ITV Plc Full Year results for the twelve months ending 31
December 2023
Strong strategic execution driving
robust financial and operating performance, despite challenging
macroeconomic environment
● Significant progress against ITV's three
strategic pillars
● ITV Studios delivered record revenues and
profits
● ITVX delivered strong growth in digital
viewing and revenues
● 2026 KPI targets on track
Carolyn McCall, ITV Chief Executive, said:
"In 2023 we saw the benefit of the
actions we have taken to reposition ITV towards higher sustainable
growth. Our Studios business recorded the highest ever revenues and
profits and in its first year ITVX delivered strong growth in
viewing and digital revenue with investment on plan. This growth in
production and streaming substantially offset the challenging
linear TV advertising market conditions.
"We remain confident in delivering
our KPI targets, and are making good progress towards these - most
notably ITV Studios organic revenue growth of 5% on average per
annum between 2021 and 2026 at a margin of 13 to 15% and to deliver
at least £750 million of digital revenues by 2026.
"We remain firmly committed to
creating shareholder value and applying a disciplined approach to
capital allocation. As announced on 1 March 2024, we will return
the entire net proceeds of the sale of BritBox International
through a share buyback of £235 million and the Board has proposed
a final dividend of 3.3p giving an ordinary dividend of 5.0p per
share or c.£200 million, for the full year.
"Our existing cost saving
programme targeting £150 million between 2019 and 2026, has
delivered £130 million of annualised savings to date. We are on
track to deliver the full £150 million by 2025 - one year early. In
addition, we are now in the early stages of a new strategic
restructuring and efficiency programme across the Group to reshape
the cost base, enhance profitability, and support the growth
drivers of Studios and Streaming. By the end of 2024 we expect the
programme to have delivered incremental annualised gross savings of
at least £50 million per year, giving a £30 million in year gross
benefit in 2024. The ongoing programme is designed to deliver
further material incremental savings over a number of
years.
"2023 was the year of peak
investment for Streaming, which together with the successful
execution of our strategy and the efficiencies delivered to date
have made ITV more robust. ITV has a leading, scaled, global
Studios business, a high growth Streaming service and a cash
generative linear advertising business. This ensures that we
are well placed to grow profits from here as we continue to drive
material efficiencies, invest behind our strategic priorities and
deliver returns to shareholders."
Robust financial performance, with good growth in ITV Studios
and M&E digital revenues
● Total revenue was
down 2% and total external revenue was down 3% at £3,624 million,
with record revenues in ITV Studios, up 4%, and 19% growth in
digital revenues substantially offsetting a 15% decline in linear
advertising due to a challenging advertising market
● Group adjusted
EBITA[1] was down
32% at £489 million which reflects the decline in linear
advertising revenue and the previously guided investment in ITVX.
Adjusted EPS1 was down 41% at 7.8p
● EBITA[2] was
£404 million (31 December 2022: £668 million). Statutory profit
before tax was £193 million (31 December 2022: £501 million) and
statutory EPS was 5.2p (31 December 2022: 10.7p)
● Strong cash
generation with 102% profit to cash
conversion[3] and
robust balance sheet, with net debt of £553 million (31 December
2022: £623 million) and net debt to adjusted EBITDA leverage of
1.0x (31 December 2022: 0.8x)
● In line with ITV's
dividend policy, the Board has declared a final dividend of 3.3p
(2022: 3.3p), giving an ordinary dividend of 5.0p per share for the
full year 2023 (2022: 5.0p)
● On 1 March 2024 we
announced that ITV had sold its 50% holding of BritBox
International to the BBC for a total consideration of £255 million.
The Board intends to return the entire net proceeds to shareholders
through a £235 million share buyback, which is expected to commence
today.
Strong operating performance
ITV Studios - delivered record revenues and
profits
● Total revenue grew
4%, with growth remaining ahead of the market. Adjusted
EBITA1 grew 10% with an industry-leading adjusted EBITA
margin of 13.2%, restored to within our target range. Total organic
revenue grew 3%, again ahead of the market
● ITV Studios
delivered a good performance against its KPIs in 2023 with
outstanding creative deliveries including;
○ Mr Bates vs The
Post Office (ITV's biggest new drama in over a decade)
○ Fool Me Once (one
of Netflix's all time top 10 English language dramas)
○ Squid Game: The
Challenge (one of Netflix's most-watched unscripted originals in
2023)
○ Love Island (format
sold to 27 countries) and
○ My Mum, Your Dad
(new format already sold to 10 countries)
● Since 2018, ITV
Studios total revenue (excluding acquisitions) has grown by c.5%
CAGR, faster than the market CAGR of c.4%
CAGR[4]
Media & Entertainment (M&E) - ITVX driving
significant growth in digital viewing and
revenues
● Media &
Entertainment (M&E) revenue was down 7% at £2,090 million, with
total advertising revenue (TAR) down 8% as guided and outperforming
the TV ad market
● ITVX's strong
performance has continued. Monthly active users were up 19%, and
total streaming hours increased by 26%, which drove 19% growth in
digital revenues[5]
to £490 million
● Planet V is seeing
growing demand for data-driven, targeted advertising benefitting
from the increased scale of online inventory on ITVX driving
digital advertising revenue up 21%
● We have maintained
our unique position in linear television through the quality and
breadth of our schedule as we continue to deliver mass simultaneous
reach and innovative commercial and creative
partnerships
● M&E adjusted
EBITA[6] was £205
million, reflecting the decline in linear television advertising
and the planned investment in ITVX (2022: £464 million)
Restructuring and efficiency programme
Our existing cost saving programme
targeting £150 million between 2019 and 2026, has delivered £130
million of annualised savings to date. We are on track to deliver
the full £150 million by 2025 - one year early.
In addition, we are now in the
early stages of a new strategic restructuring and efficiency
programme across the Group to reshape the cost base, enhance
profitability, and support the growth drivers of Studios and
Streaming. We are building on the
foundations we have established in digital and data and the
significant progress we have made in transforming ITV from a linear
broadcaster to a multi-platform broadcaster and
streamer.
Savings will come mainly from
technology and operational efficiencies, organisational redesign
across Group functions, M&E and Studios and permanent
reductions in discretionary spend across the Group.
By the end of 2024 we expect the
programme to have delivered incremental annualised savings of at
least £50 million gross per year, giving a £30 million in year
gross benefit in 2024. There will be c.£50
million of one-off costs to deliver these savings. The ongoing
programme is designed to deliver further incremental material
savings over a number of years which will further build ITV's
resilience. We will provide further information as the
programme progresses.
Outlook
We have made great progress
towards our 2026 KPIs. 2023 was the year of peak
investment for Streaming, which together with the successful
execution of our strategy and the efficiencies delivered to date,
have made ITV more robust. ITV has a leading, scaled, global
Studios business, a high growth Streaming service and a cash
generative linear advertising business. This ensures that we
are well placed to grow profits from here as we continue to drive
material efficiencies, invest behind our strategic priorities and
deliver returns to shareholders.
ITV Studios:
● ITV Studios is on
track to deliver total organic revenue growth of 5% on average per
annum from 2021 to 2026 - ahead of the market, and at a margin of
13 to 15%
● Going forward we
expect to see growth in key segments in which we operate - content
licensing, demand from streaming platforms for unscripted content
and cost effective premium scripted content which we are well
positioned to take advantage of
● We are confident
that we will continue to grow our market share to 2026 driven by
our scale; our diversification by customer, geography and genre; a
strong track record of high-quality content; a very strong slate
for 2024 and beyond; and our leading creative talent
● As previously
guided, 2024 will be impacted by the 2023 US writers and actors
strikes, which will delay around £80 million of revenue from 2024
to 2025 as well as weaker demand from free-to-air broadcasters in
Europe who are holding back spend until they see more certainty in
the advertising market
Media & Entertainment:
● We remain on track
to deliver at least £750
million of digital revenues by 2026
● We have had a good
start to 2024 and will build on ITVX's successful launch year
through continuous improvements in content, product, distribution
and marketing
● ITVX's strong
performance in 2023 has shown us that we can grow viewing
significantly with slightly lower overall content spend. Therefore
we expect to marginally reduce our content cost in 2024 to around
£1,275 million as we further optimise linear, evolve our windowing
strategy and improve personalisation. At the same time we
will increase our marketing spend by £15 million to drive both
streaming and linear viewing
● Non-TAR M&E
revenues will come down year on year in 2024. This will reflect
lower partnership revenues following our decision to revise our
partnership agreements to improve the viewer proposition and our
monetisation. In addition subscription revenue will be broadly flat
as we simplify our paid streaming proposition and migrate
subscribers from BritBox UK onto ITVX Premium
● Compared to the
same period in 2023, TAR is expected to be up 3% in Q1, with
continued strong growth in digital advertising
revenues.
Virtual Results presentation webcast and
Q&A:
ITV's virtual results presentation
and Q&A session will be held for investors and analysts at
9.00am today via the following link: https://www.investis-live.com/itv/65ae9816bacfa60c00b892a8/wopwp.
You are now able to pre-register to join.
If you would like to ask a
question, you will be able to do so via the following Conference
Call details:
o United Kingdom (Toll-free): +44 800 358 1035
o United Kingdom (Local): +44 20 3936 2999
o All other locations please refer to: https://www.netroadshow.com/events/global-numbers?confId=60300
o Participant access code: 631126 - Participants will be
greeted by an operator who will register their details.
Notes to editors
1. Unless otherwise stated,
all financial figures refer to the twelve months ended 31 December
2023, with the change compared to the same period in
2022.
2. Group financial
performance
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 and defined in this report. Please refer to the APMs for a
reconciliation between adjusted and statutory results.
Twelve months to 31 December
|
2023
£m
|
2022
£m
|
Change
£m
|
Change
%
|
ITV Studios total revenue
|
2,170
|
2,096
|
74
|
4
|
Total advertising
revenue
|
1,778
|
1,931
|
(153)
|
(8)
|
M&E non-advertising
revenue
|
312
|
318
|
(6)
|
(2)
|
M&E total revenue
|
2,090
|
2,249
|
(159)
|
(7)
|
Total group revenue
|
4,260
|
4,345
|
(85)
|
(2)
|
Internal supply
|
(636)
|
(617)
|
(19)
|
3
|
Group external revenue
|
3,624
|
3,728
|
(104)
|
(3)
|
Total non-advertising revenue
|
2,482
|
2,414
|
68
|
3
|
ITV Studios adjusted
EBITA
|
286
|
259
|
27
|
10
|
M&E adjusted EBITA
|
205
|
464
|
(259)
|
(56)
|
Adjusted EBITA
|
491
|
723
|
(232)
|
(32)
|
Unrealised profit in stock
adjustment
|
(2)
|
(6)
|
4
|
(67)
|
Group adjusted EBITA
|
489
|
717
|
(228)
|
(32)
|
Group adjusted EBITA margin
|
13%
|
19%
|
-
|
(6%
points)
|
Statutory operating profit
|
238
|
519
|
(281)
|
(54)
|
Profit before tax (adjusted)
|
396
|
672
|
(276)
|
(41)
|
|
|
|
|
|
Adjusted EPS
|
7.8p
|
13.2p
|
(5.4p)
|
(41)
|
Statutory EPS
|
5.2p
|
10.7p
|
(5.5p)
|
(51)
|
Net debt as at 31 December
|
(553)
|
(623)
|
70
|
11
|
Reported net debt to adjusted EBITDA
leverage
|
1.0x
|
0.8x
|
|
|
Profit to cash conversion
|
102%
|
75%
|
|
|
3. Total advertising revenue (TAR), which
includes ITV Family NAR, digital advertising and sponsorship, is
expected to be up around 3% in Q1 with continued strong growth in
digital advertising revenues. Figures for ITV plc are based on ITV
estimates and current forecasts.
4. Key performance indicators
Twelve months to 31 December
|
2023
|
2022
|
Change
%
|
Group adjusted EPS
|
7.8p
|
13.2p
|
(41%)
|
Cost savings
|
£24m
|
£23m
|
4%
|
Profit to cash
conversion
|
102%
|
75%
|
27%
pts
|
ITV Studios total organic revenue
growth
|
3%
|
14%
|
(11%)
|
ITV Studios adjusted EBITA margin
%
|
13.2%
|
12.4%
|
0.8%
pts
|
Total high-end scripted
hours
|
316hrs
|
276hrs
|
14%
|
Number of formats sold in 3 or
more countries
|
19
|
19
|
-
|
% of ITV Studios total revenue
from streaming platforms
|
32%
|
22%
|
10%
pts
|
Total digital revenue
|
£490m
|
£411m
|
19%
|
Total streaming hours
|
1,505m
|
1,192m
|
26%
|
Monthly active users
|
12.5m
|
10.5m
|
19%
|
Share of top 1,000 commercial
broadcast TV programmes
|
91%
|
93%
|
(2%
pts)
|
Share of commercial viewing
(SOCV)
|
32.6%
|
33.8%
|
(1.2%
pts)
|
UK subscribers as at 31
December
|
1.3m
|
1.4m
|
(7%)
|
● Total
digital revenue includes digital advertising revenue and
subscription revenue as well as linear addressable revenue, digital
sponsorship and partnership revenue, ITV Win and any other revenues
from digital business ventures.
● UK
subscribers captures total UK subscriptions to ITV streaming
platforms and services (including free trials).
● Total
streaming hours measures the total number of hours viewers spent
watching ITV across all streaming platforms. This figure
includes both ad-funded and subscription streaming. For the 2022
full-year, total streaming hours were reported as 1,139 million
hours, which included some estimates of total streaming viewing
from third-party data providers. This has since been updated to
reflect more recently available and accurate data.
● Monthly
active users captures the average number of registered users
throughout the period who accessed our owned and operated on demand
platforms each month.
● The share of
top 1,000 commercial broadcast TV programmes KPI includes TV
viewing from transmission and seven days post-transmission on catch
up, as well as six weeks prior to the transmission window. It
excludes programmes with a duration of <ten minutes. This metric
is calculated as a 12-month rolling average to normalise seasonal
scheduling
● ITV Family
share of commercial viewing is the total viewing of audiences over
the period achieved by ITV's family of channels as a proportion of
all commercial broadcast TV viewing in the UK, from transmission
and seven days post transmission on catch up. ITV Family includes
ITV1, ITV2, ITV3, ITV4, ITVBe, CITV, ITV Breakfast, CITV Breakfast
and associated "HD" and "+1" channels
● % change for
performance indicators is calculated on rounded numbers
5. Digital revenue
breakdown
|
2023
£m
|
2022
£m
|
Change
%
|
Digital advertising
revenue
|
415
|
343
|
21
|
Subscription revenue
|
59
|
54
|
9
|
Other digital revenue
|
16
|
14
|
14
|
Total digital revenue
|
490
|
411
|
19
|
6. 2024 full-year planning
assumptions - based on our current best view but may change over
the year.
Profit and Loss impact:
● Total content costs
are expected to be around £1,275 million as we further optimise
linear, evolve our windowing strategy and improve personalisation.
We will invest an additional £15 million in marketing
● Delivery off £40
million of savings - made up of £10 million from our existing £150
million cost saving target and £30 million of additional in year
savings as part of the new strategic restructuring and efficiency
programme
● Adjusted financing
costs are expected to be around £35 million
● The adjusted
effective tax rate is expected to be 25% over the medium term in
line with the UK statutory tax rate of 25%
● Exceptional items
are expected to be around £90 million mainly due to costs
associated with the new strategic restructuring and efficiency
programme and digital transformation costs
Cash impact:
● Total capex is
expected to be around £75 million as we further invest in our
digital capabilities
● The cash cost of
exceptionals is expected to be around £90 million mainly due to
costs associated with the restructuring and efficiency programme
and digital transformation cost
● Profit to cash
conversion is expected to be around 80% out to 2026. In 2024 profit
to cash conversion will be lower reflecting an increase in working
capital. Across 2023 and 2024 we expect cash conversion to be
around 80%
● Total pension
deficit funding contributions for 2024 are expected to come down
year on year. More detailed guidance will be given following the
completion of the triennial valuation
● The Board has
proposed a final dividend of 3.3p, which will be paid in May 2024.
This gives a full year dividend of 5.0p. Going forward, the Board
intends to pay a full year ordinary dividend of at least 5.0p,
which it expects to grow over the medium term
7. 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, (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 2023 Annual
Report and Accounts 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.
8. The financial
information set out above does not constitute the Company's
statutory accounts for the period ended 31 December 2023.
Statutory accounts for 2022 have been delivered to the
registrar of companies, and those for 2023 will be delivered in due
course. PwC 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 7778
031097
Faye Dipnarine
+44 20 7157
6581
Media Relations
Paul Moore
+44 7860
794444
Laura Wootton
+44 7917 862293
Chief Executive's Statement
"EXECUTING OUR MORE THAN TV STRATEGY"
The successful execution of ITV's
strategy of investing in and growing both production in ITV
Studios, and ITVX in Media and Entertainment (M&E), is evident
through the robust financial and operating performance in 2023,
despite a challenging macroeconomic environment.
ITV Studios delivered record
revenues and profits as the business continued to demonstrate its
strong market position, with outstanding creative deliveries
globally. In Media and Entertainment, ITVX drove significant growth
in digital viewing and advertising revenues, with the investment on
plan. It was the year's biggest and most successful streaming
launch in the UK, firmly establishing its place in the market, and
winning the award for Best On-Demand Service at the Edinburgh TV
Festival.
Financial highlights
2023 was the second-highest revenue
outturn in ITV's history. Total ITV group revenue was down 2% and
total external revenue declined by just 3% in 2023 despite the
severe decline in linear advertising. ITV's growth drivers
continued to perform well, with 4% growth in ITV Studios and 19%
growth in digital revenues helping to substantially offset a 15%
decline in linear advertising due to the challenging advertising
market. In total, M&E revenues were down 7% in the
year.
As expected, group adjusted EBITA
was down 32% at £489 million which reflects the decline in linear
advertising revenue and the planned investment in ITVX. Adjusted
EPS was down 41% at 7.8p. We have reached a peak level of net
investment in our streaming business in 2023 and we continue to
expect to grow profits from here.
Statutory profit before tax was down
61% and statutory EPS decreased by 51% to 5.2p.
There was strong cash generation in
the year, with 102% profit to cash conversion and a robust balance
sheet, net debt of £553 million and net debt to adjusted EBITDA
leverage of 1.0x.
In line with ITV's dividend policy,
the Board has declared a final dividend of 3.3p (2022: 3.3p),
giving an ordinary dividend of 5.0p per share for the full year
2023 (2022: 5.0p).
As announced on 01 March 2024, ITV
sold its 50% holding of BritBox International to BBC Studios for a
total consideration of £255 million. The Board will return the
entire net proceeds to shareholders through a share buyback of £235
million which we expect to complete within the next 18
months.
Our
Purpose, Vision and More than TV Strategy
The strong operating performance in
2023 demonstrates that the strategy we started implementing in
2018, and evolved in 2022 with the launch of ITVX, is working. We
have been able to withstand macroeconomic headwinds because of the
actions we have taken to reposition ITV towards higher, sustainable
growth areas in global production and digital. The business is
demonstrably more balanced and has strong delivery momentum as we
continue to drive our strategy.
The media landscape continues to
evolve rapidly and is more competitive for viewers and advertising,
with recent new entrants. We are in a far stronger position than we
were in 2018, to focus on ITV's value drivers and competitive
advantages and are confident that we can compete, as evidenced by a
very strong programming slate: Mr Bates vs The Post Office is the
highest audience drama on any platform for five years; Fool me Once
by ITV Studios' Quay Steet Productions is in Netflix's top 10
English-language dramas of all time, and ITV Commercial
consistently outperforms the market.
Our purpose remains unchanged, we
entertain and connect with millions of people in the UK and
globally, reflecting and shaping culture and building brands, with
brilliant content and creativity.
Our vision is that by 2026 ITV will
be a leader in UK advertiser-funded streaming, and an expanding
global force in content. We are focused on three strategic pillars
to deliver this vision:
· Expand our UK and global production business
· Supercharge our Streaming business, and
· Optimise our Broadcast business
These pillars are underpinned by a
number of priorities, and we have set key performance indicators
and targets to deliver by 2026. With the strong progress we have
made to date, we are on track and confident we can deliver against
these targets. The following page provides further detail on our
strategic priorities, why they are important and what they
drive.
Integrated producer broadcaster and
streamer
ITV has a unique market position as
a global and diversified vertically integrated producer broadcaster
and streamer with content central to everything we do. This model
benefits both divisions and therefore the Group:
For ITV Studios it:
· Provides a sustainable base of core commissions which gives
stability in a changeable industry;
· Helps with attracting and retaining industry-leading talent
which is key to a successful creative business;
· Provides a platform to make Studios' content famous and
enables cross-promotion, supporting the international sale of our
content and formats, and the monetisation of our IP across our
business models
For M&E it:
· Provides access to world-class content for ITV's linear TV
channels and ITVX, driving viewing growth;
· Enables deeper and more creative and productive partnerships
with advertisers, driving revenue;
· Helps protect from content price inflation
For the Group, this gives us a real
competitive advantage, providing attractive economics as we operate
across the entire value chain, and benefit from diversification in
a cyclical industry.
ITV
Studios
ITV Studios is a scaled and global
creator, owner and distributor of high-quality content operating in
13 countries and across 60+ labels; diversified by genre, geography
and customer in the key creative markets around the
world.
ITV Studios benefits from its scale
as the largest producer in the UK, one of the largest unscripted
producers in the US and one of the top three in the majority of the
remaining international markets in which it operates. ITV Studios
is a trusted supplier with well-established relationships with key
content buyers and leading creative talent in those
markets.
In 2023 we further delivered against
our four strategic priorities (as set out in the Strategy section
on the following page) and we remain on track to achieve all our
2026 KPI targets and deliver a 5% total organic revenue CAGR target
from 2021 to 2026 - ahead of the market, and operate at
industry-leading margins of 13 to 15%.
We have grown our scripted business
with 316 hours of high-end scripted content delivered in 2023, an
increase of 14% from the prior year. This has helped to further
diversify our customer base, with almost a third of Studios
revenues coming from streaming platforms in 2023, up from 22% in
2022.
We also continued to monetise our
global formats with 19 formats in 2023 sold in three or more
countries (2022: 19). Supported by our integrated model the final
priority is to attract and retain the leading talent in the
industry. We have seen outstanding creative deliveries from recent
talent deals and acquisitions including Fool Me Once and After the
Flood from Quay Street Productions, One Piece from Tomorrow
Studios, and Big Beasts from Plimsoll Productions.
The global content market is large
and attractive, with all platforms needing a mix of content to
succeed in a very competitive landscape to attract audiences. We
expect to see growth in key segments in which we operate - content
licensing, demand from streaming platforms for unscripted content
and cost effective premium scripted content.
ITV Studios is very well positioned
to take advantage of this growth and to grow our market share over
the medium term, driven by our scale and diversified position, our
investment in development and creative talent and our high-quality
IP.
As previously guided, 2024 will be
impacted delays in production as a result of the writers' and
actors' strike in the US, combined with the continuation of weaker
demand from FTA broadcasters in Europe who are holding back spend
until they see more certainty in the TV advertising
market.
Media & Entertainment (M&E)
ITV M&E is the largest
commercial broadcaster and streamer in the UK, delivering
unrivalled audience scale and reach. It is underpinned by two
strategic pillars; Supercharge Streaming and Optimise
Broadcast.
By Supercharging Streaming, we aim
to drive digital revenues through ITVX and Planet V (ITV's
proprietary, self-service programmatic addressable advertising
platform).
We launched ITVX on time and our
investment is on plan and on budget. In our first full year of ITVX
we delivered a step change in viewing and digital revenues were up
19%. We increased the number of monthly active users by almost 20%,
up to 12.5 million and those users are spending more time engaging
with the platform with streaming hours up 26% to 1.5 billion hours.
Brand awareness is now up to over 90% and we have seen a
significant increase in streaming hours for light viewers who are
harder to reach, up 65%, and our key target audience of 25-54s
which was up 47%.
The key focus of ITVX is our
ad-funded proposition which is where we have channelled our efforts
and resources in its launch year. In addition, we have ITVX
Premium, a subscription service, which is primarily an ad-free
offering for viewers. The number of paid-for UK subscribers
declined marginally year on year as we started transitioning
subscribers from our standalone app, BritBox UK, into ITVX Premium,
combined with the closure of the ITV Catch Up service on Amazon
Prime Video Channels.
In 2024, the BritBox UK service on
Amazon Prime Video Channels and the BritBox UK standalone app will
close as we further simplify our offering. This will consolidate
all our subscribers under one ITVX Premium brand and will give us
complete ownership of the subscriber base. The closure of these
services is expected to impact subscriber numbers and subscription
revenues in 2024.
Planet V is the platform enabling
the growth of ITV's digital advertising - it is a market-leading
addressable advertising platform which creates and delivers
targeted advertising at scale.
It enables us to create
sophisticated audience segments and serve ads directly to them. All
the major agencies are using Planet V and see it as an intuitive,
easy-to-buy self-serve platform, allowing them to streamline their
approach to planning and buying. ITV has one of the largest
first-party data sets in the UK, with over 40 million registered
users on ITVX. Agencies and advertisers can make use of this
alongside their own data and other first and third-party datasets,
to create more precise addressable campaigns. Advertisers are
prepared to pay more for this increasingly sophisticated and
valuable ad inventory.
This capability underpins our
ability to now compete for online video budgets, particularly
budgets allocated to platforms such as YouTube, and take share in
this growing addressable advertising market.
OUR
MORE THAN TV STRATEGY
Our strategy is focused on three
strategic pillars 1) Expand Studios; 2) Supercharge Streaming; and
3) Optimise Broadcast. These pillars are underpinned by a number of
priorities (detailed below) to ensure that ITV is best placed to
capitalise on the opportunities presented by the rapidly changing
viewing, content production and advertising environments. These
pillars are not independent. They work together - reinforcing each
other, creating synergies and delivering value.
To support the successful delivery
of the strategy, we have key performance indicators (KPIs) and
related targets to be delivered from 2021 to 2026 which we are on
track to deliver. The key to successfully delivering this strategy
is digitally transforming everything we do.
The successful execution of our
strategy to date has made ITV more robust. ITV has a leading,
scaled, global Studios business, a high growth streaming service
and a cash generative linear advertising business. This ensures
that we are well placed to grow profits from here as we continue to
drive material efficiencies, invest behind our strategic priorities
and deliver returns to shareholders.
Vertically Integrated Producer, Broadcaster and
Streamer
Expand Studios Further
expanding by genre, geography and customer and growing faster than
market
2026 STUDIOS TARGET Grow total
organic revenues by 5% on average per annum to 2026 - which is
ahead of the market at a margin of 13% to 15%
Supercharge Streaming Driving
digital viewing and revenue through ITVX and Planet V, ITV's
leading addressable advertising platform
Optimise Broadcast Digitally
transforming as we continue to attract commercial broadcast
audiences of unparalleled scale
2026 M&E TARGET Grow digital
revenues to at least £750m across M&E
ITV
Studios - STRATEGIC PRIORITES AND KPI TARGETS
Expanding UK and global productions
is central to ITV's strategy. ITV Studios' ambition is to be a
leading force in the creation and ownership of intellectual
property (IP), global content production and distribution. We are
achieving this by focusing on our four strategic priorities to
drive revenue and profit growth.
|
PRIORITIES
|
WHY IT'S IMPORTANT
|
FY 2026 TARGET
|
FY 2023
|
|
WHAT IT DRIVES
|
STUDIOS
|
1. Grow our scripted
business
|
To meet the growing global demand
for scripted content particularly from streaming
platforms
|
400 high-end scripted hours per
annum
|
316 hours
(2022: 276 hours)
|
|
Growth in total organic revenue of
5% on average per annum to 2026[7]
which is ahead of the market
Delivers adjusted
EBITA[8] margins of 13% to 15%
In 2023, total organic revenue
grew 3% at an adjusted EBITA margin of 13.2%
|
2. Grow our global formats
business
|
To maximise international
monetisation of high-value formats
|
20 formats sold in three or more
countries
|
19 formats
(2022: 19 formats)
|
|
3.
Further diversify our customer base
|
To capture the growth in content
spend from local and global streaming platforms
|
30% of total revenues from
streaming platforms
|
32%
(2022: 22%)
|
|
4. Attract and retain leading
talent
|
Key to creative success of a
Studios business
|
N/A
|
N/A
|
|
MEDIA & ENTERTAINMENT - STRATEGIC PRIORITES AND KPI
TARGETS
ITV's M&E strategy is based on
two core pillars: Supercharge Streaming and Optimise Broadcast,
with strategic priorities to drive growth in digital revenues and
maintain strength in linear.
|
PRIORITIES
|
WHY IT'S IMPORTANT
|
FY 2026 TARGET
|
FY 2023
|
|
WHAT IT DRIVES
|
STREAMING
|
1. Attract more monthly active
users to ITVX
|
ITV's reach is key to retaining
and attracting advertisers
|
Grow monthly active users to 20
million
|
12.5 million
(2022: 10.5 million)
|
|
Growth in digital revenues to at
least £750m by 2026
Revenues from linear TV
advertising, commercial and creative partnerships, and
sponsorship
In 2023, total digital revenues
were
£490 million, up 19% year-on-year
|
2. Increase the time users spend
on ITVX
|
ITV's scale is key to retaining
and attracting advertisers
|
Grow total streaming hours to 2
billion hours
|
1,505 million hours
(2022: 1,192 million
hours)
|
|
3. Increase UK subscriber
base
|
Monetising ITV viewers who are
willing to pay for ad-free and additional content
|
Grow subscribers to 2.5
million
|
1.3 million
(2022: 1.4 million)
|
|
BROADCAST
|
4. Maintain our strength in
delivering mass linear audiences
|
ITV's mass linear audiences
remains very important to UK advertisers
|
Maintain a share of at least 80%
of the top 1,000 programmes
|
91%
(2022: 93%)
|
|
5. Maintain ITV's position in UK
broadcast market
|
ITV's scale remains very important
to UK advertisers
|
Maintain a share of commercial
viewing of 33%
|
32.6%
(2022: 33.8%)
|
|
The progress we have made in
Streaming and against our KPIs means that we are confident of
delivering at least £750 million of digital revenues by 2026, with
the focus continuing to be ad-funded.
We have started 2024 really well and
will further enhance ITVX in 2024 building on the momentum we have.
We will increase the depth and breadth of content, deliver
continuous improvements in the product and user experience, and
expand its distribution and marketing.
Within Broadcast, we have now
digitally transformed the business and will continue to do so as we
become increasingly agile and adapt to changing viewer habits.
Internally this means we are always looking at ways to increase our
efficiency and productivity, whether that is through the
operational use of AI or ensuring our cost base is the right shape
and size. Externally for viewers, it is ensuring we continue to
engage our audiences through live content such as sports and
successful entertainment shows to continue to deliver mass
audiences which are so valuable to advertisers, together with the
personalisation and targeting that comes with ITVX.
ITV continues to be the best
destination for advertisers to reach valuable mass audiences in the
UK. Our share of those mass linear TV audiences continued with over
90% of the top 1,000 programmes appearing on ITV and our share of
commercial viewing has also been broadly maintained at just under
33%. This robust performance demonstrates ITV's unique
market-leading position in broadcast in the UK.
What sets ITV apart from all its
competitors commercially is the ability to deliver four
things:
· Mass simultaneous reach,
· Sophisticated targeted advertising
· Commercial and creative partnerships
· A
brand-safe and trusted environment.
All of this ensures that we can
remain highly competitive in an increasingly competitive
market.
ITVX's strong performance has
continued into 2024. Total advertising revenue (TAR) is expected to
be up 3% in Q1 compared to the same period in 2023, with continued
strong growth in digital advertising revenues.
Refer to the Operating and Financial
Performance Review for further details of ITV Studios and M&E's
strategic priorities and how the divisions performed in the
year.
Cost and efficiency programme
Our existing cost saving programme
of £150 million between 2019 and 2026, has delivered £130 million
of annualised savings to date and we are on track to deliver the
full £150 million by 2025 - one year early.
We are now in the early stages of a
new strategic restructuring and efficiency programme across the
Group to reshape the cost base, enhance profitability, and support
the growth drivers of Studios and Streaming. We are building on the
foundations we have established in digital and data and the
significant progress we have made in transforming ITV from a linear
broadcaster to a multi-platform broadcaster and
streamer.
Savings will come mainly from
technology and operational efficiencies, organisational redesign
across Group, M&E and ITV Studios and permanent reductions in
discretionary spend across the Group.
By the end of 2024, we expect the
programme to have delivered incremental annualised savings of at
least £50 million gross per year, giving a £30 million in year
gross benefit in 2024. There will be c.£50 million of one-off costs
to deliver these savings. The ongoing programme is designed to
deliver further incremental material savings over a number of years
which will further build ITV's resilience. We will provide
further information as the programme progresses.
Our
Social Purpose
We reach millions of viewers
globally, through our content, and in the UK, through our linear
channels and ITVX. We are proud of our position as a Public Service
Broadcaster (PSB) in the UK, telling the stories that are at the
heart of culture and society. We have the opportunity to advocate
for positive change from social issues to environmental matters and
beyond, providing the UK public with unbiased information and
diverse perspectives.
Our Social Purpose strategy has four
focus areas: Better Health; Diversity, Equity and Inclusion;
Climate Action and Giving Back.
2023 saw us reach the major
milestone for Better Health in surpassing our five-year goal which
was to encourage audiences to take over 200 million actions to
support their mental or physical wellbeing. We hit an extraordinary
249 million actions by the end of 2023 with our flagship mental
health campaign, Britain Get Talking, playing a significant role in
achieving our target.
Our Giving Back activity in 2023
continued with our biggest fundraising event, Soccer Aid for
UNICEF. Since its launch in 2006, over £90 million has been raised.
As we move forward, our Giving Back work will shift towards
supporting the next generation called Better Futures.
Climate Action remains a priority
across our whole organisation, ensuring we achieve Net Zero by 2050
in how we make, broadcast and stream our shows, and use our reach
to inform and inspire audiences to make greener choices. Our first
Climate Transition Plan is published alongside this
report.
ITV continues to consolidate our
Diversity, Equity and Inclusion work. We have championed diversity
across our biggest shows introducing a range of new voices
on-screen and off-screen and have created new opportunities for
under-represented groups to thrive in our business.
Refer to the Social Purpose section
for further details on the work we have done in 2023.
Duty of Care
Supporting the mental and physical
health and safety of colleagues and others who work with ITV and
those participating in our productions remains a key priority. We
are committed to addressing promptly, fairly and confidentially all
concerns and monitoring the channels we have in place to ensure
they remain appropriate. During 2023 we continued to strengthen our
Speaking Up programme by driving continuous communication,
awareness and training of our speaking up channels for individuals
to register concerns, including our speaking up hotline, SafeCall.
I continue to chair the Duty of Care Operating Board which meets
regularly.
Following the outcome of the
external KC Review, which found that ITV's handling of the case
surrounding Phillip Schofield and This Morning was adequate and
appropriate. In 2024 we will focus on implementing the
recommendations arising from the review. This includes enhanced
speaking up related training focused on different parts of the
Group and further strengthening our complaints handling
processes.
Regulation
The Media Bill which is currently
working its way through Parliament, will update the legal and
regulatory framework for television, particularly delivered online.
This should help ensure that content from PSBs, including ITV, will
be included and easily discoverable on all major streaming
platforms, on fair commercial terms. Once the Bill becomes law, we
will remain fully engaged with Ofcom and the government throughout
any subsequent processes necessary for its full
implementation.
In May 2023, we submitted our
application to Ofcom for the renewal of our Channel 3 licenses,
which expire on 31 December 2024. We are fully engaged in the
process, which we expect to conclude in the first half of
2024.
Colleagues
Our colleagues are central to
everything that we do and are fundamental to the success of ITV.
They have played a significant role in delivering our strategy
effectively this year and I am incredibly grateful for the hard
work and commitment all our colleagues show. I always appreciate
how our people love collaborating with each other and with so many
partners externally, and how motivated they are to be part of
making great shows that lift people and change people's
lives.
We have continued to invest in the
development of our colleagues and in ensuring we have an inclusive
culture where everyone can be their authentic selves. I am pleased
that in our 2023 Engagement and Culture Survey, 75% of colleagues
who responded, feel like they belong at ITV.
In 2024 we will be running a series
of Roadshows across ITV and I am really looking forward to meeting
many of our colleagues from all areas of the business. With their
input, commitment and energy, ITV will continue to successfully
execute our strategy.
Outlook
We have made great progress towards
our 2026 KPIs. 2023 has been the year of peak investment for
streaming and the successful execution of our strategy and the
efficiencies delivered to date have made ITV more robust. ITV has a
leading, scaled, global Studios business, a high growth streaming
service and a cash generative linear advertising business. This
ensures that we are well placed to grow profits from here as we
continue to drive material efficiencies, invest behind our
strategic priorities and deliver returns to
shareholders.
CAROLYN MCCALL
CHIEF
EXECUTIVE
Key
Performance Indicators
Our KPIs and related targets for
2026 align our performance and accountability with our strategic
priorities. This is detailed further in the Strategy section of the
Chief Executive's Statement.
All KPIs are reported on a
six‑month basis.
The following are reported quarterly: ITV Studios total revenue
growth, total digital revenue, total streaming hours, share of
commercial viewing and share of top 1,000 commercial broadcast TV
programmes.
Refer to the Operating and Financial
Performance Review for further details on the performance of all
our KPIs.
ITV GROUP
|
Adjusted EPS[9]
|
Adjusted EPS represents the
adjusted profit after tax3 attributable to each equity
share in the year. It is an important measure as we aim to create
long-term value for our shareholders.
|
Performance
Adjusted EPS decreased by 41% from
13.2p to 7.8p. Strong growth in ITV Studios adjusted
EBITA3, up 10%, was offset by a decline in total
advertising revenues (TAR), down 8%, and an increase in M&E
costs from the planned investment in content for ITVX, higher
streaming related costs and third-party commercial
payaways.
|
2023
7.8p
‑41% on 2022
|
Cost savings
|
Cost savings are permanent savings
to the business. Managing our cost base and mitigating the impact
of inflation 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 £24 million of
permanent cost savings in 2023, which is ahead of the £15 million
in year target. To date, we have delivered £130 million of our 2019
to 2026 target of £150 million.
We are now in the early stages of
a new strategic restructuring and efficiency programme across the
Group which will deliver incremental annualised savings of at least
£50 million gross per year, giving a £30 million in year gross
benefit in 2024.
|
2023
£130m
cumulative savings since
2018
2026 Target
Deliver over £150 million of
cumulative savings between 2018 and 2026
|
Profit to cash conversion3
|
One of ITV's strengths is its cash
generation, reflecting our ongoing tight management of working
capital balances. Profit to cash conversion serves as a key
indicator in measuring our effectiveness. It is calculated as our
adjusted cash flow as a proportion of adjusted
EBITA1.
|
Performance
Profit to cash conversion was 102%
in the year. The strong outturn compared to 2022 was due a
favourable movement in working capital from the unwind of programme
rights and inventory previously built up for the launch of ITVX. In
addition, there has been a reduction in production inventories
predominantly in the US as a result of the 2023 writers' and
actors' strike.
|
2023
102%
2026 Target
Maintain at around 85%
|
EXPAND STUDIOS
UK and global production
|
ITV Studios total organic revenue growth[10]
|
ITV Studios total organic revenue
growth measures the scale and success of our global studios
business. It includes revenues from programmes sold to M&E,
which as a vertically integrated producer, broadcaster and
streamer, is an important part of our business.
|
Performance
Total organic revenue was up 3%
following a strong 2022 which was up 14%. Organic revenue excludes
the benefit of our acquisitions of Plimsoll Productions and Lingo
Pictures in 2022, and the unfavourable impact of a £15 million
foreign exchange movement.
ITV Studios total revenue grew 4%
to £2,170 million.
|
2023
+3%
on 2022
2026 Target
Grow by 5% on average per annum
(from 2021)
|
ITV Studios adjusted EBITA4 margin
%
|
This is the key profitability
measure used across the ITV Studios business. The margin is
calculated on ITV Studios total revenue.
|
Performance
ITV Studios adjusted EBITA margin
was 13.2% (2022: 12.4%), which is restored within the targeted
range.
|
2023
13.2%
+0.8 basis points on
2022
2026 Target
Deliver in the 13% to 15%
range
|
Total high‑end scripted hours
|
Total high‑end scripted hours is an important
measure in assessing the success of our strategic priority, to grow
our scripted business. High‑end scripted hours include new
commissions or returning franchises that have a higher cost per
hour than continuing drama.
|
Performance
The number of
high‑end scripted
hours produced by ITV Studios increased by 14% to 316 hours in 2023
driven by titles such as Big Beasts, Fool Me Once and Love Island
in the UK, and Twin Love and Physical in the US.
|
2023
316hrs
+14% on 2022
2026 Target
Grow to 400 hours
|
Number of formats sold in three or more countries[11]
|
The Studios business is focused on
maximising the international monetisation of high-value formats. A
good measure of international success is when a format is
commissioned in three or more countries in the year.
|
Performance
The number of formats sold in
three or more countries was 19, which was flat year-on-year. Recent
formats that have sold in three or more countries include; My Mum,
Your Dad; Pranked; and Song of my Life.
|
2023
19 formats
flat on 2022
2026 Target
Grow to 20 formats
|
%
of ITV Studios total revenue from streaming
platforms
|
Over the medium term, the key
driver of growth in the global content market is expected to be
from streaming platforms. The percentage of ITV Studios total
revenue from streaming platforms is an important measure of
delivering its strategic priority of further diversifying its
customer base and meeting its 2026 total organic revenue growth
target.
|
Performance
The percentage of ITV Studios
total revenue from streaming platforms grew to 32%, hitting the
target three years early. Meeting this target is impacted by the
phasing of deliveries and therefore our target is to maintain at
least 30%. Notable deliveries to streaming platforms in 2023
included: Squid Games: The Challenge and One Piece for Netflix, and
Franklin for Apple TV+
|
2023
32%
+10 basis points on
2022
2026 Target
Grow to 30% of ITV Studios total
revenue
|
M&E
Supercharge streaming
|
Total digital revenue[12]
|
Total digital revenue comprises all
revenue streams from our digital businesses, predominantly digital
advertising. It is an important measure of the acceleration of our
digital strategy as we supercharge streaming.
|
Performance
Total digital revenue grew 19% to
£490 million. The growth was driven by digital advertising revenue,
which was up 21%. This was marginally offset by a decline in
competition revenues through ITV Win.
|
2023
£490m
+19% on 2022
2026 Target
More than double (compared to
2021) to at least £750m
|
Total streaming hours[13]
|
Increasing the time users spend
streaming ITV content is a key strategic priority. It drives scale
which is important to attract and retain advertisers, and
contributes to total digital revenue growth.
|
Performance
Total streaming hours increased
26% to 1,505 million hours. This growth reflects our high-quality
content offering, along with our investment in ITVX to enhance the
product and user experience and to expand our distribution and
marketing activity. This has helped retain and attract more users
who have watched content for longer.
|
2023
1,505m hrs
+26% on 2022
2026 Target
Double (compared to 2021) to 2bn
hours
|
Monthly active users (MAU)[14]
|
Attracting more monthly active users
to ITVX is a key strategic priority. It increases reach which is
important to attract and retain advertisers and contributes to
total digital revenue growth.
|
Performance
Monthly active users grew 19% to
12.5 million. As with total streaming hours, the growth in monthly
active users has been driven by investment in the quality and scale
of content on ITVX, the enhanced product and user experience, and
the expanded distribution and marketing activity.
|
2023
12.5m
+19% on 2022
2026 Target
Double (compared to 2021) to
20m
|
UK subscribers[15]
|
UK subscribers capture total UK
subscriptions to ITV streaming platforms. It is an important
measure of how we are monetising ITV viewers who are willing to pay
for ad-free and additional content.
|
Performance
Total UK subscribers as of 31
December 2023 was down 7% year-on-year as we transitioned
subscribers from our standalone app, BritBox UK, into ITVX Premium,
combined with the closing of the legacy ITV Catch Up service on
Amazon Prime Video Channels.
The key focus of ITVX is our
ad-funded proposition which is where we have channelled our efforts
and resources in its launch year.
|
2023
1.3m
-7% on 2022
2026 Target
Double (compared to 2021) to
2.5m
|
M&E
Optimise Broadcast
|
Share of top 1,000 commercial broadcast TV
programmes[16]
|
Maintaining our strength in
delivering mass commercial linear TV audiences enables ITV to
attract and retain advertisers and command a premium from
them.
|
Performance
Our 2023 share was 91%, which was
down 2% points year-on-year, with 2022 benefiting significantly
from the FIFA World Cup. In 2023, dramas such as Unforgotten and
The Bay, entertainment formats such as Britain's Got Talent and
Saturday Night Takeaway and sporting events such as Rugby World
Cup, helped to maintain ITV's strong commercial mass audience
proposition.
|
2023
91%
-2 basis points on
2022
2026 Target
Maintain a share of at least
80%
|
Share of commercial viewing[17]
|
Maintaining ITV's number one
position in the UK broadcast market helps us attract and retain
advertisers and is vital to maximising advertising
revenues.
|
Performance
Share of commercial viewing
decreased by 1.2% points to 32.6% in 2023, with strong viewing for
the FIFA World Cup benefiting our share in 2022.
|
2023
32.6%
-1.2 basis points on
2022
2026 Target
Maintain at 33%
|
OPERATING AND FINANCIAL PERFORMANCE REVIEW
ITV continued to successfully
execute its strategy in 2023 despite the challenging macroeconomic
environment. It delivered a robust financial performance with ITV
Studios recording its highest-ever revenues and profit, and within
Media & Entertainment (M&E), ITVX drove a step change in
key viewing metrics and delivered strong growth in digital
advertising revenues.
FINANCIAL HIGHLIGHTS[18]
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Change
£m
|
Change
%
|
ITV Studios
|
2,170
|
2,096
|
74
|
4
|
M&E
|
2,090
|
2,249
|
(159)
|
(7)
|
Total revenue
|
4,260
|
4,345
|
(85)
|
(2)
|
Internal supply
|
(636)
|
(617)
|
(19)
|
(3)
|
Total external revenue
|
3,624
|
3,728
|
(104)
|
(3)
|
ITV Studios adjusted
EBITA
|
286
|
259
|
27
|
10
|
M&E adjusted EBITA
|
205
|
464
|
(259)
|
(56)
|
Adjusted EBITA
|
491
|
723
|
(232)
|
(32)
|
Unrealised profit in stock
adjustment
|
(2)
|
(6)
|
4
|
67
|
Group adjusted EBITA
|
489
|
717
|
(228)
|
(32)
|
Group adjusted EBITA
margin
|
13%
|
19%
|
|
(6%) pts
|
Statutory operating
profit
|
238
|
519
|
(281)
|
(54)
|
Profit before tax
(adjusted)
|
396
|
672
|
(276)
|
(41)
|
Adjusted EPS (p)
|
7.8p
|
13.2p
|
(5.4p)
|
(41)
|
Statutory EPS (p)
|
5.2p
|
10.7p
|
(5.5p)
|
(51)
|
KEY
FINANCIALS12
Group external revenue
£3,624m
-3% vs
2022
|
Total ITV Studios
revenue
£2,170m
+4% vs
2022
|
Total digital revenue
£490m
+19% vs
2022
|
Group adjusted EBITA
£489m
-32% vs
2022
|
Statutory operating
profit
£238m
-54% vs
2022
|
Adjusted EPS
7.8p
-41% vs
2022
|
Statutory EPS
5.2p
-51% vs
2022
|
Net debt
£553m
31 Dec 2022: £623m
|
Group financial overview
2023 was the second-highest total
revenue outturn in ITV's history. While total revenue decreased by
2% and total external revenue was down by 3% in 2023, our growth
drivers continued to perform well. ITV Studios grew by 4% and
digital revenues2 grew by 19%, both of which substantially offset a
15% decline in linear advertising due to the challenging
advertising market. Total non-advertising revenue grew by
3%.
Group adjusted EBITA decreased by
32%, reflecting the challenging advertising market and planned
investment in ITVX. ITV Studios adjusted EBITA increased by 10%,
with the margin 13.2% restored to within our target range. M&E
adjusted EBITA decreased by 56% for the reasons noted
above.
We
continue to focus on reducing costs and driving efficiencies. In
the year, we exceeded our £15 million cost savings target,
delivering £24 million of permanent cost savings across the
business, which included headcount savings from changes in our
operating model in M&E, permanent operational efficiencies
across ITV Studios and M&E, property savings from our US
Studios business, and contractual renegotiations.
Our existing cost saving target of
£150 million between 2019 and 2026, has delivered £130 million of
annualised savings to date and we are on track to deliver the full
£150 million by 2025 - one year early.
We are now in the early stages of a
new strategic restructuring and efficiency programme across the
Group to reshape the cost base, enhance profitability, and support
the growth drivers of Studios and Streaming. We are building on the
foundations we have established in digital and data and the
significant progress we have made in transforming ITV from a linear
broadcaster to a multi-platform broadcaster and
streamer.
Savings will come mainly from
technology and operational efficiencies, organisational redesign
across Group, M&E and ITV Studios, and permanent reductions in
discretionary spend across the Group.
By the end of 2024, we expect the
programme to have delivered incremental annualised savings of at
least £50 million gross per year, giving a £30 million in year
gross benefit in 2024. There will be c.£50 million of one-off costs
to deliver these savings. The ongoing programme is designed to
deliver further incremental material savings over a number of years
which will further build ITV's resilience. We will provide
further information as the programme progresses.
Total operating exceptional items
were £77 million (2022: £65 million) which included £24 million of
acquisition-related expenses and £25 million of restructuring and
transformation costs. This stems from the Group-wide commitment to
reduce the overhead cost base, and includes restructuring and
transformation programme costs to deliver our strategy (see note
2.2 to the financial information for further detail).
Adjusted financing costs were up
year-on-year at £29 million (2022: £26 million) largely due to
higher market interest rates at similar levels of debt. Statutory
net financing costs were £45 million, up year-on-year (2022: £26
million) due to charges related to acquisition-related put and call
options.
Our adjusted effective tax rate was
21.5% (2022: 20.1%) and the statutory effective tax rate was (8.3%)
(2022: 13.2%). The lower statutory effective tax rate in the year
was due to higher HETV tax credits relative to the tax charge, and
a proportionally lower profit before tax in the year compared to
2022.
Adjusted EPS for the year was 7.8p
(2022: 13.2p), with statutory EPS decreasing from 10.7p to 5.2p.
See the Finance Review for further detail.
Our profit to cash conversion (which
is an APM) in 2023 was high at 102% (2022: 75%). Conversion
in 2023 has been distorted by the writers' and actors' strike in
the US, and it will also impact 2024. In 2023 there was a release
in working capital which will reverse in 2024 as we resume US
scripted productions. Across the two years we expect profit to cash
conversion to be at the normal levels of around 80%.
At 31 December 2023 we had £361
million of free cash flow (31 December 2022: £280 million), our net
debt was £553 million (31 December 2022: £623 million) and our net
debt to adjusted EBITDA was 1.0x (31 December 2022: 0.8x). Refer to
the Finance Review for more detail.
We have good access to liquidity. At
31 December 2023, we had cash and committed undrawn facilities
totalling £1,240 million, including total cash of £340 million (31
December 2022: £1,098 million, including total cash of £348
million).
We have a clear capital allocation
policy and our priorities remain unchanged (see the Finance Review
for further details).
The Board recognises the importance
of the ordinary dividend to ITV shareholders. Reflecting its
confidence in the business and its strategy, as well as the
continued strong cash generation, the Board has declared a final
dividend of 3.3p, giving a full year ordinary dividend of 5.0p per
share for 2023, which is a total return of c.£200 million (2022:
5.0p). The Board remains committed to paying a full year ordinary
dividend of at least 5.0p in 2024, which it expects to grow over
the medium term, whilst balancing further investment in our
strategy and our commitment to investment grade metrics over the
medium term.
On 01 March 2024 ITV announced the
sale of its 50% shareholding in BritBox International to BBC
Studios for a cash consideration of £255 million. The Board intends
to return the entire net proceeds to shareholders through a £235
million share buyback which will be completed within the next 18
months.
We remain focused on managing our
cash and costs while continuing to invest in delivering our
strategic priorities. Our robust balance sheet allows us to do this
while delivering returns to shareholders.
A range of scenarios reflecting
ITV's principal risks has been modelled and considered in the
assessment of ITV's longer‑term viability. Refer to Risks and
Uncertainties section for further details.
ITV
Studios
ITV Studios is a scaled and global
creator, owner and distributor of high-quality TV content operating
in 13 countries and across 60+ labels; diversified by genre,
geography and customer in the key creative markets around the
world.
ITV Studios benefits from scale,
being the largest producer in the UK, one of the largest unscripted
producers in the US and one of the top three in the majority of the
remaining international markets in which it operates. ITV Studios
is a trusted supplier with well established relationships with key
content buyers and leading creative talent in those markets; and
with a combined content library of over 90,000 hours, it is also
one of the pre‑eminent global distributors.
The global content market is large,
(c.$226 billion in 2023) and attractive with all platforms needing
a mix of content to succeed in a very competitive market. Going
forward, we expect to see growth in the key segments in which ITV
Studios operates, including content licensing and demand from
streaming platforms for unscripted content and cost effective
premium scripted content which we are well positioned to take
advantage of. We are confident that we will continue to grow our
market share to 2026 driven by our scale; our diversification by
customer; geography and genre; a strong track record of
high-quality content; a very strong slate for 2024 and beyond; and
our leading creative talent.
Over the last six years ITV Studios
revenue (excluding acquisitions) has grown by around 5% CAGR,
faster than the market of around 4% CAGR (Source: Ampere Analysis -
based on the ITVS addressable market).
ITV Studios' ambition is to be a
leading force in the creation and ownership of intellectual
property (IP), global content production and distribution. We are
achieving this by focusing on our four strategic priorities to
drive revenue and profit growth:
1.
Growing our scripted business to meet the growth in
global demand
2.
Growing our global formats business to maximise the
monetisation of high‑value formats
3.
Diversifying our customer base to capture the growth
in content spend from local and global streaming
platforms
4.
All of which is underpinned by our ability to attract
and retain leading creative talent.
We have KPI targets for 2026 which
reflect the key drivers of growth and value. See the Strategy
section within the CEO Report for more details on our KPIs, why
they are important and how they will enable us to deliver total
organic revenue growth of 5% on average per annum over the five
years from 2021 to 2026 - ahead of the market, at an adjusted EBITA
margin of 13% to 15%.
Growing our scripted business
Growing our scripted business is one of our key strategic
priorities
Scripted content plays a key role in
attracting and retaining viewers and subscribers on both FTA and
streaming platforms. This together with the increase in the number
of streaming platforms has led to an increase in original scripted
commissions in the UK, US, Australia and Europe. Furthermore, over
recent years there has been increasing demand for locally produced
non-English language scripted content. With our global production
presence and a strong track record for delivering high-quality
scripted content, ITV Studios is well-positioned to cater to this
demand, and importantly grow its share of the market.
ITV has a portfolio of scripted
labels in the UK and internationally, which creates and produces
high-quality content with global appeal for both FTA and streaming
platforms. We continue to see good momentum in our creative
pipeline with several of our 2023 deliveries, such as Mr Bates vs
The Post Office, Fool Me Once and One Piece gaining global
attention and driving significant audiences on their respective
platforms.
In
2023, ITV Studios high‑end scripted hours increased by 14% year-on-year to 316 hours
(2022: 276 hours) and we remain on track to produce 400 hours of
high‑end scripted
content per annum by 2026.
Global Partnerships (previously
Global Formats and Distribution) plays a key role in growing
scripted value across the business. Global Partnerships invests
around £70 million annually to acquire the distribution rights
(across both scripted and unscripted genres) in ITV
Studios‑produced
content and selective third‑party content. Having the
integrated producer‑distributor relationship enables Global Partnerships to make
strategic investment decisions around content funding. By finding
co‑production
partners and licensees around the world for our scripted catalogue
(of more than 22,000 hours), Global Partnerships maximises the
value of these projects over a long‑term sales lifecycle.
Growing our Global Formats business
Unscripted content also remains
important to ITV Studios. Through our Global Partnerships business,
we monetise our portfolio of some of the world's most successful
travelling entertainment formats, as well as maximise commercial
opportunities from our brands. We are focused on driving growth
across our unscripted offering by monetising our existing
high‑value
formats effectively as well as supporting the creation of new
global formats.
Our
portfolio of world‑class brands includes our established formats such as The
Voice (one of the most successful unscripted format brands in the
world), Love Island, The Chase, Come Dine With Me, Hell's Kitchen
and I'm A Celebrity…Get Me Out Of Here!. These formats continue to
sell in new territories and attract mass audiences for our clients.
They are highly sought after by both traditional broadcasters and
streaming platforms, offering cost-effective content with a proven
track record of audience success. We also have several new formats
that have been commissioned in our UK, US and international
production bases, with the potential to be future global hits.
These include My Mum, Your Dad (our first global format to
originate from the US); I Kissed A Boy; and Make Love Fake
Love.
As well as protecting our biggest
brands, we are also focused on expanding our franchises by creating
successful spin-offs that allow us to evolve existing formats.
Examples include The Voice, which now has six
spin‑off
versions; Love Island has two new spin-offs, Love Island Games and
Love Island All Stars; and I'm A Celebrity…Get Me Out Of Here!
South Africa is a new spin-off in the UK.
In 2023, across our Global
Partnerships business, we sold 63 unique formats internationally
(2022: 64), 19 of which were sold to three or more countries (2022:
19). By 2026, we expect to have 20 such formats, with a view that
one of these may be a significant new format like The Voice or Love
Island.
Our Global Partnerships business
also focuses on leveraging our vast content library and maximising
the value of both primary and secondary windows with FTA
broadcasters, Pay TV and streaming platforms - a growth area for
the business. Global Partnerships has recently launched a
collection of owned and operated FAST1 channels across the world
which features our content, on platforms such as Pluto, Samsung and
Rakuten. This aligns with the business strategically positioning
itself to adapt to the evolving media landscape, taking advantage
of various distribution channels and platforms to reach a global
audience.
Further diversifying our customer base
As the demand for content from
streaming platforms grows globally, this presents a significant
opportunity for ITV Studios to further diversify its customer base
and remains a key priority of ITV Studios strategy to grow its
market share and meet its 2026 KPI targets.
In the US, we have well-established
and trusted relationships with all the major streaming platforms.
We currently have scripted or unscripted projects either in
development or commissioned by all of them. In 2023, over 40% of US
unscripted revenues and nearly 100% of US scripted revenues came
from streaming platforms.
The percentage of ITV Studios total
revenues from streaming platforms increased to 32% (2022: 22%) in
2023 and exceeds our 2026 target of 30%. This has been impacted by
the phasing of large deliveries in the year and therefore we are
maintaining our target at 30%. Deliveries in 2023 included the
following for Netflix: Fool Me Once - one of their all-time top 10
English language dramas, Squid Game: The Challenge, One Piece, and
SUBURRÆTERNA; Playdate for Disney+; Franklin, Physical and Big
Beasts for Apple TV+; Twin Love for Amazon; and Love Island US and
Love Island Games for Peacock.
Whilst further diversifying our
customer base with streaming platforms is a key strategic priority
for ITV Studios, it requires careful management of our working
capital as streaming platforms typically expect extended payment
profiles. In some instances, it may also limit our ability to
maintain all rights for high‑value scripted titles as streaming
platforms usually seek worldwide distribution rights for original
commissions, in return for a premium fee on commissions.
Attracting and retaining leading talent
A key part of ITV Studios investment
strategy and its overall success is its ability to attract and
retain the best creative talent. ITV Studios offers talent a unique
combination of creative independence, an entrepreneurial culture,
and the resources of a global studio business. This includes access
to ITV Studios global distribution network, and in the UK, the
benefit of being a vertically integrated producer broadcaster and
streamer. We are proud to be able to continue to attract the best
talent in the market, most recently welcoming Plimsoll Productions,
Lingo Pictures and Ben Stephenson, who set up a transatlantic
scripted label, Poison Pen Studios, in ITV Studios.
ITV has successfully integrated its
new labels - many set up through recent talent deals - and they
have delivered an impressive slate of programmes, including
A Year On Planet Earth and Big Beasts, both from Plimsoll
Productions in the UK, Prosper from Lingo Pictures in Australia,
Fool Me Once, Playdate and After the Flood from Quay Street
Productions in the UK, and Night in Paradise from Windlight
Pictures in Germany. This strong pipeline demonstrates ITV Studios
commitment and success in nurturing and leveraging top creative
talent to deliver engaging and high-quality content.
ITV
Studios 2023 financial performance
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Change
£m
|
Change
%
|
Organic Change*
%
|
ITV Studios UK
|
962
|
822
|
140
|
17
|
16
|
ITV Studios US
|
395
|
467
|
(72)
|
(15)
|
(13)
|
ITV Studios
International
|
445
|
465
|
(20)
|
(4)
|
(8)
|
Global Partnerships
|
368
|
342
|
26
|
8
|
8
|
Total ITV Studios revenue
|
2,170
|
2,096
|
74
|
4
|
3
|
Total ITV Studios costs
|
(1,884)
|
(1,837)
|
(47)
|
(3)
|
(2)
|
Total ITV Studios adjusted EBITA**
|
286
|
259
|
27
|
10
|
8
|
ITV Studios adjusted EBITA
margin
|
13.2%
|
12.4%
|
|
|
|
* The organic change assumes
exchange rates remain consistent with the comparative period and it
removes the impact of acquisitions in the current or comparative
period.
** Includes the benefit of
production tax credits. Refer to Alternative Performance Measures
for key adjustments to EBITA and adjusted EBITA.
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Change
£m
|
Change
%
|
Sales from ITV Studios to
M&E
|
629
|
611
|
18
|
3
|
External revenue
|
1,541
|
1,485
|
56
|
4
|
Total ITV Studios revenue
|
2,170
|
2,096
|
74
|
4
|
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Change
£m
|
Change
%
|
Scripted1
|
802
|
723
|
79
|
11
|
Unscripted
|
1,057
|
1,038
|
19
|
2
|
Core ITV2
and Other
|
311
|
335
|
(24)
|
(7)
|
Total ITV Studios revenue
|
2,170
|
2,096
|
74
|
4
|
1. Includes high-end scripted and
other scripted revenues
2. Core ITV includes the soaps and
daytime shows produced by ITV Studios for ITV1
ITV Studios delivered its
highest-ever revenues and profits in 2023. Total revenue was up 4%,
and external revenue was up 4% driven predominantly by growth in
the UK. Sales from ITV Studios to M&E were up 3%, with several
new dramas for ITV1 and ITVX. Total organic revenue at constant
currency was up 3%, impacted by a £15 million unfavourable foreign
exchange movement in the year and a £65 million inorganic
contribution from Plimsoll Productions and Lingo Pictures which
were both acquired in 2022.
Reflecting our presence in key
global production markets, 58% of ITV Studios revenue was generated
outside the UK (2022: 60%).
ITV Studios adjusted EBITA was up
10% year-on-year, with our adjusted EBITA margin of 13.2%
(2022: 12.4%) restored to within our 13% to 15% target range. There
was a £3 million unfavourable impact from foreign exchange. During
the year, £13 million of permanent cost savings were delivered
relating to operational efficiencies, our US property move and a
permanent reduction in discretionary spend.
We continue to look at ways to
drive efficiencies and improve margins over the medium term,
including rationalising our property footprint, using technology
and data to drive cost and revenue efficiencies, utilising our
production hubs for our key global formats, taking further steps to
digitise our production processes, as well as using remote editing
more routinely and the operational use of AI where possible. We
remain committed to our adjusted EBITA margin guidance of 13% to
15%.
ITV Studios UK
ITV Studios UK has a diverse range
of scripted and unscripted titles for broadcasters and streaming
platforms. The business is built upon many long‑running and recurring titles, the
majority of which are sold to the M&E business for transmission
on ITV's family of linear TV channels and ITVX. The core portfolio
includes daytime programmes such as Good Morning Britain, This
Morning, Loose Women, and Lorraine; the soaps: Coronation Street
and Emmerdale; and entertainment programmes such as The Voice, The
Chase, Love Island and I'm A Celebrity…Get Me Out Of
Here!
ITV
Studios UK saw strong revenue growth in 2023, up 17% to £962
million (2022: £822 million) and up 16% to £920 million on an
organic basis, which adjusts for the acquisition of Plimsoll
Productions in 2022. It had an impressive slate of deliveries for a
broad customer base, which included a Love Island winter and summer
series, I'm a Celebrity…Get Me Out Of Here! South Africa, After the
Flood, and Grace, all for ITV; as well as The Completely Made-Up
Adventures of Dick Turpin for AppleTV+, Squid Game: The Challenge
for Netflix - which was one of their most watched unscripted
original productions globally in 2023, Vigil, World On Fire, The
Outlaws, and Shetland for the BBC, and Dinner With The Parents for
FreeVee. 61% of revenue was derived from sales to the M&E
business (2022: 65%).
Deliveries expected in the first
half of 2024 include internal sales to M&E of new and returning
entertainment programmes such as Love Island All Stars, Saturday
Night Takeaway, and the Chase, and returning dramas, The Bay and
Vera. External sales include The Reluctant Traveller for Apple TV+,
Missing You for Netflix and The Gathering for Channel 4.
ITV Studios US
ITV Studios US provides content to
all the major networks and cable channels in the US, along with
every major streaming platform. It has a good foundation of core
programmes, including unscripted titles with multiple seasons and a
high volume of episodes, along with premium scripted content, which
has enabled the business to grow its presence significantly and
develop deep client relationships, in a highly competitive
market.
In 2023, ITV Studios US total
revenue declined by 15% to £395 million (2022: £467 million) and by
13% to £405 million on an organic basis when adjusted for the
unfavourable foreign exchange impact. The decrease in revenue
year-on-year reflects the phasing of large, unrepeated scripted and
unscripted deliveries year-on-year, including Snowpiercer, Let The
Right One In and Hell's Kitchen, combined with lower demand from
networks.
Within ITV Studios America
(scripted), 2023 deliveries included Franklin for Apple TV+ which
is ITV Studios America's biggest scripted production to date,
Physical S3 for AppleTV+, as well as executive producing One Piece
for Netflix - which was one of the platform's most-watched original
scripted productions globally in 2023. ITV America (unscripted) saw
the delivery of new and returning titles such as Love Island and
Love Island Games for Peacock, The Prank Panel for ABC and Twin
Love for Amazon.
In 2024, ITV Studios America will
be impacted by the US writers' and actors' strikes in 2023 which
delayed the development of several projects which were due for
delivery in 2024. This will delay around £80 million of revenue
from 2024 to 2025.
In the first half of 2024,
unscripted deliveries from ITV America are expected to include
Queer Eye for Netflix and Alone for History Channel.
ITV Studios International
ITV Studios International produces
original scripted and unscripted content across our production
bases, as well as local versions of key formats developed through
our Global Partnerships business. Growing our European scripted
business allows us to benefit from the demand for
locally‑produced
content with global appeal, and we have scripted projects in
production and development with Amazon, Netflix, Paramount+, and
Disney+, as well as local streaming platforms, such as Videoland in
the Netherlands, and Stan in Australia.
Revenue within ITV Studios
International decreased by 4% to £445 million
(2022: £465 million) in 2023, and by 8% to
£428 million on an organic basis when adjusted for the
unfavourable impact of foreign currency and the acquisition of
Lingo Pictures in 2022. This decline reflects lower deliveries
year-on-year, mainly in Italy and Germany and some scripted
deliveries being delayed to 2024. Deliveries in 2023 included I'm A
Celebrity... Get Me Out Of Here! in Germany and Australia, Love
Island in Australia, as well as Diana and SUBURRÆTERNA from
Cattleya in Italy, and Prosper from Lingo Pictures in
Australia.
Deliveries expected in the first
half of 2024 include Comedy Camp in France, as well as key formats
such as I'm A Celebrity…Get Me Out Of Here!, The Voice and The
Chase being delivered across multiple countries.
Global Partnerships
Global Partnerships saw good
revenue growth in 2023, up 8% year-on-year to £368 million
(2022: £342 million) and 8% to £369 million on an organic basis
when adjusted for the unfavourable impact of foreign currency. The
business benefited from the international distribution of returning
titles such as World On Fire and Vigil, and has leveraged the
breadth and depth of its extensive catalogue with sales to other
broadcasters and streaming platforms globally - which are a growth
area for Global Partnerships. Finished programming sales of
unscripted formats were also good, including The Voice, Love Island
and The Graham Norton Show, all delivering across multiple
different territories.
2024 and beyond should see an
increased pipeline of new content for Global Partnerships. New
titles expected to sell internationally in 2024 include A Cruel
Love: The Ruth Ellis Story and After The Flood.
OUTLOOK
ITV Studios remains on track to
deliver total organic revenue growth of 5% on average per annum
from 2021 to 2026 - ahead of the market, at an adjusted EBITA
margin of 13% to 15%.
Going forward we expect to see
growth in key segments in which we operate - content licensing,
demand from streaming platforms for unscripted content and cost
effective premium scripted content which we are well positioned to
take advantage of.
We are confident that we will
continue to grow our market share to 2026 driven by our scale; our
diversification by customer; geography and genre; a strong track
record of high-quality content; a very strong slate for 2024 and
beyond; and our leading creative talent.
As previously guided, 2024 will be
impacted by the 2023 US writers' and actors' strikes which will
delay around £80 million revenue from 2024 to 2025. In addition, we
are seeing weaker demand from FTA broadcasters in Europe who are
holding back spend until there is more certainty in the advertising
market.
MEDIA &
ENTERTAINMENT
Media & Entertainment
(M&E) is the largest commercial broadcaster and streamer in the
UK, delivering unrivalled audience scale and reach. It includes
Streaming and Broadcast, distributing content through ITVX, our
free advertiser-funded streaming service, and our free-to-air
linear TV channels.
ITV's M&E strategy recognises
and capitalises on the change in viewer behaviour and the evolving
needs of advertisers. It is based on two strategic pillars:
Supercharge Streaming and Optimise Broadcast. Our focus is to
retain our existing viewers and advertisers while also attracting
new ones. ITV offers viewers the choice to watch whenever and
however they wish, with a strong reputation for brilliant content
suited to British audiences. ITV offers advertisers a unique
combination of mass simultaneous reach, targeted advertising at
scale, and commercial and creative partnerships in a brand-safe and
reliably measured environment.
Our strategic pillars have KPIs
and 2026 targets which reflect the key drivers of growth and value.
See the Strategy section within the CEO's Report for more details
on these KPIs, why they are important and how they will enable us
to grow digital revenues to at least £750 million by 2026, and
drive revenues from linear TV advertising, commercial and creative
partnerships, and sponsorship.
Supercharge Streaming
Growing and enhancing our streaming service
ITVX
We successfully launched ITVX in
December 2022 (which combined our previous offerings ITV Hub, ITV
Hub+ and BritBox UK) to transform our streaming service from a
catch up service to a content destination and to deliver the
inventory to fulfil the growing demand for our digital advertising.
Although the main focus of ITVX is the free ad-funded offering,
there is also a subscription tier, ITVX Premium.
ITVX's strong performance in its
first year is evident by the step change in our KPIs and other
viewing metrics as we attract more users who are engaging for
longer across our streaming platforms year-on-year. In 2023, the
service:
· Attracted more users - monthly active users (MAUs) increased
by 19% to 12.5 million year-on-year (2022: 10.5 million)
· Attracted a larger audience - total streaming hours were up
26% to 1,505 million (2022: 1,192 million[19])
· Increased viewing by our target audience - streaming hours
amongst light viewers who are harder to reach, increased by 65%,
and streaming hours among the 25-54 age group demographic increased
by 47%
· Increased engagement and content discovery - streaming hours
per viewer, was up 27% and 90% of users that watched an ITVX
exclusive, went on to watch other content on the
platform
· Increased brand awareness - growing from around 60% at launch
to over 90%[20] in 2023
This increased reach and frequency
of viewers provide advertisers with valuable addressable audiences
at scale in a brand-safe and measured environment. Our robust data
and analytics capabilities enable us to offer high-value,
data-driven inventory and to generate higher digital revenues,
which was up 19% year-on-year.
To deliver and maintain this
strong performance we focus our ITVX investment on enhancing the
depth and breadth of content, continuous improvements in the
product and user experience, and expanding the distribution and
marketing of ITVX.
Content:
There are over 25,000 hours of content available
(including over 7,000 hours exclusively on the premium ad-free
tier), including on-demand content from our five linear TV
channels, FAST channels, exclusive ITVX content (such as anime,
true crime and US box sets), ITVX Kids, and over 300 films creating
one of the UK's largest free film libraries. Programmes which
contributed significantly to the year-on-year increase in streaming
hours include: Love Island, Rugby World Cup, The Only Way Is Essex
and Big Brother.
We are constantly testing,
learning and evolving our content proposition and windowing
strategy between ITVX and our linear TV channels to optimise
viewing and monetisation. We are implementing many of the insights
gained during 2023 and utilising the data we have, particularly
around how we window exclusives, such as dramas, on our
platforms.
News is an important driver of
viewing and our ITV News proposition is now fully embedded within
ITVX, with News streaming hours up 20% year-on-year and we have
launched exclusive 90-second ITV News bulletins, a new News
category page on the service and regional short and long-form catch
up.
Product: Throughout 2023, we
have implemented a series of enhancements to improve ITVX's product
and user experience. This included the integration of deeper
personalisation in Q4, driving content recommendations specific to
users. We have started to see positive results with an uplift in
MAUs and streaming hours, and an increase in repeat visits by
lighter users, who are harder to reach and a key target for us to
attract to the service. In addition, ITVX Kids launched in the
second half of 2023 as a fully digital experience; and over 90% of
our content on ITVX is now subtitled.
In the first half of 2024, we will
continue to integrate personalisation across the user experience
and utilise it as a driver for marketing. We will further monetise
our inventory, by introducing features such as Pause Ads, which
seamlessly play ads when a user pauses content, and roll-out out
new ways for clients to sponsor collections of content across the
service. We will also be introducing subtitles on adverts,
something that is extremely important to our advertising
clients.
Distribution: The integration
of ITVX into third-party platforms substantially increased in 2023,
with over 40 new ways for a user to access the service. We have
improved the discoverability of ITVX on third-party platforms which
has helped drive bigger audiences to our content and the service is
now available in almost 100% of UK households.
The introduction of ITVX on Sky Q
in Q1 2023, combined with stronger partnerships with both Sky and
Virgin has resulted in streamed, on demand viewing with targeted
advertising, replacing viewing recorded by users which cannot be
monetised. We can now deliver targeted advertising across all our
channels on mobile and web, enabling better monetisation
opportunities across these platforms.
In 2024, ITVX will roll-out on
PlayStation 4 and 5. We will further improve the discoverability of
ITVX on third-party platforms through creating additional links
that bring users directly into ITVX programmes from the main
screens of their devices. The launch of Freely, the new TV
streaming service which combines live TV and catch up of the FTA
broadcasters will also help make ITV, along with the other PSB's,
more accessible. All of this will further expand our distribution
footprint, making our content more widely available.
Marketing: Our marketing
strategy following ITVX's launch has been focused on driving
awareness, consideration and viewing to the service to support the
delivery of our KPIs. We have seen awareness for both adults and
light viewers grow strongly and our campaigns have helped
contribute to the increase in MAUs and streaming hours during the
year.
Marketing is an important tool to
continue to attract users and viewing on ITVX, and also on our
linear TV channels. We see an opportunity to adopt a more
responsive approach helping highlight popular programs to
commercial valuable audiences. The opportunity and returns from
this area are very attractive. In 2024 we will increase our
marketing spend by £15 million to drive both streaming and linear
viewing. This will include investing in data and on the prominence
of our content on third-party platforms; campaigns to engage more
25-54 year-old light viewers - who are highly valuable to
advertisers - showcasing the breadth and depth of our quality
content; along with continuous focus on measurement and
optimisation of our investment. We will continue to evaluate
content and marketing ROI and adjust as necessary.
ITVX Premium offers users the
opportunity to enjoy all ITVX programming ad-free plus exclusive
content and access to BritBox UK (content from the ITV and BBC
libraries). Although the main focus of ITVX's launch has been to
promote the ad-funded service, we have improved the premium
offering by incorporating additional content from our partnership
with StudioCanal and worked with third-party platforms to enable
greater prominence on device interfaces. We are now simplifying our
viewer proposition for ITVX Premium and taking ownership of the
relationship with the subscribers. As a result, in 2023, UK
streaming subscriptions declined marginally to 1.3 million (2022:
1.4 million) as we transitioned users from our standalone app,
BritBox UK, to ITVX Premium, combined with the closure of the
Amazon ITV catch up channel.
In addition, in 2024 the BritBox
UK service on Amazon Prime Video Channels and the BritBox UK
standalone app will also close as we further simplify our offering.
This will consolidate all our subscribers under one ITVX Premium
brand, and will give us complete ownership of the subscriber base.
The closure of these services is expected to impact subscriber
numbers and subscription revenues in 2024.
Optimise Broadcast
Continuing to deliver unrivalled audiences with
high‑quality
programming
Within our Broadcast business, we
operate the largest family of free‑to‑air commercial television channels
in the UK. These channels provide unparalleled audience scale and
reach, as well as targeted demographics demanded by advertisers.
Despite the growth in streaming viewing, linear TV remains
important for both our viewers and advertisers.
To optimise Broadcast and maintain
our USP of delivering mass audiences for advertisers, we will
continue to invest in live content, such as sports and large
entertainment shows, as well as dramas, factual and news. In total
ITV invests over £1.2 billion annually in our content budget across
all our linear TV channels and ITVX in order to drive these mass
audiences on our linear TV channels, and live and on demand viewing
on ITVX.
Over the last few years, linear TV
audiences in the UK have gradually declined with audiences spending
an increasing amount of time on streaming platforms, both ad-funded
and paid. In 2023, total ITV viewing (which includes viewing of all
ITV content, across all devices) was down 5% to 13.1 billion hours.
For the first ten months of the year, the growth of ITV's digital
viewing largely offset the decline in linear viewing, however
November and December 2023 were impacted by the strong viewing
comparatives of the FIFA World Cup in 2022. Total broadcaster
viewing (broadcaster viewing across all devices) declined by 3% in
the year and total broadcaster and subscription streaming service
viewing (viewing of all broadcaster and subscription streaming
service content across all devices) declined by 1% (Source: ITV,
BARB).
Despite the challenging linear
viewing landscape, our share of the top 1,000 commercial broadcast
TV programmes was 91% in 2023 (2022: 93%) and our share of
commercial viewing[21] was 32.6% (2022:
33.8%) and we continue to have the largest share of commercial
viewing versus our commercial competitors. Content such as I'm A
Celebrity…Get Me Out Of Here!, Love Island, Unforgotten, The Bay
and the Rugby World Cup, all contributed to our viewing KPIs
remaining ahead of our 2026 targets, in the year.
We have an exciting schedule for
2024 to keep our audiences informed and entertained. This includes
entertainment shows Celebrity Big Brother and Wheel of Fortune, new
dramas Breathtaking, Protection and Ruth Ellis, along with sporting
events including UEFA Euros and both men's and women's
international football qualifiers.
Strong linear and online advertising
proposition
While the advertising market is
getting more competitive, ITV is in a good position to be able to
compete for advertising in a long-term growing advertising market
with its unique combination of mass simultaneous reach, targeted
advertising and commercial and creative partnerships. ITV has deep
relationships with agencies and advertisers; brand-safe and
measured advertising and a strong track record of commissioning and
producing content which appeals to UK audiences.
Mass simultaneous reach
Television continues to be a
highly effective and efficient medium for advertisers to achieve
mass scale and reach. As the viewing and advertising landscape
becomes more fragmented, the scale and reach provided by
television, and particularly ITV, becomes even more valuable to
advertisers. With global steaming platforms entering the
advertising market and introducing ad-supported tiers to their
subscription plans, ITV's USP as the largest commercial public
service broadcaster in the UK remains incredibly important. The
advertising and viewing proposition ITV provides to clients is
unparalleled, and something that no streamer can match.
Targeted advertising - Planet V
Planet V is ITV's wholly-owned,
scaled programmatic addressable advertising platform with an
intuitive self-service interface that allows agencies and
advertisers to seamlessly and cost-effectively buy highly targeted
video advertising on ITVX. Planet V is the
second‑largest
programmatic video advertising platform in the UK after Google and
utilises ITV's extensive data assets and capabilities to provide
compelling advertising products for advertisers. ITVX has over 40
million registered users, giving ITV and its advertisers one of the
largest first party data sets in the UK. Being wholly owned ensures
that all the returns generated by the platform go directly to ITV
without any value leakage through third-party
commissions.
The platform is used by over 2,000
users in the UK and offers agencies and advertisers access to over
20,000 data-targeting options to create sophisticated audience
segments. They can also incorporate their own first-party data in a
GDPR-compliant environment using InfoSum (an identity
infrastructure provider) and monitor their campaigns through a
custom‑built user
interface. Advertisers are prepared to pay more for this
increasingly sophisticated and valuable ad inventory.
With the expansion of ITVX's online inventory and reach, ITV
is well positioned to meet the increasing demand for targeted
advertising. We have a significant opportunity to partake in the
addressable market of around £6.8 billion in 2023 (Source: AA/WARC
Q3 2023 Expenditure Report), and have the foundations in place to
successfully compete for the long tail of advertisers within the
online video market which were previously inaccessible to ITV due
to their scale and targeting requirements. Since we launched Planet
V we have attracted in excess of 1,000 new advertisers to
ITV.
ITVX and Planet V have helped
drive growth in digital advertising revenue in the year, up
21%.
Commercial and creative partnerships
ITV's Commercial team delivers
strategic commercial and creative partnerships with advertisers who
highly value ITV's large and targeted audiences to establish and
grow their own brands. This includes product placement,
ad‑funded
programming and other partnerships that leverage the strength of
our programme brands to help advertisers connect with audiences in
unique ways. As a vertically integrated producer broadcaster and
streamer, we have the advantage of having editorial, commercial,
creative, and production teams working together, creating valuable
opportunities for advertisers.
Our Commercial team also has
various initiatives to attract and engage advertisers, attracting
over 250 new brands to TV and nearly 400 digital-only advertisers
to ITV in 2023. For example:
· ITV AdVentures Ignite: Encouraging digitally native brands to
advertise on television for the first time
· ITV AdVentures Invest: Through our Media for Equity program,
we take minority stakes in direct-to-consumer businesses in return
for advertising inventory across ITV's linear TV channels and ITVX,
for example, Flarin, a pain relief brand, and Resi, an
architectural design company
· ITV Ad Labs: This brings together all innovations under one
proposition and includes data solutions which can securely match
client data with ITV's existing registered first‑party audience and Boots' Advantage
Card and Tesco's Dunnhumby Clubcard databases.
M&E 2023 financial performance
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Change
£m
|
Change
%
|
Total advertising
revenue
|
1,778
|
1,931
|
(153)
|
(8)
|
Subscription revenue
|
59
|
54
|
5
|
9
|
SDN
|
48
|
55
|
(7)
|
(13)
|
Partnerships and other
revenue
|
205
|
209
|
(4)
|
(2)
|
M&E non-advertising
revenue
|
312
|
318
|
(6)
|
(2)
|
Total M&E revenue
|
2,090
|
2,249
|
(159)
|
(7)
|
Content costs
|
(1,293)
|
(1,216)
|
(77)
|
(6)
|
Variable costs
|
(153)
|
(130)
|
(23)
|
(18)
|
M&E infrastructure and
overheads
|
(439)
|
(439)
|
-
|
-
|
Total M&E costs
|
(1,885)
|
(1,785)
|
(100)
|
(6)
|
Total M&E adjusted
EBITA*
|
205
|
464
|
(259)
|
(56)
|
Total adjusted EBITA
margin
|
10%
|
21%
|
|
|
* Refer to APMs for key
adjustments to EBITA
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Change
£m
|
Change
%
|
Digital advertising
revenue
|
415
|
343
|
72
|
21
|
Subscription revenue
|
59
|
54
|
5
|
9
|
Other
|
16
|
14
|
2
|
14
|
Total digital revenue
|
490
|
411
|
79
|
19
|
Total M&E revenue was down 7%
in 2023 with the decrease predominantly driven by the expected
decline in total advertising revenue which was down 8% to £1,778
million. Digital revenue[22], an important
Streaming KPI, was up 19% in the year and within this, digital
advertising revenues were up 21% year-on-year.
M&E non-advertising revenues
were down 2% in 2023, with growth in subscription revenue offset by
the expected and continuing decline in SDN revenue, and a reduction
in partnerships and other revenue. Further detail on
the year-on-year movement is included on the following
page.
Total M&E costs were up 6% in
the year and within this, content costs was up 6% reflecting the
additional planned investment in content for ITVX which was
partially offset by a reduction in content amortisation to reflect
the windowing of content between linear and streaming, as
previously guided.
Variable costs were up 18%, driven
by an increase in bandwidth costs and other streaming-related
costs, along with third-party commercial payaways.
M&E infrastructure and
overhead costs were flat year-on-year with inflation and the
investment in headcount associated with ITVX, offset by a reduction
in the employee bonus payout and permanent cost savings of £11
million delivered in the year relating to the renegotiation of
transmission contracts and property savings.
M&E adjusted EBITA was down
56% with a margin of 10% reflecting the challenging advertising
market and planned investment in ITVX.
Total advertising revenue (TAR)
TAR was down 8% year-on-year in
2023 which was in line with our expectations.
The start of 2023 saw TAR down 10%
in Q1 and down 11% in Q2 against tough comparatives and the
challenging macroeconomic environment. Q3 was up 1% and Q4 was down
9% with October up 2%, November down 15% and December down 14%
against strong comparatives in 2022 from the FIFA World
Cup.
As expected, most TAR categories
were down year-on-year, with the largest being Finance, down 31%
driven by online and retail banks and insurance companies.
Publishing and Broadcasting was down 28% with decreases from
streaming platforms and social media sites, and Entertainment and
Leisure was down 18% with declines from gaming, music and film
companies.
Categories that increased spend
during the year included FMCGs, who used brand advertising to help
push through price increases to consumers. Airlines and Travel were
up 3%, driven by online holiday companies and overseas tourism
boards.
After many years of double digit
growth, e-commerce companies, excluding gambling, decreased 29%
driven by online car and retail brands, as a result of the reduced
availability of venture capital funding.
Subscription revenue
Subscription revenue is generated
directly from the premium tier of ITVX, our standalone BritBox UK
app, and BritBox UK and ITV Catch Up services on Amazon Prime Video
Channels. It does not include BritBox International, which is
included within JVs and Associates.
In 2023, subscription revenue
increased by 9% due to the annualisation of subscribers in 2022,
combined with new ITVX Premium subscribers. This was partly offset
by a reduction in subscribers on our BritBox UK standalone app and
the closure of ITV Catch Up on Amazon Prime Video
Channels.
In 2024 the BritBox Amazon and the
BritBox direct to consumer service will close, which will impact
our number of subscribers and subscription revenues in
2024.
SDN
SDN generates revenue by licensing
video streams to broadcast channels, radio stations and data
providers on digital terrestrial television (DTT) or Freeview. SDN
customers include ITV and third parties. SDN's current licence has
been renewed until 2034.
In 2023, external revenue
(non-ITV) declined as expected by 13%. This decrease is primarily
due to the renewal of long-term contracts with third parties at
current market rates, in the current and prior year. This trend is
expected to continue.
Partnerships and other revenue
Partnerships and other revenue
include revenue from platforms, such as Sky and Virgin Media O2,
competition revenue, third‑party commission, e.g. for services
we provide to STV, and commercial revenue from our creative
partnerships.
Partnerships and other revenue
declined by 2% in the year mainly driven by lower competition
revenue.
We expect Partnerships and other
revenues to decline in 2024 following our decision to revise our
partnership agreements to allow ITVX viewers to watch in HD, and
allow ITV to target ads to a much larger proportion of those
viewers, using Planet V.
BritBox International
On 01 March 2024, ITV announced
the sale of its 50% shareholding in BritBox International to the
BBC Studios for £255 million. ITV Studios will continue to receive
an ongoing revenue stream from BritBox International similar to
current levels for the use of ITV content under new extended
licensing agreements.
Prior to this date, BritBox
International was ITV's joint venture with the BBC, providing an
ad‑free
subscription streaming service offering the most comprehensive
collection of British content available in the US, Canada,
Australia, South Africa and the Nordics (made up of Sweden,
Finland, Denmark and Norway). Subscribers on 31 December 2023
were 3.7 million. (31 December 2022: 3.0 million). BritBox
International revenue and profit or loss, is included in share of
profits/losses on JVs and not within M&E adjusted
EBITA.
OUTLOOK
We remain on track to deliver at
least £750 million of digital revenues by 2026.
We have had a good start to 2024
and will build on ITVX's successful launch year through continuous
improvements in content, product, distribution and
marketing.
ITVX's strong performance in 2023
has shown us that we can grow viewing significantly with slightly
lower overall content spend. Therefore we expect to marginally
reduce our content cost in 2024 to around £1,275 million as we
further optimise linear, evolve our windowing strategy and improve
personalisation. At the same time we will increase our
marketing spend by £15 million to drive both streaming and linear
viewing. We will continue to evaluate content and marketing ROI and
adjust as necessary.
Compared to the same period in
2023, TAR is expected to be up 3% in Q1 2024, with continued strong
growth in digital advertising revenues.
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 divisions 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. APMs are not defined terms under
IFRS and may not be comparable with similarly titled measures
reported by other companies.
As adjusted results exclude
certain items (such as significant legal, major restructuring and
transaction items), they should not be regarded as a complete
picture of the Group's financial performance. The exclusion of
adjusting items may result in adjusted earnings being materially
higher or lower than statutory earnings. In particular, when
significant impairments, restructuring charges and legal costs are
excluded, adjusted earnings will be higher than statutory
earnings.
The Audit and Risk Committee has
oversight of ITV's APMs and actively reviews, challenges, revises
and approves the policy for classifying adjustments and exceptional
items. Further detail is included in the following
section.
Key adjustments for EBITA, adjusted EBITA, profit before tax
and EPS
EBITA is calculated by adjusting
statutory operating profit for operating exceptional items and
amortisation and impairment.
Adjusted EBITA is calculated by
adding back 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.
Adjusted EBITDA, which is used to
calculate the Group's leverage, is calculated by adding back
depreciation to adjusted EBITA.
Production tax credits
The ability to access tax credits,
which are rebates based on production spend, is fundamental to our
ITV Studios business across the world when assessing the viability
of investment decisions, especially with regard to drama and
comedy. ITV reports tax credits generated in the US and other
countries (e.g. 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, the UK tax credits are recognised in adjusted EBITA. Our
cash measures, including profit to cash conversion and free
cashflow are also adjusted for the impact of production tax
credits.
In 2024, the adjustment we make to
add back high‑end
production tax credits to EBITA will change. See the Tax note in
the Finance Review Section for further details.
Exceptional items
These items are excluded to
reflect performance in a consistent manner and in line with how the
business is managed and measured on a day‑to‑day basis. They are typically
material amounts related to costs, 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
acquisition activity, costs related to major reorganisation and
restructuring programmes, material onerous contracts, significant
impairments, employee‑related tax provisions related to earlier financial periods
(IR35) and other items such as legal settlements and
non‑routine legal
costs (e.g. legal costs related to items which are themselves
considered to be exceptional items). We also adjust for the tax
effect of these items.
See note 2.2 to the financial
information for further detail.
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 statutory 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 treatment and disclosure.
Amortisation and impairment
Amortisation and any initial
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 profit before tax 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,
exceptional interest and other finance costs on acquisitions,
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.
Reconciliation between statutory and adjusted
results
Twelve months to
31 December
|
2023
Statutory
£m
|
2023
Adjustments
£m
|
2023
Adjusted
£m
|
2022
Statutory
£m
|
2022
Adjustments
£m
|
2022
Adjusted
£m
|
EBITA1
|
404
|
85
|
489
|
668
|
49
|
717
|
Exceptional items
(operating)2
|
(77)
|
77
|
-
|
(65)
|
65
|
-
|
Amortisation and
impairment3
|
(89)
|
25
|
(64)
|
(84)
|
57
|
(27)
|
Operating profit
|
238
|
187
|
425
|
519
|
171
|
690
|
Net financing costs4
|
(45)
|
16
|
(29)
|
(26)
|
-
|
(26)
|
Share of profits on JVs and
associates
|
-
|
-
|
-
|
8
|
-
|
8
|
Profit before tax
|
193
|
203
|
396
|
501
|
171
|
672
|
Tax5
|
16
|
(101)
|
(85)
|
(66)
|
(69)
|
(135)
|
Profit after tax
|
209
|
102
|
311
|
435
|
102
|
537
|
Non‑controlling
interests
|
1
|
-
|
1
|
(7)
|
-
|
(7)
|
Earnings
|
210
|
102
|
312
|
428
|
102
|
530
|
Shares (million),
weighted average
|
4,023
|
-
|
4,023
|
4,010
|
-
|
4,010
|
EPS (p)
|
5.2p
|
-
|
7.8p
|
10.7p
|
-
|
13.2p
|
Diluted EPS (p)6
|
5.2p
|
-
|
7.7p
|
10.6p
|
-
|
13.1p
|
1. £85 million (2022: £49 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. EBITA is not a statutory
measure
2. Exceptional items of £77
million (2022: £65 million) largely relate to acquisition-related
expenses, restructuring, transformation and property move costs.
Refer to the Finance Review
3. £25 million (2022: £57 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. £16 million (2022: £nil)
adjustment is 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
6. Weighted average diluted number
of shares in the period was 4,059 million (2022: 4,046
million)
Adjusted EBITDA (used to calculate
the group's leverage) for the year is £535 million (2022: £770
million), calculated by adding back depreciation of £46 million
(2022: £53 million) to adjusted EBITA (which is shown in the table
above).
OTHER ALTERNATIVE PERFORMANCE MEASURES
Total revenue
As a vertically integrated producer
broadcaster and streamer, we look at the total revenue generated by
the business including internal revenue, which is the sale of ITV
Studios programmes to M&E. ITV Studios selling programmes to
the M&E business is an important part of our strategy as a
vertically integrated business and it ensures we own all the rights
to the content.
A reconciliation between external
revenue and total revenue is provided below.
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
External revenue
(Statutory)
|
3,624
|
3,728
|
Internal supply
|
636
|
617
|
Total revenue
(Adjusted)
|
4,260
|
4,345
|
ITV Studios organic revenue growth
ITV Studios organic revenue growth
adjusts revenue growth for the impacts of foreign currency and
acquisitions in the current or comparative period. Current period
revenues are measured at constant currency which assumes exchange
rates remain consistent with the comparative period. The table
below shows the calculation of our organic revenue growth within
ITV Studios:
Twelve months
to 31 December
|
2023
£m
|
2022
£m
|
Change
£m
|
Change
%
|
ITV Studios total
revenue
|
2,170
|
2,096
|
74
|
4
|
Adjustment for constant
currency
|
15
|
-
|
-
|
-
|
Adjustment for acquisitions in
prior period
|
(65)
|
(32)
|
(33)
|
103
|
ITV Studios total revenue -
organic basis
|
2,120
|
2,064
|
56
|
3
|
Net
pension surplus/deficit
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 the unfunded pension scheme holds a charge. See note 3.7
to the financial information.
Profit to cash conversion
This is the measure of our
effectiveness at 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.
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 net debt is defined and
is relevant in demonstrating we have met the required RCF financial
covenants at our reporting date.
Covenant adjusted EBITDA (Earnings
before Interest, Tax, Depreciation and Amortisation) is used to
calculate our covenant compliance and our leverage, and is defined
in the RCF agreement. The calculation of covenant adjusted EBITDA,
covenant net debt and covenant liquidity are detailed in the tables
below:
|
31 December
2023
£m
|
31 December
2022
£m
|
Statutory operating
profit
|
238
|
519
|
Exceptional items
|
77
|
65
|
Amortisation and
impairment
|
89
|
84
|
EBITA
|
404
|
668
|
Depreciation
|
46
|
53
|
Right of use assets
depreciation
|
(19)
|
(25)
|
Interest charged on
lease liabilities
|
(4)
|
(4)
|
Covenant adjusted
EBITDA
|
427
|
692
|
|
31 December
2023
£m
|
31 December
2022
£m
|
Net debt (including IFRS 16 lease
liabilities)
|
(553)
|
(623)
|
Impact of IFRS 16
lease liabilities
|
115
|
132
|
Long‑term trade
payables
|
(25)
|
(17)
|
Other pension asset
|
48
|
47
|
Covenant net debt
|
(415)
|
(461)
|
Covenant adjusted
EBITDA*
|
427
|
692
|
Covenant net debt to adjusted
EBITDA*
|
1.0x
|
0.7x
|
|
|
|
Cash and cash
equivalents
|
340
|
348
|
Undrawn RCF
|
600
|
450
|
Undrawn CDS facility
|
300
|
300
|
Covenant liquidity**
|
1,240
|
1,098
|
* Covenant adjusted EBITDA
is defined per the facility agreement. The Finance Review includes
further detail on our covenant ratios.
** Covenant liquidity is defined
as cash and cash equivalents plus undrawn committed
facilities.
FINANCE REVIEW
CHRIS KENNEDY
GROUP CFO & COO
This Finance Review focuses on the
more technical aspects of our financial results while the operating
and financial performance of the Group, M&E and ITV Studios has
been discussed within the Operating and Financial 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 details.
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Change
£m
|
Change
%
|
ITV Studios total
revenue
|
2,170
|
2,096
|
74
|
4
|
Total advertising
revenue
|
1,778
|
1,931
|
(153)
|
(8)
|
M&E non-advertising
revenue
|
312
|
318
|
(6)
|
(2)
|
M&E total revenue
|
2,090
|
2,249
|
(159)
|
(7)
|
Total non-advertising
revenue
|
2,482
|
2,414
|
68
|
3
|
Total group revenue
|
4,260
|
4,345
|
(85)
|
(2)
|
Internal supply
|
(636)
|
(617)
|
(19)
|
(3)
|
Group external revenue
|
3,624
|
3,728
|
(104)
|
(3)
|
Group adjusted EBITA
|
489
|
717
|
(228)
|
(32)
|
Group adjusted EBITA
margin
|
13%
|
19%
|
|
(6)
|
Statutory operating
profit
|
238
|
519
|
(281)
|
(54)
|
Adjusted EPS
|
7.8p
|
13.2p
|
(5.4p)
|
(41)
|
Statutory EPS
|
5.2p
|
10.7p
|
(5.5p)
|
(51)
|
Dividend per share
|
5.0p
|
5.0p
|
|
|
Net debt as at 31
December
|
(553)
|
(623)
|
70
|
11
|
Exceptional items
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Acquisition-related
expenses
|
(24)
|
(4)
|
Restructuring and transformation
costs
|
(25)
|
(28)
|
Property costs
|
(10)
|
(24)
|
Costs relating to the passing of
Her Majesty Queen Elizabeth II
|
-
|
(16)
|
Sports rights impairment
reversal
|
-
|
5
|
Pension related costs
|
-
|
(4)
|
Employee‑related tax
provision
|
3
|
(10)
|
Insured trade
receivable
|
3
|
23
|
Legal settlements
|
(13)
|
-
|
Legal and other costs
|
(11)
|
(7)
|
Operating exceptional
items
|
(77)
|
(65)
|
Total exceptional items
|
(77)
|
(65)
|
Total exceptional items in the
period were £77 million (2022: £65 million).
Acquisition-related expenses of £24 million (2022: £4 million) are
predominantly performance-based, employment-linked consideration to
former owners, and professional fees related to acquisitions and
potential acquisitions.
Restructuring and transformation
costs of £25 million (2022: £28 million) relate to one-off
restructuring projects in respect of the Group-wide commitment to
reduce the overhead cost base, as well as reorganisation and
transformation programme costs to deliver our strategy. Significant
projects include the implementation of a new cloud-based ERP
solution and rationalisation of the Studios operational structures
outside the UK.
Property costs relate to the London
office move to Broadcast Centre. No further exceptional costs are
expected related to this move.
Employee‑related tax provisions credit of £3
million relates to the release of provisions in respect of years
that are no longer in scope and confirmation from HMRC that certain
individuals are no longer under review in respect of IR35. The £10
million charge in 2022 reflected an increase in the provision for
potential employment taxes due to HMRC in relation to the
employment status of individuals contracted by the Group for
periods before 2022.
In 2017, the Group recorded a bad
debt provision of US$41 million related to trade receivables for
The Voice of China. As the Directors anticipated recovering the
amount either from the counterparty or from trade credit insurance,
US$37 million was treated as an exceptional cost and the insurance
excess of US$4 million was treated as an operating cost. US$34
million of cash received in 2018 and 2019 on behalf of the debtor
was placed under review and the bad debt provision remained in
place. During 2022, the review was completed, leading to the
release of the corresponding bad debt provision of which £23
million was treated as an exceptional credit. During 2023, a
settlement of the remaining claim was agreed upon with insurers
resulting in an exceptional credit of £3 million.
Legal settlements of £13 million
relate to settlements or proposed settlements on a number of
significant legal cases which are considered to be outside the
normal course of business.
Legal and other costs relate
primarily to legal costs for matters considered to be outside the
normal course of business, including Box Clever, The Voice of
Holland, the UK Competition and Markets Authority (CMA)
investigation and the Phillip Schofield KC Review.
Net financing costs
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Financing costs directly
attributable to loans and bonds
|
(24)
|
(26)
|
Cash-related net financing
costs
|
(5)
|
1
|
Amortisation on bonds and
gilts
|
-
|
(1)
|
Adjusted financing
costs
|
(29)
|
(26)
|
Net pension interest
|
8
|
-
|
Other net financial losses and
unrealised foreign exchange
|
(24)
|
-
|
Statutory net financing
costs
|
(45)
|
(26)
|
Adjusted financing costs were £29
million (2022: £26 million) largely due to financing costs
attributable to loans and bonds. Statutory net financing costs were
£45 million (2022: £26 million) mainly driven by charges related to
acquisition-related put and call options.
JVs
and associates
Our share of profits from JVs and
associates in the period was £nil (2022: profit of £8 million).
This was our share of the net profits and losses arising from our
investments, such as BritBox International, Bedrock Entertainment
and Blumhouse Television. The reduction year-on-year primarily
results from the phasing of the delivery of productions.
Profit before tax
Statutory profit before tax
decreased significantly year-on-year to £193 million (2022: £501
million) as a result of the impact of the challenging advertising
market and planned ITVX investment.
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Statutory profit before
tax
|
193
|
501
|
Production tax credits
|
85
|
49
|
Exceptional items
|
77
|
65
|
Amortisation and
impairment*
|
25
|
57
|
Adjustments to net financing
costs
|
16
|
-
|
Adjusted profit before
tax
|
396
|
672
|
* In respect of assets
arising from business combinations and investments.
Tax
Adjusted tax charge
The total adjusted tax charge for
the year was £85 million (2022: £135 million), corresponding to an
effective tax rate on adjusted PBT of 21.5% (2022: 20.1%), which is
lower than the standard UK corporation tax rate of 23.5% (2022:
19%). We expect the adjusted effective tax rate to be around 25% in
2024, as a result of the increase in the UK statutory rate to 25%
from April 2023.
On a reported basis, there is a
tax credit of £16 million (2022: £66 million tax charge) which
corresponds to an effective tax rate of (8.3%) (2022: tax charge
rate 13.2%). This rate in 2023 is lower than in previous years due
to the impact of higher HETV tax credits relative to the tax
charge, as well as a proportionally lower profit before tax in the
period compared to the prior year. The adjustments made to
reconcile the statutory 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 previous table.
Twelve months to 31
December
|
2023
£m
|
2023
Effective
tax rate
|
2022
£m
|
2022
Effective
tax rate
|
Statutory tax
(credit)/charge
|
(16)
|
(8.3)%
|
66
|
13.2%
|
Production tax credits
|
85
|
100%
|
49
|
100%
|
Charge for exceptional
items
|
12
|
15.6%
|
8
|
12.3%
|
Charge in respect of amortisation
and impairment*
|
6
|
24.0%
|
12
|
21.1%
|
Charge in respect of adjustments
to net financing costs
|
(2)
|
(12.5)%
|
-
|
-
|
Adjusted tax
charge**
|
85
|
21.5%
|
135
|
20.1%
|
* In respect of intangible
assets arising from business combinations and investments. Also
reflects the cash tax benefit of tax deductions for US
goodwill.
** As a percentage of adjusted profit before tax.
Cash tax
Cash tax paid in the year was £32
million (2022: £55 million) and is net of £38 million of production
tax credits received (2022: £31 million). The majority of the cash
tax payments were made in the UK. The cash tax paid is lower
compared to the previous year due to lower profits and higher
production tax credits received. A reconciliation between the tax
charge for the year and the cash tax paid in the year is shown
below.
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Tax credit/(charge)
(statutory)
|
16
|
(66)
|
Temporary differences recognised
through deferred tax*
|
7
|
44
|
Prior year adjustments to current
tax
|
12
|
(9)
|
Current tax, current
year
|
35
|
(31)
|
Phasing of tax payments (including
in respect of pension contribution benefits)
|
(20)
|
(6)
|
Production tax credits - timing of
receipt
|
(47)
|
(18)
|
Cash tax paid
(statutory)
|
(32)
|
(55)
|
* Further detail is included within Note 2.3 of the financial
information.
Changes to the current UK system of Audio-Visual tax
credits
On 29 November 2023, the UK
government issued final legislation to reform the current system of
Audio-Visual Expenditure Credit ('AVEC') tax credits to merge the
four existing AVEC schemes (Film, High-End Television (HETV),
Children's Television and Animation) into a single scheme and has
reviewed the qualifying criteria. The AVEC legislation was
substantively enacted on 5 February 2024 and can be claimed on
expenditure incurred from 1 January 2024.
The new scheme is one of
expenditure credits as opposed to corporate tax relief, requiring a
change to the accounting treatment to include them within statutory
operating profit rather than within the consolidated tax charge.
The effect of this change in legislation will therefore be to
increase our EBITA, adjusted EBITA, adjusted EBITA margin, profit
before tax and tax expense but will leave our profit after tax
unchanged, this is compared to the previous AVEC accounting
treatment. We continue to assess the impact on the Group and do not
anticipate there to be a material change in their net economic
value.
Base Erosion and Profit Shifting (BEPS) Pillar
Two
On 20 June 2023, Finance (No.2)
Act 2023 was substantively enacted in the UK, introducing a global
minimum effective tax rate of 15% for large groups and for
financial years beginning on or after 31 December 2023. Taxation
balances are adjusted for a change in tax law if the change has
been substantively enacted by the balance sheet date. However the
amendments to IAS 12 'Income Taxes' Pillar Two income taxes
provides an exemption from the requirement to recognise and
disclose deferred taxes arising from enacted or substantively
enacted tax law that implements the Pillar Two model
rules.
Based on an initial analysis of
the current year financial data, most territories in which the
Group operates are expected to qualify for one of the safe harbour
exemptions such that top-up taxes should not apply. In territories
where this is not the case there is the potential for Pillar Two
taxes to apply, but these are not expected to be material. The
Group continues to refine this assessment and analyse the future
consequences of these rules.
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
2023, 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 at £311 million (2022: £537 million). Non-controlling
interest was a share of losses of £1 million (2022: share of profit
of £7 million) which is the net result from the non-ITV owned share
in entities such as Plimsoll, Cattleya and Tomorrow
Studios.
Adjusted basic EPS was down 41% to
7.8p in the year (2022: 13.2p). The weighted average number of
shares increased year-on-year to 4,023 million (2022: 4,010
million). Diluted adjusted EPS in the year was 7.7p (2022: 13.1p)
reflecting a weighted average diluted number of shares of 4,059
million (2022: 4,046 million).
Statutory EPS decreased by 51% to
5.2p (2022: 10.7p).
A full reconciliation between
statutory and adjusted EPS is included in the Alternative
Performance Measures section.
Dividend per share
The Board recognises the
importance of the ordinary dividend to ITV shareholders. Reflecting
its confidence in the business and its strategy, as well as the
continued strong cash generation, in line with ITV's dividend
policy, the Board has declared a final dividend of 3.3p (2022:
3.3p), giving an ordinary dividend of 5.0p per share for the full
year 2023 (2022: 5.0p), a total payout of £201 million. The Board
remains committed to paying a total dividend of at least 5.0p in
2024, which it expects to grow over the medium term, whilst
balancing further investment to support our strategy and our
commitment to investment grade metrics over the medium
term.
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.
The dividend timetable is as follows:
Announcement
|
Thursday
7 March 2024
|
Ex-dividend date
|
Thursday
11 April 2024
|
Record date
|
Friday
12 April 2024
|
Dividend paid
|
Thursday
23 May 2024
|
Acquisitions
As part of our strategy to Expand
Studios, we 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 IP, 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 have generally structured 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. This has allowed us to lock in creative talent and
ensure our incentives are aligned, and also reduce our risk by only
paying for the actual, not expected, performance delivered 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.
Acquisition-related liabilities or
performance-based employment-linked earnouts are amounts estimated
to be payable to previous owners. The estimated future payments as
at 31 December 2023 are £105 million and 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 £86
million and £147 million. 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 £105 million have
increased by £16 million since 31 December 2022, due to increases
in forecast profits.
At 31 December 2023, £78 million
of expected future payments had been recorded on the balance sheet,
with the balance of £27 million to be accrued over the period in
which the sellers are required to remain with the
business.
There were no acquisitions during
2023.
Cash generation
Profit to cash conversion
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Adjusted EBITA
|
489
|
717
|
Working capital
movement
|
90
|
(150)
|
Adjustment for The Voice of China
cash received*
|
-
|
23
|
Adjustment for production tax
credits
|
(47)
|
(18)
|
Depreciation**
|
46
|
53
|
Share-based
compensation
|
16
|
19
|
Acquisition of property, plant and
equipment and intangible assets***
|
(70)
|
(78)
|
Lease liability payments
(including lease interest)
|
(26)
|
(26)
|
Adjusted cash flow
|
498
|
540
|
Profit to cash ratio (adjusted
EBITA/adjusted cash flow)
|
102%
|
75%
|
* Cash received in 2018 and
2019 for The Voice of China was placed under review and treated as
an exceptional cash receipt and excluded from the profit to cash
conversion calculation. In 2022, the review completed and the cash
was released. This adjustment shows the conversion of exceptional
cash to operation cash.
** Depreciation of £46 million
(2022: £53 million) includes £28 million (2022: £33 million) which
relates to ITV Studios and £18 million (2022: £20 million) relating
to Media & Entertainment.
*** Except where disclosed,
management views the acquisition of property, plant and equipment
and intangibles as business as usual capex, necessary to the
ongoing investment in the business.
Cash generated from operations is
reconciled to the adjusted cash flow as follows:
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Cash generated from
operations
|
488
|
537
|
Cash outflow from exceptional
items
|
68
|
53
|
Cash generated from operations
excluding exceptional items
|
556
|
590
|
Adjustment for production tax
credits
|
38
|
31
|
Adjustment for The Voice of China
cash received
|
-
|
23
|
Acquisition of property, plant and
equipment and intangible assets
|
(70)
|
(78)
|
Lease liability payments
(including lease interest)
|
(26)
|
(26)
|
Adjusted cash flow
|
498
|
540
|
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 in scripted content and ITVX, through
having a disciplined approach to cash and costs. 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 £498
million of operational cash (2022: £540 million) from £489 million
of adjusted EBITA (2022: £717 million), resulting in a profit to
cash ratio of 102% (2022: 75%). The increase in our profit to cash
ratio year-on-year reflects a favourable movement in working
capital due to the unwind of programme rights and inventory
previously built up for the launch of ITVX. In addition, there has
been a reduction in production inventories predominantly in the US
as a result of the 2023 writers' and actors' strike.
Free cash flow
Twelve months to 31
December
|
2023
£m
|
2022
£m
|
Adjusted cash flow
|
498
|
540
|
Net interest paid (excluding lease
interest)
|
(27)
|
(37)
|
Adjusted cash tax*
|
(70)
|
(86)
|
Pension funding
|
(40)
|
(137)
|
Free cash flow
|
361
|
280
|
* Adjusted cash tax of £70
million is total net cash tax paid of £32 million plus receipt of
production tax credits of £38 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 was £361 million (2022:
£280 million).
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, has access to
appropriate short-term borrowing facilities and has a policy to
maintain a minimum of £250 million of cash and undrawn committed
facilities available at all times. We have three committed
facilities in place to maintain our financial flexibility, which
includes a £500 million multilateral Revolving Credit Facility
(RCF). £83 million of this facility matures in January 2028, and
£417 million remains committed until January 2029. 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.
At 31 December 2023, ITV's
financial position was well within its covenants. During the year,
the Group secured an additional £100 million of committed funding
via a bilateral RCF which matures in 2028. The terms and
conditions, including financial covenants, are aligned to the £500
million multilateral RCF facility.
We also have a bilateral financing
facility of £300 million, which is free of financial covenants and
matures on 30 June 2026. At 31 December 2023, all facilities were
undrawn (31 December 2022: only £50 million from the £500 million
RCF was drawn), which with cash and cash equivalents of £340
million, provided total liquidity of £1,240 million (31 December
2022: £1,098 million). 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.
After acquisition-related costs,
pension and tax payments, we ended the period with reported net
debt of £553 million (31 December 2022: £623 million).
Reported net debt
At 31 December
|
2023
£m
|
2022
£m
|
Gross cash
|
340
|
348
|
Gross debt (including IFRS 16
lease liabilities)
|
(893)
|
(971)
|
Net debt
|
(553)
|
(623)
|
Financing - gross debt
We are financed using debt
instruments and facilities with a range of maturities. Borrowings
at 31 December 2023 were repayable as follows:
Amount repayable as at 31 December
2023
|
£m
|
Maturity
|
€600 million Eurobond*
|
535
|
Sep
2026
|
£230 million term loan
|
230
|
Jul
2027
|
Other loans
|
13
|
Various
|
Total debt repayable on
maturity**
|
778
|
|
* Includes £15 million
currency component of swaps held against euro-denominated
bond.
** Excludes £115 million of IFRS16
Lease Liabilities.
The Group's €259 million Eurobond
which matured in December 2023 was refinanced by drawing on the
£230 million committed four year term loan, maturing in July 2027.
The term loan has the same financial covenants as ITV's Revolving
Credit Facility and is excluded from the total committed undrawn
facilities of £900 million.
Capital allocation and leverage
In line with our capital
allocation policy, our priorities remain as follows: to invest
organically in line with our strategic priorities; manage our
financial metrics consistent with our commitment to investment
grade metrics over the medium term; sustain a regular ordinary
dividend which can grow over the medium term; continue to consider
value creating inorganic investment against strict financial and
strategic criteria, and any surplus capital will be returned to
shareholders.
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 2023, our leverage, or
net debt to adjusted EBITDA was 1.0x (31 December 2022:
0.8x).
Credit ratings
We continue to be rated investment
grade by two rating agencies. Our current ratings are
BBB‑ (stable
outlook) by Standard and Poor's and Baa3 (stable outlook) by
Moody's Investor Services. The factors that are taken into account
in assessing our credit rating include our degree of operational
gearing 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.
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 keep these balances to a minimum and
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.
Production inventories, contract assets and
liabilities
In 2023, contract assets increased
by £37 million, production inventories decreased by £259 million
and contract liabilities decreased by £185 million compared to 31
December 2022. Contract assets increased due to UK scripted growth
with streaming platforms. The production inventories decrease
was driven predominantly by key US and UK deliveries. Contract
liabilities decreased due to the phasing of production deliveries,
particularly in the US and the UK.
Pensions
The net pension surplus for the
defined benefit schemes at 31 December 2023 on an accounting basis
was £209 million (31 December 2022: £192 million). The movement in
the year was driven by employer contributions and a reduction in
liabilities due to changes in demographic assumptions partly offset
by a fall in corporate bond yields.
The net pension assets include £48
million of gilts, 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 within note 3.7 to the financial
information.
Deficit funding contributions
The accounting surplus or deficit
does not drive the deficit funding contribution. The Group's
deficit funding contributions in 2023 were £40 million, which
included £37 million following the agreement of the 2019 Triennial
valuation of the main section of the Scheme, and £3 million annual
payment under the London Television Centre pension funding
partnerships. Further details are included in Note 3.7 to the
financial information.
SDN pension funding partnership
In 2010, ITV established a Pension
Funding Partnership (PFP) with the Trustees backed by SDN, which
was subsequently extended in 2011. The PFP addressed £200 million
of the funding deficit in Section A of the defined benefit pension
scheme and under the original agreement, a payment of up to £200
million was due in 2022. The existing PFP agreement was amended and
extended to 2031. As a result of this agreement, payments of £94
million were made under the SDN PFP arrangement in 2022. The Group
is committed to up to nine annual payments of £16 million from
2023. These payments are required if the Scheme is calculated to be
in a technical deficit. This calculation is based upon the most
recent triennial valuation updated for current market conditions.
The partnership's interest in SDN provides collateral for these
payments. The £16 million payment under the SDN PFP was not
required to be paid in 2023. However, this assessment is made on an
annual basis and therefore the £16 million payment may resume in
2024. The Group retains day-to-day operational control of SDN and
SDN's revenues, profits and cashflows continue to be consolidated
in the Group's accounts. On completion of the final payment in
2031, the Scheme's partnership interest will have been repaid in
full and it will have no right to any further payments.
Post balance sheet event
On 01 March 2024 the Group
announced the sale of its entire 50% interest in BritBox
International to its joint venture partner BBC Studios for a cash
consideration of £255 million. The Board intends to return the
entire net proceeds to shareholders through a £235 million share
buyback which will be completed within 18 months. Refer to notes
3.4 and 5.3 to the financial information for further
details.
Planning assumptions for the full year 2024
The following planning assumptions
for 2024 are based on our current best view but may change
depending on how events unfold over the rest of the
year.
Profit and Loss impact:
· Total content costs are expected to be around £1,275 million
as we further optimise linear, evolve our windowing strategy and
improve personalisation. We will invest an additional £15 million
in marketing
· We will deliver £40 million of savings - comprising of £10
million from our existing £150 million cost saving target and £30
million of additional in year savings as part of the new strategic
restructuring and efficiency programme
· Adjusted financing costs are expected to be around £35
million
· The adjusted effective tax rate is expected to be 25% over
the medium term in line with the UK statutory tax rate of
25%
· Exceptional items are expected to be around £90 million
mainly due to costs associated with the ongoing strategic
restructuring and efficiency programme and digital transformation
costs
Cash impact
· Total capex is expected to be around £75 million as we
further invest in our digital capabilities
· The cash cost of exceptionals is expected to be around £90
million mainly due to costs associated with the restructuring and
efficiency programme and digital transformation cost
· Profit to cash conversion is expected to be around 80% out to
2026. In 2024 profit to cash conversion will be lower reflecting an
increase in working capital. Across 2023 and 2024 we expect cash
conversion to be around 80%
· Total pension deficit funding contributions for 2024 are
expected to come down year on year. More detailed guidance will be
given following the completion on the triennial
valuation
· The Board has proposed a final dividend of 3.3p, which will
be paid in May 2024. This gives a full year dividend of 5.0p. Going
forward, the Board intends to pay a full year ordinary dividend of
at least 5.0p, which it expects to grow over the medium
term
CMA Investigation
As previously reported, on 12 July
2022, the UK Competition and Markets Authority (CMA) opened an
investigation into certain conduct of ITV and other named companies
in the sector relating to the production and broadcasting of sports
content in the UK. The investigation is at an early stage and
the CMA has confirmed it is currently undertaking further
investigation until at least March 2024, subsequent to which ITV
anticipates it will receive additional detail regarding any future
steps.
On 11 October 2023, the CMA opened
an investigation into certain conduct of ITV and other named
companies in the sector relating to the production and broadcasting
of television content in the UK, excluding sports content. The
investigation remains at an early stage and it is not currently
possible to reliably quantify any liability that might result from
the investigation. ITV is committed to complying with competition
law, and is cooperating with the CMA's enquiries in relation to
both investigations.
Foreign exchange sensitivity
The following table highlights ITV
Studios sensitivity, for the remainder of the year (using internal
forecasts), to translation resulting from a 10%
appreciation/depreciation in sterling against the US dollar and
euro, assuming all other variables are held constant. An
appreciation in sterling has a negative effect on revenue and
adjusted EBITA; a depreciation has a positive effect.
Currency
|
Revenue
£m
|
Adjusted
EBITA
£m
|
US dollar
|
+/-40-55
|
+/-
5-7
|
Euro
|
+/-
40-50
|
+/-7-9
|
CHRIS KENNEDY
GROUP CFO
& COO
RISKS AND UNCERTAINTIES
Risk Landscape
The increasing pace of change in
the market and the continued impact of the macroeconomic
environment and global uncertainty means we must continue to be
agile in the way we implement our strategy and manage the resulting
risks.
Our approach
The focus in 2023 has been on
evolving our approach to risk management to ensure it remains
appropriate for the risk landscape and proportionate so as not to
stifle creativity. We started the year by reassessing our risk
landscape and deep diving into the risk categories that this is
made up of. The learnings from this exercise allowed us to adapt
our approach to further drive standardisation in our risk
management processes and enhance our understanding of ITV's most
critical risks.
Our approach places emphasis on
the importance of collaboration between the Central teams that set
expectations and the Divisions. On a periodic basis, the Divisions
review their exposure to the key risk categories managed centrally
to identify any significant and emerging risks that might affect
their performance. In addition, the Divisional Leadership teams
bring together their most significant risks and uncertainties,
including emerging risks, for discussion and prioritisation. This
'top-down' and 'bottom-up' approach is facilitated and overseen by
the Group Risk team.
Emerging risks
Given the changing landscape in
which we operate, we have increased our focus during 2023 on
identifying and understanding the emerging risks we face so we can
proactively take action now. This involved expanding the ongoing
horizon scanning performed to embed it as a key consideration when
assessing the current position of each principal risk
category.
Our two key emerging risks are
climate and the transformative impact of Generative Artificial
Intelligence (Generative AI).
SPOTLIGHT ON…
Climate
· We approach the actual and emerging risks associated with the
climate no differently to how we manage any other risk faced by
ITV. The activities taken to manage our responsibilities related to
emerging regulations, investor expectations and our external
disclosure requirements are of particular interest to the
Board.
· Upskilling and educating the business forms the basis for
ensuring we have effective management and accountability for our
environmental obligations. This is supported by a network of green
leads to support both the owners of climate-related risks and
colleagues across ITV to transform our business so we are fit to
thrive in a sustainable economy. Our Sustainability team acts as
the glue to oversee these activities, join the dots and provide
advice and guidance.
· Whilst we do not categorise Climate as a standalone principal
risk, which could materially threaten our viability or strategy, we
recognise that climate needs to be considered as part of our
everyday activities and is intrinsically linked to many of our
risks.
· For more information on our climate-related risks, see our
Climate-Related Financial Disclosures Report.
Risk appetite
To help focus the way we manage
our principal risk categories, the Board has defined our risk
appetite for each one to enable us to strike the right balance
between risk taking and risk mitigation. Our risk appetite reflects
ITV's willingness to be innovative and open to ideas as we pursue
our strategy, whilst maintaining our low tolerance in operational
areas, such as duty of care, data protection and corporate
compliance.
Risk leadership and governance
Our leadership plays an important
role in ensuring risk management is considered in key decision
making. Each of our principal risk categories has a Management
Board sponsor. They articulate each risk, how we manage them and
the actions being taken to operate within our risk
appetite.
ITV's risk oversight and
governance framework has been set up to assist the PLC Board in
fulfilling its responsibility for overseeing the management of risk
across ITV.
The Risk and Compliance Steering
Committee (RCSC) plays an integral part in assisting the Management
Board in overseeing the management of risk across ITV. It provides
the central teams and divisions with a route to escalate risks and
commissions deep dives into principal and emerging risks to enhance
understanding of the key drivers, mitigating activities and
identify further management activity required.
The Management Board conducts a
robust assessment of principal and emerging risks faced by the
Group twice a year. This includes consideration of the potential
impact and probability of each of these occurring. The outcome of
these assessments is presented to the Audit and Risk Committee and
the PLC Board for review and approval.
SPOTLIGHT ON…
Climate
· The Climate Action Delivery Group (CADG) has been established
to support the Management Board in overseeing the management of
climate-related risks. This Group, chaired by the CFO/COO, meets
four times a year to review and challenge progress against plans,
deep dive into escalated risks and identify areas where further
management activity is required.
· The CADG plays an important role in ITV's risk oversight and
governance. It reports and escalates key risks to the RCSC that are
considered as part of the Management Board's robust assessment of
principal and emerging risks. It also provides updates to the
Management Board, Audit and Risk Committee and PLC Board on
progress against climate-related targets and our climate-related
disclosures for review and challenge.
Risk Management Effectiveness
The PLC Board continues to monitor
the effectiveness of risk management at ITV. An independent
assessment of ITV's risk management framework and practices was
conducted during Q4 2023 as part of the 2023 internal audit plan.
The review concluded that significant progress has been made over
the last year to achieve an effective state for principal risk
management within ITV, with a number of opportunities to enhance
the framework and practices identified and reflected in our risk
management plans for 2024.
Changes to principal risks during the year
The ongoing management and
monitoring of ITV's most critical risks throughout the year has led
to changes to the principal risks from the previous reporting
period (H1 2023). These included:
· Splitting 'cyber-attack or data breach incident' into two
separate principal risks to enhance transparency, improve
accountability and enable us to establish more focused mitigation
strategies
· Removing 'Pensions Deficit' as the ITV pension scheme
position has significantly improved
· The addition of 'Third-Party Risk Management' to recognise
the increasing complexity and importance of our third-party
relationships and the potential these have to cause significant
damage to our reputation
· Promoting 'Operational Resilience' to recognise the
importance of being able to withstand and recover from our
technology and/or services being compromised.
Principal risks and mitigations
Set out below is a description of
each of our principal risks and how they are being managed and
mitigated.
Key
Link to strategy
|
Risk direction of travel
(after current mitigations)
|
Emerging risks
|
E Expand Studios
globally
S Supercharge
Streaming
O Optimise Broadcast
|
↑ Risk is increasing
↓ Risk is reducing
- Risk remains static
|
£
|
Indicates where there are macroeconomic related factors,
which may influence the risk.
|
R
|
Indicates where there are climate-related factors, which may
influence the risk.
|
°
|
Indicates where there are AI-related factors, which may
influence the risk.
|
N.B. - Risks are grouped by
category and are not disclosed in order of importance or
significance
STRATEGIC RISKS
1. Streaming
|
Link to strategy
|
S
|
MB
Sponsor: Managing Director, Streaming, Interactive &
Data
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
ITVX does not grow at the pace required to deliver the
desired strategic or financial outcomes
Link to Viability
Scenarios: 1 | 2 | 6
£
Risk direction:
2023
2022
-
↑
|
·
How we attract viewers to our streaming services in an increasingly
competitive and challenging market
·
How we maintain strong relationships with platforms and
distributors
·
How we create a competitive subscription proposition whilst
continuing to drive ad-funded video on demand viewing
·
How we manage the complexity of the infrastructure and technology
chains involved in the transition to streaming
|
·
Continue to invest in our streaming capability (e.g.
personalisation)
·
Continue to evolve our partnership & distribution
strategy
·
Continue to invest in content and marketing
·
Ongoing monitoring of our performance KPIs
·
Horizon scanning of the external market
|
Examples risks in this
category:
·
Inability to maximise prominence and inclusion
·
Increased competition for viewer attention
·
Maintaining pace with the market and viewer expectations
|
Some of the metrics we
track:
·
Monthly Active Users (MAUs)
·
Total Streaming Hours
·
UK Subscribers
·
Digital Revenues
·
Share of Voice
|
|
|
|
|
2. Content Market
|
Link to strategy
|
E
|
MB
Sponsor: Managing Director. ITV Studios
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
Fundamental changes in the content market may result in
reduced opportunities, non-renewal of premium programmes, and/or
impact the profitability of ITV Studios content
Link to Viability
Scenarios: N/A
£
Risk direction:
2023
2022
↑
-
|
·
The impact the structural decline in linear audiences has on
programming budgets and slots for free-to-air (FTA)
broadcasters
·
The impact increased vertical integration (traditional and
streaming platforms) and market consolidation have on intensifying
market competition
· The
impact that market changes could have on the demand for, and
profitability of ITV's content
|
·
Continue to invest in developing, attracting and retaining
world-class creative talent
·
Continue to grow and maintain relationships with a diverse customer
base, including global streamers
·
Continue to seek opportunities to increase market share and
drive efficiencies across our productions
|
Examples risks in this
category:
·
Content spend cuts from FTA broadcasters and streamers
·
Inability to grow streamer customer base as they become a growing
part of the content market
·
Increased pressure on our pricing, rights and production
premium
|
Some of the metrics we
track:
·
ITV Studios total organic revenue growth
·
ITV Studios adjusted EBITA margin %
·
Total high-end scripted hours
·
Number of formats sold in three or more countries
·
% of ITV Studios total revenue from streaming platforms
|
|
|
|
|
3. Commercial
|
Link to strategy
|
S O
|
MB
Sponsor: Managing Director, Commercial
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
Increasing competition and challenging advertising market
conditions impact our revenue stream affecting our ability to fund
our content budget
Link to Viability
Scenarios: 1 | 2 | 4 | 6
£
Risk direction:
2023
2022
↑
↑
|
·
How we compete for share of advertising spend in a challenging
macroeconomic environment and with the large streamers launching
advertising tiers
·
The impact redistribution of advertising budgets away from
broadcasting to online platforms could have on ad
revenue
·
How we respond to continued tightening of data protection and
privacy regulations that impact our ability to provide targeted
advertising
|
·
Continue to enhance our integrated advertising proposition to offer
i) mass simultaneous reach, ii) data driven target addressable and
iii) the ability to integrate brands creatively into our content
and the future development of outcome-based advertising
products
·
Continue to invest and extend Planet V to offer unrivalled
addressability at scale
·
Continue to offer a unique creative proposition to advertisers
through brand partnerships, product placements, sponsorships,
advertiser funded programmes (AFPs) and digital advertising
solutions
·
Continue to invest in an outcomes proposition that enables
advertisers to measure the effectiveness of their
campaigns
·
Build strategic partnerships with advertisers and
agencies
·
Continue to monitor the actual and potential advertising
restrictions
|
Examples risks in this
category:
·
Structural decline in broadcast advertising
·
Increased competition for market share from the larger streamers
introducing ad tiers and the growth of online video
·
Failure to grow monetisable streaming viewers
|
Some of the metrics we
track:
·
Total Advertising Revenue (TAR)
·
Category spend
|
|
|
|
|
4. Changing Viewer Habits
|
Link to strategy
|
S O
|
MB
Sponsor: Managing Director, Media & Entertainment
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
Inability to respond to changing viewing habits and deliver
the forecasted audiences/viewing for both linear and streaming will
result in failure to monetise and deliver against Commercial
revenue targets
Link to Viability
Scenarios: 1 | 2 | 3 | 6
£
Risk direction:
2023
2022
↑
↑
|
·
How we attract our most commercially valuable viewers to both
linear and streaming content
· How we
drive reach, scale and simultaneous viewing across linear and
streaming
· How we
anticipate, respond and adapt to the shift towards digital viewing,
whilst we maintain and increase our share of media time
· How we
ensure that our content is accessible wherever, whenever, and
however viewers choose to engage with it
· How we
retain viewers and increase the volume of the content they
consume
|
· Continue to invest in and showcase great content on our
channels and ITVX, with a focus on our most commercially valuable
viewers
·
Continue to invest in marketing
·
Continue to evolve our partnership and distribution strategy to
position ourselves where our viewers are
·
Continue to invest in ITVX to ensure viewers spend longer on the
platform once they're there e.g. personalisation
·
Continue to focus on understanding viewer habits to optimise the
relationship between linear and streaming to help drive the way we
commission content for ITVX to grow overall reach
|
Examples risks in this
category:
·
Accelerated decline in linear viewing
·
Inability to capitalise on the shift to digital viewing through
ITVX
·
Increase competition for viewer attention from large streamers
introducing ad tiers and the growth of online video
|
Some of the metrics we
track:
·
Share of commercial viewing
·
Share of Top 1000 commercial broadcast TV Programmes
·
TV Viewing - Hours per person per day (adults & 16 to
34s)
·
Ad viewing time trends
|
|
|
|
|
5. Content Pipeline
|
Link to strategy
|
S O
|
MB
Sponsor: Managing Director, Media & Entertainment
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
Lack of diversified commissioning pipeline (whilst
balancing/maintaining mass simultaneous reach on linear TV;
attracting light viewers on ITVX; and managing rising content
costs) may impact total viewing
Link to Viability
Scenarios: 1 | 2 | 3 | 6
£
Risk direction:
2023
2022
↑
-
|
·
How we anticipate and adapt to changes in the tastes and habits of
viewers
·
How we develop a quality and appealing content pipeline that is
both resilient to changes in viewer preferences, as well as being
financially viable
·
How we leverage the value of being an integrated producer,
broadcaster and streamer to enable us to continue to provide
unrivalled viewers of scale for UK advertisers and to grow our
digital revenues
·
How we ensure we are commissioning content by, with and for
everyone (Diversity, Equity & Inclusion) whilst also
considering the impact our behaviours and those portrayed through
our content have on society and the wider environment
|
·
Our data and insights team focuses on understanding the preferences
of our most commercially valuable viewers to help drive the way we
commission content
·
Continue to invest in content and talent
·
Continue to focus on our key franchises and brands to ensure
editorial protection
·
Continue to evolve the way we commission and acquire content as
well as innovating how we fund content (e.g. partnerships,
Advertiser Funded Programmes (AFPs) and co-productions)
·
Continue to focus on maintaining strong relationships with
independent studios from whom we commission content
·
Continue to invest in live sports, high-end drama and entertainment
programmes to maintain mass simultaneous reach and to attract our
most commercially valuable viewers
·
Continue to commission content by, with and for everyone (e.g. £80
million Diversity Commissioning fund) and to identify ways to make
our content accessible to all (e.g. Dedicated British Sign Language
(BSL) FAST channel)
|
Examples risks in this
category:
·
Increased cost of content driven by rising costs of production and
increased competition from competitors
·
Failing to secure the right talent at the right price
·
Accelerated decline in linear viewing and growth of other digital
offerings
|
Some of the metrics we
track:
·
Share of Commercial Viewing
·
Share of Top 1000 commercial broadcast TV Programmes
·
Total Streaming Hours
·
UK Subscribers
|
|
|
|
|
6. Partnerships
|
Link to strategy
|
S O
|
MB
Sponsor: Chief Finance Officer / Chief Operating Officer
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
An inability to develop and maintain adequate relationships
with major platform and distribution providers may result in
reduced brand prominence, viewers being unable to find our content
and a lack of fair value for that content
Link to Viability
Scenarios: 1 | 2 | 6
£
Risk direction:
2023
2022
-
↑
|
·
How we develop and maintain strong partnerships with major
platforms and distribution partners to maximise prominence and
inclusion of our content
·
How we manage the trade-offs inherent in our commercial
arrangements with our platforms and distribution
partners
·
How we actively plan for long term changes in traditional
distribution (DTT & DSat) as viewing continues to transition
online (IP)
|
·
Continue to supercharge our streaming service to strengthen our
offering to our most commercially valuable viewers and
advertisers
·
Work closely with Ofcom and the government (DCMS) to modernise the
PSB regulatory regime
·
Continue to evolve our partnership and distribution strategy to
reduce reliance on single platforms and secure more advantageous
commercial relationships
·
We have a dedicated team that continues to build relationships with
the major distribution providers and platforms to ensure ITV
remains attractive from a distribution perspective
·
Continue to collaborate with the other PSBs to a compelling
consumer controlled entry point to our content in readiness for the
shift to IP only viewing through Freely
·
Proactive involvement of the ITV Legal team to ensure we continue
to operate within our framework
|
Examples risks in this
category:
·
Failure to negotiate and re-negotiate favourable carriage terms
with platforms and distribution partners
·
Our partners demanding a direct or indirect financial return for
continued carriage
·
The increasing prevalence of biased algorithmic or AI
personalisation impacting the prominence of our content
|
Some of the metrics we
track:
·
Relationship health check status
|
|
|
|
|
7. Data
|
Link to strategy
|
E S O
|
MB
Sponsor: General Counsel and Company Secretary
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
Failure to ensure appropriate access to consistent and
trustworthy data and remaining compliant with our regulatory
obligations. We must ensure the whole of ITV follows the applicable
data regulations while anticipating and adequately preparing for
future ones.
Link to Viability
Scenarios: 4
Risk direction:
2023
2022
-
↑
|
·
How we create value and enable efficiency while providing a robust
framework for data governance
·
How we identify the data we have, who is responsible for looking
after it, how it moves around ITV, who is using it and how is it
being used/what is it being used for
·
How we remain vigilant in protecting our corporate data and the
personal data we are entrusted with whilst following today's global
data regulations and anticipating and preparing for
tomorrow's
|
·
We structure our approach to data use and management around three
pillars - Privacy by design, Security by design and Value by
design.
·
Continue to use the OneTrust privacy compliance management tool to
determine whether a Data Protection Impact Assessment (DPIA) is
required
·
Data privacy lawyers and data governance experts are embedded
within each of the business areas to act as partners, monitor data
activity and usage, and educate the business on their data
obligations
·
We have established policies and procedures which set out what is
expected of people across ITV with respect to data
·
We provide mandatory data privacy and data governance training and
promote good data behaviour through awareness campaigns
·
We perform due diligence on our third parties prior to
onboarding
·
AI SteerCo was established to provide oversight of the use and
implications of AI for ITV
|
Examples risks in this
category:
·
Using data to inform decision making without understanding its
quality, accuracy, validity, ownership or legality
·
Failing to comply with data protection laws or regulations that
apply to ITV
·
Unintentional data exposure (corporate or personal) as a result of
insufficient employee awareness of data governance and data
privacy
·
Cyber-attacks from well organised threat groups targeting ITV
resulting in a data breach
|
Some of the metrics we
track:
·
Mandatory Training
·
Data Subject Requests
·
Total investigated incidents
·
High Risk DPIA's
|
|
|
|
|
COMPLIANCE RISKS
8. Policy & Regulation
|
Link to strategy
|
S O
|
MB
Sponsor: Group Director of Strategy, Policy &
Regulation
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
We engage with regulators and governments to put our case to
shape the future regulation that protects viewers whilst ensuring
PSBs can compete fairly and deliver their remits. We must then be
in compliance with these regulations whilst maintaining trust and
delivering our strategy
Link to Viability
Scenarios: 1 | 2 | 6
£
Risk direction:
2023
2022
-
-
|
·
The impact the new Media Bill will have on the visibility and
viability of our content distribution and advertising
businesses
·
The impact changes in advertising regulation may have on our Total
Advertising Revenue (TAR)
·
The impact of emerging regulations and policy on our business (e.g.
sustainability and child protection)
·
How unfavourable changes to European Works quotas could impact the
demand for UK content
·
How we continue to meet the expected requirements of a Public
Service Broadcaster (PSB)
|
·
Continue to monitor potential policy, legal and regulatory
developments
·
Analyse the impact of potential changes and proactively put forward
our position during the development of new policies, legislation
and regulations.
·
Continue to engage with the government and regulators on the PSB
regime and other topics relevant to our industry
·
Actively participating in consultations on areas which may impact
ITV and collaborating with other organisations in the industry,
where appropriate in line with our competition law obligations.
e.g. with pan-European report on possible European Works quota
changes
·
Horizon scanning to identify future changes, analysing the impact
this would have on ITV and agreeing our position (e.g. medium to
long term future of DTT)
|
Examples risks in this
category:
·
Regulation not keeping pace with the market
·
Keeping up with evolving regulation
·
Failing to comply with standards, rules, requirements and
obligations
·
Continuing to fulfil the requirements of being a Public Service
Broadcaster (PSB)
·
Renewal of Channel 3 nations, regions and breakfast
licenses
|
Some of the metrics we
track:
·
Regulatory outlook
|
|
|
|
|
9. Corporate Compliance
|
Link to strategy
|
E S O
|
MB
Sponsor: General Counsel and Company Secretary
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
We seek to remain compliant with all substantive laws. Key
areas of compliance activity in respect of relevant laws, for
example, those relating to anti-bribery &
corruption, modern slavery, anti-competitive behaviour,
competition, trade sanctions and Speaking Up
Link to Viability
Scenarios: N/A
£
Risk direction:
2023
2022
-
↑
|
·
Breaches of corporate compliance could lead to prosecution, fines,
litigation or a regulator stepping in, which might impact our
reputation and our ability to operate if it resulted in the loss of
licenses
·
How we set the expectations of our people and develop the
operational infrastructure and tools to drive and make compliance
easy for the business
|
·
Through our Code of Ethics & Conduct, we foster a culture where
colleagues know the standards expected of them and can speak up if
something's not right
·
We Implement a robust tailored compliance programme based on our
risk assessment, including undertaking compliance monitoring and
effectiveness reviews
·
Promote good compliance behaviour in our colleagues, through
awareness and mandatory training
·
Work with the business to support the adoption and implementation
of compliance policies and standards
·
Conduct due diligence on potential third parties
·
Horizon scan to prepare for legislative changes and developing
policies to address them
|
Examples risks in this
category:
·
Being exposed to third parties or colleagues engaging in unlawful
or non-compliant activities on ITV's behalf
·
Inadequate operational infrastructure to drive and support the
execution of a strong third party risk management
process
·
Lack of clear infrastructure and appropriate culture for compliance
matters in the business
|
Some of the metrics we
track:
·
Speaking Up
·
Mandatory training
|
|
|
|
|
OPERATIONAL RISKS
10. Cyber Security
|
Link to strategy
|
E S O
|
MB
Sponsor: Chief Technology Officer
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
We aim to protect ITV, our content, our colleagues, our
viewers and our partners from harm and financial loss caused by
cyber security events. We adapt our controls accordingly to detect
and respond to the evolving threat
Link to Viability
Scenarios: 4
Risk direction:
2023
2022
↑
↑
|
·
A successful cyber-attack could lead to 'black screens' and result
in a commercial impact due to operational disruption or critical
system outage
·
A catastrophic data breach could result in ITV receiving a fine
from the Information Commissioner's Office (ICO) of up to 4% of
worldwide turnover
·
Failure to maintain trust and live up to regulatory, viewer,
partner and other stakeholder expectations related to cyber
security could weaken our reputation
|
·
Implement a robust cyber security risk management (NIST)framework
to protect our applications, systems and networks
·
Monitor external threats and gather intelligence on evolving cyber
techniques, tactics, capabilities and the threat
landscape
·
Maintaining a vigilant security setup to quickly detect and respond
to cyber risks before they become incidents, whilst continuing to
invest in new and emerging cyber defence and security
tooling
·
Promote good security behaviour in our colleagues, through
awareness campaigns and mandatory training
·
Perform due diligence on our third parties and monitor our online
applications and technical validation
·
Model a severe but plausible hypothetical cyber-attack scenario
annually and facilitate cyber exercises with the Management Board
to simulate an attack to rehearse how ITV would respond and
identify and implement improvement areas
·
Continue to focus on ITV's recovery capability and minimal viable
company
|
Examples risks in this
category:
·
Cyber-attacks from organised threat groups targeting ITV
·
Being exposed to third parties with vulnerabilities that can access
our systems
·
End of life legacy IT estate vulnerabilities
·
Labels IT infrastructure Independent to Group
|
Some of the metrics we
track:
·
Attack path stats (by severity)
·
Endpoint-related incidents (No. per quarter &
trends)
·
ITVX Bot Attacks
·
Minimum Viable Company (MVC) Recovery Capability
·
Third party assessment (critical suppliers)
|
|
|
|
|
11. Transformation
|
Link to strategy
|
E S O
|
MB
Sponsor: Chief Finance Officer / Chief Operating Officer
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
We are accelerating transformation delivery to build a
simpler, more efficient and dynamic ITV in pursuit of our More Than
TV Strategy
Link to Viability
Scenarios: N/A
£
Risk direction:
2023
2022
-
-
|
·
Failing to deliver our transformation ambitions will adversely
impact our efficiency, financial performance, and viewer experience
while impacting our reputation
·
We are focused on enabling and driving digital transformation by
enhancing organisational agility, improving commercial control and
flexibility and embedding a culture of achievement
·
We do this while remaining cognisant of the volume, speed and
extent of change required to achieve this
|
·
Our Transformation Operations Directors Office (TODO) focuses on
operational issues and reducing the risk involved in a number of
significant and costly transformation activities
·
Management Board sponsors, and experienced and skilled programme
directors across all transformation programmes
·
Continue to instil new ways of working through implementing Agile
and standardising tooling
·
Continue to upskill key business stakeholders with sufficient
knowledge to hold their programme teams to account.
·
Monthly Transformation Steering Group (TSG) to track the overall
portfolio delivery and programme dependencies
·
Group Design Authority (GDA) and Group Investment Committee (GIC)
to manage technical design and investment across the
portfolio
|
Examples risks in this
category:
·
Inadequate change management to overcome resistance to
change
·
Insufficient resource, lack of required capabilities and reliance
on contractors / third parties
·
Failure to manage complex interdependencies
·
Transformation programmes fail to deliver the intended
value
|
Some of the metrics we
track:
·
Programme Milestones
·
Programme Benefits
|
|
|
|
|
12. People
|
Link to strategy
|
E S O
|
MB
Sponsor: Chief Finance Officer / Chief Operating Officer
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
An inability to attract, develop and retain key creative,
commercial, technical and managerial talent could adversely affect
our business
Link to Viability
Scenarios: N/A
£
Risk direction:
2023
2022
-
↑
|
·
To attract and retain the right people in the right places for an
organisation as complex and diverse as ITV, we need to have
effective strategic workforce planning
·
Day-to-day people management activities include managing high
levels of recruitment, onboarding and terminations, and providing
access to relevant training and development
opportunities
·
Failure to engage our people to ensure their health and wellbeing
and create a diverse and inclusive workplace could impact our
performance and growth ambitions
|
·
Continue to develop our Employee Value Proposition (EVP)
·
Continue to evolve our approach to mandatory training and speaking
up through updating existing modules, introducing new modules and
phasing the launch throughout the year
·
Ongoing development of succession plans for business critical and
management roles (including nominated deputies).
·
Continue to identify future talent (High potential programme),
support the development of people of colour (RISE programme),
develop the skills needed to help drive the business forward
(Digital skills programme) and offer industry-leading production
training (ITV Academy)
·
Our global Employee Assistance Programme (EAP) is available to
permanent, fixed term and freelance colleagues, as well as to
dependents.
·
Create an inclusive culture through Disability Access Passports,
Amplify, Fresh Cuts and continuing our Step Up 60
initiative
·
Run engagement surveys and targeted pulse surveys to deep dive into
specific topics
|
Examples risks in this
category:
·
Failure to attract and retain colleagues in a highly competitive
industry
·
Technological advancements resulting in a workforce skills
gap
·
The actions of onscreen talent impacting ITV's reputation and
brand
·
Failing to maintain a diverse organisation impacting our innovation
and creativity
|
Some of the metrics we
track:
·
Resignation Index
·
New Hires (Women, Disability, Colour and LGBTQ+)Diversity Data
(Demographic and disability information)
|
|
|
|
|
13. Duty of Care
|
Link to strategy
|
E S O
|
MB
Sponsor: Chief Executive Officer
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
Failure to extend an adequate duty of care or the occurrence
of a major health and safety incident could result in physical and
mental harm, loss of human life and reputational
damage
Link to Viability
Scenarios: N/A
Risk direction:
2023
2022
-
-
|
·
Ensuring we run our business safely with consideration to our duty
of care and the impact we could have on society
·
Supporting the mental and physical health and safety of colleagues,
those working with ITV and those participating in and contributing
to our productions, is a key priority
·
Our commitment to addressing promptly, fairly and confidentially
all concerns and monitoring the channels we have in place to ensure
they remain appropriate
|
·
We maintain a 'Speaking Up' framework that allows anyone working
for or with ITV to raise concerns in confidence through Safecall ,
alongside other channels to raise concerns.
·
Continue to drive awareness of 'Speaking up' through communications
and mandatory duty of care training module
·
We have a comprehensive operational risk management process, and
through this, we identify risks to both people's physical and
mental health and safety and put in place measures to manage them
appropriately
·
The ITV Feel Good offering continues to provide advice, support,
resources and tools for inspiring and enabling colleagues to look
after their own well-being and have a balanced and healthy working
lifestyle in a hybrid world
·
We continue to evolve the Participant Aftercare Programme
(PAP)
·
We support participants through the Participant Crisis Care
Stabilisation Pathway, an Out of Hours Welfare Helpline and a 'call
off' contract with the Nightingale Hospital
·
Partner with the BBC, to develop an Industry Media Psychologist
Development Programme
·
Our social purpose campaigns seek to support the viewing public,
including the award-winning Britain Get Talking.
·
Continue to monitor and respond to historical issues to further
strengthen our Duty of Care policies
|
Examples risks in this
category:
·
Failure to appropriately support individuals working with ITV in
our pursuit of editorial content that is relevant and
entertaining
·
Failure to adequately consider the impact our content could have on
society
|
Some of the metrics we
track:
·
Speaking Up data
·
Accident/Incident Data
|
|
|
|
|
14. Third Party Risk Management
|
Link to strategy
|
E S O
|
MB
Sponsor: Chief Finance Officer / Chief Operating Officer
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
ITV relies on a wide range of third parties to operate its
business. We therefore must have robust processes in place for risk
assessing, onboarding and the ongoing management
Link to Viability
Scenarios: N/A
£
Risk direction:
2023
New Risk
|
·
The robustness of our due diligence process for onboarding third
parties to make sure they meet our standards
·
How we adequately monitor and manage the impacts of third-party
relationships
·
Maintaining a holistic alongside a detailed overview of the third
parties ITV engages with
|
·
Continue to evolve our Third Party Risk Management (TPRM) framework
to support ITV with assessing and managing risks associated with
vendor relationships
·
Ongoing input from the risk domain leads to enhanced due diligence
performed across all third-party relationships
·
Our supplier code of conduct sets out the minimum standards we
expect of all suppliers
·
Continue to extend the use of the Prevalent platform to automate
the risk management of our vendors
·
Continue to set expectations in contracts for talent
·
Ongoing monitoring of our distribution providers
|
Examples risks in this
category:
·
Failure to adequately assess, monitor and manage the impacts of
third-party relationships
·
Colleagues bypass the due diligence process
·
Lack of holistic overview of the third parties ITV engages
with
|
Some of the metrics we
track:
·
The development and agreement of metrics for the new principal risk
is underway
|
|
|
|
|
15. Operational Resilience
|
Link to strategy
|
E S O
|
MB
Sponsor: Chief Finance Officer / Chief Operating Officer
|
Description
|
What this risk category
covers:
|
Some of the things we do to manage
it:
|
A
major business continuity incident with linear/online transmission
or a critical ad system may result in service interruption and
revenue loss
Link to Viability
Scenarios: 4
Risk direction:
2023
New Risk
|
·
Maintaining business operations, including our ability to broadcast
linear TV, distribute & stream content and generate Ad revenue
is imperative
·
We recognise the complexity of the infrastructure and technology
our critical business operations rely on, and the impact these
being compromised could have on our resilience. In particular, the
number of third parties we rely on, the increasing number of
platform partners that we broadcast content across/through, the
range of broadcasting operations (i.e., multiple regions, sites and
across multiple systems) and the continually evolving methods by
which we distribute content
·
We seek to build resilience into our key IT systems and focus on
maintaining robust and tested disaster recovery and business
continuity plans
|
·
Continue to focus on understanding the minimal viable company and
ITV's recovery capability
·
Annual major incident scenario testing and ahead of major live
events
·
Maintain and regularly update business continuity and disaster
recovery plans
·
Continue to review and monitor operational
performance
·
Continue to closely manage our broadcast chain partners and
suppliers to ensure the risk of incidents is minimised
|
Examples risks in this
category:
·
Lack of resilience in our key IT systems
·
Inadequate IT disaster recovery plans to meet ITV's business
operation needs
·
Ineffective operational business continuity plans
|
Some of the metrics we
track:
·
The development and agreement of metrics for the new principal risk
is underway
|
|
|
|
|
LONG-TERM VIABILITY STATEMENT (LTVS)
DISCLOSURE
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 or new initiatives to further
improve the ITV Strategy.
· Considering ad-hoc topics on aspects of the strategy at Board
meetings.
· Performing a robust assessment of the principal and emerging
risks twice a year.
As part of the assessment of
prospects and risks, the Board and management routinely receive
briefings and consider topics related to changing viewer habits,
competitor strategies, the broadcasting advertising market and
developments in the global content market. It is also kept informed
of ITV's resilience to environmental and climate related risks;
technological advancements in the areas of Generative Artificial
Intelligence (AI) and how the ITV Strategy responds to these; and
sessions led by external analysts on investors' perceptions of the
ITV business.
The Board and management continued
to closely scrutinise the impact of the current macroeconomic
environment on the business. This included identifying cost
interventions/mitigations to respond to possible severe downside
scenarios; and increasing the focus and detail provided in
financial performance reviews and reforecasting to track
performance.
How we assess viability
When assessing the longer-term
viability of ITV, we considered
· ITV's strategy and business plan;
· The principal risks and uncertainties;
· The Group's financing facilities including covenant clauses
and future funding plans;
· The long range financial plan and cash forecast;
and
· Other sensitivity factors or risks which have the potential
to materially impact liquidity and/or covenant headroom in the
assessment period.
Based on this review a set of
hypothetical severe but plausible scenarios were developed. These
scenarios have then been modelled against the first three years of
the long range financial plan and cash forecast, both individually
and collectively, in order to assess viability.
Whilst all principal risks
identified could have an impact on ITV's performance, the scenarios
reflect the specific risks which could potentially impact the
Group's financial position and viability during the period to 31
December 2026.
The output from this modelling was
reviewed by the Audit and Risk Committee in detail, with a report
from the Committee to the Board to support the Board's review and
approval. In reaching its view, the Board and Committee also
considered external views, including analyst and other industry
commentary, to understand the wider market views on the Group's
future prospects, and the external auditor's findings and
conclusions on this matter.
Assessment period for viability
The Board is of the view that a
three year assessment period (to 31 December 2026) continues to be
the most appropriate. The factors the Board considered in adopting
this timeframe were as follows:
· ITV's long range financial and strategic planning
cycle
· Visibility over ITV's advertising business is short term.
Advertising remains cyclical and closely linked to the UK and
global economic growth and impacted by the uncertain macroeconomic
environment.
· The commissioning process and life cycle of programming gives
the Studios division a more medium-term outlook. However, while
non-returning brands are replaced with new commissions, over time
there is less visibility as programmes can experience changes in
viewer demand or come to a natural expiration
· Technology in the media industry continues to rapidly change
the demand for content and also how it is consumed
· ITV's business model does not typically necessitate
investment in large capital projects that would require a
longer-term horizon assessment or returns
· Pension funding, which is one of ITV's key funding
obligations, is agreed triennially with the Trustees of the pension
scheme
Assumptions Applied
For the LTVS, we have
assumed:
· EBITA impacts from LTVS scenarios flow through to cash in
full except for tax savings at 25%, with the exception of
settlement impacts (in scenarios 4 and 5) and Scenario 5 remedial
costs which are assumed to be disallowable for tax
purposes
· Any settlements related to ongoing litigation or fines will
be treated as exceptional items (and therefore excluded from
covenant calculations)
· No acquisitions are made (consistent with 'Base
case')
· Management and employee Incentive payments (such as the
annual bonus) are assumed to reflect the Impact of the LTVS
scenario assumptions on earnings
· Dividends of 5.0p per share maintained throughout, resulting
in around £180 million of dividends paid out per year following the
disposal of ITV's 50% shareholding in BritBox
International.
· Identified cost savings continue to deliver to
plan
We have also assumed that the
revolving credit facilities of £500 million and £100 million are
available throughout the period and that the Credit Suisse CDS
facility of £300 million (which matures in June 2026) and the EUR
600 million Eurobond (which matures in September 2026) are
re-financed (and not repaid from cash reserves). The intention is
to refinance a significant proportion of the 2026 full year
financing arrangements well before maturity.
Taking into account current
operational and financial performance, the Board has analysed the
impact of the following hypothetically severe but plausible
scenarios. These scenarios were assessed in isolation and as
combinations of two or three risks and, although not regarded as
plausible but as a reverse stress test, an assessment of all
scenarios occurring simultaneously was undertaken:
|
Scenario Modelled
|
Link to Principal risks or
Accounting judgements and estimates
|
1+2
|
A significant and sustained
downturn in advertising revenue from 2024, as a result of a decline
in the advertising market and linear viewing, driven by
macroeconomic factors or increased competition from large
streamers. In this scenario we also fail to replace the advertising
revenue lost as result of the confirmed restrictions on High in
Fat, Salt or Sugar (HFSS) and potential restrictions on other
advertising categories (e.g. gambling and high carbon
products).
Additionally, our Streaming
strategy fails to fully deliver the expected consumption hours (for
the digital advertising element) or subscriber growth (for the SVOD
element), impacting revenue
Advertising revenues year on year (including digital
advertising revenues) (2024 vs 2023 - 3%; 2025 vs 2024 - 4%; 2026
vs 2025 - 4%)
Total EBITA impact in 2024 is £62 million, followed by an
impact of £130 million in 2025 and £203 million in
2026.
Business area impacted: Media
& Entertainment
|
Principal Risk 1:
Streaming;
Principal Risk 3:
Commercial;
Principal Risk 4: Changing Viewer
Habits;
Principal Risk 5: Content
Pipeline;
Principal Risk 6: Partnerships;
and
Principal Risk 8: Policy &
Regulation
Further detail on how we mitigate
these risks is provided in the principal risk and uncertainties
section
|
3
|
A number of key programme brands
within the ITV Studios division are not recommissioned and new
format growth does not materialise
The scenario assumes key shows come to an end from 2024 (2024
EBITA impact: c. £28 million; 2025 EBITA impact c. £58 million and
2026 EBITA impact: c. £77 million).
Business area impacted:
Studios
|
Principal Risk 4: Changing Viewer
Habits
Principal Risk 5: Content
Pipeline
Further detail on how we mitigate
these risks is provided in the principal risk and uncertainties
section
|
4
|
ITV is subject to a cyber-attack
which results in a major operational disruption, critical system
outage or loss of intellectual property (IP), customer or business
data
This scenario assumes that a class action is filed against
ITV, following a major cyber attack which results in a blank screen
causing £100 million of lost advertising revenue, which requires a
substantial compensation payment and results in a fine from the
Information Commissioner's Office (ICO).
Business area impacted:
Group
|
Principal Risk 3:
Commercial
Principal Risk 7: Data
Principal Risk 10: Cyber
Security
Principal Risk 15: Operational
Resilience
Further detail on how we mitigate
these risks is provided in the principal risk and uncertainties
section
|
5
|
Settlements for ongoing litigation
are significantly higher than estimated, resulting in large one-off
cash payments
This scenario assumes a higher than provisioned cash outflow
in 2024 and 2025 in respect of settlements for ongoing
litigation.
Business area impacted:
Group
|
The complexity and potential scale
of the ongoing litigation cases result in a lack of certainty in
the final liabilities and payments.
Further detail of the accounting
judgements and estimates applied to ongoing litigation and earnouts
are provided in Section 1 to the Financial Information. An overview
the assessments performed by the Audit and Risk Committee with
respect to these accounting judgements is provided within the Audit
and Risk Committee report in the Annual Report and
Accounts
|
6
|
A combination of scenarios 1 to 3
above occurring simultaneously.
This scenario would result in an EBITA impact of £90m in
2024, £188m in 2025 and £280 million in 2026. Neither covenant is
breached at any time during the assessment period and liquidity
headroom is maintained
Business area impacted:
Group
|
Principal Risk 1:
Streaming;
Principal Risk 3:
Commercial;
Principal Risk 4: Changing Viewer
Habits;
Principal Risk 5: Content
Pipeline;
Principal Risk 6: Partnerships;
and
Principal Risk 8: Policy &
Regulation
Further detail on how we mitigate
these risks is provided in the principal risk and uncertainties
section
|
We have considered the impact of
climate change risks and do not believe they would have a
significant financial impact on the business in the assessment
period. Please refer to our Climate-related Financial Disclosures
section for further details.
Viability assessment
Our balance sheet and liquidity
position remains strong. At 31st December 2023, this comprised
unrestricted cash of £340.5 million; undrawn Revolving Credit
Facilities (RCF) of £500 million and £100 million available
throughout the viability period; and undrawn bilateral facility/CDS
of £300 million maturing in June 2026 (assumed to be replaced with
a new facility).
During the viability period, the
€600 million Eurobond maturing September 2026 is assumed to be
refinanced.
We have considered both the
individual scenarios and various combinations of the scenarios in
order to assess viability. Our modelling concludes that If all
scenarios were to occur concurrently (considered implausible),
management action would be required to ensure the leverage covenant
in the Revolving Credit Facility (RCF) is not breached in
2026.
Potential Mitigations
In the unlikely event that all
scenarios were to impact ITV concurrently, ITV would breach it's
RCF Net Debt / EBITDA covenant in H2 2026 with a ratio of 3.94x
compared to the threshold of 3.5x. The threshold is not breached in
any other half-yearly period during the assessment period. ITV
could eliminate the need for any further management action in H2
2026 by exercising its option under the terms of the RCF to
increase the covenant threshold to 4.0x for up to 2 consecutive
half-yearly periods. Interest cover remains greater than 3.0x
throughout the viability period.
Viability Statement
Based on the above, the Board has
a reasonable expectation that ITV will remain viable and be able to
continue operations and meet its liabilities as they fall due over
the three year-period ending 31 December 2026. 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
& COO
07 March 2024
Financial Information
In this
section
|
|
The financial information has been presented in a
style 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
it simple
|
|
Notes to the financial information provide
information 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
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 Assets classified as held for sale
|
|
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
|
|
Consolidated Income Statement
For the year ended 31 December
|
Note
|
2023
£m
|
2022
£m
|
Revenue
|
2.1
|
3,624
|
3,728
|
Operating costs
|
2.1
|
(3,386)
|
(3,209)
|
Operating profit
|
|
238
|
519
|
|
|
|
|
Presented as:
|
|
|
|
Earnings before interest, tax and amortisation
(EBITA) before exceptional items
|
2.1
|
404
|
668
|
Operating exceptional items
|
2.2
|
(77)
|
(65)
|
Amortisation and impairment
|
3.3, 3.5
|
(89)
|
(84)
|
Operating profit
|
|
238
|
519
|
|
|
|
|
Financing income
|
4.4
|
25
|
13
|
Financing costs
|
4.4
|
(70)
|
(39)
|
Net financing costs
|
|
(45)
|
(26)
|
Share of profits after tax of joint ventures and
associated undertakings
|
3.5
|
-
|
8
|
Profit before tax
|
|
193
|
501
|
Taxation
|
2.3
|
16
|
(66)
|
Profit for the year
|
|
209
|
435
|
|
|
|
|
Profit/(loss) attributable to:
|
|
|
|
Owners of the Company
|
|
210
|
428
|
Non-controlling interests
|
4.7.6
|
(1)
|
7
|
Profit for the year
|
|
209
|
435
|
|
|
|
|
Earnings per share
|
|
|
|
Basic earnings per share
|
2.4
|
5.2p
|
10.7p
|
Diluted earnings per share
|
2.4
|
5.2p
|
10.6p
|
Consolidated Statement of Comprehensive Income
For the year ended 31 December
|
Note
|
2023
£m
|
2022
£m
|
Profit for the year
|
|
209
|
435
|
|
|
|
|
Other comprehensive (expense)/income:
|
|
|
|
Items that are or may be reclassified to profit or
loss
|
|
|
|
Revaluation of financial assets
|
4.7.4
|
(1)
|
(19)
|
Net gain/(loss) on cash flow hedges and costs of
hedging
|
4.7.3
|
12
|
(2)
|
Exchange differences on translation of foreign
operations
|
4.7.3
|
(42)
|
75
|
Income tax (charge)/credit on items that may be
reclassified to profit or loss
|
2.3
|
(3)
|
6
|
Items that will never be reclassified to profit or
loss
|
|
|
|
Remeasurement (losses)/gains on defined benefit
pension schemes
|
3.7
|
(35)
|
80
|
Income tax credit/(charge) on items that will never
be reclassified to profit or loss
|
2.3
|
9
|
(23)
|
Other comprehensive (expense)/income for the year,
net of income tax
|
|
(60)
|
117
|
Total comprehensive income for the year
|
|
149
|
552
|
|
|
|
|
Total comprehensive income/(expense) attributable
to:
|
|
|
|
Owners of the Company
|
|
154
|
537
|
Non-controlling interests
|
4.7.6
|
(5)
|
15
|
Total comprehensive income for the year
|
|
149
|
552
|
Consolidated Statement of Financial Position
|
Note
|
31 December 2023
£m
|
31 December 2022
£m
|
Non-current assets
|
|
|
|
Property, plant and equipment
|
3.2
|
263
|
286
|
Intangible assets
|
3.3
|
1,542
|
1,609
|
Investments in joint ventures, associates and equity
investments
|
3.5
|
68
|
130
|
Derivative financial instruments
|
4.3
|
1
|
2
|
Distribution rights
|
3.1.2
|
14
|
17
|
Contract assets
|
3.1.6
|
13
|
-
|
Defined benefit pension surplus
|
3.7
|
187
|
172
|
Other pension asset
|
3.7
|
48
|
47
|
Deferred tax asset
|
2.3
|
6
|
19
|
|
|
2,142
|
2,282
|
Current assets
|
|
|
|
Programme rights and other inventory
|
3.1.1
|
413
|
377
|
Trade and other receivables due within one year
|
3.1.3
|
630
|
692
|
Trade and other receivables due after more than one
year
|
3.1.3
|
62
|
44
|
Trade and other receivables
|
|
692
|
736
|
Contract assets
|
3.1.6
|
189
|
185
|
Production inventories
|
3.1.7
|
234
|
493
|
Current tax receivable
|
2.3
|
111
|
52
|
Derivative financial instruments
|
4.3
|
4
|
2
|
Assets classified as held for sale
|
3.4
|
66
|
-
|
Cash and cash equivalents
|
4.1
|
340
|
348
|
|
|
2,049
|
2,193
|
Current liabilities
|
|
|
|
Borrowings
|
4.1, 4.2
|
(5)
|
(289)
|
Lease liabilities
|
4.6
|
(18)
|
(21)
|
Derivative financial instruments
|
4.3
|
(1)
|
(7)
|
Trade and other payables due within one year
|
3.1.4
|
(950)
|
(901)
|
Trade payables due after more than one year
|
3.1.5
|
(25)
|
(17)
|
Trade and other payables
|
|
(975)
|
(918)
|
Contract liabilities
|
3.1.6
|
(187)
|
(372)
|
Current tax liabilities
|
2.3
|
-
|
(7)
|
Provisions
|
3.6
|
(137)
|
(139)
|
|
|
(1,323)
|
(1,753)
|
Net current assets
|
|
726
|
440
|
Non-current liabilities
|
|
|
|
Borrowings
|
4.1, 4.2
|
(758)
|
(541)
|
Lease liabilities
|
4.6
|
(97)
|
(111)
|
Derivative financial instruments
|
4.3
|
(16)
|
(8)
|
Defined benefit pension deficit
|
3.7
|
(26)
|
(27)
|
Deferred tax liabilities
|
2.3
|
(59)
|
(57)
|
Other payables
|
3.1.5
|
(67)
|
(72)
|
Provisions
|
3.6
|
(17)
|
(30)
|
|
|
(1,040)
|
(846)
|
Net assets
|
|
1,828
|
1,876
|
|
|
|
|
Attributable to equity shareholders of the parent
company
|
|
|
|
Share capital
|
4.7.1
|
406
|
403
|
Share premium
|
4.7.1
|
174
|
174
|
Merger and other reserves
|
4.7.2
|
211
|
211
|
Translation reserve
|
4.7.3
|
78
|
107
|
Fair value reserve
|
4.7.4
|
(2)
|
(1)
|
Retained earnings
|
4.7.5
|
919
|
928
|
Total equity attributable to equity shareholders of
the parent company
|
|
1,786
|
1,822
|
Non-controlling interests
|
4.7.6
|
42
|
54
|
Total equity
|
|
1,828
|
1,876
|
Consolidated Statement of Changes in Equity
|
|
Attributable to equity shareholders of the parent
company
|
|
|
|
|
Note
|
Share
capital
£m
|
Share
premium
£m
|
Merger
and other
reserves
£m
|
Translation
reserve*
£m
|
Fair value
reserve
£m
|
Retained
earnings
£m
|
Total
£m
|
Non-
controlling
interests
£m
|
Total
equity
£m
|
Balance at 1 January 2023
|
4.7
|
403
|
174
|
211
|
107
|
(1)
|
928
|
1,822
|
54
|
1,876
|
Total comprehensive income/(expense)
for the year
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) for the year
|
|
-
|
-
|
-
|
-
|
-
|
210
|
210
|
(1)
|
209
|
Other comprehensive (expense)/income
|
|
|
|
|
|
|
|
|
|
|
Revaluation of financial assets
|
4.7.4
|
-
|
-
|
-
|
-
|
(1)
|
-
|
(1)
|
-
|
(1)
|
Net gain on cash flow hedges and costs of hedging
|
4.7.3
|
-
|
-
|
-
|
12
|
-
|
-
|
12
|
-
|
12
|
Exchange differences on translation of foreign
operations
|
4.7.3
|
-
|
-
|
-
|
(38)
|
-
|
-
|
(38)
|
(4)
|
(42)
|
Remeasurement loss on defined benefit pension
schemes
|
3.7
|
-
|
-
|
-
|
-
|
-
|
(35)
|
(35)
|
-
|
(35)
|
Income tax (charge)/credit on other comprehensive
income/(expense)
|
2.3
|
-
|
-
|
-
|
(3)
|
-
|
9
|
6
|
-
|
6
|
Total other comprehensive expense
|
|
-
|
-
|
-
|
(29)
|
(1)
|
(26)
|
(56)
|
(4)
|
(60)
|
Total comprehensive (expense)/income for the year
|
|
-
|
-
|
-
|
(29)
|
(1)
|
184
|
154
|
(5)
|
149
|
Transactions with owners, recorded directly in
equity
|
|
|
|
|
|
|
|
|
|
|
Contributions by and distributions
to owners
|
|
|
|
|
|
|
|
|
|
|
Issue of shares
|
4.7.1
|
3
|
-
|
-
|
-
|
-
|
(2)
|
1
|
-
|
1
|
Equity dividends
|
|
-
|
-
|
-
|
-
|
-
|
(201)
|
(201)
|
(1)
|
(202)
|
Movements due to share-based compensation
|
4.8
|
-
|
-
|
-
|
-
|
-
|
16
|
16
|
-
|
16
|
Movements in the employee benefit trust
|
|
-
|
-
|
-
|
-
|
-
|
(5)
|
(5)
|
-
|
(5)
|
Tax on items taken directly to equity
|
2.3
|
-
|
-
|
-
|
-
|
-
|
(2)
|
(2)
|
-
|
(2)
|
Total transactions with owners
|
|
3
|
-
|
-
|
-
|
-
|
(194)
|
(191)
|
(1)
|
(192)
|
Changes in non-controlling interests
|
4.7.6
|
-
|
-
|
-
|
-
|
-
|
1
|
1
|
(6)
|
(5)
|
Balance at 31 December 2023
|
4.7
|
406
|
174
|
211
|
78
|
(2)
|
919
|
1,786
|
42
|
1,828
|
* See note 4.3 for further breakdown of
Translation Reserve, including Hedging Reserve and Cost of Hedging
Reserve
|
|
Attributable to equity
shareholders of the parent company
|
|
|
|
|
Note
|
Share
capital
£m
|
Share
premium
£m
|
Merger
and other
reserves
£m
|
Translation
reserve*
£m
|
Fair value
reserve
£m
|
Retained
earnings
£m
|
Total
£m
|
Non-
controlling
interests
£m
|
Total
equity
£m
|
Balance at 1 January 2022
|
4.7
|
403
|
174
|
215
|
41
|
13
|
634
|
1,480
|
38
|
1,518
|
Total comprehensive income
for the year
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
-
|
-
|
-
|
-
|
-
|
428
|
428
|
7
|
435
|
Other comprehensive (expense)/income
|
|
|
|
|
|
|
|
|
|
|
Revaluation of financial assets
|
4.7.4
|
-
|
-
|
-
|
-
|
(19)
|
-
|
(19)
|
-
|
(19)
|
Net loss on cash flow hedges and costs
of hedging
|
4.7.3
|
-
|
-
|
-
|
(2)
|
-
|
-
|
(2)
|
-
|
(2)
|
Exchange differences on translation of foreign
operations
|
4.7.3
|
-
|
-
|
-
|
67
|
-
|
-
|
67
|
8
|
75
|
Remeasurement gain on defined
benefit pension schemes
|
3.7
|
-
|
-
|
-
|
-
|
-
|
80
|
80
|
-
|
80
|
Income tax credit/(charge) on other comprehensive
income/(expense)
|
2.3
|
-
|
-
|
-
|
1
|
5
|
(23)
|
(17)
|
-
|
(17)
|
Total other comprehensive income/(expense)
|
|
-
|
-
|
-
|
66
|
(14)
|
57
|
109
|
8
|
117
|
Total comprehensive income/(expense) for the year
|
|
-
|
-
|
-
|
66
|
(14)
|
485
|
537
|
15
|
552
|
Transactions with owners, recorded directly in
equity
|
|
|
|
|
|
|
|
|
|
|
Contributions by and distributions
to owners
|
|
|
|
|
|
|
|
|
|
|
Equity dividends
|
|
-
|
-
|
-
|
-
|
-
|
(201)
|
(201)
|
(3)
|
(204)
|
Movements due to share-based compensation
|
4.8
|
-
|
-
|
-
|
-
|
-
|
19
|
19
|
-
|
19
|
Movements in the employee benefit trust
|
|
-
|
-
|
-
|
-
|
-
|
(2)
|
(2)
|
-
|
(2)
|
Tax on items taken directly to equity
|
2.3
|
-
|
-
|
-
|
-
|
-
|
(7)
|
(7)
|
-
|
(7)
|
Total transactions with owners
|
|
-
|
-
|
-
|
-
|
-
|
(191)
|
(191)
|
(3)
|
(194)
|
Changes in non-controlling interests
|
4.7.6
|
-
|
-
|
(4)
|
-
|
-
|
-
|
(4)
|
4
|
-
|
Balance at 31 December 2022
|
4.7
|
403
|
174
|
211
|
107
|
(1)
|
928
|
1,822
|
54
|
1,876
|
* See note 4.3 for further breakdown of
Translation Reserve, including Hedging Reserve and Cost of Hedging
Reserve
Consolidated Statement of Cash Flows
For the year ended 31 December
|
Note
|
£m
|
2023
£m
|
£m
|
2022
£m
|
Cash flows from operating activities
|
|
|
|
|
|
Cash generated from operations before exceptional
items
|
2.1
|
|
556
|
|
590
|
Cash flow relating to operating exceptional
items:
|
|
|
|
|
|
Operating exceptional items
|
2.2
|
(77)
|
|
(65)
|
|
Increase in exceptional
payables
|
|
9
|
|
12
|
|
Cash outflow from exceptional items
|
|
|
(68)
|
|
(53)
|
Cash generated from operations
|
|
|
488
|
|
537
|
Defined benefit pension deficit funding
|
|
(40)
|
|
(137)
|
|
Interest received
|
|
20
|
|
15
|
|
Interest paid*
|
|
(51)
|
|
(56)
|
|
Net taxation paid
|
|
(32)
|
|
(55)
|
|
|
|
|
(103)
|
|
(233)
|
Net cash inflow from operating activities
|
|
|
385
|
|
304
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
(31)
|
|
(34)
|
|
Acquisition of intangible assets
|
|
(39)
|
|
(44)
|
|
Acquisition of subsidiary undertakings, net of cash
acquired
|
|
(1)
|
|
(96)
|
|
Acquisition of investments
|
|
(19)
|
|
(13)
|
|
Dividends received from investments
|
|
3
|
|
-
|
|
Loans granted to associates and joint ventures
|
|
(13)
|
|
(13)
|
|
Loans repaid by associates and joint ventures
|
|
3
|
|
4
|
|
Net cash outflow from investing activities
|
|
|
(97)
|
|
(196)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
Bank and other loans - amounts repaid
|
|
(401)
|
|
(539)
|
|
Settlement of derivatives***
|
|
(10)
|
|
-
|
|
Bank and other loans - amounts raised
|
|
351
|
|
282
|
|
Release of restricted cash
|
|
-
|
|
50
|
|
Payment of lease liabilities**
|
|
(22)
|
|
(22)
|
|
Issue of share capital
|
|
1
|
|
-
|
|
Acquisition of non-controlling interests
|
|
(4)
|
|
(25)
|
|
Dividends paid to non-controlling interests
|
|
(1)
|
|
(3)
|
|
Equity dividends paid
|
|
(201)
|
|
(201)
|
|
Net cash outflow from financing activities
|
|
|
(287)
|
|
(458)
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash
equivalents
|
|
|
1
|
|
(350)
|
|
|
|
|
|
|
Cash and cash equivalents at 1 January
|
4.1
|
|
348
|
|
686
|
Effects of exchange rate changes and fair value
movements
|
|
|
(9)
|
|
12
|
Cash and cash equivalents at 31 December
|
4.1
|
|
340
|
|
348
|
* Interest paid includes interest on
bank, other loans, derivative financial instruments and lease
liabilities
** Net cash flow on lease liabilities in note
4.1 of £26 million (2022: £26 million) includes interest on lease
liabilities included in interest paid of £4
million (2022: £4 million)
*** Net cash flow from forwards and swaps held
against the euro denominated bond repaid in the year
Notes to the Financial Information
Section 1: Basis of Preparation
In this
section
|
|
This section sets out the Group's accounting 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 UK-adopted accounting standards, amendments and
interpretations, and whether they are effective in 2023 or later
years. We explain how these changes are expected to impact the
financial position and performance of the Group.
|
The financial information consolidates 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 registered in England
and Wales.
This Group financial information
was prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006
as applicable to companies reporting under those
standards.
The accounting policies have been
applied consistently in the financial years presented, other than
where new policies have been adopted.
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
As at 31 December 2023, the Group
was in a net debt position of £553 million (2022: £623 million),
including gross borrowings of £893 million (2022: £971 million)
offset by cash and cash equivalents of £340 million (2022: £348
million).
In addition to £340 million of
cash and cash equivalents (2022: £348 million), the Group has a
syndicated £500 million Revolving Credit Facility (RCF) entered
into during 2022 which was undrawn at 31 December 2023 (31 December
2022: £50 million drawn). £83 million of this facility expires in
January 2028 and the remaining £417 million expires in January
2029. In December 2023, the Group entered into an additional £100
million bilateral RCF which matures in December 2028, and which is
undrawn at 31 December 2023. The Group also has a £300 million
committed and undrawn bilateral facility expiring in June 2026 (31
December 2022: undrawn). This provides £1,240 million (2022: £1,098
million) of liquidity.
The €259 million Eurobond matured
in December 2023 and was repaid through cash proceeds drawn in full
from a £230 million term loan facility entered into in August
2023. The term loan matures in July 2027 and interest on the loan
is determined as an aggregate of compounded Sterling Overnight
Index Average (SONIA) plus a margin. The term loan has the same
financial covenants as the Group's RCF facility.
The two RCFs are 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 (measures as defined in the RCF documentation). In
addition, the £500 million RCF is subject to ESG targets
linked to the delivery of ITV's science-based carbon emissions
targets. As at 31 December 2023, the Group had covenant net debt of
£415 million (2022: £461 million) and its financial position was
well within its covenants. The leverage and interest cover tests
will be tested again on 30 June 2024.
The £500 million RCF contains
Scope 1, 2 and 3 greenhouse gas emissions targets which align to
ITV's stated objective to have Net Zero carbon emissions by 2030.
These targets are measured at the end of each financial year and
independently verified in July following the relevant December year
end. Scope 1 and 2 emissions are measured separately to Scope 3
emissions. The margin on the facility reduces by 2.5bps if Scope 1,
2 and 3 targets are met, by 1.25bps if either Scope 1 and 2 targets
are met or Scope 3 targets are met, and increases by 2.5bps if
neither target is met. Failing to meet targets does not impact the
availability of the RCF. The Group met Scope 1, 2 and 3 targets for
2022, however 2023 emissions will not be verified until July 2024.
Over the life of the facility, it may be necessary to recalibrate
the baseline emissions level set in 2019, particularly in relation
to Scope 3 emissions and there is a mechanism in the RCF
documentation that allows for this.
The Directors have prepared
forecasts for three cash flow scenarios (mid, high and low cases),
for the period of three years from 1 January 2024 (in line with the
viability assessment period). The mid case scenario is based on the
2024 Board approved budget and 2024 to 2026 strategic plan, also
approved by the Board. The key assumptions in the scenarios relate
to fluctuations in the advertising market due to audience and/or
market decline and the evolving demand in the content market,
specifically relating to content pipeline. All scenarios have
embedded inflationary impacts with increased production costs in
the short to medium term as well as continued structural changes in
the advertising market and viewing habits with increased focus on
streaming. The Directors have also considered a number of
sensitivities to the mid case scenario to arrive at a severe but
plausible downside scenario that has been used to assess the
appropriateness of preparing this consolidated financial
information using the going concern basis. These sensitivities
include settlements in respect of ongoing litigation, lost and/or
delayed Studios productions, a failure to deliver the expected
consumption hours or subscriber growth for Streaming and a decline
in advertising revenue in comparison to 2023. The severe but
plausible scenarios do not assume the adoption of a range of
mitigations available to the Board.
After considering the severe but
plausible scenarios, the Group remains able to operate within its
financial covenants and will have sufficient liquidity during the
going concern period to 30 June 2025.
The Directors propose a final
dividend of 3.3 pence per share (2022: 3.3 pence), which
equates to a full year dividend of 5.0 pence per share, subject to
approval by shareholders at the AGM on 2 May 2024. The
Directors intend to at least maintain this dividend over the medium
term (this was included in all scenarios modelled). The
Directors will continue to balance shareholder returns with a
commitment to maintain investment grade credit metrics over the
medium term and to continue to invest in the Group's
strategy.
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 is exposed, or has rights to variable returns
from its involvement with the investee and has the ability to
affect those returns through its power over the investee. 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 or losses,
less any dividends received 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 initially at cost as a proxy for fair
value.
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
Consolidated Statement of Financial Position in accordance with
IFRS 9 'Financial Instruments':
• Financial assets/liabilities at fair value
through OCI - measured at fair value through other comprehensive
income -separately disclosed as financial assets/liabilities in
current and non-current assets and liabilities or equity
investments in non-current assets
• Financial assets/liabilities at fair value
through profit or loss - separately disclosed as derivative
financial instruments in current and non-current assets and
liabilities and included in other payables (put option liabilities
and contingent consideration) or convertible loan receivable within
other receivables
• Financial assets measured at amortised cost -
separately disclosed as cash and cash equivalents and trade and
other receivables
• 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, requiring assessment of contractual provisions that do
or may change the timing or amount of contractual cash flows.
Details of 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, and the Group
intends to either settle on a net basis or realise the asset and
settle the liability simultaneously, the Group presents the
relevant instruments net in the Consolidated 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 Consolidated
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 are presented in pounds sterling
('£').
Where Group companies based in the
UK transact in foreign currencies, these transactions are
translated into pounds sterling at the exchange rate on the
transaction date. Foreign currency monetary assets and liabilities
are translated into pounds sterling at the year end exchange rate.
Where there is a movement in the exchange rate between the date of
the transaction and the year end, a foreign exchange gain or
loss is recognised in the income statement. 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).
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.
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.
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. The current macroeconomic environment has
caused greater estimation and judgement to be applied, particularly
in respect of pension obligations and discount rates used for
impairment reviews.
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 and therefore may have a material impact on
the financial information in the next 12 months are set out below.
Additional detail on the judgements and sources of estimation
uncertainty applied by management are set out in the accounting
policies section of the relevant notes:
Area
|
Key judgements
|
Key sources of estimation uncertainty
|
Exceptional items (See note 2.2)
|
The classification of income or expenses as
exceptional items
|
|
Defined benefit pension
(See note 3.7)
|
|
Estimates of the assumptions for valuing the defined
benefit obligation
|
Provisions related to Box Clever
(see note 3.6)
|
The basis for calculating
the provision
|
Estimates of the amount required to settle the
potential liability
|
Employee-related provisions (See note 3.6)
|
The individuals who are included in the
calculation
|
Estimates of the amounts required to settle
the liability
|
Acquisition-related liabilities
(See note 3.1.4 and 3.1.5)
|
Whether future amounts payable are linked to
employment
|
Estimates of cash-flow forecasts to support the
calculation of the future liabilities
|
Transmission commitments (See note 3.1.1)
|
Whether the transponder contracts should be
classified as leases in accordance with IFRS 16
|
|
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. The key
areas underlying estimation uncertainty include the estimation of
net realisable values for programme rights, allocation of programme
rights between linear and ITVX, impairment of intangible assets and
taxation. More detail on each of these items is given in the
relevant notes.
The Directors recognise the
climate crisis and the potential impact it may have on both the
wider world and the success of ITV. The threat continues to
evolve and businesses globally have a responsibility to take
meaningful action to mitigate and prevent further climate change.
The Directors are committed to reducing the impact of ITV on the
environment. Climate-related risks have been identified as an
emerging business risk; however, the Directors do not view them as
a source of material estimation uncertainty for the Group. For
further detail, see the Risks and Uncertainties section of the
Strategic Report.
New or amended accounting standards
The following new standards and/or
amendments were effective 1 January 2023, but have not had a
significant impact on the Group's results or Consolidated Statement
of Financial Position.
Accounting standard
|
Requirement
|
Impact on financial information
|
IFRS 17 'Insurance
Contracts' and related
amendments
|
IFRS 17 'Insurance Contracts' is a comprehensive new
accounting standard covering recognition, measurement, presentation
and disclosures. This standard replaces IFRS 4 'Insurance
Contracts'.
|
No material change to the Group's financial position
or performance.
|
Amendments to IAS 1 'Presentation of Financial
Statements' and IFRS
Practice Statement 2
'Making Materiality
Judgements'
|
The amendments aim to help entities provide
accounting policy disclosures that are more useful by replacing the
requirement for entities to disclose their 'significant' accounting
policies with a requirement to disclose their 'material' accounting
policies. The IFRS Practice Statement
2 has been amended by adding guidance and examples to
explain and demonstrate the application of the 'four-step
materiality process' in making decisions about accounting policy
disclosures.
|
No material change to the Group's financial position
or performance.
|
Amendments to IAS 8 'Accounting Policies,
Changes in Accounting Estimates and Errors'
|
The amendments introduce a new definition of
accounting estimates and clarify how entities use measurement
techniques and inputs to develop accounting estimates.
|
No material change to the Group's financial position
or performance.
|
Amendments to IAS 12 'Income taxes' - Initial
recognition exception
|
The amendments aim to narrow the scope of the initial
recognition exception under IAS 12 so that it no longer applies to
transactions that give rise to equal taxable and deductible
temporary differences.
|
No material change to the Group's financial position
or performance.
|
Amendments to IAS 12 'Income Taxes'- Pillar Two
income taxes
|
The amendments provide a temporary exception from the
requirement to recognise and disclose deferred taxes arising from
enacted or substantively enacted tax law that implements the Pillar
Two model rules published by the OECD, including tax law that
implements qualified domestic minimum top-up taxes described in
those rules.
|
The Group has applied the exception under IAS 12 to
recognising and disclosing information about deferred tax assets
and liabilities related to top-up income taxes.
|
Finance (No 2) Bill and Pillar
Two impact on financial information
On 20 June 2023, Finance (No.2)
Act 2023 was substantively enacted in the UK, introducing a global
minimum effective tax rate of 15% for large groups and for
financial years beginning on or after 31 December 2023. Taxation
balances are adjusted for a change in tax law if the change has
been substantively enacted by the balance sheet date, however the
amendments to IAS 12 'Income Taxes' Pillar Two income taxes
provides an exemption from the requirement to recognise and
disclose deferred taxes arising from enacted or substantively
enacted tax law that implements the Pillar Two model
rules.
Based on an initial analysis
of the current year financial data, most territories in which the
Group operates are expected to qualify for one of the safe harbour
exemptions such that top-up taxes should not apply. In territories
where this is not the case there is the potential for Pillar Two
taxes to apply, but these are not expected to be material. The
Group continues to refine this assessment and analyse the future
consequences of these rules.
Accounting standards effective in future periods
The Directors have considered the
impact on the Group of new and revised accounting standards,
interpretations or amendments that are not yet effective and
do not expect them to have a significant impact on the Group's
results and Consolidated Statement of Financial
Position.
Section 2: Results for the Year
In this
section
|
|
This section focuses on the results and performance
of the Group. On the following pages, you will find disclosures
explaining the Group's results for the year, segmental information,
exceptional items, taxation and earnings per share.
|
2.1 Profit before tax
|
|
Keeping
it simple
|
|
This section analyses the Group's profit before tax
by reference to the activities performed by the Group and an
analysis of key operating costs.
Total revenue and adjusted earnings before interest,
tax and amortisation (adjusted EBITA) (both as defined in the
APMs section of the Annual Report) are the Group's key performance
and profit indicators. They reflect 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.
|
The Group is a vertically integrated producer
broadcaster and streamer, consisting of ITV Studios and Media &
Entertainment (M&E).
ITV Studios
ITV Studios is a scaled and global
creator, owner and distributor of high-quality TV content. ITV
Studios is the largest producer in the UK, one of the largest
unscripted producers in the US and one of the top three producers
in the majority of the international markets in which it
operates. ITV Studios has established relationships with key
content buyers and leading creative talent in those markets; and
with a combined content library of over 90,000 hours, it is also
one of the pre-eminent global distributors.
ITV Studios UK, the largest producer
in the UK, produces programming for the Group's own channels,
accounting for 70% of ITV main channel spend on commissioned
programming (2022: 65%). Programming is also sold to other
UK broadcasters, networks and streaming platforms.
ITV Studios US is one of the largest
unscripted producers in the US and continues to grow its scripted
presence by investing in high-profile dramas.
ITV Studios also operates in ten
other international locations, together called ITV Studios
International, being Australia, Germany, France, Italy, Spain, the
Netherlands, Sweden, Norway, Finland and Denmark where content is
produced for local and international broadcasters, networks and
streaming 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 Studios Global Partnerships
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.
Media & Entertainment
ITV is the largest commercial
broadcaster and streamer in the UK, delivering unrivalled audience
scale and reach. Media & Entertainment (M&E) includes
Streaming and Broadcast through which we distribute content via
ITVX, our free advertiser-funded streaming service, and via our
free-to-air linear TV channels. Our content is also distributed on
third-party partner platforms such as Sky and Virgin.
ITVX also includes a subscription
tier, ITVX Premium, which provides subscribers with all of ITVX's
programming ad-free along with other exclusive content.
ITV offers advertisers a unique
combination of mass simultaneous reach, targeted advertising, and
commercial and creative partnerships, in a brand-safe environment
across ITVX and our linear TV channels.
Digital revenue is predominantly
made up of digital advertising revenues, subscription revenue and
digital sponsorship and commercial partnerships.
Non-digital advertising revenue is
predominantly made up of advertising, sponsorship and commercial
partnership revenue from our linear television channels.
Other revenue is predominantly made
up of competitions around our linear television programming and
third party licensing revenue.
Accounting policies
Revenue measurement and
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. Variable consideration is estimated based
on the achievement of agreed targets, such as audience targets.
Variable consideration is recognised only to the extent that
it is highly probable that a significant reversal of revenue
recognised will not occur when the uncertainty associated with the
variable consideration is subsequently resolved.
Revenue is stated exclusive of VAT
and equivalent sales taxes.
Complexity in advertising revenue
measurement and recognition is driven by a combination of automated
and manual processes involved in measuring the value delivered to
the customer and therefore the value of variable consideration
due.
In assessing the transaction price,
any non-cash consideration received from a customer is included.
Non-cash consideration is measured at fair value. It takes into
account the value of what the Group is receiving rather than the
value of what the Group is giving up.
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 particularly in respect of contracts in the ITV Studios
division to assess whether revenue should be recognised at a point
in time or over time.
Revenue recognition criteria for the
key classes of revenue are as follows:
Segment
|
Major classes of revenue and revenue recognition
policy
|
Payment terms
|
ITV Studios
|
Programme production
|
• Revenue generated from the
programmes produced for broadcasters and streaming 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, over the term of
the contract
|
• Payment term is over the term
of the contract
|
Format licences
|
• A licence is granted for the
exploitation of a format in a stated territory, media and period.
Licence revenue is recognised when the licence period has commenced
(point in time)
|
• Payment term is over the term
of the contract
|
Programme distribution rights
|
• A licence is granted for the
transmission of a 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)
|
• Payment term is over the term
of the contract
|
Segment
|
Major classes of revenue and revenue recognition
policy
|
Payment terms
|
Media & Entertainment
|
Total advertising revenue
|
• Net advertising revenue is
generated from selling spot airtime on linear TV and is recognised
at the point of transmission
• Online advertising revenue
from video on demand is generated from selling advertising on ITVX
(ITV Hub before the launch of ITVX in December 2022) 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
|
• Received in the month after
transmission
• Received in the month after
campaign is delivered
• Received prior to
transmission
|
Subscriptions
|
• Revenue from subscription
services is recognised over the subscription period
|
• Payment term is over the term
of the contract or subscription period
|
SDN
|
• Revenue is generated from the
carriage fee or capacity of the digital multiplex and is recognised
over the term of the contract
|
• Payment term is over the term
of the contract
|
Partnerships and other revenue
|
• Revenue from platforms such
as Sky and Virgin Media O2, and
third-party commissions. Revenue related to performance obligations
delivered over time (e.g. provision of HD and SD channels and
updated library content) are recognised over the term of the
contract while revenues related to one-time provision of content
are recognised on delivery of the content (point in time)
• Interactive revenue is earned
from entries to competitions and is recognised as the event occurs
(point in time)
• Minorities revenues is the
revenue received from Channel 3 licencees that are not part of the
ITV Group. The performance obligations are delivered as programming
is delivered to the licensee and revenue is recognised over the
term of the contract (over time)
• Other categories of revenues
within 'Partnerships and other revenue' are individually
immaterial
|
• Payment term is over the term
of the contract
• Payment term is within two
months of the competition being aired
• Payment term is over the term
of the contract
|
The results for the year aggregate
these classes of revenue into the following categories:
|
2023
£m
|
2023
% of total
|
2022
£m
|
2022
% of total
|
ITV Studios UK
|
962
|
|
822
|
|
ITV Studios US
|
395
|
|
467
|
|
ITV Studios International
|
445
|
|
465
|
|
Global Partnerships*
|
368
|
|
342
|
|
Total ITV Studios**
|
2,170
|
51%
|
2,096
|
48%
|
|
|
|
|
|
Total advertising revenue (TAR)
|
1,778
|
42%
|
1,931
|
44%
|
Subscriptions
|
59
|
|
54
|
|
SDN
|
48
|
|
55
|
|
Partnerships and other revenue
|
205
|
|
209
|
|
Media & Entertainment
|
2,090
|
49%
|
2,249
|
52%
|
Total revenue***
|
4,260
|
|
4,345
|
|
* Global Formats and Distribution was
rebranded as Global Partnerships in the year
** ITV Studios UK, ITV Studios US and Studios
International revenues are mainly programme
production. Global Partnerships revenue is from programme
distribution rights, format
licences and gaming, live events and
merchandising.
*** Includes internal supply as discussed in
the APMs.
Digital revenues of £490 million
(2022: £411 million) include digital advertising revenue and
subscription revenue, digital sponsorship and partnership revenue,
ITV Win and other revenues from digital business
ventures.
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 Management Board.
The Management Board is regarded as the chief operating
decision-maker and considers the business,
primarily from an operating activity perspective.
The Groups' segments are Media &
Entertainment and ITV Studios, the results of which are outlined in
the following tables:
|
ITV Studios*
2023
£m
|
Media & Entertainment
2023
£m
|
Consolidated
2023
£m
|
Total segment revenue
|
2,170
|
2,090
|
4,260
|
Intersegment revenue
|
(629)
|
(7)
|
(636)
|
Revenue from external customers
|
1,541
|
2,083
|
3,624
|
|
|
|
|
Adjusted EBITA**
|
286
|
205
|
491
|
Unrealised profit in stock adjustment
|
|
|
(2)
|
Group adjusted EBITA***
|
|
|
489
|
|
ITV Studios*
2022
£m
|
Media & Entertainment
2022
£m
|
Consolidated
2022
£m
|
Total segment revenue
|
2,096
|
2,249
|
4,345
|
Intersegment revenue
|
(611)
|
(6)
|
(617)
|
Revenue from external customers
|
1,485
|
2,243
|
3,728
|
|
|
|
|
Adjusted EBITA**
|
259
|
464
|
723
|
Unrealised profit in stock adjustment
|
|
|
(6)
|
Group adjusted EBITA***
|
|
|
717
|
* Intersegment revenue originates
mainly in the UK.
** Adjusted EBITA is 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.
*** Group adjusted EBITA removes the profit
recorded in the ITV Studios business related to content sold to the
Media & Entertainment business but unutilised and held on the
balance sheet at the year end. A reconciliation of Group adjusted
EBITA to statutory profit before tax is provided.
The Group's principal operations are in the United
Kingdom. Revenue from external customers in the United Kingdom
is £2,272 million (2022: £2,376 million) and revenue from
external customers in other countries is £1,352 million
(2022: £1,352 million), of which revenue of £641 million
(2022: £655 million) was generated in the US during the year.
The Operating and Financial 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 Media & Entertainment 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 or building occupancy of each segment. This is consistent
with the basis of reporting to the Board of Directors.
There is one media buying agency
(2022: two) acting on behalf of a number of advertisers that
represent the Group's major customers. This agency is the only
customer that individually represents over 10% of the Group's
revenue. Revenue of approximately £478 million was derived from
this customer in 2023. In 2022, there were two media buying
agencies that represented over 10% of the Group's revenue
with £548 million and £355 million respectively. This revenue
is attributable to the Media & Entertainment
segment.
The following table shows the total
of non-current assets other than financial instruments, deferred
tax assets, and pension assets broken down by location of the
assets:
|
|
|
|
2023
£m
|
2022
£m
|
UK
|
|
|
|
1,372
|
1,415
|
US
|
|
|
|
391
|
472
|
Rest of the world
|
|
|
|
137
|
155
|
Total non-current assets
|
|
|
|
1,900
|
2,042
|
Timing of revenue
recognition
The following table includes classes
of revenue from contracts disaggregated by the timing of
recognition:
|
2023
£m
|
2022
£m
|
|
2023
£m
|
2022
£m
|
|
Products and services transferred at a point in
time
|
|
Products and services transferred over time
|
Total advertising revenue, subscriptions, SDN and
other M&E
|
1,755
|
1,902
|
|
328
|
341
|
Programme production, programme distribution
rights
|
1,187
|
1,169
|
|
266
|
236
|
Format licences
|
82
|
76
|
|
6
|
4
|
Total external revenue
|
3,024
|
3,147
|
|
600
|
581
|
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):
|
2024
£m
|
2025
£m
|
2026
£m
|
Beyond
£m
|
Media & Entertainment
|
92
|
73
|
53
|
29
|
ITV Studios
|
151
|
180
|
39
|
12
|
Total revenue
|
243
|
253
|
92
|
41
|
Internal supply
|
(43)
|
(52)
|
-
|
-
|
Total external revenue
|
200
|
201
|
92
|
41
|
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. net
advertising revenue (NAR)).
Group 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 Financial Performance Review
for the detailed explanation of the Group's use of adjusted
performance measures. A reconciliation of Group adjusted EBITA to
statutory profit before tax is provided as follows:
|
Note
|
2023
£m
|
2022
£m
|
Group adjusted EBITA
|
|
489
|
717
|
Production tax credits
|
|
(85)
|
(49)
|
EBITA before exceptional items
|
|
404
|
668
|
Operating exceptional items
|
2.2
|
(77)
|
(65)
|
Amortisation and impairment
|
|
(89)
|
(84)
|
Net financing costs
|
4.4
|
(45)
|
(26)
|
Share of profits of joint ventures and associated
undertakings
|
|
-
|
8
|
Statutory profit before tax
|
|
193
|
501
|
Cash generated from
operations
A reconciliation of profit before
tax to cash generated from operations before exceptional items is
as follows:
|
Note
|
2023
£m
|
2022
£m
|
|
Cash flows from operating activities
|
|
|
|
|
Statutory profit before tax
|
|
193
|
501
|
|
Add back:
|
|
|
|
|
Share of profits of joint ventures and associated
undertakings
|
|
-
|
(8)
|
|
Net financing costs
|
4.4
|
45
|
26
|
|
Operating exceptional items
|
2.2
|
77
|
65
|
|
Depreciation of property, plant and equipment (net of
exceptional items)
|
3.2
|
46
|
53
|
|
Amortisation and impairment
|
|
89
|
84
|
|
Share-based compensation
|
4.8
|
16
|
19
|
|
Increase in programme rights and distribution
rights
|
|
(33)
|
(70)
|
|
Decrease/(increase) in receivables, contract assets
and production inventories
|
|
274
|
(133)
|
|
(Decrease)/increase in payables and contract
liabilities
|
|
(151)
|
53
|
|
Movement in working capital
|
|
|
90
|
(150)
|
Cash generated from operations before exceptional
items
|
|
556
|
590
|
|
|
|
|
|
|
|
Operating costs
The major components of operating
costs of £3,386 million (2022: £3,209 million) are content costs of
£1,293 million
(2022: £1,216 million), other net costs of production of £1,496
million (2022: £1,444 million), staff costs of £385 million (2022:
£347 million), depreciation, amortisation and impairment of £135
million (2022: £137 million) and operating exceptional items of £77
million (2022: £65 million).
Staff costs
Staff costs can be analysed as
follows:
|
2023
£m
|
2022
£m
|
Wages and salaries
|
548
|
497
|
Social security and other costs
|
98
|
80
|
Share-based compensation (see note 4.8)
|
16
|
19
|
Pension costs
|
31
|
35
|
Total staff costs*
|
693
|
631
|
Less: staff costs allocated to productions,
exceptional items or capitalised
|
(308)
|
(284)
|
Net staff costs
|
385
|
347
|
* Staff costs includes the management
board including two executive directors but excludes the
non-executives and the Chairman.
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:
|
2023
|
2022
|
ITV Studios
|
4,017
|
4,042
|
Media & Entertainment
|
2,852
|
2,635
|
|
6,869
|
6,677
|
The monthly average number of people employed over
the year is:
|
2023
|
2022
|
ITV Studios
|
4,248
|
4,144
|
Media & Entertainment
|
2,939
|
2,681
|
|
7,187
|
6,825
|
The increase in headcount is due to a continued
investment in digital and technical expertise to drive our digital
revenue primarily on ITVX.
Depreciation
Depreciation in the year was £46
million (2022: £53 million), of which £28 million (2022: £33
million) relates to ITV Studios and £18 million (2022: £20
million) to Media & Entertainment. A further £6 million (2022:
£8 million) in respect of accelerated depreciation following a
change in useful life of the related assets in relation to the move
to a new London site has been included in exceptional items. See
notes 2.2 and 3.2 for further details.
Audit fees
The Group's auditors are
PricewaterhouseCoopers LLP. The Group may engage
PricewaterhouseCoopers LLP on assignments additional to its
statutory audit duties where its expertise and experience with
the Group are important and are in line with the Group's policy on
auditor independence. In 2023, non-audit fees of £1.3 million
(2022: £nil) were paid to PricewaterhouseCoopers LLP for services
related to a proposed acquisition. Fees for audit-related assurance
services of £0.2 million (2022: £0.2 million), being the review
of the interim results for the six months to 30 June 2023
were also incurred. Fees paid to PricewaterhouseCoopers LLP and its
associates during the year are set out below:
|
PwC
2023
£m
|
PwC
2022
£m
|
For the audit of the Group's annual financial
statements
|
2.1
|
1.8
|
For the audit of subsidiaries of the Group
|
1.7
|
1.3
|
Audit-related assurance services
|
0.2
|
0.2
|
Total audit and audit-related assurance services
|
4.0
|
3.3
|
|
|
|
Other assurance services
|
1.3
|
-
|
Total non-audit services
|
1.3
|
-
|
|
|
|
Total fees paid to auditors
|
5.3
|
3.3
|
Other than noted above, there were no fees payable in
2023 or 2022 to PricewaterhouseCoopers LLP or their associates for
the audit of financial statements of any associate or pension
scheme of the Group, or internal audit activities.
2.2 Exceptional items
|
|
Keeping
it simple
|
|
Exceptional items are excluded from management's
assessment of profit because by their size or nature they
could distort the Group's underlying quality of earnings.
They are typically gains or losses arising from events that
are not considered part of the core operations of the business.
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 Consolidated Income Statement.
See the Operating and Financial 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 exceptional items are
analysed as follows:
(Charge)/credit
|
Ref.
|
2023
£m
|
2022
£m
|
Operating exceptional items:
|
|
|
|
Acquisition-related expenses
|
A
|
(24)
|
(4)
|
Restructuring and transformation costs
|
B
|
(25)
|
(28)
|
Property costs
|
C
|
(10)
|
(24)
|
Pension related costs
|
D
|
-
|
(4)
|
Costs related to the passing of Her Majesty Queen
Elizabeth II
|
E
|
-
|
(16)
|
Sports rights
|
F
|
-
|
5
|
Employee-related tax provision
|
G
|
3
|
(10)
|
Insured trade receivable provision
|
H
|
3
|
23
|
Legal settlements
|
I
|
(13)
|
-
|
Legal and other costs
|
J
|
(11)
|
(7)
|
Total operating exceptional items
|
|
(77)
|
(65)
|
Tax on operating exceptional items
|
|
12
|
8
|
Total operating exceptional items net of tax
|
|
(65)
|
(57)
|
A. Acquisition-related
expenses
Acquisition-related expenses of £24
million (2022: £4 million) are predominantly performance-based,
employment-linked consideration to former owners and professional
fees related to acquisitions and potential acquisitions.
B. Restructuring and transformation
costs
Restructuring and transformation
costs of £25 million (2022: £28 million) relate to one-off
significant restructuring and transformation programmes of the
business.
Significant projects include a
business transformation programme which commenced in 2021. This
programme includes the implementation of a new cloud-based ERP
solution, a software as a service (SaaS) solution where the
implementation costs are expensed as incurred. The implementation
commenced in 2021 and is expected to continue into 2024.
Other significant projects include a
rationalisation of the Studios operational structures outside the
UK. Costs relating to this review will continue throughout
2024.
C. Property costs
Following the decision to move to
Broadcast Centre in early 2022, £10 million (2022: £17 million) of
property costs and move related costs have been recognised as
exceptional, including accelerated depreciation following a change
in useful life of the related assets. No further exceptional costs
are expected related to the move to Broadcast Centre.
In 2022, an additional £7 million
impairment on leasehold improvements and right of use asset was
provided following the decision to vacate our New York office and
reduce our property footprint in the US.
D. Pension related costs
The 2022 charge relates to the risk
premium paid in relation to the buy-out of Section C of the ITV
Pension Scheme.
E. Costs related to the passing of Her
Majesty Queen Elizabeth II
Following the passing of Her Majesty
Queen Elizabeth II in September 2022, the M&E business incurred
significant additional costs related to news coverage
associated with the reporting of the death of the Queen, the
funeral and programmes featuring the character of the Queen that
will unlikely ever be screened. £16 million of costs were
recognised in 2022.
F. Sports rights
In 2021, certain sporting events
were cancelled by the relevant governing body. The Group had
previously recognised an impairment provision for these events. £5
million was released in 2022 as a refund of earlier payments made
was expected.
G. Employee-related tax
provisions
From April 2021 the responsibility
for undertaking IR35 employment status assessments, and where
necessary withholding PAYE and paying NICs, passed to the employer,
rather than remaining with individuals and their personal service
companies. HMRC have issued assessments on the Group for several
individuals engaged by the Group during the tax years 2016/17 to
2018/19 as employed for tax purposes. This is a complex area and
the Group has been in continuous discussion with HMRC on this
matter throughout 2023.
In 2023, HMRC advised that certain
individuals were no longer of interest to them and the related
provision previously classified as exceptional was
released.
Due to ongoing reviews by HMRC and
court cases in this matter, the final amount payable could be
significantly different to amounts currently provided.
H. Insured trade receivable
provision
In 2017, the Group recorded a bad
debt provision of US$41 million related to trade receivables for
The Voice of China. Subsequently, US$34 million of cash was
received from the licensee and the corresponding bad debt provision
was released. The Directors anticipated recovering the remainder of
the trade receivable from the trade credit insurance.
In 2023, a settlement of the claim
was agreed with the insurers resulting in an exceptional credit of
US$5 million (£3 million). No further recovery of the
remaining trade receivable is expected.
I. Legal settlements
Legal settlements of £13 million
(2022: £nil) relate to settlements or proposed settlements on a
number of significant legal cases which are considered outside the
normal course of business.
J. Legal and other costs
Legal and other costs of £11 million
(2022: £7 million) relates primarily to legal costs for matters
considered to be outside the normal course of business, including
Box Clever, The Voice of Holland, the UK Competition and Markets
Authority (CMA) investigations and the Phillip Schofield KC
Review.
2.3
Taxation
|
|
Keeping
it simple
|
|
This section sets out the Group's tax accounting
policies, the current and deferred tax charges or credits in the
year (which together make up the total tax charge or credit in the
Consolidated Income Statement), a reconciliation of profit before
tax to the tax charge for the year and the movements in deferred
tax assets and liabilities.
|
Accounting policies
The tax charge for the year is
recognised in the Consolidated Income Statement, the Consolidated
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 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 and judgement of the
additional taxes that are likely to become due. 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 - Consolidated Income
Statement
The total taxation charge in the
Consolidated Income Statement is analysed as follows:
|
2023
£m
|
2022
£m
|
Current tax:
|
|
|
Current tax credit/(charge) on profit before
exceptional items
|
24
|
(38)
|
Current tax credit on exceptional items
|
11
|
7
|
|
35
|
(31)
|
Adjustments related to prior periods
|
(12)
|
9
|
|
23
|
(22)
|
Deferred tax:
|
|
|
Origination and reversal of temporary differences
|
(7)
|
(34)
|
Deferred tax credit on exceptional items
|
1
|
1
|
Impact of changes to statutory tax rates
|
1
|
(6)
|
|
(5)
|
(39)
|
Adjustments related to prior periods
|
(2)
|
(5)
|
|
(7)
|
(44)
|
Total taxation credit/(charge) in the Consolidated
Income Statement
|
16
|
(66)
|
In order to understand how, in the
Consolidated Income Statement, a tax credit of £16 million (2022:
£66 million charge) arises on a profit before tax of £193
million (2022: £501 million), the taxation charge that would arise
at the standard rate of UK corporation tax is reconciled to the
actual tax credit as follows:
|
2023
£m
|
2022
£m
|
Profit before tax
|
193
|
501
|
Notional taxation charge at UK
corporation tax rate of 23.5% (2022: 19%) on profit before
tax
|
(45)
|
(95)
|
Non-taxable income/non-deductible expenses
|
(10)
|
(15)
|
Prior year adjustments
|
(14)
|
4
|
Other taxes
|
(8)
|
(8)
|
Previously unrecognised deferred tax assets
|
6
|
-
|
Current year losses not recognised
|
(17)
|
(8)
|
Impact of overseas tax rates
|
2
|
(1)
|
Impact of changes in tax rates
|
1
|
(6)
|
Movement on tax provisions
|
(1)
|
(1)
|
Production tax credits
|
102
|
64
|
Statutory taxation credit/(charge) in the
Consolidated Income Statement
|
16
|
(66)
|
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
total current tax credit of £23 million (2022: £22 million charge)
includes a £12 million charge (2022: £9 million credit) relating to
prior years, and the deferred tax charge of £7 million (2022: £44
million charge) includes a £2 million charge (2022: £5 million
charge) 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.
Other taxes of £8 million charge
(2022: £8 million charge) includes state taxes of £3 million in the
US, local taxes of £1 million in Italy and France plus £4
million of irrecoverable withholding tax in the UK.
A previously unrecognised deferred
tax asset of £6 million relating to historical capital losses, has
been recognised in 2023, as they will be utilised against the
capital profits realised on the sale of BritBox International,
announced on 1 March 2024.
The tax impact of current year
losses not recognised is £17 million (2022: £8 million), this
relates to £2 million in Australia, £1 million in France, £13
million in Italy and £1 million in other overseas jurisdictions. No
deferred tax on these losses has been recognised as we do not have
certainty over future taxable profits in those jurisdictions nor
are they suitable taxable temporary differences against which the
losses can unwind.
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 2023, the total impact is
£2 million credit (2022: £1 million charge) due to
profits arising in lower tax
jurisdictions.
The UK corporation tax rate
increased from 19% to 25%, effective from 1 April 2023. The current
year movement through the Consolidated Income Statement, on the
deferred tax liability created in respect of the change in the tax
rate, is a
£1 million credit (2022: £6 million charge).
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.
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 Consolidated 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 (8.3)%
(2022: 13.2%), and is the statutory tax charge on the face of the
Consolidated Income Statement expressed as a percentage of the
statutory profit before tax. The tax rate is lower than in 2022
primarily due to significantly higher HETV tax credits compared to
the profits. 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 21.5% (2022: 20.1%).
In 2023, the current year movement
recognised in the Consolidated Income Statement on origination and
reversal of temporary differences (excluding exceptional
items) is a charge of £7 million, compared with a charge of
£34 million in 2022.
Taxation - Other comprehensive
income (OCI) and equity
As analysed in the table below a
deferred tax charge of £2 million (2022: £23 million charge) has
been recognised on actuarial movements on pensions. Other temporary
differences recognised in other comprehensive income include,
no deferred tax (2022: credit of £5 million) on gilts, £1
million deferred tax charge on derivatives (2022: £1 million
credit) and £2 million deferred tax charge on the cost of hedging
(2022: £nil). A deferred tax charge of £3 million (2022:
£7 million charge) has been recognised in equity in respect of
share-based payments.
There has been £11 million current
tax credit recognised in other comprehensive income in the current
year on pensions. There has been no current
tax on foreign exchange movements net of
hedging (2022: £nil). There has been £1
million current tax credit recognised in equity in the current year
in relation to share-based compensation (2022: £nil).
Taxation - Consolidated Statement of
Financial Position
The table below outlines the
deferred tax assets/(liabilities) that are recognised in the
Consolidated Statement of Financial Position, together with their
movements in the year:
|
At
1 January
2023
£m
|
Recognised in
the income
statement
£m
|
Recognised
in OCI
and equity
£m
|
Other
£m
|
Foreign
exchange
£m
|
At
31 December
2023
£m
|
Tangible assets
|
1
|
(6)
|
-
|
-
|
-
|
(5)
|
Intangible assets
|
(49)
|
(1)
|
-
|
-
|
1
|
(49)
|
Pension scheme
|
(56)
|
(1)
|
(2)
|
-
|
-
|
(59)
|
Tax losses
|
27
|
7
|
-
|
-
|
(2)
|
32
|
Share-based compensation
|
9
|
(1)
|
(3)
|
-
|
-
|
5
|
Other temporary differences
|
30
|
(5)
|
(3)
|
1
|
-
|
23
|
|
(38)
|
(7)
|
(8)
|
1
|
(1)
|
(53)
|
|
At
1 January
2022
£m
|
Recognised in
the income
statement
£m
|
Recognised
in OCI
and equity
£m
|
Other
£m
|
Foreign
exchange
£m
|
At
31 December
2022
£m
|
Tangible assets
|
4
|
(3)
|
-
|
-
|
-
|
1
|
Intangible assets
|
(45)
|
1
|
-
|
(3)
|
(2)
|
(49)
|
Pension scheme
|
(6)
|
(27)
|
(23)
|
-
|
-
|
(56)
|
Tax losses
|
32
|
(8)
|
-
|
-
|
3
|
27
|
Share-based compensation
|
11
|
5
|
(7)
|
-
|
-
|
9
|
Other temporary differences
|
29
|
(12)
|
6
|
4
|
3
|
30
|
|
25
|
(44)
|
(24)
|
1
|
4
|
(38)
|
At 31 December 2023, the net deferred tax liability
position is £53 million (2022: £38 million liability), consisting
of total deferred tax assets of £106 million (2022: £133
million) and total deferred tax liabilities of £159 million (2022:
£171 million). The Consolidated Statement of Financial
Position presents deferred tax after netting off balances within
countries - a deferred tax asset of £6 million and a
deferred tax liability of £59 million (2022: deferred tax asset of
£19 million and a deferred tax liability of £57
million).
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 temporary differences on the IAS 19 pension surplus
and SDN and LTVC pension funding partnerships
·
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 financial instruments
The deferred tax balance associated
with the pension surplus is partially driven by the employer
contributions to the Group's defined benefit pension scheme
made during the year. The adjustment in other comprehensive income
to the deferred tax balances relates to the actuarial loss
recognised in the year.
A deferred tax asset of £32 million
(2022: £27 million) has been recognised for tax losses where a full
recovery is expected based on forecasted taxable profits. A
deferred tax asset of £371
million (2022: £558 million) in respect of capital
losses of
£1,483 million (2022: £2,231 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 the capital losses not recognised compared to the
prior year is due to the dissolution of a company that held capital
losses. Due to uncertainty over the timing and extent of their
utilisation, the Group has not recognised deferred tax assets of
£10 million (2022: £13 million) in respect of UK losses of £38
million (2022: £53 million), £25 million (2022: £19 million) in
respect of overseas losses of £106 million (2022:
£84 million) including £2 million in respect of losses
that expire between 2024 and 2028. In addition to this the Group
has not recognised £5 million (2022: £5 million) in respect of
other overseas short-term timing differences of £21
million.
Subsidiaries of ITV plc Group have
undistributed earnings of £42 million (2022: £26 million) which, if
paid out as dividends, would be subject to tax in the hands of the
recipient. An assessable temporary difference exists, but no
deferred tax liability has been recognised as ITV plc Group is able
to control the timing of the distributions from these subsidiaries
and is not expected to distribute these profits in the foreseeable
future.
Finance (No 2) Bill and Pillar Two impact on
financial information
On 20 June 2023, Finance (No.2) Act
2023 was substantively enacted in the UK, introducing a global
minimum effective tax rate of 15% for large groups and for
financial years beginning on or after 31 December 2023. Taxation
balances are adjusted for a change in tax law if the change has
been substantively enacted by the balance sheet date however the
amendments to IAS 12 'Income Taxes' Pillar Two income taxes
provides an exemption from the requirement to recognise and
disclose deferred taxes arising from enacted or substantively
enacted tax law that implements the Pillar Two model
rules.
Based on an initial analysis of
the current year financial data, most territories in which the
Group operates are expected to qualify for one of the safe harbour
exemptions such that top-up taxes should not apply. In territories
where this is not the case there is the potential for Pillar Two
taxes to apply, but these are not expected to be material. The
Group continues to refine this assessment and analyse the future
consequences of these rules.
Changes to the current UK system of
Audio-visual tax credits
On 29 November 2023, the UK
government issued final legislation to reform the current system of
Audio-Visual Expenditure Credit (AVEC) tax credits to merge the
four existing AVEC schemes (Film, High-End Television (HETV),
Children's Television and Animation) into a single scheme and has
reviewed the qualifying criteria. The AVEC legislation was
substantively enacted on 5 February 2024 and can be claimed on
expenditure incurred from 1 January 2024. The new scheme is one of
expenditure credits as opposed to corporate tax relief, requiring a
change to the accounting treatment to include them within statutory
operating profit rather than within the consolidated tax charge.
The effect of this change in legislation will therefore be to
increase our EBITA, adjusted EBITA, adjusted EBITA margin, profit
before tax and tax expense but will leave our profit after tax
unchanged, compared to the previous HETV tax credit accounting
treatment. We continue to assess the impact on the Group and do not
anticipate there to be a material change in their net economic
value.
2.4
Earnings
per share
|
|
Keeping
it simple
|
|
Earnings per share (EPS) is the amount of post-tax
profit attributable to each share.
Basic EPS is calculated on
the Group profit for the year attributable to equity shareholders
of £210 million (2022: £428 million) divided by 4,023 million
(2022: 4,010 million), being the weighted average number of shares
in issue during the year, which excludes Employee Benefit Trust
(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
|
2023
|
2022
|
Statutory profit for the year attributable to equity
shareholders of ITV plc (£m)
|
210
|
428
|
Weighted average number of ordinary shares in issue -
million
|
4,023
|
4,010
|
Basic earnings per ordinary share
|
5.2p
|
10.7p
|
Diluted earnings per share
|
2023
|
2022
|
Statutory profit for the year attributable to equity
shareholders of ITV plc (£m)
|
210
|
428
|
Weighted average number of ordinary shares in issue -
million
|
4,023
|
4,010
|
Dilution due to share options - million
|
36
|
36
|
Total weighted average number of ordinary shares in
issue - million
|
4,059
|
4,046
|
Diluted earnings per ordinary share
|
5.2p
|
10.6p
|
Adjusted earnings per share
|
Ref.
|
2023
£m
|
2022
£m
|
Statutory profit for the year attributable to equity
shareholders of ITV plc
|
|
210
|
428
|
Exceptional items (net of tax)
|
A
|
65
|
57
|
Profit for the year before exceptional items
|
|
275
|
485
|
Amortisation and impairment of acquired intangible
assets
|
B
|
19
|
45
|
Adjustments to net financing costs
|
C
|
18
|
-
|
Adjusted profit for the year attributable to ITV
shareholders
|
|
312
|
530
|
|
|
|
|
Total weighted average number of ordinary shares in
issue - million
|
|
4,023
|
4,010
|
Adjusted earnings per ordinary share
|
|
7.8p
|
13.2p
|
Diluted adjusted earnings per share
|
2023
|
2022
|
Adjusted profit (£m)
|
312
|
530
|
Weighted average number of ordinary shares in issue -
million
|
4,023
|
4,010
|
Dilution due to share options - million
|
36
|
36
|
Total weighted average number of ordinary shares in
issue - million
|
4,059
|
4,046
|
Diluted adjusted earnings per ordinary share
|
7.7p
|
13.1p
|
Details of the adjustments to earnings are as
follows:
A. Exceptional items (net of tax) £65 million
(2022: £57 million)
Exceptional items of £77 million
(2022: £65 million), net of related tax credit of £12 million
(2022: £8 million). The exceptional items have been taxed in
accordance with the tax treatment of the underlying transaction at
the tax rate of the jurisdiction to which they relate.
The £77 million exceptional charge comprises exceptional costs of
£88 million and an exceptional credit of £11 million. £26 million
of the net exceptional costs were disallowed for tax purposes and
so there is no associated tax credit.
See note 2.2 for the detailed composition of
exceptional items.
B. Amortisation and impairment of
acquired intangible assets (net of tax) of £19 million (2022: £45
million)
Amortisation and impairment of
assets acquired through business combinations and investments of
£89 million (2022: £84 million), excluding amortisation
of software licences and development of £64 million (2022: £27
million), net of related tax credit of £6 million (2022:
£12 million).
C. Adjustments to net financing costs (net of
tax) £18 million (2022: £nil)
Net financing costs of £45 million
(2022: £26 million), is adjusted to reflect the underlying cash
cost of interest for the business. These adjustments of £16 million
(2022: £nil) relates principally to finance costs on acquisitions,
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. The tax charge in relation to these
adjustments is £2 million (2022: £nil).
Section 3: Operating Assets and Liabilities
In this
section
|
|
This section shows the assets used to generate the
Group's trading performance and the liabilities incurred as a
result. On the following pages, there are notes covering working
capital, non-current assets and liabilities, acquisitions and
disposals, provisions and pensions.
Liabilities relating to the Group's financing
activities are addressed in section 4. Deferred tax assets and
liabilities are shown in note 2.3.
|
3.1
Working
capital
|
|
Keeping
it simple
|
|
Working capital represents the assets and liabilities
the Group generates through its trading activity. The Group
therefore defines working capital as distribution rights, programme
rights, trade and other receivables, trade and other payables,
contract assets and liabilities and production inventories.
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 note, 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 Consolidated 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.
Programme rights
The Group's policies with respect to
programme rights recognise that the pattern of consumption on
linear and streaming (ITVX) varies. Consumption of content varies
based on the type of programme right as well as the type of
platform it is transmitted on. Programme rights are expensed
through operating costs reflecting the pattern in which management
expects the right to be consumed.
The Group has defined policies on
how programme rights are allocated to linear and streaming based on
a pattern of viewing. There are also distinct policies across the
platforms when these programme rights are recognised in the
Consolidated Statement of Financial Position; when these costs are
released to the Consolidated Income Statement; and the impairment
review of the carrying values of programme rights held.
Type of programme
|
Streaming policy
|
Linear policy
|
Acquired content
|
Cost charged to the Income Statement
on a declining-balance method over the
licence period
|
Cost charged to the Income Statement over a number of
linear transmissions (episodic)
|
Commissioned content
|
Cost charged to the Income Statement
on a declining-balance method over the
licence period
|
Cost charged to the Income Statement on first
linear transmission (episodic)
|
Sports rights
|
Cost charged to the Income Statement
on first transmission
|
Cost charged to the Income Statement on first
linear transmission
|
Current affairs, live events, soaps
|
Cost charged to the Income Statement
on first transmission
|
Cost charged to the Income Statement on first
linear transmission
|
Library of content (ITVX only)
|
Straight-line amortisation over licence windows
|
|
Acquired programme rights are purchased for the
primary purpose of broadcasting on the ITV family of channels,
including ad-funded streaming service and subscription streaming
service platforms. These are recognised within current assets the
earlier of when payments are made or when the rights are ready for
exploitation.
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.
The net realisable value
assessment for acquired, commissioned and sports rights is based on
estimated airtime value. The net realisable value is assessed
on a portfolio basis unless specific indicators of impairment are
identified. During the pandemic, sports rights were reviewed
separately for impairment following the impact of the pandemic on
the planned sporting schedule and the consequential impact on TAR
and audience mix for certain sporting events. There are no current
specific indicators of impairment, therefore sports rights have now
reverted to being assessed with all other content on a portfolio
basis.
Programme rights and other inventory
at the year end are shown in the table below:
|
2023
£m
|
2022
£m
|
Acquired programme rights
|
284
|
225
|
Commissions
|
83
|
103
|
Sports rights
|
46
|
49
|
|
413
|
377
|
£nil million relates to stock that will be
transmitted in 2025 and beyond (2022: £6 million transmitted in
2024 and beyond).
Included within programme rights and
other inventory is £46 million (2022: £49 million) relating to
programme rights that have been paid for but that are not yet
in licence. These amounts are considered to be prepayments but
are included within programme rights and other inventory as it is
more useful to the reader to show all such rights
together.
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. The application of IFRS requires judgement
regarding the classification of transmission commitments. The Group
has concluded that these contracts do not constitute leases as
defined in IFRS 16 'Leases', as the Group does not control these
assets due to the nature of the operation of the assets and the
rights retained by the supplier under the contracts.
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 including ITVX
and on BritBox UK.
The Group has onerous contract
provisions of £18 million (2022: £34 million) in respect of
transponder capacity usage and sports rights commitments. See note
3.6 for further details.
Commitments in respect of these
transactions, which are not reflected in the Consolidated Statement
of Financial Position, are due for payment as follows:
2023
|
Transmission
£m
|
Programme
£m
|
Total
£m
|
Within one year
|
20
|
488
|
508
|
Later than one year and not more than five years
|
-
|
380
|
380
|
|
20
|
868
|
888
|
|
|
|
|
2022
|
Transmission
£m
|
Programme
£m
|
Total
£m
|
Within one year
|
25
|
466
|
491
|
Later than one year and not more than five years
|
19
|
349
|
368
|
|
44
|
815
|
859
|
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
Consolidated 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:
|
2023
£m
|
2022
£m
|
Distribution rights
|
14
|
17
|
During the year, £18 million was charged to the
Consolidated Income Statement (2022: £25 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.
The credit risk management practices
of the Group include internal review and reporting of the ageing of
trade and other receivables by days past due. The Group applies the
IFRS 9 simplified approach in measuring expected credit losses,
which use a lifetime expected credit loss allowance for all trade
receivables.
To measure expected credit losses,
trade receivables and contract assets have been grouped by shared
credit risk characteristics and days past due. As part of the
expected credit losses, the Group may make additional provisions
for the receivables of particular customers if the deterioration of
financial position was observed.
The carrying value of trade
receivables is considered to approximate fair value. Trade and
other receivables can be analysed as follows:
|
2023
£m
|
2022
£m
|
Due within one year:
|
|
|
Trade receivables
|
427
|
476
|
Other receivables
|
145
|
162
|
Prepayments
|
58
|
54
|
|
630
|
692
|
Due after more than one year:
|
|
|
Trade receivables
|
37
|
24
|
Other receivables
|
25
|
20
|
|
62
|
44
|
Total trade and other receivables
|
692
|
736
|
£464 million (2022: £500 million) of
total trade receivables, stated net of provisions for impairment,
are aged as follows:
|
2023
£m
|
2022
£m
|
Current
|
408
|
437
|
Up to 30 days overdue
|
29
|
34
|
Between 30 and 90 days overdue
|
21
|
20
|
Over 90 days overdue
|
6
|
9
|
|
464
|
500
|
Movements in the Group's provision for impairment of
trade receivables and contract assets can be shown as follows:
|
2023
£m
|
2022
£m
|
At 1 January
|
24
|
43
|
Charged during the year
|
4
|
14
|
Bad debts written off
|
(8)
|
-
|
Release of provision
|
(11)
|
(33)
|
At 31 December*
|
9
|
24
|
* £1 million (2022: £8 million) of the
provision relates to contract assets and is included in the balance
disclosed in note 3.1.6.
Of the provision total, £7 million relates to
balances overdue by more than 90 days (2022: £22 million) and
£2 million relates to current balances (2022: less than
£1 million).
In 2023, a settlement of the claim
was agreed with the credit insurers in relation to the remaining
amount receivable for The Voice of China, resulting in an
exceptional credit of US$5 million (£3 million) consistent with the
original treatment. See note 2.2. No further recovery of the
remaining trade receivable is expected.
The remaining release of the
provision relates to other settlements for outstanding production
related receivables and contract assets. The credit has been taken
to operating profit.
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:
|
2023
£m
|
2022
£m
|
Trade payables
|
105
|
141
|
VAT and social security
|
35
|
38
|
Other payables
|
170
|
146
|
Acquisition-related liabilities - employment-linked
contingent consideration
|
5
|
2
|
Acquisition-related liabilities - payable to sellers
under put options agreed on acquisition
|
39
|
1
|
Accruals
|
596
|
573
|
|
950
|
901
|
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:
|
2023
£m
|
2022
£m
|
Trade payables
|
25
|
17
|
|
|
|
Other payables
|
33
|
28
|
Acquisition-related liabilities - employment-linked
contingent consideration
|
10
|
6
|
Acquisition-related liabilities - payable to sellers
under put options agreed on acquisition
|
24
|
38
|
|
67
|
72
|
Total trade and other payables due after more than
one year
|
92
|
89
|
Trade payables due after more than one year relates
primarily to royalties in both 2023 and 2022. Other payables due
after more than one year relates primarily to film creditors of £24
million (2022: £22 million).
Acquisition-related liabilities or
performance-based employment-linked earnouts are the estimated
amounts payable to previous owners. The estimated future
payments that are accrued over the period the sellers are required
to remain with the business are treated as exceptional costs
(see note 2.2). 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 2023 were £78 million (2022: £47 million) which
represents the amount accrued to date at
their time discounted value. The total undiscounted estimated
future payments of £105 million
(2022: £89 million) are
sensitive to forecast profits as they are based on a multiple of
earnings. The range of reasonably possible outcomes for the
undiscounted liability is between £86 million and £147 million. The
liabilities due after more than one year are expected to be settled
between 2025 and 2028.
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.
3.1.6 Contract assets and
liabilities
Contract assets (accrued income)
primarily relate to the Group's right to consideration for work
unbilled at the reporting date. Many of the programmes the Studios
division produces are sold internationally and also used within the
ITV network.
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 year:
|
2023
|
|
2022
|
|
Contract assets
£m
|
Contract liabilities
£m
|
|
Contract
assets
£m
|
Contract
liabilities
£m
|
Balance at 1 January
|
185
|
(372)
|
|
189
|
(359)
|
Decrease due to balance transferred to trade
receivables
|
(152)
|
-
|
|
(180)
|
-
|
Increases as a result of the changes in the measure
of progress
|
169
|
-
|
|
170
|
-
|
Decreases due to revenue recognised in the year
|
-
|
332
|
|
-
|
405
|
Increase due to cash received
|
-
|
(147)
|
|
-
|
(383)
|
Acquisitions
|
-
|
-
|
|
6
|
(35)
|
Balance at 31 December*
|
202
|
(187)
|
|
185
|
(372)
|
* Contract assets is stated net of
provisions for impairment of £1 million (2022: £8 million) which
have been included in the reconciliation in note 3.1.3. Non-current
contract assets of £13 million (2022: £nil) is included in the
above reconciliation.
3.1.7 Production
inventories
Production inventories includes work
in progress and finished programmes in relation to costs
capitalised by ITV Studios in the course of fulfilling production
contracts. These costs are capitalised when they relate directly to
a contract or to a specifically identifiable anticipated contract,
the costs generate or enhance the resources of the entity that will
be used in satisfying or continuing to satisfy performance
obligations in the future, and the costs are expected to be
recovered.
These costs are presented as
production inventories assets and represent actual costs incurred
on the production. The asset is charged to the income statement as
the performance obligations are satisfied.
Production inventories at the year
end is detailed below:
|
2023
£m
|
2022
£m
|
Production inventories
|
234
|
493
|
During the year, £498 million was charged to the
Consolidated Income Statement for completed productions delivered
(2022: £368 million).
3.1.8 Working capital
management
Cash and working capital management
has been a critical area of focus during 2023 and 2022. During the
year, the cash inflow from working capital was £90 million (2022:
outflow of £150 million) derived as follows:
|
2023
£m
|
2022
£m
|
|
Increase in programme rights and distribution
rights
|
(33)
|
(70)
|
|
Decrease/(increase) in receivables, contract assets
and production inventories
|
274
|
(133)
|
|
(Decrease)/increase in payables and contract
liabilities
|
(151)
|
53
|
|
Working capital inflow/(outflow)
|
90
|
(150)
|
|
3.2
Property, plant and equipment
|
|
Keeping
it simple
|
|
The following note shows the physical assets used by
the Group to operate the business, generating revenues and profits.
These assets include office buildings and studios, as well as
equipment used in broadcast transmission, programme production and
support activities.
The cost of these assets is the
amount initially paid for them or for right of use assets, the
discounted future lease payments. A depreciation expense is charged
to the Consolidated 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 the business 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 note 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.
Property, plant and
equipment
Property, plant and equipment can be
analysed as follows:
|
Freehold land and buildings £m
|
Improvements to leasehold land and buildings
|
|
Vehicles, equipment
and fittings
|
Right
of use
assets
£m
|
Total
£m
|
|
Long
£m
|
Short
£m
|
|
Owned
£m
|
Cost
|
|
|
|
|
|
|
|
At 1 January 2022
|
12
|
87
|
26
|
|
235
|
154
|
514
|
Additions
|
-
|
2
|
-
|
|
33
|
57
|
92
|
Reclassifications
|
-
|
-
|
-
|
|
4
|
1
|
5
|
Foreign exchange
|
-
|
2
|
-
|
|
4
|
6
|
12
|
Disposals and retirements
|
-
|
(6)
|
-
|
|
(62)
|
(10)
|
(78)
|
At 31 December 2022
|
12
|
85
|
26
|
|
214
|
208
|
545
|
Additions
|
-
|
2
|
-
|
|
28
|
12
|
42
|
Derecognition of right of use asset
|
-
|
-
|
-
|
|
-
|
(14)
|
(14)
|
Foreign exchange
|
-
|
(1)
|
-
|
|
(2)
|
(3)
|
(6)
|
Disposals and retirements
|
-
|
(2)
|
(8)
|
|
(33)
|
(43)
|
(86)
|
At 31 December 2023
|
12
|
84
|
18
|
|
207
|
160
|
481
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
At 1 January 2022
|
-
|
25
|
19
|
|
152
|
64
|
260
|
Charge for the year
|
1
|
3
|
1
|
|
31
|
25
|
61
|
Foreign exchange
|
-
|
-
|
-
|
|
3
|
2
|
5
|
Disposals and retirements
|
-
|
(1)
|
-
|
|
(62)
|
(4)
|
(67)
|
At 31 December 2022
|
1
|
27
|
20
|
|
124
|
87
|
259
|
Charge for the year
|
1
|
3
|
1
|
|
25
|
22
|
52
|
Derecognition of right of use asset
|
-
|
-
|
-
|
|
-
|
(6)
|
(6)
|
Foreign exchange
|
-
|
-
|
-
|
|
(2)
|
(1)
|
(3)
|
Disposals and retirements
|
-
|
(2)
|
(8)
|
|
(32)
|
(42)
|
(84)
|
At 31 December 2023
|
2
|
28
|
13
|
|
115
|
60
|
218
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
|
At 31 December 2023
|
10
|
56
|
5
|
|
92
|
100
|
263
|
At 31 December 2022
|
11
|
58
|
6
|
|
90
|
121
|
286
|
Included within property, plant and equipment are
assets in the course of construction of £19 million (2022: £34
million).
Included within the depreciation
charge for the year of £52 million (2022: £61 million) is £6
million (2022: £8 million) in respect of accelerated
depreciation following a change in useful life of the related
assets in relation to the move to a new London site. This
depreciation has been included in exceptional items. See note 2.2
for further details.
Disposals and retirements for the
year include assets written off with nil net book value that are
not expected to generate any future economic benefits.
Included in net book value of right
of use assets is £100 million (2022: £121 million) related to
properties and £nil (2022: £nil) relating to vehicles,
equipment and fittings.
The Group signed a subleasing
arrangement, which is classified as a finance lease in accordance
with IFRS 16 'Leases'. In accordance with the standard, the
right of use asset with a net book value of £8 million was
derecognised and replaced by a net investment in the sublease
which has been recognised within other receivables. This
arrangement does not impact the lease liabilities arising from the
original lease which have been included in note 4.6.
Capital commitments
The Group has capital commitments of
£2 million at 31 December 2023 (2022: £11 million).
3.3
Intangible assets
|
|
Keeping
it simple
|
|
The following note identifies the non-physical assets
used by the Group to generate revenue and profits.
These assets include formats and brands, customer
contracts and relationships, contractual arrangements, licences,
software development, film libraries and goodwill. The cost of
these assets is the amount that the Group has paid or, where
there has been a business combination, the fair value of the
specific intangible assets that could be sold separately
or which arise from legal rights. In the case of goodwill, its
cost is the amount the Group has paid in acquiring a business
over and above the fair value of the individual assets and
liabilities acquired. The value of goodwill is the 'intangible'
value that comes from, for example, a uniquely strong market
position and the outstanding productivity of its employees.
The value of intangible assets, with the exception of
goodwill, reduces over the number of years the Group expects to use
the asset, the useful economic life, via an annual amortisation
charge to the Consolidated 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 note 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. Goodwill
is stated at its recoverable amount being cost less any accumulated
impairment losses and is allocated to the business to which it
relates.
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. The identification of acquired
assets and liabilities and the allocation of the purchase price to
them is considered a key judgement and is based on the Group's
understanding and experience of the media business. 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
Consolidated Income Statement. The determination of fair value is
based on an estimate of 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.
Other intangible assets
Intangible assets other than goodwill
are those that are distinct and can be sold separately or which
arise from legal rights.
The main intangible assets the Group
has valued are formats, brands, licences, contractual arrangements,
customer contracts and relationships and libraries.
Within ITV, there are two types of
other intangible assets: those assets directly purchased by the
Group for day-to-day operational purposes (such as
software licences and development) and intangible assets identified
as part of an acquisition of a business.
Intangible assets acquired directly
by the Group are stated at cost less accumulated amortisation.
Those separately identified intangible assets acquired as part of
an acquisition or business combination are shown at fair value at
the date of acquisition less accumulated amortisation.
Each class of intangible assets'
valuation method on initial recognition, amortisation method and
estimated useful life is set out in the table below:
Class of intangible asset
|
Amortisation method
|
Estimated useful life
|
Valuation method
|
Brands
|
Straight-line
|
8 to 14 years
|
Applying a royalty rate to the expected future
revenue over the life of the brand
|
Formats
|
Straight-line
|
up to 8 years
|
Expected future cash flows from those assets existing
at the date of acquisition are estimated. If applicable,
a contributory charge is deducted for the use of other assets
needed to exploit the cash flow. The net cash flow is then
discounted back to present value
|
Customer
contracts
|
Straight-line or reducing balance as appropriate
|
up to 6 years
|
Customer relationships
|
Straight-line
|
5 to 10 years
|
Contractual arrangements
|
Straight-line
|
up to 13 years depending on the contract terms
|
Expected future cash flows from those contracts
existing at the date of acquisition are estimated.
If applicable, a contributory charge is deducted
for the use of other assets needed to exploit the
cash flow. The net cash flow is then discounted back
to present value
|
Licences
|
Straight-line
|
11 to 29 years depending on term of licence
|
Start-up basis of expected future cash flows existing
at the date of acquisition. If applicable, a contributory
charge is deducted for the use of other assets needed to exploit
the cash flow. The net cash flow is then discounted back
to present value. Public service broadcasting (PSB) licences are
valued as a start-up business with only the licence in place
|
Libraries and other
|
Sum of digits or straight-line as appropriate
|
up to 20 years
|
Initially at cost and subsequently at cost less
accumulated amortisation
|
Software licences and development
|
Straight-line
|
1 to 10 years
|
Initially at cost and subsequently at cost less
accumulated amortisation
|
Cloud computing
arrangements
Cloud computing arrangements are
reviewed to determine if they are within the scope of IAS 38
'Intangible Assets', IFRS 16 'Leases', or a service contract. This
is to determine if the Group has control of the software intangible
asset. Control is assumed if the Group has the right to take
possession of the software and run it on its own or a third-party's
computer infrastructure or if the Group has exclusive rights to use
the software whereby the supplier cannot make the software
available to other customers.
Configuration of the software
involves the setting of various flags or switches within the
application software or defining values to set up the software's
existing code to function in a specified way. Customisation
involves modifying the software code in the application or writing
additional code. Customisation generally changes or creates
additional functionalities within the software. In both situations,
the Group also needs to assess if there is a separate intangible
asset. If no separate intangible asset is identified, then these
costs are expensed when incurred. If an asset is identified, it is
capitalised and amortised over the life of the asset.
Fair value on acquisition
Determining the fair value of the
purchase consideration allocated to 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 that reflects 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
Consolidated 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 Consolidated 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
Consolidated 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 Directors have identified three CGUs, Media &
Entertainment, ITV Studios and SDN.
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.
There is a wide range of potential
outcomes regarding the possible future performance of each of ITV
Group's cash-generating units, Media & Entertainment, ITV
Studios and SDN. In the impairment review the Directors used the
scenarios utilised for the viability statement. The Directors,
however, do not consider that any reasonably possible changes in
the key assumptions would cause the recoverable amount of the
Group's cash-generating units to fall below their carrying values
and therefore they are not considered key sources of estimation
uncertainty.
Intangible assets
Intangible assets can be analysed as
follows:
|
Goodwill
£m
|
Formats
and brands
£m
|
Customer
contracts and
relationships
£m
|
Contractual
arrangements
£m
|
Licences
£m
|
Libraries
and other
£m
|
Software
licences and
development
£m
|
Total
£m
|
Cost
|
|
|
|
|
|
|
|
|
At 1 January 2022
|
3,893
|
527
|
441
|
11
|
176
|
104
|
240
|
5,392
|
Additions
|
-
|
-
|
-
|
-
|
-
|
-
|
44
|
44
|
Acquisitions
|
107
|
1
|
13
|
-
|
-
|
-
|
-
|
121
|
Disposals
|
-
|
-
|
-
|
-
|
-
|
-
|
(5)
|
(5)
|
Foreign exchange
|
37
|
21
|
8
|
-
|
-
|
2
|
1
|
69
|
At 31 December 2022
|
4,037
|
549
|
462
|
11
|
176
|
106
|
280
|
5,621
|
Additions
|
-
|
-
|
-
|
-
|
-
|
-
|
39
|
39
|
Disposals
|
-
|
-
|
(1)
|
-
|
-
|
-
|
(63)
|
(64)
|
Foreign exchange
|
(18)
|
(9)
|
(4)
|
-
|
-
|
(1)
|
-
|
(32)
|
At 31 December 2023
|
4,019
|
540
|
457
|
11
|
176
|
105
|
256
|
5,564
|
Amortisation and impairment
|
|
|
|
|
|
|
|
|
At 1 January 2022
|
2,654
|
460
|
433
|
11
|
129
|
93
|
134
|
3,914
|
Charge for the year
|
-
|
41
|
6
|
-
|
2
|
-
|
27
|
76
|
Reclassifications
|
-
|
-
|
-
|
-
|
-
|
-
|
(5)
|
(5)
|
Foreign exchange
|
-
|
19
|
7
|
-
|
-
|
-
|
1
|
27
|
At 31 December 2022
|
2,654
|
520
|
446
|
11
|
131
|
93
|
157
|
4,012
|
Charge for the year
|
-
|
17
|
4
|
-
|
2
|
-
|
64
|
87
|
Disposals
|
-
|
-
|
(1)
|
-
|
-
|
-
|
(63)
|
(64)
|
Foreign exchange
|
-
|
(8)
|
(4)
|
-
|
-
|
(1)
|
-
|
(13)
|
At 31 December 2023
|
2,654
|
529
|
445
|
11
|
133
|
92
|
158
|
4,022
|
Net book value
|
|
|
|
|
|
|
|
|
At 31 December 2023
|
1,365
|
11
|
12
|
-
|
43
|
13
|
98
|
1,542
|
At 31 December 2022
|
1,383
|
29
|
16
|
-
|
45
|
13
|
123
|
1,609
|
Goodwill impairment
tests
The carrying amount of goodwill for
each CGU is represented as follows:
|
2023
£m
|
2022
£m
|
ITV Studios
|
903
|
921
|
Media & Entertainment
|
386
|
386
|
SDN
|
76
|
76
|
|
1,365
|
1,383
|
There has been no impairment charge for any CGU
during the year (2022: £nil).
When assessing impairment, the
recoverable amount of each CGU is based on value in use
calculations. These calculations require the use of estimates,
specifically: pre-tax cash flow projections; long-term growth
rates; and a pre-tax market discount rate. Cash flow projections are based on the Group's current
long-term plan. Beyond the plan, these projections are extrapolated
using an estimated nominal long-term growth rate of 1.5% (2022:
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 and Plimsoll
in 2022.
The key assumptions on which the
forecast cash flows for the whole CGU were based (as represented by
the approved financial budget for 2024 and forecast to 2026)
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.
A pre-tax discount rate of 10.7%
(2022: 10.5%) has been used in discounting the projected cash
flows. No reasonably possible change in assumptions or discount
rate would lead to an impairment.
Media & Entertainment
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. Media & Entertainment 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 (as
represented by the approved financial budget for 2024 and forecast
to 2026) include: the size, performance and share of the television
and streaming advertising market; share of commercial impacts;
programme and other costs; and the pre-tax market discount
rate.
In forming its assumptions about the
television and streaming 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.
An impairment charge of £2,309
million was recognised in the Media & Entertainment 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. Even though the
advertising market has improved since the impairment was recognised
in 2008 and the impaired assets are still owned and operated by the
Group, due to accounting rules the impairment to goodwill cannot be
reversed.
A pre-tax discount rate of 10.4%
(2022: 10.4%) has been used in discounting the projected cash
flows. No reasonably possible change in assumptions or discount
rate would lead to an impairment.
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. SDN's multiplex licence was renewed during
2022 and expires in 2034.
The main assumptions on which the
forecast cash flows are based (as
represented by the approved financial budget for 2024 and
forecast to 2026) 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.
A pre-tax discount rate of 9.1%
(2022: 9.4%) has been used in discounting the projected cash flows.
No reasonably possible change in assumptions or discount rate would
lead to an impairment.
3.4
Assets classified as held for sale
|
|
Keeping
it simple
|
|
The following section outlines the
Group's assets and liabilities held for sale.
Assets and any associated
liabilities, where management is committed to a plan to sell, are
recognised as held for sale in the Consolidated Statement of
Financial Position.
The sale should be highly probable and within 12
months of classification as held for sale.
|
Accounting policies
The Group measures non-current
assets that are classified as held for sale at the lower of their
carrying amount and fair value less costs to sell.
On 1 March 2024, the Group
announced the sale of its entire 50% interest in digital streaming
service, BritBox International to its joint venture partner BBC
Studios for a cash consideration of £255 million. The transaction
has been effected by the disposal of the Group's 50% interests in
BritBox LLC, BB Rights LLC, Denipurna Limited and BritBox
International Limited and the 100% interest in ITV SVOD Australia
Pty Ltd, which holds the 50% interest in BritBox Australia
Management Pty Limited.
At 31 December 2023, the Group
included these interests at their carrying value, as held for sale
in the Consolidated Statement of Financial Position. There are no
liabilities associated with this sale.
|
2023
£m
|
2022
£m
|
Assets classified as held for sale
- investments in joint ventures
|
66
|
-
|
|
66
|
-
|
The results for the entities held
for sale (other than ITV SVOD Australia Pty Ltd) are included in
share of profits and losses after tax of joint ventures and
associated undertakings and not within the M&E reportable
segment.
Cash Balances held within ITV SVOD
Australia Pty Ltd were fully utilised prior to completion of the
sale and therefore have not been included in the above assets held
for sale.
Included in the Group's Consolidated
Statement of Financial Position are working capital balances with
the entities held for sale, for content and other related trading
activities. These balances will be settled in the normal course of
business.
3.5
Investments
|
|
Keeping
it simple
|
|
The Group holds non-controlling interests in a number
of different entities. Accounting for these investments, and the
Group's share of any profits and losses, depends on the level
of control or influence the Group is granted via its interest.
The three principal types of non-consolidated investments are joint
arrangements (joint ventures or joint operations), associates, and
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 Consolidated Income Statement within
non-operating items and included in adjusted
profit.
Where the Group has invested in
associates by acquiring preference shares or convertible debt
instruments, the share of profit recognised is usually £nil as
no equity interest exists.
Equity investments are held at fair
value unless the investment is a start-up business, in which case
it is valued initially at cost as a proxy for fair
value.
The carrying amount of each
category of our investments is represented as follows:
|
Joint ventures
£m
|
Associates
£m
|
Equity investments
£m
|
Total
£m
|
At 1 January 2022
|
43
|
51
|
4
|
98
|
Additions
|
5
|
6
|
7
|
18
|
Share of profits
|
7
|
1
|
-
|
8
|
Impairments/fair value adjustments
|
-
|
(4)
|
-
|
(4)
|
Foreign exchange
|
4
|
6
|
-
|
10
|
At 31 December 2022
|
59
|
60
|
11
|
130
|
Additions
|
5
|
3
|
10
|
18
|
Share of profits/ (losses)
|
8
|
(8)
|
-
|
-
|
Impairments/fair value adjustments
|
-
|
(5)
|
-
|
(5)
|
Dividends received
|
(3)
|
-
|
-
|
(3)
|
Foreign exchange
|
(3)
|
(3)
|
-
|
(6)
|
Classified as held for sale
|
(66)
|
-
|
-
|
(66)
|
At 31 December 2023
|
-
|
47
|
21
|
68
|
On 1 March 2024, the Group
announced the sale of its entire 50% interest in digital streaming
service, BritBox International to its joint venture partner BBC
Studios for a cash consideration of £255 million. The transaction
has been effected by the disposal of the Group's 50% interests in
BritBox LLC, BB Rights LLC, Denipurna Limited and BritBox
International Limited and the 100% interest in ITV SVOD Australia
Pty Ltd, which holds the 50% interest in BritBox Australia
Management Pty Limited.
At 31 December 2023, the Group included these
interests at their carrying value of £66 million, as held for sale
in the Consolidated Statement of Financial Position. See notes 3.4
and 5.3.
At 31 December 2023, there were no
other significant investments in joint ventures (2022: £48 million
invested in BritBox LLC in the US). The Group's associates
include £31 million (2022: £38 million) relating to a 45%
investment in Blumhouse TV Holdings LLC, a film and television
production company in the US. The equity investments relate
primarily to Group's Media for Equity programme. No individual
investment is considered material to the Group.
3.6
Provisions
|
|
Keeping
it simple
|
|
A provision is recognised by the Group where an
obligation exists relating to events in the past and it is probable
that cash will be paid to settle it.
A provision is made where the Group is not certain
how much cash will be required to settle a liability, so an
estimate is required. The main estimates relate to the cost of
holding properties that are no longer in use by the Group, the
likelihood of settling legal claims and contracts the Group has
entered into that are now unprofitable.
|
Accounting policies
A provision is recognised in the
Consolidated 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 Consolidated 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
provisions
£m
|
Property
provisions
£m
|
Legal and
other
provisions
£m
|
Total
£m
|
At 1 January 2023
|
34
|
9
|
126
|
169
|
Additions
|
-
|
2
|
20
|
22
|
Utilised
|
(16)
|
(1)
|
(15)
|
(32)
|
Released
|
-
|
-
|
(5)
|
(5)
|
Foreign exchange
|
-
|
-
|
-
|
-
|
At 31 December 2023
|
18
|
10
|
126
|
154
|
|
|
|
|
|
Analysed between:
|
|
|
|
|
Current
|
12
|
1
|
124
|
137
|
Non-current
|
6
|
9
|
2
|
17
|
Provisions of £137 million are classified as current
liabilities (2022: £139 million). Unwind of the discount is £nil in
2023 and 2022.
Contract provisions £18 million (2022: £34
million)
Contract provisions represent
liabilities in respect of onerous contracts in relation to
individual sports rights of £11 million (2022:
£17 million) and transmission capacity supply contracts of £7
million (2022: £17 million).
Sports rights
Following the pandemic and up to 31
December 2022, the Group recognised provisions for individual
sports rights when estimated revenues were less than the value of
the rights. This was considered an indicator of impairment. The
provision is sensitive to the changes in the sporting schedule and
consequential impact on TAR. In calculating the provision for
sports rights, 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.
In periods prior to the pandemic,
all programme rights (including sports rights) were assessed for
impairment on a portfolio basis unless specific indicators of
impairment were identified. In 2023, the Group has included sports
rights in the portfolio assessment as there are no specific
indicators of impairment. No further impairments have
arisen.
The provision held at 31 December
2023 is £11 million (2022: £17 million). £6 million of the
provision was utilised during the year. In the prior year £5
million was released due to certain sporting events being cancelled
and a refund issued to the Group. The remaining provision is
expected to be utilised between 2024 and 2025.
Transponders
In 2020 and 2021, the Group reviewed
the efficiency of its transponder capacity usage with a view to
reducing capacity requirements. This has allowed the Group to
reorganise channels over fewer transponders with the result that
all channels have been cleared from two transponders. They are no
longer utilised and are therefore not generating revenues.
Management has applied judgement in its assessment
that the individual element of the contract is separable from the
remaining elements of the contract, which are not considered
onerous. The contracted future commitment to October 2024 was
therefore recognised as a provision in 2020 and 2021 as there are
no future economic benefits expected.
The total provision for onerous
contracts at 31 December 2023 is £7 million (2022: £17 million).
£10 million of the provision was utilised during the year (2022:
£10 million).
Property provisions £10 million (2022: £9
million)
These provisions primarily relate to
expected dilapidation costs at the Group's rental
properties.
Legal and other provisions £126 million
(2022: £126 million)
Represents provisions for potential
liabilities (arising from legal disputes and claims) and their
related legal costs. These include £52 million (2022: £52 million)
for the potential liability that may arise as a result of the
Box Clever Financial Support Directions (FSDs) issued by the
Pensions Regulator (tPR), employee-related tax and other provisions
of £61 million (2022: £59 million) and other legal and related
costs.
Box Clever Pension Scheme
Box Clever Technology Limited (Box
Clever) was a TV rental business joint venture set up by Granada
Rental and Retail Limited and Carmelite Investments Limited (parent
company of Thorn Limited (Thorn) in 1999. The business went into
administrative receivership in 2003. 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 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. If an
agreement is reached with tPR there may not be an immediate cash
flow impact. If an agreement cannot be reached, further legal
proceedings could take several years to resolve.
At 31 December 2003, the Scheme was
estimated to have had a deficit on a buyout basis of £25 million.
An estimate of the deficit in the Box Clever Group Pension Scheme
was calculated at £110 million as at 31 March 2021. This estimate
was calculated on a buyout basis based on membership data as
of February 2020. This estimate has been updated based on 31
December 2023 market conditions and has reduced to £78 million
primarily due to the increase in gilt yields and recent changes in
inflation. All 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.
As reported previously, in 2022 the
Group received a warning notice from tPR that it was considering
exercising its power to issue a contribution notice for the amount
of £133 million, which is based on a buyout estimate as at 31 March
2021 provided by the Scheme's actuarial adviser, plus a prudent
margin. The Group made representations in relation to the warning
notice on 31 October 2022, tPR responded on 28 July 2023 and
the Group replied on 14 November 2023. ITV has continued to engage
with tPR during the relevant period.
There remains a significant number
of undecided issues as to the quantum and form of financial support
and the Directors continue to believe there are many important
factors which need to be taken into account in any decision, and
therefore there remains uncertainty around the financial support to
be provided. The provision remains at £52 million, and represents
the offer made to settle the matter and is based on an IAS 19
valuation to transfer certain liabilities into the existing ITV
pension scheme, which we consider to be the most likely form of
settlement. We are continuing to engage with tPR to resolve the
matter.
Employee-related
The determination of the employment
tax status of some individuals contracted by the Group is complex.
HMRC has issued assessments to the Group for several individuals
engaged by the Group during the tax years 2016/17 to 2018/19 as
employed for tax purposes and a provision of £56 million was
made.
During 2023, we have further
reviewed the provision, which has resulted in an increase in the
provision of £2 million (2022: £20 million). This has resulted in a
£5 million charge to the profit and loss account and a £3 million
credit to exceptional items (2022: £10 million) as this relates to
periods up to 31 December 2022 and therefore does not relate to the
current year.
Due to ongoing reviews by HMRC and
court cases in this matter, the final amount payable could be
significantly different to the £58 million currently provided
(2022: £56 million). It is difficult to provide a range for the
expected final amounts payable as case law is continually evolving
on this matter, particularly in relation to Front of Camera
presenters. Very few cases have reached the higher courts and fact
patterns can be very different in individual cases, so
determination of employment status for tax purposes remains very
subjective.
A further £3 million (2022: £3
million) is provided in relation to other employment related
matters.
Other
Other provisions relate to
settlements or proposed settlements on a number of legal cases as
well as historical environmental provisions in relation to our
production sites, closure costs and provision for legal fees for
other ongoing litigation.
3.7
Pensions
|
|
Keeping
it simple
|
|
In this note, we explain the accounting policies
governing the Group's pension schemes, followed by analysis of the
components of the net defined benefit pension deficit, including
assumptions made, and where the related movements have been
recognised in the financial 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
surplus or 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 surplus or deficit (IAS 19) is different from the actuarial
valuation surplus or 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. While the actuarial
surplus or deficit (which drives cash funding requirements) is
calculated as part of the triennial valuations. The next triennial
valuation will be as at 31 December 2022 and is currently underway
for the ITV Pension Scheme. The triennial valuation at 30 June 2023
for the UTV Pension Scheme was agreed in early 2024.
|
Accounting policies
Defined contribution scheme
Obligations under the Group's
defined contribution schemes are recognised as an operating cost in
the Consolidated Income Statement as incurred. For 2023, total
contributions expensed were £25 million (2022: £29
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 Pension
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 note. 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 Consolidated
Statement of Comprehensive Income.
The accounting defined benefit
pension surplus or deficit (IAS 19) is different from the actuarial
valuation surplus or 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 surplus or deficit (or funding surplus or deficit) is
calculated per the last triennial valuation.
The latest triennial valuation of
the ITV Pension Scheme was undertaken as at 31 December 2019 by an
independent actuary appointed by the Trustee of the Scheme and
agreed in early 2022. The funding deficit of Section A of the ITV
Pension Scheme as at 31 December 2019 amounted to £252 million,
down from £489 million at 1 January 2017.
The IAS 19 surplus or deficit does
not drive the deficit funding contribution. Following the above
triennial valuation of Section A of the ITV Pensions Scheme, ITV
paid deficit reduction contributions of £40 million in 2023, and
expects the deficit reduction contributions to be £53 million
in 2024 and £28 million in 2025.
The next triennial valuation of the
ITV Pension Scheme as at 31 December 2022 by an independent actuary
appointed by the Trustee of the Scheme is currently underway and is
expected to be agreed in the coming months. The Group will then
update any required deficit reduction contributions in line with
the valuation.
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 £48 million (2022: £47 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
Pension Scheme within this note combined with the existing ITV
Schemes. In January 2024, the triennial valuation of the UTV Scheme
as at 30 June 2023 was completed. The Scheme had assets of £91
million as at the valuation date and £88 million of liabilities
resulting in an agreed Technical Provisions surplus of £3 million
and hence there are no deficit contributions payable.
The principal employer of the ITV
Pension Scheme and the Unfunded Scheme is ITV Services Limited, the
Granada supplementary scheme is Granada Group Limited and the UTV
Pension Scheme is UTV Limited.
The defined benefit pension surplus (under
IAS 19)
Net pension surplus of £209 million
at 31 December 2023 (2022: £192 million) is stated after including
the unfunded scheme security asset of £48 million (2022: £47
million). The totals recognised in 2023 and 2022 are:
|
2023
£m
|
2022
£m
|
Total defined benefit scheme obligations
|
(2,194)
|
(2,292)
|
Total defined benefit scheme assets
|
2,355
|
2,437
|
Defined benefit pension surplus (IAS 19)
|
161
|
145
|
|
|
|
Presented as:
|
|
|
Defined benefit pension surplus*
|
187
|
172
|
Defined benefit pension deficit
|
(26)
|
(27)
|
Defined benefit pension surplus/(deficit) (IAS
19)
|
161
|
145
|
|
|
|
Other pension asset
|
48
|
47
|
Net pension surplus
|
209
|
192
|
* Included with the defined benefit
pension surplus is the UTV Scheme. The defined benefit scheme
assets in the UTV Scheme were valued at £94 million as at 31
December 2023 (2022: £94 million) and the defined benefit scheme
obligations were £85 million (2022: £85 million).
The following notes provide further detail on the
value of the Schemes' assets and liabilities, how these are
accounted for and their impact on the financial information.
Defined benefit scheme obligations
Keeping
it simple
|
|
What causes movements in the defined
benefit pension obligations?
The areas that impact the defined benefit obligation (the pension
scheme liabilities) position at the year end are as follows:
· 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 year by the
updated present value of the obligation during the year. The
discount rate is a key assumption explained later in this note.
This interest cost is recognised through net financing costs in the
Consolidated 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 note. Actuarial gains or losses
are recognised through other comprehensive income
· Benefits paid - any cash benefits paid out by the
Scheme will reduce the obligation
|
The movement in the present value of the Group's
defined benefit obligation is analysed below:
|
2023
£m
|
2022
£m
|
Defined benefit obligation at 1 January
|
2,292
|
3,943
|
Interest cost
|
112
|
63
|
Actuarial gain
|
(63)
|
(1,119)
|
Settlement payments from plan assets - buyout of
Section C
|
-
|
(439)
|
Benefits paid
|
(147)
|
(156)
|
Defined benefit obligation at 31 December
|
2,194
|
2,292
|
Of the above total defined benefit obligation at 31
December 2023 £39 million relates to the unfunded schemes
(2022: £40 million).
In April 2022, the Trustee completed a buyout of
Section C, which in practical terms split the bulk annuity policy
into individual annuity policies for each scheme member. At that
time, the relevant scheme assets were transferred to the insurance
company, which became responsible for paying the pensions and
therefore it removed those liabilities from the pension
scheme, represented by 'settlement payments from plan assets -
buyout of Section C' in the table above. The value of the
assets and liabilities settled was equal and therefore the
settlement cost was £nil. The buyout represents a full and
definitive settlement of the liabilities insured, which as at 31
December 2021 represented around 13% of ITV's total defined benefit
obligation on the IAS 19 accounting basis.
Assumptions used to estimate the Scheme
obligations
Keeping
it simple
|
|
What are the main assumptions used
to estimate the Scheme obligations?
The main assumptions are:
· An estimate of
increases in pension payments and the effect of inflation
· The life expectancy
of beneficiaries
· 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 12 years (2021: 15
years).
|
The principal assumptions used in the Schemes'
valuations at the year end were:
|
2023
|
2022
|
Discount rate
|
4.75%
|
5.05%
|
Inflation assumption (RPI)
|
3.05%
|
3.15%
|
Rate of increase in pension payment (LPI* 5% pension
increases)
|
Deferred/
Pensioner 2.80%/3.00%
|
Deferred/
Pensioner 2.80%/3.00%
|
Rate of increase to deferred pensions (CPI)
|
2.50%
|
2.50%
|
* Limited Price Index.
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's approach to setting RPI and CPI inflation assumptions is as
follows:
• The Group continued to set RPI inflation in
line with the market break-even expectations for inflation less an
inflation risk premium of 0.3%
• The assumptions linked to
RPI and CPI as at 31 December 2023 have been determined by
weighting the cash flows to which the link applies
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 for
Section A are:
|
2023
|
2023
|
2022
|
2022
|
Retiring today at age
|
60
|
65
|
60
|
65
|
Males
|
25.7
|
21.1
|
26.2
|
21.6
|
Females
|
27.3
|
22.6
|
28.9
|
24.1
|
Retiring in 20 years at age
|
60
|
65
|
60
|
65
|
Males
|
27.1
|
22.3
|
27.5
|
22.7
|
Females
|
28.9
|
24.0
|
30.4
|
25.5
|
The net pension surplus is sensitive to changes in
assumptions. These are disclosed further in this note.
Total defined benefit scheme assets
Keeping
it simple
|
|
The Scheme holds assets across a number of different
classes, which are managed by the Trustee, who consults with the
Group on changes to its investment policy.
What are the Pension Scheme
assets?
At 31 December 2023, 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 surplus/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 Consolidated Income Statement
· Return on assets
arise from differences between the actual return and interest
income on Scheme assets and are recognised in the Consolidated
Statement of 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:
|
2023
£m
|
2022
£m
|
Fair value of Scheme assets at 1 January
|
2,437
|
3,873
|
Interest income on Scheme assets
|
120
|
63
|
Loss on assets, excluding interest income
|
(98)
|
(1,039)
|
Employer contributions
|
50
|
145
|
Settlement payments from plan assets - buyout of
Section C
|
-
|
(439)
|
Benefits paid
|
(147)
|
(156)
|
Administrative expenses paid
|
(7)
|
(6)
|
Pension insurance risk premium - buyout of Section
C
|
-
|
(4)
|
Fair value of Scheme assets at 31 December
|
2,355
|
2,437
|
How are the Schemes' assets
invested?
At 31 December 2023, 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 value
2023
£m
|
Quoted
2023
£m
|
Market value
2023
%
|
Market value
2022
£m
|
Quoted
2022
£m
|
Market value
2022
%
|
Liability hedging assets
|
|
|
|
|
|
|
Fixed interest gilts
|
449
|
449
|
|
365
|
365
|
|
Index-linked interest gilts
|
516
|
516
|
|
788
|
786
|
|
Interest rate and inflation hedging derivatives
(swaps and repos)
|
(112)
|
(142)
|
|
(375)
|
(401)
|
|
|
853
|
823
|
36%
|
778
|
750
|
32%
|
|
|
|
|
|
|
|
Other bonds
|
1,456
|
62
|
62%
|
1,447
|
58
|
59%
|
|
|
|
|
|
|
|
Return seeking investments
|
|
|
|
|
|
|
Infrastructure
|
175
|
|
|
174
|
|
|
Property
|
149
|
|
|
171
|
|
|
|
324
|
|
14%
|
345
|
|
14%
|
Other investments
|
|
|
|
|
|
|
Cash and cash equivalents
|
41
|
|
|
121
|
|
|
Insurance policies
|
41
|
|
|
17
|
|
|
Longevity swap fair value
|
(360)
|
|
|
(271)
|
|
|
|
(278)
|
|
(12%)
|
(133)
|
|
(5%)
|
Total Scheme assets
|
2,355
|
885
|
100%
|
2,437
|
808
|
100%
|
Included in the above are overseas assets of £24
million (2022: £315 million). None of these assets are quoted.
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 £1.7 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 2023 due to the latest mortality analysis from the
triennial valuation.
Defined pension deficit sensitivities
Keeping
it simple
|
|
Which assumptions have the biggest
impact on the Scheme?
It is important to note that comparatively small changes in the
assumptions used may have a significant effect on the Consolidated
Income Statement and Consolidated 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 liabilities rather than IAS 19 defined
pension liabilities. 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 surplus/(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 £25 million
|
Decrease by 0.1%
|
Increase by £25 million
|
Increase by 0.5%
|
Decrease by £115 million
|
Decrease by 0.5%
|
Increase by £125 million
|
Rate of inflation (Retail Price Index)
|
Increase by 0.1%
|
Increase by £10 million
|
Decrease by 0.1%
|
Decrease by £10 million
|
Rate of inflation (Consumer Price Index)
|
Increase by 0.1%
|
Increase by £5 million
|
Decrease by 0.1%
|
Decrease by £5 million
|
Life expectancies
|
Increase by one year
|
Increase by £70 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 any change in asset values would
significantly offset 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 £70 million, the assets would benefit
from an estimated increase of the value of the longevity swap by
£60 million, resulting in a net increase in the defined
pension deficit of £10 million.
Further, the ITV Pension Scheme
invests in UK government bonds and interest rate and inflation swap
contracts and therefore movements in the defined benefit obligation
are typically offset, to an extent, by asset movements.
Keeping
it simple
|
|
What was the impact of movements on
the Schemes' assets and liabilities?
The notes above describe how the Scheme obligations and assets are
comprised and measured. The following note sets out the impact of
various movements and expenses on the Scheme on the Group's
financial information.
|
Amounts recognised through the
Consolidated Income Statement
Amounts recognised through the
Consolidated Income Statement are as follows:
|
2023
£m
|
2022
£m
|
Amount charged to operating costs:
|
|
|
Scheme administration expenses
|
(7)
|
(6)
|
|
(7)
|
(6)
|
Amount charged to exceptional costs:
|
|
|
Pension insurance risk premium - buyout of Section
C
|
-
|
(4)
|
|
|
|
Amounts credited to net financing cost
|
|
|
Net interest on defined benefit obligation
|
8
|
-
|
|
|
|
Total charged in the Consolidated Income
Statement
|
1
|
(10)
|
Amounts recognised through the
Consolidated Statement of Comprehensive Income
The amounts recognised through the
Consolidated Statement of Comprehensive Income are:
|
2023
£m
|
2022
£m
|
Remeasurement (losses)/gains
|
|
|
Loss on scheme assets excluding interest income
|
(98)
|
(1,039)
|
Actuarial gains/(losses) on liabilities arising from
change in:
|
|
|
- experience adjustments
|
45
|
(119)
|
- financial assumptions
|
(68)
|
1,228
|
- demographic assumptions
|
86
|
10
|
|
63
|
1,119
|
Total recognised in the Consolidated Statement of
Comprehensive Income
|
(35)
|
80
|
The £63 million actuarial gain (2022: £1,119 million
actuarial gain) on the Schemes' liabilities was principally due to
the change in the mortality assumptions in line with the latest
mortality analysis from the triennial valuation and the updated
census data underlying the liability calculations, and to a lesser
extent the decrease in market implied inflation. This actuarial
gain was partially offset by the decrease in bond yields which
increased the value of the liabilities.
The £98 million loss (2022: £1,039 million loss)
on the Schemes' assets was principally due to a decrease in the
fair value of the longevity swap, driven by updating the value of
the swap in line with the latest mortality analysis from the
triennial valuation, and to a lesser extent by the assets slightly
underperforming expectations.
Addressing the defined benefit pension deficit
Keeping
it simple
|
|
The Group works closely with the Trustee to agree
appropriate levels of funding for the Scheme. This involves
agreeing a Schedule of Contributions at each triennial valuation,
which specifies the contribution rates for the employer and, where
relevant, scheme 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 2023 for administration expenses are £7
million (2022: £6 million).
The Group has two asset-backed
pension funding agreements with the Trustee - the SDN pension
funding partnership and the London Television Centre pension
funding partnership which were set up in 2010 and 2014 respectively
to address the pension deficit.
SDN Pension Funding Partnership
In 2010, ITV established a Pension
Funding Partnership (PFP) with the Trustees backed by SDN, which
was subsequently extended in 2011. The PFP addressed £200 million
of the funding deficit in Section A of the defined benefit pension
scheme and under the original agreement, a payment of up to £200
million was due in 2022. The existing PFP agreement was amended and
extended to 2031. As a result of this agreement, payments of £94
million were made under the SDN PFP arrangement in 2022. The Group
is committed to up to nine annual payments of £16 million from
2023. These payments are required if the Scheme is calculated to be
in a technical deficit. This calculation is based upon the most
recent triennial valuation updated for current market conditions.
The partnership's interest in SDN provides collateral for these
payments.
The £16 million payment under the
SDN PFP was not required to be paid in 2023. However, this
assessment is made on an annual basis and therefore the £16 million
payment may resume in 2024. The Group retains day to day
operational control of SDN and SDN's revenues, profits and
cashflows continue to be consolidated in the Group's financial
information. On completion of the final payment in 2031, the
Scheme's partnership interest will have been repaid in full and it
will have no right to any further payments.
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 £50
million. In November 2019, the London Television Centre was sold.
£50 million of the proceeds was previously held in a
restricted bank account as a replacement asset in the pension
funding arrangement. In 2022, this security was replaced with a
surety bond and the cash was released to the Group. This structure
continues to be reviewed.
The Scheme's interest in these
Partnerships reduces the deficit on a funding basis but does not
impact the deficit on an IAS 19 basis as the Scheme's interest
is not a transferrable financial instrument.
Deficit funding contributions
The accounting surplus or deficit
does not drive the deficit funding contribution. The Group's
deficit funding contributions in 2023 were £40 million (31 December
2022: £137 million). This included £37 million deficit contribution
agreed as part of the triennial valuation and £3 million annual
payment under the London Television Centre PFP.
The 2022 amount included £15 million
deferred from 2020 and £25 million of deficit contributions agreed
as part of the triennial valuation, £80 million one-off payment
following the extension of the SDN PFP, a £3 million payment on the
SDN PFP for the bridging period between the end date of the
original agreement and the date of the extension, and £11 million
and £3 million annual payments due under the SDN and London
Television Centre PFPs respectively.
Deficit contributions for 2024 and
2025 consist of contributions agreed with the Trustees following
the last finalised triennial valuation (£53 million and £28 million
respectively) and the annual payments under the SDN PFP and London
Television Centre PFP (£16 million and £3 million
respectively).
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.
In June 2023, the High Court ruled
in the Virgin Media case that some historical rule amendments made
without the correct actuarial certification were not valid. The
Trustees of ITV's defined benefit pension schemes have taken advice
on the implications of the Virgin Media decision. Initial
investigations have not revealed evidence that this will be a
material issue for ITV's pension schemes, and the Trustees are
awaiting the outcome of the appeal (due in 2024) before deciding if
further investigations are necessary. As a result, ITV does not
consider it necessary to make any allowance for the potential
impact of the Virgin Media case in its financial
information.
Section 4: Capital Structure and Financing Costs
In this
section
|
|
This section outlines how the Group manages its
capital structure and related financing costs, including its
balance sheet liquidity and access to capital markets.
The Directors determine the appropriate capital
structure of ITV; specifically how much is raised from
shareholders (equity) and how much is borrowed from financial
institutions (debt) in order to finance the Group's activities both
now and in the future. Maintaining capital discipline and balance
sheet efficiency remains important to the Group. Any potential
courses of action 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.
|
4.1
Net debt
|
|
Keeping
it simple
|
|
Net debt is the Group's key measure used to evaluate
total cash resources net of the current outstanding debt, including
our discounted lease liabilities. A full analysis and discussion of
net debt and covenant net debt is included in the Operating and
Financial Performance Review.
The tables below analyse movements
in the components of net debt during the year:
|
|
1 January
2023
£m
|
Net cash flow
£m
|
Currency and
non-cash
movements
£m
|
31 December
2023
£m
|
Loans and facilities due within one year
|
(289)
|
278
|
6
|
(5)
|
Loans and facilities due after one year
|
(541)
|
(228)
|
11
|
(758)
|
Total loans and facilities
|
(830)
|
50
|
17
|
(763)
|
|
|
|
|
|
Currency component of forwards and swaps held
against euro denominated bonds*
|
(9)
|
10
|
(16)
|
(15)
|
Lease liabilities
|
(132)
|
26
|
(9)
|
(115)
|
Total debt
|
(971)
|
86
|
(8)
|
(893)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
257
|
(37)
|
(5)
|
215
|
Cash equivalents
|
91
|
38
|
(4)
|
125
|
Total cash and cash equivalents
|
348
|
1
|
(9)
|
340
|
|
|
|
|
|
Net debt
|
(623)
|
87
|
(17)
|
(553)
|
* Net cash flow from currency component
of forwards and swaps relates to the euro denominated bond repaid
in the year
|
1 January
2022
£m
|
Acquisitions**
£m
|
Net cash flow
£m
|
Currency and
non-cash
movements
£m
|
31 December
2022
£m
|
Loans and facilities due within one year
|
(290)
|
(19)
|
257
|
(237)
|
(289)
|
Loans and facilities due after one year
|
(732)
|
-
|
-
|
191
|
(541)
|
Total loans and facilities
|
(1,022)
|
(19)
|
257
|
(46)
|
(830)
|
|
|
|
|
|
|
Currency component of forwards and swaps held
against euro denominated bonds
|
(36)
|
-
|
-
|
27
|
(9)
|
Lease liabilities
|
(92)
|
-
|
26
|
(66)
|
(132)
|
Total debt
|
(1,150)
|
(19)
|
283
|
(85)
|
(971)
|
|
|
|
|
|
|
Restricted cash
|
50
|
-
|
(50)
|
-
|
-
|
|
|
|
|
|
|
Cash
|
246
|
-
|
5
|
6
|
257
|
Cash equivalents
|
440
|
-
|
(355)
|
6
|
91
|
Total cash and cash equivalents*
|
686
|
-
|
(350)
|
12
|
348
|
|
|
|
|
|
|
Net debt
|
(414)
|
(19)
|
(117)
|
(73)
|
(623)
|
* On 1 January 2022, £50 million of
cash was presented as restricted in favour of the commitments under
the asset-backed pension agreements. This balance was £nil at 31
December 2022 given the restriction was removed in the year and the
cash replaced with a surety bond.
** Loans on acquisition included £98 million
for Plimsoll Productions and £4 million for Lingo Pictures. The
Plimsoll Productions loan was reduced by £83 million, which was
repaid as part of the acquisition using cash raised from the
Group's subscription for new shares. This £83 million was treated
as a cash outflow on acquisition rather than a repayment of
debt.
Loans and facilities due within one
year
The €259 million Eurobond was repaid
in December 2023. The sterling-equivalent repayment value,
totalling £233 million, had been hedged using forward exchange
contracts.
Loans and loan notes due after one
year
In January 2022, the Group entered
into a new syndicated £500 million Revolving Credit Facility (RCF)
to meet short-term funding requirements. The original terms of the
RCF ran until January 2027; however, the Group took the opportunity
to request an extension for one year on the first and second
anniversary of the facility. As a result, £83 million of the £500
million RCF matures in 2028 and £417 million matures in January
2029. The RCF was undrawn as at 31 December 2023 (2022: £50 million
drawn).
The Group
has a €600 million Eurobond in issue at a fixed coupon of 1.375%,
which matures in September 2026 and has been swapped back to
sterling (£533 million) using a number of cross-currency
interest rate swaps. The resulting fixed rate
payable in sterling is c.2.9%.
A new £230 million term loan was
taken out in the year, and was fully drawn-down in December 2023 in
order to repay the
€259 million Eurobond. The term loan matures in July 2027.
Interest on the loan is determined as an aggregate of compounded
SONIA plus a margin.
Available facilities
The Group has good
access to liquidity:
• The Group has a £300 million bilateral
loan facility, which matures on 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. The
facility is currently undrawn (31 December 2022:
undrawn).
• As noted above, the Group has £500
million of committed funding through a RCF with a group of
relationship banks, which is currently fully available until
January 2028. £417 million of the funding remains committed until
2029. At 31 December 2023, the facility was unutilised (31 December
2022: £50 million drawn). 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. All
financial covenants were met and the facility remains available at
31 December 2023. The £500 million RCF contains Scope 1, 2 and 3
greenhouse gas emissions targets which align to ITV's stated
objective to have Net Zero carbon emissions by 2030. These targets
are measured at the end of each financial year and independently
verified in July following the relevant December year end. Scope 1
and 2 emissions are measured separately to Scope 3 emissions. The
margin on the facility reduces by 2.5bps if Scope 1, 2 and 3
targets are met, by 1.25bps if either Scope 1 and 2 targets are met
or Scope 3 targets are met, and increases by 2.5bps if neither
target is met. Failing to meet targets does not impact the
availability of the RCF. The Group met Scope 1, 2 and 3 targets for
2023; however, 2023 emissions will not be verified until July 2024.
Over the life of the facility, it may be necessary to recalibrate
the baseline emissions level set in 2019, particularly in relation
to Scope 3 emissions and there is a mechanism in the RCF
documentation that allows for this.
• In December 2023, the Group secured £100
million of committed funding via a new bilateral RCF, which matures
in December 2028. The terms and conditions, including financial
covenants but not emissions targets, are aligned to the £500
million RCF facility. The facility is currently undrawn.
4.2 Borrowings
|
|
Keeping
it simple
|
|
The Group borrows money from financial institutions
in the form of bonds, bank facilities and other financial
instruments. The interest payable on these instruments is shown in
the net financing costs note (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
· 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
included 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 Consolidated 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), contract assets (see note 3.1.6) 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. Credit risk over contract assets is monitored
proactively using daily reports from an external credit risk
company. These reports are used to determine contractual
obligations, monitor risk and amend terms where
required.
Cash and cash equivalents and derivative
financial instruments
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. Cash and cash
equivalents include money market funds valued at fair value through
profit and loss.
Cash and cash equivalents and
derivative financial instruments exposure is limited to high credit
quality financial institutions rated by two of the key rating
agencies used by the Group. Counterparty credit limits are set in
relation to these ratings, in order to limit the concentration of
exposure to individual counterparties based on their credit
quality. As such, investments are sufficiently spread across high
credit quality rated counterparties.
Counterparty credit limits are
reviewed by the Group's Board of Directors on an annual basis and
may be updated throughout the year subject to approval of the
Group's Audit & Risk Committee. Investment exposure with
external counterparties is made only with Board approved
counterparties and within credit limits assigned to each
counterparty. The credit quality of financial counterparties
and the outstanding exposure is monitored throughout the year by
the Group's Treasury function in accordance with the Group's
policy.
Borrowings
ITV is rated as investment grade by
Moody's and S&P. ITV's credit ratings, which in turn are
affected by key metrics, such as leverage, the cost of credit
default swap hedging, and the absolute level of interest rates are
key determinants in the cost of new borrowings for ITV.
Liquidity risk
The Group's financing policy is to
fund itself for the medium to long-term by using debt instruments
with a range of maturities and to ensure access to appropriate
short-term borrowing facilities with a minimum of £250 million of
undrawn facilities available at all times.
Long-term funding comes from the UK
and European capital markets, while any short to medium-term debt
requirements were provided throughout 2023 through bank credit
facilities totalling £900 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.
Fair value versus book
value
The tables below provide fair value
information for the Group's borrowings:
|
|
Book value
|
|
Fair value
|
|
Maturity
|
2023
£m
|
2022
£m
|
|
2023
£m
|
2022
£m
|
Loans due within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
€259 (previously €500) million Eurobond
|
Dec 2023
|
-
|
229
|
|
-
|
227
|
Revolving credit facility*
|
|
-
|
50
|
|
-
|
50
|
Other short-term loans
|
Various
|
5
|
10
|
|
5
|
10
|
|
|
5
|
289
|
|
5
|
287
|
|
|
|
|
|
|
|
Loans due in more than one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
€600 million Eurobond
|
Sept 2026
|
520
|
531
|
|
490
|
480
|
£230 million Term Loan
|
July 2027
|
230
|
-
|
|
230
|
-
|
Other long-term loans
|
Various
|
8
|
10
|
|
8
|
10
|
|
|
758
|
541
|
|
728
|
490
|
|
|
|
|
|
|
|
|
|
763
|
830
|
|
733
|
777
|
* The £500 million Revolving Credit
Facility matures in January 2028 (£83 million) and January 2029
(£417 million)
4.3
Managing
market risks: derivative financial instruments
|
|
Keeping
it simple
|
|
What is a derivative?
A derivative is a type of financial instrument typically used to
manage risk. A derivative's value changes over time in response to
underlying variables, such as exchange rates or interest rates and
is entered into for a fixed period. A hedge is where a derivative
is used to manage exposure in an underlying variable.
The Group is exposed to certain market risks. In
accordance with Board-approved policies, which are set out in this
note, the Group manages these risks by using derivative financial
instruments to hedge the underlying exposures.
Why do we need them?
The key market risks facing the Group are:
· Currency risk
arising from:
i. Translation risk, that is the risk in the
period of adverse currency fluctuations in the translation of
foreign currency profits, assets and liabilities ('balance sheet
risk') and non-functional currency monetary assets and liabilities
('income statement risk') and
ii. Transaction risk, that is the risk that currency
fluctuations will have a negative effect on the value of the
Group's non-functional currency trading cash flows. A
non-functional currency transaction is a transaction in any
currency other than the reporting currency of the
subsidiary
· Interest rate risk
to the Group arises from significant changes in interest rates on
borrowings issued at or swapped to floating rates
How do we use them?
The Group mainly employs three types of derivative financial
instruments when managing its currency and interest rate risk:
· Foreign exchange
swap contracts are derivative instruments used to hedge income
statement translation risk arising from short-term intercompany
loans denominated in a foreign currency
· Forward foreign
exchange contracts are derivative instruments used to hedge
transaction risk so they enable the sale or purchase of foreign
currency at a known fixed rate on an agreed future date and
· Cross-currency
interest rate swaps are derivative instruments used to exchange the
principal and interest coupons in a debt instrument from one
currency to another
Analysis of the derivatives used by the Group to
hedge its exposure and the various methods used to calculate their
respective fair values are detailed in this section.
|
Accounting policies
Derivative financial instruments are
initially recognised at fair value and are subsequently remeasured
at fair value with the movement recorded in the Consolidated
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 Consolidated 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 the change in price between the
contracted rates and the market rates at the reporting date.
The contracted cash flows are then discounted by the time remaining
to the settlement date of the contract, with a discount curve that
incorporates credit risk. The fair value of interest rate swaps is
the estimated amount that the Group would receive or pay to exit
the swap at the reporting date, taking into account current
interest rates and the Group's current creditworthiness, as well as
that of the swap counterparties.
Third-party valuations are used to
fair value the Group's cross currency 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, where necessary using foreign currency swaps to
exchange balances back into sterling or by buying or selling
foreign currencies at spot rates.
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 following table highlights the
Group's exposure to foreign currency risk resulting from a 10%
strengthening/weakening in sterling against the US dollar, euro and
Australian dollar, assuming all other variables are held
constant:
|
Impact on
profit before tax
2023
£m
|
Impact on
profit before tax
2022
£m
|
Impact on
Equity
2023
£m
|
Impact on
Equity
2022
£m
|
US dollar - increase 10%
|
(6)
|
(9)
|
7
|
6
|
US dollar - decrease 10%
|
7
|
9
|
(8)
|
(8)
|
Euro - increase 10%
|
(1)
|
(4)
|
1
|
(3)
|
Euro - decrease 10%
|
2
|
5
|
-
|
4
|
Australian dollar - increase 10%
|
(1)
|
(1)
|
(2)
|
(4)
|
Australian dollar - decrease 10%
|
1
|
1
|
2
|
4
|
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.
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.
At 31 December 2023, the Group's
fixed rate debt represented 69.9% of total gross debt (2022:
93.8%), therefore the majority of debt is issued at fixed rates,
and changes in the floating rates of interest do not materially
affect the Group's net interest charge.
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 2023
|
Assets
£m
|
Liabilities
£m
|
Current
|
|
|
Foreign exchange forward contracts and swaps - cash
flow hedges
|
3
|
(1)
|
Foreign exchange forward contracts and swaps - fair
value through profit or loss
|
1
|
-
|
Non-current
|
|
|
Cross-currency interest swaps - cash flow hedges
|
-
|
(15)
|
Foreign exchange forward contracts and swaps - cash
flow hedges
|
1
|
(1)
|
|
5
|
(17)
|
At 31 December 2022
|
Assets
£m
|
Liabilities
£m
|
Current
|
|
|
Foreign exchange forward contracts and swaps - cash
flow hedges
|
2
|
(6)
|
Foreign exchange forward contracts and swaps - fair
value through profit or loss
|
-
|
(1)
|
Non-current
|
|
|
Cross-currency interest swaps - cash flow hedges
|
-
|
(8)
|
Foreign exchange forward contracts and swaps - cash
flow hedges
|
2
|
-
|
|
4
|
(15)
|
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 five years. In order to fix the sterling cash outflows
associated with the commitments and interest payments - which are
mainly denominated in US dollars 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.
There is an economic relationship
between the hedged items (being between 60% to 100% of the total
exposure) and the hedging instruments as the terms of the foreign
exchange forward contracts and cross-currency interest rate swaps
match the terms of the expected highly probable forecast
transactions or firm commitments (i.e. % notional amount and
expected receipt or payment date). The
Group has established a hedge ratio of 1:1 for the hedging
relationships as the underlying risk of the foreign exchange
forward contracts are identical to the hedged risk
components.
Sources of
ineffectiveness include:
• Different interest rate curve applied to
discounting the hedged items and hedging instruments
• Differences in the timing of the cash
flows of the hedged items and the hedging instruments
• The counterparties' credit risk
differently impacting the fair value movements of the hedging
instruments and hedged items and
• Changes to the forecasted amount of cash
flows of hedged items and hedging instruments
The Group
uses the hedge relationship, credit risk and hedge ratio to measure
the hedge effectiveness.
The amount recognised in other
comprehensive income during the year all relates to the effective
portion of the revaluation loss associated with these contracts. A
cumulative loss of £28 million (2022: £33 million of
cumulative gain) was recycled to the Consolidated Income statement
to off-set movements on the hedged item, a residual £7 million loss
(2022: £3 million loss) remained on the income statement which were
not offset.
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 ceased net investment
hedging in May 2022 using 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. A change to the risk
management objective meant that the remaining euro denominated
monetary items on the Consolidated Statement of Financial Position
could be considered in isolation on a net basis and therefore
manage the remaining foreign exchange volatility in a more
efficient way. The amount relating to
discontinued hedges is a loss of £19 million at 31 December 2023
(2022: £19 million loss).
Undiscounted financial
liabilities
Keeping
it simple
|
|
The Group is required to disclose the expected
timings of cash outflows for each of its financial liabilities
(including derivatives). The amounts disclosed in the table are the
contractual undiscounted cash flows (including interest), so will
not always reconcile with the amounts disclosed on the Statement of
Financial Position.
|
At 31 December 2023
|
Carrying value
£m
|
Total
contractual
cash flows
£m
|
Less than
1 year
£m
|
Between
1 and 2 years
£m
|
Between
2 and 5 years
£m
|
Over
5 years
£m
|
Non-derivative financial liabilities
|
|
|
|
|
|
|
Borrowings
|
(763)
|
(785)
|
(12)
|
(8)
|
(763)
|
(2)
|
Lease liabilities
|
(115)
|
(140)
|
(18)
|
(19)
|
(52)
|
(51)
|
Trade and other payables
|
(931)
|
(931)
|
(906)
|
(25)
|
-
|
-
|
Other payables - non-current
|
(33)
|
(33)
|
-
|
(33)
|
-
|
-
|
Other payables - commitments on acquisitions
|
(78)
|
(105)*
|
(47)
|
-
|
(55)
|
(3)
|
Derivative financial instruments
|
|
|
|
|
|
|
Foreign exchange forward contracts and swaps - cash
flow hedges
|
|
|
|
|
|
|
Inflow
|
4
|
195
|
150
|
45
|
-
|
-
|
Outflow
|
(2)
|
(193)
|
(149)
|
(44)
|
-
|
-
|
Cross-currency swaps - cash flow hedges
|
|
|
|
|
|
|
Inflow
|
-
|
542
|
7
|
7
|
528
|
-
|
Outflow
|
(15)
|
(580)
|
(16)
|
(16)
|
(548)
|
-
|
Foreign exchange forward contracts and swaps - fair
value through profit or loss
|
|
|
|
|
|
|
Inflow
|
1
|
177
|
171
|
6
|
-
|
-
|
Outflow
|
-
|
(176)
|
(170)
|
(6)
|
-
|
-
|
|
(1,932)
|
(2,029)
|
(990)
|
(93)
|
(890)
|
(56)
|
At 31 December 2022
|
Carrying value
£m
|
Total
contractual
cash flows
£m
|
Less than
1 year
£m
|
Between
1 and 2 years
£m
|
Between
2 and 5 years
£m
|
Over
5 years
£m
|
Non-derivative financial liabilities
|
|
|
|
|
|
|
Borrowings
|
(830)
|
(865)
|
(302)
|
(8)
|
(550)
|
(5)
|
Lease liabilities
|
(132)
|
(149)
|
(21)
|
(26)
|
(37)
|
(65)
|
Trade and other payables
|
(915)
|
(915)
|
(898)
|
(14)
|
(3)
|
-
|
Other payables - non-current
|
(28)
|
(28)
|
-
|
(25)
|
(3)
|
-
|
Other payables - commitments on acquisitions
|
(47)
|
(89)*
|
(8)
|
(26)
|
(33)
|
(22)
|
Derivative financial instruments
|
|
|
|
|
|
|
Foreign exchange forward contracts and swaps - cash
flow hedges
|
|
|
|
|
|
|
Inflow
|
4
|
480
|
401
|
63
|
16
|
-
|
Outflow
|
(6)
|
(486)
|
(409)
|
(61)
|
(16)
|
-
|
Cross-currency swaps - cash flow hedges
|
|
|
|
|
|
|
Inflow
|
-
|
560
|
7
|
7
|
546
|
-
|
Outflow
|
(8)
|
(596)
|
(16)
|
(16)
|
(564)
|
|
Foreign exchange forward contracts and swaps - fair
value through profit or loss
|
|
|
|
|
|
|
Inflow
|
-
|
51
|
45
|
6
|
-
|
-
|
Outflow
|
(1)
|
(52)
|
(46)
|
(6)
|
-
|
-
|
|
(1,963)
|
(2,089)
|
(1,247)
|
(106)
|
(644)
|
(92)
|
* Undiscounted expected future payments
depending on performance of acquisitions
Timing profile of hedging
instrument
Keeping
it simple
|
|
The Group is required to provide a breakdown that
discloses a profile of the timing of the nominal amount of the
hedging instrument and if applicable, the average price or rate
(for example strike or forward prices etc.) of the hedging
instrument.
|
The Group is holding the following foreign exchange
and cross-currency interest rate swap contracts:
At 31 December 2023
|
Less than
1 year
|
Between
1 to 2 years
|
Between
2 to 5 years
|
Greater than
5 years
|
Total
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(5)
|
-
|
-
|
-
|
(5)
|
Average forward rate (AUD/EUR)
|
1.6933
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(1)
|
(11)
|
-
|
-
|
(12)
|
Average forward rate (AUD/GBP)
|
1.2773
|
1.7559
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
9
|
2
|
-
|
-
|
11
|
Average forward rate (CAD/GBP)
|
1.7711
|
1.6594
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(1)
|
-
|
-
|
-
|
(1)
|
Average forward rate (DKK/GBP)
|
8.6515
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
1
|
8
|
-
|
-
|
9
|
Average forward rate (EUR/GBP)
|
1.1278
|
1.1272
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
1
|
-
|
-
|
-
|
1
|
Average forward rate (ILS/GBP)
|
4.6398
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(1)
|
-
|
-
|
-
|
(1)
|
Average forward rate (SEK/GBP)
|
12.9636
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
4
|
-
|
-
|
-
|
4
|
Average forward rate (NOK/GBP)
|
13.2027
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(4)
|
-
|
-
|
-
|
(4)
|
Average forward rate (ZAR/AUD)
|
12.6830
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(56)
|
20
|
-
|
-
|
(36)
|
Average forward rate (USD/GBP)
|
1.3431
|
1.2188
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(5)
|
-
|
-
|
-
|
(5)
|
Average forward rate (ZAR/EUR)
|
20.6262
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(1)
|
-
|
-
|
-
|
(1)
|
Average forward rate (ZAR/GBP)
|
23.0200
|
-
|
-
|
-
|
|
Cross-currency interest rate swaps
|
|
|
|
|
|
Notional amount (£m)
|
-
|
-
|
533
|
-
|
533
|
Average hedge rate (EUR/GBP)
|
-
|
-
|
1.1264
|
-
|
|
At 31 December 2022
|
Less than
1 year
|
Between
1 to 2 years
|
Between
2 to 5 years
|
Greater than
5 years
|
Total
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(5)
|
-
|
-
|
-
|
(5)
|
Average forward rate (AUD/EUR)
|
1.5688
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(4)
|
(12)
|
(16)
|
-
|
(32)
|
Average forward rate (AUD/GBP)
|
1.7205
|
1.7967
|
1.7909
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
7
|
3
|
-
|
-
|
10
|
Average forward rate (CAD/GBP)
|
1.7155
|
1.6446
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(2)
|
-
|
-
|
-
|
(2)
|
Average forward rate (CAD/USD)
|
1.2400
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(1)
|
-
|
-
|
-
|
(1)
|
Average forward rate (DKK/GBP)
|
8.3506
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(241)
|
(14)
|
-
|
-
|
(255)
|
Average forward rate (EUR/GBP)
|
1.1097
|
1.1485
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(6)
|
-
|
-
|
-
|
(6)
|
Average forward rate (EUR/USD)
|
0.8859
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
8
|
-
|
-
|
-
|
8
|
Average forward rate (NOK/GBP)
|
12.0018
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(4)
|
-
|
-
|
-
|
(4)
|
Average forward rate (ZAR/AUD)
|
11.7780
|
-
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
67
|
16
|
-
|
-
|
83
|
Average forward rate (USD/GBP)
|
1.2627
|
1.1389
|
-
|
-
|
|
Foreign exchange forward contracts and swaps
|
|
|
|
|
|
Notional amount (£m)
|
(1)
|
-
|
-
|
-
|
(1)
|
Average forward rate (ZAR/GBP)
|
20.8998
|
-
|
-
|
-
|
|
Cross-currency interest rate swaps
|
|
|
|
|
|
Notional amount (£m)
|
-
|
-
|
539
|
-
|
539
|
Average hedge rate (EUR/GBP)
|
-
|
-
|
1.1253
|
-
|
|
Impact of hedged items on
Consolidated Statement of Financial Position, Consolidated
Statement of Other Comprehensive Income and Consolidated Statement
of Changes in Equity
Keeping
it simple
|
|
This table provides the following details in relation
to cash flow hedge and net investment hedge:
· The change in value
of the hedged item used as the basis for recognising hedge
ineffectiveness for the year
· The balances in the
cash flow hedge reserve and the foreign currency translation
reserve for continuing hedges and
· The balances
remaining in the cash flow hedge reserve and the foreign currency
translation reserve from any hedging relationships for which hedge
accounting is no longer applied
|
The impact of hedged items on the Consolidated
Statement of Financial Position is as follows:
Cash flow hedge
|
2023
|
2022
|
At 31 December
|
Change in fair value used for measuring
ineffectiveness
£m
|
Pre-tax closing cash flow hedge
reserve
£m
|
Pre-tax closing
cost of
hedging
reserve
£m
|
Change in fair value used for measuring
ineffectiveness
£m
|
Pre-tax
closing cash flow hedge
reserve
£m
|
Pre-tax
closing
cost of
hedging
reserve
£m
|
Highly probable/firm commitment
forecast transactions
|
1
|
3
|
-
|
3
|
2
|
(1)
|
Borrowings
|
11
|
1
|
(2)
|
(5)
|
(4)
|
(8)
|
The hedging gain recognised in the
Consolidated Statement of Changes in Equity before tax is equal to
the change in fair value used for measuring effectiveness. There is
£7 million of ineffectiveness recognised in the Consolidated Income
Statement.
Keeping
it simple
|
|
This table details the effect of the cash flow hedge
in the Consolidated Income Statement and Consolidated Statement of
Comprehensive Income.
|
The effect of the cash flow hedge in the Consolidated
Income Statement and Consolidated Statement of Comprehensive Income
is as follows:
At 31 December 2023
|
Total hedging gain/(loss) recognised in OCI
£m
|
Ineffectiveness recognised in
Income Statement £m
|
Line item in
the Income Statement
|
Cost of hedging recognised
in OCI £m
|
Amounts reclassified from OCI to Income Statement
£m
|
Line item in
the Income Statement
|
Highly probable/firm commitment forecast
transactions
|
1
|
-
|
Net financing cost
|
4
|
2
|
Cost of sales/
overheads
|
Borrowings
|
11
|
7
|
Net financing cost
|
2
|
26
|
Net financing cost
|
At 31 December 2022
|
Total hedging gain/(loss) recognised in OCI
£m
|
Ineffectiveness recognised in
Income Statement £m
|
Line item in
the Income Statement
|
Cost of hedging recognised
in OCI £m
|
Amounts reclassified from OCI to Income Statement
£m
|
Line item in
the Income Statement
|
Highly probable/firm commitment forecast
transactions
|
3
|
-
|
|
(4)
|
11
|
Overheads/Work in progress
|
Borrowings
|
(5)
|
3
|
Net financing cost
|
4
|
(37)
|
Net financing cost
|
Keeping
it simple
|
|
This table provides a reconciliation of each
component of the translation reserve reported within equity and an
analysis of other comprehensive income in accordance with IAS
1.
|
Set out below is the reconciliation of each component
of the translation reserve reported in the Consolidated Statement
of Changes in Equity and the analysis of other comprehensive
income:
|
Cash
flow hedge
reserve
£m
|
Cost of
hedge
reserve
£m
|
Foreign
currency
reserve
£m
|
Translation
reserve
£m
|
As at 1 January 2022
|
3
|
(7)
|
45
|
41
|
Effective portion of changes in fair value arising
from:
|
|
|
|
|
Foreign exchange forward contracts
|
(1)
|
(4)
|
-
|
(5)
|
Cross-currency interest rate swaps - borrowings:
|
|
|
|
|
• Change in fair value from the effective
hedge instrument
|
25
|
4
|
-
|
29
|
Amount reclassified to Income Statement
|
|
|
|
|
• FX forward reclassified to cost of
sales/overheads
|
4
|
-
|
-
|
4
|
• FX forward and swaps reclassified to finance
costs
|
(10)
|
-
|
-
|
(10)
|
• Amounts reclassified to work in progress
|
7
|
-
|
-
|
7
|
• CCIRS reclassified to finance costs
|
(27)
|
-
|
-
|
(27)
|
Net loss on cash flow hedges and cost of hedging
|
(2)
|
-
|
-
|
(2)
|
Foreign currency revaluation of the net foreign
operations
|
-
|
-
|
67
|
67
|
Exchange differences on translation of foreign
operations
|
-
|
-
|
67
|
67
|
Income tax credit on other comprehensive
income/(expense)
|
1
|
-
|
-
|
1
|
As at 31 December 2022
|
2
|
(7)
|
112
|
107
|
Effective portion of changes in fair value arising
from:
|
|
|
|
|
Foreign exchange forward contracts
|
(13)
|
4
|
-
|
(9)
|
Cross-currency interest rate swaps - borrowings:
|
|
|
|
|
• Change in fair value from the effective
hedge instrument
|
(9)
|
2
|
-
|
(7)
|
Amount reclassified to Income Statement
|
|
|
|
|
• FX forward reclassified to cost of
sales/overheads
|
2
|
-
|
-
|
2
|
• FX forward and swaps reclassified to finance
costs
|
15
|
-
|
-
|
15
|
• CCIRS reclassified to finance costs
|
11
|
-
|
-
|
11
|
Net gain on cash flow hedges and cost of hedging
|
6
|
6
|
-
|
12
|
Foreign currency revaluation of the net foreign
operations
|
-
|
-
|
(38)
|
(38)
|
Exchange differences on translation of foreign
operations
|
-
|
-
|
(38)
|
(38)
|
Income tax charge on other comprehensive
income/(expense)
|
(1)
|
(2)
|
-
|
(3)
|
As at 31 December 2023
|
7
|
(3)
|
74
|
78
|
Netting arrangements of financial
instruments
Keeping
it simple
|
|
This section details the Group's financial assets and
financial liabilities that are subject to netting and set-off
arrangements. Financial assets and liabilities that are subject to
set-off arrangements and disclosed on a net basis in the Group's
Statement of Financial Position relate to cash pooling
arrangements. Amounts which do not meet the criteria for offsetting
on the Consolidated Statement of Financial Position but could be
settled net in certain circumstances principally relate to
derivative transactions executed under ISDA agreements where each
party has the option to settle amounts on a net basis in the event
of default of the other party.
|
At 31 December 2023
|
Gross financial assets/ liabilities
£m
|
Gross collateral assets/liabilities
set-off
£m
|
Net financial assets/liabilities per balance
sheet
£m
|
Related amounts not set-off in the balance sheet
£m
|
Net
£m
|
Assets
|
|
|
|
|
|
Derivative financial instruments
|
5
|
-
|
5
|
(2)
|
3
|
Cash and cash equivalents
|
340
|
-
|
340
|
-
|
340
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivative financial instruments
|
(17)
|
-
|
(17)
|
2
|
(15)
|
Loans and facilities
|
(763)
|
-
|
(763)
|
-
|
(763)
|
At 31 December 2022
|
Gross financial assets/liabilities
£m
|
Gross collateral assets/liabilities
set-off
£m
|
Net financial assets/liabilities per balance
sheet
£m
|
Related amounts not set-off in the balance sheet
£m
|
Net
£m
|
Assets
|
|
|
|
|
|
Derivative financial instruments
|
4
|
-
|
4
|
(4)
|
-
|
Cash and cash equivalents
|
348
|
-
|
348
|
-
|
348
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Derivative financial instruments
|
(15)
|
-
|
(15)
|
4
|
(11)
|
Loans and facilities
|
(830)
|
-
|
(830)
|
-
|
(830)
|
4.4
Net financing costs
|
|
Keeping
it simple
|
|
This section details the interest income generated on
the Group's cash and other financial assets and the interest
expense incurred on borrowings and other
financial liabilities.
In reporting 'adjusted profit', the Group adjusts net
financing costs to exclude unrealised mark-to-market movements on
interest rate and foreign exchange derivatives, gains/losses on
bond buybacks, net pension interest, interest and fair value
movements in acquisition-related liabilities and other financing
costs.
Our rationale for adjustments made to financing costs
is set out in the 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:
|
2023
£m
|
2022
£m
|
Financing income
|
|
|
Interest income
|
14
|
9
|
Foreign exchange gain
|
2
|
3
|
Pension interest income (see note 3.7)
|
9
|
-
|
Other finance income
|
-
|
1
|
|
25
|
13
|
|
|
|
Financing costs
|
|
|
Pension interest expense (see note 3.7)
|
(1)
|
-
|
Interest expense on financial liabilities measured at
amortised cost
|
(15)
|
(18)
|
Foreign exchange loss
|
(7)
|
(1)
|
Other finance expense
|
(47)
|
(20)
|
|
(70)
|
(39)
|
Net financing costs
|
(45)
|
(26)
|
Other finance expense includes lease interest
payments, finance costs including fair value adjustments on
acquisition-related liabilities and bank charges.
4.5
Fair value hierarchy
|
|
Keeping
it simple
|
|
The financial instruments included in the
Consolidated Statement of Financial Position are measured at either
fair value or amortised cost. The measurement of this fair value
can in some cases be subjective, and can depend on the inputs used
in the calculations. The Group 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 exit prices at the current reporting
period. 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 Consolidated Statement of Financial Position at
fair value:
|
Fair value
31 December
2023
£m
|
Level 1
31 December
2023
£m
|
Level 2
31 December
2023
£m
|
Level 3
31 December
2023
£m
|
Assets measured at fair value
|
|
|
|
|
Financial instruments at fair value through
reserves
|
|
|
|
|
Other pension assets - gilts (see note 3.7)
|
48
|
48
|
-
|
-
|
Financial instruments at fair value through profit or
loss
|
|
|
|
|
Money market funds
|
125
|
125
|
-
|
-
|
Equity investments (see note 3.5)
|
21
|
-
|
-
|
21
|
Financial assets at fair value through profit or
loss
|
|
|
|
|
Foreign exchange forward contracts and swaps
|
1
|
-
|
1
|
-
|
Convertible loan receivable
|
2
|
-
|
-
|
2
|
Financial assets at fair value through reserves
|
|
|
|
|
Cash flow hedges
|
4
|
-
|
4
|
-
|
|
201
|
173
|
5
|
23
|
|
Fair value
31 December
2023
£m
|
Level 1
31 December
2023
£m
|
Level 2
31 December
2023
£m
|
Level 3
31 December
2023
£m
|
Liabilities measured at fair value
|
|
|
|
|
Financial liabilities at fair value through profit or
loss
|
|
|
|
|
Acquisition-related liabilities - payable to sellers
under put options agreed on acquisition (see notes 3.1.4
and 3.1.5)
|
(63)
|
-
|
-
|
(63)
|
Financial liabilities at fair value through
reserves
|
|
|
|
|
Cash flow hedges
|
(17)
|
-
|
(17)
|
-
|
|
(80)
|
-
|
(17)
|
(63)
|
There have been no changes in the classification of
assets and liabilities and there have been no movements within
levels. Information on the fair value measurements of level 3
assets and liabilities is detailed in the relevant notes referenced
above.
|
Fair value
31 December
2022
£m
|
Level 1
31 December
2022
£m
|
Level 2
31 December
2022
£m
|
Level 3
31 December
2022
£m
|
Assets measured at fair value
|
|
|
|
|
Financial instruments at fair value through
reserves
|
|
|
|
|
Other pension assets - gilts (see note 3.7)
|
47
|
47
|
-
|
-
|
Financial instruments at fair value through profit or
loss
|
|
|
|
|
Money market funds
|
91
|
91
|
-
|
-
|
Equity investments (see note 3.5)
|
11
|
-
|
-
|
11
|
Financial assets at fair value through profit or
loss
|
|
|
|
|
Convertible loan receivable
|
3
|
-
|
-
|
3
|
Financial assets at fair value through reserves
|
|
|
|
|
Cash flow hedges
|
4
|
-
|
4
|
-
|
|
156
|
138
|
4
|
14
|
|
Fair value
31 December
2022
£m
|
Level 1
31 December
2022
£m
|
Level 2
31 December
2022
£m
|
Level 3
31 December
2022
£m
|
Liabilities measured at fair value
|
|
|
|
|
Financial liabilities at fair value through profit or
loss
|
|
|
|
|
Foreign exchange forward contracts and swaps
|
(1)
|
-
|
(1)
|
-
|
Acquisition-related liabilities - payable to sellers
under put options agreed on acquisition (see notes 3.1.4
and 3.1.5)
|
(39)
|
-
|
-
|
(39)
|
Financial liabilities at fair value through
reserves
|
|
|
|
|
Cash flow hedges
|
(14)
|
-
|
(14)
|
-
|
|
(54)
|
-
|
(15)
|
(39)
|
Refer to note 4.3 for how we value interest rate
swaps and forward foreign currency contracts.
4.6
Lease liabilities
|
|
Keeping
it simple
|
|
The Group accounts for operating leases under IFRS 16
'Leases'. Lease liabilities representing the discounted future
lease payments and right of use assets are recognised in the
Consolidated Statement of Financial Position. Lease costs such
as property rent are now recognised in the form of
depreciation and interest in the Consolidated Income Statement.
|
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
Consolidated Income Statement. The following table outlines the
maturity analysis of the lease liabilities:
|
2023
£m
|
2022
£m
|
|
|
|
Contractual discounted cash flows
|
|
|
Less than one year
|
18
|
21
|
Two to five years
|
57
|
55
|
More than five years
|
40
|
56
|
|
|
|
Lease liabilities at 31 December
|
115
|
132
|
|
1 January
2023
£m
|
Net cash flow
£m
|
Currency and
non-cash
movements
£m
|
31 December
2023
£m
|
Lease liabilities
|
(132)
|
26
|
(9)
|
(115)
|
Total lease liabilities
|
(132)
|
26
|
(9)
|
(115)
|
|
1 January
2022
£m
|
Net cash flow
£m
|
Currency and
non-cash
movements
£m
|
31 December
2022
£m
|
Lease liabilities
|
(92)
|
26
|
(66)
|
(132)
|
Total lease liabilities
|
(92)
|
26
|
(66)
|
(132)
|
The following amounts have been included in the
Consolidated Income Statement:
|
2023
£m
|
2022
£m
|
Interest expense on lease liabilities
|
(4)
|
(4)
|
|
|
|
Amounts recognised in the Consolidated 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 £5,000). 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 2023, this was less than £1 million (2022: less than
£1 million).
Variable lease payments that depend
on an index or a rate are also less than £1 million (2022: less
than £1 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 2023 includes one such extension
which resulted in an increase in the lease liability of £2 million.
There are no other significant extension options.
The Group signed a subleasing
arrangement, which is classified as a finance lease in accordance
with IFRS 16 'Leases'. In accordance with the standard, the
right of use asset with a net book value of £8 million was
derecognised and replaced by a net investment in the sublease
which has been recognised within other receivables. See note 3.2.
This arrangement does not impact the lease liabilities arising from
the original lease which have been included in this
note.
4.7
Equity
|
|
Keeping
it simple
|
|
This section explains material movements recorded in
shareholders' equity, presented in the Consolidated Statement
of 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 Consolidated 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 2023 of £406 million (2022: £403 million) and share
premium of £174 million (2022: £174 million) is the same as that of
ITV plc. Details of this are given in the ITV plc Company financial
information section of this Annual Report.
4.7.2 Merger and other reserves
Merger and other reserves at 31
December include the following reserves:
|
2023
£m
|
2022
£m
|
Merger reserves
|
95
|
95
|
Capital reserves
|
112
|
112
|
Capital redemption reserves
|
36
|
36
|
Revaluation reserves
|
2
|
2
|
Put option liabilities arising on acquisition of
subsidiaries
|
(34)
|
(34)
|
Total
|
211
|
211
|
Merger reserves, Capital reserves and Capital
redemption reserves relate primarily to balances arising on
previous mergers and acquisitions, including the merger of Granada
and Carlton in 2003. Put option liabilities arising on acquisition
of subsidiaries relates to options and forwards contracts over
shares relating to non-controlling interests.
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 movement in the cash flow hedge
reserve was a gain of £5 million (2022: loss of £1 million). This
is made up of a gain on cash flow hedges in the year of £6 million
(2022: loss of £2 million) and a related tax charge of £1 million
(2022: credit of £1 million)
• The net
movement in the cost of hedging reserve was a gain of £4 million
(2022: no movement). This is made up of a gain on the cost of
hedging in the year of £6 million (2022: £nil million) and a
related tax charge of £2 million (2022: £nil 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. The movement in 2023 is a £1 million loss
on revaluation (2022: loss of £19 million) and a related tax credit
of £nil (2022: £5 million credit). See notes 2.3 and
3.7.
4.7.5 Retained earnings
The retained earnings reserve
comprises profit for the year attributable to owners of the Company
of £210 million (2022: £428 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, which
are described in note 4.8.
The Board recognises the importance of the ordinary
dividend to ITV shareholders. Reflecting its confidence in the
business and its strategy, as well as the continued strong cash
generation, the Board proposes a final dividend of 3.3p
(2022:3.3p), giving a full year dividend of 5.0p (2022: 5.0p) per
share. £201 million of dividends were paid (2022: £201 million),
representing a final 2022 dividend of 3.3p per share and an interim
2023 dividend of 1.7p per share.
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 ITV. The movement for 2023 comprises:
• The share of loss attributable to NCI of
£1 million (2022: share of profit attributable to NCI of £7
million)
• Foreign exchange losses of £4 million
(2022: gains of £8 million)
• The distributions made to NCI of £1
million (2022: £3 million)
• The share of
net assets attributable to NCI relating to subsidiaries acquired,
disposed or changes in ownership interest in 2023 of £6 million
(2022: £4 million)
4.8
Share-based compensation
|
|
Keeping
it simple
|
|
The Group utilises share award schemes as part of its
employee remuneration packages, and therefore operates a number of
share-based compensation schemes, namely the Deferred Share Award
(DSA), Executive Share Plan (ESP), 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 Consolidated 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. Expected
volatility is based on the historical volatility of ITV plc shares
over a three or five year period, based on the life of the
options.
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 Consolidated 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, exercises were satisfied by
using shares purchased in the market and held in the ITV Employees'
Benefit Trust as well as the issue of new shares.
Share-based compensation charges
totalled £16 million in 2023 (2022: £19 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
of options
('000)
|
2023
Weighted
average
exercise price
(pence)
|
Number
of options
('000)
|
2022
Weighted
average
exercise price
(pence)
|
Outstanding at 1 January
|
104,729
|
24.74
|
98,934
|
24.98
|
Granted during the year - nil priced
|
20,993
|
-
|
17,238
|
-
|
Granted during the year - other
|
16,395
|
59.21
|
13,814
|
62.85
|
Forfeited during the year
|
(4,210)
|
68.61
|
(3,095)
|
56.49
|
Exercised during the year - nil priced
|
(15,551)
|
-
|
(6,201)
|
-
|
Exercised during the year - other
|
(12,954)
|
49.31
|
(110)
|
50.61
|
Expired during the year
|
(19,168)
|
15.57
|
(15,851)
|
35.87
|
Outstanding at 31 December
|
90,234
|
25.88
|
104,729
|
24.74
|
Exercisable at 31 December
|
12,933
|
34.88
|
4,383
|
30.63
|
The average share price during 2023 was 73.10 pence
(2022: 78.32 pence).
Of the options still outstanding,
the range of exercise prices and weighted average remaining
contractual life of these options can be analysed
as follows:
Range of exercise prices (pence)
|
Weighted
average
exercise price
(pence)
|
Number
of options
('000)
|
2023
Weighted
average
remaining
contractual life
(years)
|
Weighted
average
exercise price
(pence)
|
Number
of options
('000)
|
2022
Weighted
average
remaining
contractual life
(years)
|
Nil
|
-
|
49,386
|
0.33
|
-
|
59,056
|
0.29
|
20.00 - 49.99
|
49.17
|
15,330
|
1.17
|
49.17
|
29,225
|
1.81
|
50.00 - 69.99
|
58.51
|
21,454
|
2.79
|
61.73
|
10,878
|
3.44
|
70.00 - 99.99
|
79.42
|
3,965
|
2.12
|
85.22
|
5,351
|
1.35
|
100.00 - 109.99
|
105.98
|
61
|
0.92
|
105.98
|
90
|
1.46
|
120.00 - 149.99
|
135.20
|
38
|
0.33
|
130.61
|
129
|
0.94
|
Assumptions
ESP, 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 year for the HMRC approved SAYE scheme, are valued using
the Black-Scholes model, using the assumptions below:
Scheme name
|
Date of grant
|
Share price
at grant
(pence)
|
Exercise
price
(pence)
|
Expected
volatility
%
|
Expected
life
(years)
|
Gross dividend
yield
%
|
Risk-free
rate
%
|
Fair value
(pence)
|
3 Year
|
12 April 2022
|
79.08
|
67.72
|
47.00
|
3.25
|
-
|
1.55
|
21.19
|
5 Year
|
12 April 2022
|
79.08
|
67.72
|
40.05
|
5.25
|
-
|
1.58
|
18.45
|
3 Year
|
5 September 2022
|
62.74
|
57.73
|
47.80
|
3.25
|
-
|
2.97
|
14.95
|
5 Year
|
5 September 2022
|
62.74
|
57.73
|
41.03
|
5.25
|
-
|
2.85
|
12.63
|
3 Year
|
5 April 2023
|
79.78
|
70.12
|
45.43
|
3.25
|
-
|
3.40
|
21.53
|
5 Year
|
5 April 2023
|
79.78
|
70.12
|
42.41
|
5.25
|
-
|
3.28
|
20.99
|
3 Year
|
13 September 2023
|
72.34
|
56.37
|
40.60
|
3.25
|
-
|
4.47
|
20.17
|
5 Year
|
13 September 2023
|
72.34
|
56.37
|
42.27
|
5.25
|
-
|
4.29
|
20.57
|
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 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 2023 and the releases
from the EBT made in the year to satisfy awards under the Group's
share schemes:
Scheme
|
Shares held at
|
Number of shares
(released)/purchased
|
Nominal value
£
|
|
1 January 2023
|
14,587,379
|
1,458,738
|
LTIP releases
|
|
(93,835)
|
|
DSA releases
|
|
(3,115,726)
|
|
ESP releases
|
|
(226,277)
|
|
PSP releases
|
|
(5,995,984)
|
|
SAYE releases
|
|
(13,150,667)
|
|
Market purchased shares
|
|
9,510,276
|
|
Newly issued shares
|
|
27,000,000
|
|
|
31 December 2023
|
28,515,166
|
2,851,517
|
The total number of shares held by the EBT at 31
December 2023 represents 0.77% (2022: 0.36%) of ITV's issued share
capital. The market value of own shares held at 31 December 2023 is
£18 million (2022: £11 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.
Section 5: Other Notes
5.1
Related
party
transactions
|
|
Keeping
it simple
|
|
The related parties identified by the Directors
include joint ventures, associated undertakings, fixed asset
investments and key management personnel.
To enable users of our financial 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:
|
2023
£m
|
2022
£m
|
Sales to joint ventures
|
60
|
41
|
Sales to associated undertakings
|
13
|
16
|
Purchases from joint ventures
|
33
|
33
|
Purchases from associated undertakings
|
78
|
77
|
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, BritBox International Limited and BritBox
Australia Management Pty Limited. 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 31 December were:
|
2023
£m
|
2022
£m
|
Amounts owed by joint ventures
|
41
|
12
|
Amounts owed by associated undertakings
|
10
|
19
|
Amounts owed to joint ventures
|
6
|
5
|
Amounts owed to associated undertakings
|
8
|
17
|
None of the balances are secured.
Amounts owed by joint ventures
primarily relate to trading with BritBox LLC and BritBox Australia
Management Pty Limited. Balances owed by associated undertakings
largely relate to Bedrock Entertainment LLC and Southrock
Productions LLC. Balances owed to associated undertakings primarily
relate to trading with ITN Limited and amounts owed to Bedrock
Entertainment LLC.
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 other members of the
ITV Management Board. Key management personnel compensation is as
follows:
|
2023
£m
|
2022
£m
|
Short-term employee benefits
|
11
|
11
|
Share-based compensation
|
6
|
6
|
|
17
|
17
|
5.2
Contingent assets and liabilities
|
|
Keeping it simple
|
|
A contingent asset or liability is a liability that
is not sufficiently certain to qualify for recognition as an asset
or provision where uncertainty may exist regarding the outcome of
future events.
|
Contingent 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. In addition, the determination of
employment tax status of some individuals contracted by ITV is
complex and a future liability could arise in relation to this.
None of these items are expected to have a material effect on the
Group's results or financial position.
As previously reported, on 12 July
2022, the UK Competition and Markets Authority (CMA) opened an
investigation into certain conduct of ITV and other named companies
in the sector relating to the production and broadcasting of sports
content in the United Kingdom. The investigation is at an early
stage and the CMA has confirmed it is currently undertaking
further investigation until at least March 2024, subsequent to
which ITV anticipates it will receive additional detail regarding
any future steps.
On 11 October 2023, the CMA opened
an investigation into certain conduct of ITV and other named
companies in the sector relating to the production and broadcasting
of television content in the UK, excluding sports content. The
investigation remains at an early stage and it is not
currently possible to reliably quantify any liability that might
result from the investigation. ITV is committed to complying with
competition law, and is cooperating with the CMA's enquiries in
relation to both investigations.
5.3
Subsequent events
|
|
Keeping it simple
|
|
Where the Group receives information in the period
between 31 December 2023 and the date of this report about
conditions related to certain events that existed at 31 December
2023, 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 2023. 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.
|
Disposal of the Group's Interests
in BritBox International
On 1 March 2024, the Group announced
the sale of its entire 50% interest in digital streaming service,
BritBox International to its joint venture partner BBC Studios for
a cash consideration of £255 million. The transaction has been
effected by the disposal of the Group's 50% interests in BritBox
LLC, BB Rights LLC, Denipurna Limited and BritBox International
Limited and the 100% interest in ITV SVOD Australia Pty Ltd, which
holds the 50% interest in BritBox Australia Management Pty
Limited.
At 31 December 2023, the Group included these
interests at their carrying value of £66 million, as held for sale
in the Consolidated Statement of Financial Position. See notes 3.4
and 3.5.
5.4
Subsidiaries exempt
from audit
|
|
Keeping
it simple
|
|
Certain subsidiaries of the Group can take an
exemption from having an audit. Strict criteria must be met for
this exemption to be taken, and it must be agreed 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
|
04195187
|
12 Yard Productions (Investments) Limited
|
03089273
|
ITV Ventures Limited
|
04145307
|
12 Yard Productions Limited
|
11107431
|
ITV Vera Limited
|
10058419
|
Back Productions Limited
|
14460676
|
ITV WKOW Limited
|
13087812
|
Big Talk Alone Limited
|
13087699
|
ITV Y&M Limited
|
10496857
|
Big Talk Cold Feet Limited
|
05518785
|
Juice Music UK Limited
|
12092620
|
Big Talk Friday Limited
|
05976348
|
Mammoth Screen Limited
|
11109596
|
Big Talk Goes Wrong Limited
|
09355455
|
Mammoth Screen (End) Limited
|
13087733
|
Big Talk Horseface Limited
|
08546227
|
Mammoth Screen (End2) Limited
|
13087735
|
Big Talk I Hate You Limited
|
10528827
|
Mammoth Screen (End9) Limited
|
07037447
|
Big Talk Investments Limited
|
11109917
|
Mammoth Screen (End6) Limited
|
10528952
|
Big Talk Living the Dream Limited
|
11908267
|
Mammoth Screen (End7) Limited
|
13813181
|
Big Talk Ludwig Limited
|
12368766
|
Mammoth Screen (End8) Limited
|
11723899
|
Big Talk Offenders Limited
|
13087685
|
Mammoth Screen (Evans) Limited
|
11109572
|
Big Talk Peacock Limited
|
12368661
|
Mammoth Screen (FS) Limited
|
02897434
|
Big Talk Pictures Limited
|
13989267
|
Mammoth Screen (GK) Limited
|
06567813
|
Big Talk Studios Limited
|
11995990
|
Mammoth Screen (MD) Limited
|
02936337
|
Boom Cymru TV Ltd
|
12735978
|
Mammoth Screen (MD2) Limited
|
07922831
|
Boom Pictures Limited
|
13989179
|
Mammoth Screen (MIE) Limited
|
03866274
|
Box Clever Technology Limited
|
11062257
|
Mammoth Screen (NC) Limited
|
04192851
|
Box Clever Trustees Limited
|
09660486
|
Mammoth Screen (Pol2) Limited
|
11801341
|
BritBox SVOD Limited
|
10031005
|
Mammoth Screen (Pol3) Limited
|
01891539
|
Broad Street Films Limited
|
10528763
|
Mammoth Screen (Pol4) Limited
|
02285229
|
Campania Limited
|
11108289
|
Mammoth Screen (Pol5) Limited
|
04159249
|
Carlton Content Holdings Limited
|
08799982
|
Mammoth Screen (Poldark) Limited
|
00301188
|
Carlton Film Distributors Limited
|
09646520
|
Mammoth Screen (QV) Limited
|
01692483
|
Carlton Finance Limited
|
11108327
|
Mammoth Screen (Serpent) Limited
|
03984490
|
Carlton Food Network Limited
|
11204836
|
Mammoth Screen (SG) Limited
|
03053908
|
Carlton Programmes Development Limited
|
NI678277
|
Mammoth Screen (TJ) Limited
|
03210452
|
Carlton Screen Advertising (Holdings) Limited
|
13087656
|
Mammoth Screen (Tower) Limited
|
03210363
|
Carltonco Ninety-Six
|
10528702
|
Mammoth Screen (VF) Limited
|
02280048
|
Castlefield Properties Limited
|
11108322
|
Mammoth Screen (Vic3) Limited
|
06409013
|
Cat's on the Roof Media Limited
|
11108320
|
Mammoth Screen (WOF) Limited
|
04257248
|
Channel Television Holdings Limited
|
NI687412
|
Mammoth Screen (WOF2) Limited
|
08195508
|
Cirkus Limited
|
10973979
|
Mammoth Screen (WOTW) Limited
|
10240192
|
Cloth Cat LBB Limited
|
13412337
|
Metavision Limited
|
02852812
|
Cosgrove Hall Films Limited
|
09477931
|
Monumental Television Limited
|
09366309
|
Crook Productions Limited
|
04201477
|
Morning TV Limited
|
05421502
|
Cynhyrchiadau Boomerang Cyfyngedig
|
12368748
|
MT Ghosts Limited
|
08479545
|
Double Double Limited
|
14764613
|
MT Marlow Murder Club Limited
|
07821062
|
EQ Pictures Limited
|
13813329
|
MT Mrs Sidhu Limited
|
09366308
|
Gameface Productions Limited
|
13989060
|
MT Maryland Limited
|
05946785
|
Gorilla TV Group Limited
|
13087117
|
MT Murder in Provence Limited
|
03776018
|
Gorilla TV Limited
|
14763338
|
Output Productions Limited
|
00290076
|
Granada Group Limited
|
07473151
|
Oxford Scientific Films Limited
|
03962410
|
Granada Limited
|
13506403
|
Planet Woo Limited
|
03106798
|
Granada Media Limited
|
15175627
|
Planet V Limited
|
05344772
|
Granada Screen (2005) Limited
|
09020906
|
Possessed Limited
|
00733063
|
Granada Television Overseas Limited
|
14163547
|
QSP ATF Limited
|
00250311
|
Granada UK Rental and Retail Limited
|
14784655
|
QSP Buried Limited
|
04842712
|
Interactive Telephony Limited
|
14163654
|
QSP FMO Limited
|
00608490
|
ITC Entertainment Group Limited
|
14460916
|
QSP Ghosted Limited
|
SC375274
|
ITV (Scotland) Limited
|
14496123
|
QSP Men Up Limited
|
11516620
|
ITV 112 Limited
|
14458573
|
QSP MU Limited
|
12956892
|
ITV AdVentures Limited
|
14462220
|
QSP MY Limited
|
13087805
|
ITV Alder Limited
|
14460933
|
QSP PD Limited
|
14047839
|
ITV Archie Limited
|
14460663
|
QSP TRK Limited
|
11667230
|
ITV Barking Limited
|
13714204
|
QSP Nolly Limited
|
02578005
|
ITV Breakfast Limited
|
14048037
|
QSP SO limited
|
02937518
|
ITV Consumer Limited
|
12350991
|
Second Act (Grace) Limited
|
13087759
|
ITV Duneen Limited
|
09366311
|
Second Act Productions Limited
|
10494684
|
ITV Enterprises Limited
|
07714999
|
Sightseers Film Limited
|
04159210
|
ITV Holdings Limited
|
03991026
|
So Television Limited
|
14133299
|
ITV Grace Limited
|
11423826
|
The Addressable Platform Limited
|
04159213
|
ITV International Channels Limited
|
07155077
|
The Garden Productions Limited
|
14846610
|
ITV JCDM Limited
|
02351132
|
TwoFour Broadcast Limited
|
SC473179
|
ITV LTVC (Scotland) Limited
|
08602993
|
TwoFour Group Holdings Limited
|
14863612
|
ITV Mandrake Limited
|
05493388
|
TwoFour Group Limited
|
13989147
|
ITV Maternal Limited
|
11109744
|
WP Anne Limited
|
00603893
|
ITV Network Limited
|
10796122
|
WP Bodyguard Limited
|
11723842
|
ITV Nightingale Limited
|
14360979
|
WP Delia Limited
|
00603471
|
ITV Pension Scheme Limited
|
12368643
|
WP Diplomat Limited
|
14461569
|
ITV POS Limited
|
13988864
|
WP Fifteen Limited
|
01565625
|
ITV Properties (Developments) Limited
|
12116627
|
WP Karen Pirie Limited
|
13087782
|
ITV Ralph and Katie Limited
|
14988579
|
WP Lockerbie Limited
|
14460328
|
ITV RE Limited
|
11109287
|
WP LOD5 Limited
|
08554937
|
ITV Shetland Limited
|
12116457
|
WP LOD6 Limited
|
11723826
|
ITV Spy Limited
|
13087865
|
WP Malpractice Limited
|
02203983
|
ITV Studios Global Distribution Limited
|
12116461
|
WP Pembrokeshire Limited
|
09498877
|
ITV TFG Holdings Limited
|
13087860
|
WP RM Limited
|
11107934
|
ITV The Bay Limited
|
11109929
|
WP Save Me 2 Limited
|
13087693
|
ITV The Reckoning Limited
|
12368475
|
WP Showtrial Limited
|
12368504
|
ITV TLC Limited
|
14653603
|
WP The Gathering Limited
|
09498177
|
ITV Top Class Limited
|
12368477
|
WP The Suspect Limited
|
14048049
|
ITV Venturer Limited
|
11109437
|
WP Vigil Limited
|
ITV Properties (Jersey) Limited is exempt from audit
under article 113 of the Companies Act (Jersey) Law 1991.
ITV plc Company Financial Information
Statement of Financial Position
As at 31 December
|
Note
|
2023
£m
|
2022
£m
|
Non-current assets
|
|
|
|
Investments in subsidiary undertakings
|
iii
|
3,224
|
3,224
|
Derivative financial instruments
|
vi
|
2
|
2
|
Other receivables
|
|
4
|
-
|
Deferred tax asset
|
|
2
|
3
|
|
|
3,232
|
3,229
|
Current assets
|
|
|
|
Amounts owed by subsidiary undertakings due within
one year
|
iv
|
3,569
|
2,954
|
Amounts owed by subsidiary undertakings due after
more than one year
|
iv
|
97
|
96
|
Amounts owed by subsidiary undertakings
|
iv
|
3,666
|
3,050
|
Derivative financial instruments
|
vi
|
5
|
7
|
Other receivables
|
|
28
|
17
|
Cash and cash equivalents
|
|
226
|
197
|
|
|
3,925
|
3,271
|
|
|
|
|
Borrowings
|
|
-
|
(279)
|
Amounts owed to subsidiary undertakings
|
iv
|
(3,563)
|
(2,681)
|
Accruals
|
|
(9)
|
(8)
|
Derivative financial instruments
|
vi
|
(5)
|
(8)
|
Current liabilities
|
|
(3,577)
|
(2,976)
|
|
|
|
|
Net current assets
|
|
348
|
295
|
|
|
|
|
Borrowings
|
v
|
(750)
|
(531)
|
Derivative financial instruments
|
vi
|
(16)
|
(10)
|
Non-current liabilities
|
|
(766)
|
(541)
|
|
|
|
|
Net assets
|
|
2,814
|
2,983
|
|
|
|
|
Share capital
|
vii
|
406
|
403
|
Share premium
|
viii
|
174
|
174
|
Other reserves
|
viii
|
34
|
29
|
Retained earnings
|
viii
|
2,200
|
2,377
|
Total shareholders' funds
|
|
2,814
|
2,983
|
The Company has elected to take the exemption under
section 408 of the Companies Act 2006 from presenting the parent
company Income Statement. The Company's profit for the year was £7
million (2022: profit of £800 million).
Company Statement of Changes in Equity
|
Note
|
Share
capital
£m
|
Share
premium
£m
|
Other
reserves
£m
|
Retained
earnings
£m
|
Total
£m
|
Balance at 1 January 2023
|
vii/viii
|
403
|
174
|
29
|
2,377
|
2,983
|
Total comprehensive income for the year
|
|
|
|
|
|
|
Profit for the year
|
|
-
|
-
|
-
|
7
|
7
|
Net gain on cash flow hedges and cost of hedging
|
|
-
|
-
|
5
|
-
|
5
|
Total comprehensive income for the year
|
|
-
|
-
|
5
|
7
|
12
|
Transactions with owners recorded directly in
equity
|
|
|
|
|
|
|
Contributions by and distributions to owners
|
|
|
|
|
|
|
Issue of shares
|
|
3
|
-
|
-
|
-
|
3
|
Equity dividends
|
|
-
|
-
|
-
|
(201)
|
(201)
|
Movements due to share-based compensation
|
|
-
|
-
|
-
|
16
|
16
|
Tax on items taken directly to equity
|
|
-
|
-
|
-
|
1
|
1
|
Total transactions with owners
|
|
3
|
-
|
-
|
(184)
|
(181)
|
Balance at 31 December 2023
|
|
406
|
174
|
34
|
2,200
|
2,814
|
|
Note
|
Share
capital
£m
|
Share
premium
£m
|
Other
reserves
£m
|
Retained
earnings
£m
|
Total
£m
|
Balance at 1 January 2022
|
|
403
|
174
|
31
|
1,760
|
2,368
|
Total comprehensive income for the year
|
|
|
|
|
|
|
Profit for the year
|
|
-
|
-
|
-
|
800
|
800
|
Net loss on cash flow hedges and cost of hedging
|
|
-
|
-
|
(2)
|
-
|
(2)
|
Total comprehensive income for the year
|
|
-
|
-
|
(2)
|
800
|
798
|
Transactions with owners recorded directly in
equity
|
|
|
|
|
|
|
Contributions by and distributions to owners
|
|
|
|
|
|
|
Equity dividends
|
|
-
|
-
|
-
|
(201)
|
(201)
|
Movements due to share-based compensation
|
|
-
|
-
|
-
|
19
|
19
|
Tax on items taken directly to equity
|
|
-
|
-
|
-
|
(1)
|
(1)
|
Total transactions with owners
|
|
-
|
-
|
-
|
(183)
|
(183)
|
Balance at 31 December 2022
|
vii/viii
|
403
|
174
|
29
|
2,377
|
2,983
|
Notes to the ITV plc Company Financial
Information
Note i
Accounting policies
|
|
In this
section
|
|
This section sets out the notes to the ITV plc
Company only financial information. This 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'). The Company is registered in England
and Wales.
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
The following exemptions from the
requirements of IFRS have been applied in the preparation of these
financial information, in accordance with FRS 101:
• 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
compensation
• Disclosures required by IFRS 7 'Financial
Instruments: Disclosure'
• Certain disclosures required under IFRS 13
'Fair Value Measurement'
• Disclosure of information in relation to new
standards not yet applied
The Company proposes to continue to
apply the reduced disclosure framework of FRS 101 in its next
financial statements.
The financial information has been
prepared on a going concern basis.
Changes in accounting policy
New accounting standards,
interpretations and amendments that are effective from 1 January
2023 have not had significant impact on the Company's results or
Statement of Financial Position.
Accounting standards effective in future periods
The Directors have considered the
impact on the Company of new and revised accounting standards,
interpretations or amendments that are not yet effective and
do not expect them to have a significant impact on the Company's
results and Statement of Financial Position.
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.
Expected credit losses on amounts
due from subsidiary undertakings is considered a key source of
estimation uncertainty.
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 other reserves 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 year 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), Executive Share
Plan (ESP) 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.