ --------- ---------- ------------ ---------
Net financing costs(4) (44) 8 (36) (68) 28 (40)
---------- ------------ --------- ---------- ------------ ---------
Share of profits on
JVs and associates 9 - 9 1 - 1
---------- ------------ --------- ---------- ------------ ---------
Gain on sale of non-current
assets and subsidiaries
(non--operating exceptional
items)(2) 4 (4) - 62 (62) -
---------- ------------ --------- ---------- ------------ ---------
Profit before tax 325 202 527 530 149 679
---------- ------------ --------- ---------- ------------ ---------
Tax(5) (44) (51) (95) (52) (67) (119)
---------- ------------ --------- ---------- ------------ ---------
Profit after tax 281 151 432 478 82 560
---------- ------------ --------- ---------- ------------ ---------
Non-controlling interests 4 - 4 (5) - (5)
---------- ------------ --------- ---------- ------------ ---------
Earnings 285 151 436 473 82 555
---------- ------------ --------- ---------- ------------ ---------
Shares (million),
weighted average 4,002 4,002 4,000 4,000
---------- ------------ --------- ---------- ------------ ---------
EPS (p) 7.1p 10.9p 11.8p 13.9p
---------- ------------ --------- ---------- ------------ ---------
Diluted EPS (p) 7.1p 10.8p 11.8p 13.8p
---------- ------------ --------- ---------- ------------ ---------
1. GBP12 million (2019: GBP36 million) adjustment relates to
production tax credits which we consider to be a contribution to
production costs and working capital in nature rather than a
corporate tax item.
2. Exceptional items largely relate to the impairment of sports
rights, COVID-19 related costs, an onerous contract provision, a
settlement of the Box Clever legal case, and acquisition-related
costs. Refer to the Finance Review.
3. GBP68 million (2019: GBP63 million) adjustment relates to
amortisation and impairment of assets acquired through business
combinations and investments. We include only amortisation on
purchased intangibles, such as software within adjusted profit
before tax.
4. GBP8 million (GBP28 million) adjustment is primarily for
non-cash interest cost. This provides a more meaningful comparison
of how the business is managed and funded on a day-to-day
basis.
5. Tax adjustments are the tax effects of the adjustments made
to reconcile profit before tax and adjusted profit before tax. A
full reconciliation is included in the Finance Review.
Finance Review
This Finance Review focuses on the more technical aspects of our
financial results while the operating and financial performance has
been discussed within the Operating and Performance Review. Our
Alternative Performance Measures (APMs) section, explains the
adjustments we make to our statutory results. This enables focus on
the key measures that we report on and use as KPIs across the
business. See earlier sections for further detail.
Our adjusted and statutory results detailed below, have been
significantly impacted by COVID-19. The Operating and Performance
Review includes further detail on how it has impacted the
operational and financial performance of our two businesses, ITV
Studios and Broadcast.
Twelve months 2020 2019 Change Change
to 31 December GBPm GBPm GBPm %
Total advertising
revenue 1,577 1,768 (191) (11)
----- ----- ------ ------
Total non-advertising
revenue 1,683 2,117 (434) (21)
----- ----- ------ ------
Total revenue 3,260 3,885 (625) (16)
----- ----- ------ ------
Internal supply (479) (577) 98 17
----- ----- ------ ------
Group external
revenue 2,781 3,308 (527) (16)
----- ----- ------ ------
Group adjusted
EBITA 573 729 (156) (21)
----- ----- ------ ------
Group adjusted
EBITA margin 21% 22%
----- ----- ------ ------
Group statutory
EBITA 561 693 (132) (19)
----- ----- ------ ------
Adjusted EPS 10.9p 13.9p (3.0p) (22)
----- ----- ------ ------
Statutory EPS 7.1p 11.8p (4.7p) (40)
----- ----- ------ ------
Dividend per share - 8.0p (8.0p) -
----- ----- ------ ------
Reported net debt
as at 31 December (545) (893) 348
----- ----- ------ ------
Exceptional items
2020 2019
Twelve months to 31 December GBPm GBPm
Acquisition-related expenses (13) (75)
----- -----
Restructuring and reorganisation
costs (11) (24)
----- -----
COVID-19 related costs (11) -
----- -----
Impairment of sports rights (23) -
----- -----
Other (60) 15
----- -----
Total operating exceptional
items (118) (84)
----- -----
Non-operating exceptional
items 4 62
----- -----
Total exceptional items (114) (22)
----- -----
Total exceptional items in the period were GBP114 million (2019:
GBP22 million). Acquisition-related expenses of GBP13 million are
predominantly performance based, employment-linked consideration to
former owners. This has decreased year-on-year as we approach the
end of the earnout period for several of our acquisitions.
Restructuring and reorganisation costs of GBP11 million relate
to one-off restructuring projects stemming from the Group-wide
commitment to reduce the overhead cost base and reorganisation
costs to deliver strategy.
COVID-19 related costs of GBP11 million includes direct
incremental costs incurred exclusively as a result of COVID-19.
These relate to the closure of ITV Studios productions and the
subsequent restart in a safe environment, along with additional
costs incurred to maintain the production of daytime programming
during the government imposed lockdown.
Impairment of sports rights relates to the impact of COVID-19 on
the planned sporting schedule for 2020 and 2021 and the
consequential impact on TAR, along with changing forecasts of
audience mix and revenues for certain sporting events. The Group
has recognised a provision for these sporting events of GBP23
million, which is included in programme rights and programme
commitments. It is not possible to split the impairment between
that caused by COVID-19 and underlying market movements.
Other exceptional costs of GBP60 million include: an estimate
for the settlement of the Box Clever case of GBP31 million; an
onerous contract provision of GBP19 million for satellite
transponder capacity no longer required (see below for further
detail); past service charges on pension schemes of GBP6 million;
and other legal costs in relation to legal matters which are
considered to be outside the normal course of business (see
exceptionals note 2.2 for further detail). In 2019, other
exceptionals included the release the Box Clever provision, as the
cost of resolving the matter at that time could not be reliably
estimated. This was partly offset by the trade insurance
receivables provision. See note 3.6 for further detail.
During the year, we commenced a review of the efficiency of our
satellite transponder capacity usage, aimed at reducing our
capacity requirements. This has allowed us to reorganise and clear
all channels from one transponder, and as we are now no longer
utilising it in our Broadcast business, we are including GBP19
million from the date the transponder was cleared, as an onerous
contract provision. The review is ongoing and we expect to clear a
second transponder in 2021.
Non-operating exceptional items relate to a gain on the sale of
Freeview channel, Merit, during the year. In 2019, there was a gain
on the sale of the London Television Centre.
Net financing costs
2020 2019
Twelve months to 31 December GBPm GBPm
Financing costs directly
attributable to loans and
bonds (27) (31)
----- -----
Cash-related net financing
costs (9) (8)
----- -----
Amortisation of bonds - (1)
----- -----
Adjusted financing costs (36) (40)
----- -----
Imputed pension interest (2) (1)
----- -----
Other net financial losses
and unrealised foreign
exchange (6) (27)
----- -----
Net financing costs (44) (68)
----- -----
Adjusted financing costs were down GBP4 million to GBP36 million
(2019: GBP40 million) reflecting lower levels of net debt in the
year. Net financing costs were GBP24 million lower in 2020 at GBP44
million (2019: GBP68 million) and largely due to the prior year
including one-off fees and premiums in relation to the buyback of
EUR506 million of Eurobonds, as well as the acceleration of
amortisation on these bonds.
JVs and associates
Our share of profits from JVs and associates in the year was
GBP9 million (2019: profit of GBP1 million). This was the net
profit arising from our investments, such as BritBox US and Canada,
Circle of Confusion and Blumhouse Television.
Profit before tax
Statutory profit before tax decreased by 39% to GBP325 million
(2019: GBP530 million) in the year. Production tax credits
decreased to GBP12 million (2019: GBP36 million) as a result of
fewer high-value dramas due to the pause in productions. Adjusted
profit before tax was down 22% to GBP527 million (2019: GBP679
million).
Profit before tax (PBT)
2020 2019
Twelve months to 31 December GBPm GBPm
Profit before tax 325 530
----- -----
Production tax credits 12 36
----- -----
Exceptional items 114 22
----- -----
Amortisation and impairment* 68 63
----- -----
Adjustments to net financing
costs 8 28
----- -----
Adjusted profit before
tax 527 679
----- -----
* In respect of assets arising from business combinations and
investments.
Tax
Adjusted tax charge
The total adjusted tax charge for the year was GBP95 million
(2019: GBP119 million), corresponding to an effective tax rate on
adjusted profit before tax (PBT) of 18% (2019: 18%), which is lower
than the standard UK corporation tax rate of 19% (2019: 19%). We
expect the adjusted effective tax rate to be between 18% and 19% in
2021 and 2022, and then move to around 25% over the medium term. On
a reported basis, the tax charge is GBP44 million (2019: GBP32
million tax charge) and corresponds to an effective tax rate of
13.5% (2019: 9.8%). The adjustments made to reconcile the tax
charge with the adjusted tax charge are the tax effects of the
adjustments made to reconcile PBT and adjusted PBT, as detailed in
the table above.
2020 2019
Twelve months to 31 December GBPm GBPm
Tax charge (44) (52)
----- -----
Production tax credits (12) (36)
----- -----
Charge for exceptional
items (21) (6)
----- -----
Charge in respect of amortisation
and impairment* (16) (19)
----- -----
Charge in respect of adjustments
to net financing costs (2) (6)
----- -----
Adjusted tax charge (95) (119)
----- -----
Effective tax rate on adjusted
profits 18% 18%
----- -----
* In respect of intangible assets arising from business
combinations and investments. Also reflects the cash tax benefit of
tax deductions for US goodwill.
Cash tax
Cash tax paid in the year was GBP88 million (2019: GBP108
million) and is net of GBP22 million of production tax credits
received (2019: GBP37 million). The majority of the cash tax
payments were made in the UK. Cash tax paid is lower than the prior
year due to reduced payments on account resulting from a lower
profit forecast. As previously guided, 2020 included six quarterly
tax payments rather than four. This was a one-off and will return
to four quarterly payments in 2021. A reconciliation between the
tax charge for the year and the cash tax paid in the year is shown
below.
2020 2019
Twelve months to 31 December GBPm GBPm
Tax charge (44) (52)
----- -----
Temporary differences recognised
through
deferred tax (1) (21)
----- -----
Prior year adjustments
to current tax (7) (8)
----- -----
Current tax, current year (52) (81)
----- -----
Phasing of tax payments
(including in respect of
pension contribution benefits) (46) (28)
----- -----
Production tax credits
- timing of receipt 10 1
----- -----
Cash tax paid (88) (108)
----- -----
Tax strategy
ITV is a responsible business, and we take a responsible
attitude to tax, recognising that it affects all of our
stakeholders. To allow those stakeholders to understand our
approach to tax, we have published our Global Tax Strategy, which
is available on our corporate website.
www.itvplc.com/investors/governance/policies
We have four key strategic tax objectives:
1. Engage with tax authorities in an open and transparent way to
minimise uncertainty
2. Proactively partner with the business to provide clear,
timely, relevant and business focused advice across all aspects of
tax
3. Take an appropriate and balanced approach when considering
how to structure tax sensitive transactions
4. Manage ITV's tax risk by operating effective tax governance
and understanding our tax control framework with a view to
continuously adjusting our approach to be compliant with our tax
obligations
Our tax strategy is aligned with that of the business and its
commercial activities and establishes a clear Group-wide approach
based on openness and transparency in all aspects of tax reporting
and compliance, wherever the Company and its subsidiaries operate.
The strategy confirms that ITV does not engage in or condone tax
evasion or the facilitation of tax evasion in any form and that we
have in place reasonable procedures to prevent the facilitation of
tax evasion. Within our overall governance structure, the
governance of tax and tax risk is given a high priority by the
Board and Audit and Risk Committee (ARC). The ITV Global Tax
Strategy, approved by the Board and ARC in September 2020, and as
published on the ITV plc website, is compliant with the UK tax
strategy publication requirement set out in Part 2 Schedule 19 of
the Finance Act 2016.
EPS - adjusted and statutory
Overall, adjusted profit after tax was down 23% to GBP432
million (2019: GBP560 million). Non-controlling interests was a
share of losses of GBP4 million (2019: GBP5 million share of
profits) which is the net loss from our unowned share in entities
such as BritBox UK, Work Friends, Cattleya and Tetra Media.
Adjusted basic EPS was 10.9p (2019: 13.9p), down 22%, which is
broadly in line with the decrease in adjusted EBITA of 21%. The
weighted average number of shares increased to 4,002 million in the
year (2019: 4,000 million). Diluted adjusted EPS in the year was
10.8p (2019: 13.8p) reflecting a weighted average diluted number of
shares of 4,025 million (2019: 4,018 million).
Statutory EPS declined by 40% to 7.1p (2019: 11.8p), which is
larger than the decline in adjusted EPS, predominantly due to the
increase in exceptional costs in the period, as explained
earlier.
A full reconciliation between statutory and adjusted results is
included within the Alternative Performance Measures section.
Dividend per share
The Board recognises the importance of the dividend to our
shareholders and intends to restore dividend payments as soon as
circumstances permit. The Board will balance shareholder returns
with our commitment to maintain investment grade metrics over the
medium term, to continue to invest behind the strategy and with the
ongoing uncertainty with COVID-19.
Acquisitions
Since 2012, we have acquired a number of content businesses in
the UK, US and creative locations across Europe, developing a
strong portfolio of programmes that return and travel. As we have
grown in size and expanded our network relationships and
distribution capability, this has helped to renew and strengthen
our creative talent and build our reputation as a leading European
producer and distributor and a leading unscripted independent
production company in the US.
As part of our strategy, we will consider selective
value-creating M&A and talent deals in both scripted and
unscripted to obtain further creative talent and IP.
We have strict criteria for evaluating potential acquisitions.
Financially, we assess ownership of intellectual property, earnings
growth and valuation based on return on capital employed and
discounted cash flow. Strategically, we ensure an acquisition
target has a strong creative track record and pipeline in content
genres that return and travel, namely drama, entertainment and
factual, as well as retention and succession planning for key
individuals in the business.
We generally structure our deals with earnouts or with put and
call options in place for the remainder of the equity, capping the
maximum consideration payable by basing a significant part of the
consideration on future performance. In this way, not only can we
lock-in creative talent and ensure our incentives are aligned, but
we also reduce our risk by only paying for the actual, not
expected, performance delivered over time. We believe this is the
right way to structure our deals as we should not pay upfront for
future performance and should incentivise and reward delivery by
the business over time.
The majority of earnouts or put and call options are dependent
on the seller remaining within the business. Where future payments
are directly related to the seller remaining with the business,
these payments are treated as employment costs and, therefore, are
part of our statutory results. However, we exclude these payments
from adjusted profits and adjusted EPS as an exceptional item, as
in our view, for the reasons set out above, these items are part of
the capital consideration reflecting how we structure our
transactions and do not form part of the core operations.
The following table sets out the initial consideration payable
on our acquisitions, additional consideration subsequently paid,
our expected future payments based on our current view of
performance and the total expected consideration payable, which is
only payable if exceptional compound earnings growth is
delivered.
Acquisition-related liabilities or performance-based
employment-linked earnouts are amounts estimated to be payable to
previous owners. The estimated future payments of GBP227 million
are sensitive to forecast profits as they are based on a multiple
of earnings. The estimated future payments, treated as employment
costs, are accrued over the period the sellers are required to
remain with the business, and those not linked to employment are
recognised at acquisition at their time discounted value.
We closely monitor the forecast performance of each acquisition
and, where there has been a change in expectations, we adjust our
view of potential future commitments. Expected future payments of
GBP227 million have decreased by GBP3 million since 31 December
2019 mainly due to payments made in the year being offset by an
increase in expected future payments on certain acquisitions and
the associated impact of foreign exchange. At 31 December 2020,
GBP209 million of expected future payments had been recorded on the
balance sheet, with the balance of GBP18 million to be accrued over
the period in which the sellers are required to remain with the
business.
A large proportion of the expected future payments relate to our
best estimate of the final payment we will make in relation to the
acquisition of Talpa. The amount payable will depend on the average
EBITDA from 2017 to 2019 being between EUR75 million and EUR100
million. Contractually the payment is capped at EUR400 million if
the average EBITDA for 2017-2019 is EUR100 million or more. See
note 3.1.5 of the financial information for further detail.
There were no significant acquisitions in 2020. However, during
the year we agreed a number of talent deals within ITV Studios UK
and ITV Studios US to strengthen our creative talent pool.
Acquisitions - between 2012 and 2020 (undiscounted)
Additional Expected Total
Initial consideration future expected Expected
consideration paid payments* consideration** payment
Company Geography Genre GBPm GBPm GBPm GBPm period***
Content &
Total for Broadcast
2012-2020 Various TV 957 205 227 1,389 2021-2026
---------- ---------------- -------------- -------------- ---------- --------------- ----------
* Undiscounted and adjusted for foreign exchange. All future payments are performance related.
** Undiscounted and adjusted for foreign exchange, including the
initial cash consideration and excluding working capital
adjustments. Total maximum consideration which was potentially
payable at the time of acquisition was GBP2.4 billion.
*** GBP163 million is expected to be paid in 2021.
Cash generation
Profit to cash conversion
2020 2019
Twelve months to 31 December GBPm GBPm
Adjusted EBITA 573 729
----- -----
Working capital movement* 237 (63)
----- -----
Adjustment for production
tax credits 10 1
----- -----
Depreciation 57 56
----- -----
Share-based compensation 6 10
----- -----
Acquisition of property,
plant and equipment and
intangible assets** (66) (68)
----- -----
Capex relating to redevelopment
of new London headquarters - 2
----- -----
Lease liability payments
(including lease interest) (26) (35)
----- -----
Adjusted cash flow 791 632
----- -----
Profit to cash ratio 138% 87%
----- -----
* Working capital movement in 2020 excludes the unwind of the
GBP100 million non-recourse receivables purchase agreement
** Except where disclosed, management views the acquisition of
operating property, plant and equipment and intangibles as business
as usual capex, necessary to the ongoing investment in the
business.
One of ITV's strengths is its cash generation reflecting our
ongoing tight management of working capital balances. We manage
risk when making all investment decisions, particularly into
scripted content and BritBox UK, through having a disciplined
approach to cash and costs. This has been particularly important
during the COVID-19 pandemic. Remaining focused on cash and costs
means we are in a good position to continue to invest across the
business in line with our strategic priorities.
In the year, we generated GBP791 million of adjusted operational
cash (2019: GBP632 million) from GBP573 million of adjusted EBITA
(2019: GBP729 million), resulting in a profit to cash ratio of 138%
(2019: 87%). This increase was driven by a large working capital
inflow arising from a reduction in programme stock (where we
delivered programmes but were unable to continue producing) and the
timing of VAT payments which have been deferred (see further detail
below). This working capital benefit is expected to unwind in
2021.
To facilitate our working capital management, we have a GBP100
million non-recourse receivables purchase agreement (free of
financial covenants), which gives us the flexibility to access
additional liquidity when required. At 31 December 2020, no
receivables were sold under this agreement (2019: GBP100 million).
Prior to 2020, any movement in our non-recourse receivables
purchase agreement was included in our profit to cash conversion
calculation. From 2020 onwards, any such movement is excluded.
Further detail is included in our APMs.
Adjusted free cash flow
2020 2019
Twelve months to 31 December GBPm GBPm
Adjusted cash flow 791 632
----- -----
Net interest paid (excluding
lease interest) (17) (54)
----- -----
Adjusted cash tax* (110) (145)
----- -----
Pension funding (59) (74)
----- -----
Adjusted free cash flow 605 359
----- -----
* Adjusted cash tax of GBP110 million is total cash tax paid of
GBP88 million plus receipt of production tax credits of GBP22
million, which are included within adjusted cash flow from
operations, as these production tax credits relate directly to the
production of programmes.
Our free cash flow after payments for interest, cash tax and
pension funding remained healthy in the year at GBP605 million
(2019: GBP359 million). As agreed with the tax authorities and our
pension trustees, we deferred GBP90 million of payments out of
2020, with GBP75 million of VAT payments payable in 2021 and GBP15
million of pension contributions payable across 2022 - 2025.
Overall, after acquisitions and acquisition-related costs,
pension and tax payments, we ended the period with reported net
debt (including IFRS 16 lease liabilities) of GBP545 million (31
December 2019: GBP893 million). This has benefited from the
deferred VAT and pension payments above and is before earnout
payments which we anticipate paying in 2021.
Funding and liquidity
Debt structure and liquidity
The Group's financing policy is to manage its liquidity and
funding risk for the medium to long-term. ITV uses debt instruments
with a range of maturities to ensure access to appropriate
short-term borrowing facilities with a minimum of GBP250 million of
cash and undrawn committed facilities available at all times. We
have a number of facilities in place to preserve our financial
flexibility, which includes a GBP630 million Revolving Credit
Facility (RCF) in place until 2023. The RCF has leverage and
interest cover covenants which require us to maintain a covenant
net debt to adjusted EBITDA ratio of below 3.5x and interest cover
(adjusted EBITDA to net finance charges) above 3.0x. As a
precautionary measure, during the first half of 2020, we agreed
with our banking group to replace the leverage and interest cover
covenants in the RCF with a cap on covenant net debt at GBP1.8
billion and a minimum covenant liquidity requirement (cash plus
undrawn committed funding lines) of GBP250 million until 30
December 2021. In addition, ITV has agreed not to pay a dividend in
the period of the amendment. ITV has the right to restore its
original covenants at any time should it so choose, in which case
the dividend restriction would fall away. At 31 December 2020,
ITV's financial position was well within its covenants.
We also have a bilateral financing facility of GBP300 million,
which is free of financial covenants. In March 2020, the Group
extended the maturity of its existing GBP300 million bilateral loan
facility by five years to 30 June 2026.
This provides us with sufficient liquidity to meet the
requirements of the business in the short to medium term under a
variety of scenarios, including a severe but plausible downside
scenario. At 31 December 2020, the GBP630 million RCF was undrawn
and GBP199 million of the GBP300 million bilateral facility was
available, which with unrestricted cash of GBP618 million, provided
total liquidity at 31 December 2020 of GBP1,447 million.
Reported net debt
2020 2019
At 31 December GBPm GBPm
Gross cash* 668 246
------- -----
Gross debt (including IFRS
16 lease liabilities) (1,213) 1,139
------- -----
Reported net debt (545) (893)
------- -----
* Gross cash includes GBP50 million of restricted cash in
relation to the LTVC Pension Funding Partnership (2019: GBP75
million of restricted cash).
Financing - gross debt
We are financed using debt instruments and facilities with a
range of maturities. Borrowings at 31 December 2020 were repayable
as follows:
Amount repayable as at
31 December 2020 GBPm Maturity
GBP630 million Revolving Dec
Credit Facility - 2023
----- --------
Sep
EUR600 million Eurobond 537 2026
----- --------
Sep
EUR335 million Eurobond 299 2022
----- --------
Dec
EUR259 million Eurobond 232 2023
----- --------
Other loans 17 Various
----- --------
Total debt* 1,085
----- --------
* Net of GBP23 million cross-currency swaps and excluding GBP105
million of IFRS 16 lease liabilities.
Capital allocation and leverage
Our objective is to run an efficient balance sheet and manage
our financial metrics appropriately, consistent with our commitment
to investment grade metrics over the medium term. At 31 December
2020 reported net debt (including IFRS 16 liabilities) to adjusted
EBITDA was 0.9x (31 December 2019: 1.2x).
Our priority remains to invest in our key assets and value
drivers in line with our strategic priorities and balance this
investment with the returns to shareholders.
Credit ratings
We continue to be rated investment grade by both ratings
agencies: BBB- (negative outlook) by Standard and Poor's and Baa3
(stable outlook) by Moody's Investor Services. These ratings were
reiterated in Q2. The factors that are taken into account in
assessing our credit rating include our degree of operational
gearing and exposure to the economic cycle, as well as business and
geographical diversity.
Foreign exchange
As ITV continues to grow internationally, we are increasingly
exposed to foreign exchange on our overseas operations. We do not
hedge our exposure to revenues and profits generated overseas, as
this is seen as an inherent risk. We may elect to hedge our
overseas net assets, where material. To date, we have hedged a
significant portion of the euro net assets arising from the Talpa
Media acquisition.
ITV is also exposed to foreign exchange risk on transactions we
undertake in a foreign currency. Our policy is to hedge a portion
of any known or forecast transaction where there is an underlying
cash exposure for the full tenor of that exposure, to a maximum of
five years forward, where the portion hedged depends on the level
of certainty we have on the final size of the transaction.
Finally, ITV is exposed to foreign exchange risk on the
retranslation of foreign currency loans and deposits. Our policy is
to hedge such exposures where there is an expectation that any
changes in the value of these items will result in a realised cash
movement over the short to medium term.
The foreign exchange and interest rate hedging strategy is set
out in our Treasury policies which are approved by the ITV plc
Board.
Foreign exchange sensitivity
The following table highlights ITV's sensitivity, on a full year
basis, to translation resulting from a 10%
appreciation/depreciation in sterling against the US dollar and
euro, assuming all other variables are held constant. An
appreciation in sterling has a negative effect on revenue and
adjusted EBITA; a depreciation has a positive effect.
Adjusted
Revenue EBITA
Currency GBPm GBPm
+/- +/-
US dollar 20-30 0-2
------- --------
+/- +/-
Euro 30-40 3-5
------- --------
Pensions
The net pension deficit for the defined benefit schemes at 31
December 2020 was GBP26 million (31 December 2019: GBP87 million
deficit). The movement in the year was driven by an increase in
liabilities caused by a reduction in corporate bond yields and
changes in the longevity swap, offset by updated inflation and
demographic assumptions and our deficit funding contributions made
in the year. The pension assets have increased due to a reduction
in gilt yields.
The net pension assets include GBP62 million of gilts (2019:
GBP58 million), which are held by the Group as security for future
unfunded pension payments to four former Granada executives, the
liabilities of which are included in our pension obligations.
A full reconciliation is included in note 3.7 of the financial
information.
Actuarial valuation
The last triennial actuarial valuation was undertaken in 2017.
On the basis agreed with the Trustee, the combined deficits of the
ITV defined benefit pension scheme as at 1 January 2017 amounted to
GBP470 million.
The Trustee is in the process of undertaking a full actuarial
valuation of all sections of the scheme as at 1 January 2020, which
we expect to agree during 2021.
Deficit funding contributions
The Group continues to make deficit funding contributions in
line with the most recent actuarial valuation in order to eliminate
the deficits in each section. The accounting deficit does not drive
the deficit funding contribution.
The Group's deficit funding contributions in 2020 were GBP59
million. We have agreed with the pension Trustees to delay around
GBP15 million, which will be deferred across 2022 to 2025 (subject
to the new funding schedule which will be finalised as part of the
Triennial valuation). Further details are included within note 3.7
of the financial information.
In 2021 we expect deficit funding contributions to be around
GBP75 million.
SDN pension funding partnership
In 2010, ITV established a Pension Funding Partnership (PFP)
with the Trustee backed by the asset of SDN which resulted in the
assets of Section A of the defined benefit pension scheme being
increased by GBP200 million. The Group is contracted to provide
additional collateral to support the original value of the
structure at the rate of GBP50.7 million each year from March 2019
to March 2022. This cash collateral would not leave the Group but
would be maintained in a restricted bank account. The Trustee
agreed to accept a bank guarantee as an alternative to the 2019 and
2020 collateral instalments with the result that GBP101 million
cash collateral did not become due in March 2020. The PFP is
currently being reviewed as we look to replace it with an
alternative asset to SDN. If the asset in the SDN PFP structure is
not replaced, the Group will pay to the pension scheme the lower of
any deficit calculated on the funding basis in 2022 or GBP200
million.
2021 full year planning assumptions
The following planning assumptions for 2021 are based on our
current best view but may change depending on how events unfold
over the year.
Profit and Loss impact
-- Total schedule costs are estimated to be around GBP1.1
billion
-- Total essential investment of around GBP25 million in 2021,
which includes GBP10 million as previously guided, the phasing of
2020 investments which fall into 2021 and GBP13 million of
additional investments to accelerate the delivery of our
strategy
-- Total BritBox UK venture losses are expected to be around the
same level as 2020 and will decline thereafter
-- Overhead cost savings are expected to be around GBP30 million
in 2021. We will deliver around GBP100 million of annualised
permanent overhead cost savings by the end of 2022 (from 2019)
compared to our previous guidance of GBP55 million to GBP60 million
over that period
-- Adjusted interest is expected to be around GBP36 million,
which is in line with 2020
-- The adjusted effective tax rate is expected to be between 18%
and 19% in 2021 and 2022, and then move to around 25% over the
medium term
-- The translation impact of foreign exchange, assuming rates
remain at current levels, could have an adverse impact of around
GBP25 million on revenue and around GBP3 million on profit
-- Exceptional items are expected to be around GBP25 million,
mainly due to acquisition related expenses, restructuring and
reorganisation costs, and reducing our transponder capacity
Cash impact
-- Tax will reflect the payment of GBP75 million deferred VAT
from 2020
-- Total capex is expected to be around GBP75 million as we
further invest in our digital transformation
-- The cash cost of exceptionals are expected to be around
GBP190 million, largely relating to accrued earnouts which includes
the final earnout payment for Talpa
-- Profit to cash conversion is expected to be around 30% in
2021, as the favourable working capital position in 2020 unwinds.
Taking 2020 and 2021 together, cash conversion is expected to be
80% to 85% over the two year period in line with historic
levels
-- Total pension deficit funding contribution for 2021 is
expected to be around GBP75 million
Chris Kennedy
Group Chief Financial Officer
Our commitment to Section 172(1)
The Directors consider that they have acted, in good faith, in a
way that is most likely to promote the success of the Company for
the benefit of its members as a whole, having regard (among other
matters) to the matters set out in section 172(1)(a-f) of the
Companies Act 2006. As the Chairman makes clear in his statement in
ITV's 2020 Annual Report, the Board regularly considers stakeholder
groups and their most significant issues, views and interests as
well as the financial and long-term impact of key actions
throughout its decision-making process. The Board also undertakes a
formal assessment on an annual basis of whether the key
stakeholders identified remain appropriate.
During 2020, the challenges arising from COVID-19 required the
Board to act swiftly and approve measures to increase the
resilience of the business and protect the interests of all
stakeholders. Examples of some of the key strategic issues
considered and decisions made by the Board during the year and an
explanation of how the Board has had regard to the matters in
section 172(1) (a-f) in reaching decisions are set out in the table
below.
Maintaining the resilience of the business in the context of the
significant financial and economic uncertainty caused by COVID-19
and BREXIT
Directors consideration of key factors Outcomes on Board decision-making
set out in section 172(1) and other key strategic decisions
Long-term impact:
* In response to the uncertainty and pressures on * Replacement of the leverage and interest cover
revenue streams caused by COVID-19, the Board focused covenants in the Revolving Credit Facility with a cap
on preserving cash, which was paramount to on covenant net debt at GBP1.8 billion and a minimum
safeguarding financial stability and longer-term covenant liquidity requirement of GBP250 million
sustainability until 30 December 2021
* The Board has regularly considered the range of * Reductions to Executive Director and Management Board
forecasts available to it, particularly in light of salaries and a voluntary 20% reduction in fees for
the uncertainties caused by COVID-19 and Brexit on Board members from April 2020 to October 2020
the advertising market. Whilst the direct impacts of
Brexit are not significant in the short-term,
traditional TV spenders are contributing less towards * Ongoing monitoring by the Board of:
advertising in the face of economic headwinds
* business performance against a wide range of
* The Board was mindful that the continued growth of scenarios as well as analysis to inform planning and
the Studios business in 2021 would depend on how decision-making to ensure costs and cash are managed
quickly COVID-19 restrictions are eased and therefore appropriately
ensured that the budget and five year plan took this
into account
* the risks associated with COVID-19 and changes in
regulation and impact of Brexit on the business
---------------------------------------------------------------
Shareholders: The Board was mindful
of shareholders' concerns regarding * Withdrawal of the 2019 final dividend and previously
the impact of COVID-19 on ITV's financial announced intention to pay an 8.0p full year dividend
and operating performance and resilience for 2020
as well as its ongoing ability to
pay dividends.
* Increased Chief Executive and Group CFO meetings with
shareholders during the initial phase of the crisis
---------------------------------------------------------------
Colleagues: The Board recognised
that the economic uncertainty caused * Implementation of other cost-reduction measures,
by COVID-19 could result in our colleagues including: recruitment and pay freezes across the
worrying about their personal financial business; the cancellation of the 2020 bonus for all
situation and was regularly updated colleagues; furloughing colleagues as appropriate;
on communications, which included reducing non-essential travel and other expenses
the Chief Executive's vodcast and
through the Workforce Engagement
Director, to ensure colleagues were
kept informed about cost-reduction
measures that would impact them.
---------------------------------------------------------------
Partners and customers: The Board
considered an inability to complete * Ongoing monitoring of advertising trends and the
productions in light of global restrictions, impact of those trends in the medium to long-term,
the impact this would have on revenue and the impact of COVID-19 restrictions on Studios
and our free-to-air customers and productions and production restarts globally
the impact on delivering content
to customers. The Board also considered
business continuity risks with critical * Increased supplier due diligence and acceleration of
suppliers and the evolving competitor initiatives in relation to enhancing partnerships
landscape due to COVID-19.
---------------------------------------------------------------
Looking after the health and safety of colleagues, programme
participants and the wider community in the context of COVID-19
Directors consideration of key factors Outcomes on Board decision-making
set out in section 172(1) and other key strategic decisions
Colleagues: The Board recognised
that the pandemic could have a negative * Use and development of existing programmes to support
impact on our colleagues' physical the mental wellbeing of our colleagues, especially in
and mental wellbeing, reinforcing the context of working from home
that people and communications continue
to be our top priority. Regular updates
on colleagues are provided to the * Continued investment in technology and systems to
Board in the Chief Executive report. enable colleagues to optimise digital working. For
In addition, ITV took a leading role more detail on measures put in place for colleagues
in the development of COVID-19 TV refer to the 'Our People' section of our 2020 Annual
production protocols with UK government Report.
to minimise health and safety risks
for colleagues - a role that has
been specifically recognised by the * Development of a phased approach to re-entering the
government in Parliament. office safely (to be implemented as appropriate in
line with government guidelines)
------------------------------------------------------------
Customers and programme participants:
In order to protect the health and * Implementation of new processes and protocols to
safety of our talent and crew, ITV minimise health and safety risks for colleagues and
productions were paused at the start programme participants working on content production
of the pandemic, whilst recognising to allow them to work safely during the pandemic.
the impact and costs for the business This included working with partners to drive the
of having to take such actions in government's introduction of the COVID indemnity
the long-term. scheme (Film & TV Production Restart Scheme)
------------------------------------------------------------
Legislators and Regulators: The UK
government and industry players were * Integration of public health messaging into our
consulted when agreeing measures broadcasting. In addition to editorial content, we
to protect our employees and programme created campaigns with messages on mental health
participants from the risk of infection. (e.g. how to combat loneliness), the importance of
Public health (mental and physical) staying at home, handwashing, healthy eating (Eat
has been a particularly important Them To Defeat Them) for children and exercise (with
topic over the past year. Public the Daily Mile)
Health England asked ITV to help
communicate critical health messages
to key demographics.
------------------------------------------------------------
Community, environment, viewers and
subscribers: The pandemic presented * Running our award-winning mental health campaign,
new opportunities for ITV to further Britain Get Talking, and Board discussion on the
its Social Purpose priorities (Better widening of Britain Get Talking beyond mental health
Health, Diversity and Inclusion, to neighbourliness
Environment, and Giving Back), raise
awareness of key issues and shape
culture for good. The Board considered * Other examples of how we have raised awareness and
ITV's responsibility as a public delivered against our Social Purpose priorities
service broadcaster to ensure that during the pandemic are set out in the 'Social
it informs, entertains and provides Purpose' section of the 2020 Annual Report.
companionship to viewers, in particular
to help build resilience to cope
with lockdown. * Running public health messaging campaigns (as
described above)
------------------------------------------------------------
Restructuring of the Broadcast business to establish a new Media
and Entertainment division with two new business units
Directors consideration of key factors Outcomes on Board decision-making
set out in section 172(1) and other key strategic decisions
Long-term impact: The Board believes
the restructuring will ensure that * Review of analysis/modelling to understand the
ITV's business model better reflects financial impact of the restructuring (following
and serves changing viewing habits which the Board concluded that its implementation
in the longer-term and will enable would be in the long-term interests of the Company)
the Company to reduce the ongoing
cost base, improve efficiency and
accelerate delivery of ITV's strategic
priorities.
-----------------------------------------------------------
Colleagues: The Board considered
how best to preserve the culture * Open and transparent communications with colleagues
of the Broadcast business, ensure in relation to the restructuring, including through
transparency through communications regular vodcasts with the Chief Executive where
with colleagues and minimise disruption colleagues were able to ask questions anonymously.
to the business. The Board also discussed When necessary, we also undertook individual and
the necessary reallocation of resources collective consultations. Individuals at risk were
between the On Demand and Broadcast supported by our ITV Ambassadors (our employee
business units within the Media and representatives)
Entertainment division.
-----------------------------------------------------------
Viewers and subscribers: The Board
believes that the restructuring will * Feedback from viewers, subscribers and customers
facilitate the growth of ITV's online indicated that this would strengthen ITV's digital
offering to provide new content that offering and attract a broader demographic who would
appeals and improves accessibility spend more time with ITV content. The impact of the
to audiences who already do most restructuring on revenue will continue to be
or all of their viewing on demand. monitored
-----------------------------------------------------------
Partners and customers: The Board
was mindful of how the restructuring * Discussions with advertisers to ensure they
would impact how we work with our understand what the restructuring will mean for the
partners. Growing our digital viewing business
will provide more opportunities for
advertisers to reach new audiences.
-----------------------------------------------------------
Risks and Uncertainties
ITV operates in a rapidly changing business environment. Viewer
behaviours, competitors and the broader industry are evolving at a
significantly faster pace than before, creating an increasingly
complex risk landscape.
The COVID-19 pandemic has created unprecedented challenges for
ITV, impacting many of the principal risks facing our business and
further highlighting to us the importance of having an effective
understanding of and ability to respond quickly to changing and
emerging risks.
We understand that taking certain risks is unavoidable and
necessary to enable us to pursue our strategic goals. However, we
must also adequately manage and respond to risks which represent a
threat to our reputation, finances, the safety of our staff,
contributors and the environment. Our continued success is
dependent on striking the right balance between risk-taking and
risk-mitigation. ITV's risk management framework is designed to
support strategic and operational decision-making by providing us
with the tools to identify, manage and continually review our
risks.
Enhancing risk management
Throughout 2020, we have introduced enhancements to better
support our teams to effectively understand and respond to risks.
We will continue to build on this work in 2021.
Key enhancements in 2020
-- Increasing the frequency of risk discussions at all levels of
the business
-- Performing deep dives with management, the Audit and Risk
Committee and the Board, to further scrutinise the approach we take
to our principal risks (detail of the deep dives completed in 2020
are outlined within each principal risk identified)
-- Further developing the risk appetite framework for the
business and articulating our risk appetite in respect of key
risks
-- Supporting the business with the management of risks and
evolving threats created as a result of COVID-19
-- Undertaking a series of workshops to identify climate-related
risks and improve our related disclosures and
mitigations/response
-- Improving the robustness of our processes to monitor third
party and supplier risks
Building on these priorities in 2021
-- Continuing to embed and build risk management capability and
culture within the business
-- Increasing the number of risk deep dives with the Board
-- Enhancing risk reporting to better support decision-making,
by incorporating increased metrics and scenario modelling
-- Improving quantitative and qualitative risk appetite metrics,
which allow us to monitor compliance and focus on areas outside of
tolerance
-- Continuing to learn from our response to COVID-19 and build
learnings into existing crisis management and business continuity
activities
-- Building on the work in 2020 by performing climate scenario
analysis, to better quantify climate risks
-- Further developing the third-party risk management framework
and rolling this out to the business
Risk management framework
The key objective of our risk management framework is to support
the achievement of our strategic goals. The framework seeks to
drive clarity and proactivity and enable us to respond to threats,
by defining the required governance, process and enablers for
effective risk management at ITV.
Risk governance structure
Board
-- Sets strategic objectives
-- Reviews and evaluates principal risks and uncertainties
-- Sets our strategy on risk and establishes tolerance levels
and risk appetite
-- Ensures the effective operation of the risk management
framework and internal control systems
Management Board
Has responsibility for:
-- The development and operation of the risk management
framework and systems of internal control, including:
- Reviewing and monitoring the effectiveness of internal
controls and putting in place remedial plans where required.
Serious control weaknesses (if any) are reported to the Board and
action is taken as appropriate
-- Routinely reviewing and challenging risks and migrations,
including relevant reports or other performance indicators
-- Continuously reviewing risk exposure and ensuring that
decisions taken are in line with the organisation's risk appetite
and within the defined tolerance levels
-- Reviewing emerging risks
Divisional Boards and Central Functions
Have responsibility for ensuring appropriate risk management
within their business area, including:
-- Routinely reviewing and challenging risks and mitigations,
including relevant reports or other performance indicators
-- Reviewing local policies and monitoring the local
implementation of key group policies and procedures
-- Reviewing emerging risks identified through the risk
management framework
Group Risk
Has responsibility for:
-- Maintaining the risk management framework, systems and
processes and supporting management in its adoption and
embedding
-- Coordinating all risk identification, reporting and
governance forum activity
-- Developing risk capability and culture in the business
-- Supporting and advising the business on the development of
risk management solutions
Audit and Risk Committee
Has responsibility for:
-- Overseeing and advising the Board on risk exposures and
future mitigation strategy
-- Reviewing the effectiveness of the risk management framework
and internal control systems
-- Conducting in-depth reviews of high-risk business areas or
processes
-- Setting the internal audit plan to gain assurance of the
effectiveness of key risk controls and mitigations
-- Reviewing implementation of internal audit actions
-- Overseeing and monitoring the business's compliance with the
risk appetite set by the Board
Details of risk reviews undertaken during the year are set out
in the Audit and Risk Committee Report which will be included
within the Governance section of the 2020 Annual Report.
Three lines of defence
The three lines of defence model is a core enabler within our
risk management framework and provides ongoing assurance over the
effectiveness of our risk management activities.
Business Operations and Divisions: Divisions and Central
Functions identify, assess and manage risk on an ongoing basis,
including maintenance and operation of the internal control
framework to mitigate key risks. These risks are reported and
escalated through the risk governance structure
Group Risk and Central Functions: Where relevant, Group Risk and
Central Functions support the business in their risk management
activities. They are responsible for setting policies related to
their remit, monitoring application of policies within the business
and advising the business on risk mitigations.
Internal Audit: Internal Audit provides independent assurance
over the effectiveness of the Group's internal control systems and
risk management processes. The internal audit plan is driven from
ITV's risk management framework and is aligned to auditable
elements of the Group's principal risks.
The Board: Oversight over principal risks
Audit and Risk Committee: Oversight over risk management
framework
Senior management: Oversight over all business risks
Risk appetite
In 2020, we undertook an exercise to improve the articulation of
our risk appetite across key areas of the business in order to
better support management's ability to identify and respond to
risks as they arise and strike the right balance between taking too
much or too little risk. This involved a workshop with the
Management Board, facilitated by Group Risk, to define our risk
appetite for each principal risk and across other key areas. This
included, but was not limited to, liquidity, acquisitions, data
privacy, business continuity and resilience, and people and
culture. The output from this workshop was a set of risk appetite
statements for Studios, Media and Entertainment, and Group. Our
risk appetite reflects ITV's willingness to be innovative and open
to new ideas as we pursue our strategy, whilst maintaining our low
tolerance in operational areas such as compliance, duty of care,
cyber and data protection.
The risk appetite statements have been approved by the Board and
in 2021 we will build on this work by developing metrics to support
the Management Board's role in monitoring compliance against risk
appetite.
Principal risks
A member of the Management Board is responsible for monitoring
and ensuring mitigation of each of the principal risks on an
ongoing basis. The principal risks are reviewed on an ongoing basis
by senior management, subject to periodic deep dives at the Board,
Audit and Risk Committee, Management Board and Divisional Boards,
and are formally reviewed and approved by the Board twice a
year.
COVID-19
Despite the unprecedented challenges presented by the COVID-19
pandemic, we have continued to broadcast, serve our advertising
clients and agencies, and have restarted production on the majority
of our programmes internationally.
However, COVID-19 remains a risk for ITV and we continue to
respond to the emerging health and safety threats the pandemic
presents. During 2020, we made changes to our office and
production-based health and safety protocols, which has allowed us
to continue operating and safeguard our people, cast, crew and
programme participants.
We have also observed changes in viewer behaviours during the
pandemic, which may exacerbate many of our existing strategic risks
and result in those risks materialising sooner than anticipated. We
have accelerated the pace of our strategic delivery to address
these shifting dynamics in the market and to respond to the
increasing risk.
We have included a new COVID-19 principal risk below, which
provides an overview of the broader uncertainties related to the
pandemic for ITV and have provided additional context within
existing principal risks, where appropriate, to reflect the impacts
of COVID-19. Further detail of our response to COVID-19 can be
found within the Chief Executive's Report.
Other changes in our principal risks
-- We have removed the principal risk relating to legal
disputes, as we no longer consider this risk as having the same
level of potential long-term impact as other principal risks. We
recognise that some litigation is ongoing and there remains
uncertainty as to the estimations and potential final financial
quantum of that litigation. As a result, we have continued to
include this risk as a sensitivity factor within the assessment of
going concern and long-term viability, in order to further stress
test our cash and liquidity assumptions. Whilst there are certain
discussions ongoing that may lead to litigation, we continue to
improve our processes to mitigate the risk of a dispute arising and
track this through our internal risk management processes
-- The principal risk relating to the macroeconomic environment
has been removed as a standalone risk and incorporated into
existing principal risks
-- The principal risk in relation to structure and ways of
working has been removed, as it continues to be substantially
mitigated through ongoing work to restructure the business and
improve ways of working
-- The principal risk in relation to BritBox growth has been
expanded to encompass all of our digital and On demand products,
which are all fundamental to our Media and Entertainment
strategy
-- We have included a new principal risk relating to regulatory
change, which is driven primarily by the uncertainty around the
government's PSB review, advertising sector restrictions and
Brexit
Emerging risks
We define emerging risks as uncertainties which originate from
known or previously unconsidered sources, and which are not clearly
understood, visible or possible to fully assess. These risks could
impact ITV over a longer period and have the potential to
significantly impact our business model and/or operations.
As part of the enhancements made to the risk management
framework in 2020, we have improved our processes to identify,
assess and report emerging risks. ITV's Group Risk team supports
management in the identification of emerging risks by undertaking
horizon scanning, maintaining ongoing dialogue with the business
and keeping up-to-date with wider market movements. Emerging risks
are tracked and escalated through the risk management framework and
are formally reviewed by the Board twice a year.
Climate change
Throughout 2020, we undertook a series of workshops to identify
climate change risks and opportunities for ITV. We identified some
potential risk areas which are detailed in our TCFD report. There
are some risks associated with transitioning to a low carbon
economy, for example, the risk of governments introducing carbon
taxation measures and or quotas on certain activities carried out
in the jurisdictions in which our business operates. However,
government actions to respond to climate change are evolving, and
the extent of potential risks remain unclear.
We have been impacted by the physical effects of climate change
on a small number of our productions, including the wildfires in
California and Australia; however, to date, we have been able to
deploy localised responses to mitigate against production delay or
financial loss. Viewer and consumer sentiment with respect to
climate change is also fragmented and continues to change.
Our initial assessment of the risks suggests we are not
materially exposed to climate change or that this represents a
threat to our long-term viability, liquidity or ability to operate.
However, there remains some uncertainty as to the potential
significance, impact or timing of these risks. These factors all
limit our ability to fully assess our risk profile and as a result
we continue to categorise climate change as an emerging risk for
ITV.
We also recognise that there are also opportunities for ITV to
use its content and platform to educate our viewers about climate
change and promote sustainable behaviours. Please refer to our
Social Purpose section further information on the work we are doing
in this regard.
In 2021, we will complete detailed climate scenario modelling to
develop a more accurate picture of our climate change risk profile
and the potential impact risks may have on our strategy, operations
and finances. We will also continue to monitor the risks identified
to date through the existing risk management framework and develop
mitigations to respond. Further detail on the risks and
opportunities we identified as part of our exercise and risk
management in this area is provided in the TCFD section of the
report. Where relevant we have also included additional climate
risk commentary in our principal risks.
Detailed Principal Risks
Strategic, External risks
External environmental risks, including macroeconomic,
socio-political or market changes, that may impact ITV's strategic
vision or ability to deliver the strategic initiatives
1. COVID-19 pandemic
Description Context Mitigating activities
The COVID-19 We have developed a COVID-19
pandemic * COVID-19 has had, and may continue to have a response governance structure,
may have strategic, operational and financial impact on all with responsibility for managing
longer-term areas of our business. the risks associated with
implications the crisis. This is supported
on by a Project Management Office
the * We are observing further (and potentially more function, which regularly
macroeconomic serious) waves of the virus in many of the reports into the Management
environment territories in which we operate, which may result in Board and the Board.
or a short-term increase of all aspects of this risk, Our focus is on managing
impact our including: the risks associated with
people, COVID-19 across five fronts:
operations or * Situational Analysis: Regular conversations with
ability * A prolonged negative impact on the global economy, government and external advisors on the medical,
to deliver which may impact sales activity political and economic impact of COVID-19
our
strategy.
* Operational challenges associated with filming during * Cash and Costs: Modelling our financial position
COVID-19, resulting in further production delays across a range of scenarios (informed by situational
analysis), developing cost mitigations (with defined
trigger points), and cash monitoring and management
* Increased health and safety risks, resulting in the
need for additional steps to keep our staff, crew,
cast and participants safe, and increased costs of * Revenue: Developing and implementing plans to
operating continue identifying opportunities and mitigate
against negative sales impacts
* The potential for high employee absence, resulting in
challenges in operational and strategic delivery * Technology and Operations: Invoking existing business
continuity plans to ensure critical operations can
continue through the crisis
* Increased costs of operating, reduced revenue and
delayed payments from customers, which may have an
adverse impact on our cash position * People and Communications: Putting in place processes
and responses that protect the health and wellbeing
of our people, cast, crew, participants and support
Changes in direction of travel the wider community
The COVID-19 pandemic has
affected all areas of our
business, and accordingly, We have also made improvements
we have moved this risk from to our crisis management
an emerging risk to a principal and business continuity approach
risk. The development of across the Group. We have
a planned roll out of a vaccine identified further activities
in the UK will lead to an to protect our critical services
overall reduction of the and have implemented those
level of this risk. However, activities into business
when balanced against the as usual. This has included
current and potential future implementing additional security
waves of the pandemic, different measures on our enterprise
timelines for the roll out systems; improving efficiency
of a vaccine in our international and resilience in production
markets and the potential through technology and remote
restrictions to activities editing; and increasing the
imposed by governments, the adoption of tools to facilitate
level of this risk is increasing remote working.
at present. Board oversight
* Monthly reports to the Board on the emerging COVID-19
situation and impact to ITV (weekly at the height of
the crisis)
* Risk deep dive at the Audit and Risk Committee,
focused on health, safety and wellbeing during
COVID-19 (April 2020)
-------------------------------------------------------------- -----------------------------------------------------------
2. Changing viewing habits
Description Context Mitigating activities
A failure Our strategy is focused on
to * Content is now available across many different allowing our audiences to
anticipate devices and platforms, which is impacting how viewe access our content wherever,
or respond rs whenever and however they
to fast consume video choose to watch. In 2020,
changing we developed an On Demand
viewer business unit to accelerate
habits and * Viewers are watching less linear television and are the growth of our digital
behaviours increasingly accessing content through video on viewing propositions, both
may impact demand (VOD) services in advertising video on demand
total (AVOD) and subscription video
viewing and on demand (SVOD).
the * Younger viewers are also engaging with alternative In AVOD, this involved making
success of media, moving away from long-form video all our linear content available
our on digital platforms, as
channels. well as investing in the
* A faster than anticipated shift towards digital enhancement of the ITV Hub
viewing and alternative content would impact the product. In SVOD, we continue
reach of ITV viewing and in turn the advertising to invest in BritBox and
revenue we are able to realise will be rolling out the product
to further international
markets in 2021 and beyond.
Changes in direction of travel Our strategy also involves
Whilst there has been increased investing in alternative
ITV viewing during the pandemic, media products to more effectively
the acceleration in VOD viewing compete for non-viewing time
results in this risk increasing. and allow viewers to engage
with the ITV brands and formats
in different ways. This includes
investing in gaming, short-form
content and podcasts.
Board oversight
* Strategy session with the Board, focused on ev
olving
viewer habits in light of COVID-19 (June 2020)
--------------------------------------------------------- ----------------------------------------------------
3. Advertising market changes
Description Context Mitigating activities
Ongoing Advertising is slowly returning We are closely monitoring
changes to pre-COVID levels. However, the economic environment
in the the advertising market was and tracking the potential
advertising significantly impacted by financial impact on advertising
market may COVID-19 and advertiser spend revenues in a defined range
result may continue to be impacted of scenarios. We continue
in reduced by ongoing decline of certain to demonstrate the benefits
demand sectors and the UK economy of advertising on ITV to
for ITV's more broadly, driven by COVID-19 our existing clients, whilst
advertising and also Brexit. seeking to increase awareness
products * An increasing proportion of advertising budgets is of these benefits within
and a also being spent on digital offerings and with media growing sectors.
longer-term owners with advanced features, such as audience As part of our strategy to
decline attribution grow our digital viewing
in and reach, we seek to serve
advertising advertising wherever our
revenue. * An increasing number of viewers are using viewers consume our content.
advertising-skipping technology on linear products, This includes working with
reducing revenue technology and distribution
partners to allow us to insert
advertising across all platforms
Certain sectors are either and investigate methods to
already or may become subject minimise the financial impact
to regulatory advertising of ad skipping.
restriction, impacting the We are also focused on enhancing
advertising they can do with the features and attractiveness
ITV. Particular industries of our advertising products,
which are at higher risk including by investing in
of advertising restriction addressable advertising capability.
include gambling and food Our Planet V product was
and drink. In addition, we successfully launched in
are monitoring the potential 2020 and is designed to provide
for advertising restrictions advertisers an easy-to-use,
on high carbon emitting products self-service platform to
and services, for example deliver highly targeted ads.
air travel and motor vehicles. We monitor the regulatory
Changes in direction of travel landscape and engage with
Continued uncertainty in the UK government to understand
the economic environment and limit the impact of advertising
means this risk is trending restrictions on our revenues.
upwards. Specifically, in relation
to the intended ban on advertising
for high fat, salt and sugar
products, we are assessing
the potential financial impact
and identifying approaches
to mitigate the loss of revenue
while we wait for further
details on the scope of the
ban and timing of application.
Board oversight
* Deep dive on advertising market risk with the Board
(July 2020)
---------------------------------------------------------- ---------------------------------------------------------
4. Evolving demand in the content market
Description Context Mitigating activities
Fundamental COVID-19 has resulted in ITV has been actively involved
changes delays to the completion in the development of industry-wide
in the content of a number of shows on the production protocols to support
market may Studio's slate. Although the industry return to work.
result production is resuming globally, The protocols have also been
in reduced further waves of the virus rolled out across our productions
opportunities, and the introduction of further internationally, with some
non-renewal of restrictive measures by governments variances to respond to local
premium (including periods of lockdown) requirements. As the situation
programmes, may continue to impact our has evolved, we have responded
and/or impact ability to produce. by rapidly flexing the protocols
the * The demand for content globally continues to increase, to continue production.
profitability in particular from SVOD buyers. However, there is a We are also growing and maintaining
of risk that these players will increasingly use their relationships with a diversified
ITV Studios scale to produce content in-house. set of local and global customers,
content. with varied business models.
We have continued to invest
* The profitability of the Studios business may be in development and in attracting
impacted by buyers seeking better terms on pricing creative talent throughout
and rights and increased costs of production as a the pandemic in order to
result of new ways of working during COVID-19. ensure we can continue to
provide quality content to
these customers.
Costs associated with carbon We believe that by taking
offsetting and new technologies action now to reduce the
to reduce the environmental environmental impact of our
impact of our productions productions, we are mitigating
may also impact margins in against longer-term increases
the future. in costs, e.g. arising from
Changes in direction of travel carbon taxation or higher
Whilst there is continued prices of fossil fuel. From
risk to our production pipeline a cost perspective, we are
caused by COVID-19, the global also continually implementing
demand for content remains new processes to drive efficiency
high and we anticipate being in our production and project
able to continue production margins. These include robust
with the support of our COVID-19 procurement procedures, maximisation
safety protocols. of tax credits and technological
approaches to optimising
filming.
Board oversight
* Deep dive on studios market risk with the Board
(September 2020)
------------------------------------------------------------ -----------------------------------------------------
5. Platform relationship risk
Description Context Mitigating activities
An inability Our aim is to allow viewers
to * Video content is viewed across a very wide variety of to access our content, wherever,
develop and platforms and devices and ITV needs to work with whenever and however they
maintain these platform providers to ensure viewers can choose to watch and this
adequate continue to find ITV content whenever and wherever is underpinned by a defined
relationships they choose to watch partnership and distribution
with major strategy, which has been
platform further developed throughout
and * As a public service broadcaster (PSB), we are 2020. We will continue to
distribution guaranteed prominence in the UK within the linear focus on this as a priority
providers may Electronic Program Guide (EPG) grid. However, this as we transition to our new
result prominence is not guaranteed for digital viewing and organisational structure.
in viewers other ways viewers now or will choose to consume ITV We have a dedicated team
being content that has developed relationships
unable to with all the major distribution
find providers and TV platform/device
our content * Our commercial arrangements with platform owners are manufacturers in the UK.
and increasingly complex and, in the absence of This team is also responsible
lack of fair regulatory protections, we must form strong for inputting into product
value relationships under mutually favourable terms, to and commercial decision-making,
for that allow viewers to continue to easily find our content to confirm ITV remains an
content. and in order to fully monetise that content attractive proposition from
a distribution perspective.
We are therefore in a position
Changes in direction of travel to negotiate the prominence
As viewing continues to shift and monetisation of ITV's
away from linear and onto content on their platform/devices.
other platforms and devices, We also continue to actively
the need for strong distribution participate in the dialogue
arrangements increases. with Ofcom and the UK government
regarding the modernisation
of the PSB regulatory regime
and make the case for addressing
the key areas of inclusion,
prominence and fair value.
Board oversight
* Strategy session with the Board, focused
on
partnership strategy in light of platform
relationship risk (June 2020)
----------------------------------------------------------- -----------------------------------------------
6. Pension deficit increase
Description Context Mitigating activities
A financial The pension scheme assets
crisis * Changes in credit spreads could result in material are invested in a diversified
or movements in the Group's defined benefit pension portfolio, with a significant
macro-economic scheme liabilities amount of the fund held in
change could lower risk bonds, with interest
impact and inflation rate hedging
the value of * A major change in longevity, investment values or in in place. We have worked
pension the discount rate affecting the value of liabilities with the pension trustees
scheme could have a material impact on the net pension to limit the potential deficits
investments liability. ITV may need to respond in such an event through a series of asset
and by increasing future contributions backed arrangements. In addition,
liabilities the trustees have removed
and increase some of the mortality risk
the Changes in direction of travel with a longevity swap and
deficit. The pension scheme trustees' by hedging a portion of inflation
approach has always been and interest rate variability.
focused on taking a conservative Increased monitoring of the
approach to limit the impact pensioner population and
of uncertainty. Therefore, mortality rates of the schemes
the wider implications of has taken place to assess
COVID-19 have not impacted the likely risk of a mortality
the value of the scheme significantly shock as a result of COVID-19.
or our ability to meet liabilities. This would result in a requirement
to increase collateral in
relation to the longevity
swap and restrictions on
the preferred investment
strategy. However, a mortality
shock would also reduce the
scheme's liabilities, partly
offsetting the risk of the
deficit.
We have reduced some of our
exposure through the purchase
of a bulk annuity policy
(a 'buy-in' policy) for a
section of the scheme. This
contract matches the pension
liabilities covered by the
policy and, therefore, removes
the investment, interest
rate and inflation risks
associated with those liabilities.
In order to mitigate the
risk of not being able to
meet our liabilities as they
arise, we have reviewed our
cash matching and hedging
strategies.
Board oversight
* Annual pension process and controls review at the
Audit and Risk Committee (December 2020)
---------------------------------------------------------- -------------------------------------------------------
7. Regulatory policy changes
Description Context Mitigating activities
Changes to We have an experienced Policy
policy * Public service broadcasters (PSB) regulation needs and Regulatory Affairs team
and reform to respond to changes in viewer behaviours and that monitors for potential
regulation the increasing scale of digital media companies. The policy, legal and regulatory
or a outcomes of the ongoing PSB regime review may have a developments. We have a systematic
failure by significant impact on ITV's business model and approach to analysing the
the UK strategy impact of potential changes
government and are proactive in putting
to regulate forward our position during
may * Changes in advertising regulation for certain sectors the development of new policies,
have a may have a negative impact on the revenue we are able legislation and regulation.
negative to generate from these sectors We continue to engage with
impact on the government and regulators
the future on the PSB regime and other
of public * The agreement of a deal between the UK and EU has topics affecting our industry.
service gone some way to managing Brexit uncertainty. Whilst This includes collaborating
broadcast, there may be additional operational requirements and with other organisations
our cost resulting from future regulation (e.g. in the industry, where appropriate
business requirements to obtain working visas), these do not and objectives align.
model present a material barrier or threat to ITV From a COVID-19 perspective,
and/or the we held regular CEO-led conversations
cost with the UK government to
of Other areas of regulation influence decision-making
operations. and policy which could have on specific areas affecting
an impact on our business, our industry. We are also
include: sustainability, monitoring the emerging regulatory
child protection, broadcasting landscape with respect to
regionality and longer-term the pandemic to understand
regulation in relation to and prepare for changes.
pandemic preparedness. Throughout 2020, our Brexit
Changes in direction of travel working group met regularly
Reform of the PSB regime to consider the implications
represents both a risk and of different scenarios for
an opportunity to ITV. However, Brexit. Plans were developed
a reluctance by government to mitigate the impact of
to intervene on key issues Brexit and to identify any
(such as fair value, prominence, process changes required.
and the influence of digital Those processes are now being
players) may have a negative rolled out and transitioned
impact on ITV's business into business as usual activities.
model and strategy. Our Social Purpose team works
alongside the Policy and
Regulatory Affairs team to
identify regulatory changes
related to the environment/sustainability
and to support the business
to implement processes to
comply with such changes.
This included advising the
business on requirements
for TCFD, of which we were
an early signatory.
Board oversight
* Regular reports to the Board on PSB reform
* Regular updates on emerging regulation in light of
COVID-19
----------------------------------------------------------- --------------------------------------------------------
Strategic, Internal, Change risks
Internal risks, including culture and capability, that may
impede the achievement of strategic and/or operational change
goals
8. Commissioning pipeline risk
Description Context Mitigating activities
Failure to We have an experienced Commissioning
sustain * In order to protect viewing and, in turn, advertisin team in place, which is focused
a diversified g on identifying programmes
broadcast revenues, we must develop a broadcast pipeline that and formats which have national
commissioning is both resilient to changes in viewer preferences appeal. In order to increase
pipeline and is financially viable. In particular, we must the resilience of our pipeline
that is commission programmes with broad appeal and that and reduce reliance on historically
resilient attract younger audiences successful programmes, we
and also continue to invest in
financially new premium formats, live
viable may The COVID-19 crisis impacted sports, high-end drama and
reduce producers' ability to make programmes which appeal to
profitability content, which has impacted younger audiences.
. our broadcast schedule and In addition to our own Studios
resulted in delays in producers business, we have strong
delivering programmes. relationships with independent
* The public response to the Black Lives Matter studios, both in the UK and
movement has further highlighted the need to respond internationally, from whom
to increasing scrutiny in relation to on-screen we commission content.
diversity We also have a dedicated
Research team, which is responsible
for providing insight on
Furthermore, we also need audience preferences that
to be conscious of the environmental is used to adapt our commissioning
impact of our programming strategy.
and how environmental behaviours We have developed a Diversity
are presented in our content. Acceleration Plan which aims
Changes in direction of travel to improve our on-screen
Further waves of the virus diversity, develop a representative
and continued challenges talent pipeline and better
for producers in developing represent all communities
content may impact the commissioning in our programmes.
pipeline, resulting in this We are also committed to
risk increasing. reducing our environmental
impact and communicating
the need to respond to climate
change to our viewers. We
have developed plans to help
us meet our environmental
targets and routinely use
our content to raise the
profile of the climate change
agenda.
Board oversight
* Deep dive with the Board on commissioning pipeline
risk (July 2020)
---------------------------------------------------------- --------------------------------------------------------
9. Insufficient growth in our On Demand products
Description Context Mitigating activities
The Hub, We invest in data driven
Hub+ and * The video on demand market is highly competitive and mass marketing campaigns
Britbox do market, both in the UK and internationally to increase market awareness
not of our On Demand products
grow at the (both in the UK and internationally).
pace * The success of the Hub is dependent on maximising the We continue to investigate
required to number of viewers on the Hub product (reach) and then creative ways to deliver
deliver maximising the amount of content they view on Hub our content on the ITV Hub
the desired (consumption) and Hub+ in order to maximise
strategic viewing on the product. This
or has included curating short-form
financial * The success of Hub+, BritBox UK and BritBox content specifically for
outcomes. International is dependent on attracting new the Hub; extending online
customers, converting them to paying subscribers and catch up windows for selected
subsequently retaining them content; making previous
series programme box sets
available in advance of new
* We need to maintain strong relationships with series transmission, and
platforms and distributors to maximise the making current series available
availability and reach of our all our on demand on ITV Hub in full directly
products following transmission of
the first episode on our
channels.
Content is key to the attractiveness For Britbox, COVID-19 and
of our On Demand products. our first original programme,
There is a risk of delays Spitting Image, have increased
in receiving this content the rate at which we have
due to production pauses acquired subscribers. In
during the COVID-19 pandemic. order to increase BritBox's
Changes in direction of travel appeal and optimise customer
We have seen some positive retention, we continue to
outcomes for our On Demand invest in additional and
products, as a result of original content for the
increased viewing during service.
the COVID-19 pandemic. However, We also assess the performance
further competition in the of our On Demand products
market means this risk is on an ongoing basis, to identify
increasing. and implement user experience
and functionality improvements.
We use data to enhance user
experience and personalisation
on our On Demand products
and will continue to focus
on this as a key priority
in 2021.
In order to maximise reach,
we have developed distribution
deals with hardware and software
providers in order to make
our On Demand products available
on a growing number of major
platforms and devices.
We track and evaluate the
performance of our On Demand
products through a suite
of KPIs. Root cause analysis
is performed on subscriber
growth and customer churn
data for BritBox and ITV
Hub+, and on registered user
growth and consumption volumes
for the ITV Hub.
Board oversight
* Regular On Demand performance reports to the Board
----------------------------------------------------------- --------------------------------------------------------
10. Strategic and digital transformation risk
Description Context Mitigating activities
Failure to Despite the challenges presented
successfully * Digital transformation underpins all elements of our by COVID-19, we have continued
deliver key strategy and is a key enabler for increasing to successfully deliver against
components operational efficiency. Failure to effectively our strategy. Our strategy
of our strategy deliver digital transformation projects could impact is articulated through defined
and digital ITV's ability to keep pace with changes in the market strategic initiatives. Each
transformation, and ultimately future growth initiative is sponsored by
due to the a Management Board member
speed and led day-to-day by a member
and extent of * As we digitally transform the business, our exposure of the ITV Executive Leadership
change to cyber security and data privacy risk increases. We Team. We have formal processes
required, may need to manage these risks in order to continue in place, led by the Group
negatively protecting our viewer and staff data. For further Strategy team, to report
impact our detail on these risks and mitigations, refer to the monthly on the performance
business. cyber security and data breach risk and the legal and of each of these initiatives
regulatory non-compliance risk below to the CEO and CFO.
The strategic initiatives
involve the digital transformation
COVID-19 has resulted in of ITV, including enhancement
an acceleration of previously of our digital viewer/customer
observed viewer trends and facing products (Hub, Planet
the need to increase the V, BritBox), as well as optimising
pace of strategic delivery. the use of technology in
This requires significant our middle and back office.
alignment and effort across We have initiated the digital
the whole Group. transformation of the middle
Changes in direction of travel and back office through wide
The move to remote working, adoption of agile processes
as a result of COVID-19, and initiating a number of
has accelerated the adoption digital 'lighthouse' projects,
of digital tools within our aimed at improving efficiency
business. However, further and operations.
fracturing of viewing across Furthermore, this year we
platforms has highlighted announced an organisational
the increasing importance restructuring, which is aimed
of transitioning to a digitally at removing barriers to strategic
led business. As a result, delivery in our operational
this risk is trending upwards. ways of working. The creation
of a new Media and Entertainment
division will support us
in accelerating the strategy
and growing our digital products.
Board oversight
* Board Strategy session (June 2020)
----------------------------------------------------------- ----------------------------------------
11. Insufficient cultural change
Description Context Mitigating activities
Failure to In 2019 we developed and
evolve * We could be negatively impacted if we fail to create communicated the 'ITV Way'.
the the agile and collaborative culture required to The ITV Way defines the culture
underlying deliver our strategy needed to ensure our future
culture of success and outlines the
the behaviours we expect from
business * During COVID-19, we have seen increased adoption of our staff to support our
may result digital tools in the business, which demonstrates a desired culture.
in an positive shift towards moving to a digital culture. Throughout the pandemic,
inability However, there remains a risk that the protracted we have held fortnightly
to deliver period of home-working may lead to siloed working and all staff vodcasts, chaired
the impact collaboration by the CEO (weekly at the
level of height of the crisis). We
change have also moved many events
required to There is a risk that engagement online, developed remote
achieve and morale may be negatively onboarding for new staff,
our impacted by fatigue as a and have provided training
strategic result of additional work to line managers on managing
objectives. due to COVID-19. remote teams. All of these
Changes in direction of travel initiatives are focused on
There remains uncertainty ensuring that the culture
as to how sustained home-working we are aiming to create remains
may impact wider culture. visible to and resonates
However, we have taken many with our colleagues. We have
steps to move towards our also undertaken regular Pulse
cultural vision, including and Employee Engagement Surveys
the organisational restructure. throughout the COVID-19 pandemic.
As a result, this risk remains Learnings from these surveys
static. have fed into short-term
actions and longer-term improvement
plans.
The Board undertakes a formal
programme of employee engagement
(led by a Non-executive Director),
in order to obtain insight
into culture. We also continue
to positively reinforce desired
behaviours and attributes
through direct links to reward
and recognition.
Board oversight
* Board Strategy session (June 2020)
* Regular updates to the Board from the Non-executive
Director on employee engagement and from HR on
results of Pulse and Engagement Surveys
----------------------------------------------------------- ---------------------------------------------------------
Operational risks
Risks that could impact our operational and business as usual
activities
12. Duty of care and health & safety incident
Description Context Mitigating activities
Failure to
extend * We have a duty of care (DoC) to our staff, cast, cre * We have a central team with responsibility for
an adequate w, implementing controls and processes for DoC and H&S.
duty programme participants and the general public During the crisis, we have leveraged existing
of care, or controls and implemented new processes in order to
the further protect our staff and individuals involved on
occurrence COVID-19 has resulted in our productions. This has included implementing a new
of a increased risks to health mental health peer-to-peer platform for staff
major health and safety (H&S), both in (employees, contractors and freelancers),
and our offices and on our productions. implementation of home-working for the majority of
safety * As we continue to increase production hours, our staff and development of robust office and production
incident risks in relation to health and safety continue to safety protocols, which have been agreed with the UK
or a global increase. We need to consider the duty of care acros government and the industry
pandemic, s
could result all aspects of productions, taking into account the
in physical health and safety risks posed by COVID-19 * We have also enhanced our existing DoC processes,
physical and and broader aspects of mental wellbeing which encompass procedures relating to both physical
mental and mental health and safety. This has included
harm, loss engaging two medical professionals (a former Chief
of human * Amongst our staff (employees, contractors and Medical Officer and a clinical psychologist) on an
life and freelancers) we must monitor the impact the COVID-19 advisory basis, to provide ongoing support and
reputational crisis is having on mental health and ensure we challenge to our DoC activities. We have a Duty of
damage. provide support Care Operating Board (DoC Board) in place, with
responsibility for monitoring implementation and
continuous improvement of our DoC framework and
Changes in direction of travel policies. This DoC Board is chaired by the Group
As our production hours increase Chief Executive Officer (CEO) and includes senior
to pre COVID-19 levels and representation from our Studios, Media and
COVID-19 continues to have Entertainment, Legal, HR, and Risk areas of the
an impact on physical and business. The DoC Board meetings are also attended by
mental health, this risk the Chair of the Audit and Risk Committee on behalf
increases. of the Board
Board oversight
* Deep dive on duty of care risk with the Audit and
Risk Committee (July 2020)
* Risk deep dive at the Audit and Risk Committee,
focused on health, safety and wellbeing during the
COVID-19 pandemic (April 2020)
---------------------------------------------------------- -----------------------------------------------------------
13. Legal and regulatory non-compliance
Description Context Mitigating activities
Failure to We have a Group Legal and
comply * We are a global business and are therefore subject to Business Affairs team in
with multiple local and international legal and regulatory place, which consists of
applicable regimes. These cover a range of areas including: subject matter experts who
laws and broadcasting and media regulations, anti-trust and oversee and are responsible
regulation competition law, anti-bribery and corruption, data for ensuring business compliance
could result privacy, and health and safety with all elements of regulatory
in and legal requirements. Where
reputational appropriate we also engage
damage, During the COVID-19 pandemic, specialist external legal
financial the scope of laws and regulations advisers to support.
penalties has increased and we have We operate a compliance programme
or needed to respond to various which is embedded within
suspension government guidelines and our internal policy framework.
of restrictions across all the Internal policies are owned
our licences territories in which we operate. by business leaders, regularly
to * As we develop our data and digital strategy and reviewed by the Management
operate. evolve the way we use personal data to deliver Board and the Audit and Risk
transformation in our Media and Entertainment Committee. The Group Legal
business, we need to confirm we remain in compliance and Business Affairs team
with data protection and privacy regulation. works with the business to
support the adoption and
implementation of these policies.
Changes in direction of travel Our Regulatory Affairs team
This risk is trending upwards, regularly engages with regulators
due to ongoing changes in such as Ofcom and the Advertising
the compliance landscape, Standards Agency (ASA) in
as a result of increased order to understand and interpret
requirements all employers changes in policy and compliance
have to comply with respect requirements. This team has
to COVID-19 and a potential worked closely with the industry
broadening of our data privacy during the COVID-19 crisis
compliance obligations as in order to engage the government
a result of our digital and on a range of issues impacting
data strategy. the business.
We also have a suite of mandatory
compliance training and learning
in place, which helps drive
positive attitudes to compliance
across the whole business.
Board oversight
* Deep dive on compliance framework and risk with the
Audit and Risk Committee (July 2020)
----------------------------------------------------------- ---------------------------------------------------------
14. Cyber attack or data breach incident
Description Context Mitigating activities
A cyber attack We have implemented a robust
may result in * We operate in a highly public environment and, due to cyber security risk management
major our reputation, we are at greater risk of attack framework across the organisation
operational (than the norm) from well organised threat groups to address the evolving nature
disruption, of the cyber security threats.
critical system Our framework incorporates
outage or loss * As technology becomes increasingly more complex and a variety of technical preventative
of IP, customer we transition to a digitally led business, we are and detective measures to
or business required to evolve our cyber security procedures in mitigate the risk of an incident,
data order to effectively protect against and respond to as well as an extensive training
and potentially evolving cyber threats and awareness programme.
lead to We have strengthened and
material accelerated previously planned
financial Remote working results in enhancements to our controls
fines/penalties increasing activity occurring and technical measures in
and outside the enterprise network response to the increased
reputational and increases cyber and data risk caused by remote working.
damage. breach risk. We actively manage cyber
* As we continue to grow our digital product offerings, and data security in our
we work increasingly with third-party partners and supply chain and undertake
suppliers. A failure by these partners to implement due diligence assessments
suitable security processes may result in increased on key suppliers as part
risk to ITV of procurement activities.
We also have an incident
response and notification
Changes in direction of travel process in place, which are
As threats become more active followed in the event a cyber
and increasing activity takes or data breach incident were
place outside the network to occur.
the cyber security risk facing The strength of our control
ITV is increasing. environment is tested on
an ongoing basis by independent
security experts and recommendations
are implemented in a prioritised
manner. We also work with
our security partners to
undertake cyber simulation
exercises at all levels of
the organisation to continuously
improve our response to cyber
or data attacks.
Board oversight
* Deep dive on cyber risk with the Audit and Risk
Committee (September 2020)
* Data privacy programme and risk review with the Audit
and Risk Committee (September 2020)
----------------------------------------------------------- -----------------------------------------------------------
15. Recruitment and retention of talent risk
Description Context Mitigating activities
An There is a deep understanding
inability * The market for talent is extremely competitive. of the skills and capability
to required to deliver our strategic
attract, objectives and our HR department
develop * We must be able to attract, develop and retain the works closely with the business
and retain best creative, technological, commercial and to confirm those needs are
key managerial talent in order to successfully grow our met.
creative, business We also continue to strengthen
commercial, our existing capability,
technical through a combination of
and * There is increasing scrutiny in relation to diversity learning, development and
managerial and inclusion. We must commit to improving performance. Our Board Nominations
talent inclusivity and diversity across our business (across Committee reviews the skills
could all aspects, including race, gender and disability) and capability of senior
adversely through both our recruitment and retention processes leadership twice a year and
affect our supports leaders in addressing
business. potential gaps in light of
Changes in direction of travel strategic requirements.
Economic and behavioural We have developed a Diversity
factors may mean individuals Acceleration Plan, which
in our sector are less inclined aims to improve diversity
to move jobs due to COVID-19, and inclusion within the
however, there is also opportunity ITV workforce, through a
for ITV if organisations combination of development,
let go of talent due to financial training and recruitment
pressures. Therefore this initiatives.
risk remains static. Whilst a certain level of
attrition is inevitable,
we evaluate root causes through
exit interviews and declared
reasons for leaving. Furthermore,
succession plans have been
developed and implemented
for business critical and
management roles (which includes
nominated deputies).
Board oversight
* Ongoing updates to and succession planning reviews
with the Nominations Committee
----------------------------------------------------------- --------------------------------------------------------
Viability statement
How we assess prospects and risks
The Board continually assesses ITV's prospects and risks at its
meetings, including the following:
-- Holding 'Strategy Days' twice a year, to oversee the delivery
of the Strategy and consider changes to or new initiatives to
further improve the ITV Strategy.
-- Considering ad-hoc topics on strategic areas at the periodic
Board meetings.
-- Performing a full review of the principal and emerging risks
twice a year. Further detail can be found earlier within the
Principal Risks and Uncertainties section
-- Performing periodic deep dives on specific risk areas, to
further scrutinise the effectiveness of risk mitigation approaches
and confirm operation within risk appetite. Further detail can be
found earlier within the Principal Risks and Uncertainties
section
-- The Board and management significantly increased their focus
on ITV's prospects, risks and viability in light of the evolving
Covid-19 situation. This involved holding a session on the specific
impact of Covid-19 on ITV's Strategy (June 2020); developing a
range of Covid-19 scenarios for 2020 and beyond and modelling their
potential financial impact; identifying cost
interventions/mitigations to respond to severe downside scenarios;
and increasing the level of financial performance reviews and
reforecasting to track performance against these scenarios.
(Further details of the specific measures to respond to Covid-19
are provided in the Chief Executive's Report.
How we assess viability
When assessing the longer-term viability of ITV, we considered
(i) ITV's strategy and business model; (ii) the principal risks
and; (iii) the Group's financing facilities, including covenant
tests and future funding plans; (iv) the long range financial plan
and cash forecast; and (v) other sensitivity factors or risks which
have the potential to materially impact liquidity and cash in the
assessment period.
Based on this review a set of hypothetical and severe but
plausible scenarios were developed. We then modelled these
scenarios against the long-range financial plan and cash forecast
both individually and in parallel, in order to assess
viability.
The output from this work was reviewed and approved by the Board
and the Audit and Risk Committee. In reaching its view, the Board
and Committee also considered analyst commentary, to understand the
wider market and views on the Group's future prospects, and the
external auditor's findings and conclusions on this matter. Further
detail of the work performed by the Audit and Risk Committee to
consider assumptions applied in the assessment viability will be
set out in our 2020 Annual Report.
Assessment period for viability
The Board reviewed the long range financial and strategic
planning horizon and is of the view that a three year assessment
period (1 January 2021 to 31 December 2023) continues to be most
appropriate. The factors the Board considered in adopting this
timeframe were as follows:
-- The situation with respect to the COVID-19 pandemic remains
uncertain and is likely to continue impacting ITV in the medium
term. We are closely monitoring the external environment and
continue to manage the risks associated with the pandemic to
support us in returning to pre-COVID performance levels. Further
detail of our response to COVID-19 is provided within the Chief
Executive's Report and in the COVID-19 principal risk mitigations
detailed earlier.
-- Visibility over ITV's broadcast advertising business is
relatively short term. Advertising remains cyclical and closely
linked to the UK economic growth, which may continue to be impacted
by the COVID-19 pandemic, Brexit and other uncertainties in the UK
macroeconomic climate
-- The commissioning process and life cycle of programming gives
the ITV Studios division more medium-term outlook. However, while
non-returning brands are replaced with new commissions, over time
there is less visibility as programmes can experience changes in
viewer demand or come to a natural expiration
-- Technology and innovation in the media industry continues to
change the demand for content and also how it is consumed
-- Pension funding, which is one of ITV's key funding
obligations, is agreed triennially with the Trustees of the pension
schemes
-- ITV's business model does not necessitate investment in large
capital projects that would require a longer-term horizon
assessment or returns
Assumptions applied
We applied the following assumptions when assessing viability in
the scenarios below:
-- A vaccine is not rolled out to a substantial number of the
population in territories in which we operate until the end of
2022, which delays businesses returning to normal operations
-- Consequently, there is the possibility of national and local
lockdowns during this period
-- Ongoing additional production costs associated with COVID-19
protocols and health and safety measures until the vaccine is
rolled out
-- Ongoing access to the UK bond market, but with an increased
interest rate on bonds renewed in the period to reflect a potential
decrease in credit rating
-- Ongoing availability of the financing facilities, but at
increased interest rates. This comprises of; an undrawn Revolving
Credit Facility of GBP630 million expiring on 15 December 2023; and
a bilateral financing facility of GBP300 million expiring in June
2026, of which GBP199 million is available as at 9 March 2021
Taking into account current operational and financial
performance, the Board has analysed the impact of following
hypothetical scenarios. These scenarios were assessed in isolation
and in parallel to further stress test viability:
Scenario modelled Link to Principal risks
Scenario 1
A significant and sustained downturn in
the advertising market when compared to * Advertising market changes
2019, as a result of further COVID-19
lockdowns, the possible impact of Brexit
or other macro economic factors. In this * Policy and regulatory changes
scenario we also fail to replace the advertising
revenue lost as a result of the government's
announced restriction on HFSS advertising, * COVID-19 pandemic
which is due to come into force from the
beginning of 2023.
Based on our experiences during the initial * Changing viewer habits
2020 COVID-19 lockdown the scenario assumes
total advertising revenues continuing
to remain significantly below 2019 level Further detail of how we are
(2021 versus 2019: -9%); (2022 versus mitigating these risks are included
2021: 1%*); (2023 versus 2022: -4%) in the earlier Risks and Uncertainties
*1% year-on-year increase, reflects marginal section
macroeconomic recovery in 2022 versus
2021, but still represents a significantly
reduced position when compared to 2019.
2023 is further impacted by HFSS regulation.
Business area impacted
Broadcast (to become Media and Entertainment)
--------------------------------------------------------
Scenario 2
A number of key programme brands within
the ITV Studios division are not recommissioned * Evolving demand in the content market
and new format growth does not materialise.
Although 2021 would typically be too imminent
for commissioners to make a decision to * COVID-19 pandemic
cancel a show, we have included the scenario
from 2021 onwards to reflect ongoing risk
of decreased production activity/delivery Further detail of how we are
due to COVID-19. The scenario assumes mitigating these risks are included
key shows come to an end from 2021 (2021 in the earlier Risks and Uncertainties
impact: c. GBP45 million; 2022 and 2023 section
impact: c. GBP65 million p.a.)
Business area impacted
Studios
--------------------------------------------------------
Scenario 3
A significant change in ITV's pension
funding obligations, following the triennial * Pension deficit increases
valuation in March 2021 resulting in a
significant increase in pension deficit
funding payments. Further detail of how we are
This scenario assumes that pension funding mitigating these risks are included
payments increase from GBP75 million p.a. in the earlier Risks and Uncertainties
to GBP115 million p.a. in 2021 and remain section
flat in the following two years.
Business area impacted
Group
--------------------------------------------------------
Scenario 4
Settlements for ongoing litigation and
earnouts for our larger acquisitions are * The complexity and potential scale of the ongoing
significantly higher than estimated, resulting litigation settlements and earnout negotiations,
in large one-off cash payments. results in a lack of certainty in the final
This scenario assumes increased acquisition liabilities and payments
earnout payouts in 2021 (see note 3.1.5
of the financial information) and payments
in 2023 (see note 4.3 of the financial Further detail of the accounting
information). judgements and estimates applied
Business area impacted to ongoing litigation and earnouts
Group are provided in Section 1 of
the Financial Information. An
overview the assessments performed
by the Audit and Risk Committee
with respect to these accounting
judgements will be included
in the Audit and Risk Committee
report in the 2020 Annual Report.
--------------------------------------------------------
We have considered the impact of climate change risks and do not
believe they represent a material threat to the long-term
viability, liquidity or operations of the business in the
assessment period.
Viability assessment
If any of the above scenarios were to occur in isolation we
would maintain sufficient liquidity and would not breach any
banking covenants.
Management and the Board are of the view that the likelihood of
all the above scenarios and sensitivities occurring concurrently is
remote. If this situation were to occur and no action was taken to
mitigate the financial losses sustained, we would still have
sufficient liquidity to remain viable, but would risk breaching our
revolving credit facility banking covenant in December 2022, June
2023 and December 2023.
Potential mitigations
In the event that these scenarios occur simultaneously, there
are reasonable options at the disposal of the Board to maintain
liquidity to continue operations and to avoid breaching banking
covenants. These include but are not limited to, reducing capital
and investment expenditure, suspending payment of discretionary
bonuses, reducing the programming budget, further reductions in
operational and overhead costs, and refinancing the pension
asset.
Viability statement
Based on the above, the Board has a reasonable expectation that
ITV will be able to continue operations and meet its liabilities as
they fall due over the three year-period ending 31 December 2023.
The assessment has been made with reference to ITV's strategy and
the current position and prospects and risks.
The Strategic Report was approved by the Board and signed on its
behalf by:
Chris Kennedy
Group CFO
9 March 2021
Financial Information
In this The financial information has been presented in a style
section that attempts to make them less complex and more relevant
to shareholders and other stakeholders. We have grouped
the note disclosures into five sections: 'Basis of Preparation',
'Results for the Year', 'Operating Assets and Liabilities',
'Capital Structure and Financing Costs' and 'Other Notes'.
Each section sets out the accounting policies applied in
producing the relevant notes, along with details of any
key judgements and estimates used. The purpose of this
format is to provide readers with a clearer understanding
of what drives financial performance of the Group. The
aim of the text in boxes is to provide commentary on each
section, or note, in plain English.
Keeping Notes to the financial information provide information
it simple required by statute, accounting standards or Listing Rules
to explain a particular feature of the financial information.
The notes are a part of the financial information and will
also provide explanations and additional disclosure to
assist readers' understanding and interpretation of the
Annual Report and the financial information.
Contents
REPORT OF KPMG LLP TO ITV PLC ("THE COMPANY") IN RELATION
TO THE COMPANY'S PRELIMINARY ANNOUNCEMENT OF RESULTS FOR THE
YEARED 31 DECEMBER 2020
Primary Statements
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
--------------------------------------------------------------
Section 1: Basis of Preparation
--------------------------------------------------------------
Section 2: Results for the Year
2.1 Profit before tax
2.2 Exceptional items
2.3 Taxation
2.4 Earnings per share
--------------------------------------------------------------
Section 3: Operating Assets and Liabilities
3.1 Working capital
3.2 Property, plant and equipment
3.3 Intangible assets
3.4 Acquisitions
3.5 Investments
3.6 Provisions
3.7 Pensions
--------------------------------------------------------------
Section 4: Capital Structure and Financing Costs
4.1 Net debt
4.2 Borrowings
4.3 Managing market risks: derivative financial instruments
4.4 Net financing costs
4.5 Fair value hierarchy
4.6 Lease liabilities
4.7 Equity
4.8 Share-based compensation
--------------------------------------------------------------
Section 5: Other Notes
5.1 Related party transactions
5.2 Contingent assets and liabilities
5.3 Subsequent events
5.4 Subsidiaries exempt from audit
--------------------------------------------------------------
ITV plc Company Financial Information
--------------------------------------------------------------
Notes to the ITV plc Company Financial Information
--------------------------------------------------------------
REPORT OF KPMG LLP TO ITV PLC ("THE COMPANY") IN RELATION TO THE
COMPANY'S PRELIMINARY ANNOUNCEMENT OF RESULTS FOR THE YEARED 31
DECEMBER 2020
The UK Listing Rules require that we, as independent auditor,
agree to the publication of the Company's preliminary announcement
of results for the year ended 31 December 2020 which comprises
Highlights, Chief Executive's Report, Key Performance Indicators,
Operating and Performance Review, Alternative Performance Measures,
Finance Review, Commitment to Section 172(1), Risks and
Uncertainties, Viability Statement and the Financial
Information.
At your request we have provided this report to set out the
procedures performed by us to agree to the publication, the status
of the audit report on the statutory financial statements, and the
key audit matters addressed in that audit report in respect of the
consolidated financial statements of the group.
Our audit of the statutory financial statements is complete and
we have issued an unmodified audit opinion
The annual report and statutory financial statements of ITV plc
for the year ended 31 December 2020 were approved by the board on 9
March 2021.
Our audit of those financial statements is complete and we
signed our auditor's report on 9 March 2021. Our opinion in that
report is not modified and does not include a material uncertainty
related to going concern, or emphasis of matter paragraph.
This report is in addition to, and should not be regarded as a
substitute for, our auditor's report on the statutory financial
statements, which has been released to the Company and will be
available when the Company publishes its annual report.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the
consolidated financial statements and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) identified by us, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources
in the audit; and directing the efforts of the engagement team.
Key audit matters were addressed, and our results are based on
procedures undertaken, in the context of, and solely for the
purpose of, our audit of the consolidated financial statements as a
whole, and in forming our opinion thereon, and consequently are
incidental to that opinion, and we do not provide a separate
opinion on these matters. The overall materiality applied in the
audit of the consolidated financial statements as a whole was GBP19
million.
In our auditor's report on the statutory financial statements of
the Company, we reported on the key audit matters in respect of the
consolidated financial statements of the group below. No additional
work in relation to key audit matters has been undertaken for the
purpose of this report.
Going concern: Risk vs 2019: New
Refer to accounting policy and financial disclosures in Note 1
The risk Our response
----------------------------------------------------------- ---------------------------------------------------------------
Disclosure quality We considered whether these risks
The financial statements explain could plausibly affect the liquidity
how the Board has formed a judgement or covenant compliance in the going
that it is appropriate to adopt concern period by assessing the
the going concern basis of preparation directors' sensitivities over the
for the Group and parent Company. level of available financial resources
That judgement is based on an evaluation and covenant thresholds indicated
of the inherent risks to the Group's by the Group's financial forecasts
and Company's business model and taking account of severe, but plausible,
how those risks might affect the adverse effects that could arise
Group's and Company's financial from these risks individually and
resources or ability to continue collectively.
operations over a period of at least Our procedures also included:
a year from the date of approval * Funding assessment: assessment of the financing
of the financial statements. arrangements currently in place and the actions taken
The risks most likely to adversely by the Group, including covenant waivers, and
affect the Group's and Company's headroom in existing facilities;
available financial resources and/or
metrics relevant to debt covenants
over this period were: * Historical comparisons : assessment of the directors'
* A prolonged downturn in the television advertising track record of forecasts vs actual cashflows by
market; analysing actual results for the past five years
against forecasts for those periods;
* Cancellation or inability to re-commission a number
of key formats, alongside a lack of growth in the ne * Key dependency assessment: identification of critical
w factors in determining whether there is a risk of
formats in the Studios business; failure with reference to our knowledge of the
business and the audit work performed on the areas
such as revenue, earnout liabilities, pensions,
* Significant increase in the Group's pension funding litigation and principal risks. We used our knowledge
obligations; of inter-dependencies in our assessment of the severe
but plausible downside.
* Significantly larger than estimated cash settlements
for ongoing litigations and earnout payments. * Sensitivity analysis: considering sensitivities over
the level of available financial resources indicated
by the Group's financial forecasts taking account of
The risk for our audit was whether plausible (but not unrealistic) adverse effects that
or not those risks were such that could arise from these risks individually and
they amounted to a material uncertainty collectively;
that may have cast significant doubt
about the Group's ability to continue
as a going concern. Had they been * Benchmarking assumptions: critically assessing the
such, then that fact would have key assumptions in the base and downside scenarios in
been required to have been disclosed. relation to specific risks with reference to market
trends (for advertising, as well as scripted and
non-scripted Studios productions), third-party
economic forecasts and ITV's performance in period,
assessment of secured bookings underpinning revenue
forecasts, and our findings in relation to the work
performed on other areas of the audit such as
pensions, earnout liabilities and litigations.
* Evaluating directors' intent : evaluating the
achievability of the actions the directors consider
they would take to improve the position should the
risks materialise, which included: reducing the
programming budget, capital and investment
expenditure; suspending payment of discretionary
bonuses; and further reductions in operational and
overhead costs, taking into account the extent to
which the directors can control the timing and
outcome of these.
* Assessing transparency : considering whether the
going concern disclosure in Section 1 to the
financial statements gives a full and accurate
description of the Directors' assessment of going
concern, including the identified risks, dependencies
,
and related sensitivities.
Our results:
We found the going concern disclosure
indicating no material uncertainty
to be acceptable (2019 result: acceptable)
----------------------------------------------------------- ---------------------------------------------------------------
Total Advertising Revenue: GBP1,577 million (2019: GBP1,768 million)
Risk vs 2019: ,
Refer to accounting policy and financial disclosures in Note 2.1
The risk Our response
--------------------------------------------------------------- ----------------------------------------------------------------
Accounting treatment Our procedures included:
The majority of the Group's advertising * Control operation: testing of controls, assisted by
revenue is subject to regulation our own IT specialists, including those over:
under Ofcom's Contract Rights Renewal segregation of duties; input of annual deal terms
system ('CRR'). CRR works by ensuring with agencies; input of individual campaigns' terms
that the annual share of TV advertising and pricing; link to transmission/viewer data;
that will be placed with the Group invoicing post transmission and the system generated
by each advertising agency can change calculation of deal debt for each campaign.
in relation to the viewing figures
for commercial television that it
delivers. The CRR system, the pricing * Tests of details: challenging the year-end deal debt
of the annual contractual arrangements positions based on comparison with customers'
with advertising agencies and the correspondence, contracts and agreed terms of
details of each advertising campaign, business.
together with the related processes
and controls, are complex.
* Tests of details: agreeing invoices to subsequent
Our risk relates to the largest cash receipts on a sample basis.
component of total advertising -
spot advertising.
* Assessing disclosures: assessing the adequacy of the
In particular, the complexity of Group's disclosures in respect of the accounting
the pricing mechanism means it is policy on revenue recognition.
possible for a difference to arise
between the price received by the
Group for an advertising campaign
and the value it delivered, mainly Our results:
as a result of the actual viewing * From the evidence we obtained we found the resulting
figures differing from the expected amount of recorded spot advertising to be acceptable
level for the campaign. Where the (2019: acceptable).
Group has over-delivered viewers
this is referred to as a 'deal credit',
or a 'deal debt' where delivery
has fallen short. Rather than the
price paid for that campaign being
adjusted at the end of the campaign,
these differences are accumulated
for each agency and then taken into
account when agreeing either future
campaigns or the annual contract.
A net deal debt position with an
agency is recorded in the Group's
accounts, as a liability reflecting
the agency's contractual entitlement
to an airtime credit. Net deal credit
positions are not recognised.
Spot advertising as the main component
of total advertising is therefore
considered a significant risk due
to:
* The complexity of contractual agreements with
advertising agencies;
* The complexity of the systems and processes of
control used to record revenue; and
* The judgement involved in determining any deal debt
liability at the period end.
--------------------------------------------------------------- ----------------------------------------------------------------
Earnout liability: GBP164m (2019: GBP165m) Risk vs 2019:
Refer to accounting policy and financial disclosures in Note 3.1.5
The risk Our response
---------------------------------------------- ------------------------------------------------------------------
Subjective estimate We performed the tests below rather
Acquisition-related liabilities than seeking to rely on any of the
include performance based, employment-linked group's controls because the nature
earnouts which are estimated future of the balance is such that we would
payments to previous owners of the expect to obtain audit evidence
businesses acquired by the Group primarily through the detailed procedures
(the "earnout liability"). The estimated described.
future payments are often based Our procedures included:
on a multiple of profits of the * Enquiry of external advisors: assessing
acquired entity. The most significant correspondence and discussions with the Group's
earnout relates to the acquisition external advisors in relation to the merits of the
of Talpa Media in 2015. The earnout treatments of items under discussion with the
period ended on 31 March 2020, with previous owners in the calculation of the estimated
the liability for the final payout liability, and whether there is any new information
calculated based on a multiple of which indicates that the assumptions used in the
average EBITDA for the three year calculation of the estimate are no longer
period ended 31 December 2019 under appropriate.
the terms of the Sales & Purchase
Agreement (the "SPA").
Due to the size of the business * Tests of details: assessing whether the basis of the
and the multiple applied, the earnout calculation of the earnout payment remains
liability at 31 December 2020 is appropriate with reference to the terms of the Sale
material to the Group financial and Purchase Agreement and latest correspondence
statements. There is judgement involved between the parties on the matter. We challenged the
in relation to the interpretation directors on their treatment of certain transactions
under the SPA of certain transactions including the insured trade receivable for the
for the purposes of the earnout purpose of the calculation with reference to the
calculation including the treatment contract terms.
of the insured trade receivable.
Whilst the earnout period has ended,
the final payment has not yet been * Assessing transparency: assessing the adequacy of the
made as the parties are still in Group's disclosures in relation to the earnout
dispute over the treatment of certain liability.
transactions under the SPA, an external
arbiter was appointed in the year.
The effect of these matters is that, Our results:
as part of our risk assessment, We found the resulting estimate
we determined that the Talpa earnout of the earnout liability and the
liability has a high degree of estimation related disclosures to be acceptable
uncertainty, with a potential range (2019: acceptable).
of reasonable outcomes greater than
our materiality for the financial
statements as a whole, and possibly
many times that amount. The financial
statements (note 3.1.5) disclose
the range estimated by the Group.
---------------------------------------------- ------------------------------------------------------------------
Gross defined benefit pension scheme obligations GBP4,120 million
(2019: GBP4,037 million) Risk vs 2019:
Refer to accounting policy and financial disclosures in Note 3.7
The risk Our response
--------------------------------------------- -------------------------------------------------------------
Subjective valuation Our procedures included:
Significant estimates are made in * Benchmarking assumptions : challenging the key
determining the key assumptions assumptions applied in determining the Group's gross
used in valuing the Group's gross defined benefit pension scheme obligations, being the
defined benefit pension scheme obligations. discount rate, inflation rate and mortality/life
When making these assumptions the expectancy against externally derived data, with the
directors take independent actuarial support of our own actuarial specialists.
advice relating to their appropriateness.
The valuation of the gross defined
benefit pension scheme obligations * Assessing disclosures : assessing the adequacy of the
is considered a significant risk Group's disclosures in respect of the sensitivity of
given the quantum of the gross defined the gross defined benefit pension scheme obligations
benefit pension scheme obligations to these assumptions.
and that a small change in assumptions
can have a material financial impact
on the Group. Our results:
The effect of these matters is that, From the evidence we obtained we
as part of our risk assessment, found the resulting valuation of
we determined that the gross defined the gross defined benefit pension
benefit pension scheme obligations scheme obligations to be acceptable
have a high degree of estimation (2019: acceptable).
uncertainty, with a potential range
of reasonable outcomes greater than
our materiality for the financial
statements as a whole, and possibly
many times that amount. The financial
statements (note 3.7) disclose the
sensitivity estimated by the Group.
--------------------------------------------- -------------------------------------------------------------
Recoverability of the parent Company's investment in, and amounts
due from, its subsidiaries Investment carrying value GBP2,733 million
(2019: GBP2,733 million), and amounts due from subsidiaries GBP4,291
million (2019: GBP4,541 million) Risk vs 2019:
Refer to accounting policy and financial disclosures in Note iii
------------------------------------------------------------------------------------------------------------
The risk Our response
--------------------------------------------- -------------------------------------------------------------
Low risk, high value We performed the tests below rather
The carrying amount of the parent than seeking to rely on any of the
Company's investments in, and amounts group's controls because the nature
due from, its subsidiaries represents of the balance is such that we would
36% and 57% (2019: 37% and 61%) expect to obtain audit evidence
of the Company's total assets respectively. primarily through the detailed procedures
Their recoverability is not at a described.
high risk of significant misstatement Our procedures included:
or subject to significant judgement. * Tests of details : comparing the carrying amount of
However, due to their materiality 100% of investments with the relevant subsidiaries'
in the context of the parent Company draft balance sheet to identify whether their net
financial statements, this is considered assets, being an approximation of their minimum
to be the area that had the greatest recoverable amount, were in excess of their carrying
effect on our overall parent Company amount; assessing 100% of amounts due from
audit. subsidiaries to identify, with reference to the
relevant debtors' draft balance sheet, whether they
have a positive net asset value and therefore
coverage of the debt owed, and assessing, where
relevant, whether those subsidiaries have
historically been profit-making.
Our results:
* We found the carrying amounts of investments and the
of intercompany receivables to be acceptable (2019:
acceptable).
--------------------------------------------- -------------------------------------------------------------
Procedures performed to agree to the preliminary announcement of
annual results
In order to agree to the publication of the preliminary
announcement, we conducted procedures having regard to the
Financial Reporting Council's Bulletin: The auditors' association
with preliminary announcements made in accordance with the
requirements of the UK Listing Rules. Our work included considering
whether:
-- the financial information included in the preliminary
announcement has been accurately extracted from the audited
statutory financial statements, and that it reflects the
presentation adopted in the audited statutory financial
statements;
-- based on our statutory financial statements audit work, the
financial information included in the preliminary announcement is
materially misstated;
-- the information included in the preliminary announcement
(including the management commentary) is materially consistent with
the content of the annual report;
-- based on our statutory financial statements audit work, the
assessment of the Company's position and prospects in the
preliminary announcement is fair, balanced and understandable;
and
-- the preliminary announcement includes the disclosures
required under the UK Listing Rules and s435 of the Companies Act
2006.
Directors' responsibilities
The preliminary announcement is the responsibility of, and has
been approved by, the directors. The directors are responsible for:
preparing, presenting and publishing the preliminary announcement
in accordance with the Listing Rules of the UK FCA; ensuring that
its content is consistent with the information included in the
annual report and audited statutory financial statements; and, as
required under the UK Corporate Governance Code, for ensuring that
the assessment of the Company's position and prospects in the
preliminary announcement is fair, balanced and understandable.
Our responsibility
Our responsibility under the Listing Rules is to agree to the
publication of the preliminary announcement based on our work. In
addition, under the terms of our engagement our responsibility is
to report to the Company setting out the procedures performed by us
to agree to the publication, the status of the audit report on the
statutory financial statements, and the key audit matters addressed
in that audit report.
We do not express an audit opinion on the preliminary
announcement.
We are not required to agree to the publication of presentations
to analysts.
This report is made solely to the Company in accordance with the
terms of our engagement. Our work has been undertaken so that we
might state to the Company those matters we have agreed to state to
it in this 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 for our work, for this report, or for
the conclusions we have reached.
This report is not the auditor's report on the Company's
statutory financial statements. It relates only to the matters
specified and does not extend to the Company's statutory financial
statements taken as a whole.
Paul Sawdon (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
9 March 2021
Consolidated Income Statement
For the year ended 31 December Note 2020 2019
GBPm GBPm
------ -------- --------
Revenue 2.1 2,781 3,308
--------------------------------------------------- ------ -------- --------
Operating costs (2,425) (2,773)
--------------------------------------------------- ------ -------- --------
Operating profit 356 535
--------------------------------------------------- ------ -------- --------
Presented as:
--------------------------------------------------- ------ -------- --------
Earnings before interest, tax and amortisation
(EBITA) before exceptional items 2.1 561 693
--------------------------------------------------- ------ -------- --------
Operating exceptional items 2.2 (118) (84)
--------------------------------------------------- ------ -------- --------
3.3,
Amortisation and impairment 3.5 (87) (74)
--------------------------------------------------- ------ -------- --------
Operating profit 356 535
=================================================== ====== ======== ========
Financing income 4.4 2 12
--------------------------------------------------- ------ -------- --------
Financing costs 4.4 (46) (80)
--------------------------------------------------- ------ -------- --------
Net financing costs 4.4 (44) (68)
--------------------------------------------------- ------ -------- --------
Share of profits of joint ventures and associated
undertakings 3.5 9 1
--------------------------------------------------- ------ -------- --------
Gain on sale of non-current assets (exceptional 2.2,
items) 3.2 4 62
--------------------------------------------------- ------ -------- --------
Profit before tax 325 530
--------------------------------------------------- ------ -------- --------
Taxation 2.3 (44) (52)
--------------------------------------------------- ------ -------- --------
Profit for the year 281 478
=================================================== ====== ======== ========
Profit attributable to:
--------------------------------------------------- ------ -------- --------
Owners of the Company 285 473
--------------------------------------------------- ------ -------- --------
Non-controlling interests 4.7.6 (4) 5
--------------------------------------------------- ------ -------- --------
Profit for the year 281 478
=================================================== ====== ======== ========
Earnings per share
--------------------------------------------------- ------ -------- --------
Basic earnings per share 2.4 7.1p 11.8p
--------------------------------------------------- ------ -------- --------
Diluted earnings per share 2.4 7.1p 11.8p
=================================================== ====== ======== ========
Consolidated Statement of Comprehensive Income
For the year ended 31 December Note 2020 2019
GBPm GBPm
--------------------------------------------------- ------ ------- -------
Profit for the year 281 478
--------------------------------------------------- ------ ------- -------
Other comprehensive loss:
--------------------------------------------------- ------ ------- -------
Items that are or may be reclassified to profit
or loss
--------------------------------------------------- ------ ------- -------
Revaluation of financial assets 4.7.4 4 9
--------------------------------------------------- ------ ------- -------
Net loss on cash flow hedges and costs of hedging 4.7.3 (6) (17)
--------------------------------------------------- ------ ------- -------
Exchange differences on translation of foreign
operations (net of hedging) 4.7.3 (19) (11)
--------------------------------------------------- ------ ------- -------
Items that will never be reclassified to profit
or loss
--------------------------------------------------- ------ ------- -------
Remeasurement gains/(losses) on defined benefit
pension schemes 3.7 5 (134)
--------------------------------------------------- ------ ------- -------
Income tax (charge)/credit on items that will
never be reclassified 2.3 (1) 20
--------------------------------------------------- ------ ------- -------
Other comprehensive loss for the year, net of
income tax (17) (133)
--------------------------------------------------- ------ ------- -------
Total comprehensive income for the year 264 345
=================================================== ====== ======= =======
Total comprehensive income attributable to:
--------------------------------------------------- ------ ------- -------
Owners of the Company 268 340
--------------------------------------------------- ------ ------- -------
Non-controlling interests 4.7.6 (4) 5
--------------------------------------------------- ------ ------- -------
Total comprehensive income for the year 264 345
=================================================== ====== ======= =======
Consolidated Statement of Financial Position
Note 31 December 31 December
2020 2019
GBPm GBPm
Non-current assets
------ ------------ ------------
Property, plant and equipment 3.2 285 269
------ ------------ ------------
Intangible assets 3.3 1,545 1,592
------ ------------ ------------
Investments in joint ventures, associates and
equity investments 3.5 77 52
------ ------------ ------------
Derivative financial instruments 4.3 2 -
------ ------------ ------------
Distribution rights 3.1.2 18 22
--------------------------------------------------- ------ ------------ ------------
Contract assets 3.1.6 7 3
--------------------------------------------------- ------ ------------ ------------
Defined benefit pension surplus 3.7 22 17
--------------------------------------------------- ------ ------------ ------------
Other pension asset 3.7 62 58
--------------------------------------------------- ------ ------------ ------------
Deferred tax asset 2.3 34 47
--------------------------------------------------- ------ ------------ ------------
2,052 2,060
--------------------------------------------------- ------ ------------ ------------
Current assets
--------------------------------------------------- ------ ------------ ------------
Programme rights and other inventory 3.1.1 308 323
--------------------------------------------------- ------ ------------ ------------
Trade and other receivables due within one year 3.1.3 458 413
--------------------------------------------------- ------ ------------ ------------
Trade and other receivables due after more than
one year 3.1.3 46 63
--------------------------------------------------- ------ ------------ ------------
Trade and other receivables 504 476
------ ------------ ------------
Contract assets 3.1.6 409 442
------ ------------ ------------
Current tax receivable 2.3 6 15
------ ------------ ------------
Derivative financial instruments 4.3 6 6
--------------------------------------------------- ------ ------------ ------------
Cash and cash equivalents 4.1 668 246
--------------------------------------------------- ------ ------------ ------------
1,901 1,508
------ ------------ ------------
Current liabilities
------ ------------ ------------
4.1,
Borrowings 4.2 (7) (10)
--------------------------------------------------- ------ ------------ ------------
Lease liabilities 4.6 (22) (25)
--------------------------------------------------- ------ ------------ ------------
Derivative financial instruments 4.3 (7) (5)
--------------------------------------------------- ------ ------------ ------------
Trade and other payables due within one year 3.1.4 (959) (917)
--------------------------------------------------- ------ ------------ ------------
Trade payables due after more than one year 3.1.5 (54) (61)
--------------------------------------------------- ------ ------------ ------------
Trade and other payables (1,013) (978)
------ ------------ ------------
Contract liabilities 3.1.6 (271) (219)
--------------------------------------------------- ------ ------------ ------------
Current tax liabilities 2.3 (25) (81)
--------------------------------------------------- ------ ------------ ------------
Provisions 3.6 (59) (2)
--------------------------------------------------- ------ ------------ ------------
(1,404) (1,320)
--------------------------------------------------- ------ ------------ ------------
Net current assets 497 188
--------------------------------------------------- ------ ------------ ------------
Non-current liabilities
------ ------------ ------------
4.1,
Borrowings 4.2 (1,078) (1,016)
------ ------------ ------------
Lease liabilities 4.6 (83) (64)
------ ------------ ------------
Derivative financial instruments 4.3 (24) (43)
------ ------------ ------------
Defined benefit pension deficit 3.7 (110) (162)
------ ------------ ------------
Deferred tax liabilities 2.3 (20) (29)
------ ------------ ------------
Other payables 3.1.5 (61) (51)
--------------------------------------------------- ------ ------------ ------------
Provisions 3.6 (22) (5)
--------------------------------------------------- ------ ------------ ------------
(1,398) (1,370)
--------------------------------------------------- ------ ------------ ------------
Net assets 1,151 878
=================================================== ====== ============ ============
Attributable to equity shareholders of the parent
company
------ ------------ ------------
Share capital 4.7.1 403 403
------ ------------ ------------
Share premium 4.7.1 174 174
------ ------------ ------------
Merger and other reserves 4.7.2 224 224
------ ------------ ------------
Translation reserve 4.7.3 7 32
------ ------------ ------------
Fair value reserve 4.7.4 18 14
--------------------------------------------------- ------ ------------ ------------
Retained earnings 4.7.5 296 1
--------------------------------------------------- ------ ------------ ------------
Total equity attributable to equity shareholders
of the parent company 1,122 848
--------------------------------------------------- ------ ------------ ------------
Non-controlling interests 4.7.6 29 30
--------------------------------------------------- ------ ------------ ------------
Total equity 1,151 878
=================================================== ====== ============ ============
The accounts were approved by the Board of Directors on 9 March
2021 and were signed on its behalf by:
Consolidated Statement of Changes in Equity
Attributable to equity shareholders
of the parent company
-----------------------------------------------------------------
Note Share Share Merger Translation Fair Retained Total Non- Total
capital premium and reserve value earnings GBPm controlling equity
GBPm GBPm other GBPm reserve GBPm interests GBPm
reserves GBPm GBPm
GBPm
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Balance at 1
January
2020 4.7 403 174 224 32 14 1 848 30 878
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Total
comprehensive
income/(loss)
for the year
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Profit/(loss) for
the year - - - - - 285 285 (4) 281
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Other
comprehensive
income/(loss)
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Revaluation of
financial
assets 4.7.4 - - - - 4 - 4 - 4
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Net loss on cash
flow
hedges and costs
of
hedging 4.7.3 - - - (6) - - (6) - (6)
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Exchange
differences
on translation
of
foreign
operations
(net of hedging) 4.7.3 - - - (19) - - (19) - (19)
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Remeasurement
gains
on defined
benefit
pension schemes 3.7 - - - - 5 5 - 5
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Income tax charge
on other
comprehensive
income 2.3 - - - - (1) (1) - (1)
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Total other
comprehensive
(loss)/income - - - (25) 4 4 (17) - (17)
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Total
comprehensive
(loss)/income
for the year - - - (25) 4 289 268 (4) 264
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Transactions with
owners, recorded
directly
in equity
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Contributions by
and
distributions
to owners
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Equity dividends - - - - - - - (1) (1)
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Movements due to
share-based
compensation 4.8 - - - - - 6 6 - 6
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Tax on items
taken
directly to
equity 2.3 - - - - - 3 3 - 3
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Purchase of own 4.8 - - - - - - - - -
shares
via employees'
benefit
trust
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Total
transactions
with owners - - - - - 9 9 (1) 8
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Changes in
non-controlling
interests 4.7.6 - - - - - (3) (3) 4 1
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Balance at 31
December
2020 4.7 403 174 224 7 18 296 1,122 29 1,151
================== ====== ======== ======== ========= ============ ======== ========== ====== ============ =======
Attributable to equity shareholders
of the parent company
-----------------------------------------------------------------
Note Share Share Merger Translation Fair Retained Total Non- Total
capital premium and reserve value earnings GBPm controlling equity
GBPm GBPm other GBPm reserve GBPm interests GBPm
reserves GBPm GBPm
GBPm
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Balance at 1
January
2019 4.7 403 174 206 60 5 (33) 815 34 849
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Total
comprehensive
income/(loss)
for the year
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Profit for the
year - - - - - 473 473 5 478
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Other
comprehensive
income/(loss)
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Revaluation of
financial
assets 4.7.4 - - - - 9 - 9 - 9
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Net loss on cash
flow
hedges and costs
of
hedging 4.7.3 - - - (17) - - (17) - (17)
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Exchange
differences
on translation
of
foreign
operations
(net of hedging) 4.7.3 - - - (11) - - (11) - (11)
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Remeasurement
losses
on defined
benefit
pension schemes 3.7 - - - - - (134) (134) - (134)
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Income tax credit
on other
comprehensive
income 2.3 - - - - - 20 20 - 20
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Total other
comprehensive
(loss)/income - - - (28) 9 (114) (133) - (133)
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Total
comprehensive
(loss)/income
for the year - - - (28) 9 359 340 5 345
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Transactions with
owners, recorded
directly
in equity
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Contributions by
and
distributions
to owners
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Equity dividends - - - - - (320) (320) (2) (322)
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Movements due to
share-based
compensation 4.8 - - - - - 10 10 - 10
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Tax on items 2.3 - - - - - - - - -
taken
directly to
equity
------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Purchase of own
shares
via employees'
benefit
trust 4.8 - - - - - (4) (4) - (4)
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Total
transactions
with owners - - - - - (314) (314) (2) (316)
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Changes in
non-controlling
interests (a) 4.7.6 - - 18 - - (11) 7 (7) -
------------------ ------ -------- -------- --------- ------------ -------- ---------- ------ ------------ -------
Balance at 31
December
2019 4.7 403 174 224 32 14 1 848 30 878
================== ====== ======== ======== ========= ============ ======== ========== ====== ============ =======
(a) Movements reported in merger and other reserves include a
put option for the acquisition of non-controlling interests.
Consolidated Statement of Cash Flows
For the year ended 31 December Note GBPm 2020 GBPm 2019
GBPm GBPm
------ ------
Cash flows from operating activities
----- ------ ------ ------ ------
Cash generated from operations before
exceptional items 2.1 761 696
--------------------------------------------- ----- ------ ------ ------ ------
Cash flow relating to operating exceptional
items:
--------------------------------------------- ----- ------ ------ ------ ------
Operating exceptional items 2.2 (118) (84)
--------------------------------------------- ----- ------ ------ ------ ------
Increase in exceptional payables 47 98
--------------------------------------------- ----- ------ ------ ------ ------
Decrease/(increase) in exceptional
prepayments and other receivables 3 (2)
--------------------------------------------- ----- ------ ------ ------ ------
Cash (outflow)/inflow from exceptional
items (68) 12
--------------------------------------------- ----- ------ ------ ------ ------
Cash generated from operations 693 708
----- ------ ------ ------ ------
Defined benefit pension deficit funding (59) (74)
----- ------ ------ ------ ------
Interest received 13 30
----- ------ ------ ------ ------
Interest paid on bank, other loans
and lease liabilities* (34) (88)
----- ------ ------ ------ ------
Net taxation paid (88) (108)
--------------------------------------------- ----- ------ ------ ------ ------
(168) (240)
--------------------------------------------- ----- ------ ------ ------ ------
Net cash inflow from operating activities 525 468
--------------------------------------------- ----- ------ ------ ------ ------
Cash flows from investing activities
--------------------------------------------- ----- ------ ------ ------ ------
Acquisition of subsidiary undertaking,
net of cash acquired 3.4 - (11)
--------------------------------------------- ----- ------ ------ ------ ------
Acquisition of property, plant and
equipment (35) (30)
----- ------ ------ ------ ------
Acquisition of intangible assets (31) (38)
----- ------ ------ ------ ------
Acquisition of investments (18) (18)
----- ------ ------ ------ ------
Proceeds from sale of property, plant 4 -
and equipment
--------------------------------------------- ----- ------ ------ ------ ------
Proceeds from sale of assets held
for sale - 146
--------------------------------------------- ----- ------ ------ ------ ------
Proceeds from sale of subsidiaries
and available for sale investments 5
--------------------------------------------- ----- ------ ------ ------ ------
Loans granted to associates and joint
ventures (2) (5)
--------------------------------------------- ----- ------ ------ ------ ------
Loans repaid by associates and joint
ventures 5 1
--------------------------------------------- ----- ------ ------ ------ ------
Dividends received from investments - 1
--------------------------------------------- ----- ------ ------ ------ ------
Net cash (outflow)/inflow from investing
activities (72) 46
----- ------ ------ ------ ------
Cash flows from financing activities
----- ------ ------ ------ ------
Bank and other loans - amounts repaid (7) (931)
----- ------ ------ ------ ------
Bank and other loans - amounts raised 5 968
----- ------ ------ ------ ------
Payment of lease liabilities (22) (31)
----- ------ ------ ------ ------
Equity dividends paid - (320)
----- ------ ------ ------ ------
Acquisition of non-controlling interests (2) (41)
--------------------------------------------- ----- ------ ------ ------ ------
Dividends paid to non-controlling
interests (1) (2)
--------------------------------------------- ----- ------ ------ ------ ------
Purchase of own shares via employees'
benefit trust (1) (4)
--------------------------------------------- ----- ------ ------ ------ ------
Net cash outflow from financing activities (28) (361)
--------------------------------------------- ----- ------ ------ ------ ------
Net increase in cash and cash equivalents 425 153
--------------------------------------------- ----- ------ ------ ------ ------
Cash and cash equivalents at 1 January 4.1 246 95
--------------------------------------------- ----- ------ ------ ------ ------
Effects of exchange rate changes
and fair value movements (3) (2)
--------------------------------------------- ----- ------ ------ ------ ------
Cash and cash equivalents at 31 December 4.1 668 246
============================================= ===== ====== ====== ====== ======
* Included in Interest paid on bank, other loans and lease
liabilities is GBP4 million relating to lease liabilities (2019:
GBP4 million)
Notes to the Financial Information
Section 1: Basis of Preparation
In this This section sets out the Group's accounting
section policies that relate to the financial information
as a whole. Where an accounting policy is specific
to one note, the policy is described in the note
to which it relates. This section also shows
new EU endorsed accounting standards, amendments
and interpretations, and whether they are effective
in 2020 or later years. We explain how these
changes are expected to impact the financial
position and performance of the Group.
The financial information consolidates those of ITV plc ('the
Company') and its subsidiaries (together referred to as the
'Group') and the Group's interests in associates and jointly
controlled entities. The Company is domiciled in the United
Kingdom.
This Group financial information was prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European
Union.
The financial information is principally prepared on the basis
of historical cost. Where other bases are applied, these are
identified in the relevant accounting policy.
The parent company financial information has been prepared in
accordance with Financial Reporting Standard 101 'Reduced
Disclosure Framework' ('FRS 101').
The notes form part of the financial information.
Going concern
The management and Board of Directors of ITV plc continue to
closely monitor the COVID-19 situation and its impact on business
performance and the Group's liquidity position.
As at 31 December 2020, the Group was in a reported net debt
position of GBP545 million (2019: GBP893 million) with a positive
gross cash position.
The Group had GBP618 million of unrestricted cash, a GBP630
million committed and undrawn Revolving Credit Facility expiring in
December 2023 and a GBP300 million committed bilateral facility
expiring in June 2026, of which GBP199 million was available at 31
December 2020, providing GBP1,447 million of liquidity. In
addition, bond repayments only commence in September 2022 and there
are no financial covenants in relation to the bonds in issue
although there are cross default provisions.
The Revolving Credit Facility (RCF) is subject to leverage and
interest cover semi-annual covenant tests that require the Group to
maintain a leverage ratio of below 3.5x and interest cover above
3.0x (as defined in the RCF documentation), however, as a
precautionary measure, the Group was granted replacement covenants
for the tests at June 2020, December 2020 and June 2021. During
this period two replacement covenants apply: a covenant net debt
cap of GBP1.8 billion and a minimum covenant liquidity requirement
of GBP250 million, which will be tested quarterly. As at 31
December 2020, the Group had covenant net debt of GBP432 million
(30 June 2020: GBP679 million) and covenant liquidity of GBP1,497
million (30 June 2020: GBP1,264 million). The leverage and interest
cover tests will be tested again on 31 December 2021.
The Directors have prepared forecasts for three cash flow
scenarios (mid, high, and low cases), for the period of one year
from the date of approval of this consolidated financial
information. The mid case scenario is the basis for the 2021
budget. The key assumptions in the scenarios relate to the degree
of recovery of the advertising market and the scale and timing of
productions for ITV Studios. All scenarios assume an impact from
lockdowns and continued structural changes in the advertising
market and to viewing habits.
The Directors have also considered a number of sensitivities to
the mid case scenario to arrive at a severe but plausible scenario
that has been used to assess the appropriateness of preparing these
consolidated financial information using the going concern concept.
These sensitivities include an increase in acquisition-related
items, increased pension contributions, lost and/or delayed Studios
productions, and an increased rate of decline in advertising
revenue in comparison to 2019.
In the severe but plausible downside scenario the Group
experiences significant loss of profit and cash outflows but
remains able to operate within its financial covenants and has
adequate covenant liquidity available throughout the period of
review.
The Directors will continue to monitor the changing impact of
COVID-19 and the Group's performance against the scenarios.
Management continue to manage costs and cash appropriately. The
Directors recognises the importance of the dividend to our
shareholders and intends to restore dividend payments as soon as
circumstances permit. The Directors will balance shareholder
returns with our commitment to maintain investment grade metrics
over the medium term, to continue to invest behind the strategy and
with the ongoing uncertainty with COVID-19. In 2020, no dividend
payments were made (2019: GBP320 million).The Directors do not
currently intend to pay any dividends during 2021.
Consequently, the Directors are confident that the Group will
have sufficient funds to continue to meet its liabilities as they
fall due for at least 12 months from the date of approval of this
consolidated financial information and therefore have prepared the
consolidated financial information on a going concern basis.
Subsidiaries, joint ventures, associates and investments
Subsidiaries are entities that are directly or indirectly
controlled by the Group. Control exists where the Group has the
power to govern the financial and operating policies of the entity
in order to obtain benefits from its activities. In assessing
control, potential voting rights that are currently exercisable or
convertible are taken into account.
A joint venture is a joint arrangement in which the Group holds
an interest under a contractual arrangement where the Group and one
or more other parties undertake an economic activity that is
subject to joint control. The Group accounts for its interests in
joint ventures using the equity method. Under the equity method,
the investment in the entity is stated as one line item at cost
plus the investor's share of retained post-acquisition profits and
other changes in net assets.
An associate is an entity, other than a subsidiary or joint
venture, over which the Group has significant influence.
Significant influence is the power to participate in, but not
control or jointly control, the financial and operating decisions
of an entity. These investments are also accounted for using the
equity method.
Investments are entities where the Group concludes it does not
have significant influence and are held at fair value unless the
investment is a start-up business, in which case it is valued at
cost and assessed for impairment.
Current/non-current distinction
Current assets include assets held primarily for trading
purposes, cash and cash equivalents, and assets expected to be
realised in, or intended for sale or use in, the course of the
Group's operating cycle. All other assets are classified as
non-current assets.
Current liabilities include liabilities held primarily for
trading purposes, liabilities expected to be settled in the course
of the Group's operating cycle and those liabilities due within one
year from the reporting date. All other liabilities are classified
as non-current liabilities.
Classification of financial instruments
The financial assets and liabilities of the Group are classified
into the following financial statement captions in the statement of
financial position in accordance with IFRS 9 'Financial
Instruments':
-- Loans and receivables - separately disclosed as cash and cash
equivalents and trade and other receivables
-- Financial assets/liabilities at fair value through OCI -
measured at fair value through other comprehensive income
-separately disclosed as derivative financial instruments in
assets/liabilities
-- Financial assets/liabilities at fair value through profit or
loss - separately disclosed as derivative financial instruments in
assets/liabilities and included in other payables (put option
liabilities and contingent consideration)
-- Financial liabilities measured at amortised cost - separately
disclosed as borrowings and trade and other payables
Judgement is required when determining the appropriate
classification of the Group's financial instruments. Details on the
accounting policies for measurement of the above instruments are
set out in the relevant note. Where unconditional rights to set off
financial instruments exist, the Group presents the relevant
instruments net in the statement of financial position.
Recognition and derecognition of financial assets and
liabilities
The Group recognises a financial asset or liability when it
becomes a party to the contract. Financial instruments are no
longer recognised in the statement of financial position when the
contractual cash flows expire or when the Group no longer retains
control of substantially all the risks and rewards under the
instrument.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits with a maturity of less than or equal to three months from
the date of acquisition. The carrying value of cash and cash
equivalents is considered to approximate fair value.
Foreign currencies
The primary economic environment in which the Group operates is
the UK and therefore the consolidated financial information is
presented in pounds sterling ('GBP').
Where Group companies based in the UK transact in foreign
currencies, these transactions are translated into pounds sterling
at the exchange rate on the transaction date. Foreign currency
monetary assets and liabilities are translated into pounds sterling
at the year end exchange rate. Where there is a movement in the
exchange rate between the date of the transaction and the year end,
a foreign exchange gain or loss is recognised in the income
statement. Non-monetary assets and liabilities measured at
historical cost are translated into pounds sterling at the exchange
rate on the date of the transaction.
The assets and liabilities of Group companies outside of the UK
are translated into pounds sterling at the year end exchange rate.
The revenue, expenses and other comprehensive income of these
companies are translated into pounds sterling at the average
monthly exchange rate during the year. Where differences arise
between these rates, they are recognised in the translation reserve
within other comprehensive income.
The Group's net investments in companies outside the UK may be
hedged where the currency exposure is considered to be material.
Hedge accounting is implemented on certain foreign currency firm
commitments, for which the effective portion of any foreign
exchange gains or losses is recognised in other comprehensive
income (note 4.3).
Where a forward currency contract is used to manage foreign
exchange risk and hedge accounting is not applied, any impact of
movements in currency for both the forward currency contracts and
the assets and liabilities is taken to the income statement.
Exchange differences arising on the translation of the Group's
interests in joint ventures and associates are recognised in the
translation reserve within other comprehensive income.
On disposal of a foreign subsidiary, an interest in a joint
venture or an associate, the related translation reserve is
released to the income statement as part of the gain or loss on
disposal.
Accounting judgements and estimates
The preparation of financial information requires management to
exercise judgement in applying the Group's accounting policies. It
also requires the use of estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis, with revisions recognised in the period in which the
estimates are revised and in any future periods affected.
The areas involving material judgement or complexity are set out
below. Additional detail on the judgements applied by Management
are set out in the accounting policies section of the relevant
notes:
-- Revenue recognition (note 2.1)
-- Acquisition-related liabilities (note 3.1.4 and note
3.1.5)
-- Defined benefit pension (note 3.7)
-- Provisions related to Box Clever (note 3.6)
-- Impairment of intangible assets (note 3.3)
A summary of the key sources of estimation uncertainty is
detailed below. Additional detail on the estimates, underlying
assumptions and related sensitivities (where applicable) is given
in the relevant notes.
Defined benefit pension and acquisition-related liabilities are
most sensitive to estimation, where the assumptions applied could
have a material impact on the financial information in the next 12
months. Details of the estimation sensitivity are disclosed in the
related notes.
In determining the estimate for the Box Clever provision,
management has provided for the initial offer made to the Pensions
Regulator (tPR), which is the Directors' and Management's current
best estimate (see note 3.7). No provision was held at 31 December
2019 as the Financial Support Direction (FSD) had not yet been
issued and Management could not reliably estimate the
provision.
In addition to the above, there are a number of areas which
involve a high degree of estimation and are significant to the
financial information but are not expected to have a material
impact on them in the next 12 months. These areas include the
reviews of the carrying value of goodwill and intangible assets,
onerous contract and impairment provisions in relation to sports
rights reviewed as a result of the COVID-19 pandemic and its
economic effects and taxation. More detail on each of these items
is given in the relevant notes.
New or amended EU endorsed accounting standards
The following new standards and/or amendments are effective 1
January 2020:
Changes in significant accounting policies
Accounting standard Requirement
---------------------------------------------------------- ----------------------------------------------------------
IFRS 3 'Business combinations' The amendment provides entities with clearer application
guidance to help distinguish between
a business and a group of assets when applying IFRS 3.
---------------------------------------------------------- ----------------------------------------------------------
IAS 1 'Presentation of financial statements' and The amendment clarifies the definition of material
IAS 8 'Accounting policies, changes in accounting throughout IFRSs and the Conceptual Framework
estimates and errors' for Financial Reporting.
---------------------------------------------------------- ----------------------------------------------------------
IFRS 9, IAS 39 and IFRS 17: - Interest rate benchmark The amendments provide temporary reliefs which enable
reform hedge accounting to continue during
the period of uncertainty before the replacement of an
existing interest rate benchmark with
an alternative nearly risk-free interest rate.
---------------------------------------------------------- ----------------------------------------------------------
Amendments to the Conceptual framework The revised Framework will be used in future
standard-setting decisions, but no changes will
be made to current IFRS. Preparers might also use the
Framework to assist them in developing
accounting policies where an issue is not addressed by an
IFRS.
---------------------------------------------------------- ----------------------------------------------------------
IFRS 16 'Leases' In response to the COVID-19 coronavirus pandemic, the
amendments to IFRS 16 'Leases' to allow
lessees not to account for rent concessions as lease
modifications if they are a direct consequence
of COVID-19 and meet certain conditions.
---------------------------------------------------------- ----------------------------------------------------------
EU endorsed accounting standards effective in future periods
The above changes in accounting policies have been effective
throughout 2020 but have not had a significant impact on the
Group's results or Statement of Financial Position.
The Directors have also considered the impact on the Group of
new and revised accounting standards, interpretations or amendments
that are currently endorsed but not yet effective and do not expect
them to have a significant impact on the Group's results and
Statement of Financial Position.
Notes to the Financial Information
Section 2: Results for the Year
In this This section focuses on the results and performance
section of the Group. On the following pages, you will
find disclosures explaining the Group's results
for the year, segmental information, exceptional
items, taxation and earnings per share.
2.1 Profit Keeping This section analyses the Group's profit before
before tax it simple tax by reference to the activities performed
by the Group and an analysis of key operating
costs.
Adjusted earnings before interest, tax and
amortisation (EBITA) (as defined in the APMs)
is the Group's key profit indicator. This reflects
the way the business is managed and how the
Directors assess the performance of the Group.
This section therefore also shows each division's
contribution to total revenue and adjusted
EBITA.
Accounting policies
Revenue recognition
The Group derives revenue from the transfer of goods and
services. Revenue recognition is based on the delivery of
performance obligations and an assessment of when control is
transferred to the customer. Revenue is recognised either when the
performance obligation in the contract has been performed ('point
in time' recognition) or 'over time' as control of the performance
obligation is transferred to the customer.
Customer contracts can have a wide variety of performance
obligations, from production contracts to format licences and
distribution activities. For these contracts, each performance
obligation is identified and evaluated. Under IFRS 15 the Group
needs to evaluate if a format or licence represents a right to
access the content (revenue recognised over time) or represents a
right to use the content (revenue recognised at a point in time).
The Group has determined that most format and licence revenues are
satisfied at a point in time due to there being limited ongoing
involvement in the use of the licence following its transfer to the
customer.
The transaction price, being the amount to which the Group
expects to be entitled and has rights to under the contract is
allocated to the identified performance obligations. The
transaction price will also include an estimate of any variable
consideration where the Group's performance may result in
additional revenues based on the achievement of agreed targets such
as audience targets. Variable consideration is not recognised until
the performance obligations are met.
Revenue is stated exclusive of VAT and equivalent sales
taxes.
Complexity in advertising revenue recognition is driven by a
combination of automated and manual processes involved in measuring
the value delivered to the customer. Complex one-off contracts in
all classes of revenue are assessed individually and judgement is
exercised in identifying performance obligations and allocating
price to them. Timing of revenue recognition is another area of
judgement in such contracts.
Revenue recognition criteria for the Group's key classes of
revenue are as follows:
Segment Major classes of revenue Payment terms
------------- ------------------------------------------------------------ ----------------------------------------------------
ITV Studios
---------------------------------------------------------------------------------------------------------------------------------
Programme
production * Revenue generated from the programmes produced for * Payment term is over the term of the contract
broadcasters and OTT platforms in the UK, US and
internationally is recognised at the point of
delivery of an episode and acceptance by the
customer. Revenue from producer for hire contracts,
where in an event of cancellation cost is recovered
plus a margin, is recognised over time
------------------------------------------------------------ ----------------------------------------------------
Format
licences * A licence is granted for the exploitation of a format * Payment term is over the term of the contract
in a stated territory, media and period. Licence
revenue is recognised when the licence period has
commenced (point in time)
------------------------------------------------------------ ----------------------------------------------------
Programme
distribution * A licence is granted for the transmission of a * Payment term is over the term of the contract
rights programme in a stated territory, media and period and
revenue is recognised at the point when the contract
is signed, the content is available for download and
the licence period has started (point in time)
------------- ------------------------------------------------------------ ----------------------------------------------------
Segment Major classes of revenue Payment terms
------------ ------------------------------------------------------------ --------------------------------------------------------
Broadcast
------------------------------------------------------------------------------------------------------------------------------------
Total
advertising * Net advertising revenue is generated from selling * Received in the month after transmission
revenue spot airtime on linear TV and is recognised at the
point of transmission
* Received in the month after campaign is delivered
* Online advertising revenue from video on demand (VOD)
is generated from selling advertising on the ITV Hub * Received prior to transmission
and is recognised at the point of delivery
* Revenue from the sponsorship of programmes across ITV
linear channels and online is recognised over the
period of transmission
------------------------------------------------------------ --------------------------------------------------------
Direct to
Consumer * Pay revenue is generated from the provision of HD * Payment term is over the term of the contract or
channels, catch up content and licences to ready-made subscription period
programmes in the form of box sets to third parties
and is recognised either over the term of the
contract or per subscriber or download (point in
time)
* Interactive revenue is earned from entries to
competitions and is recognised as the event occurs
(point in time)
* Revenue from subscription services is recognised over
the subscription period
------------------------------------------------------------ --------------------------------------------------------
SDN * Payment term is over the term of the contract
* Revenue is generated from the carriage fee or
capacity of the digital multiplex and is recognised
over the term of the contract
------------ ------------------------------------------------------------ --------------------------------------------------------
The results for the year aggregate these classes of revenue into
the following categories:
2020 2020 2019 2019
GBPm % of GBPm % of
total total
------- --------
ITV Studios UK 535 725
------- -------- ------- --------
ITV Studios US 234 271
------- -------- ------- --------
ITV Studios International 343 508
------- -------- ------- --------
Global Formats and Distribution 258 318
------------------------------------ ------- -------- ------- --------
Total ITV Studios* 1,370 42% 1,822 47%
------------------------------------ ------- -------- ------- --------
Total advertising revenue ('TAR') 1,577 48% 1,768 46%
------- -------- ------- --------
Direct to consumer 87 84
------- -------- ------- --------
SDN 73 69
------------------------------------ ------- -------- ------- --------
Other 153 142
------------------------------------ ------- -------- ------- --------
Total Broadcast 1,890 58% 2,063 53%
------------------------------------ ------- -------- ------- --------
Total revenue** 3,260 3,885
==================================== ======= ======== ======= ========
* Studios UK, ITV Studios US and Studios International revenues
are mainly programme production. Global Formats and Distribution
revenue is from programme distribution rights and format
licences.
** Includes internal supply as discussed in the APMs.
Segmental information
Operating segments, which have not been aggregated, are
determined in a manner that is consistent with how the business is
managed and reported to the Board of Directors. The Board is
regarded as the chief operating decision-maker. The Board considers
the business primarily from an operating activity perspective.
The reportable segments for the years ended 31 December 2020 and
31 December 2019 are, therefore, ITV Studios and Broadcast, the
results of which are outlined in the following tables:
ITV Studios(i) Broadcast Consolidated
2020 2020 2020
GBPm GBPm GBPm
---------- -------------
Total segment revenue 1,370 1,890 3,260
--------------------------------- --------------- ---------- -------------
Intersegment revenue (472) (7) (479)
--------------------------------- --------------- ---------- -------------
Revenue from external customers 898 1,883 2,781
================================= =============== ========== =============
Adjusted EBITA(ii) 152 421 573
================================= =============== ========== =============
ITV Studios(i) Broadcast Consolidated
2019 2019 2019
GBPm GBPm GBPm
Total segment revenue 1,822 2,063 3,885
--------------------------------- --------------- ---------- -------------
Intersegment revenue (573) (4) (577)
--------------------------------- --------------- ---------- -------------
Revenue from external customers 1,249 2,059 3,308
================================= =============== ========== =============
Adjusted EBITA(ii) 267 462 729
================================= =============== ========== =============
(i) Revenue of GBP312 million (2019: GBP394 million) was
generated in the US during the year; the US represented GBP346
million (2019: GBP312 million) of non-current assets at year end.
Intersegment revenue originates mainly in the UK.
(ii) Adjusted EBITA is reported EBITA adjusted to exclude
exceptional items and includes the benefit of production tax
credits. It is stated after the elimination of intersegment revenue
and costs.
The Group's principal operations are in the United Kingdom.
Revenue from external customers in the United Kingdom is GBP1,985
million (2019: GBP2,213 million), and revenue from external
customers in other countries is GBP796 million (2019: GBP1,095
million). The Operating and Performance Review provides further
detail on ITV's international revenues.
Intersegment revenue, which is earned on arm's length terms, is
mainly generated from the supply of ITV Studios programmes to
Broadcast for transmission primarily on the ITV network. This
revenue stream is a measure that informs the Group's strategic
priority of building a strong international content business, as
producing and retaining rights to the shows broadcast on the ITV
network benefits the Group further from subsequent international
content and format sales.
In preparing the segmental information, centrally managed costs
have been allocated between reportable segments on a methodology
driven principally by revenue, headcount and building occupancy of
each segment. This is consistent with the basis of reporting to the
Board of Directors.
There are two media buying agencies (2019: one) acting on behalf
of a number of advertisers that represent the Group's major
customers. These agencies are the only customers that individually
represent over 10% of the Group's revenue. Revenue of approximately
GBP775 million (2019: GBP551 million) was derived from these
customers. This revenue is attributable to the Broadcast
segment.
In October 2020, the Group announced a restructure within its
Broadcast segment to better reflect and serve the changing viewing
habits. Broadcast will be renamed Media and Entertainment and will
continue to include Broadcast and On-Demand services. The
restructure will be effective from 1 April 2021 and is, therefore,
not reflected in this financial information.
Timing of revenue recognition
The following table includes classes of revenue from contracts
disaggregated by the timing of recognition:
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
------- ------- ------- -------
Products Products
and services and services
transferred transferred
at a point over time
in time
---------------------------------------------- ---------------- ----------------
Total advertising revenue, DTC, SDN 1,585 1,771 298 288
---------------------------------------------- ------- ------- ------- -------
Programme production, programme distribution
rights 684 944 114 200
---------------------------------------------- ------- ------- ------- -------
Format licences 94 92 6 13
---------------------------------------------- ------- ------- ------- -------
Total external revenue 2,363 2,807 418 501
============================================== ======= ======= ======= =======
Forward bookings
The following table includes revenue from contracts signed
before the reporting date that is to be recognised in periods after
the reporting date (i.e. the performance obligations remain
unsatisfied or partially unsatisfied at the reporting date):
2021 2022 2023 Beyond
GBPm GBPm GBPm GBPm
------ ------ ------ -------
Broadcast 125 101 23 19
--------------- ------ ------ ------ -------
ITV Studios * 240 162 21 26
--------------- ------ ------ ------ -------
Revenue 365 263 44 45
=============== ====== ====== ====== =======
* Includes internal supply.
The Group applies the practical expedients in IFRS 15 and,
therefore, does not disclose information about remaining
performance obligations that have original expected durations of
less than one year or where the price is not yet known (e.g.
NAR).
ITV Studios
ITV Studios is the Group's international content business,
creating and producing programmes and formats that return and
travel, namely drama, entertainment and factual entertainment.
ITV Studios UK is the largest commercial producer in the UK and
produces programming for the Group's own channels, accounting for
68% of ITV main channel spend on commissioned programming (2019:
65%). Programming is also sold to other UK broadcasters and OTT
platforms.
ITV Studios US is the leading unscripted independent producer of
content in the US and is growing its scripted presence by
increasing investment in high-profile dramas.
ITV Studios also operates in ten other international locations,
together called ITV Studios International, being Australia,
Germany, France, Italy, the Netherlands, Sweden, Norway, Finland
and Denmark where content is produced for local broadcasters and
international OTT platforms. This content is either locally created
IP or formats that have been created elsewhere by ITV, primarily in
the UK, the Netherlands and in Israel.
ITV's distribution and commercial division was reorganised, with
effect from 1 January 2020, into three centres of excellence - The
Creative Network, Global Distribution and Global Entertainment.
This enables the Group to create more hits, to better build brands
and formats internationally and to monetise them more effectively.
Global Formats and Distribution license ITV's finished programmes,
formats and third-party content internationally. Within this
business, the Group also finances productions both on and off ITV
to acquire global distribution rights.
Broadcast
The Group operates the largest commercial family of channels in
the UK and delivers content through multiple platforms. In addition
to linear television broadcast, the Group delivers its content on
the ITV Hub, catch up services on pay platforms, and through direct
content deals. Content commissioned and scheduled by this segment
is funded primarily by advertising, where revenue is generated from
the sale of audiences for advertising spot airtime, online
advertising, sponsorship, and licensing.
Other sources of revenue are from: Direct to Consumer revenue
(which includes interactive sales from competitions, ITV Hub+,
BritBox UK, and Gaming, live events and merchandise); SDN revenue
(which generates licence sales for DTT Multiplex A); HD digital
channels on pay platforms (e.g. Sky and Virgin); and the ITV Choice
subscription service in other countries.
In November 2019, we launched our new SVOD service with the BBC,
BritBox UK. The service provides UK audiences with an unrivalled
collection of British box sets all in one place. BritBox UK
includes both ITV and BBC box sets and has content partnerships
with Channel 4 (including Film4 content) and Channel 5, and
distribution partnerships with BT and EE.
Adjusted EBITA
The Directors assess the performance of the reportable segments
based on a measure of adjusted EBITA. The Directors use this
non-IFRS measurement basis as it excludes the effect of
transactions that could distort the understanding of the Group's
performance for the year and comparability between periods. See the
Operating and Performance Review for the detailed explanation of
the Group's use of adjusted performance measures. A reconciliation
of adjusted EBITA to reported profit before tax is provided as
follows:
Ref. 2020 2019
GBPm GBPm
Adjusted EBITA 573 729
--------------------------------------------------- ----- ------ ------
Production tax credits (12) (36)
--------------------------------------------------- ----- ------ ------
EBITA before exceptional items 561 693
----- ------ ------
Operating exceptional items 2.2 (118) (84)
----- ------ ------
Amortisation and impairment (87) (74)
----- ------ ------
Net financing costs 4.4 (44) (68)
----- ------ ------
Share of profits of joint ventures and associated
undertakings 9 1
--------------------------------------------------- ----- ------ ------
Gain on sale of non-current assets (exceptional
items) 4 62
--------------------------------------------------- ----- ------ ------
Reported profit before tax 325 530
=================================================== ===== ====== ======
Cash generated from operations
A reconciliation from profit before tax to cash generated from
operations before exceptional items is as follows:
Ref. 2020 2019
GBPm GBPm
Cash flows from operating activities
----- ------ ------
Reported profit before tax 325 530
----- ------ ------
Add back:
----- ------ ------
Gain on sale of non-current assets (exceptional
items) (4) (62)
----- ------ ------
Share of profits of joint ventures and associated
undertakings (9) (1)
----- ------ ------
Net financing costs 4.4 44 68
----- ------ ------
Operating exceptional items 2.2 118 84
----- ------ ------
Depreciation of property, plant and equipment 3.2 57 56
----- ------ ------
Amortisation and impairment 87 74
----------------------------------------------------------- ----- ------ ------
Share-based compensation 4.8 6 10
----------------------------------------------------------- ----- ------ ------
Decrease/(increase) in programme rights and distribution
rights 16 (18)
----------------------------------------------------------- ----- ------ ------
Decrease/(increase) in receivables and contract
assets 2 (37)
----------------------------------------------------------- ----- ------ ------
Increase/(decrease) in payables and contract liabilities 119 (8)
----------------------------------------------------------- ----- ------ ------
Movement in working capital 137 (63)
----------------------------------------------------------- ----- ------ ------
Cash generated from operations before exceptional
items 761 696
=========================================================== ===== ====== ======
Operating costs
The major components of operating costs of GBP2,425 million
(2019: GBP2,773 million) are network schedule costs of GBP935
million (2019: GBP1,091 million), staff costs of GBP473 million
(2019: GBP491 million), depreciation, amortisation and impairment
of GBP144 million (2019: GBP130 million) and operating exceptional
items of GBP118 million (2019: GBP84 million). During the year, the
Group received GBP21 million income under government support
schemes resulting from the Covid-19 pandemic. This income is netted
against staff costs.
Staff costs
Staff costs before exceptional items can be analysed as
follows:
2020 2019
GBPm GBPm
Wages and salaries 382 400
------ ------
Social security and other costs 55 53
------ ------
Share-based compensation (see note 4.8) 6 10
-------------------------------------------- ------ ------
Pension costs 30 28
-------------------------------------------- ------ ------
Total staff costs 473 491
============================================ ====== ======
Less: staff costs allocated to productions (191) (199)
-------------------------------------------- ------ ------
FTEE staff costs (non-production) 282 292
============================================ ====== ======
Exceptional staff costs are disclosed separately in note
2.2.
Full-time equivalent employees (FTEE) include those FTEEs that
are allocated to the cost of productions during the year, however
they exclude
short-term contractors and freelancers who are engaged on
productions. The weighted average FTEE over the year is:
2020 2019
ITV Studios 3,893 4,205
------------- ------ ------
Broadcast 2,380 2,211
------------- ------ ------
6,273 6,416
============= ====== ======
The decrease in full-time equivalent employees is primarily
driven by restructuring activities in ITV Studios. Details of
Directors' emoluments, share options, pension entitlements and
long-term incentive scheme interests are set out in the
Remuneration Report. ITV plc Executive Directors' gains on share
options for 2020 are set out in the ITV plc Company financial
information.
Depreciation
Depreciation in the year was GBP57 million (2019: GBP56
million), of which GBP36 million (2019: GBP35 million) relates to
ITV Studios and GBP21 million (2019: GBP21 million) to Broadcast.
See note 3.2 for further details.
Audit fees
The Group engages KPMG LLP (KPMG) on assignments additional to
its statutory audit duties where its expertise and experience with
the Group are important and are in line with Group's policy on
auditor independence. Fees paid to KPMG and its associates during
the year are set out below:
2020 2019
GBPm GBPm
For the audit of the Group's annual accounts 0.9 0.9
------ ------
For the audit of subsidiaries of the Group 0.9 0.7
-------------------------------------------------- ------ ------
Audit-related assurance services 0.3 0.1
-------------------------------------------------- ------ ------
Total audit and audit-related assurance services 2.1 1.7
-------------------------------------------------- ------ ------
Other assurance services - 0.1
-------------------------------------------------- ------ ------
Total non-audit services * - 0.1
-------------------------------------------------- ------ ------
Total fees paid to KPMG 2.1 1.8
================================================== ====== ======
* See details of non-audit services in the Audit and Risk Committee Report.
There were no fees payable in 2020 or 2019 to KPMG and
associates for the auditing of accounts of any associate or pension
scheme of the Group, internal audit, and services relating to
corporate finance transactions entered into or proposed to be
entered into, by or on behalf of the Group or any of its
associates. Fees paid to KPMG for audit and other services to the
Company are not disclosed in its individual accounts as the Group
accounts are required to disclose such fees on a consolidated
basis.
2.2 Keeping Exceptional items are excluded from management's
Exceptional it simple assessment of profit because by their size
items or nature they could distort the Group's underlying
quality of earnings. They are typically gains
or losses arising from events that are not
considered part of the core operations of the
business. These items are excluded to reflect
performance in a consistent manner and are
in line with how the business is managed and
measured on a day-to-day basis.
Accounting policies
Exceptional items as described above are highlighted on the face
of the income statement. See the Operating and Performance Review
for the detailed explanation of the Group's use of adjusted
performance measures. Gains or losses on disposal of non-core
assets are also considered exceptional due to their nature and
impact on the Group's underlying quality of earnings.
Exceptional items
Operating and non-operating exceptional items are analysed as
follows:
(Charge)/credit Ref. 2020 2019
GBPm GBPm
Operating exceptional items:
------ ------ ------
Acquisition-related expenses A (13) (75)
---------------------------------------------- ------ ------ ------
Restructuring and property-related costs B (11) (24)
---------------------------------------------- ------ ------ ------
Pension related (costs) /credit C (6) 1
---------------------------------------------- ------ ------ ------
COVID-19 directly related net costs D (11) -
---------------------------------------------- ------ ------ ------
Sports rights E (23) -
---------------------------------------------- ------ ------ ------
Other F (54) 14
---------------------------------------------- ------ ------ ------
Total operating exceptional items (118) (84)
------------------------------------------------------ ------ ------
Tax on operating exceptional items 22 6
------------------------------------------------------ ------ ------
Total operating exceptional items net of tax (96) (78)
====================================================== ====== ======
Non-operating exceptional items:
------ ------ ------
Gain on sale of non-current assets G 4 62
---------------------------------------------- ------ ------ ------
Total non-operating exceptional items 4 62
------------------------------------------------------ ------ ------
Tax on non-operating exceptional items (1) -
---------------------------------------------- ------ ------ ------
Total exceptional items net of tax (93) (16)
====================================================== ====== ======
A - Acquisition-related expenses
Acquisition-related expenses of GBP13 million (2019: GBP75
million) relate to performance-based, employment-linked expected
payments to former owners. In 2019, the expense also includes
professional fees (mainly financial due diligence and legal costs
in respect of potential acquisitions during the year).
B - Restructuring and property-related costs
Restructuring costs of GBP11 million (2019: GBP18 million)
relate to one-off significant restructuring projects of the
business. In 2019, property-related costs of GBP6 million related
to the Group's former headquarters at The London Television Centre,
which was sold in November 2019.
C - Pension related (costs)/credit
On 20 November 2020, a High Court ruling determined that pension
schemes need to address inequalities between men and women in
Guaranteed Minimum Pension (GMP) for those members that transferred
out of the Schemes between May 1990 and October 2018. A past
service cost for GMP Equalisation in transfers out of GBP1 million
(2019: GBPnil) was recognised. Also during 2020, the Group
completed the rectification of historical benefits of the members
of the Network Section of Section A of the ITV Pension Scheme. The
change in benefits of GBP5 million (2019: GBPnil) have been
recognised as a past service cost in the current year. Further
details are provided in section 3.7.
The UTV Pension Scheme was closed to future benefit accruals in
March 2019. This resulted in a one-off, non-cash GBP1 million
curtailment credit in 2019.
D - COVID-19 directly related net costs
Costs directly related to the COVID-19 pandemic have been
recognised as exceptional items. These include GBP11 million
related to the costs incurred in productions shutting down and
restarting in a safe environment and additional one-off costs to
maintain production during the lockdown for certain daytime
shows.
E - Sports rights
As a result of the impact of COVID-19 on the planned sporting
schedule for 2020 and 2021 and the consequential impact on TAR,
along with changing forecasts of audience mix and revenues for
certain sporting events, the Group has recognised an impairment for
these sporting events included in programme rights and programme
commitments of GBP23 million. It is not possible to split the
impairment between that caused by the COVID-19 pandemic and
underlying market movements.
F - Other
Included in other costs for the current year, is an estimate of
the settlement in relation to the Box Clever case (GBP31 million
(2019: GBPnil)), a provision of GBP19 million (2019: GBPnil) for an
onerous transmission supply contract for excess satellite
transponder capacity and GBP4 million (2019: GBP4 million) of other
costs in relation to legal matters outside the normal course of
business. See note 3.6 for further details.
During the year, we commenced a review of the efficiency of our
transponder capacity usage with a view to reducing our capacity
requirements. This has allowed us to reorganise our channels over
fewer transponders with the result that we have cleared all
channels from one transponder and are no longer utilising it. We
have provided for an onerous contract of GBP19 million from the
date the transponder was cleared. The transponder efficiency review
is ongoing and we expect to clear a second transponder in 2021.
In 2019, following the Supreme Court's decision to refuse to
hear the Group appeal in relation to Box Clever, the provision
previously held was released as the Group could not reliably
estimate the cost of resolving the matter at that time. This was
offset by movements in the insured trade receivables provision and
costs in relation to the cancellation of The Jeremy Kyle show.
G - Gain on sale of non-current assets
The gain on sale of non-current assets in 2020 arose primarily
as a result of the sale of Freeview channel Merit.
The gain on sale of non-current assets in 2019 arose primarily
as a result of the sale of the London Television Centre. Further
details are provided in note 3.2. The tax charge on the gain is
GBPnil, as a result of the significant tax base cost of the asset,
and the availability of capital losses to offset the remaining
chargeable gain.
2.3 Keeping This section sets out the Group's tax accounting
Taxation it simple policies, the current and deferred tax charges
or credits in the year (which together make
up the total tax charge or credit in the income
statement), a reconciliation of profit before
tax to the tax charge for the period and the
movements in deferred tax assets and liabilities.
Accounting policies
The tax charge for the year is recognised in the income
statement, the statement of comprehensive income and directly in
equity, according to the accounting treatment of the related
transactions. The tax charge comprises both current and deferred
tax. The calculation of the Group's tax charge involves a degree of
estimation and judgement in respect of certain items whose tax
treatment cannot be fully determined until a resolution has been
reached by the relevant tax authority.
Current tax
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year and any adjustment in respect
of previous years.
The Group recognises liabilities for anticipated tax issues
based on estimates of the additional taxes that are likely to
become due, which require judgement. Amounts are accrued based on
management's interpretation of specific tax law and the likelihood
of settlement. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such
differences will impact the current tax and deferred tax provisions
in the period in which such determination is made.
Deferred tax
Deferred tax arises due to certain temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and those for taxation purposes.
The following temporary differences are not provided for:
-- The initial recognition of goodwill
-- The initial recognition of assets or liabilities that affect
neither accounting nor taxable profit other than in a business
combination
-- Differences relating to investments in subsidiaries to the
extent that they will probably not reverse in the foreseeable
future
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities. Deferred tax is calculated using tax rates
that are enacted or substantively enacted at the balance sheet
date.
A deferred tax asset is recognised only to the extent that it is
probable that sufficient taxable profit will be available to
utilise the temporary difference. Recognition of deferred tax
assets, therefore, involves judgement regarding the timing and
level of future taxable income.
Deferred tax assets and liabilities are disclosed net to the
extent that they relate to taxes levied by the same authority and
the Group has the right of set-off.
Taxation - Income statement
The total taxation charge in the income statement is analysed as
follows:
2020 2019
GBPm GBPm
Current tax:
------ ------
Current tax charge on profit before exceptional items (73) (84)
-------------------------------------------------------- ------ ------
Current tax credit on exceptional items 21 3
-------------------------------------------------------- ------ ------
(52) (81)
-------------------------------------------------------- ------ ------
Adjustments related to prior periods 7 8
-------------------------------------------------------- ------ ------
(45) (73)
-------------------------------------------------------- ------ ------
Deferred tax:
------ ------
Origination and reversal of temporary differences 3 7
------ ------
Deferred tax credit on exceptional items - 3
-------------------------------------------------------- ------ ------
Impact of changes to statutory tax rates (2) 5
-------------------------------------------------------- ------ ------
1 15
-------------------------------------------------------- ------ ------
Adjustments related to prior periods - 6
-------------------------------------------------------- ------ ------
1 21
-------------------------------------------------------- ------ ------
Total taxation charge in the income statement (44) (52)
======================================================== ====== ======
In order to understand how, in the income statement, a tax
charge of GBP44 million (2019: GBP52 million) arises on a profit
before tax of GBP325 million
(2019: GBP530 million), the taxation charge that would arise at
the standard rate of UK corporation tax is reconciled to the actual
tax charge as follows:
2020 2019
GBPm GBPm
----------------------------------------------------- ------ ------
Profit before tax 325 530
----------------------------------------------------- ------ ------
Notional taxation charge at UK corporation tax rate
of 19% (2019: 19%) on profit before tax (62) (101)
------ ------
Non-taxable income/non-deductible expenses 2 (16)
------ ------
Sale of the London Television Centre - 12
------ ------
Prior year adjustments 7 14
------ ------
Other taxes (4) (4)
------ ------
Previously unrecognised deferred tax assets - 3
------ ------
Current year losses not recognised (3) (1)
------ ------
Impact of overseas tax rates 3 -
------ ------
Impact of changes in tax rates (2) 5
----------------------------------------------------- ------ ------
Production tax credits 15 36
----------------------------------------------------- ------ ------
Total taxation charge in the income statement (44) (52)
===================================================== ====== ======
Non-deductible expenses are expenses that are not expected to be
allowable for tax purposes. Similarly, non-taxable income is income
that is not expected to be taxable.
Adjustments to prior periods primarily arise where an outcome is
obtained on certain tax matters, which differs from expectations
held when the related provision was made. Where the outcome is more
favourable than the provision made, the difference is released,
lowering the current year tax charge. Where the outcome is less
favourable than our provision, an additional charge to current year
tax will occur. The current tax charge includes a GBP7 million
credit relating to prior years. This adjustment has arisen
following changes in estimates of taxes that have already become
due, or will become due in the future.
Previously unrecognised deferred tax assets in the prior year
are in relation to capital losses utilised against gains on sale of
property.
The impact of overseas tax rates reflects the fact that some of
our profits are earned in territories other than the UK and taxed
at rates different from the UK corporation tax rate. In 2020, the
total impact is GBP3 million credit (2019: GBPnil credit) due to
losses arising in higher taxed jurisdictions, which were recognised
through deferred tax, giving rise to a reconciling benefit.
An increase in the UK corporation tax rate from 19% to 25%
(effective 1 April 2023) was announced on 3 March 2021. This will
increase the Group's future current tax charge accordingly and have
minimal impact on deferred tax.
The production tax credits included within the reconciliation
above are UK High-End Television (HETV) tax credits and Children's
Television tax credits, which are part of a group of incentives
provided to support the creative industries in the UK. The ability
to access these tax credits is fundamental when assessing the
viability of investment decisions in the production of high-end
drama and children's programmes. Under IFRS, these production tax
credits are reported within the total taxation charge in the income
statement. However, ITV considers them to be a contribution to
production costs, and therefore working capital in nature, and
excludes them from its adjusted tax charge, including them instead
within Adjusted EBITA.
The effective tax rate is 13.5% (2019: 9.8%), and is the tax
charge on the face of the income statement expressed as a
percentage of the profit before tax. The tax rate is higher than in
2019 primarily because the 2019 tax rate was reduced by the
disposal of the London Television Centre. As explained in the
Finance Review, the Group uses an adjusted tax rate to show how tax
impacts total adjusted earnings in a way that is more aligned with
the Group's cash tax position. The adjusted tax rate is 18.0%
(2019: 18.0%).
In 2020, the current year movement recognised in the income
statement on origination and reversal of temporary differences
(excluding exceptional items) is a credit of GBP3 million, compared
with a credit of GBP7 million in 2019.
Taxation - Other comprehensive income (OCI) and equity
As analysed in the table below, a deferred tax charge of GBP8
million (2019: GBP22 million credit) on actuarial movements on
pensions and a deferred tax credit of GBP5 million (2019: GBPnil)
on derivative financial instruments has been recognised in other
comprehensive income. A deferred tax credit of GBP3 million (2019:
GBPnil) has been recognised in equity in respect of share-based
payments.
A current tax credit of GBP2 million on foreign exchange
movements net of hedging has been recognised in other comprehensive
income (2019: GBP2 million charge). There is no current tax
recognised in equity in relation to share-based payments (2019:
GBPnil).
Taxation - Statement of financial position
The table below outlines the deferred tax assets/(liabilities)
that are recognised in the statement of financial position,
together with their movements in the year:
At Other Recognised Recognised Business Foreign At
1 January movements in in OCI acquisitions exchange 31 December
2020 GBPm the and GBPm GBPm 2020
GBPm income equity GBPm
statement GBPm
GBPm
Tangible assets 7 - 1 - - - 8
----------- ----------- ----------- ----------- -------------- ---------- -------------
Intangible assets (50) - 10 - - (1) (41)
----------- ----------- ----------- ----------- -------------- ---------- -------------
Programme rights 1 - (1) - - - -
----------- ----------- ----------- ----------- -------------- ---------- -------------
Pension scheme
deficits 8 - (5) (8) - - (5)
----------- ----------- ----------- ----------- -------------- ---------- -------------
Tax losses 37 - - - - (2) 35
----------- ----------- ----------- ----------- -------------- ---------- -------------
Share-based
compensation 6 - (1) 3 - - 8
----------------------- ----------- ----------- ----------- ----------- -------------- ---------- -------------
Other temporary
differences 9 - (3) 5 - (2) 9
----------------------- ----------- ----------- ----------- ----------- -------------- ---------- -------------
18 - 1 - - (5) 14
======================= =========== =========== =========== =========== ============== ========== =============
At Other Recognised Recognised Business Foreign At
1 January movements in in OCI acquisitions exchange 31 December
2019 GBPm the and GBPm GBPm 2019
GBPm income equity GBPm
statement GBPm
GBPm
Tangible assets 5 - 2 - - - 7
----------- ----------- ----------- ----------- -------------- ---------- -------------
Intangible assets (66) - 15 - (1) 2 (50)
----------- ----------- ----------- ----------- -------------- ---------- -------------
Programme rights - - 1 - - - 1
----------- ----------- ----------- ----------- -------------- ---------- -------------
Pension scheme
deficits (6) - (8) 22 - - 8
----------- ----------- ----------- ----------- -------------- ---------- -------------
Tax losses 37 - 1 - - (1) 37
----------- ----------- ----------- ----------- -------------- ---------- -------------
Share-based
compensation - - 6 - - - 6
----------------------- ----------- ----------- ----------- ----------- -------------- ---------- -------------
Other temporary
differences 4 1 4 - - - 9
----------------------- ----------- ----------- ----------- ----------- -------------- ---------- -------------
(26) 1 21 22 (1) 1 18
======================= =========== =========== =========== =========== ============== ========== =============
At 31 December 2020, total deferred tax assets are GBP22 million
(2019: GBP74 million) and total deferred tax liabilities are GBP8
million (2019: GBP56 million). After netting off balances within
countries, there is a deferred tax asset of GBP34 million and a
deferred tax liability of GBP20 million (2019: deferred tax
liability of GBP29 million and a deferred tax asset of GBP47
million) recognised in the Consolidated Statement of Financial
Position.
The deferred tax balances relate to:
-- Property, plant and equipment temporary differences arising
on assets qualifying for tax depreciation
-- Temporary differences on intangible assets, including those arising on business combinations
-- Programme rights - temporary differences on intercompany profits on stock
-- Pension scheme deficit temporary differences on the IAS 19 pension deficit
-- Temporary differences arising from the timing of the use of tax losses
-- Share-based compensation temporary differences on share schemes
-- Other temporary differences on provisions and derivative financial instruments
The deferred tax balance associated with the pension deficit
reflects the current tax benefit obtained in 2020 following the
employer contributions to the Group's defined benefit pension
scheme. The adjustment in other comprehensive income to the
deferred tax balance relates to the actuarial gain recognised in
the year and a prior year adjustment.
A deferred tax asset of GBP425 million (2019: GBP458 million) in
respect of capital losses of GBP2,237 million (2019: GBP2,696
million) has not been recognised due to uncertainties as to whether
capital gains will arise in the appropriate form and relevant
territories against which such losses could be utilised. The
decrease in capital losses compared to the prior year has arisen
due to a company with substantial capital losses being liquidated
during the period. For the same reasons, total deferred tax assets
of GBP17 million (2019: GBP16 million) in respect of overseas
losses have not been recognised (including GBP4 million in respect
of losses that expire between 2020 and 2027).
In line with our accounting policy on current tax, provisions
are held on the balance sheet within current tax liabilities in
respect of uncertain tax positions where management believes that
it is probable that future payments of tax will be required. At the
balance sheet date, these tax provisions were not material for the
Group.
2.4 Keeping Earnings per share ('EPS') is the amount of
Earnings it simple post-tax profit attributable to each share.
per share Basic EPS is calculated on the Group profit
for the year attributable to equity shareholders
of GBP285 million (2019: GBP473 million) divided
by 4,002 million (2019: 4,000 million), being
the weighted average number of shares in issue
during the year, which excludes EBT shares
held in trust (see note 4.8).
Diluted EPS reflects any commitments made by
the Group to issue shares in the future and
so it includes the impact of share options.
Adjusted EPS is presented in order to show
the business performance of the Group in a
consistent manner and reflect how the business
is managed and measured on a day-to-day basis.
Adjusted EPS reflects the impact of operating
and non-operating exceptional items on Basic
EPS. Other items excluded from Adjusted EPS
are amortisation and impairment of intangible
assets acquired through business combinations;
net financing cost adjustments; and the tax
adjustments relating to these items. Each of
these adjustments is explained in detail in
the section below.
The calculation of Basic EPS and Adjusted EPS, together with the
diluted impact on each, is set out below:
Basic earnings per share
2020 2019
GBPm GBPm
Profit for the year attributable to equity shareholders
of ITV plc 285 473
--------------------------------------------------------- ------ ------
Weighted average number of ordinary shares in issue
- million 4,002 4,000
------ ------
Basic earnings per ordinary share 7.1p 11.8p
========================================================= ====== ======
Diluted earnings per share
2020 2019
GBPm GBPm
Profit for the year attributable to equity shareholders
of ITV plc 285 473
------ ------
Weighted average number of ordinary shares in issue
- million 4,002 4,000
--------------------------------------------------------- ------ ------
Dilution due to share options 23 18
========================================================= ====== ======
Total weighted average number of ordinary shares in
issue - million 4,025 4,018
========================================================= ====== ======
Diluted earnings per ordinary share 7.1p 11.8p
========================================================= ====== ======
Adjusted earnings per share
Ref. 2020 2019
GBPm GBPm
Profit for the year attributable to equity shareholders
of ITV plc 285 473
----------------------------------------------------------------- ------ ------
Exceptional items (net of tax) A 93 16
--------------------------------------------------------- ------ ------ ------
Profit for the year before exceptional items 378 489
------ ------
Amortisation and impairment of acquired intangible
assets B 52 44
--------------------------------------------------------- ------ ------ ------
Adjustments to net financing costs C 6 22
--------------------------------------------------------- ------ ------ ------
Adjusted profit 436 555
----------------------------------------------------------------- ------ ------
Total weighted average number of ordinary shares
in issue - million 4,002 4,000
----------------------------------------------------------------- ------ ------
Adjusted earnings per ordinary share 10.9p 13.9p
================================================================= ====== ======
Diluted adjusted earnings per share
2020 2019
GBPm GBPm
Adjusted profit 436 555
------ ------
Weighted average number of ordinary shares in issue
- million 4,002 4,000
----------------------------------------------------- ------ ------
Dilution due to share options 23 18
===================================================== ====== ======
Total weighted average number of ordinary shares in
issue - million 4,025 4,018
===================================================== ====== ======
Diluted adjusted earnings per ordinary share 10.8p 13.8p
===================================================== ====== ======
Details of the adjustments to earnings are as follows:
A. Exceptional items (net of tax) GBP93 million (2019: GBP16
million)
Exceptional items of GBP114 million (2019: GBP22 million), net
of related tax credit of GBP21 million (2019: GBP6 million). See
note 2.2 for the detailed composition of exceptional items
B. Amortisation and impairment of acquired intangible assets of
GBP52 million (2019: GBP44 million)
Amortisation and impairment of assets acquired through business
combinations and investments of GBP87 million (2019: GBP74
million), excluding amortisation of software licences and
development of GBP19 million (2019: GBP11 million), net of related
tax credit of GBP16 million (2019: GBP19 million)
C. Adjustments to net financing costs GBP6 million (2019: GBP22
million)
Adjustments to net financing costs includes foreign exchange,
pension interest charges and the unwind of discounting on
acquisition related liabilities of GBP8 million (2019: GBP28
million), net of related tax credit of GBP2 million (2019: GBP6
million)
Notes to the Financial Information
Section 3: Operating Assets and Liabilities
In this This section shows the assets used to generate
section the Group's trading performance and the liabilities
incurred as a result. On the following pages,
there are notes covering working capital, non-current
assets and liabilities, acquisitions and disposals,
provisions and pensions.
Liabilities relating to the Group's financing
activities are addressed in section 4. Deferred
tax assets and liabilities are shown in note
2.3.
3.1 Keeping Working capital represents the assets and liabilities
Working it simple the Group generates through its trading activity.
capital The Group therefore defines working capital
as distribution rights, programme rights, trade
and other receivables, trade and other payables
and contract assets and liabilities.
Careful management of working capital ensures
that the Group can meet its trading and financing
obligations within its ordinary operating cycle.
Working capital is a driver of the profit to
cash conversion ratio, a key performance indicator
for the Group. For those subsidiaries acquired
during the year, working capital at the date
of acquisition is excluded from the profit
to cash calculation so that only subsequent
working capital movements in the period controlled
by ITV are reflected in this metric.
In the following section, you will find further
information regarding working capital management
and analysis of the elements of working capital.
3.1.1 Programme rights and commitments
Accounting policies
Rights are recognised when the Group controls the respective
rights and the risks and rewards associated with them.
Programme rights not yet utilised are included in the statement
of financial position at the lower of cost and net realisable
value. In assessing net realisable value for programmes in
production, judgement is required when considering the contracted
sales price and estimated costs to complete.
Broadcast programme rights
Acquired programme rights (which include films) and sports
rights are purchased for the primary purpose of broadcasting on the
ITV family of channels, including VOD and SVOD platforms. These are
recognised within current assets the earlier of when payments are
made or when the rights are ready for exploitation. The Group
generally expenses these rights through operating costs over a
number of transmissions reflecting the pattern and value in which
the right is consumed.
Commissions, which primarily comprise programmes purchased,
based on editorial specification and over which the Group has some
control, are recognised in current assets as payments are made and
are generally expensed to operating costs in full on first
transmission. Where a commission is repeated on any platform,
incremental costs associated with the broadcast are included in
operating costs.
The net realisable value assessment for acquired and
commissioned rights (excluding sports rights) is based on estimated
airtime value, with consideration given to whether the number of
transmissions purchased can be efficiently played out over the
licence period. The net realisable value is assessed on a portfolio
basis unless specific indicators of impairment are identified.
The net realisable value assessment for sports rights is based
on the estimated airtime value on the transmission date of the
sporting event.
As a result of the impact of COVID-19 on the planned sporting
schedule for 2020 and 2021 and the consequential impact on TAR,
along with changing forecasts of audience mix and revenues for
certain sporting events, the Group has recognised an impairment for
certain sporting events included in programme rights as well as
onerous contract provisions for future commitments. Further details
are provided in section 3.6.
The Broadcast programme rights and other inventory at the year
end are shown in the table below:
2020 2019
GBPm GBPm
Acquired programme rights 169 173
------ ------
Commissions 69 106
------ ------
Sports rights 70 44
------ ------
308 323
=========================== ====== ======
GBP19 million relates to stock that will be transmitted in 2022
and beyond (2019: GBP3 million transmitted in 2021 and beyond)
Broadcast programme and transmission commitments
Transmission commitments are the contracted future payments
under transmission supply agreements that require the use of
transponder capacity for a period of up to ten years with payments
increasing over time, limited by specific RPI caps. In 2020, we
have recognised an onerous contract provision for GBP19 million in
respect of transmission commitments. See note 3.6 for further
details.
Programming commitments are transactions entered into in the
ordinary course of business with programme suppliers, sports
organisations and film distributors in respect of rights to
broadcast on the ITV network and on BritBox UK.
Commitments in respect of these transactions, which are not
reflected in the statement of financial position, are due for
payment as follows:
2020 Transmission Programme Total
GBPm GBPm GBPm
Within one year 35 479 514
------------- ---------- ------
Later than one year and not more than five years 95 465 560
-------------------------------------------------- ------------- ---------- ------
130 944 1,074
================================================== ============= ========== ======
2019 Transmission Programme Total
GBPm GBPm GBPm
------------- ---------- ------
Within one year 35 376 411
------------- ---------- ------
Later than one year and not more than five years 126 609 735
-------------------------------------------------- ------------- ---------- ------
161 985 1,146
================================================== ============= ========== ======
3.1.2 Distribution rights
Accounting policies
Distribution rights are programme rights the Group buys from
producers to derive future revenue, principally through licensing
to other broadcasters. These are classified as non-current assets
as these rights are used to derive long-term economic benefit for
the Group.
Distribution rights are recognised initially at cost and charged
through operating costs in the income statement over a period not
exceeding five years, reflecting the value and pattern in which the
right is consumed. Advances paid for the acquisition of
distribution rights are disclosed as distribution rights as soon as
they are contracted. These advances are not expensed until the
programme is available for distribution. Up to that point, they are
assessed annually for impairment through the reassessment of the
future sales expected to be earned from that title.
The net book value of distribution rights at the year end is as
follows:
2020 2019
GBPm GBPm
--------------------- ------ ------
Distribution rights 18 22
===================== ====== ======
During the year, GBP19 million was charged to the income
statement (2019: GBP49 million).
3.1.3 Trade and other receivables
Accounting policies
Trade receivables are recognised initially at the value of the
invoice sent to the customer and subsequently at the amounts
considered recoverable (amortised cost). Where payments are not due
for more than one year, they are shown in the financial information
at their net present value to reflect the economic cost of delayed
payment. The Group provides goods and services to substantially all
of its customers on credit terms.
Estimates are used in determining the level of receivables that
will not, in the opinion of the Directors, be collected. These
estimates include such factors as historical experience, the
current state of the UK and overseas economies and industry
specific factors. A provision for impairment of trade receivables
is established when there is sufficient evidence that the Group
will not be able to collect all amounts due. The expected loss
model was applied to trade and other receivables and contract
assets and the impact was not material.
The carrying value of trade receivables is considered to
approximate fair value. Trade and other receivables can be analysed
as follows:
2020 2019
GBPm GBPm
Due within one year:
------ ------
Trade receivables 360 309
------ ------
Other receivables 49 55
------ ------
Prepayments 49 49
----------------------------------- ------ ------
458 413
------ ------
Due after more than one year:
------ ------
Trade receivables 33 34
------ ------
Other receivables 13 29
----------------------------------- ------ ------
46 63
----------------------------------- ------ ------
Total trade and other receivables 504 476
=================================== ====== ======
GBP393 million (2019: GBP343 million) of total trade
receivables, stated net of provisions for impairment, are aged as
follows.
2020 2019
GBPm GBPm
Current 357 280
------ ------
Up to 30 days overdue 16 35
------ ------
Between 30 and 90 days overdue 19 25
-------------------------------- ------ ------
Over 90 days overdue 1 3
-------------------------------- ------ ------
393 343
================================ ====== ======
Movements in the Group's provision for impairment of trade
receivables and contract assets can be shown as follows:
2020 2019
GBPm GBPm
At 1 January 38 39
------ ------
Charged during the year 12 1
------ ------
Unused amounts reversed (4) (2)
------------------------- ------ ------
At 31 December 46 38
========================= ====== ======
Of the provision total, GBP45 million relates to balances
overdue by more than 90 days (2019: GBP36 million) and less than
GBP1 million relates to current balances (2019: GBP2 million).
3.1.4 Trade and other payables due within one year
Accounting policies
Trade payables are recognised at the value of the invoice
received from a supplier. The carrying value of current and
non-current trade payables is considered to approximate fair value.
Trade and other payables due within one year can be analysed as
follows:
2020 2019
GBPm GBPm
------ ------
Trade payables 54 66
------------------------------------------------------ ------ ------
VAT and social security 132 77
------ ------
Other payables 237 238
------ ------
Acquisition-related liabilities - employment-linked
contingent consideration 157 151
------------------------------------------------------ ------ ------
Acquisition-related liabilities - payable to sellers 6 -
under put options agreed on acquisition
------------------------------------------------------ ------ ------
Accruals 373 385
------------------------------------------------------ ------ ------
959 917
====================================================== ====== ======
3.1.5 Trade and other payables due after more than one year
Trade and other payables due after more than one year can be
analysed as follows:
2020 2019
GBPm GBPm
--------------------------------------------------------
Trade payables 54 61
-------------------------------------------------------- ------ ------
Other payables 15 5
-------------------------------------------------------- ------ ------
Acquisition-related liabilities - employment-linked
contingent consideration 7 14
-------------------------------------------------------- ------ ------
Acquisition-related liabilities - payable to sellers
under put options agreed on acquisition 39 32
-------------------------------------------------------- ------ ------
61 51
-------------------------------------------------------- ------ ------
Total trade and other payables due after more than one
year 115 112
======================================================== ====== ======
Trade payables due after more than one year, relate primarily to
film creditors of GBP35 million (2019: GBP33 million) and royalties
of GBP19 million (2019: GBP28 million).
Acquisition-related liabilities or performance-based
employment-linked earnouts are the estimated amounts payable to
previous owners. The estimated future payments, treated as
exceptional employment costs (see note 2.2), are accrued over the
period the sellers are required to remain with the business. Those
amounts not linked to employment are estimated and recognised at
acquisition at their time discounted value, with the unwind of the
discount recorded as part of finance costs.
Acquisition related liabilities at 31 December 2020 were GBP209
million (2019: GBP197 million) which represents the amount accrued
to date at their time discounted value. The total estimated future
payments of GBP227 million (2019: GBP230 million) are sensitive to
forecast profits as they are based on a multiple of earnings. The
range of reasonably possible outcomes for the liability is between
GBP139 million and GBP427 million. To arrive at ITV's current best
estimate of the accrued liability at 31 December 2020, total future
payments and the possible range of outcomes for the liability, the
Directors have taken into account the views of external advisors.
The liabilities due after more than one year are expected to be
settled between 2022 and 2026.
The most material payable is to the previous owner of the shares
in Talpa Media B.V (now known as ITV Studios Holding B.V.),
purchased in 2015 for the initial cash consideration of EUR500
million (GBP362 million) with further payments dependent on Talpa's
future performance, up to a maximum consideration, including the
initial payment, of EUR1.1 billion across three earnouts. The first
earnout was paid in 2017 (EUR100 million), the second earnout (in
respect of the 2017, 2018 and 2019 years) is payable following
determination of the earnout calculation for that period and the
final payment will not fall due given that John de Mol did not
exercise his option to extend the earnout to 2022. The
determination of the second earnout is currently undergoing an
assessment by the independent arbiter. Payment will be made
following the conclusion of that process. The other significant
earnouts included within our expected future payments include
Tomorrow Studios and Cattleya.
All earnouts are sensitive to forecast profits as they are based
on a multiple of earnings and judgement is required where there may
be adjustments to forecasted profits or when earnouts are
negotiated, hence the reason for the range noted above. In the case
of Talpa's earnout, the outcome of the ongoing review in relation
to funds received for the insured trade receivable could have a
material impact. The treatment of this receipt could increase the
earnout by GBP150 million, within the range noted above (see note
5.2).
3.1.6 Contract assets and liabilities
Contract assets (accrued income) primarily relate to the Group's
right to consideration for work completed but not billed at the
reporting date. Many of the programmes the Studios division
produces are sold internationally and also used within the ITV
network. Production work in progress is treated as a contract asset
until the point the programme is completed.
Contract liabilities (deferred income) primarily relate to the
consideration received from customers in advance of transferring a
good or service. The following table provides movements in contract
assets and liabilities in the period:
2020 2019
------------------------
Contract Contract Contract Contract
assets liabilities assets liabilities
GBPm GBPm GBPm GBPm
--------- ------------- ---------
Balance at 1 January 445 (219) 470 (255)
--------- ------------- --------- -------------
Decrease due to balance transferred to
trade receivables (409) - (462) -
--------- ------------- --------- -------------
Increases as a result of the changes in
the measure of progress 380 - 437 -
--------- ------------- --------- -------------
Decreases due to revenue recognised in
the period - 208 - 255
--------- ------------- --------- -------------
Increase due to cash received - (260) - (217)
----------------------------------------- --------- ------------- --------- -------------
Business combination - - - (2)
----------------------------------------- --------- ------------- --------- -------------
Balance at 31 December 416 (271) 445 (219)
========================================= ========= ============= ========= =============
Non-current contract assets of GBP7 million (2019: GBP3 million)
is included in the above reconciliation.
3.1.7 Working capital management
Cash and working capital management has been a critical area of
focus during 2020 and will continue to be in 2021. During the year,
the cash inflow from working capital was GBP137 million (2019:
outflow of GBP63 million) derived as follows:
2020 2019
GBPm GBPm
Decrease/(increase) in programme rights and distribution
rights 16 (18)
------ ------
Decrease/(increase) in receivables and contract assets 2 (37)
---------------------------------------------------------- ------ ------
Increase/(decrease) in payables and contract liabilities 119 (8)
---------------------------------------------------------- ------ ------
Working capital inflow/(outflow) 137 (63)
========================================================== ====== ======
The working capital inflow/(outflow) excludes the impact of
balances acquired on the acquisition of subsidiaries during the
period (see note 3.4).
3.2 Keeping The following section shows the physical assets
Property, it simple used by the Group to operate the business,
plant and generating revenues and profits. These assets
equipment include office buildings and studios, as well
as equipment used in broadcast transmission,
programme production and support activities.
The cost of these assets is the amount initially
paid for them. A depreciation expense is charged
to the income statement to reflect annual wear
and tear and the reduced value of the asset
over time. Depreciation is calculated by estimating
the number of years the Group expects the asset
to be used (useful economic life). If there
has been a technological change or decline
in business performance, the Directors review
the value of the assets to ensure they have
not fallen below their depreciated value. If
an asset's value falls below its depreciated
value, an additional impairment charge is made
against profit.
This section also explains the accounting policies
followed by ITV and the specific estimates
made in arriving at the net book value of these
assets.
Accounting policies
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses. Certain items of
property, plant and equipment that were revalued to fair value
prior to 1 January 2004 (the date of transition to IFRS) are
measured on the basis of deemed cost, being the revalued amount
less depreciation up to the date of transition.
Right of use assets
A contract contains a lease if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration. These assets are called right of use
assets and have been included on the Group's balance sheet at a
value equal to the discounted future lease payments. For leases
recognised on transition to IFRS 16 'Leases' the value is also
adjusted by any prepayments or lease incentives recognised
immediately before the date of initial application.
Depreciation
Depreciation is provided to write off the cost of property,
plant and equipment less estimated residual value, on a
straight-line basis over their estimated useful lives. The annual
depreciation charge is sensitive to the estimated useful life of
each asset and the expected residual value at the end of its life.
The major categories of property, plant and equipment are
depreciated as follows:
Asset class Depreciation policy
-------------------------------
Freehold land not depreciated
-------------------------------
Freehold buildings up to 60 years
-------------------------------
Leasehold improvements shorter of residual lease
term or estimated useful life
---------------------------------- -------------------------------
Vehicles, equipment and fittings* 3 to 20 years
---------------------------------- -------------------------------
Right of use assets over the term of the lease
================================== ===============================
* Equipment includes studio production and technology assets.
Assets under construction are not depreciated until the point at
which the asset comes into use by the Group.
Impairment of assets
Property, plant and equipment that is subject to depreciation is
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
Indicators of impairment may include changes in technology and
business performance and, in respect of 2020, the longer-term
implications of the disruption caused by COVID-19. No impairments
identified were linked directly to the pandemic.
Property, plant and equipment
Property, plant and equipment can be analysed as follows:
Freehold Improvements Vehicles, Right Total
land to leasehold equipment of
and land and and use
buildings buildings fittings assets*
GBPm Long Short Owned GBPm GBPm
GBPm GBPm GBPm
----------- ------- ------- ----------- --------- ------
Cost
----------- ------- ------- ----------- --------- ------
At 1 January 2019 9 69 26 237 - 341
----------- ------- ------- ----------- --------- ------
IFRS 16 transition - - - - 112 112
----------- ------- ------- ----------- --------- ------
Additions 3 1 1 25 - 30
--------------------------- ----------- ------- ------- ----------- --------- ------
Foreign exchange - - - (4) - (4)
--------------------------- ----------- ------- ------- ----------- --------- ------
Disposals and retirements - - - (18) - (18)
=========================== =========== ======= ======= =========== ========= ======
At 31 December 2019 12 70 27 240 112 461
--------------------------- ----------- ------- ------- ----------- --------- ------
Additions 1 15 1 20 40 77
--------------------------- ----------- ------- ------- ----------- --------- ------
Foreign exchange - (1) - - (1) (2)
--------------------------- ----------- ------- ------- ----------- --------- ------
Disposals and retirements (1) (4) - (38) (4) (47)
--------------------------- ----------- ------- ------- ----------- --------- ------
At 31 December 2020 12 80 28 222 147 489
=========================== =========== ======= ======= =========== ========= ======
Depreciation
----------- ------- ------- ----------- --------- ------
At 1 January 2019 - 21 16 113 - 150
--------------------------- ----------- ------- ------- ----------- --------- ------
Charge for the year 1 2 - 28 25 56
--------------------------- ----------- ------- ------- ----------- --------- ------
Foreign exchange - - - 3 - 3
--------------------------- ----------- ------- ------- ----------- --------- ------
Disposals and retirements - - - (17) - (17)
--------------------------- ----------- ------- ------- ----------- --------- ------
At 31 December 2019 1 23 16 127 25 192
--------------------------- ----------- ------- ------- ----------- --------- ------
Charge for the year 1 3 - 26 27 57
--------------------------- ----------- ------- ------- ----------- --------- ------
Foreign exchange - - - - (1) (1)
--------------------------- ----------- ------- ------- ----------- --------- ------
Disposals and retirements - (4) - (36) (4) (44)
--------------------------- ----------- ------- ------- ----------- --------- ------
At 31 December 2020 2 22 16 117 47 204
=========================== =========== ======= ======= =========== ========= ======
Net book value
--------------------------- ----------- ------- ------- ----------- --------- ------
At 31 December 2020 10 58 12 105 100 285
=========================== =========== ======= ======= =========== ========= ======
At 31 December 2019 11 47 11 113 87 269
=========================== =========== ======= ======= =========== ========= ======
* Under the modified retrospective approach in IFRS 16 'Leases',
the 1 January 2019 numbers are not restated.
Included within property, plant and equipment are assets in the
course of construction of GBP17 million (2019: GBP14 million).
Included in net book value of right of use assets is GBP99
million (2019: GBP85 million) related to properties and GBP1
million (2019: GBP2 million) relating to vehicles, equipment and
fittings.
Capital commitments
There is GBP1 million of capital commitments at 31 December 2020
(2019: GBP1 million).
3.3 Keeping The following section shows the non-physical
Intangible it simple assets used by the Group to generate revenue
assets and profits.
These assets include formats and brands, customer
contracts and relationships, contractual arrangements,
licences, software development, film libraries
and goodwill. The cost of these assets is the
amount that the Group has paid or, where there
has been a business combination, the fair value
of the specific intangible assets that could
be sold separately or which arise from legal
rights. In the case of goodwill, its cost is
the amount the Group has paid in acquiring
a business over and above the fair value of
the individual assets and liabilities acquired.
The value of goodwill is the 'intangible' value
that comes from, for example, a uniquely strong
market position and the outstanding productivity
of its employees.
The value of intangible assets, with the exception
of goodwill, reduces over the number of years
the Group expects to use the asset, the useful
economic life, via an annual amortisation charge
to the income statement. Where there has been
a technological change or decline in business
performance, the Directors review the value
of assets, including goodwill, to ensure they
have not fallen below their amortised value.
Should an asset's value fall below its amortised
value, an additional impairment charge is made
against profit.
This section explains the accounting policies
applied and the specific judgements and estimates
made by the Directors in arriving at the net
book value of these assets.
Accounting policies
Goodwill
Goodwill represents the future economic benefits that arise from
assets that are not capable of being individually identified and
separately recognised. The goodwill recognised by the Group has all
arisen as a result of business combinations. Goodwill is stated at
its recoverable amount being cost less any accumulated impairment
losses and is allocated to the business to which it relates.
Due to changes in accounting standards, goodwill has been
calculated using three different methods depending on the date the
relevant business was purchased.
Method 1: All business combinations that have occurred since 1
January 2009 were accounted for using the acquisition method. Under
this method, goodwill is measured as the fair value of the
consideration transferred (including the recognition of any part of
the business not yet owned (non-controlling interests)), less the
fair value of the identifiable assets acquired and liabilities
assumed, all measured at the acquisition date. Any contingent
consideration expected to be transferred in the future is
recognised at fair value at the acquisition date and recognised
within other payables. Contingent consideration classified as an
asset or liability that is a financial instrument is measured at
fair value with changes in fair value recognised in the income
statement. The determination of fair value is based on discounted
cash flows. The key assumptions take into consideration the
probability of meeting each performance target and the discount
rate.
Where less than 100% of a subsidiary is acquired, and call and
put options are granted over the remaining interest, a
non-controlling interest is initially recognised in equity at fair
value, which is established based on the value of the put option. A
call option is recognised as a derivative financial instrument,
carried at fair value. The put option is recognised as a liability
within other payables, carried at the present value of the put
option exercise price, and a corresponding charge is included in
merger and other reserves. Any subsequent remeasurement of the put
option liability is recognised within finance income or cost.
Subsequent adjustments to the fair value of net assets acquired
can only be made within 12 months of the acquisition date, and only
if fair values were determined provisionally at an earlier
reporting date. These adjustments are accounted for from the date
of acquisition.
Acquisitions of non-controlling interests are accounted for as
transactions with owners and therefore no goodwill is recognised as
a result of such transactions. Transaction costs incurred in
connection with those business combinations, such as legal fees,
due diligence fees and other professional fees, are expensed as
incurred. The Directors consider these costs to reflect the cost of
acquisition and to form a part of the capital transaction, and
highlight them separately as exceptional items.
Method 2: All business combinations that occurred between 1
January 2004 and 31 December 2008 were accounted for using the
purchase method in accordance with IFRS 3 'Business Combinations'
(2004). Goodwill on those combinations represents the difference
between the cost of the acquisition and the fair value of the
identifiable net assets acquired and did not include the value of
the non-controlling interest. Transaction costs incurred in
connection with those business combinations, such as legal fees,
due diligence fees and other professional fees, were included in
the cost of acquisition.
Method 3: For business combinations prior to 1 January 2004,
goodwill is included at its deemed cost, which represents the
amount recorded under UK GAAP at that time less accumulated
amortisation up to 31 December 2003. The classification and
accounting treatment of business combinations occurring prior to 1
January 2004, the date of transition to IFRS, has not been
reconsidered, as permitted under IFRS 1.
Other intangible assets
Intangible assets other than goodwill are those that are
distinct and can be sold separately or which arise from legal
rights.
The main intangible assets the Group has valued are formats,
brands, licences, contractual arrangements, customer contracts and
relationships and libraries.
Within ITV, there are two types of other intangible assets:
those assets directly purchased by the Group for day-to-day
operational purposes (such as software licences and development)
and intangible assets identified as part of an acquisition of a
business.
Intangible assets acquired directly by the Group are stated at
cost less accumulated amortisation. Those separately identified
intangible assets acquired as part of an acquisition or business
combination are shown at fair value at the date of acquisition less
accumulated amortisation.
Each class of intangible assets' valuation method on initial
recognition, amortisation method and estimated useful life is set
out in the table below:
Class of intangible Amortisation Estimated Valuation method
asset method useful
life
------------------------- ------------------ ----------------- ----------------------------------------
Brands Straight-line 8 to 14 Applying a royalty rate to the
years expected future revenue over
the life of the brand.
------------------------- ------------------ ----------------- ----------------------------------------
Formats Straight-line up to 8 Expected future cash flows from
years those assets existing at the
date of acquisition are estimated.
If applicable, a contributory
charge is deducted for the use
of other assets needed to exploit
the cash flow. The net cash
flow is then discounted back
to present value.
------------------------- ------------------ ----------------- ----------------------------------------
Customer Straight-line up to 6
contracts or reducing years
balance
as appropriate
------------------------- ------------------ ----------------- ----------------------------------------
Customer relationships Straight-line 5 to 10
years
------------------------- ------------------ ----------------- ----------------------------------------
Contractual arrangements Straight-line up to 10 Expected future cash flows from
years depending those contracts existing at
on the the date of acquisition are
contract estimated. If applicable, a
terms contributory charge is deducted
for the use of other assets
needed to exploit the cash flow.
The net cash flow is then discounted
back to present value.
------------------ ----------------- ----------------------------------------
Licences Straight-line 11 to 29 Start-up basis of expected future
years depending cash flows existing at the date
on term of acquisition. If applicable,
of licence a contributory charge is deducted
for the use of other assets
needed to exploit the cash flow.
The net cash flow is then discounted
back to present value.
PSB licences are valued as a
start-up business with only
the licence in place.
------------------------- ------------------ ----------------- ----------------------------------------
Libraries and other Sum of up to 20 Initially at cost and subsequently
digits years at cost less accumulated amortisation.
or straight-line
as appropriate
------------------------- ------------------ ----------------- ----------------------------------------
Software licences and Straight-line 1 to 10 Initially at cost and subsequently
development years at cost less accumulated amortisation.
------------------------- ------------------ ----------------- ----------------------------------------
Determining the fair value of intangible assets arising on
acquisition requires judgement. The Directors make estimates
regarding the timing and amount of future cash flows derived from
exploiting the assets being acquired. The Directors then estimate
an appropriate discount rate to apply to the forecast cash flows.
Such estimates are based on current budgets and forecasts,
extrapolated for an appropriate period taking into account growth
rates, operating costs and the expected useful lives of assets.
Judgements are also made regarding whether, and for how long,
licences will be renewed; this drives our amortisation policy for
those assets.
The Directors estimate the appropriate discount rate using
pre-tax rates that reflect current market assessments of the time
value of money and the risks specific to the assets or businesses
being acquired.
Amortisation
Amortisation is charged to the income statement over the
estimated useful lives of intangible assets unless such lives are
judged to be indefinite. Indefinite life assets, such as goodwill,
are not amortised but are tested for impairment at each year
end.
Impairment
Goodwill is not subject to amortisation and is tested annually
for impairment and when circumstances indicate that the carrying
value may be impaired.
Other intangible assets are subject to amortisation and are
reviewed for impairment whenever events or changes in circumstances
indicate that the amount carried in the statement of financial
position is less than its recoverable amount.
Determining whether the carrying amount of intangible assets has
any indication of impairment requires judgement. Any impairment is
recognised in the income statement.
An impairment test is performed by assessing the recoverable
amount of each asset, or for goodwill the cash-generating unit
('CGU'), or group of CGUs, related to the goodwill. Total assets
(which include goodwill) are grouped at the lowest levels for which
there are separately identifiable cash flows.
The recoverable amount is the higher of an asset's fair value
less costs to sell and value in use. The value in use is based on
the present value of the future cash flows expected to arise from
the asset.
In testing for impairment, estimates are used in deriving cash
flows and the discount rates. Such estimates reflect current market
assessments of the risks specific to the asset and the time value
of money. The estimation process is complex due to the inherent
risks and uncertainties associated with long-term forecasting. If
different estimates of the projected future cash flows or a
different selection of an appropriate discount rate or long-term
growth rate were made, these changes could materially alter the
projected value of the cash flows of the asset, and as a
consequence materially different amounts would be reported in the
financial information.
Impairment losses in respect of goodwill cannot be reversed. In
respect of assets other than goodwill, an impairment loss is
reversed if there has been a change in the estimates used to
determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset's carrying amount does not exceed
the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been
recognised.
In the light of the uncertainty caused by the COVID-19 outbreak,
the Group has assessed goodwill and other assets for impairment as
at 31 December 2020.
There is a wide range of potential outcomes regarding the
possible future performance of each of ITV Group's cash-generating
units, Broadcast, ITV Studios and SDN. The Directors, however, do
not consider that any reasonably possible changes in the key
assumptions would cause the value in use of the Group's
cash-generating units to fall below their carrying values.
Other non-current and current assets were also reviewed for
impairment in light of the disruption caused by COVID-19 as at 31
December 2020. Impairments identified, which were linked directly
to the pandemic, have been treated as exceptional items discussed
in detail in note 2.2.
Intangible assets
Intangible assets can be analysed as follows:
Goodwill Formats Customer Contractual Licences Libraries Software Total
GBPm and contracts arrangements GBPm and licences GBPm
brands and GBPm other and
GBPm relationships GBPm development
GBPm GBPm
Cost
--------- -------- --------------- -------------- --------- ---------- ------------- ------
At 1 January 2019 3,904 551 438 11 176 103 164 5,347
--------- -------- --------------- -------------- --------- ---------- ------------- ------
Additions - - - - - 1 57 58
--------- -------- --------------- -------------- --------- ---------- ------------- ------
Acquisitions 9 - 6 - - - - 15
--------- -------- --------------- -------------- --------- ---------- ------------- ------
Foreign exchange (16) (21) (3) - - (1) - (41)
------------------ --------- -------- --------------- -------------- --------- ---------- ------------- ------
Disposals,
retirements
and impairment - - - - - - (14) (14)
------------------ --------- -------- --------------- -------------- --------- ---------- ------------- ------
At 31 December
2019 3,897 530 441 11 176 103 207 5,365
------------------ --------- -------- --------------- -------------- --------- ---------- ------------- ------
Additions - - - - - 1 21 22
--------- -------- --------------- -------------- --------- ---------- ------------- ------
Foreign exchange (2) 17 - - - (1) - 14
================== ========= ======== =============== ============== ========= ========== ============= ======
At 31 December
2020 3,895 547 441 11 176 103 228 5,401
================== ========= ======== =============== ============== ========= ========== ============= ======
Amortisation and
impairment
--------- -------- --------------- -------------- --------- ---------- ------------- ------
At 1 January 2019 2,654 349 418 11 112 89 100 3,733
--------- -------- --------------- -------------- --------- ---------- ------------- ------
Charge for the
year - 44 7 - 6 4 11 72
--------- -------- --------------- -------------- --------- ---------- ------------- ------
Foreign exchange - (11) (3) - - (2) (2) (18)
------------------ --------- -------- --------------- -------------- --------- ---------- ------------- ------
Disposals,
retirements
and impairment - - - - - - (14) (14)
------------------ --------- -------- --------------- -------------- --------- ---------- ------------- ------
At 31 December
2019 2,654 382 422 11 118 91 95 3,773
------------------ --------- -------- --------------- -------------- --------- ---------- ------------- ------
Charge for the
year - 42 6 - 6 1 20 75
------------------ --------- -------- --------------- -------------- --------- ---------- ------------- ------
Foreign exchange - 11 (1) - - (1) (1) 8
------------------ --------- -------- --------------- -------------- --------- ---------- ------------- ------
At 31 December
2020 2,654 435 427 11 124 91 114 3,856
================== ========= ======== =============== ============== ========= ========== ============= ======
Net book value
------------------ --------- -------- --------------- -------------- --------- ---------- ------------- ------
At 31 December
2020 1,241 112 14 - 52 12 114 1,545
================== ========= ======== =============== ============== ========= ========== ============= ======
At 31 December
2019 1,243 148 19 - 58 12 112 1,592
================== ========= ======== =============== ============== ========= ========== ============= ======
Goodwill impairment tests
The carrying amount of goodwill for each CGU is represented as
follows:
2020 2019
GBPm GBPm
------ ------
ITV Studios 779 781
------ ------
Broadcast 386 386
------------- ------ ------
SDN 76 76
------------- ------ ------
1,241 1,243
============= ====== ======
There has been no impairment charge for any CGU during the year
(2019: GBPnil).
When assessing impairment, the recoverable amount of each CGU is
based on value in use calculations. These calculations require the
use of estimates, specifically: pre-tax cash flow projections;
long-term growth rates; and a pre-tax market discount rate. Cash
flow projections are based on the Group's current long-term plan.
Beyond the plan, these projections are extrapolated using an
estimated nominal long-term growth rate of 1% (2019: 1.5%). The
growth rate used is consistent with the long-term average growth
rates for both the industry and the countries in which the CGUs are
located and is appropriate because these are long-term
businesses.
The discount rate has been updated for each CGU to reflect the
latest market assumptions for the risk-free rate, the equity risk
premium and the net cost of debt. There is currently no reasonably
possible change in discount rate that would reduce the headroom in
any CGU to zero.
ITV Studios
The goodwill for ITV Studios has arisen as a result of the
acquisition of production businesses since 1999. Significant
balances were created from the acquisition by Granada of United
News and Media's production businesses in 2000 and the merger of
Granada and Carlton in 2004 to form ITV plc. ITV Studios goodwill
also includes the goodwill arising from acquisitions since 2012,
with the largest acquisitions being Leftfield in 2014, followed by
Talpa in 2015.
The key assumptions on which the forecast cash flows for the
whole CGU were based include revenue (including international
revenue and the ITV Studios share of ITV output, growth in
commissions and hours produced), margins and the pre-tax market
discount rate. These assumptions have been determined by using a
combination of extrapolation of historical trends within the
business, industry estimates and in-house estimates of growth rates
in all markets. No impairment was identified.
As part of the impairment review, sensitivity was applied to the
main assumptions with no impairment identified (profit reduction
between 12% and 23% in the five year outlook). The Directors
believe that currently no reasonably possible change in the cash
flow assumptions would reduce the headroom in this CGU to zero.
A pre-tax market discount rate of 7.7% (2019: 8.8%) has been
used in discounting the projected cash flows.
Following the organisational redesign by ITV Studios, the
Directors considered how assets and resources are shared across the
ITV Studios division and the level of integration within the
management structure for the purposes of reporting and strategic
decision-making. They concluded that a single ITV Studios CGU
continues to remain appropriate.
Broadcast
The goodwill in this CGU arose as a result of the acquisition of
broadcasting businesses since 1999, the largest of which was the
merger of Carlton and Granada in 2004 to form ITV plc, which was
treated as an acquisition of Carlton for accounting purposes.
Broadcast goodwill also includes the goodwill arising on
acquisition of UTV Limited in February 2016.
The main assumptions on which the forecast cash flow projections
for this CGU are based include: the performance and share of the
television advertising market; share of commercial impacts;
programme and other costs; and the pre-tax market discount
rate.
The key assumption in assessing the recoverable amount of
Broadcast goodwill is the size of the television advertising
market. In forming its assumptions about the television advertising
market, the Group has used a combination of long-term trends,
industry forecasts and in-house estimates, which place greater
emphasis on recent experience. No impairment was identified. Also
as part of the impairment review, a sensitivity of a significant
decline in the advertising market with no subsequent recovery was
applied, with no impairment identified. The Directors believe that
currently no reasonably possible change in these assumptions would
reduce the headroom in this CGU to zero.
An impairment charge of GBP2,309 million was recognised in the
Broadcast CGU in 2008, as a result of the downturn in the
short-term outlook for the advertising market. The current year
impairment review, set out above, results in significant headroom
in excess of the 2008 impairment amount. Even though the
advertising market has improved since then and the impaired assets
are still owned and operated by the Group, due to accounting rules
the impairment cannot be reversed.
A pre-tax market discount rate of 7.8% (2019: 8.7%) has been
used in discounting the projected cash flows.
SDN
Goodwill was recognised when the Group acquired SDN (the licence
operator for DTT Multiplex A) in 2005. It represented the wider
strategic benefits of the acquisition specific to the Group,
principally the enhanced ability to promote Freeview as a platform,
business relationships with the channels which are on Multiplex A
and additional capacity available from 2010. The licence is due for
renewal in 2022.
The main assumptions on which the forecast cash flows are based
are: income to be earned from renewals of medium-term contracts;
the market price of available multiplex video streams; and the
pre-tax market discount rate. These assumptions have been
determined by using a combination of current contract terms, recent
market transactions and in-house estimates of video stream
availability and pricing. No impairment was identified.
As part of the impairment review, sensitivity was applied to the
main assumptions with no impairment identified (2020: -10% growth,
2021: -10% growth, no renewal of the licence to operate in 2022).
The Directors believe that currently no reasonably possible change
in the cash flow assumptions would reduce the headroom in this CGU
to zero.
A pre-tax market discount rate of 11.4% (2019: 13.6%) has been
used in discounting the projected cash flows.
3.4 Keeping The following section outlines what the Group
Acquisitions it simple has acquired in the year.
Most of the deals are structured so that a
large part of the payment made to the sellers
('consideration') is determined based on future
performance. This is done so that the Group
can both align incentives for growth, while
reducing risk so that total consideration reflects
actual performance, not expected.
IFRS accounting standards require some of this
consideration to be included in the purchase
price used in determining goodwill ('contingent
consideration'). Examples of contingent consideration
include top-up payments and recoupable performance
adjustments. Any remaining consideration is
required to be recognised as a liability or
expense outside of acquisition accounting (put
option liabilities and employment-linked contingent
payments known as 'earnout' payments).
The Group considers the income statement impact
of all consideration to be capital in nature
and so excludes it from adjusted profit. Therefore,
for each acquisition below, the distinction
between the types of consideration has been
explained in detail.
Acquisitions in the current year - 2020
There have been no acquisitions in 2020.
Acquisitions in the prior year - 2019
In 2019, the Group made payments totalling GBP11 million for two
acquisitions within the ITV Studios operating segment. The
businesses fit with the strategy of strengthening the Group's
existing position as a producer and global distributor of
world-class content.
Armoza International Media Limited
On 31 July 2019, the Group purchased 100% of the share capital
of Armoza International Media Ltd, one of Israel's leading
television developers and distributors.
Monumental Television Limited
On 18 July 2019, the Group increased its stake in Monumental
Television from 26% to a 51% majority in the UK production
company.
Acquisition accounting:
Put and call options over the non-controlling interest and
performance-related top up payments have been granted, with
payments expected in the next five years. The total maximum
consideration for the two acquisitions in 2019 is capped at GBP62
million (undiscounted). All future payments are dependent on future
performance of the businesses and linked to ongoing employment.
2020 2019
Total Total
GBPm GBPm*
Consideration transferred:
Initial consideration (net of cash acquired) (Note A) - 11
--------------------------------------------------------------- -------- -------
Total consideration - 11
--------------------------------------------------------------- -------- -------
Fair value of net assets acquired:
-------- -------
Intangible assets - 6
-------- -------
Deferred tax liabilities - (1)
-------- -------
Inventory - 9
-------- -------
Trade and other receivables - 6
-------- -------
Trade and other payables - (14)
--------------------------------------------------------------- -------- -------
Borrowings - (3)
--------------------------------------------------------------- -------- -------
Net assets held for sale - -
--------------------------------------------------------------- -------- -------
Fair value of net assets - 3
--------------------------------------------------------------- -------- -------
Non-controlling interest measured at fair value (Note
B) - 1
--------------------------------------------------------------- -------- -------
Goodwill - 9
=============================================================== ======== =======
Other information
-------- -------
Present value of the expected liability on put options - -
-------- -------
Present value of the expected earnout payment at acquisition - 7
-------- -------
Contributions to the Group's performance:
-------- -------
From date of acquisition
-------- -------
Revenue - 9
-------- -------
EBITA before exceptionals - 1
-------- -------
Proforma - January to December
-------- -------
Revenue - 19
--------------------------------------------------------------- -------- -------
EBITA before exceptionals - 1
=============================================================== ======== =======
* Provisional values as the acquisition accounting is finalised
in the 12 month period following acquisition.
Note A: Consideration for all acquisitions is net of cash
acquired and estimated debt and working capital settlements. Cash
acquired during the period is nil (2019: GBP4 million).
Note B: Non-controlling interest arises where the Group acquires
less than 100% of the equity interest in a business, but obtains
control.
3.5 Keeping The Group holds non-controlling interests in
Investments it simple a number of different entities. Accounting
for these investments, and the Group's share
of any profits and losses, depends on the level
of control or influence the Group is granted
via its interest. The three principal types
of
non-consolidated investments are: joint arrangements
(joint ventures or joint operations), associates,
and equity investments.
A joint arrangement is an investment where
the Group has joint control, with one or more
third parties. An associate is an entity over
which the Group has significant influence (i.e.
power to participate in the investee's financial
and operating decisions). Any other investment
is an equity investment.
Accounting policies
For joint ventures and associates, the Group applies equity
accounting. Under this method, it recognises the investment in the
entity at cost and subsequently adjusts this for its share of
profits or losses, which are recognised in the income statement
within non-operating items and included in adjusted profit.
Where the Group has invested in associates by acquiring
preference shares or convertible debt instruments, the share of
profit recognised is usually GBPnil as no equity interest
exists.
Equity investments are held at fair value unless the investment
is a start-up business, in which case it is valued at cost and
assessed for impairment.
The carrying amount of each category of our investments is
represented as follows:
2020 2019
GBPm GBPm
------ ------
Joint ventures 24 1
------ ------
Associates 52 43
-------------------- ------ ------
Equity investments 1 8
-------------------- ------ ------
77 52
==================== ====== ======
Investments have increased during the year primarily due to an
increase in investment in BritBox US (to increase our investment to
50%) and an investment in Bedrock Entertainment, a US Studios
business which develops and produces premium television content.
Further smaller investments have been made in line with Group's
strategy to grow the international content business. The Group also
recognised share of profits in equity accounted investments of GBP9
million.
In 2020, following the closure of Quibi the Group's investment
was fully written down.
Significant investments in associates include GBP30 million
(2019: GBP30 million) relating to a 45% investment Blumhouse TV
Holdings LLC, a film and television production company in the
US.
3.6 Keeping A provision is recognised by the Group where
Provisions it simple an obligation exists relating to events in
the past and it is probable that cash will
be paid to settle it.
A provision is made where the Group is not
certain how much cash will be required to settle
a liability, so an estimate is required. The
main estimates relate to the cost of holding
properties that are no longer in use by the
Group, the likelihood of settling legal claims
and contracts the Group has entered into that
are now unprofitable.
Accounting policies
A provision is recognised in the statement of financial position
when the Group has a present legal or constructive obligation
arising from past events, it is probable cash will be paid to
settle it and the amount can be estimated reliably. Provisions are
determined by discounting the expected future cash flows by a rate
that reflects current market assessments of the time value of money
and the risks specific to the liability. The unwinding of the
discount is recognised as a financing cost in the income statement.
The value of the provision is determined based on assumptions and
estimates in relation to the amount and timing of actual cash
flows, which are dependent on future events.
Provisions
The movements in provisions during the year are as follows:
Contract Property Legal Total
provisions provisions and GBPm
GBPm GBPm Other
provisions
GBPm
------------ ------------ ------------ ------
At 31 December 2019 2 2 3 7
------------ ------------ ------------ ------
Additions 56 1 38 95
------------ ------------ ------------ ------
Utilised (12) - - (13)
------------ ------------ ------------ ------
Released (9) - - (8)
------------ ------------ ------------ ------
At 31 December 2020 37 3 41 81
===================== ============ ============ ============ ======
Provisions of GBP59 million are classified as current
liabilities (2019: GBP2 million). Unwind of the discount is GBPnil
in 2020 and 2019.
-- Contract provisions of GBP41 million (2019: GBP2 million)
represent liabilities in respect of onerous contracts in relation
to individual sports rights of GBP22 million (2019: GBPnil) and
transmission capacity supply contract of GBP19 million (2019: GBP2
million).
The provision for sports rights is sensitive to the changes in
the sporting schedule and consequential impact on TAR. As a result
of the impact of COVID-19 and consequential changes to the sporting
schedule, along with resulting changing forecasts of audience mix
and revenues for certain sporting events, the Group has recognised
a provision for the sporting events directly impacted by these
changes. In calculating the provision, management has made
estimates and used assumptions in determining the nature, amount
and timing of potential outflows including the commercial impacts
of the target audience that will be generated by those rights,
scheduling of the events and revenue forecasts. A provision is
recognised for rights where the estimated revenues are less than
the obligation held. An initial provision was raised during the
year for GBP37 million, of which GBP11 million has been utilised
during the year and GBP8 million was released.
The onerous contract for the transmission supply contract of
GBP19 million has been recognised in the current year as the
capacity on the satellite transponder is no longer used by the
Group. GBP2 million of the provision was utilised during the year.
Management have applied judgement in their assessment that the
individual element of the contract is separable from the remaining
elements of the contract which are not considered onerous. The
capacity on the satellite transponder is no longer used by the
Broadcast business and is therefore not generating revenues. The
contracted future commitment has therefore been recognised as a
provision as there are no future economic benefits expected.
-- Property provisions primarily relate to expected dilapidation costs at rental properties.
-- Legal and Other provisions of GBP40 million (2019: GBP3
million) includes a provision of GBP31 million for the potential
liability that may arise as a result of the Box Clever Financial
Support Directions ('FSDs') being issued by the Pensions Regulator
('tPR').
The Box Clever Pension Scheme ('the Scheme') was managed from
its establishment by an independent trustee and the Group has not
had any commercial connection with the Box Clever business since it
went into administrative receivership in 2003. After court
proceedings in the Upper Tribunal and Court of Appeal were
dismissed, certain companies within ITV were issued with FSDs by
tPR on 17 March 2020. An FSD does not set out what form any
financial support should take, nor its amount, and those issues
have not yet been resolved as part of the legal process.
The legislation provides that any contribution that ITV may make
must be considered reasonable and have regard to the Group's
financial circumstances. If an agreement is reached with tPR there
may not be an immediate cash flow impact. If an agreement cannot be
reached then settlement may be protracted and subject to further
legal proceedings over several years.
At 2003, the Scheme was estimated to have had a deficit on a
buyout basis of GBP25 million. The most recent estimate of the
deficit in the Box Clever Group Pension Scheme is GBP110 million as
at 30 April 2020 and remains management's best estimate of the
required provision. This estimate was calculated on a buyout basis,
using membership data and benefits currently being provided in that
Scheme, and based on membership data as of February 2020. Both of
these valuations were of the whole Scheme, encompassing liabilities
in respect of former employees of Granada's joint venture partner,
Thorn, as well as former employees of the Group. Given the
significant number of undecided issues as to the quantum and form
of financial support, the Group will strongly contest any attempt
to impose liability in an amount the Directors consider
unreasonable.
The Directors continue to believe there are many important
factors which need to be taken into account in any decision and
therefore there remains a great deal of uncertainty around the
quantum and form of financial support to be provided. The provision
of GBP31 million is based on our proposal issued to the regulator
on 31 July 2020 and represents the IAS 19 valuation, using market
conditions at 30 April 2020. That proposal has not been accepted
but it is expected that the Company and tPR will have discussions
to try to resolve the matter on a consensual basis. No provision
was held at 31 December 2019 as the Financial Support Direction
(FSD) had not yet been issued and Management could not reliably
estimate the provision as sufficient data around Scheme
participants had not yet been received.
3.7 Keeping In this note, we explain the accounting policies
Pensions it simple governing the Group's pension schemes, followed
by analysis of the components of the net defined
benefit pension deficit, including assumptions
made, and where the related movements have
been recognised in the financial information.
In addition, we have placed text boxes to explain
some of the technical terms used in the disclosure.
What are the Group's pension schemes?
There are two types of pension schemes. A
'Defined Contribution' scheme that is open
to ITV employees, and a number of 'Defined
Benefit' schemes that have been closed to new
members since 2006 and closed to future accrual
in 2017. In 2016, on acquisition of UTV Limited,
the Group took over the UTV Defined Benefit
Scheme, which closed to future accrual at the
end of March 2019.
What is a Defined Contribution scheme?
The Defined Contribution scheme is where the
Group makes fixed payments into a separate
fund on behalf of those employees participating
in saving for their retirement. ITV has no
further obligation to the participating employee
and the risks and rewards associated with this
type of scheme are assumed by the members rather
than the Group. Although the Trustee of the
scheme makes available a range of investment
options, it is the members' responsibility
to make investment decisions relating to their
retirement benefits.
What is a Defined Benefit scheme?
In a Defined Benefit scheme, members receive
payments during retirement, the value of which
is dependent on factors such as salary and
length of service. The Group makes contributions
to the scheme, a separate trustee-administered
fund that is not consolidated in this financial
information, but is reflected on the defined
benefit pension deficit line in the consolidated
statement of financial position.
The Trustee, appointed according to the terms
of the Schemes' documentation, is required
to act in the best interest of the beneficiaries
and is responsible for managing and investing
the assets of the Scheme and its funding position.
Schemes can be funded, where regular cash contributions
are made by the employer into a fund which
is invested. In the event of poor investment
returns or increases in liabilities, the Group
may need to address this through increased
levels of contribution. Alternatively, schemes
can be unfunded, where no regular money or
assets are required to be put aside to cover
future payments but in some cases security
is required.
The accounting defined benefit pension deficit
(IAS 19) is different from the actuarial valuation
deficit as they are calculated on the basis
of different assumptions, such as discount
rate. The accounting defined benefit pension
deficit (IAS 19) figure is calculated as at
the balance sheet date, and the actuarial deficit
was calculated for the last triennial valuation
as of 1 January 2017 for the ITV Pension Scheme
and 30 June 2017 for the UTV Pension Scheme.
The 2020 Triennial valuations for each of the
schemes are under way. The valuations are expected
to be agreed during 2021.
Accounting policies
Defined contribution scheme
Obligations under the Group's defined contribution schemes are
recognised as an operating cost in the income statement as
incurred. For 2020, total contributions expensed were GBP25 million
(2019: GBP23 million).
Defined benefit scheme
The Group's obligation in respect of the Defined Benefit Scheme
is calculated by estimating the amount of future retirement benefit
that eligible employees ('beneficiaries') have earned during their
services. That benefit payable in the future is discounted to
today's value and then the fair value of scheme assets is deducted
to measure the defined benefit pension position.
Unless otherwise stated, references to Defined Benefit Schemes
('the Schemes') within this note refer to the ITV Pension Scheme,
the unfunded scheme and the UTV Scheme combined. Details on each
scheme are provided below.
The liabilities of the Schemes are measured by discounting the
best estimate of future cash flows to be paid using the 'projected
unit' method. These calculations are complex and are performed by a
qualified actuary. There are many judgements and estimates
necessary to calculate the Group's estimated liabilities, the main
assumptions are set out later in this section. Movements in
assumptions during the year are called 'actuarial gains and losses'
and these are recognised in the period in which they arise through
the statement of comprehensive income.
The accounting defined benefit pension surplus or deficit (IAS
19) is different from the actuarial valuation deficit as they are
calculated on the basis of different assumptions, such as discount
rate. The accounting defined benefit pension surplus or deficit
(IAS 19) figure is calculated as at the balance sheet date, and the
actuarial valuation deficit is calculated per the last triennial
valuation.
The latest triennial valuation of the ITV Pension Scheme was
undertaken as at 1 January 2017 by an independent actuary appointed
by the Trustee of the Scheme and agreed in early 2018. The combined
funding deficits of the ITV Pension Scheme as at 1 January 2017
amounted to GBP470 million.
The Trustee is in the process of undertaking a full actuarial
valuation of the ITV Pension Scheme as at 1 January 2020, which we
expect to agree during 2021. This valuation will drive subsequent
contribution rates.
The Group continues to make deficit funding contributions in
line with the most recent actuarial valuation in order to eliminate
the deficits in each section. The IAS 19 deficit does not drive the
deficit funding contribution.
An unfunded scheme in relation to former beneficiaries who
accrued benefits in excess of the maximum allowed for tax purposes
is accounted for under IAS 19 and the Group is responsible for
meeting the pension obligations as they fall due. For the four
former Granada executives within the unfunded scheme, there is
additional security in the form of a charge over GBP62 million of
securitised gilts held by the Group, which are classified as other
pension assets to reflect the Group's net pension deficit.
Due to the size of the UTV Pension Scheme, the Directors present
the results and position of the UTV Scheme within this note
combined with the existing ITV Schemes. The latest triennial
valuation was undertaken as at 30 June 2017. The Trustee is in the
process of undertaking a full actuarial valuation as at 30 June
2020, which we expect to agree during 2021.
The principal employer of the ITV Pension Scheme is ITV Services
Limited, the unfunded scheme is Granada Group Limited and the UTV
Scheme is UTV Limited.
The defined benefit pension deficit
Net pension deficit of GBP26 million at 31 December 2020 (2019:
GBP87 million) is stated after including the unfunded scheme
security asset of GBP62 million (2019: GBP58 million).
The totals recognised in 2020 and 2019 are:
2020 2019
GBPm GBPm
-------- --------
Total defined benefit scheme obligations (4,120) (4,037)
------------------------------------------- -------- --------
Total defined benefit scheme assets 4,032 3,892
------------------------------------------- -------- --------
Defined benefit pension deficit (IAS 19) (88) (145)
------------------------------------------- -------- --------
Presented as:
------------------------------------------- -------- --------
Defined benefit pension surplus* 22 17
------------------------------------------- -------- --------
Defined benefit pension deficit (110) (162)
------------------------------------------- -------- --------
Defined benefit pension deficit (IAS 19) (88) (145)
------------------------------------------- -------- --------
Other pension asset 62 58
------------------------------------------- -------- --------
Net pension deficit (26) (87)
=========================================== ======== ========
* The defined benefit pension surplus relates solely to the UTV
Scheme. The defined benefit scheme assets in the UTV Scheme were
GBP142 million as at 31 December 2020 (2019: GBP133 million) and
the defined benefit scheme obligations were GBP120 million (2019:
GBP116 million).
The remaining sections provide further detail of the value of
the Schemes' assets and liabilities, how these are accounted for
and the impact on the financial information.
Defined benefit scheme obligations
Keeping What causes movements in the defined benefit
it simple pension obligations?
The areas that impact the defined benefit
obligation (the pension scheme liabilities)
position at the year end are as follows:
* Past service cost - is a change in present value of
the benefits built up by the beneficiaries in the
prior periods; can be positive or negative resulting
from changes to the existing plan as a result of an
agreement between ITV and employees or legislative
change (including legal rulings) or as a result of
significant reduction by ITV in the number of
employees covered by the plan (curtailment)
* Interest cost - the pension obligations payable in
the future are discounted to the present value at
year end. A discount factor is used to determine the
current value today of the future cost. The interest
cost is the unwinding of one year's movement in the
present value of the obligation. It is broadly
determined by multiplying the discount rate at the
beginning of the period by the updated present value
of the obligation during the period. The discount
rate is a key assumption explained later in this
section. This interest cost is recognised through net
financing costs in the income statement (see note
4.4)
* Actuarial gains or losses - there are broadly two
causes of actuarial movements: 'experience'
adjustments, which arise when comparing assumptions
made when estimating the liabilities and what has
actually occurred, and adjustments resulting from
changes in actuarial assumptions e.g. movements in
corporate bond yields or change in mortality. Key
assumptions are explained in detail later in this
section. Actuarial gains or losses are recognised
through other comprehensive income
* Benefits paid - any cash benefits paid out by the
Scheme will reduce the obligation
* One-off events - for example, the acquisition of UTV
Limited
The movement in the present value of the Group's defined benefit
obligation is analysed below:
2020 2019
GBPm GBPm
------ ------
Defined benefit obligation at 1 January 4,037 3,719
------ ------
Past service cost
------ ------
- GMP equalisation 1 -
------ ------
- ITV A rectification 5 -
------ ------
- Curtailment credit for the UTV scheme closure to future
accrual - (1)
------ ------
Interest cost 81 103
------ ------
Actuarial loss 183 410
------------------------------------------------------------ ------ ------
Benefits paid (187) (194)
------------------------------------------------------------ ------ ------
Defined benefit obligation at 31 December 4,120 4,037
============================================================ ====== ======
Of the above total defined benefit obligation at 31 December
2020, GBP60 million relates to the unfunded schemes (2019: GBP60
million).
On 20 November 2020, a High Court ruling determined that pension
schemes need to address inequalities between men and women in
Guaranteed Minimum Pension (GMP) for those beneficiaries that
transferred out of the Schemes between May 1990 and October 2018.
An allowance of GBP1 million (2019: GBPnil) for GMP Equalisation
was recognised as a past service cost in the current year.
During 2020, the Group completed the rectification of historical
benefits for the members of the Network Section of Section A of the
ITV Pension Scheme. The review, which involved detailed individual
member calculations, amended the benefits of the Network Section
members accrued between 1991 and 1997 in accordance with an
agreement approved by the High Court in February 2019. As part of
the review, changes to membership data were also identified. The
change in benefits of GBP5 million (2019: GBPnil) have been
recognised as a past service cost in the current year. The change
in membership data of GBP7 million (2019: GBPnil) has been included
within the actuarial loss in Other Comprehensive Income.
In March 2019, the UTV scheme closed to future accrual which
resulted in a past service credit or curtailment credit of GBP1
million.
Assumptions used to estimate the Scheme obligations
Keeping What are the main assumptions used to estimate
it simple the Scheme obligations?
The main assumptions are:
* An estimate of increases in pension payments
* The life expectancy of beneficiaries
* The effect of inflation on all these factors and
* The discount rate used to estimate the present day
fair value of these obligations
How do we determine the appropriate assumptions?
The Group takes independent actuarial advice
relating to the appropriateness of the assumptions
used.
IFRS requires that we estimate a discount rate
by reference to high-quality fixed income investments
in the UK that match the estimated term of
the pension obligations.
The inflation assumption has been set by looking
at the difference between the yields on fixed
and index-linked Government bonds. The inflation
assumption is used as a basis for the remaining
financial assumptions, except where caps have
been implemented.
The discount rate has therefore been obtained
using the yields available on AA rated corporate
bonds, which match projected cash flows. The
Group's estimate of the weighted average term
of the liabilities is 16 years (2019: 16 years).
The principal assumptions used in the Schemes' valuations at the
year end were:
2020 2019
------------------------------------------------------ ------ ------
Discount rate 1.35% 2.05%
------------------------------------------------------ ------ ------
Inflation assumption (RPI) - before 2030 2.95% 3.00%
------------------------------------------------------ ------ ------
Inflation assumption (RPI) - post 2030 2.70% 3.00%
------------------------------------------------------ ------ ------
Rate of increase in pension payment (LPI1 5% pension
increases) 2.75% 2.90%
------------------------------------------------------ ------ ------
Rate of increase to deferred pensions (CPI) 2.05% 2.20%
====================================================== ====== ======
1. Limited Price Index.
The Retail Prices Index ('RPI') reform consultation outcome was
announced on 25 November 2020. The announcement means that from
February 2030 onwards, increases in the RPI will be aligned with
those under the Consumer Prices Index ('CPI'). For Defined Benefit
schemes, it means that members with RPI-linked pension increases
will see future retirement benefits increase more slowly from 2030
than they otherwise would. The Group updated its approach to
setting RPI and CPI inflation assumptions as follows:
-- The Group continued to set RPI inflation in line with the
market break-even expectations less an inflation risk premium. The
inflation risk premium has been increased from 0.25% at 31 December
2019 to 0.25% per annum pre-2030 and 0.5% per annum post-2030 at 31
December 2020. The estimated impact of the change in inflation risk
premium in respect of Section A of the ITV Pensions Scheme is a
reduction in the defined benefit obligation of approximately GBP40
million to GBP50 million. Section C of the ITV Pension Scheme, the
Unfunded Scheme and the UTV Scheme is not expected to have a
material change in the defined benefit obligations.
-- For CPI, the Group changed the assumed difference between the
RPI and CPI from 0.8% at 31 December 2019 to 1.00% per annum
pre-2030 and 0% post-2030 at 31 December 2020. The change in
approach is intended to be broadly equivalent to the prior year
end.
The table below reflects published mortality investigation data
in conjunction with the results of investigations into the
mortality experience of Scheme beneficiaries. The assumed life
expectations on retirement are:
2020 2020 2019 2019
----------------------------- ----- ----- ----- -----
Retiring today at age 60 65 60 65
----------------------------- ----- ----- ----- -----
Males 26.3 21.7 27.3 22.6
----------------------------- ----- ----- ----- -----
Females 28.9 24.1 29.4 24.6
----------------------------- ----- ----- ----- -----
Retiring in 20 years at age 60 65 60 65
----------------------------- ----- ----- ----- -----
Males 27.6 22.8 28.9 24.1
----------------------------- ----- ----- ----- -----
Females 30.4 25.5 31.0 26.1
============================= ===== ===== ===== =====
The net pension deficit is sensitive to changes in assumptions.
These are disclosed further in this section.
Total defined benefit scheme assets
Keeping The Scheme holds assets across a number of
it simple different classes, which are managed by the
Trustee, who consults with the Group on changes
to its investment policy.
What are the pension Scheme assets?
At 31 December 2020, the Schemes' assets were
invested in a diversified portfolio that consisted
primarily of debt securities, infrastructure,
property and insurance policies matching the
pensions due to certain beneficiaries. The
tables below set out the major categories of
assets.
Financial instruments are in place in order
to provide protection against changes in market
factors (interest rates and inflation), which
could act to increase the net pension deficit.
One such instrument is the longevity swap,
which the Scheme transacted in 2011 to obtain
protection against the effect of increases
in the life expectancy of the majority of pensioner
beneficiaries at that date. Under the swap,
the Trustee agreed to make pre-determined payments
in return for payments to meet the specified
pension obligations as they fall due, irrespective
of how long the beneficiaries and their dependants
live. The difference in the present values
of these two streams of payments is reflected
in the Scheme assets. The swap had a nil valuation
at inception and, using market-based assumptions,
is subsequently adjusted for changes in the
market life expectancy and market discount
rates, in line with its fair value.
How do we measure the pension Scheme assets?
Defined benefit scheme assets are measured
at their fair value and can change due to the
following:
* Interest income on scheme assets - this is determined
by multiplying the fair value of the Scheme assets by
the discount rate, both taken as of the beginning of
the year. This is recognised through net financing
costs in the income statement
* Return on assets arise from differences between the
actual return and interest income on Scheme assets
and are recognised through other comprehensive income
* Employer's contributions are paid into the Scheme to
be managed and invested and
* Benefits and administrative expenses paid out by the
Schemes will lower the fair value of the Schemes'
assets
The movement in the fair value of the defined benefit schemes'
assets is analysed below:
2020 2019
GBPm GBPm
------ ------
Fair value of Scheme assets at 1 January 3,892 3,632
------ ------
Interest income on Scheme assets 78 102
------ ------
Return on assets, excluding interest income 188 276
------ ------
Employer contributions 67 82
------ ------
Benefits paid (187) (194)
---------------------------------------------- ------ ------
Administrative expenses paid (6) (6)
---------------------------------------------- ------ ------
Fair value of Scheme assets at 31 December 4,032 3,892
============================================== ====== ======
How are the Schemes' assets invested?
At 31 December 2020, the Schemes' assets were invested in a
diversified portfolio that consisted primarily of debt securities,
infrastructure, property and insurance policies matching pensions
due to certain beneficiaries. The Trustee is responsible for
deciding the investment strategy for the Schemes' assets, although
changes in investment policies require consultation with the Group.
The assets are invested in different classes to hedge against
unfavourable movements in the funding obligation. When selecting
the mix of assets to hold, and considering their related risks and
returns, the Trustee will weigh up the variability of returns
against the target long-term rate of return on the overall
portfolio.
The fair value of the Schemes' assets is shown in the following
table by major category:
Market Market
value value
2020 2019
GBPm GBPm
------- ---- ------- ----
Liability hedging assets
------------------------------------------------- ------- ---- ------- ----
Fixed interest gilts 591 689
------------------------------------------------- ------- ---- ------- ----
Index-linked interest gilts 1,142 886
------------------------------------------------- ------- ---- ------- ----
Interest rate and inflation hedging derivatives
(swaps and repos) 57 127
------------------------------------------------- ------- ---- ------- ----
1,790 44% 1,702 43%
------------------------------------------------- ------- ---- ------- ----
Other bonds 1,815 45% 1,425 37%
------------------------------------------------- ------- ---- ------- ----
Return seeking investments
------------------------------------------------- ------- ---- ------- ----
Quoted equities - 76
------------------------------------------------- ------- ---- ------- ----
Infrastructure 181 161
------------------------------------------------- ------- ---- ------- ----
Property 144 134
------------------------------------------------- ------- ---- ------- ----
Hedge funds/alternatives 2 49
------------------------------------------------- ------- ---- ------- ----
327 8% 420 11%
------- ---- ------- ----
Other investments
------------------------------------------------- ------- ---- ------- ----
Cash and cash equivalents 149 140
------------------------------------------------- ------- ---- ------- ----
Insurance policies 553 544
------------------------------------------------- ------- ---- ------- ----
Longevity swap fair value (602) (339)
------------------------------------------------- ------- ---- ------- ----
100 2% 345 9%
------------------------------------------------- ------- ---- ------- ----
Total Scheme assets 4,032 3,892
================================================= ======= ==== ======= ====
Included in the above are overseas assets of GBP275 million
(2019: GBP404 million), comprised of quoted equities of GBPnil
(2019: GBP72 million) and other assets of GBP275 million (2019:
GBP338 million).
In November 2018, the Pension Trustee entered into a bulk
annuity insurance contract in respect of the benefits of two
sections of the ITV Pension Scheme. This type of deal is also known
as a 'Buy-in'. A buy-in is where the Trustee purchases an insurance
policy which is effectively a Scheme asset which pays the members
benefits. The ultimate obligation to pay the members benefits still
remains with the scheme. The assets in respect of the buy-in are
included in the insurance policies listed above
The Trustee entered into a longevity swap in 2011, which hedges
the risk of increasing life expectancy over the next 70 years for
11,700 current pensioners at inception covering GBP1.7 billion of
the pension obligation. The fair value of the longevity swap is
negative due to declining mortality assumptions and equals the
discounted value of the projected net cash flows resulting from the
contract. The fair value loss has increased in 2020.
Defined pension deficit sensitivities
Keeping Which assumptions have the biggest impact on
it simple the Scheme?
It is important to note that comparatively
small changes in the assumptions used may have
a significant effect on the consolidated income
statement and statement of financial position.
This 'sensitivity' to change is analysed below
to demonstrate how small changes in assumptions
can have a large impact on the estimation of
the defined benefit pension obligation. The
Trustee manages the investment, mortality and
inflation risks to ensure the pension obligations
are met as they fall due.
The investment strategy is aimed at the Trustee's
actuarial valuation deficit rather than IAS
19 defined pension deficit value. As such,
the effectiveness of the risk hedging strategies
on a valuation basis will not be the same as
on an accounting basis. Those hedging strategies
have significant impact on the movement in
the net pension deficit as assumptions change,
offsetting the impacts on the obligation disclosed
below.
In practice, changes in one assumption may
be accompanied by offsetting changes in another
assumption (although this is not always the
case). Changes in the assumptions may occur
at the same time as changes in the market value
of Scheme assets, which may or may not offset
the changes in assumptions.
Changes in assumptions have a different level
of impact as the value of the net pension deficit
fluctuates, because the relationship between
them is not linear.
The analysis below considers the impact of a single change in
principal assumptions on the defined benefit obligation while
keeping the other assumptions unchanged and does not take into
account any risk hedging strategies:
Assumption Change in assumption Impact on defined
benefit obligation
---------------------------------- --------------------- --------------------
Discount rate Increase by 0.1% Decrease by GBP60
million
--------------------- --------------------
Decrease by 0.1% Increase by GBP60
million
--------------------- --------------------
Rate of inflation (Retail Price Increase by 0.1% Increase by GBP30
Index) million
---------------------------------- --------------------- --------------------
Decrease by 0.1% Decrease by GBP30
million
---------------------------------- --------------------- --------------------
Rate of inflation (Consumer Price Increase by 0.1% Increase by GBP10
Index) million
---------------------------------- --------------------- --------------------
Decrease by 0.1% Decrease by GBP10
million
---------------------------------- --------------------- --------------------
Life expectancies Increase by one Increase by GBP185
year million
================================== ===================== ====================
The sensitivity analysis has been determined by extrapolating
the impact on the defined benefit obligation at the year end with
changes in key assumptions that might reasonably occur.
While the Schemes' risk hedging strategy is aimed at a valuation
basis, the Directors estimate that on an accounting basis it would
significantly reduce the above impact on the defined benefit
obligation.
In particular, while an increase in assumption of life
expectancies by one year would increase the defined benefit
obligation by GBP185m, the assets would benefit from an estimated
increase of the value of the longevity swap by GBP105 million and
the value of the bulk annuity insurance contracts by GBP20 million,
resulting in a net increase in the defined pension deficit of GBP60
million.
The insured assets in respect of the buy-in will move in line
with the change to the defined benefit obligation, partially
offsetting the change to the impacts in the table above.
Further, the ITV Pension Scheme invests in UK Government bonds
and interest rate and inflation swap contracts and therefore
movements in the defined benefit obligation are typically offset,
to an extent, by asset movements.
Keeping What was the impact of movements on the Schemes'
it simple assets and liabilities?
The sections above describe how the Scheme
obligations and assets are comprised and measured.
The following section sets out the impact of
various movements and expenses on the Scheme
on the Group's financial information.
Amounts recognised through the income statement
Amounts recognised through the income statement are as
follows:
2020 2019
GBPm GBPm
------ ------
Amount charged to operating costs:
------ ------
Scheme administration expenses (6) (6)
---------------------------------------------------- ------ ------
(6) (6)
---------------------------------------------------- ------ ------
Amount charged to exceptional costs:
---------------------------------------------------- ------ ------
Past service (cost)/credit (6) 1
---------------------------------------------------- ------ ------
Amount charged to net financing costs:
---------------------------------------------------- ------ ------
Net interest on net pension deficit (2) (1)
---------------------------------------------------- ------ ------
Total charged in the consolidated income statement (14) (6)
==================================================== ====== ======
Amounts recognised through the consolidated statement of
comprehensive income
The amounts recognised through the consolidated statement of
comprehensive income/(cost) are:
2020 2019
GBPm GBPm
------ ------
Remeasurement gains/(losses):
----------------------------------------------------------------- ------ ------
Return on scheme assets excluding interest income 188 276
----------------------------------------------------------------- ------ ------
Actuarial gains/(losses) on liabilities arising from
change in:
------ ------
- experience adjustments 35 7
------ ------
- financial assumptions (355) (402)
----------------------------------------------------------------- ------ ------
- demographic assumptions 137 (15)
----------------------------------------------------------------- ------ ------
(183) (410)
----------------------------------------------------------------- ------ ------
Total recognised in the consolidated statement of comprehensive
income 5 (134)
================================================================= ====== ======
The GBP183 million actuarial loss on the Schemes' liabilities
was principally due to changes in bond yields offset by updated
demographic assumptions. The GBP188 million gain on the Schemes'
assets follows a fall in the gilts yields. This has been partially
offset by a fall in market implied inflation, reducing the value of
the inflation-linked assets, and a fall in the value of the
longevity swap.
Addressing the defined benefit pension deficit
Keeping The Group works closely with the Trustee to
it simple agree appropriate levels of funding for the
Scheme. This involves agreeing a Schedule of
Contributions at each triennial valuation,
which specifies the contribution rates for
the employer and, where relevant, scheme beneficiaries
and the date these contributions are due. A
recovery plan setting out the steps that will
be taken to address a funding shortfall is
also agreed.
In the event that the Group's defined benefit
scheme is in a net liability position, the
Directors must take steps to manage the size
of the deficit. Apart from the funding agreements
mentioned above, this could involve pledging
additional assets to the Scheme, as was the
case in the SDN and London Television Centre
pension funding partnerships.
The levels of ongoing contributions to the Scheme are based on
the expected future cash flows of the Scheme. Contributions in 2021
for administration expenses are expected to be in the region of
GBP6 million (2020: GBP6 million) and deficit funding contributions
for the main ITV scheme in 2021 are expected to be GBP60 million
(2020: GBP45 million), assuming current contribution rates continue
as agreed with the Trustee.
The Group's deficit funding contributions for the year was GBP45
million (2019: GBP60 million). As part of the action to tighten
cash flows as a result of COVID-19, we agreed with the pension
Trustees to defer GBP15 million of the 2020 funding contributions
across 2022 to 2025. This is subject to the new funding schedule
which will be finalised as part of the Triennial valuation in
2021.
The Group has two asset-backed pension funding agreements with
the Trustee and makes annual payments of GBP11 million for 12 years
from 2011, and also GBP3 million, increasing by 5% per annum until
2038. In 2021, a payment of GBP14 million is expected as a result
of those agreements.
SDN Pension funding partnership
In 2010, ITV established a Pension Funding Partnership (PFP)
with the Trustees backed by SDN which resulted in the assets of
Section A of the defined benefit pension scheme being increased by
GBP200 million. The Group is contracted to provide additional
collateral to support the original value of the structure at the
rate of GBP50.7 million each year from March 2019 to March 2022.
The Trustee agreed to accept a letter of credit as an alternative
to the 2019 and 2020 collateral instalment with the result that
GBP152.1 million becomes due in March 2021, however if required we
would look to agree with the Trustee a similar approach in respect
of that payment. The pension funding agreement is currently being
reviewed as the Group looks to replace it with an alternative
asset. If the asset in the SDN structure is not replaced, the Group
will pay to the pension scheme the lower of any deficit calculated
on the funding basis in 2022 or GBP200 million.
London Television Centre pension funding partnership
In 2014, ITV established a Pension Funding Partnership with the
Trustees backed by the London Television Centre which resulted in
the assets of Section A of the defined benefit pension scheme being
increased by GBP50 million. In November 2019 the London Television
Centre was sold. GBP50 million of the proceeds has been held in a
restricted bank account as a replacement asset in the pension
funding arrangement.
Both these structures continue to be reviewed in 2021.
IFRIC 14 clarifies how the asset ceiling rules should be applied
if the Schemes are expected to be in surplus, for example as a
result of deficit funding agreements. The Group has determined that
it has an unconditional right to a refund of any surplus assets if
the Schemes are run off until the last member dies. On this basis,
IFRIC 14 rules do not cause any change in the pension deficit
accounting or disclosures.
Notes to the Financial Information
Section 4: Capital Structure and Financing Costs
In this This section outlines how the Group manages
section its capital structure and related financing
costs, including its balance sheet liquidity
and access to capital markets.
The Directors determine the appropriate capital
structure of ITV, specifically how much is
raised from shareholders (equity) and how much
is borrowed from financial institutions (debt)
in order to finance the Group's activities
both now and in the future. Maintaining capital
discipline and balance sheet efficiency remains
important to the Group. Any potential courses
of action in relation to this will take into
account the Group's liquidity needs, flexibility
to invest in the business, pension deficit
initiatives and impact on credit ratings.
The Directors consider the Group's capital
structure and dividend policy at least twice
a year ahead of announcing results. The Directors
take into account the available realised distributable
reserves from which a dividend would be paid
in addition to liquidity and solvency of the
Group. The Directors also consider the capital
structure and dividend policy in the context
of the Group's ability to continue as a going
concern, to execute the strategy and to invest
in opportunities to grow the business and enhance
shareholder value. The ITV plc Board oversees
governance and approves tax and treasury related
policies and procedures.
The emphasis throughout 2020 has been on the
liquidity of the Group and, therefore, the
Board withdrew the 2019 final dividend, decided
not to pay a 2020 interim dividend and is not
recommending the payment of a final 2020 dividend
in light of the ongoing impact of the COVID-19
pandemic leading to continued economic uncertainty.
4.1 Keeping Reported net debt is the Group's key measure
Net debt it simple used to evaluate total cash resources net of
the current outstanding debt including our
discounted lease liabilities. A full analysis
and discussion of reported net debt and covenant
net debt is included in the Operating and Performance
Review.
The tables below analyse movements in the components
of reported net debt during the year:
1 January Net cash Acquisitions Currency 31 December
2020 flow GBPm and 2020
GBPm GBPm non-cash GBPm
movements
GBPm
Cash 93 205 - (2) 296
------------------------------------- ---------- --------- ------------- ----------- ------------
Cash equivalents 153 220 - (1) 372
------------------------------------- ---------- --------- ------------- ----------- ------------
Total cash and cash equivalents 246 425 - (3) 668
===================================== ========== ========= ============= =========== ============
Loans and facilities due within
one year (10) 7 - (4) (7)
---------- --------- ------------- ----------- ------------
Loans and facilities due after one
year (1,016) (5) - (57) (1,078)
------------------------------------- ---------- --------- ------------- ----------- ------------
Total debt (1,026) 2 - (61) (1,085)
===================================== ========== ========= ============= =========== ============
Currency component of swaps held
against euro denominated bonds (24) - - 1 (23)
------------------------------------- ---------- --------- ------------- ----------- ------------
Net debt (804) 427 - (63) (440)
------------------------------------- ---------- --------- ------------- ----------- ------------
Lease liabilities (89) 26 - (42) (105)
------------------------------------- ---------- --------- ------------- ----------- ------------
Reported net debt including lease
liabilities (893) 453 - (105) (545)
===================================== ========== ========= ============= =========== ============
1 January Net cash Acquisitions* Currency 31 December
2019 flow GBPm and 2019
GBPm GBPm non-cash GBPm
movements
GBPm
Cash 85 7 4 (3) 93
------------------------------------- ---------- --------- -------------- ----------- ------------
Cash equivalents 10 143 - - 153
------------------------------------- ---------- --------- -------------- ----------- ------------
Total cash and cash equivalents 95 150 4 (3) 246
===================================== ========== ========= ============== =========== ============
Loans and facilities due within
one year (54) 47 (3) - (10)
---------- --------- -------------- ----------- ------------
Loans and facilities due after one
year (993) (84) - 61 (1,016)
------------------------------------- ---------- --------- -------------- ----------- ------------
Total debt (1,047) (37) (3) 61 (1,026)
===================================== ========== ========= ============== =========== ============
Currency component of swaps held
against euro denominated bonds 25 (25) - (24) (24)
------------------------------------- ---------- --------- -------------- ----------- ------------
Net debt (927) 88 1 34 (804)
------------------------------------- ---------- --------- -------------- ----------- ------------
Lease liabilities (121) 35 - (3) (89)
------------------------------------- ---------- --------- -------------- ----------- ------------
Reported net debt including lease
liabilities (1,048) 123 1 31 (893)
===================================== ========== ========= ============== =========== ============
* Balances as at acquisition date
Cash and cash equivalents
Included within cash equivalents is GBP50 million (2019: GBP50
million), the use of which is restricted to meeting the commitments
under the asset-backed pension agreements, and GBPnil (2019: GBP25
million) restricted money market funds. See note 3.7 for further
details on the asset-backed pension arrangements.
Loans and facilities due within one year
At various periods during the year, the Group drew down on the
GBP630 million Revolving Credit Facility ('RCF') to meet short-term
funding requirements. At 31 December 2020, the Group had drawings
of GBPnil under the RCF (2019: GBPnil), leaving GBP630 million
available to draw down. The maximum draw down of the RCF during the
year was GBP210 million (2019: GBP400 million).
Loans and loan notes due after one year
The Group has in issue the following Eurobonds:
-- EUR335 million at a fixed coupon of 2.125%, which matures in September 2022
-- EUR259 million at a fixed coupon of 2.0%, which matures in December 2023
-- EUR600 million at a fixed coupon of 1.375%, which matures in September 2026
The EUR600 million bond issued in September 2019 has been
swapped back to sterling using a number of cross-currency interest
rate swaps. The resulting fixed rate payable in sterling is c.
2.9%.
Available facilities
The Group has taken a series of steps to strengthen the Group's
liquidity:
-- In March 2020 the Group extended the maturity of its existing
GBP300 million bilateral loan facility by 5 years to 30 June 2026.
Utilisation requests are subject to the lender's ability to source
ITV Credit Default Swaps (CDS) in the market at the time the
utilisation request is made. The facility remains free of financial
covenants and at 31 December 2020 GBP101 million of the facility
was utilised as a letter of credit to support the Group's
asset-backed pension scheme arrangement currently in place in
respect of the defined benefit pension scheme. See section 3.7 for
details.
-- As noted above, the Group has GBP630 million of committed
funding through a Revolving Credit Facility ('RCF') with a group of
relationship banks which is available until 2023. The RCF
documentation defines a leverage covenant (which has to be
maintained at less than 3.5x) and an interest cover covenant (which
has to be maintained at greater than 3.0x). Both are tested at 30
June and 31 December each year. During the first half of 2020, as a
precautionary measure, these financial covenants were replaced with
two new covenants requiring covenant net debt to be maintained
below GBP1,800 million and covenant liquidity (defined as cash and
cash equivalents plus unused committed credit lines) to be
maintained at greater than GBP250 million. Both of these financial
covenants are tested on a quarterly basis from 30 June 2020 through
to 30 December 2021 when the testing of the leverage and interest
cover financial covenant tests will be reinstated and the two new
but temporary covenants fall away. All financial covenants were met
and the facility remains available at 31 December 2020.
-- The Group has GBP100 million available under a non-recourse
receivables purchase agreement. As at 31 December 2020 GBP100
million was available under the agreement (31 December 2019:
GBPnil).
4.2 Borrowings Keeping The Group borrows money from financial institutions
it simple in the form of bonds, bank facilities and other
financial instruments. The interest payable
on these instruments
is shown in the net financing costs note (note
4.4).
There are Board-approved policies in place
to manage the Group's financial risks. Macroeconomic
market risks, which impact currency transactions
and interest rates, are discussed in note 4.3.
Credit and liquidity risks are set out below.
* Credit risk: the risk of financial loss to the Group
if a customer or counterparty fails to meet its
contractual obligations and
* Liquidity risk: the risk that the Group will not be
able to meet its financial obligations as they fall
due
The Group is required to disclose the fair
value of its debt instruments. The fair value
is the amount the Group would pay a third party
to transfer the liability. This estimation
of fair value is consistent with instruments
valued under level 1 in note 4.5.
Accounting policies
Borrowings
Borrowings are recognised initially at fair value less directly
attributable transaction costs, with subsequent measurement at
amortised cost using the effective interest rate method. Under the
amortised cost method, the difference between the amount initially
recognised and the redemption value is recorded in the income
statement over the period of the borrowing on an effective interest
rate basis.
Managing credit and liquidity risk
Credit risk
The Group's maximum exposure to credit risk is represented by
the carrying amount of derivative financial assets (see note 4.3),
trade receivables (see note 3.1.3), and cash and cash equivalents
(see note 4.1).
Trade and other receivables
The Group's exposure to credit risk is influenced mainly by the
individual characteristics of each customer. The majority of trade
receivables relate to airtime sales contracts with advertising
agencies and advertisers. Credit insurance has been taken out
against these companies to minimise the impact on the Group in the
event of a possible default.
The Group also reviews other significant receivables and will
seek to take out credit insurance on an individual basis where
appropriate.
In 2016, the Group entered into a GBP100 million non-recourse
receivables purchase agreement. As at 31 December 2020, this was
not utilised with GBP100 million remaining available under the
agreement (2019: GBPnil).
Any receivables in relation to the invoices sold are
derecognised and the Group collects cash on behalf of the
counterparty as payments fall due.
Cash
The Group operates investment guidelines with respect to surplus
cash that emphasise preservation of capital. The guidelines set out
procedures and limits on counterparty risk and maturity profile of
cash placed. Counterparty limits for cash deposits are largely
based upon long-term ratings published by the major credit rating
agencies.
Borrowings
ITV is rated as investment grade by Moody's and S&P. ITV's
credit ratings, the cost of credit default swap hedging and the
absolute level of interest rates are key determinants in the cost
of new borrowings for ITV.
Liquidity risk
The Group's financing policy is to fund itself for the medium to
long-term by using debt instruments with a range of maturities and
to ensure access to appropriate short-term borrowing facilities
with a minimum of GBP250 million of undrawn facilities available at
all times.
Long-term funding comes from the UK and European capital
markets, while any short to medium-term debt requirements are
provided through bank credit facilities totalling GBP930 million
(see below). Management monitors rolling forecasts of the Group's
liquidity reserve (comprising undrawn bank facilities and cash and
cash equivalents) on the basis of expected cash flows. This
monitoring includes financial ratios to assess any possible future
impact on credit ratings and headroom and takes into account the
accessibility of cash and cash equivalents.
The Group has a GBP630 million Revolving Credit Facility with a
group of relationship banks. This facility matures in 2023 and is
committed with leverage and interest cover financial covenants. In
addition, the Group has GBP300 million of financial covenant free
financing, which runs to June 2026.
Fair value versus book value
The tables below provide fair value information for the Group's
borrowings:
Book value Fair value
-------------- --------------
Maturity 2020 2019 2020 2019
GBPm GBPm GBPm GBPm
---------- ------ ------
Loans due within one year
---------- ------ ------ ------ ------
Other short-term loans Various 7 10 7 10
------------------------------------ ---------- ------ ------ ------ ------
7 10 7 10
----------------------------------------------- ------ ------ ------ ------
Loans due in more than one year
---------- ------ ------ ------ ------
EUR335 (previously EUR600) million Sept
Eurobond 2022 299 283 308 297
------------------------------------ ---------- ------ ------ ------ ------
EUR259 (previously EUR500) million
Eurobond Dec 2023 232 219 240 231
------------------------------------ ---------- ------ ------ ------ ------
Sept
EUR600 million Eurobond 2026 537 508 553 511
------------------------------------ ---------- ------ ------ ------ ------
Other long-term loans Various 10 6 10 6
------------------------------------ ---------- ------ ------ ------ ------
1,078 1,016 1,111 1,045
----------------------------------------------- ------ ------ ------ ------
1,085 1,026 1,118 1,055
=============================================== ====== ====== ====== ======
4.3 Keeping What is a derivative?
Managing it simple A derivative is a type of financial instrument
market risks: typically used to manage risk. A derivative's
derivative value changes over time in response to underlying
financial variables such as exchange rates or interest
instruments rates and is entered into for a fixed period.
A hedge is where a derivative is used to manage
exposure in an underlying variable.
The Group is exposed to certain market risks.
In accordance with Board-approved policies,
which are set out in this note, the Group manages
these risks by using derivative financial instruments
to hedge the underlying exposures.
Why do we need them?
The key market risks facing the Group are:
* Currency risk arising from:
i. Translation risk, that is the risk in the
period of adverse currency fluctuations in
the translation of foreign currency profits,
assets and liabilities ('balance sheet risk')
and non-functional currency monetary assets
and liabilities ('income statement risk') and
ii. Transaction risk, that is the risk that
currency fluctuations will have a negative
effect on the value of the Group's non-functional
currency trading cash flows. A non-functional
currency transaction is a transaction in any
currency other than the reporting currency
of the subsidiary
* Interest rate risk to the Group arises from
significant changes in interest rates on borrowings
issued at or swapped to floating rates
How do we use them?
The Group mainly employs three types of derivative
financial instruments when managing its currency
and interest rate risk:
* Foreign exchange swap contracts are derivative
instruments used to hedge income statement
translation risk arising from short-term intercompany
loans denominated in a foreign currency
* Forward foreign exchange contracts are derivative
instruments used to hedge transaction risk so they
enable the sale or purchase of foreign currency at a
known fixed rate on an agreed future date and
* Cross-currency interest rate swaps are derivative
instruments used to exchange the principal and
interest coupons in a debt instrument from one
currency to another
Analysis of the derivatives used by the Group
to hedge its exposure and the various methods
used to calculate their respective fair values
are detailed in this section.
Accounting policies
Derivative financial instruments are initially recognised at
fair value and are subsequently remeasured at fair value with the
movement recorded in the income statement, except where derivatives
qualify for cash flow hedge accounting. In this case, the effective
portion of a cash flow hedge is recognised in other comprehensive
income and presented in the hedging reserve within equity. The
cumulative gain or loss is later reclassified to the income
statement in the same period as the relevant hedged transaction is
realised. Derivatives with positive fair values are recorded as
assets and negative fair values as liabilities.
Determining fair value
The fair value of forward foreign exchange contracts is
determined by using the difference between the contract exchange
rate and the quoted forward exchange rate at the reporting date
from third parties. The fair value of interest rate swaps is the
estimated amount that the Group would receive or pay to terminate
the swap at the reporting date, taking into account current
interest rates and our current creditworthiness, as well as that of
our swap counterparties.
Third-party valuations are used to fair value the Group's
interest rate derivatives. The valuation techniques use inputs such
as interest rate yield curves and currency prices/yields,
volatilities of underlying instruments and correlations between
inputs.
How do we manage our currency and interest rate risk?
Currency risk
As the Group expands its international operations, the
performance of the business becomes increasingly sensitive to
movements in foreign exchange rates, primarily with respect to the
US dollar and the euro.
The Group's foreign exchange policy is to use forward foreign
exchange contracts to hedge material non-functional currency
denominated costs or revenue for up to five years forward.
The Group ensures that its net exposure to foreign currency
denominated cash balances is kept to a minimal level by using
foreign currency swaps to exchange balances back into sterling or
by buying or selling foreign currencies at spot rates when
necessary.
The Group also utilises foreign exchange swaps and
cross-currency interest rate swaps both to manage foreign currency
cash flow timing differences and to hedge foreign currency
denominated monetary items.
The Group's net investments in overseas subsidiaries may be
hedged where the currency exposure is considered to be material.
The Group designated a portion of its euro borrowings into a net
investment hedge against its euro denominated assets following the
acquisition of Talpa Media.
The following table highlights the Group's sensitivity to
translation risk resulting from a 10% strengthening/weakening in
sterling against the US dollar and euro, assuming all other
variables are held constant:
2020 2019
-------------------------------------- --------------------------------------
Revenue Adjusted Profit Equity Revenue Adjusted Profit Equity
GBPm EBITA after GBPm GBPm EBITA after GBPm
GBPm tax GBPm tax
GBPm GBPm
----------- --------- --------- ------- ------- --------- --------- ------- -------
US dollar +/-20-30 +/-0-2 +/-1 +/-36 +/-50-60 +/-7-9 +/-1 +/-38
----------- --------- --------- ------- ------- --------- --------- ------- -------
Euro +/-30-40 +/-3-5 +/-4 +/-16 +/-35-45 +/-4-6 +/-2 +/-17
=========== ========= ========= ======= ======= ========= ========= ======= =======
The key difference between the foreign currency sensitivity for
adjusted EBITA and profit after tax is the impact on the US dollar
and euro denominated exceptional costs, including
acquisition-related costs, acquired intangible amortisation and net
financing cost.
Interest rate risk
The Group's interest rate policy is to allow fixed rate gross
debt to vary between 20% and 100% of total gross debt to
accommodate floating rate borrowings under the Revolving Credit
Facility.
At 31 December 2020, the Group's fixed rate debt represented 99%
of total gross debt (2019: 99%). Consequently, a 1% movement in
interest rates on floating rate debt would impact the 2020 post-tax
profit for the year by less than GBP1 million (2019: less than GBP1
million).
For financial assets and liabilities classified at fair value
through profit or loss, the movements in the year relating to
changes in fair value and interest are not separated.
What is the value of our derivative financial instruments?
The following table shows the fair value of derivative financial
instruments analysed by type of contract. Interest rate swap fair
values exclude accrued interest.
At 31 December 2020 Assets Liabilities
GBPm GBPm
------- ------------
Current
------- ------------
Foreign exchange forward contracts and swaps - cash
flow hedges 4 (2)
------- ------------
Foreign exchange forward contracts and swaps - fair
value through profit or loss 2 (5)
------- ------------
Non-current
----------------------------------------------------- ------- ------------
Cross-currency interest swaps - cash flow hedges - (23)
----------------------------------------------------- ------- ------------
Foreign exchange forward contracts and swaps - cash
flow hedges 2 (1)
----------------------------------------------------- ------- ------------
Foreign exchange forward contracts and swaps - fair - -
value through profit or loss
----------------------------------------------------- ------- ------------
8 (31)
===================================================== ======= ============
At 31 December 2019 Assets Liabilities
GBPm GBPm
Current
------- ------------
Foreign exchange forward contracts and swaps - cash
flow hedges 3 (3)
------- ------------
Foreign exchange forward contracts and swaps - fair
value through profit or loss 3 (2)
------- ------------
Non-current
------- ------------
Cross-currency interest swaps - cash flow hedges - (39)
------- ------------
Foreign exchange forward contracts and swaps - cash
flow hedges - (4)
----------------------------------------------------- ------- ------------
Foreign exchange forward contracts and swaps - fair - -
value through profit or loss
----------------------------------------------------- ------- ------------
6 (48)
===================================================== ======= ============
Cash flow hedges
The Group applies hedge accounting for certain foreign currency
firm commitments and highly probable cash flows where the
underlying cash flows are payable within the next seven years. In
order to fix the sterling cash outflows associated with the
commitments and interest payments - which are mainly denominated in
AUD or euros - the Group has taken out forward foreign exchange
contracts and cross-currency interest rate swaps for the same
foreign currency amount and maturity date as the expected foreign
currency outflow.
The amount recognised in other comprehensive income during the
period all relates to the effective portion of the revaluation loss
associated with these contracts. There was less than GBP1 million
(2019: less than GBP1 million) of ineffectiveness taken to the
income statement and less than GBP1 million of cumulative gain
(2019: GBP21 million loss) was recycled to the income statement in
the year.
Under IFRS 9, the Group has adopted the 'cost of hedging'
approach which allows the recognition of the value of the currency
basis at inception of the hedge to be recorded on the Consolidated
Statement of Financial Position and amortised through net financing
costs in the Consolidated Income Statement over the life of the
bond. Any mark-to-market change in fair value of the currency basis
is recognised in 'cost of hedging' in the Consolidated Statement of
Comprehensive Income.
Net investment hedges
The Group uses euro denominated debt to hedge against the change
in the sterling value of its euro denominated net assets due to
movements
in foreign exchange rates. The fair value of debt in a net
investment hedge was GBP216 million (2019: GBP209 million). A
foreign exchange loss of
GBP11 million (2019: gain of GBP12 million) relating to the net
investment hedges has been netted off within exchange differences
on translation
of foreign operations as presented on the consolidated statement
of comprehensive income.
Undiscounted financial liabilities
Keeping The Group is required to disclose the expected
it simple timings of cash outflows for each of its financial
liabilities (including derivatives). The amounts
disclosed in the table are the contractual
undiscounted cash flows (including interest),
so will not always reconcile with the amounts
disclosed on the Statement of Financial Position.
At 31 December 2020 Carrying Total Less Between Between Over
value contractual than 1 and 2 and 5
GBPm cash 1 2 years 5 years years
flows year GBPm GBPm GBPm
GBPm GBPm
--------- ------------- -------- --------- --------- -------
Non-derivative financial liabilities
--------- ------------- -------- --------- --------- -------
Borrowings (1,085) (1,155) (26) (318) (261) (550)
--------- ------------- -------- --------- --------- -------
Lease liabilities (105) (118) (27) (29) (31) (31)
--------- ------------- -------- --------- --------- -------
Trade and other payables (850) (850) (796) (43) (11) -
--------- ------------- -------- --------- --------- -------
Contract liabilities (271) (271) (271) - - -
--------- ------------- -------- --------- --------- -------
Other payables - non-current (15) (15) - (8) (7) -
--------- ------------- -------- --------- --------- -------
Other payables - commitments on acquisitions (209) (227)* (166) (22) (17) (22)
--------- ------------- -------- --------- --------- -------
Derivative financial instruments
--------- ------------- -------- --------- --------- -------
Foreign exchange forward contracts
and swaps - cash flow hedges
--------- ------------- -------- --------- --------- -------
Inflow 6 170 113 50 7 -
--------- ------------- -------- --------- --------- -------
Outflow (3) (169) (113) (49) (7) -
--------- ------------- -------- --------- --------- -------
Cross-currency swaps - cash flow
hedges
--------- ------------- -------- --------- --------- -------
Inflow - 580 7 7 22 544
--------- ------------- -------- --------- --------- -------
Outflow (23) (627) (16) (16) (47) (548)
--------- ------------- -------- --------- --------- -------
Foreign exchange forward contracts
and swaps - fair value through profit
or loss
--------- ------------- -------- --------- --------- -------
Inflow 2 370 367 3 - -
--------- ------------- -------- --------- --------- -------
Outflow (5) (388) (385) (3) - -
--------- ------------- -------- --------- --------- -------
(2,558) (2,700) (1,313) (428) (352) (607)
============================================== ========= ============= ======== ========= ========= =======
At 31 December 2019 Carrying Total Less Between Between Over
value contractual than 1 and 2 and 5
GBPm cash 1 2 years 5 years years
flows year GBPm GBPm GBPm
GBPm GBPm
--------- ------------- -------- --------- --------- -------
Non-derivative financial liabilities
--------- ------------- -------- --------- --------- -------
Borrowings (1,026) (1,095) (18) (17) (539) (521)
--------- ------------- -------- --------- --------- -------
Lease liabilities (89) (103) (26) (27) (30) (20)
--------- ------------- -------- --------- --------- -------
Trade and other payables (828) (828) (767) (36) (25) -
--------- ------------- -------- --------- --------- -------
Contract liabilities (219) (219) (219) - - -
--------- ------------- -------- --------- --------- -------
Other payables - non-current (5) (5) - (4) (1) -
--------- ------------- -------- --------- --------- -------
Other payables - commitments on acquisitions (197) (230)* (162) (2) (59) (7)
--------- ------------- -------- --------- --------- -------
Derivative financial instruments
--------- ------------- -------- --------- --------- -------
Foreign exchange forward contracts
and swaps - cash flow hedges
--------- ------------- -------- --------- --------- -------
Inflow 3 199 128 45 26 -
--------- ------------- -------- --------- --------- -------
Outflow (7) (203) (129) (46) (28) -
--------- ------------- -------- --------- --------- -------
Cross-currency swaps - cash flow hedges
--------- ------------- -------- --------- --------- -------
Inflow - 557 7 7 21 522
--------- ------------- -------- --------- --------- -------
Outflow (39) (642) (16) (16) (47) (563)
--------- ------------- -------- --------- --------- -------
Foreign exchange forward contracts
and swaps - fair value through profit
or loss
--------- ------------- -------- --------- --------- -------
Inflow 3 339 335 4 - -
--------- ------------- -------- --------- --------- -------
Outflow (2) (338) (334) (4) - -
--------- ------------- -------- --------- --------- -------
(2,406) (2,568) (1,201) (96) (682) (589)
============================================== ========= ============= ======== ========= ========= =======
* Undiscounted expected future payments depending on performance
of acquisitions; the total maximum consideration is discussed in
the Finance Review.
4.4 Keeping This section details the interest income generated
Net financing it simple on the Group's cash and other financial assets
costs and the interest expense incurred on borrowings
and other financial liabilities.
In reporting 'adjusted profit', the Group adjusts
net financing costs to exclude unrealised mark-to-market
movements on interest rate and foreign exchange
derivatives, gains/losses on bond buybacks,
net pension interest, interest and fair value
movements in acquisition-related liabilities
and other financing costs.
Our rationale for adjustments made to financing
costs is set out in the Finance Review.
Accounting policies
Net financing costs comprise interest income on funds invested,
gains/losses on the disposal of financial instruments, changes in
the fair value of financial instruments, interest expense on
borrowings, unwinding of the discount on provisions, unwinding of
the discount on liabilities to
non-controlling interest, foreign exchange gain/losses, and
imputed interest on pension assets and liabilities. Interest income
and expense is recognised as it accrues in profit or loss, using
the effective interest method.
Net financing costs
Net financing costs can be analysed as follows:
2020 2019
GBPm GBPm
------ ------
Financing income
-------------------------------------------------------- ------ ------
Interest income 2 4
-------------------------------------------------------- ------ ------
Foreign exchange gain - 8
-------------------------------------------------------- ------ ------
2 12
------ ------
Financing costs
------ ------
Interest expense on financial liabilities measured at
amortised cost (27) (31)
------ ------
Net pension interest (see note 3.7) (2) (1)
------ ------
Foreign exchange loss (3) -
-------------------------------------------------------- ------ ------
Other finance expense (14) (48)
-------------------------------------------------------- ------ ------
(46) (80)
-------------------------------------------------------- ------ ------
Net financing costs (44) (68)
======================================================== ====== ======
Interest on financial liabilities relates to the interest
incurred on the Group's borrowings in the year.
Other finance expense includes lease interest payments, interest
on acquisition-related contingent liabilities and bank charges.
In 2019, the Group completed the buyback of EUR506 million of
the Eurobonds and closed out the portfolio of cross-currency
interest rate swaps taken out in 2016. This transaction resulted in
the acceleration of amortisation of previously capitalised
transaction costs on the bonds as well as one-off fees and premiums
paid to the bond holders and was also recognised in other finance
expense.
4.5 Keeping The financial instruments included on the ITV
Fair value it simple Statement of Financial Position are measured
hierarchy at either fair value or amortised cost. The
measurement of this fair value can in some
cases be subjective, and can depend on the
inputs used in the calculations. ITV generally
uses external valuations using market inputs
or market values (e.g. external share prices).
The different valuation methods are called
'hierarchies' and are described below.
Level 1
Fair values are measured using quoted prices
(unadjusted) in active markets for identical
assets or liabilities.
Level 2
Fair values are measured using inputs, other
than quoted prices included within Level 1,
which are observable for the asset or liability
either directly or indirectly.
Interest rate swaps and options are accounted
for at their fair value based upon termination
prices. Forward foreign exchange contracts
are accounted for at the difference between
the contract exchange rate and the quoted forward
exchange rate at the reporting date.
Level 3
Fair values are measured using inputs for
the asset or liability that are not based on
observable market data.
The tables below set out the financial instruments included on
the ITV statement of financial position at 'fair value'.
Fair Level Level Level
value 1 2 3
31 December 31 December 31 December 31 December
2020 2020 2020 2020
GBPm GBPm GBPm GBPm
-------------- -------------- -------------- --------------
Assets measured at fair value
-------------- -------------- -------------- --------------
Financial instruments
-------------- -------------- -------------- --------------
Other pension assets - gilts (see note
3.7) 62 62 - -
-------------- -------------- -------------- --------------
Equity investments (see note 3.5) 1 - - 1
-------------- -------------- -------------- --------------
Financial assets at fair value through
profit or loss
-------------- -------------- -------------- --------------
Foreign exchange forward contracts and
swaps 2 - 2 -
----------------------------------------- -------------- -------------- -------------- --------------
Financial assets at fair value through
reserves
----------------------------------------- -------------- -------------- -------------- --------------
Cash flow hedges 6 - 6 -
----------------------------------------- -------------- -------------- -------------- --------------
71 62 8 1
========================================= ============== ============== ============== ==============
Fair Level Level Level
value 1 2 3
31 December 31 December 31 December 31 December
2020 2020 2020 2020
GBPm GBPm GBPm GBPm
-------------- -------------- -------------- --------------
Liabilities measured at fair value
-------------- -------------- -------------- --------------
Financial liabilities at fair value through
profit or loss
-------------- -------------- -------------- --------------
Foreign exchange forward contracts and
swaps (5) - (5) -
-------------- -------------- -------------- --------------
Acquisition-related liabilities - payable
to sellers under put options agreed on
acquisition (45) - - (45)
-------------- -------------- -------------- --------------
Financial liabilities at fair value through
reserves
--------------------------------------------- -------------- -------------- -------------- --------------
Cash flow hedges (26) - (26) -
--------------------------------------------- -------------- -------------- -------------- --------------
(76) - (31) (45)
============================================= ============== ============== ============== ==============
Fair Level Level Level
value 1 2 3
31 December 31 December 31 December 31 December
2019 2019 2019 2019
GBPm GBPm GBPm GBPm
-------------- -------------- -------------- --------------
Assets measured at fair value
-------------- -------------- -------------- --------------
Financial instruments
-------------- -------------- -------------- --------------
Other pension assets - gilts (see note
3.7) 58 58 - -
-------------- -------------- -------------- --------------
Equity investments (see note 3.5) 8 - - 8
-------------- -------------- -------------- --------------
Financial assets at fair value through
profit or loss
-------------- -------------- -------------- --------------
Foreign exchange forward contracts and
swaps 3 - 3 -
----------------------------------------- -------------- -------------- -------------- --------------
Financial assets at fair value through
reserves
----------------------------------------- -------------- -------------- -------------- --------------
Cash flow hedges 3 - 3 -
----------------------------------------- -------------- -------------- -------------- --------------
Fair Level Level Level
value 1 2 3
31 December 31 December 31 December 31 December
2019 2019 2019 2019
GBPm GBPm GBPm GBPm
-------------- -------------- -------------- --------------
Liabilities measured at fair value
-------------- -------------- -------------- --------------
Financial liabilities at fair value through
profit or loss
-------------- -------------- -------------- --------------
Foreign exchange forward contracts and
swaps (2) - (2) -
-------------- -------------- -------------- --------------
Acquisition-related liabilities - payable
to sellers under put options agreed on
acquisition (32) - - (32)
-------------- -------------- -------------- --------------
Financial liabilities at fair value through
reserves
--------------------------------------------- -------------- -------------- -------------- --------------
Cash flow hedges (46) - (46) -
--------------------------------------------- -------------- -------------- -------------- --------------
Refer to note 4.3 for how we value interest rate swaps and
forward foreign currency contracts. The equity investments are
valued at cost and assessed for impairment.
4.6 Keeping From 1 January 2019, the Group accounts for
Lease liabilities it simple operating leases under IFRS 16 'Leases'. Lease
liabilities representing the discounted future
lease payments and right of use assets are
recognised in the Statement of Financial Position.
Lease costs such as property rent are now recognised
in the form of depreciation and interest.
Accounting policies
Lease liabilities represent the discounted future lease
payments. Discount rates are calculated for similar assets, in
similar economic environments, taking into account the length of
the lease. The unwinding of the discounting is recognised in net
financing costs in the Income Statement. The following table
outlines the maturity analysis of the lease liabilities:
2020 2019
GBPm GBPm
------ ------
Contractual discounted cash flows
------ ------
Less than one year 22 25
------ ------
Two to five years 42 50
------ ------
More than five years 41 14
----------------------------------- ------ ------
Lease liabilities at 31 December 105 89
=================================== ====== ======
1 January Net cash Currency 31 December
2020 flow and 2020
GBPm GBPm non-cash GBPm
movements
GBPm
------------
Lease liabilities (89) 26 (42) (105)
------------------------- ---------- --------- ----------- ------------
Total lease liabilities (89) 26 (42) (105)
========================= ========== ========= =========== ============
The following amounts have been included in the Income
Statement:
2020 2019
GBPm GBPm
------ ------
Interest expense on lease liabilities (4) (4)
------ ------
Operating costs relating to short-term leases and low - -
value assets
------------------------------------------------------- ------ ------
Amounts recognised in the Income Statement (4) (4)
======================================================= ====== ======
The Group has elected not to recognise right of use assets and
lease liabilities for short-term leases (i.e. lease term less than
12 months) or
low-value assets (i.e. under GBP5,000). The Group will continue
to expense the lease payments associated with these leases on a
straight-line basis over the lease term. At 31 December 2020, this
was less than GBP1 million.
Variable lease payments that depend on an index or a rate are
also less than GBP1 million.
Some property leases contain extension options beyond the
non-cancellable period. The Group assesses at the lease
commencement date whether it is reasonably certain to exercise the
extension options. The lease liability at 31 December 2020 does not
include such extensions however the Group estimated that the future
lease payments, should it exercise the extension option, would
result in an increase in the lease liability of GBP2 million.
4.7 Keeping This section explains material movements recorded
Equity it simple in shareholders' equity, presented in the Consolidated
Statement in Changes in Equity, which are not
explained elsewhere in the financial information.
Accounting policies
Fair value reserve
Financial assets are stated at fair value, with any gain or loss
recognised directly in the fair value reserve in equity, unless the
loss is a permanent impairment, when it is then recorded in the
income statement.
Dividends
Dividends are recognised through equity on the earlier of their
approval by the Company's shareholders or their payment. Dividends
are distributed based on the realised distributable reserves
(within retained earnings) of ITV plc (the Company) and not based
on the Group's retained earnings.
4.7.1 Share capital and share premium
The Group's share capital at 31 December 2020 of GBP403 million
(2019: GBP403 million) and share premium of GBP174 million (2019:
GBP174 million) is the same as that of ITV plc. Details of this are
given in the ITV plc Company financial information section.
4.7.2 Merger and other reserves
Merger and other reserves at 31 December include the following
reserves:
2020 2019
GBPm GBPm
------ ------
Merger reserves 98 98
------ ------
Capital reserves 112 112
------ ------
Capital redemption reserves 36 36
------ ------
Revaluation reserves 2 2
--------------------------------------------------------------- ------ ------
Put option liabilities arising on acquisition of subsidiaries (24) (24)
--------------------------------------------------------------- ------ ------
Total 224 224
=============================================================== ====== ======
4.7.3 Translation reserve
The translation reserve comprises:
-- All foreign exchange differences arising on the translation
of the accounts of, and investments in, foreign operations
-- The gains or losses on the portion of cash flow hedges that
have been deemed effective and costs of hedging under IFRS 9 (see
note 4.3)
-- The net loss on cash flow hedges in the period was GBP6
million (2019: net loss GBP17 million) and included a movement in
the cost of hedging of GBP6 million (2019: GBP8 million)
4.7.4 Fair value reserve
The fair value reserve comprises all movements arising on the
revaluation of gilts accounted for at fair value through OCI
financial instruments. The movement in 2020 is a GBP4 million gain
(2019: GBP9 million gain). See note 3.7.
4.7.5 Retained earnings
The retained earnings reserve comprises profit for the year
attributable to owners of the Company of GBP285 million (2019:
GBP473 million) and other items recognised directly through equity
as presented in the consolidated statement of changes in equity.
Other items include the credit for the Group's share-based
compensation schemes and the charge for the purchase of ITV shares
via the ITV Employees' Benefit Trust, which are described in note
4.8.
The distributable reserves of ITV plc are disclosed in note viii
to the ITV plc Company financial information.
The Directors recognises the importance of the dividends to our
shareholders and intends to restore dividend payments as soon as
circumstances permit. The Directors will balance shareholder
returns with our commitment to maintain investment grade metrics
over the medium term, to continue to invest behind the strategy and
with the ongoing uncertainty with COVID-19. In 2020, no dividend
payments were made (2019: GBP320 million).
4.7.6 Non-controlling interests
Non-controlling interest (NCI) represents the share of
non-wholly owned subsidiaries' net assets that are not directly
attributable to the shareholders of the ITV Group. The movement for
2020 comprises:
-- The share of losses attributable to NCI of GBP4 million
(2019: share of profits attributable to NCI of GBP5 million)
-- The distributions made to NCI of GBP1 million (2019: GBP2 million)
-- The share of net assets attributable to NCI relating to
subsidiaries acquired, disposed or changes in ownership interest in
2020 of GBP6 million (2019: GBPnil)
--
4.8 Keeping The Group utilises share award schemes as part
Share-based it simple of its employee remuneration packages, and
compensation therefore operates a number of share-based
compensation schemes, namely the Deferred Share
Award (DSA), Performance Share Plan (PSP),
Long Term Incentive Plan (LTIP) and Save As
You Earn (SAYE) schemes. The share-based compensation
is not pensionable.
A transaction will be classed as share-based
compensation where the Group receives services
from employees and pays for these in shares
or similar equity instruments. If the Group
incurs a liability linked to the price or value
of the Group's shares, this will also fall
under a share-based transaction.
Accounting policies
For each of the Group's share-based compensation schemes, the
fair value of the equity instrument granted is measured at grant
date and spread over the vesting period via a charge to the income
statement with a corresponding increase in equity.
The fair value of the share options and awards is measured using
either market price at grant date or, for the SAYE scheme, a
Black-Scholes model, taking into account the terms and conditions
of the individual scheme.
Vesting conditions are limited to service conditions and
performance conditions. For performance-based schemes, the relevant
Group performance measures are projected to the end of the
performance period in order to determine the number of options
expected to vest. This estimate of the performance measures is used
to determine the option fair value, discounted to present value.
The Group revises the number of options that are expected to vest,
including an estimate of forfeitures at each reporting date based
on forecast performance measures. The impact of the revision to
original estimates, if any, is recognised in the income statement,
with a corresponding adjustment to equity.
Exercises of share options granted to employees can be satisfied
by market purchase or issue of new shares. No new shares may be
issued to satisfy exercises under the terms of the DSA. During the
year, all exercises were satisfied by using shares purchased in the
market and held in the ITV Employees' Benefit Trust.
Share-based compensation charges totalled GBP6 million in 2020
(2019: GBP10 million).
Share options outstanding
The table below summarises the movements in the number of share
options outstanding for the Group and their weighted average
exercise price:
Number 2020 Number 2019
of options Weighted of options Weighted
('000) average ('000) average
exercise exercise
price price
(pence) (pence)
------------ ---------- ------------ ----------
Outstanding at 1 January 60,073 36.88 44,022 49.33
------------ ---------- ------------ ----------
Granted during the year - nil priced 34,192 - 19,754 -
------------ ---------- ------------ ----------
Granted during the year - other 48,347 56.10 22,525 94.83
------------ ---------- ------------ ----------
Forfeited during the year (3,354) 83.27 (1,241) 128.35
------------ ---------- ------------ ----------
Exercised during the year - nil priced (6,017) - (2,805) -
---------------------------------------- ------------ ---------- ------------ ----------
Exercised during the year - other (3) 87.47 (24) 129.82
---------------------------------------- ------------ ---------- ------------ ----------
Expired during the year (26,935) 76.87 (22,158) 87.09
---------------------------------------- ------------ ---------- ------------ ----------
Outstanding at 31 December 106,303 24.25 60,073 36.88
======================================== ============ ========== ============ ==========
Exercisable at 31 December 2,247 34.42 3,090 55.78
======================================== ============ ========== ============ ==========
The average share price during 2020 was 86.44 pence (2019:
126.10 pence).
Of the options still outstanding, the range of exercise prices
and weighted average remaining contractual life of these options
can be analysed as follows:
Range of exercise prices Weighted Number 2020 Weighted Number 2019
(pence) average of options Weighted average of options Weighted
exercise ('000) average exercise ('000) average
price remaining price remaining
(pence) contractual (pence) contractual
life life
(years) (years)
-------------------------- ---------- ------------ ------------- ---------- ------------ -------------
Nil - 62,666 1.26 - 38,685 2.25
-------------------------- ---------- ------------ ------------- ---------- ------------ -------------
20.00 - 49.99 49.17 34,413 3.70 - - -
-------------------------- ---------- ------------ ------------- ---------- ------------ -------------
50.00 - 69.99 - - - - - -
-------------------------- ---------- ------------ ------------- ---------- ------------ -------------
70.00 - 99.99 80.00 6,019 2.91 87.47 13,335 3.73
-------------------------- ---------- ------------ ------------- ---------- ------------ -------------
100.00 - 109.99 105.98 1,043 2.22 105.98 2,685 3.21
-------------------------- ---------- ------------ ------------- ---------- ------------ -------------
110.00 - 119.99 - - - - - -
-------------------------- ---------- ------------ ------------- ---------- ------------ -------------
120.00 - 149.99 131.50 1,939 1.10 131.18 3,481 2.11
-------------------------- ---------- ------------ ------------- ---------- ------------ -------------
150.00 - 199.99 167.99 200 1.53 162.25 1,851 0.84
-------------------------- ---------- ------------ ------------- ---------- ------------ -------------
200.00 - 249.99 206.83 23 0.33 206.83 36 1.33
========================== ========== ============ ============= ========== ============ =============
Assumptions
DSA, LTIP and PSP options are valued directly by reference to
the share price at date of grant.
The options granted in the current and prior years for the HMRC
approved SAYE scheme, are valued using the Black-Scholes model,
using the assumptions below:
Scheme name Date of grant Share Exercise Expected Expected Gross Risk-free Fair
price price volatility life dividend rate value
at grant (pence) % (years) yield % (pence)
(pence) %
3 Year 4 April 2019 132.48 105.98 30.68 3.25 6.04 0.82 26.14
--------------- ---------- --------- ------------ --------- ---------- ---------- ---------
5 Year 4 April 2019 132.48 105.98 28.57 5.25 6.04 1.09 23.58
--------------- ---------- --------- ------------ --------- ---------- ---------- ---------
5 September
3 Year 2019 109.33 87.47 26.73 3.25 6.04 0.36 18.61
------------- --------------- ---------- --------- ------------ --------- ---------- ---------- ---------
5 September
5 Year 2019 109.33 87.47 28.79 5.25 6.04 0.45 18.66
------------- --------------- ---------- --------- ------------ --------- ---------- ---------- ---------
3 Year 7 April 2020 65.60 73.69 34.52 3.25 - 0.16 13.37
------------- --------------- ---------- --------- ------------ --------- ---------- ---------- ---------
5 Year 7 April 2020 65.60 73.69 33.54 5.25 - 0.19 17.24
------------- --------------- ---------- --------- ------------ --------- ---------- ---------- ---------
7 September
3 Year 2020 63.80 49.17 39.08 3.25 - (0.10) 23.79
------------- --------------- ---------- --------- ------------ --------- ---------- ---------- ---------
7 September
5 Year 2020 63.80 49.17 36.29 5.25 - (0.04) 26.31
============= =============== ========== ========= ============ ========= ========== ========== =========
Notes to the Financial Information
Section 5: Other Notes
Employees' Benefit Trust
The Group has investments in its own shares as a result of
shares purchased by the ITV Employees' Benefit Trust ('EBT').
Transactions with the Group-sponsored EBT are included in this
financial information and primarily consist of the EBT's purchases
of shares in ITV plc, which is accounted for as a reduction to
retained earnings.
The table below shows the number of ITV plc shares held in the
EBT at 31 December 2020 and the purchases/(releases) from the EBT
made in the year to satisfy awards under the Group's share
schemes:
Scheme Shares held at Number of Nominal value
shares GBP
(released)/purchased
1 January 2020 25,425,533 2,542,553
------------------------------------- ---------------------- --------------
LTIP releases (139,810)
---------------------- --------------
DSA releases (597,933)
---------------------- --------------
PSP releases (2,685,206)
---------------------- --------------
SAYE releases (3,212)
-------------------------------------- ---------------------- --------------
Shares purchased -
------------------ ------------------ ---------------------- --------------
31 December 2020 21,999,372 2,199,937
===================================== ====================== ==============
The total number of shares held by the EBT at 31 December 2020
represents 0.55% (2019: 0.63%) of ITV's issued share capital. The
market value of own shares held at 31 December 2020 is GBP23
million (2019: GBP38 million).
The shares will be held in the EBT until such time as they may
be transferred to participants of the various Group share schemes.
Rights to dividends have been waived by the EBT in respect of
shares held that do not relate to restricted shares under the DSA.
In accordance with the Trust Deed, the Trustees of the EBT have the
power to exercise all voting rights in relation to any investment
(including shares) held within that trust. The Trust is accounted
for as a separate entity and therefore is only accounted for in the
consolidated financial information and not included in the ITV plc
Company financial information.
5.1 Keeping The related parties identified by the Directors
Related it simple include joint ventures, associated undertakings,
party fixed asset investments and key management
transactions personnel.
To enable users of our financial information
to form a view about the effects of related
party relationships on the Group, we disclose
the Group's transactions with those related
parties during the year and any associated
year end trading balances.
Transactions with joint ventures and associated undertakings
Transactions with joint ventures and associated undertakings
during the year were:
2020 2019
GBPm GBPm
---------------------------------------- ------ ------
Sales to joint ventures 17 19
---------------------------------------- ------ ------
Sales to associated undertakings 9 8
---------------------------------------- ------ ------
Purchases from joint ventures 29 28
---------------------------------------- ------ ------
Purchases from associated undertakings 63 64
======================================== ====== ======
The transactions with joint ventures primarily relate to sales
and purchases of digital multiplex services with Digital 3&4
Limited and distribution revenue from BritBox LLC. Sales to
associated undertakings include airtime sales to DTV Services
Limited. Purchases from associated undertakings primarily relate to
the purchase of news services from ITN Limited.
All transactions with associated undertakings and joint ventures
arise in the normal course of business on an arm's length
basis.
The amounts owed by and to these related parties at the year end
were:
2020 2019
GBPm GBPm
----------------------------------------- ------ ------
Amounts owed by joint ventures 9 14
----------------------------------------- ------ ------
Amounts owed by associated undertakings 5 7
----------------------------------------- ------ ------
Amounts owed to joint ventures - 1
----------------------------------------- ------ ------
Amounts owed to associated undertakings 6 5
========================================= ====== ======
None of the balances are secured.
Amounts owed by joint ventures primarily relate to trading with
BritBox LLC. Balances owed by associated undertakings largely
relate to loan notes with Route 24 Limited. Balances owed to
associated undertakings primarily relate to trading with ITN
Limited.
Amounts paid to the Group's retirement benefit plans are set out
in note 3.7.
Transactions with key management personnel
Key management consists of ITV plc Executive and Non-executive
Directors and the ITV Management Board. Key management personnel
compensation is as follows:
2020 2019
GBPm GBPm
------ ------
Short-term employee benefits 6 11
------------------------------ ------ ------
Share-based compensation - 4
------------------------------ ------ ------
6 15
============================== ====== ======
5.2 Keeping it A contingent asset or liability is a liability
Contingent simple that is not sufficiently certain to qualify
assets and for recognition as an asset or provision where
liabilities uncertainty may exist regarding the outcome
of future events.
Contingent assets
In 2017 Talpa Media took back the licence for The Voice of China
due to a breach of the agreement by the customer, Talent, for not
fulfilling their payment obligations. During 2018 and 2019 GBP27
million has been received in relation to the amounts due. However,
those receipts are currently the subject of an ongoing review. As a
result the provision for bad debt, originally recognised as an
exceptional cost in 2017, was reinstated at 31 December 2019.
Whilst the Directors remain confident of recovering the amounts
due, accounting standards set very specific requirements for the
recognition of an asset. As the review of the receipts remains in
progress, as well as discussions with the credit insurers, the
Group is not able to demonstrate sufficient certainty to be able to
recognise a receivable at 31 December 2020.
Contingent liabilities
There are contingent liabilities in respect of certain
litigation and guarantees, broadcasting issues, and in respect of
warranties given in connection with certain disposals of
businesses. None of these items are expected to have a material
effect on the Group's results or financial position.
5.3 Keeping it Where the Group receives information in the
Subsequent simple period between 31 December 2020 and the date
events of this report about conditions related to
certain events that existed at 31 December
2020, we update our disclosures that relate
to those conditions in light of the new information.
Such events can be categorised as adjusting
or non-adjusting depending on whether the condition
existed at 31 December 2020. If non-adjusting
events are material, non-disclosure could influence
the economic decisions that users make on the
basis of the financial information. Accordingly,
for each material category of non-adjusting
event after the reporting period we disclose
in this section the nature of the event and
an estimate of its financial effect, or a statement
that such an estimate cannot be made.
Announcement of change in UK corporation tax rate
On 3 March 2021, the UK Government announced a change in the UK
corporation tax rate from 19% to 25% with effect from 1 April 2023.
The rate change has not yet been enacted into law and therefore is
not reflected in the deferred tax assets or liabilities as at 31
December 2020. The impact on deferred tax assets and liabilities is
not expected to be material.
5.4 Keeping Certain subsidiaries of the Group can take
Subsidiaries it simple an exemption from having an audit. Strict criteria
exempt must be met for this exemption to be taken,
from audit and it must be agreed by the Directors of that
subsidiary entity.
Listed below are subsidiaries controlled and consolidated by the
Group, where the Directors have taken the exemption from having an
audit of its financial statements. This exemption is taken in
accordance with the Companies Act 2006 s479A.
Company number Company name Company number Company name
12 Yard Productions ITV Studios NEWCO 2
04195187 (Investments) Limited 13087685 Limited
------------------------------- --------------- ---------------------------
12 Yard Productions ITV Studios NEWCO 3
04145307 Limited 13087699 Limited
------------------------------- --------------- ---------------------------
ITV Studios NEWCO 4
10058419 Back Productions Limited 13087693 Limited
------------------------------- --------------- ---------------------------
ITV Studios NEWCO 5
10404493 Big Talk Bliss Limited 13087733 Limited
------------------------------- --------------- ---------------------------
ITV Studios NEWCO 6
10496857 Big Talk Cold Feet Limited 13087735 Limited
------------------------------- --------------- ---------------------------
ITV Studios NEWCO 7
10528766 Big Talk Diana Limited 13087759 Limited
------------------------------- --------------- ---------------------------
ITV Studios NEWCO 8
12092620 Big Talk Friday Limited 13087782 Limited
------------------------------- --------------- ---------------------------
Big Talk Goes Wrong ITV Studios NEWCO 9
11109596 Limited 13087812 Limited
------------------------------- --------------- ---------------------------
11081338 Big Talk Guilty Limited 08516153 ITV Text Santa Limited
------------------------------- --------------- ---------------------------
Big Talk Living the
10528952 Dream Limited 11107934 ITV The Bay Limited
------------------------------- --------------- ---------------------------
11109753 Big Talk Mum Limited 10602705 ITV The Man Limited
------------------------------- --------------- ---------------------------
11723899 Big Talk Offenders Limited 08586211 ITV Thunderbirds Limited
------------------------------- --------------- ---------------------------
11109572 Big Talk Peacock Limited 12368504 ITV TLC Limited
------------------------------- --------------- ---------------------------
11109865 Big Talk Time Limited 09498177 ITV Top Class Limited
------------------------------- --------------- ---------------------------
01891539 Broad Street Films Limited 13087805 ITV TWI Limited
------------------------------- --------------- ---------------------------
02285229 Campania Limited 11107431 ITV Vera Limited
------------------------------- --------------- ---------------------------
05078683 Carbon Media Limited 05518785 Juice Music UK Limited
------------------------------- --------------- ---------------------------
Carlton Content Holdings
04159249 Limited 00920028 Link Electronics Limited
------------------------------- --------------- ---------------------------
Carlton Film Distributors Mammoth Screen (ABC)
00301188 Limited 11108285 Limited
------------------------------- --------------- ---------------------------
Mammoth Screen (BHR)
01692483 Carlton Finance Limited 12368661 Limited
------------------------------- --------------- ---------------------------
Carlton Food Network Mammoth Screen (End5)
03984490 Limited 10528827 Limited
------------------------------- --------------- ---------------------------
Carlton Programmes Development Mammoth Screen (End6)
03053908 Limited 11109917 Limited
------------------------------- --------------- ---------------------------
Carlton Screen Advertising Mammoth Screen (7)
03210452 (Holdings) Limited 11908267 Limited
------------------------------- --------------- ---------------------------
Mammoth Screen (End8)
03307790 Carltonco 103 Limited 12368766 Limited
------------------------------- --------------- ---------------------------
Carltonco Forty Investments Mammoth Screen (Invisible)
02625225 Limited 11995990 Limited
------------------------------- --------------- ---------------------------
Carltonco Ninety-Six Mammoth Screen (MD2)
03210363 Limited 12735978 Limited
------------------------------- --------------- ---------------------------
Castlefield Properties Mammoth Screen (NC)
02280048 Limited 11062257 Limited
------------------------------- --------------- ---------------------------
Channel TV Holdings Mammoth Screen (PH)
04257248 Limited 11908285 Limited
------------------------------- --------------- ---------------------------
Cosgrove Hall Films Mammoth Screen (Pol2)
02852812 Limited 09660486 Limited
------------------------------- --------------- ---------------------------
Mammoth Screen (Pol3)
03209058 DTV Limited 10031005 Limited
------------------------------- --------------- ---------------------------
Mammoth Screen (Pol4)
00290076 Granada Group Limited 10528763 Limited
------------------------------- --------------- ---------------------------
Mammoth Screen (Pol5)
03962410 Granada Limited 11108289 Limited
------------------------------- --------------- ---------------------------
Mammoth Screen (QV)
03106798 Granada Media Limited 09646520 Limited
------------------------------- --------------- ---------------------------
Granada Screen (2005) Mammoth Screen (Serpent)
05344772 Limited 11108327 Limited
------------------------------- --------------- ---------------------------
Granada Television Overseas Mammoth Screen (SG)
00733063 Limited 11204836 Limited
------------------------------- --------------- ---------------------------
ITC Entertainment Group Mammoth Screen (VF)
00608490 Limited 10528702 Limited
------------------------------- --------------- ---------------------------
Mammoth Screen (Vic3)
06914987 ITV (HC) Limited 11108322 Limited
------------------------------- --------------- ---------------------------
Mammoth Screen (WOF)
11516620 ITV 112 Limited 11108320 Limited
------------------------------- --------------- ---------------------------
Mammoth Screen (WOTW)
11423730 ITV Bancroft 2 Limited 10973979 Limited
------------------------------- --------------- ---------------------------
11667230 ITV Barking Limited 04201477 Morning TV Limited
------------------------------- --------------- ---------------------------
11107990 ITV Confession Limited 12368748 MT Ghosts 3 Limited
------------------------------- --------------- ---------------------------
MT MURDER IN PROVENCE
10494684 ITV Enterprises Limited 13087117 Limited
------------------------------- --------------- ---------------------------
The Garden Productions
11723800 ITV F&B Limited 10789616 (Film) Limited
------------------------------- --------------- ---------------------------
10671435 ITV HG Limited 06469484 VOD Member (ITVA) Limited
------------------------------- --------------- ---------------------------
04159210 ITV Holdings Limited 06469482 VOD Member (ITVB) Limited
------------------------------- --------------- ---------------------------
04206925 ITV Investment Limited 11109744 WP (Anne) Limited
------------------------------- --------------- ---------------------------
04033106 ITV Mr Selfridge Limited 10796122 WP (Bodyguard) Limited
------------------------------- --------------- ---------------------------
11723842 ITV Nightingale Limited 12368477 WP (NEWCO 7) Limited
------------------------------- --------------- ---------------------------
00603471 ITV Pension Scheme Limited 12368643 WP Diplomat Limited
------------------------------- --------------- ---------------------------
03799828 ITV Play Limited 11109437 WP Faslane Limited
------------------------------- --------------- ---------------------------
ITV Properties (Developments)
01565625 Limited 12116627 WP Karen Pirie Limited
------------------------------- --------------- ---------------------------
08554937 ITV Shetland Limited 11109287 WP LOD5 Limited
------------------------------- --------------- ---------------------------
11723826 ITV Spy Limited 12116457 WP LOD6 Limited
------------------------------- --------------- ---------------------------
ITV Studios NEWCO 1
13087656 Limited 12116461 WP Pembrokeshire Limited
------------------------------- --------------- ---------------------------
ITV Studios NEWCO 10
13087860 Limited 11109929 WP Save Me 2 Limited
------------------------------- --------------- ---------------------------
ITV Studios NEWCO 11
13087865 Limited 12368475 WP Showtrial Limited
=============== =============================== =============== ===========================
-- ITV Properties (Jersey) Limited is exempt from audit under
article 113 of the Companies Act (Jersey) Law 1991
ITV plc Company Financial Information
Company Balance Sheet
As at 31 December Note 2020 2020 2019 2019
GBPm GBPm GBPm GBPm
-------- --------
Non-current assets
------ -------- -------- -------- --------
Investments in subsidiary undertakings iii 2,733 2,733
------ -------- -------- -------- --------
Derivative financial instruments vi 3 4
------------------------------------------ ------ -------- -------- -------- --------
Deferred tax asset 1 1
-------------------------------------------------- -------- -------- -------- --------
2,737 2,738
------------------------------------------------- -------- -------- -------- --------
Current assets
------------------------------------------ ------ -------- -------- -------- --------
Amounts owed by subsidiary undertakings
due within one year iv 3,782 4,236
------------------------------------------ ------ -------- -------- -------- --------
Amounts owed by subsidiary undertakings
due after more than one year iv 509 305
------------------------------------------ ------ -------- -------- -------- --------
Amounts owed by subsidiary undertakings iv 4,291 4,541
------------------------------------------ ------ -------- -------- -------- --------
Derivative financial instruments vi 9 9
------ -------- -------- -------- --------
Other receivables 4 5
-------------------------------------------------- -------- -------- -------- --------
Cash and cash equivalents 449 108
-------------------------------------------------- -------- -------- -------- --------
4,753 4,663
------------------------------------------------- -------- -------- -------- --------
Current liabilities
------ -------- -------- -------- --------
Amounts owed to subsidiary undertakings iv (4,197) (4,070)
------ -------- -------- -------- --------
Accruals and deferred income (7) (16)
-------------------------------------------------- -------- -------- -------- --------
Derivative financial instruments vi (11) (9)
------------------------------------------ ------ -------- -------- -------- --------
(4,215) (4,095)
------------------------------------------------- -------- -------- -------- --------
Net current assets 538 568
-------------------------------------------------- -------- -------- -------- --------
Total assets less current liabilities 3,275 3,306
-------- -------- -------- --------
Non-current liabilities
------ -------- -------- -------- --------
Borrowings v (1,067) (1,010)
------------------------------------------ ------ -------- -------- -------- --------
Derivative financial instruments vi (25) (42)
(1,092) (1,052)
------------------------------------------------- -------- -------- -------- --------
Net assets 2,183 2,254
================================================== ======== ======== ======== ========
Capital and reserves
------ -------- -------- -------- --------
Share capital vii 403 403
------ -------- -------- -------- --------
Share premium viii 174 174
------ -------- -------- -------- --------
Other reserves viii 10 22
------------------------------------------ ------ -------- -------- -------- --------
Retained earnings viii 1,596 1,655
------------------------------------------ ------ -------- -------- -------- --------
Total equity 2,183 2,254
================================================== ======== ======== ======== ========
The accounts were approved by the Board of Directors on 9 March
2021 and were signed on its behalf by:
Chris Kennedy
Director
Company Statement of Changes in Equity
Note Share Share Other Retained Total
capital premium reserves earnings GBPm
GBPm GBPm GBPm GBPm
Balance at 1 January 2020 403 174 22 1,655 2,254
--------- --------- ---------- ---------- ------
Total comprehensive income
for the year
------------------------------------ ---------- --------- --------- ---------- ---------- ------
Loss - - - (65) (65)
------------------------------------------------ --------- --------- ---------- ---------- ------
Net loss on cash flow hedges
and cost of hedging - - (12) - (12)
------------------------------------------------ --------- --------- ---------- ---------- ------
Total comprehensive income
for the year - - (12) (65) (77)
------------------------------------------------ --------- --------- ---------- ---------- ------
Transactions with owners
recorded directly in equity
---------- --------- --------- ---------- ---------- ------
Contributions by and distributions
to owners
---------- --------- --------- ---------- ---------- ------
Equity dividends - - - - -
------------------------------------ ---------- --------- --------- ---------- ---------- ------
Movements due to share-based
compensation - - - 6 6
------------------------------------------------ --------- --------- ---------- ---------- ------
Tax on items taken directly - - - - -
to equity
------------------------------------ ---------- --------- --------- ---------- ---------- ------
Total transactions with owners - - - 6 6
------------------------------------------------ --------- --------- ---------- ---------- ------
Balance at 31 December 2020 vii/viii 403 174 10 1,596 2,183
==================================== ========== ========= ========= ========== ========== ======
Note Share Share Other Retained Total
capital premium reserves earnings GBPm
GBPm GBPm GBPm GBPm
Balance at 1 January 2019 403 174 37 1,612 2,226
--------- --------- ---------- ---------- ------
Total comprehensive income
for the year
------------------------------------ ---------- --------- --------- ---------- ---------- ------
Profit - - - 353 353
------------------------------------------------ --------- --------- ---------- ---------- ------
Net loss on cash flow hedges
and cost of hedging - - (15) - (15)
------------------------------------------------ --------- --------- ---------- ---------- ------
Total comprehensive income
for the year - - (15) 353 338
------------------------------------------------ --------- --------- ---------- ---------- ------
Transactions with owners
recorded directly in equity
---------- --------- --------- ---------- ---------- ------
Contributions by and distributions
to owners
---------- --------- --------- ---------- ---------- ------
Equity dividends - - - (320) (320)
------------------------------------------------ --------- --------- ---------- ---------- ------
Movements due to share-based
compensation - - - 10 10
------------------------------------------------ --------- --------- ---------- ---------- ------
Tax on items taken directly - - - - -
to equity
------------------------------------ ---------- --------- --------- ---------- ---------- ------
Total transactions with owners - - - (310) (310)
------------------------------------------------ --------- --------- ---------- ---------- ------
Balance at 31 December 2019 vii/viii 403 174 22 1,655 2,254
==================================== ========== ========= ========= ========== ========== ======
Notes to the ITV plc Company Financial Information
Note i In this This section sets out the notes to the ITV
Accounting section plc Company only financial information. This
policies information forms the basis of the dividend
decisions made by the Directors, as explained
in detail in note viii below. The notes form
part of the financial information.
Basis of preparation
The Company is a qualifying entity as it is a member of the ITV
plc Group where ITV plc, the ultimate parent prepares publicly
available consolidated financial statements. This financial
information was prepared in accordance with Financial Reporting
Standard 101 'Reduced Disclosure Framework' ('FRS 101').
In preparing this financial information, the Company applies the
recognition, measurement and disclosure requirements of
international accounting standards in conformity with the
requirements of the Companies Act 2006 ('Adopted IFRSs'), but makes
amendments where necessary in order to comply with Companies Act
2006 and has set out below where advantage of the FRS 101
disclosure exemptions has been taken.
Exemptions applied
-- Presentation of a Statement of Cash Flows and related notes
-- Disclosure in respect of capital management
-- Disclosure of related party transactions between wholly-owned
subsidiaries and parents within a group
-- Disclosures required under IFRS 2 'Share Based Payments' in
respect of group settled share based payments
-- Disclosures required by IFRS 7 'Financial Instrument: Disclosure'
-- Certain disclosures required under IFRS 13 'Fair Value Measurement'
-- Disclosure of information in relation to new standards not yet applied
As permitted by section 408 (3) of the Companies Act 2006, a
separate income statement dealing with the results of the parent
company has not been presented.
The Company proposes to continue to apply the reduced disclosure
framework of FRS 101 in its next financial statements.
Change in accounting policy
There are no new accounting standards, interpretations and
amendments effective from 1 January 2020.
Accounting judgements and estimates
The preparation of financial information requires management to
exercise judgement in applying the Company'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.
The area involving material judgement is the recoverability of
investments in subsidiary undertaking. Further details are provided
in note iii.
Subsidiaries
Subsidiaries are entities that are directly or indirectly
controlled by the Company. Control exists where the Company has the
power to govern the financial and operating policies of the entity
so as to obtain benefits from its activities. The investment in the
Company's subsidiaries is recorded at cost.
Foreign currency transactions
Transactions in foreign currencies are translated into sterling
at the rate of exchange ruling at the date of the transaction.
Foreign currency monetary assets and liabilities at the balance
sheet date are translated into sterling at the rate of exchange
ruling at that date. Foreign exchange differences arising on
translation are recognised in the profit and loss account.
Non-monetary assets and liabilities measured at historical cost are
translated into sterling at the rate of exchange on the date of the
transaction.
Borrowings
Borrowings are recognised initially at fair value including
directly attributable transaction costs, with subsequent
measurement at amortised cost using the effective interest rate
method. The difference between initial fair value and the
redemption value is recorded in the profit and loss account over
the period of the liability on an effective interest basis.
Derivatives and other financial instruments
The Company uses a limited number of derivative financial
instruments to hedge its exposure to fluctuations in interest and
other foreign exchange rates. The Company does not hold or issue
derivative instruments for speculative purposes.
Derivative financial instruments are initially recognised at
fair value and are subsequently remeasured at fair value with the
movement recorded in the profit and loss account within net
financing costs, except where derivatives qualify for cash flow
hedge accounting. In this case, the effective portion of cash flow
hedge is recognised in retained profits within equity. The
cumulative gain or loss is later reclassified to the profit and
loss account in the same period as the relevant hedged transaction
is realised. Derivatives with positive fair values are recorded as
assets and negative fair values as liabilities.
The fair value of foreign currency forward contracts is
determined by using the difference between the contract exchange
rate and the quoted forward exchange rate at the balance sheet
date.
The fair value of interest rate swaps is the estimated amount
that the Company would receive or pay to terminate the swap at the
balance sheet date, taking into account current interest rates and
the current creditworthiness of swap counterparties.
Third-party valuations are used to fair value the Company's
derivatives. The valuation techniques use inputs such as interest
rate yield curves and currency prices/yields, volatilities of
underlying instruments and correlations between inputs. For
financial assets and liabilities classified at fair value through
profit or loss, the fair value change and interest income/expense
are not separated.
Current tax
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year and any adjustment in respect
of previous years.
The Company recognises liabilities for anticipated tax issues
based on estimates of the additional taxes that are likely to
become due, which require judgement. Amounts are accrued based on
management's interpretation of specific tax law and the likelihood
of settlement. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such
differences will impact the current tax and deferred tax provisions
in the period in which such determination is made.
Deferred tax
The tax charge for the period is recognised in the income
statement or directly in equity according to the accounting
treatment of the related transaction.
Deferred tax arises due to certain temporary differences between
the carrying amount of assets and liabilities for financial
reporting purposes and those for taxation purposes. The amount of
deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and
liabilities. A deferred tax asset is recognised only to the extent
that it is probable that sufficient taxable profit will be
available to utilise the temporary difference. Recognition of
deferred tax assets therefore involves judgement regarding timing
and level of future taxable income.
Share-based compensation
The Company utilises share award schemes as part of its employee
remuneration packages, and therefore operates a number of
share-based compensation schemes, namely the Deferred Share Award
(DSA), Performance Share Plan (PSP), Long Term Incentive Plan
(LTIP) and Save As You Earn (SAYE) schemes.
A transaction will be classed as share-based compensation where
the Company receives services from employees and pays for these in
shares or similar equity instruments. If the Company incurs a
liability based on the price or value of the shares, this will also
fall under a share-based transaction. The Company recognises the
retained earnings impact of the share-based compensation for the
Group as awards are settled in ITV plc shares. The cost of
providing those awards is recognised as a cost of investment to the
subsidiaries that receive the service from employees.
The fair value of the equity instrument granted is measured at
grant date and spread over the vesting period via a charge to the
income statement with a corresponding increase in equity. The fair
value of the share options and awards is measured using either
market price at grant date or, for the SAYE scheme, a Black-Scholes
model, taking into account the terms and conditions of the
individual scheme.
Vesting conditions are limited to service conditions and
performance conditions. For performance-based schemes, the relevant
performance measures are projected to the end of the performance
period in order to determine the number of options expected to
vest. The estimate is then used to determine the option fair value,
discounted to present value. The Company revises its estimates of
the number of options that are expected to vest, including an
estimate of forfeitures at each reporting date. The impact of the
revision to original estimates, if any, is recognised in the income
statement, with a corresponding adjustment to equity.
Exercises of share options granted to employees can be satisfied
by market purchase or issue of new shares. No new shares may be
issued to satisfy exercises under the terms of the DSA. During the
year, all exercises were satisfied by using shares purchased in the
market and held in the ITV Employees' Benefit Trust. The Trust is
accounted for as a separate entity and therefore is only accounted
for in the consolidated financial information.
Dividends to shareholders
Dividends payable to shareholders are recognised through equity
on the earlier of their approval by the Company's shareholders or
their payment. Dividends are distributed based on the realised
distributable reserves (within retained earnings) of ITV plc
(Company) and not based on the Group's retained earnings.
Note ii Two (2019: two) Directors of ITV plc (i.e. the Executive
Employees Directors) were employees of the Company during the year,
and share-based both of whom remain employed at the year end. The costs
payments relating to these Directors are disclosed in the Remuneration
Report.
Share-based payments
The weighted average share price of share options exercised
during the year was 87.47 pence (2019: 129.82 pence) (excluding
nil priced share options). The options outstanding at the
year end have an exercise price in the range of [nil] to
206.83 pence (2019: nil to 206.83 pence) and a weighted
average contractual life of two years (2019: one year) for
all the schemes in place for the Group.
Note iii The principal subsidiary undertakings are listed in the
Investments Annual Report. The carrying value at 31 December 2020 was
in subsidiary GBP2,733 million (2019: GBP2,733 million).
undertakings The carrying value of the Company's investments in subsidiary
undertakings is assessed for impairment on an annual basis.
Determining whether the carrying amount has any indication
of impairment requires judgement. In testing for impairment,
estimates are used in deriving cash flows and the discount
rates. The estimation process is complex due to the inherent
risks and uncertainties associated with long-term forecasting.
The outcome of the value in use calculation supports the
carrying value of the investment in subsidiary undertakings
with headroom of GBP5,009 million.
Due to the significant headroom, there is no reasonably
possible scenario that would result in a material adjustment
to the amounts reported in the financial information.
The Company's review resulted in no impairment for 2020
(2019: no impairment).
Note iv The Company operates an intra-group cash pool policy with
Amounts certain 100% owned UK subsidiaries. The pool applies to
owed (to)/from bank accounts where there is an unconditional right of set
subsidiary off and involves the daily closing cash position for participating
undertakings subsidiaries whether positive or negative, being cleared
to GBPnil via daily bank transfers to/from ITV plc. These
daily transactions create a corresponding intercompany creditor
or debtor, which can result in significant movements in
amounts owed to and from subsidiary undertakings in the
Company balance sheet. The classification of balances as
due after more than one year is based on the intention of
when the balances are expected to be settled rather than
the contractual terms. The expected loss model was applied
to amounts owed from subsidiary undertakings and the impact
was not material.
Note v Keeping The Directors manage the Group's capital structure
Net debt it simple as disclosed in section 4 to the consolidated
financial information. Borrowings, cash and
derivative financial instruments are mainly
held by ITV plc and disclosed in this Company
financial information.
Cash and cash equivalents
Included within cash equivalents is GBP50 million (2019: GBP50
million), the use of which is restricted to meeting the commitments
under the asset-backed pension agreements, and GBPnil (2019: GBP22
million) restricted money market funds. See note 3.7 for further
details on the asset-backed pension arrangements.
Loans and facilities due within one year
At various periods during the year, the Group drew down on the
GBP630 million Revolving Credit Facility ('RCF') to meet short-term
funding requirements. At 31 December 2020, the Group had drawings
of GBPnil million under the RCF (2019: GBPnil), leaving GBP630
million available to draw down at year end. The maximum draw down
of the RCF during the year was GBP210 million (2019: GBP400
million).
Loans and loan notes due after one year
The Company has issued the following Eurobonds:
-- EUR335 million at a fixed coupon of 2.125%, which matures in September 2022
-- EUR259 million at a fixed coupon of 2.0%, which will mature in December 2023
-- EUR600 million at a fixed coupon of 1.375%, which matures in September 2026
The EUR600 million bond issued in September 2019 has been
swapped back to sterling using a number of cross-currency interest
rate swaps. The resulting fixed rate payable in sterling is c.
2.9%.
See section 4.1 of the Group Notes for further details of
borrowings and available facilities.
Note vi What is the value of our derivative financial instruments? Assets Liabilities
Managing 2020 2020
market GBPm GBPm
risks: ------- ------------
derivative Current
financial ------- ------------
instruments Foreign exchange forward contracts and swaps
- cash flow hedges 6 (5)
------- ------------
Foreign exchange forward contracts and swaps
- fair value through profit or loss 3 (6)
------- ------------
Non-current
---------------------------------------------- ------- ------------
Cross-currency interest swaps - cash flow
hedges - (22)
---------------------------------------------- ------- ------------
Foreign exchange forward contracts and swaps
- fair value through profit or loss 3 (3)
---------------------------------------------- ------- ------------
Foreign exchange forward contracts and swaps - -
- cash flow hedges
------- ------------
12 (36)
------- ------------
Assets Liabilities
2019 2019
GBPm GBPm
Current
------- ------------
Foreign exchange forward contracts and swaps
- cash flow hedges 6 (6)
------- ------------
Foreign exchange forward contracts and swaps
- fair value through profit or loss 3 (3)
------- ------------
Non-current
---------------------------------------------- ------- ------------
Cross-currency interest swaps - cash flow
hedges - (38)
---------------------------------------------- ------- ------------
Foreign exchange forward contracts and swaps - -
- fair value through profit or loss
---------------------------------------------- ------- ------------
Foreign exchange forward contracts and swaps
- cash flow hedges 4 (4)
---------------------------------------------- ------- ------------
13 (51)
============================================== ======= ============
The Company mainly employs three types of derivative financial
instruments when managing its currency and interest rate risk:
-- Foreign exchange swap contracts are derivative instruments
used to hedge income statement translation risk arising from
short-term intercompany loans denominated in a foreign currency
-- Forward foreign exchange contracts are derivative instruments
used to hedge transaction risk so they enable the sale or purchase
of foreign currency at a known fixed rate on an agreed future date
and
-- Cross-currency interest rate swaps are derivative instruments
used to exchange the principal and interest coupons in a debt
instrument from one currency to another
Currency risk
The Company's foreign exchange policy is to use forward foreign
exchange contracts to hedge material non-functional currency
denominated costs or revenue for up to five years forward. The
Company also utilises foreign exchange swaps and cross-currency
interest rate swaps both to manage foreign currency cash flow
timing differences and to hedge foreign currency denominated
monetary items.
Cash flow hedges
The Company applies hedge accounting for certain foreign
currency firm commitments and highly probably cash flows where the
underlying cash flows are payable within the next seven years. In
order to fix the sterling cash outflows associated with the
commitments and interest payments - which are mainly denominated in
AUD or euros - the Company has taken out forward foreign exchange
contracts and cross-currency interest rate swaps for the same
foreign currency amount and maturity date as the expected foreign
currency outflow.
The amount recognised in other comprehensive income during the
period all relates to the effective portion of the revaluation loss
associated with these contracts. There was less than GBP1 million
(2019: less than GBP1 million) ineffectiveness taken to the income
statement and GBP4 million cumulative gain (2019: GBP19 million
loss) recycled to the income statement in the year.
On issuing the 2026 Eurobond in September 2019, the Group
subsequently entered into a new portfolio of cross-currency
interest rate swaps, which swapped the euro principal and fixed
euro interest rate coupons into fixed sterling interest rate. As a
result, the Group makes sterling interest payments at a fixed
rate.
Under IFRS 9, the Group has adopted the 'cost of hedging'
approach which allows the recognition of the value of the currency
basis at inception of the hedge to be recorded on the Consolidated
Statement of Financial Position and amortised through net financing
costs in the Consolidated Income Statement over the life of the
bond. Any mark-to-market change in fair value of the currency basis
is recognised in 'cost of hedging' in the Consolidated Statement of
Comprehensive Income.
Undiscounted financial liabilities
The Company is required to disclose the expected timings of cash
outflows for each of its derivative financial liabilities. The
amounts disclosed in the table are the contractual undiscounted
cash flows (including interest), so will not always reconcile with
the amounts disclosed on the statement of financial position.
At 31 December 2020 Carrying Total Less Between Between Over
value contractual than 1 and 2 and 5 years
GBPm cash 1 year 2 years 5 years GBPm
flows GBPm GBPm GBPm
GBPm
--------- -------------
Non-current and current
--------- ------------- --------- --------- --------- ---------
Foreign exchange forward contracts
and swaps - cash flow hedges
--------- ------------- --------- --------- --------- ---------
Inflow 9 341 227 100 14 -
--------- ------------- --------- --------- --------- ---------
Outflow (8) (341) (227) (100) (14) -
--------- ------------- --------- --------- --------- ---------
Cross-currency swaps - cash
flow hedges
--------- ------------- --------- --------- --------- ---------
Inflow - 580 7 7 22 544
--------- ------------- --------- --------- --------- ---------
Outflow (22) (627) (16) (16) (47) (548)
--------- ------------- --------- --------- --------- ---------
Foreign exchange forward contracts
and swaps - fair value through
profit or loss
--------- ------------- --------- --------- --------- ---------
Inflow 3 465 458 7 - -
--------- ------------- --------- --------- --------- ---------
Outflow (6) (468) (461) (7) - -
--------- ------------- --------- --------- --------- ---------
(24) (50) (12) (9) (25) (4)
==================================== ========= ============= ========= ========= ========= =========
At 31 December 2019 Carrying Total Less Between Between Over
value contractual than 1 and 2 and 5 years
GBPm cash 1 year 2 years 5 years GBPm
flows GBPm GBPm GBPm
GBPm
--------- -------------
Non-current and current
--------- ------------- --------- --------- --------- ---------
Foreign exchange forward contracts
and swaps - cash flow hedges
--------- ------------- --------- --------- --------- ---------
Inflow 10 375 229 91 55 -
--------- ------------- --------- --------- --------- ---------
Outflow (10) (375) (229) (91) (55) -
--------- ------------- --------- --------- --------- ---------
Cross-currency swaps - cash
flow hedges
--------- ------------- --------- --------- --------- ---------
Inflow - 557 7 7 21 522
--------- ------------- --------- --------- --------- ---------
Outflow (38) (642) (16) (16) (47) (563)
--------- ------------- --------- --------- --------- ---------
Foreign exchange forward contracts
and swaps - fair value through
profit or loss
--------- ------------- --------- --------- --------- ---------
Inflow 3 451 338 113 - -
--------- ------------- --------- --------- --------- ---------
Outflow (3) (451) (338) (113) - -
--------- ------------- --------- --------- --------- ---------
(38) (85) (9) (9) (26) (41)
==================================== ========= ============= ========= ========= ========= =========
Note vii Allotted,
Share capital issued
and
fully
paid
2020
& 2019
GBPm
------------------------------------------ -------------- ----------
Allotted, issued and fully paid ordinary
shares of 10 pence each 4,025,409,194 403
----------------------------------------------------------- -------------- ----------
Total
=========================================================== ============== ==========
The Company's ordinary shares give shareholders equal rights to
vote, receive dividends and to the repayment of capital.
Note viii Keeping ITV plc is a non-trading investment holding
Equity and it simple company and derives its profits from dividends
dividends paid by subsidiary companies.
The Directors consider the Company's capital
structure and dividend policy at least twice
a year ahead of announcing results and do
so in the context of its ability to continue
as a going concern, to execute the strategy
and to invest in opportunities to grow the
business and enhance shareholder value.
The dividend policy is influenced by a number
of the principal risks as identified in the
Risks and Uncertainties section that could
have a negative impact on the performance
of the Company.
In determining the level of dividend in any
year, the Directors follow the dividend policy
and also consider a number of other factors
that influence the proposed dividend and dividend
policy, including:
* The level of retained distributable reserves in ITV
plc the Company
* Availability of cash resources (as disclosed in note
4.1 to the consolidated financial information) and
* Future cash commitments and investment plans, to
deliver the Company's long term strategic plan
* Consideration of the factors underlying the
Directors' viability assessment and
* The future availability of funds required to meet
longer-term obligations including pension
commitments.
Equity
The retained earnings reserve includes loss after tax for the
year of GBP65 million (2019: profit after tax GBP353 million),
which includes dividends of GBPnil from subsidiaries in 2020 (2019:
GBP400 million). Other reserves of GBP10 million (2019: GBP22
million) relate to share buybacks in prior periods and foreign
currency translation net of cash flow hedging.
Dividends
The Directors recognises the importance of the dividend to our
shareholders and intends to restore dividend payments as soon as
circumstances permit. The Board will balance shareholder returns
with our commitment to maintain investment grade metrics over the
medium term, to continue to invest behind the strategy and with the
ongoing uncertainty with COVID-19. In 2020, no dividend payments
were made (2019: GBP320 million).
Distributable reserves
The distributable reserves of ITV plc approximate to the balance
of the retained earnings reserve of GBP1,596million (2019: GBP1,655
million) as at 31 December 2020.
Note ix Keeping A contingent liability is a liability that
Contingent it simple is not sufficiently certain to qualify for
liabilities recognition as a provision where uncertainty
may exist regarding the outcome of future
events.
Under a Group registration, the Company is jointly and severally
liable for VAT at 31 December 2020 of GBP53 million (31 December
2019: GBP40 million). The Company has guaranteed certain lease
obligations of subsidiary undertakings.
Note x There are contingent liabilities in respect of certain litigation
Capital and guarantees, broadcasting issues, and in respect of warranties
and other given in connection with certain disposals of businesses.
commitments None of these items are expected to have a material effect
on the Company's results or financial position.
Where the Company enters into financial guarantee contracts
to guarantee the indebtedness of other companies within
its Group, the Company considers these to be insurance arrangements,
and accounts for them as such. In this respect, the Company
treats the guarantee contract as a contingent liability
until such time as it becomes probable that the Company
will be required to make a payment under the guarantee.
In 2020, the Company entered into a stand-by letter of credit
for GBP101 million in respect of one of the ITV Group asset-backed
pension agreements.
There are no capital commitments at 31 December 2020 (2019:
none).
Note xi Keeping The related parties identified by the Directors
Related it simple include amounts owed to and from subsidiary
party transactions undertakings that are not wholly owned within
the Group as well as transactions with key
management. The company is a hoding company
with no commercial activity.
To enable the users of the financial information
to form a view about the effects of related
party relationships on the Company, we disclose
the Company's transactions with those during
the year.
Transactions with subsidiary undertakings that are not wholly
owned
The amounts owed by and to these related parties at the year end
were:
2020 2019
GBPm GBPm
Amounts owed by subsidiary undertakings that are not
wholly owned 81 16
====================================================== ====== ======
Amounts owed to subsidiary undertakings that are not
wholly owned 9 26
====================================================== ====== ======
Amounts owed by subsidiary undertakings that are not wholly
owned relate mainly to funding to Britbox SVOD Limited and
intra-group cash pooling balances with World Productions Limited.
Amounts owed to subsidiary undertaking relate mainly to funding due
to Tomorrow ITV Studios and intra-group cash pooling balances with
3sixtymedia Limited.
Transactions with key management personnel
Key management consists of ITV plc Executive Directors.
Key management personnel compensation, on an accounting basis,
is as follows:
2020 2019
GBPm GBPm
Short-term employee benefits 2 3
------------------------------ ------ ------
Share-based compensation - 2
------------------------------ ------ ------
2 5
============================== ====== ======
Total emoluments and gains on share options received by key
management personnel in the year were:
2020 2019
GBPm GBPm
Emoluments 3 4
------ ------
Gains on exercise of share options - 1
--------------------------------------------- ------ ------
Gains on release of restricted share awards - 1
--------------------------------------------- ------ ------
3 6
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FR JPMTTMTJMTPB
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March 09, 2021 02:00 ET (07:00 GMT)
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