Final Results
ITV PLC
09 March 2005
9 March 2005
ITV plc results for year
ended 31 December 2004
Operating profit* up 49% and final dividend up 30%
Successful multichannel strategy
Financial highlights
• ITV plc net advertising revenue in 2004 up 4.7%#
• ITV2, ITV3 and ITV News Channel net advertising revenue up 76%
Pro forma Reported
Operating EBITA* £325m +49% £324m +64%
Pre-tax profit* £340m +57% £341m +58%
EPS* 6.3p +76% 6.6p +16%
Reported numbers compare ITV plc 12 months to 31 December 2004 with Granada plc for 15 months to
31 December 2003.
• Net cash inflow from operating activities £321m
- £354m returned to shareholders plus ITV dividends
- Net debt at year-end reduced to £280m
• Dividend for the 12 months to 31 December 2004 up 20% at 2.4p
Operating highlights
• Strong growth from top five categories of advertisers
• Operating margin increased by 45%
• £120m cost saving plan delivered ahead of schedule
• ITV Family of Channels multichannel viewing share in 2004 held at
28.1% (2003 28.1%)
• ITV driving digital performance
- ITV2 adult viewing share up by 27% in 2004
- ITV3 launched 1 November 2004
- Ratings performance a year ahead of plan
• Good progress on regulation
• Evening News hour viewing share up 4% in 2004
• ITV is home of top UK programmes
- Top programme of the year Coronation Street
- Eight out of top ten UK dramas
- Top entertainment I'm a Celebrity - Get Me Out of Here
• Granada commissions for other broadcasters:
- US network re-commission Nanny 911
- Australia's highest-rating new entertainment series Dancing with
the Stars
- Germany's highest-rating new entertainment series Ich bin ein
Star
Outlook
• ITV plc net advertising revenue from ITV1, ITV2, ITV3 and the ITV News
Channel in quarter to March 2005 up 12%
• In the three months since the launch of ITV3 in November 2004:
- ITV Family of Channels delivered a 3% increase in share of
multichannel adult commercial impacts to 41.5%
- ITV2 and ITV3 accounted for 55% of total growth in multichannel
adult impacts
Three strategic objectives
• Lead and grow UK commercial TV market
- Promote effectiveness of TV advertising
- Strengthen ITV Family of Channels
• Develop content production
- To be Europe's leading commercial content provider
- Create new content for new technologies
• Increase revenue streams beyond spot advertising
Commenting, Charles Allen, Chief Executive of ITV said:
'ITV has had an outstanding first year, delivering substantial growth in
turnover which combined with cost savings has delivered a 49% increase in pro
forma operating profit. We have built a vibrant multichannel proposition and
have a clear strategy for future growth.'
For further enquiries please contact:
ITV plc Tel: 020 7620 1620
Press enquiries
Charles Allen - Chief Executive
Henry Staunton - Finance Director
Brigitte Trafford - Communications Director
Analysts' enquiries
James Tibbitts - Company Secretary
Georgina Blackburn - Head of Investor Relations
Citigate Dewe Rogerson Tel: 020 7638 9571
Jonathan Clare
Simon Rigby
Anthony Kennaway
Website: www.itv.com, investor information www.itvplc.com
An analysts presentation will be held at 09.00hrs on 9 March 2005 at the City
Presentation Centre, 4 Chiswell Street, London EC1Y 4UP.
*Proforma figures are prepared as if the merger took place on 31 December 2002
and are presented for continuing operations before exceptional items and
amortisation (2004 excludes £9 million (2003: £4 million) of operating profit
from assets held for resale).
# NAR for ITV plc's share of ITV1 plus ITV2, ITV3, ITV News Channel and a first
time contribution from GMTV
Chairman's statement
The past year has been an historic and busy one for ITV. In January the
shareholders of Carlton and Granada approved the merger of their two companies
to create ITV plc; and since then the senior team has been shaping and
developing the business for the future. Charles Allen, in his Chief Executive's
review, gives more detail on that activity, and I focus on some of the major
achievements and strategic initiatives in which we are involved.
2004 Results
The combination of rising turnover and rapidly reducing costs following the
merger has contributed to sharply increased profits.
Your Board is proposing a final dividend of 1.3 pence per share. This reflects
the improving profits and strong cash flow and results in a full year dividend
of 2.4 pence per ordinary share, an increase of 20% on the dividend paid by
Granada plc for the equivalent 12 month period last year.
Business development
We are concentrating on two areas in developing ITV:
First to improve our current business
This has been very much the focus for 2004. Our actions have been based on
achieving a number of the goals that we identified in our report at the
beginning of 2004. These included increasing efficiency, reducing regulatory
costs and placing news at the centre of ITV's public service programming.
We will continue to lead and grow the UK TV advertising market, promoting the
power of the medium to advertisers.
Secondly to build new businesses for the future
Whilst continuing to improve the current business, our focus is on creating new
businesses and new revenue streams for the future. We have been active already,
building interactive revenue streams around our programmes and developing a
package of new channels like ITV2, ITV3 and ITV News Channel. We continue to
work on:
- developing our production business to be Europe's leading commercial
content provider and creating new content for new distribution media;
- increasing our channel line-up and seeking revenues from additional
sources;
- building our non-advertising revenues.
Corporate Governance and CR
Our detailed processes for maintaining compliance with the Combined Code on
Corporate Governance are set out in the Governance section of the annual report.
As a new company we have been able to adopt processes reflecting current best
practice and we are very pleased to have won the 'Best for Corporate Governance'
in 2004 Award from Legal Week magazine.
We have been able to use our unique regional presence for the benefit of both
the local communities in which we operate and for national campaigns such as '
Britain on the Move.' We have published a separate Corporate Responsibility
report which is also available on our website at www.itvplc.com
People
Etienne de Villiers retired from the Board during the year and I thank him for
his contribution to ITV. I am delighted to welcome to the Board two new
non-executive directors who were appointed in February 2005. Baroness Usha
Prashar CBE and Sir Robert Phillis both have significant relevant media
experience that will be invaluable to us as we plan ITV's future.
During my first year as Chairman I have visited a number of ITV's sites around
the country and have been impressed by the enthusiasm and professionalism of my
colleagues at all levels. They understand the need to improve efficiency and to
drive ITV forward as a single unified business. On behalf of my fellow Board
members, I thank all of our management and employees for their hard work and
continuing commitment. I look forward to meeting the challenges of 2005 and
beyond in the knowledge that we have the best people to take the business
forward successfully in a period of rapid change.
Sir Peter Burt
Chairman
Chief Executive's review
In 2005 ITV is celebrating two anniversaries:
• we are entering the year of ITV's 50th anniversary, with ITV1 firmly
established as the UK's number one commercial channel, and with ITV2 and
ITV3 rapidly growing both audience and revenues; and
• we have just completed our first year as a single, unified company
and during that period we have streamlined and improved our operations and
delivered cost savings ahead of expectations in both speed and amount.
I am very pleased that we have, with the support of the Board, achieved so much
over the last 12 months since completing the merger, which created ITV plc on 2
February 2004. In the Operating Review the annual report there is a lot more
detail on the programming successes and the development of the business over the
last year. Here I will focus on the principal factors affecting the Company, our
people, and the outlook for the future.
Results and advertising revenue
The 49% growth in pro forma operating EBITA in 2004 has resulted from a
combination of growing revenues and reducing costs which have significantly
increased our operating margin. ITV plc's advertising revenue in 2004 across the
Family of Channels (ITV1, ITV2, ITV3 and the ITV News Channel) including GMTV
was up 4.7% at £1,588 million with ITV2 revenue rising strongly. ITV3 commenced
broadcasting in November 2004, and its revenue contribution will rise in 2005 as
advertisers are attracted by its excellent ratings performance. Each of our top
five advertiser categories was up in 2004 - retail, food, entertainment and
leisure, cars and finance.
Sponsorship revenue was also improved at £37 million in the year.
Operating profit (on a pro forma basis before amortisation and exceptional
items) was up by 49% to £325 million for the year. After tax and minority
interests, earnings per share on the same basis were up by 76% to 6.3 pence per
ordinary share. The improved profits resulted in a strong, positive cash flow
with net cash inflow from operating activities of £321 million.
We have disposed of a number of non-core businesses raising more than £270
million which, together with good operating cash flow, results in our having a
strong balance sheet with closing net debt of £280 million.
The final dividend of 1.3 pence per share will be paid on 1 July 2005 to
shareholders on the register on 22 April 2005 and the ex-dividend date will be
20 April 2005.
The interim and final dividends for 2004 are 1.1 pence and 1.3 pence
respectively (excluding the first interim dividend of 0.5 pence per share paid
on 1 July 2004 in respect of the three months to 31 December 2003). Over the
medium term, the Company intends to re-balance the respective levels of interim
and final dividend such that the interim represents approximately one-third of
the total dividend. Increases in the final dividends, such as this year's, in
the absence of any unforeseen circumstances, are therefore likely to be greater
than increases in interim dividends in order to achieve that objective.
Schedule performance
ITV's viewing performance is dependent upon the quality and popular appeal of
its programmes, both those produced internally and those commissioned from
independent producers. For ITV1 we remain committed to commissioning the best
possible programmes to attract our mass audiences. For ITV2 and ITV3 we intend
to develop our programme offering, increasing the level of investment and
targeting additional acquired material over the coming months.
In the two months following the launch of ITV3 at the beginning of November 2004
the combined ITV1, ITV2, ITV3 and ITV News Channel attracted a 45.0% share of
all commercial impacts on UK television, compared to 44.7% in the same period in
2003 (one commercial impact being one person viewing one 30 second
advertisement). The very rapid take-up of digital multichannel television in
the UK, especially the spectacular growth of Freeview, helped the strong growth
of ITV2 and ITV3 during that period.
We are embracing the rapid change towards a fully digital multichannel
environment, and are most supportive of Freeview which offers the simplest
upgrade route for our viewers. The development of our ITV Family of Channels
will strengthen our business in that digital environment.
Our autumn schedule on ITV1 performed well, as we had expected, with a strong
line-up of returning hits including another series of I'm A Celebrity...Get Me
Out Of Here! in late November. ITV2 has been achieving a 2.4% average viewing
share of its important 16-34 target demographic. ITV3, which targets a 35+
demographic, has been attracting an average 1.1% share of ABC1 adults during its
first three months of transmission.
ITV overall screened six of the top ten performing programmes in 2004, or seven
of them excluding sports programmes.
The all time commercial viewing share of the ITV Family of Channels in
multichannel homes over the first six weeks of 2005 was 29.5%. Compared to the
same period in 2004 this was 4% lower mainly as a result of the very high
viewing shares achieved in 2004 for the third series of I'm A Celebrity...Get Me
Out Of Here!
Programming
Granada, ITV's production arm, continued to be the most significant supplier of
programmes internally to ITV1, ITV2 and ITV3, and is a major supplier to many
other broadcasters in the UK and internationally.
In 2004 total external sales were £267 million made up of: original productions
for the UK and overseas markets of £102 million; the distribution and
exploitation of rights and products of £109 million; and facilities and
education turnover of £56 million.
We have improved our profit margins by concentrating on high value programmes,
and we have substantially increased our international production slate with a
number of returning shows and formats such as Nanny 911 in the US and Hell's
Kitchen.
Regulation
At the same time that ITV plc was being created, so too was our regulator Ofcom
as five separate regulators became one on 29 December 2003. We have developed a
working relationship with Ofcom during 2004 which is essential for the many
regulatory processes and reviews due in 2005 and beyond. Following the grant in
December 2004 of our new digital broadcasting licences for ITV1 (replacing the
old analogue licences) these processes now include:
• the review of the financial terms of our ITV1 licences from 2005;
• Ofcom's review of Public Service Broadcasting ('PSB') and their
forthcoming review of television advertising; and
• Ongoing discussions about how the regulation of television generally
should develop to be appropriate to the changing media landscape.
The first issue - the review of the financial terms of our ITV licences - is due
for decision in the summer and will be effective from 1 January 2005. The
licence fee structure dates from the time that ITV1 was the UK's sole commercial
television station, and there was value in the scarcity of spectrum allocated
for television broadcasting. Today there are many hundreds of TV channels
available in the UK and yet in 2004, ITV1 paid a licence fee (net of the digital
licence rebate), of £204 million. Channel Five by contrast paid less than £20
million and none of C4, the BBC, BSkyB nor any other broadcaster paid any such
amount at all. Achieving an equitable outcome to this review is one of our short
term priorities for 2005.
Many of the potential regulatory opportunities, however, lie beyond 2005. We
expect the review of Public Service Broadcasting to be ongoing, with progressive
reductions in the level of our mandated programming. This reflects an
acknowledgement that, as we move to a digital multichannel world, there is more
choice already available to viewers and less reason to require such PSB
programming of one commercial broadcaster and not of others. A first step this
year will see the mandated hours of non-news regional programming reduced by 1.5
hours per week in the English regions and reducing further in 2008. We remain
committed to producing much of our network programming in the regions, but our
viewers do not recognise the benefit of non-news regional programmes as a
separate product.
The Contract Rights Renewal ('CRR') remedy, under which we operate, governs the
sale of ITV1 airtime. Airtime in the UK is sold via the Station Average Price
mechanism, which was established by the market, not ITV alone.
Ofcom have indicated that they are planning to hold a review of the airtime
sales market, and we are keen to work with them in identifying other airtime
sales models.
Alongside those reviews we are also seeking to promote discussions about other
areas of regulation. Firstly, there are already significant differences between
the form of advertising and sponsorship that is currently permitted in America
on one hand and in the UK and Europe on the other. Secondly, television is an
evolving medium and the effects of interactivity, PVRs, broadband and mobile
distribution, all create possibilities which the current regulation never
envisaged. We will work with our regulators to ensure that the regulatory
environment evolves at the same rate as the medium and technology themselves
evolve.
Outlook
2005 has started strongly. With Easter falling in March this year rather than
April in 2004, March revenues have benefited from those advertisers who seek
Easter airtime. This has contributed to ITV plc's first quarter revenues across
all the ITV Family of Channels, including a first time contribution from GMTV,
being up by £56 million which is a very encouraging start to the year.
Within that, ITV2 advertising revenues have grown very strongly in the quarter
to March 2005, up by 90% on 2004, whilst ITV3 has made a first time
contribution.
Under the CRR remedy we have been engaged with our advertising customers in
completing their advertising contracts for 2005. We have been very pleased with
the level of support from many of those customers in renewing their contracts.
Summary
We have achieved a great deal during 2004 having made One ITV a reality. We
have now delivered increased revenue, reduced costs, a more efficient structure
and a very significant improvement in both profit and cash flow. Our executives
and employees have been key to that process, both achieving the aggressive
targets set for them and identifying further actions that have helped to exceed
those targets in many areas.
I would like both to thank them for that, and to say how pleased I am that, as
we now move to the next phase of developing ITV's business for the future, we
will continue to have such talented people supporting us in those efforts.
Charles Allen CBE
Chief Executive
Financial review
The merger of Granada plc and Carlton Communications Plc to form ITV plc was
completed on 2 February 2004. As Carlton has been treated as an acquisition for
accounting purposes, the statutory results for the year to 31 December 2004
include the trading results of Granada from 1 January and following the merger,
the trading results of ITV plc from 2 February. The statutory results for the
year ended 31 December 2004 for ITV have comparative information for the 15
month period ended 31 December 2003 relating to Granada only. As the comparative
disclosed is for a different time period and includes only the results of
Granada, pro forma results of the Group are also shown for the years ended 31
December 2003 and 2004 (as if the merger had taken place on 31 December 2002).
Turnover
On a pro forma basis turnover for the year to 31 December 2004 increased by 3%
to £2,083 million (2003: £2,025 million). Published turnover on continuing
operations less joint ventures was up 18% at £2,053 million (2003: £1,746
million) following the inclusion of Carlton from 2 February 2004.
Net advertising revenue ('NAR')
NAR (including a first time contribution of £18 million from GMTV for the period
from October 2004 when it became a subsidiary) increased by 4.7% during the year
to £1,588 million (2003: £1,517 million) on a pro forma basis as the overall UK
advertising market was favourable.
This reflects growth of 1.9% from ITV1 (ITV plc share) and 76% from ITV2, ITV3
and ITV News (ITV3 launched on 1 November 2004 and NAR is included from that
date).
We have been in negotiation with many of our advertisers on the terms of their
new contracts from 1 January 2005. Our negotiations are within the framework of
the Contracts Rights Renewal ('CRR') remedy agreed with the Office of Fair
Trading as a condition to the merger creating ITV plc.
ITV's NAR is partly a function of audience share which is measured in terms of
commercial impacts. In 2004, ITV's total share of commercial impacts on UK
television was 42.7% (2003: 44.5%). It is this level of impact delivery that
provides advertisers with the ability to achieve fast effective coverage for
their brands. The reduction in 2004 was principally the result of the very
rapid take-up of digital multichannel television in the UK and the increasing
number of channels available to viewers.
We have experienced a very encouraging start to the year; currently, we estimate
that for the quarter to 31 March 2005 our ITV1 NAR will be approximately £369
million, reflecting ITV1 NAR up by some 9% on last year. Our combined NAR for
other ITV channels (ITV2, ITV3 and ITV News and a first time contribution from
GMTV) is estimated at £36 million, up from £10 million in 2004.
Other sales
On a pro forma basis other broadcasting sales of £216 million (2003: £200
million) comprise principally cinema advertising, sponsorship income, fees for
airtime sales on behalf of third parties, sales of ITV programming by the
Network Centre to Channel 3 licencees not owned by ITV plc and increased premium
rate telephone income.
Production turnover includes original productions for the UK and international
markets, the distribution and exploitation of internally generated acquired
rights, studios and facilities turnover and sales by the education business.
Programming made by Granada for ITV channels is not included in turnover above
as it represents an internal programming cost of sale. In 2004, total external
sales of £267 million (2003: £293 million) included original productions for
other broadcasters of £102 million, distribution and exportation sales of £109
million and facilities and education turnover of £56 million. A decrease in
facilities turnover since last year is the result of the closure of a number of
studios in 2004 and increased internal usage of facilities on programmes
produced for ITV.
ITV schedule
The cost of the ITV1 schedule (ITV plc share) in 2004 on a pro forma basis was
£796 million (2003: £783 million). The launch of ITV3 and increased investment
in ITV2 and ITV News programming resulted in a further increase of £12 million
over 2003. This further investment has been key in attracting new advertisers
and viewers to ITV resulting in a NAR increase of £53 million since last year.
GMTV schedule costs since the date of acquisition were £7 million.
Integration synergy savings
The synergy savings delivered as a result of the merger between Carlton and
Granada are £110 million on a full year run rate basis at 31 December 2004. At
the 2004 interim results we increased the original target of £100 million of
merger savings to £120 million run rate by 31 December 2005. The synergies have
been delivered as a result of savings in property, systems, people and improved
efficiencies across our businesses.
Profit
On a pro forma basis Group operating profit from continuing operations before
charges for amortisation and exceptional items was up 49% to £325 million (2003:
£218 million). Profit from our continuing operations before tax, amortisation
and exceptional items was up 57% to £340 million (2003: £217 million).
On a published basis Group operating profit from continuing operations before
charges for amortisation and exceptional items was £324 million (2003: £198
million). Profit on continuing operations before tax, amortisation and
exceptional items was £341 million (2003: £216 million).
A reconciliation of pro forma operating EBITA for 2004 with 2003 is shown below.
A reconciliation of 2004 pro forma operating EBITA with 2003 is shown below: £m £m
£m
EBITA for 2003 218
Increase in NAR and sponsorship (exc. GMTV) 54
Licence fees (10)
Increase in digital dividend 23
13
Increased investment in programming (exc. GMTV) (25)
Increase in telephony and other non-advertising revenue 11
GMTV contribution 8
Increased investment in ITV News Channel (4)
Granada production profitability 11
Reduction in programme sales and leaseback (4)
7
Cost savings 49
Other movements (6)
107
EBITA in 2004 325
Exceptional items
The operating exceptional items in the period total £69 million and primarily
represent merger integration and restructuring costs including employee
redundancy, outplacement costs and asset write-offs.
The £17 million gain from non-operating exceptional items reflects a gain from
the sale of our 18% stake in Village Roadshow during the period.
Investment income
Investment income of £7 million comprises dividend income from holdings in SMG,
Channel 7 in Australia and Thomson. Our stake in Thomson has now been sold.
Profit on sale of fixed assets
The £7 million profit arises from the sale of surplus properties in the period,
primarily in central London.
Interest
The net interest charge of £13 million includes interest income of £22 million,
mainly on bank deposits, offset by £35 million of interest payable on our
principal debt instruments and interest payments under finance lease
obligations.
ITV has adopted a policy of amortising the fair value of its interest rate swaps
on a straight line basis over the remaining life of the swaps.
Tax
The effective rate of tax on PBT is 29%, which reflects the beneficial
settlement of tax related issues and the release of provisions of £10 million
following the settlement of prior years' group relief with United Business Media
plc, offset by non-deductible amortisation costs. However, the underlying
effective rate is 27% as shown below:
Underlying effective rate of tax:
Operating profit, before goodwill amortisation and exceptional items £m
• Profit before tax as reported 207
• Amortisation charge 82
• Exceptional items 52
341
Underlying tax charge
• Tax charge as reported 61
• Credit for exceptional costs 14
• Credit in respect of prior year items 17
92
Underlying effective rate of tax 27%
Licence fees and corporation tax
Licence fees, paid in addition to corporation tax, comprise both a fixed annual
sum and a variable element representing a percentage of our NAR and sponsorship
income relating to homes which receive ITV1 in analogue and not in digital
format. As the number of homes receiving digital television via satellite, cable
or terrestrial increases, so the variable licence fee reduces with a digital
licence rebate. In the year the fixed sum paid was £67 million and the net
amount of variable licence fee was £137 million, some £137 million less than it
would have been without the digital licence rebate. This reflects an average
digital TV penetration in the year of some 50%. The benefit from the digital
licence rebate of £137 million was £23 million more than the previous year due
to the increase in digital penetration. In addition £3 million was paid in
licence fees since acquiring a controlling interest in GMTV in October 2004.
Together with the tax charge of £61 million on our continuing businesses, this
additional licence fee of £207 million produces a combined tax and licence fee
rate of 54% on our profit before tax, licence fees and amortisation of £496
million as set out below.
An analysis of combined licence fee and corporation tax is set out below: £m £m
Profit before tax 207
Amortisation 82
Licence fees:
Cash bid payment 67
PQR payment 274
Digital dividend benefit (137)
GMTV payment (since October 2004) 3
Licence fees net 207
496
2004 tax charge 61
Licence fees net 207
Total 'tax' 268
Tax charge and licence fees of £268 million as % of above, £496 million profit =
54%
Dividend
The Board is proposing a final dividend of 1.3 pence per share. This reflects
improving profits and strong cash flow and results in a full year dividend of
2.4 pence per ordinary share, an increase of 20% on the dividend paid by Granada
plc for the equivalent 12 month period last year (this excludes the first
interim dividend of 0.5 pence per share paid on 1 July 2004 in respect of the
three months to 31 December 2003).
Earnings per share
Pro forma adjusted earnings per share on continuing operations, before
exceptional items and amortisation, were up 76% at 6.3 pence (2003: 3.6 pence).
On the same basis published earnings per share are 6.6 pence (2003: 5.7 pence).
Basic reported earnings per share are 3.5 pence (2003: 0.3 pence loss per
share).
Acquisition of businesses
As required by FRS 7, Fair Values in Acquisition Accounting, Carlton assets have
been adjusted to reflect the fair value of the acquired net assets at the date
ITV assumed effective control.
The total fair value adjustments are £86 million. This has resulted in a
reduction in goodwill of £13 million on the figure included in our half year
results following further review and developments such as the sale of the Moving
Picture Company. The table below shows the principal fair value adjustments.
These are explained below.
As at 2
February
2004
The principal fair value adjustments are shown below: £m £m
Opening Carlton net liabilities (78)
Fair value adjustments:
-Film libraries (39)
-Assets held for resale 59
-Borrowings and interest rate swaps (42)
-Pension deficits (96)
-Other (mainly taxation) 32
(86)
Fair value of Carlton net liabilities acquired (164)
- Film libraries: revaluation to amortised replacement cost and
accounting policy alignment of the ITC and Rank film libraries. The libraries
are now amortised over 20 years. This resulted in a charge to ITV approximately
£3 million higher for 2004 than the charge booked by Carlton for 2003.
- Assets held for resale: Carlton businesses which have been sold
within a year of the merger (Carlton Books, Moving Picture Company and
Superhire) are shown at expected net proceeds discounted to present value at 2
February 2004. The profits made by these businesses in the year up to the date
of disposal of £9 million (2003: £4 million) have been excluded from the
consolidated results of the Group and the pro forma financial information.
- Borrowing and interest rate swaps: Carlton used a series of debt
instruments as a source of funding. Its £200 million 7.625% 2007 bond was
issued at a time of higher interest rates compared to those at the date of the
merger. This has resulted in an increase in the market value of the bond
(increasing the fair value of the liability to ITV) by £12 million. Fair value
adjustments on other bonds amounted to a £3 million decrease in borrowings. At
merger the market value of the swap liabilities to ITV was £33 million higher
than book value, reflecting higher sterling rates and embedded options.
- Pension deficits: inclusion of Carlton pension schemes (calculated on
a SSAP 24 basis) at the date of acquisition in accordance with FRS 7.
- Other: principally deferred taxation provided as appropriate on the
fair value adjustments.
ITV acquired a further 25% stake in GMTV in October 2004 bringing ITV's total
shareholding in the business to 75%. The estimated fair value of the net assets
of GMTV was £3 million.
ITV also acquired a further 49.5% shareholding in GSkyB in November 2004
bringing the total shareholding to 100%. The estimated fair value of the net
assets of GSkyB was £1 million.
Goodwill
Total goodwill additions amounted to £2,288 million as a result of the merger
between Carlton and Granada and a further £82 million arose from the increased
shareholdings in GMTV and GSkyB. The total operating amortisation charge in the
year is £78 million (2003: £46 million). The goodwill relating to the digital
broadcasting business is considered to have an indefinite useful life and as
such is not amortised but is subject to annual impairment reviews. Analogue
broadcasting goodwill is amortised over the period until the likely analogue
switch off in 2010.
Cash flow and net debt
The principal movements in net debt in the period are shown in the table below: £m
Operating profit before depreciation, amortisation and exceptional items 359
Movements in working capital 22
Cash flow relating to exceptional items (60)
Cash flow from operating activities 321
Taxation, interest and dividend receipts (34)
Capital expenditure less sale of fixed assets (1)
Purchase of investments and businesses (56)
Sale of investments and businesses 267
Cash returned to shareholders excluding dividends (354)
Equity dividends and other movements (42)
Net debt acquired with subsidiary undertakings (508)
Movement in net debt (407)
Opening net funds 127
Closing net debt (280)
The cash inflow from operating activities was £321 million reflecting strong
trading and a working capital inflow which is stated after a payment of £27
million for the rights for the 2006 Football World Cup. Exceptional cash
payments of £60 million reflect the merger integration costs and payments in
respect of the exit from ITV Digital.
Capital expenditure was £36 million (broadly in line with our depreciation
charge) and £35 million was raised from property sales. The £56 million of
purchases of investments and businesses were principally to buy Sky's stake in
GSkyB and an additional 25% stake in GMTV (bringing ITV's ownership to 75%).
The sale of businesses and investments included the disposal of the Moving
Picture Company and our stakes in Village Roadshow and Thomson.
In addition to normal dividend payments, £200 million was paid to Granada
shareholders as part of the terms of the merger. A further £154 million was paid
to purchase Carlton preference shares in the year. Net debt acquired of £508
million was from Carlton and new subsidiary companies (ITV2, ITV News Channel,
ITFC, London News Network, ITV Network Centre, GMTV and GSkyB).
Treasury operations and policies
A central department in London following policies and procedures laid down by
the Board, manages the Company's treasury operations. The most significant
treasury exposures faced by ITV are raising finance, managing interest rate and
currency positions and investing surplus cash in high quality assets. Treasury
policies have been approved by the Board for managing each of these exposures
including levels of authority on the type and use of financial instruments.
Transactions are only undertaken if they relate to underlying exposures. The
treasury department reports regularly to the Audit Committee and treasury
operations are subject to periodic independent reviews and internal audit.
ITV has established and retains strong relationships with a number of banks to
ensure a balanced spread of risk and to facilitate future funding requirements.
Set out below are ITV's principal treasury policies:
- Financing: ITV's financing policy is to fund itself long term using
debt instruments with a range of maturities. It is substantially funded from the
UK and European capital markets and has bank facilities from the UK syndicated
market.
- Interest rate management: the Group's interest rate policy is to have
fixed interest rate debt of between 30% and 70% of its total net indebtedness
over the medium term in order to provide a balance between certainty of cost and
benefit from low floating rates. ITV uses interest rate swaps and options in
order to achieve the desired mix between fixed and floating.
- Currency management: the Group's foreign exchange policy is to hedge
foreign currency denominated costs at the time of commitment and to hedge a
proportion of foreign currency denominated revenues on a rolling 12 month basis.
The policies significantly reduce the Group's earnings and balance sheet
exposures to changes in exchange rates.
- Investment in cash: ITV operates strict investment guidelines with
respect to surplus cash and the emphasis is on preservation of capital.
Counterparty limits for cash deposits are largely based upon long term ratings
published by the major credit rating agencies. Deposits longer than three
months require the approval of the Management Committee of the Board.
Pensions
The Group's pension schemes are run independently by the schemes' Trustees. The
Trustees, as advised by the schemes' actuaries are funding the schemes on a long
term basis. All pension scheme assets are held in separate Trustee administered
funds.
A valuation of the schemes' assets is carried out by the scheme actuaries for
the Trustees every three years. The most recent valuation of the main scheme
was carried out on 1 October 2001. A current valuation as at 31 December 2004
is in progress and the Trustees will be reviewing the results in due course.
The Company, together with the Trustees, keeps the schemes under review. Like
many UK listed companies the main ITV pension scheme has a funding deficit. The
Trustees will review future funding requirements once the 31 December 2004
valuation is complete.
The FRS 17 disclosures, which are not directly relevant for the ongoing funding
of the schemes, show a deficit, net of deferred tax, of £448 million (2003: £278
million deficit). The 2004 operating cost under FRS 17 would have been £23
million (2003: £20 million) after a curtailment gain of £4 million compared to a
SSAP 24 charge of £26 million. The total FRS 17 charge including the net return
on scheme assets and liabilities is £28 million compared to a combined Granada
and Carlton total for the 15 months to 31 December 2003 of £48 million.
The principal reasons for the increase in the reported FRS 17 net deficit are
pensions deficits in businesses acquired and revised mortality rate assumptions
as advised by the schemes' actuaries, partly offset by increases in asset
values. The changes to mortality assumptions reflect an industry wide
recognition of increased life expectancy.
International Financial Reporting Standards
ITV plc is complying with IFRS for reporting periods commencing from 1 January
2005. A project team reporting to the Audit Committee has undertaken the
conversion process to ensure that appropriate accounting policies and procedures
are in place for a smooth transition.
Conversion has a low impact on ITV's core operating results with no anticipated
effect on revenue recognition. The main areas impacting operating profit are:
IFRS 2 - Share based payments.
ITV will capture and value all share options, SAYE schemes and share awards in
accordance with this standard. This will result in an increase in the charge
under IFRS. Our schemes will be expensed based on a fair value approach and
include share options and SAYE schemes which are not captured under UK GAAP.
ITV has not taken the IFRS 1 option to value schemes dated pre 7 November 2002.
This will result in an increased charge from 2004 to 2005 as more schemes are
captured.
IAS 19 - Employee benefits.
ITV will be required to recognise its full pensions deficit on defined benefit
schemes in the balance sheet and charge the current service cost and net
interest to the profit and loss account. If approved by the EU, ITV intends to
take the option under the amendment to IAS 19 to take actuarial gains or losses
through the statement of recognised income and expenses. The impact on the
accounts will be broadly in line with the current FRS 17 disclosure requirement
(which will replace the current SSAP 24 charge on the defined benefit schemes)
and as a result of a curtailment gain, will show a reduced pensions charge in
2004.
At the EBITDA level the additional charge from share payments is approximately
matched by the reduced pensions charge in 2004.
IFRS 3 - Business combinations.
ITV will no longer amortise goodwill but will subject it to an annual impairment
review. Intangible assets arising on acquisition accounting for Carlton and
other companies will be recognised and amortised.
The principal intangible assets acquired on the acquisition of Carlton and other
companies are the ITV brand name, customer contracts/relationships, broadcasting
licences and programme and film libraries. The shorter useful economic lives of
customer contracts/relationships will result in a higher amortisation charge in
earlier years but a lower charge in 2006 and later years. ITV has taken the IFRS
1 exemption from applying IFRS 3 to business combinations before 1 January 2004.
The main impacts to the interest charge are from:
IAS 39 - Financial instruments: Recognition and measurements.
ITV will be required to mark to market a number of interest rate and foreign
currency swaps and contracts. This results in potential volatility in the
interest line from those instruments which do not meet the IAS 39 hedging
criteria. Additionally, fixed asset investments, such as SMG, will be marked to
market with movements being taken through reserves. ITV has taken the IFRS 1
exemption from applying IAS 39 and IAS 32 to the 2004 comparative period.
IAS 19 results in a notional charge to interest from the net of an interest
charge on pension scheme liabilities and an expected return on scheme assets.
In 2004 this amounts to £5 million.
IAS 12 - Taxation.
The increase in the number of fair valued items on the balance sheet will impact
the deferred tax charge and the effective rate of tax under IFRS. IAS 12 is
expected to have no impact on the tax payments to the Inland Revenue.
ITV's first published financial reporting under IFRS will be for the half year
to 30 June 2005. This will include the results for the period to 30 June 2004
and the 2004 full year under IFRS. The opening balance sheet for the start of
the comparative period (1 January 2004) will also be shown under IFRS.
Reconciliations will be provided to explain the adjustments made. In the
meantime, we are planning to update investors in the second quarter of 2005 on
the impact of IFRS.
Henry Staunton
Finance Director
ITV pro forma trading financial information for year ended 31 December 2004
(unaudited)
The merger of Granada plc and Carlton Communications Plc to form ITV plc was
completed on 2 February 2004. Pro forma results have been prepared to show the
results of the new Group for the year ended 31 December 2004, with a comparative
for the same period in 2003, as if the merger had taken place on 31 December
2002.
Basis of preparation of pro forma trading results
The pro forma results for the years ended 31 December 2003 and 2004 have been
prepared on the following basis:
1. They incorporate the results of Granada and Carlton. They also
consolidate the results of new subsidiaries London News Network, ITV News
Channel, ITV2 and ITFC which were previously treated as joint ventures or
associates, as well as the ITV Network Centre.
2. The full results of GMTV and GSkyB have been consolidated from the time
they became subsidiaries (October and November 2004 respectively). Prior to
this ITV's share of the results of GMTV are included within joint ventures and
GSkyB within associates.
3. The results have been presented under the accounting policies that have
been adopted by ITV plc.
4. Transactions between Granada, Carlton, the ITV Network Centre and
subsidiary companies previously reported as joint ventures or associates (listed
in notes 1 and 2) have been eliminated as inter-company transactions.
5. The results are shown only for continuing operations before amortisation
and exceptional items.
6. The results exclude any former Carlton businesses which ITV plc has sold
since the merger date (2004: £9 million, 2003: £4 million).
7. The 2003 interest charge has been adjusted to exclude one-off or
non-recurring items including gains on the sale of derivative instruments and
the impact of foreign exchange.
8. The 2003 tax charge uses ITV plc's current 2004 underlying effective tax
rate of 27% on profit before tax, prior year items and disallowable items.
9. The EPS figure for both periods uses the average number of shares in issue
for the year to December 2004 (4,085 million) as if the merged company had been
in existence for the whole of this period.
Published Remove Remove Add Consolidation Pro forma Pro forma Growth
2004 amortisation exceptional Carlton
items (inc. January adjustments 2004 2003 %
£m £m tax effect) trading
£m £m £m £m
£m
Group turnover 2,053 - - 55 (25) 2,083 2,025 3%
Group operating profit 177 78 69 1 - 325 218 49%
Joint ventures 8 2 - (1) - 9 10
Associated undertakings 4 2 - - - 6 4
Investment income 7 - - - - 7 8
Profit on sale of fixed 7 - - - - 7 -
assets
Gain on sale of investments 17 - (17) - - - -
Profit before interest and 220 82 52 - - 354 240 48%
tax
Net interest payable (13) - - (1) - (14) (23)
Profit/(loss) on ordinary 207 82 52 (1) - 340 217 57%
activities before taxation
Tax on profit/(loss) on (61) - (14) - - (75) (59)
ordinary activities
Profit/(loss) on ordinary 146 82 38 (1) - 265 158 68%
activities after taxation
Minority interests (7) - - - - (7) (11)
Profit/(loss) for the 139 82 38 (1) - 258 147 76%
financial period
Pro forma earnings per share before exceptional items and amortisation 6.3p 3.6p 76%
Turnover
Turnover of £2,083 million (2003: £2,025 million) is up 3%. Net advertising
revenue of £1,588 million (2003: £1,517 million) is up 4.7% reflecting growth of
1.9% from ITV1, 76% from ITV2, ITV News Channel and ITV3 and the first time
contribution of GMTV from October 2004 of £18 million. Other Broadcasting sales
principally comprising cinema advertising, sponsorship income, fees for airtime
sales on behalf of third parties, and sales of ITV programming by the ITV
Network Centre to Channel 3 licencees not owned by ITV plc amounted to £216
million (2003: £200 million). The majority of sales by Granada production of
£402 million (2003: £351 million) are to ITV Broadcasting and therefore excluded
from the above figures. External production turnover includes original
programme production for the UK and international markets, the exploitation and
distribution of rights and products, studios and facilities turnover and sales
by the education business.
Profit
Operating profit of £325 million (2003: £218 million) is up 49% benefiting from
increased advertising revenue and cost savings following the merger. Joint
venture income is from ITV's 50% holding in GMTV (prior to October 2004) and the
Screenvision businesses in the US and Europe. Associate income is from stakes
in TV3, GSkyB (prior to November 2004) and ITN. Investment income represents
dividend receipts from investments in Thomson (since sold), Channel 7 in
Australia and SMG in the UK. Profit on sale of fixed assets is from the
disposal of properties which were sold as part of the merger restructuring
process. Minority interests reflect dividend payments to external preference
shareholders in Carlton Communications Plc (over 90% of which were redeemed in
the second half of 2004).
Consolidated profit and loss account
12 months ended 15 months ended 31 December 2003
31 December 2004
Total Continuing Discontinued Total
operations operations
restated
restated restated
Note £m £m £m £m
Turnover:
Group and share of joint ventures' turnover 1,297 1,746 176 1,922
Less share of joint ventures' turnover (79) - (169) (169)
Acquisitions 835 - - -
Group turnover 2,053 1,746 7 1,753
Operating costs before depreciation, amortisation (1,694) (1,510) (4) (1,514)
and
exceptional items
Operating costs - exceptional items 1 (69) (16) - (16)
EBITDA 290 220 3 223
Depreciation of tangible fixed assets 7 (35) (38) (3) (41)
EBITA 255 182 - 182
Amortistion of intangible fixed assets 6 (78) (46) - (46)
Total operating costs (1,876) (1,610) (7) (1,617)
Operating profit - before exceptional items 174 152 - 152
and acquisitions
Operating loss - exceptional items before 1 (37) (16) - (16)
acquisitions
Operating profit - before acquisitions 137 136 - 136
Operating profit - acquisitions before 72 - - -
exceptional items
Operating loss - acquisitions exceptional 1 (32) - - -
items
Operating profit - acquisitions 40 - - -
Group operating profit 177 136 - 136
Share of operating profit/(loss) in:
Joint ventures before exceptional items and 10 - 47 47
goodwill amortisation
Joint ventures - goodwill amortisation (2) - (18) (18)
Joint ventures - exceptional items 1 - - (10) (10)
Joint ventures 8 - 19 19
Associated undertakings before goodwill 6 7 - 7
amortisation
Associated undertakings - goodwill (2) (2) - (2)
amortisation
Associated undertakings 4 5 - 5
Investment income 7 5 - 5
Profit on sale of fixed assets 7 3 - 3
Gain on cessation of Boxclever - exceptional 1 - - 9 9
items
Gain on sale of investments - exceptional items 1 17 - - -
Amounts provided in respect of fixed asset
investments -
exceptional items 1 - (109) (10) (119)
Profit before interest and tax 220 40 18 58
Net interest (payable)/receivable and similar
(charges)/income:
Group (12) 4 4 8
Joint ventures and associated (1) (1) (35) (36)
undertakings
Net interest (13) 3 (31) (28)
Profit/(loss) on ordinary activities before 207 43 (13) 30
taxation
Tax on profit/(loss) on ordinary activities 5 (61) (58) 21 (37)
Profit/(loss) on ordinary activities after 146 (15) 8 (7)
taxation
Minority interests - equity (1) - - -
Minority interests - non-equity (6) - - -
Profit/(loss) for the period 139 (15) 8 (7)
Dividends 4 (98) (76)
Amount transferred to/(from) reserves 41 (83)
Earnings/(loss) per share (basic) 3 3.5p (0.6)p 0.3p (0.3)p
Earnings/(loss) per share (diluted) 3 3.5p (0.6)p 0.3p (0.3)p
Adjusted earnings per share:
before exceptional items (basic) 3 4.5p 4.0p
before exceptional items and amortisation 3 6.6p 5.7p
of intangible assets (basic)
All results in 2004 are from continuing operations. Discontinued operations in
2003 include Boxclever, Granada Business Technology and other discontinued joint
ventures.
Consolidated balance sheet
31 December 2004 31 December 2003
restated
Note £m £m £m £m
Fixed assets:
Intangible assets 6 3,617 1,259
Tangible assets 7 258 193
Investments:
Interest in net assets of joint ventures:
Share of gross assets 110 24
Share of gross liabilities (85) (24)
Share of net assets 25 -
Loans to joint ventures 27 -
8 52 -
Associated undertakings 8 26 33
Other investments 8 140 157
Investments 218 190
4,093 1,642
Current assets:
Stocks 490 276
Debtors: amounts falling due within one year 349 206
Debtors: amounts falling due after more than one year 50 9
Debtors 399 215
Cash at bank and in hand and short term deposits 582 185
1,471 676
Creditors: amounts falling due within one year:
Borrowings (10) (4)
Other creditors (1,054) (512)
(1,064) (516)
Net current assets 407 160
Total assets less current liabilities 4,500 1,802
Creditors: amounts falling due after more than one year:
Borrowings (852) (54)
Other creditors (60) (45)
(912) (99)
Provisions for liabilities and charges (170) (47)
Net assets 3,418 1,656
Capital and reserves:
Called up share capital 9 422 277
Share premium account 9 91 -
Capital reserve 9 112 112
Revaluation reserve 9 39 39
Merger reserve 9 1,671 -
Other reserve 9 879 1,079
Profit and loss account 9 193 148
Shareholders' funds - equity 9 3,407 1,655
Minority interests:
Equity 3 1
Non-equity 8 -
3,418 1,656
Consolidated cash flow statement
12 months ended 15 months ended
31 December 2004 31 December 2003
Note £m £m £m £m
Net cash inflow/(outflow) from operating activities:
Continuing activities 2 329 221
Discontinued activities 2 (8) (29)
2 321 192
Dividends from equity accounted investments 4 -
Returns on investments and servicing of finance:
Interest received 19 9
Interest paid on bank and other loans (43) (2)
Interest paid on finance leases (4) (3)
Preference dividend to minority shareholders (5) -
Dividends received 7 5
Net cash (outflow)/inflow from returns on investments and (26) 9
servicing of finance
Taxation (12) (13)
Capital expenditure and financial investment:
Purchase of tangible fixed assets (36) (19)
Purchase of investments (2) (13)
Overseas equity currency impact - (11)
Sale of tangible fixed assets 35 8
Sale of investments 208 5
Net cash inflow/(outflow) from capital expenditure and 205 (30)
financial investment
Acquisitions and disposals:
Purchase of subsidiary undertakings (54) -
Cash acquired with subsidiary undertakings 461 -
Sale of subsidiary undertakings - 12
Sale of acquired assets held for resale 59 -
Acquisition of minority interest (154) -
Net cash inflow from acquisitions and disposals 312 12
Net cash inflow before dividends, liquid resources and 804 170
financing
Equity dividends paid (48) (84)
Net cash inflow before liquid resources and financing 756 86
Management of liquid resources - increase (19) (29)
Cash inflow before financing 737 57
Financing:
Bank and other loans repaid (192) (33)
Redemption of Granada redeemable shares issued on merger (200) -
Capital element of finance lease repayments (4) (9)
Cash from issue of share capital 8 -
Cash inflow on sale and leaseback transactions - 44
Net cash (outflow)/inflow from financing (388) 2
Increase in cash in the period 349 59
Reconciliation of net cash flow to movement in net debt
12 months ended 15 months ended
31 December 2004 31 December
2003
£m £m
Increase in cash in the period 349 59
Increase in liquid resources 19 29
Cash outflow from decrease in debt financing 192 33
Capital element of finance lease repayments 4 9
Cash inflow on sale and leaseback transactions - (44)
Change in net debt resulting from cash flows 564 86
Loans, loan notes and finance lease obligations acquired with (996) -
subsidiary undertakings
Liquid resources acquired with subsidiary undertakings 27 -
Non-cash movements (2) -
Movement in net (debt)/ funds in the period (407) 86
Opening net funds 127 41
Closing net (debt)/funds (280) 127
Consolidated statement of total recognised gains and losses
12 months 15 months ended
ended 31 December
31 December 2003
2004 restated
£m £m
Profit/(loss) for the financial period:
Group 131 6
Joint ventures 5 (16)
Associates 3 3
139 (7)
Currency translation differences (2) (1)
Total recognised gains and losses relating to the period 137 (8)
Prior period adjustments (see note 9) (10)
Total gains and losses recognised during the period 127
Historical cost profit is not materially different from that presented in the
consolidated profit and loss account. Accordingly no separate analysis has been
presented.
1. Exceptional items
12 months ended 15 months ended 31 December 2003
31 December 2004
Total Continuing Discontinued Total
operations operations
£m £m £m £m
Exceptional operating items - Group:
Reorganisation and integration (65) (16) - (16)
costs
Provision for goodwill impairment (4) - - -
(69) (16) - (16)
Exceptional operating items - joint
venture:
Share of Boxclever reorganisation - - (10) (10)
costs
- - (10) (10)
Exceptional non-operating items:
Fixed asset investments
Provision in respect of listed - (100) - (100)
investments
Provision against joint ventures - - (10) (10)
Gain on sale of fixed asset 17 - - -
investments
Provision against trade investments - (9) - (9)
Amounts provided in respect of fixed 17 (109) (10) (119)
asset investments
Boxclever
Write-back of investment in net - - 253 253
liabilities
Provision for loans made to Boxclever - - (69) (69)
Write-back of goodwill - - (124) (124)
Provision for debts due from Boxclever - - (19) (19)
Provision for Boxclever exit costs - - (32) (32)
Gain on cessation of Boxclever - - 9 9
17 (109) (1) (110)
Total exceptional items before tax (52) (125) (11) (136)
Of the above £32 million of the reorganisation and integration costs relate to
acquisitions.
A charge of £65 million has been taken to reflect the integration of the
Carlton, Granada and new subsidiary businesses into ITV plc. The largest
element of these costs (£41 million) were staff related with further costs
incurred arising as a result of integrating our IT systems and infrastructure,
property portfolio and fixed asset base.
2. Reconciliation of operating profit to net cash inflow from operating
activities
12 months ended 31 December 2004 15 months ended 31 December 2003
Continuing Discontinued Total Continuing Discontinued Total
operations operations £m operations operations restated
£m £m restated restated £m
£m £m
Operating profit 177 - 177 136 - 136
Exceptional items 69 - 69 16 - 16
Operating profit before 246 - 246 152 - 152
exceptional items
Depreciation charges 35 - 35 38 3 41
Amortisation of goodwill and 78 - 78 46 - 46
intangible assets
Increase in stocks (80) - (80) (28) - (28)
Decrease in debtors 34 - 34 65 - 65
Increase/(decrease) in creditors 68 - 68 (33) (3) (36)
Working capital 22 - 22 4 (3) 1
Net cash inflow from operating 381 - 381 240 - 240
activities before exceptional
items
Expenditure relating to
exceptional items:
Operating loss (see note 1) (69) - (69) (16) - (16)
Asset write-offs 4 - 4 - - -
Provision for impairment 4 - 4 - - -
Increase/(decrease) in creditors 9 (8) 1 (3) (29) (32)
and provisions
Net cash outflow from (52) (8) (60) (19) (29) (48)
exceptional items
Net cash inflow/(outflow) from 329 (8) 321 221 (29) 192
operating activities
The net cash inflow from operating activities for businesses acquired in the
year was £103 million.
Cash flows on discontinued operations relates to expenditure against provisions
held in respect of Boxclever, ITV Digital and ITV Sport Channel which have been
previously discontinued.
3. Earnings per share
12 months ended 15 months ended
31 December 2004 31 December 2003
Basic Diluted Basic Diluted
restated restated
£m £m £m £m
Profit/(loss) for the financial period attributable to 139 139 (7) (7)
shareholders
Discontinued operations - - (8) (8)
Continuing operations 139 139 (15) (15)
Continuing operations exceptional items (including related 38 38 125 125
tax effect of £14 million, 2003: £nil)
Continuing operations before exceptional items 177 177 110 110
Continuing operations amortisation of intangible assets 82 82 48 48
Profit for the financial period for continuing operations 259 259 158 158
before exceptional items and amortisation of intangible
assets
Weighted average number of shares in issue - million 3,947 3,947 2,746 2,746
Dilution impact of share options - million - 60 - 14
3,947 4,007 2,746 2,760
3.5p 3.5p (0.3)p (0.3)p
Earnings/(loss) per ordinary share
Adjusted earnings per share
Basic earnings/(loss) per share 3.5p 3.5p (0.3)p (0.3)p
Deduct: Earnings per ordinary share on discontinued - - (0.3)p (0.3)p
operations
Earnings/(loss) per share on continuing operations 3.5p 3.5p (0.6)p (0.6)p
Add: Loss per share on continuing operations exceptional 1.0p 0.9p 4.6p 4.6p
items
Earnings per share on continuing operations before 4.5p 4.4p 4.0p 4.0p
exceptional items
Add: Loss per ordinary share on continuing operations 2.1p 2.1p 1.7p 1.7p
amortisation of intangible assets
Earnings per share for the financial period for continuing 6.6p 6.5p 5.7p 5.7p
operations before exceptional items and amortisation of
intangible assets
An adjusted earnings per share has been disclosed because in the view of the
directors this gives a true reflection of the results of the underlying
business.
The share options in the 15 months ended 31 December 2003 are antidilutive
because they reduce the loss per share. Therefore diluted earnings per share for
the 15 months ended 31 December 2003 are the same as basic earnings per share.
4. Dividends
12 months 15 months
ended 31 ended 31
December December
2004 2003
£m £m
Equity shares:
Granada plc first interim 2003 dividend 1.0 pence per share - 28
Granada plc second interim 2003 dividend 1.0 pence per share - 28
ITV plc interim 2003 dividend of 0.5 pence per share - 20
ITV plc interim 2004 dividend of 1.1 pence per share 45 -
ITV plc proposed final 2004 dividend of 1.3 pence per share 53 -
Total 98 76
5. Taxation
12 months ended 15 months ended 31 December 2003
31 December 2004
Total Continuing Discontinued Total
operations operations
£m £m £m £m
Based on the profit on ordinary activities of the
Group before exceptional items for the period:
UK corporation tax at 30% (2003: 30%) (71) (58) - (58)
UK corporation tax credit on exceptional items 14 - 21 21
(57) (58) 21 (37)
Adjustment in respect of prior periods 17 - - -
Share of associated (1) (1) - (1)
undertakings
Share of joint ventures (2) - - -
Overseas tax (2) (1) - (1)
Total current tax on profit on ordinary activities (45) (60) 21 (39)
Deferred tax (16) 2 - 2
Total tax on profit on ordinary activities (61) (58) 21 (37)
In the 12 months ended 31 December 2004 the effective tax rate on profits from
continuing operations is lower (15 months ended 31 December 2003: higher) than
the nominal rate of UK corporation tax primarily as a result of the beneficial
settlement of tax related issues in respect of previous years, offset by
goodwill amortisation and exceptional items which are not deductable for
corporation tax purposes. The underlying tax rate on continuing operations,
after adjusting for goodwill amortisation and exceptional items, is 27% (15
months ended 31 December 2003: 27%).
5. Taxation (continued)
12 months 15 months
ended 31 ended 31
December December
2004 2003
restated
Factors affecting the tax charge for the current period: £m £m
Current tax reconciliation
Profit on ordinary activities before tax 207 30
Current tax at 30% (2003: 30%) (62) (9)
Effects of:
Expenses not deductible for tax purposes (primarily goodwill amortisation) (31) (23)
Non-taxable exceptional items (2003: primarily amounts written off investments) (2) (42)
Utilisation of tax losses 17 27
Timing differences 16 6
Associates profits on which no tax effect - 2
Adjustment in respect of prior years (including £10 million in respect of 17 -
settlement of prior years' group relief with United Business Media plc)
Total current tax charge (45) (39)
In addition there are amounts of tax losses not yet agreed with the Inland
Revenue. These are in relation to Loan Relationship Debits (effectively loans
written off) and capital losses (in relation to losses on investments). These
may be utilised in the future to the extent that there are sufficient levels of
investment income or taxable capital gains.
A deferred tax asset is recognised within debtors falling due after more than
one year as follows:
£m
At 31 December 2003 6
Acquisitions 52
Utilised in the period (16)
At 31 December 2004 42
The deferred tax asset relates principally to accelerated capital allowances of
£11 million (31 December 2003: £6 million) and deferred tax on the pensions
deficits recognised as part of acquisition accounting for Carlton of £29 million
(31 December 2003: £nil). Deferred tax has been provided on the basis that it
is expected that sufficient profits will be generated in future years to recover
this.
6. Intangible assets
Goodwill Film Total
£m libraries and other £m
£m
Cost
At 31 December 2003 1,621 8 1,629
Acquisitions 2,330 74 2,404
Reclassification (see note 8) 40 - 40
Disposals (6) - (6)
At 31 December 2004 3,985 82 4,067
Amortisation
At 31 December 2003 365 5 370
Charge for period 72 6 78
Disposal (2) - (2)
Provision for impairment 4 - 4
At 31 December 2004 439 11 450
Net book value
At 31 December 2004 3,546 71 3,617
At 31 December 2003 1,256 3 1,259
The goodwill relating to the digital broadcasting business, with a carrying
value of £2,889 million, is considered by ITV to have an indefinite useful life.
This is because of the durability and long term profitability of the
broadcasting business and the strength of the underlying brand. Therefore the
directors consider it appropriate to depart from the requirements of the
Companies Act 1985 and do not amortise digital goodwill in order to give a true
and fair view. If such goodwill had been amortised over a 20 year useful life
(in line with the rebuttable presumption of FRS 10) operating profit before
exceptional items for the 12 months ended 31 December 2004 would have decreased
by £135 million (15 months ended 31 December 2003: £62 million) and capitalised
goodwill at 31 December 2004 would have been £197 million (31 December 2003: £62
million) lower than reported.
As required by FRS 10 'Goodwill and Intangible Assets' a formal impairment
review was carried out at 31 December 2004 in relation to the digital goodwill.
No charge was considered necessary.
As a result of an impairment review on goodwill attached to the learning
business an impairment of £4 million has been recognised within exceptional
items.
7. Tangible assets
Freehold land Leasehold land and Vehicles, equipment
and buildings and fittings Rental
buildings Long Short Owned Leased assets Total
£m £m £m £m £m £m £m
Cost or valuation
At 31 December 2003 62 57 8 337 48 19 531
Additions 2 1 - 33 - - 36
Acquisitions 31 27 5 32 1 - 96
Disposals (14) (16) - (15) - - (45)
At 31 December 2004 81 69 13 387 49 19 618
Depreciation
At 31 December 2003 7 8 5 256 46 16 338
Charge for period 2 2 1 30 - - 35
Disposals (2) (2) - (9) - - (13)
At 31 December 2004 7 8 6 277 46 16 360
Net book value
At 31 December 2004 74 61 7 110 3 3 258
At 31 December 2003 55 49 3 81 2 3 193
a) In accordance with FRS 15 'Tangible Fixed Assets', the Group has adopted a
policy which does not involve the periodic revaluation of its properties. The
carrying value continues to reflect the amounts arising from the previous
valuation.
b) Operational properties comprising freeholds and long and short leaseholds
were externally valued at 2 October 1993 and the directors have incorporated
those valuations into the accounts. All such properties, with the exception of
Granada Television's studios and its specialist buildings were valued on an open
market for existing use basis. The studios and other specialist buildings were
valued on a depreciated replacement cost basis. The valuations were carried out
by Messrs Dunlop Heywood and GVA Grimley International Property Advisers.
c) On a historical cost basis revalued assets would have been included at the
following amount:
31 December 2004 31 December 2003
Freehold land Long Total Freehold Long Total
and buildings leasehold land and leasehold
land and £m buildings land and £m
£m buildings buildings
£m
£m £m
Valuation 40 7 47 40 7 47
Accumulated depreciation (2) - (2) (2) - (2)
Net book value as revalued 38 7 45 38 7 45
Cost 7 - 7 7 - 7
Accumulated depreciation (1) - (1) (1) - (1)
Net book value on a historic 6 - 6 6 - 6
cost basis
d) No deferred tax has been provided on the revaluation of fixed assets as it is
not the current intention to dispose of the related properties.
8. Investments
Joint ventures Associated Trade Listed Total
undertakings investments investments
£m £m £m £m £m
At 31 December 2003 restated - 33 10 147 190
Additions - 2 - - 2
Acquisitions 80 4 2 - 86
Reclassification (GMTV) 6 (6) - - -
Reclassification as subsidiaries
(ITV2, LNN, ITFC, ITV News Channel, (36) (9) - - (45)
GMTV, GSkyB)*
Disposals - - - (16) (16)
Share of attributable profits 5 3 - - 8
Dividends received (3) (1) - - (4)
Other - - - (3) (3)
At 31 December 2004 52 26 12 128 218
* Included within the £45 million joint ventures and associated undertakings
reclassified to subsidiaries was £40 million of goodwill (See note 6).
Included within the carrying value of investments is £19 million of goodwill
relating to joint ventures (31 December 2003: £nil) and £26 million of goodwill
relating to associates (31 December 2003: £34 million).
9. Reconciliation of movements in shareholders' funds
Profit
Share Share Capital Revaluation Merger Other and loss Total
capital premium reserve reserve reserve reserve reserve 2004
£m £m £m £m £m £m £m £m
Balance at 31 December 2003 277 - 112 39 - 1,079 183 1,690
Prior period adjustments - - - - - - (35) (35)
Restated balance at 31 December 2003 277 - 112 39 - 1,079 148 1,655
Acquisition accounting for Carlton 143 85 - - 1,671 - - 1,899
Redemption of Granada redeemable - - - - - (200) - (200)
shares
Shares issued in the period 2 6 - - - - - 8
Movements due to share based - - - - - - 6 6
compensation
Retained profit for period for equity - - - - - - 41 41
shareholders
Currency adjustments - - - - - - (2) (2)
At 31 December 2004 422 91 112 39 1,671 879 193 3,407
The reserves position at 31 December 2003 reflects the acquisition of Granada
plc as if ITV plc has always been the parent company (see note 10). This results
in a £5 million difference between Granada plc's closing profit and loss
reserves at 31 December 2003 and the opening profit and loss reserve in these
accounts arising from the difference between the £25 million dividend declared
to be paid by Granada plc to ITV plc in respect of the three months to 31
December 2003 and the £20 million paid by ITV plc to shareholders in respect of
the same period.
Of the prior period adjustments, £25 million is a balance sheet reclassification
as a result of the implementation of UITF 38 'Accounting for ESOP Trusts'. The
remaining £10 million would have impacted prior periods retained profits so is
reflected in the statement of total recognised gains and losses. Of this amount
£6 million is as a result of the implementation of UITF 17 (revised 2003) '
Employee Share Schemes', while £4 million relates to a harmonisation of
accounting policies between Carlton and Granada for international distribution.
10. Basis of preparation
These accounts have been prepared under the historical cost convention as
modified by the revaluation of certain assets. The Group accounts for the 12
months ended 31 December 2004 are the first accounts prepared by ITV plc. These
accounts have been prepared by adopting group reconstruction principles to
account for the acquisition of Granada plc by ITV plc as if ITV plc had always
been the parent company of the Granada Group, and acquisition accounting
principles to account for the acquisition of Carlton Communications Plc by ITV
plc. This combination took place on 2 February 2004. The comparative
information of the Group represents the results of Granada plc for the 15 month
period ended 31 December 2003.
The Group's accounting policies are the same as those adopted by Granada plc.
These have been revised to reflect UITF 17 (revised 2003) 'Employee Share
Schemes' and UITF 38 'Accounting for ESOP Trusts'. Additionally the prior
period adjustments reflect the harmonisation of accounting policies between
Carlton and Granada for international distribution. Comparatives have been
restated to reflect these changes.
The Group accounts incorporate the accounts of ITV plc and its subsidiary
undertakings and have been prepared for the 12 months ended 31 December 2004.
The results of the businesses acquired during the year are included from the
effective date of acquisition. The results of businesses sold during the year
are included up to the date on which control is relinquished, with the exception
of those businesses accounted for as held for resale following the acquisition
accounting for Carlton, which are not consolidated.
Joint ventures are accounted for using the gross equity method and associated
undertakings are accounted for using the equity method. Loans to joint ventures
are taken into account when calculating the Group's net interest in joint
ventures.
A joint venture is an undertaking in which the Group has a long term interest
and over which it exercises joint control. An associate is an undertaking in
which the Group has a long term interest, usually from 20% to 50% of the equity
voting rights, and over which it exercises significant influence.
The are no discontinued operations for the 12 months ended 31 December 2004.
Discontinued operations in the 15 months ended 31 December 2003 represent the
results of Boxclever, Granada Business Technology and other discontinued joint
ventures.
The financial information set out herein does not constitute the Company's
statutory report and accounts for the 12 months ended 31 December 2004.
Statutory accounts for 2004 will be delivered to the Registrar of Companies
following the Company's annual general meeting. The auditors have reported on
those accounts; their report was unqualified and did not contain statements
under 237(2) or (3) of the Companies Act 1985. Copies of the 2004 annual report
and accounts will be sent to all shareholders and will be available from the
registered office of the Company, London Television Centre, Upper Ground,
London, SE1 9LT.
This information is provided by RNS
The company news service from the London Stock Exchange
Wednesday, 15th May 2024
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