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ITV PLC (ITV)

  Print      Mail a friend       Annual reports

Thursday 18 March, 2010

ITV PLC

Annual Financial Report

RNS Number : 7855I
ITV PLC
18 March 2010
 



Annual Financial Report

 

ITV plc (the 'Company') released its preliminary announcement of annual results for the year ended 31 December 2009 ('Preliminary Announcement') on 3 March 2010. Further to the Preliminary Announcement, the Company can now confirm that the Report and Accounts 2009, Notice of Annual General Meeting and Form of Proxy will be mailed to shareholders on 22 March 2010. The Report and Accounts 2009 are now available on the Company's website at  www.itvplc.com/investors/reports and the Notice of Annual General Meeting 2009 at www.itvplc.com/investors/agm .

 

Appendix A to this announcement contains the Report and Accounts 2009 in unedited full text for the purposes of compliance with the Disclosure and Transparency Rules. Any page and note references refer to page numbers and notes in the Report and Accounts 2009.

 

Annual General Meeting and Articles

The Company's 2010 Annual General Meeting will be held at 11.00 a.m. on Friday 7 May 2010 at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE. The Notice of Meeting contains, among others, a resolution which proposes the adoption of new Articles of Association ("New Articles"). The principal changes introduced in the New Articles are described in Appendix B. In particular, changes which are of a minor, technical or clarifying nature, and also some more minor changes which merely reflect statutory provisions, have not been separately noted.

 

A copy of the New Articles marked to show the changes being proposed are available for inspection at the registered office of the Company during normal business hours on weekdays (Saturday and public holidays excepted) from today until the date of the Annual General Meeting, and at the place of the Annual General Meeting from 9.00 am until the conclusion of the Meeting.

 

 

Notification of availability of documents and information

Pursuant to Listing Rule 9.6.1, copies of the Report and Accounts 2009, Notice of Annual General Meeting 2010 and Form of Proxy have been submitted to the Financial Services Authority, and will shortly be available for inspection at the document viewing facility, which is situated at:

 

Financial Services Authority

25 The North Colonnade

Canary Wharf

London E14 5HS

Telephone: 020 7676 1000

 

Archie Norman

As announced on 18 November 2009, Archie Norman will receive an award of 400,000 shares annually as part of his remuneration package. An award in the form of 1,200,000 restricted shares was made on Wednesday 17 March 2010 which will vest in three equal tranches on 31 December 2010, 31 December 2011 and 31 December 2012.

 

ITV plc

Tel: 020 7157 3000

 

Investor enquiries

 

Christy Swords

020 7157 6572 or 07881 505783

Pippa Foulds                       

020 7157 6555 or 07778 031097

Media enquiries

 

Ruth Settle                           

020 7157 3707 or 07946 346698

Louise Evans      

020 7157 3710 or 07825 680994

Tulchan Communications

 

Andrew Grant / Susanna Voyle, Tulchan       

020 7353 4200

 

Website: www.itv.com; investor information: www.itvplc.com

 

 

 

Appendix A

 

ITV plc Report and Accounts 2009

A strong platform for change

 

Chairman's statement

Dear Shareholder

I am delighted to have joined ITV as Chairman on 1 January 2010. Whilst the business faces many difficult challenges, it remains an exciting place to work with a unique role in national life. Its revitalisation is important, not just to shareholders, but to millions of viewers across the country. My objective is to work with the executive team to transform the Company so as to enable it to prosper in a rapidly changing media landscape.

Progress in 2009

ITV came through a very challenging year in 2009. Not only was it the worst television advertising recession on record, but the difficulties of the leadership succession provided a distracting context for the business and the executive team.

Against this background, ITV delivered a remarkably resilient performance, very much as a result of decisive management action to reduce costs and strengthen the balance sheet. As a consequence, the business avoided a serious liquidity crisis and EBITA before exceptional items fell only marginally. Adjusted cash flow increased by £200 million and net debt reduced by over £100 million. ITV's debt repayments have been rescheduled and its pension scheme liabilities have been stabilised. In the light of the continuing economic uncertainty, the Board is not proposing payment of a final dividend. However, financially we now have a more stable platform from which to address the challenges ahead.

In response to the advertising downturn, the programme budget was cut by over £100 million. Nonetheless, ITV ended the year with a strong schedule performance. Although ITV1 continued to lose audience share, the ITV channel family held its share overall. There were some significant programming successes, notably The X Factor, but also Law & Order: UK, Whitechapel, Dancing on Ice, and Britain's Got Talent. Both our valuable long-running soaps, Coronation Street and Emmerdale, remain in good health. Such programming success is critical to sustaining ITV's share of the free-to-air advertising market.

Our content business, ITV Studios, held profits, with increased international production offsetting a decline in the UK business. Internal ITV commissions in particular came under some pressure, as the ITV1 programming budget was reduced. Nevertheless, ITV Studios is making progress with its third party business and remains a hive of creative talent.

Overall therefore, ITV has weathered the storm. The business has a manageable balance sheet, a strong brand and a talented broadcasting and creative team.

Future challenges

Against this recent context, it is clear that ITV now faces an imperative for change. The traditional free-to-air advertising-fuelled television model will see long-term decline in share of viewing and share of UK media revenues. To secure and grow shareholder value, we need to ensure we use the extraordinary talent base of ITV to compete, not only in conventional broadcasting, but also as a developer and exploiter of content across multiple platforms in the UK and internationally. Seizing the opportunities ahead will require changes to ITV's organisation, systems, people and culture.

Our first challenge will be to sustain the creative and commercial health of our free-to-air broadcast business. In doing so, we face intense competition from the BBC, whose taxpayer-funded revenue has been unaffected by the economic downturn, and from BSkyB, whose satellite platform continues to grow and, as it does so, erode the share of traditional free-to-air viewing.

The rapid development of digital media means that the British public will increasingly view television through the internet, via internet-enabled television, personal computers and mobile devices. ITV currently has a small share of online video, lagging behind our competitors. Furthermore new competitors, such as Google, are strongly positioned to play a leading role, potentially displacing broadcasters as the initial point of access.

As the market for content globalises and rights ownership becomes a more important part of the value chain, the integrated broadcaster-producer model should be a source of competitive advantage. However, ITV Studios, our content creation and distribution business, has lost market share, both within ITV and the wider UK market, partly as a result of reduced internal commissions. Restoring growth at ITV Studios and reinvesting in talent is a vital part of our future.

Finally, despite successive reviews by the Government and Ofcom, ITV remains one of Britain's most heavily regulated businesses. Consequently our freedom to operate is severely limited, in particular compared to our new media competitors. The adverse impact on the profitability of all free-to-air broadcasters is resulting in declining investment in UK content with serious implications for Britain's creative industries.

Platform for change

The task therefore for the new management team at ITV is to take advantage of the opportunity last year's changes have created and to address resolutely the challenges ahead. I am therefore delighted that Adam Crozier will be joining from Royal Mail Group as Chief Executive shortly. Adam has an outstanding track record of transformational management, has worked successfully with creative and media talent, and has long experience of dealing with regulators and government.

As we embark on this journey, we inherit a platform for change created out of the fire of recession by my predecessor, Michael Grade, and by John Cresswell, the Interim Chief Executive. Michael has been an iconic figure at the helm of ITV and handed over a business with a spring once more in its step. He arrived at a very difficult time for ITV and leaves a business strengthened in many respects. Throughout, John Cresswell has provided calm and strong leadership. We are grateful to them both.

Since my arrival we have moved to streamline the Board to prepare for the journey ahead and to create a strong and very engaged team. As a result some very distinguished non-executive directors have stood down. These include our Deputy Chairman, Sir George Russell, who made a substantial contribution to ITV from the days of the merger. Sir James Crosby played an important role as ITV's Senior Independent Director, a position which has now been taken on by Mike Clasper. Agnès Touraine and Heather Killen also stood down from the Board towards the end of the year. I would like to thank them all for their contribution.

Outlook

In my short time at ITV, I have met many highly talented people at all levels of the organisation. There is a shared recognition that the business will need to change substantially going forward if we are to return to sustained growth. In the coming months we will outline in more detail the outcome of our current strategic review and the journey ahead. Whilst this new phase in the development of ITV is going to be a challenging one, we enter it with a vibrant pipeline of programmes, a very strong brand and a talented team. Ours is a people business and, with the right people, culture, motivation and leadership, the future of ITV will lie in our own hands.

 

Archie Norman

Chairman

 

Operating review

The UK television advertising market experienced record declines across 2009. We executed a concerted response which ensured that ITV entered 2010 as a leaner, fitter business, with a stronger balance sheet.

2009 was a very challenging year for ITV. UK television advertising revenues fell by 9% in the final quarter of 2008 and weakened further across the first half of 2009, with ITV advertising revenues falling by 15%. Such was the level of market uncertainty, even then we could not be confident that we were at the bottom of the downturn.

Given our high levels of financial and operational gearing, ITV rapidly put in place an action plan, with three over-arching priorities.

First and foremost, we needed to stabilise the finances of the business to ensure that we could weather the economic storm.

Secondly, we needed to reduce our costs. We set out plans to deliver savings in 2009 equivalent to 9% of our cost base.

Thirdly - and crucially - we were determined to maintain the progress the business was starting to make. Cutting investment or making savings by undermining ITV's long-term health would represent a false economy for our shareholders.

A year on, with some greater stability in the market, we have delivered tangible progress against each of these objectives.

Cash and the balance sheet

With television advertising accounting for almost 70% of ITV revenue, we had to work hard to ensure that the downturn did not put undue pressure on cash and debt levels.

Whilst our EBITA before exceptional items reduced slightly, we managed stock levels tightly and increased our adjusted cash flow by £200 million. As a result, we reduced our net debt by over £100 million at the year end.

We have also ensured that our debt is repayable over a longer timeframe. We raised around £250 million of new borrowings repayable over five to ten years, including a convertible bond. We reduced our 2011 debt repayment by nearly 90%. All our debt is covenant free and cash on the balance sheet is sufficient to cover all repayments to 2015.

Whilst the immediate funding pressure has been reduced, challenges remain. The pension deficit has increased, reflecting actuarial changes. We are actively managing this risk, reducing liabilities by £110 million through benefit changes. The next major funding valuation is due in 2011.

Further details on the action we have taken to strengthen the balance sheet are set out in the Financial review.

Cost savings

Across the three years to the end of 2008, ITV delivered £40 million in cost savings. In the face of the economic downturn, we committed to new savings of a different order of magnitude, with a target of £155 million for 2009.

There are three elements to this cost reduction: regional programming; network programming; and efficiencies off-screen.

In regional programming, we reduced costs by £44 million. We did this whilst maintaining service quality by simplifying the regional map and reducing non-news output, both with regulatory consent. Further regional savings may be deliverable over time given the political consensus that the cost of our licence commitments need to return to balance with reducing licence benefits. Additional savings such further deregulation would yield are not included in our savings targets.

We reduced network programming costs by £75 million during the year. Our investment in original programming remained substantial at £540 million, but reduced year-on-year by almost £70 million. Nonetheless, ITV1 performed well, reducing share of commercial impact decline compared to 2008 and launching a number of successful new series, including Law & Order: UK, The Cube, Above Suspicion and Whitechapel.

Off-screen we delivered £50 million of savings. Staff headcount was reduced by over 1,200 posts and we closed operations where further investment could no longer be justified. We have also simplified our structure by integrating our Online business with Broadcasting. We are seeking to dispose of the joint venture Screenvision US and have agreed to sell Friends Reunited, subject to final regulatory approval.

In total across 2009, we exceeded our target and delivered £169 million in savings. These savings have protected our profits in the face of revenue decline, but have also funded important investments, including high definition, video on demand and other emerging platforms and services, which will continue into 2010.

Core operating performance

In 2008 ITV held its share of audience and advertising, whilst establishing its online video proposition and growing its international production revenues. As important as it was to reduce our cost base and to stabilise our finances, we were determined to maintain this operational momentum into 2009.

In fact, with our focus on delivery unwavering, we succeeded in delivering further progress during the year across all of our key business areas.

As well as holding our audience share once again, we increased our share in peak viewing hours. We started to win back share of the television advertising market from our competitors. Online viewing of catch-up programming and clips started to achieve consistent scale, driving revenue growth.

Our studios business continued to grow its external revenues, leveraging successful UK productions overseas, and - in a tough market context - held its profits year-on-year.

Further details of the operating progress made in 2009 are set out over the following pages.

2010 and beyond

As set out in the Forward look on page 26, 2010 will be another challenging year for ITV. But we are focused on delivering further progress against our stated priorities.

In terms of our core operating performance, we will seek to continue to hold our broadcast audiences and advertising market share, whilst building our online reach. The breadth of our service offering will increase with the planned launch of an ITV1 HD service and ITV1+1, and continuing progress towards bringing the Project Canvas video on demand service to market. Our ITV Studios business has secured an extended pilot deal with ITV channels and will look to leverage its UK successes in the international market.

With respect to cash and the balance sheet, we will look to maintain profit to cash conversion in excess of 90% on a rolling three year basis. We will continue to manage our balance sheet and our interest costs, whilst seeking to further de-risk the pension liability.

We are continuing to keep a tight rein on costs, with the review of licence payments and the next stage of regional news reform offering further potential upside.

But whilst we have made progress and are clear on our short-term priorities, the business continues to face some considerable challenges over the longer term.

Whilst we are seeing year-on-year growth in the market in early 2010, the outlook for UK television advertising remains uncertain. ITV needs to look to protect its performance and profits from the impact of advertising volatility by developing alternative revenue streams. Online, we need to be exploiting fully our deep programming archive, as well as catch-up and clips. ITV Studios needs to deliver successful new international formats, which will drive margin improvement alongside revenue growth.

Such issues are being addressed in a strategic review which is now underway. In the meantime, with a strong operating performance, a lighter cost base and a number of key commercial rivals under pressure, ITV is well positioned to take full advantage if the stabilisation in the market continues and we start to see a sustained economic recovery.

I am confident that the progress we have delivered over the past year - in an unforgiving market context - means that ITV is a leaner and fitter business in early 2010 than it was going into the downturn in late 2008. ITV now has a stronger platform to effect what will need to be an even more radical transformation of the business over the next several years.

John Cresswell

Interim Chief Executive

 

 

Broadcasting & Online

UK advertising came under considerable pressure during 2009, with total revenues declining by 13%. Total UK television advertising revenues declined by around 11%, slightly increasing their share of the total advertising market to around 24%. Growth in UK online advertising revenues was more muted than recent years at around 3%. Nonetheless online advertising now accounts for nearly a quarter of total UK advertising spend.

ITV outperformed the wider television advertising market significantly over 2009. As a result, although ITV's television advertising revenues declined by 9%, ITV's share of the total market increased from 43.8% in 2008 to 44.7%. This increase followed ITV holding its market share year-on-year for the first time in over two decades in 2008.

Across the year, there was considerable market volatility. Over the first half, ITV net advertising revenue (NAR) was down 15%, with year-on-year decline easing to 11% in the third quarter. In the final quarter ITV NAR actually increased year-on-year, with revenues in December up by 14%.

ITV's outperformance in revenue terms across 2009 reflected positive negotiating round with advertisers, after ITV held its viewing share across all its channels in 2008. In addition, ITV was well positioned to compete for late monies as ITV's channels again held their viewing share in 2009. In peak viewing hours, ITV's channels actually increased their share from 27.8% in 2008 to 28.2% in 2009.

This increase in peak share was delivered despite the continuing pressure on ITV1 viewing from rising digital penetration. During the year around 1.2 million UK homes converted to digital multichannel. Three UK regions - the Borders, the West Country and the North West - completed their transition to digital, with analogue transmission ceasing. Across the UK, by the end of 2009, around 95% of viewers were in multichannel homes, with the remaining 5% due to convert by the conclusion of switchover in 2012.

The main terrestrial channels, including ITV1, experience viewing share decline as homes convert to multichannel. However, this effect is easing as the UK approaches 100% digital penetration. Since 2006, growth in viewing to ITV's digital channels has offset decline in ITV1 viewing share.

Of the different television platforms available to viewers, digital terrestrial television, predominantly Freeview, accounts for 39% of primary set reception, around the same level as satellite, which is largely subscription but includes Freesat. Digital cable - which is exclusively pay-TV - accounts for a further 13% of homes. A small number of UK homes also subscribe to smaller pay-TV operators, including Top Up TV and BT Vision.

UK television viewing levels remained flat in 2009, with the average adult watching four hours of television a day. With the BBC losing share, viewing of commercial television registered a small increase, rising by 1% compared to 2008.

ITV channels delivered 326 billion commercial impacts - individual adult viewings of 30 second television commercials - an increase of 1% over the previous year. However, the volume of commercial impacts across the market increased by 4%, reflecting increased commercial viewing and more viewing of digital channels carrying a higher volume of advertising. As a result, ITV's channels' share of commercial impacts was down slightly year-on-year at 40.0% (2008: 41.0%).

ITV1

On-screen performance

Across 2009, ITV1 delivered a 16.6% share of total UK viewing compared to 17.2% in 2008. ITV1's share of commercial viewing (excluding the BBC) was 26.6% (2008: 27.8%). BBC1, BBC2 and Channel 4 all suffered greater proportionate declines than ITV1.

ITV1 performed particularly strongly in peak viewing hours - defined as 7.00 pm to 10.30 pm. ITV1 delivered a 23.7% peak share overall (2008: 23.9%) and a 37.7% share of commercial viewing in peak (2008: 38.6%). Again, ITV1's main terrestrial rivals all suffered proportionately greater declines. ITV1 delivered nearly double the share in peak of Channel 4 and Five combined.

Share of commercial impacts is an important measure for advertisers as it represents the proportion of all viewing of UK commercials delivered by a channel. ITV1's share of commercial impacts in 2009 was 28.4% (2008: 30.0%). Across upmarket ABC1 viewers and younger 16-34 year old viewers, ITV1 outperformed both its main commercial rivals, Channel 4 and Five year-on-year.

Programming

The foundation of ITV1's strong viewing performance in 2009 was a raft of successful new and returning programming, within a significantly reformed schedule architecture. Although the programme budget was reduced by 12% year-on-year, ITV1 invested over £850 million in programming, including £540 million in original UK commissions. ITV1 maintained its spending on entertainment, but trimmed investment in drama, with a focus on the soaps and 9.00 pm drama.

In entertainment, ITV1 had an exceptional year with each of its four main entertainment events - Dancing on Ice, Britain's Got Talent, The X Factor and I'm A Celebrity - building their audience. The final of the third series of Britain's Got Talent peaked with a 75% audience share, and was the most watched non-sports programme on UK television for over five years. In its sixth series, The X Factor introduced auditions before a live audience and split its final stages over Saturday and Sunday nights. The result was its most successful series to date with the final attracting 19.3 million viewers.

Outside the four big franchises, entertainment successes included Piers Morgan's Life Stories, All Star Mr & Mrs, The Royal Variety Performance and Ant & Dec's Saturday Night Takeaway. ITV also launched a successful new entertainment format for Saturday nights, The Cube.

ITV1's soaps continued to deliver robust ratings. Coronation Street averaged 9.2 million viewers (2008: 9.5 million), well ahead of Eastenders on BBC1. Emmerdale averaged 6.7 million (2008: 6.9 million).

Alongside the soaps, ITV1 delivered a number of highly successful new 9.00 pm dramas. Whitechapel was the highest rating new drama on any channel since 2006. Collision was stripped across a week and peaked with 8.4 million viewers. Law & Order: UK, a British version of the highly successful and long-running US series, delivered an audience of 7.0 million. In total, seven of the UK's top ten new dramas across the year were on ITV1, with a number of the most successful - including Whitechapel, Above Suspicion and Law & Order: UK - returning in 2010.

In comedy, a third series of Benidorm, with episodes extended to an hour, delivered an average audience of 6.5 million. Harry Hill's TV Burp returned for a ninth series and averaged 6.7 million viewers.

The best performing sports programme on ITV1 in 2009 was the UEFA Champions' League final between Manchester United and Barcelona, which peaked with 10.6 million viewers. Other high performing sports programming included the FA Cup and England home internationals.

Given the pressure on the programming budget, the ITV1 schedule included a greater emphasis on lower cost factual programming. Strong factual performers included Piers Morgan on, Martin Clunes: Islands of Britain and Billy Connolly: Journey to the Edge of the World. The best performing factual programme in the year was Dancing on Ice: The Story of Bolero which attracted an audience of 7.7 million viewers.

Daytime programming delivers over 20% of total ITV1 viewing. During 2009, This Morning relaunched with Holly Willoughby joining the presenting line-up and a range of editorial changes. Ratings for the show improved with audiences in 2009 up 8%. Other key daytime titles, The Jeremy Kyle Show and Loose Women, held their audience shares on 2008.

In November 2009, ITV acquired the remaining 25% of GMTV held by Disney. Full ownership of the breakfast franchise will allow greater integration and cross-promotion between ITV1 and GMTV. Across 2009, GMTV held its audience share at 1.2% (2008: 1.2%).

ITV reduced its investment in regional programming to £68 million (2008: £112 million), as Ofcom approved modernisation of ITV's regional news services. Nonetheless ITV1's main regional news programmes at 6.00 pm continued to deliver an average audience of 3.3 million viewers (2008: 3.4 million).

National and international news remains a key part of the ITV1 schedule. ITV invested in a significant marketing campaign to support a relaunch of its national news programming during the year. News at Ten's average audience increased by 6% compared to 2008. Across the year, ITV1's main news programmes delivered an average daily reach of 7.8 million, compared to 1.8 million for Channel 4 News and 1.7 million for Sky News.

The ITV1 network's viewing figures across the year were negatively impacted by the underperformance of the independent ITV1 licensee, STV Group plc. STV increased its level of opt outs from ITV1 dramas, including The Bill and Doc Martin, and reduced its financial contribution to the ITV1 network. STV's share of commercial impacts fell by 12% across the year.

Revenues

ITV1 television advertising revenues were £993 million, down 12% on 2008. Compared to recent years, ITV1 revenue growth ran much closer to the overall market, where revenues were down 11%.

The 2009 revenue performance was achieved despite the continuing impact of Contract Rights Renewal (CRR). CRR allows advertisers to reduce their commitment to ITV1 in line with the channel's share of commercial impact decline in the previous year. ITV1's share of commercial impact decline in 2008 was 6%. However, 2009 ITV1 NAR decline ran relatively close to the overall market decline, reflecting a strong on-screen performance and a successful outcome to the advertising deal round.

The Competition Commission undertook a review of CRR during 2009 and, in early 2010, provisionally ruled that CRR should be maintained. ITV had argued that CRR should be abolished entirely and the outcome of the review is therefore disappointing. ITV continues to believe that CRR is a disproportionate remedy with negative consequences extending well beyond ITV. The Competition Commission has provisionally concluded that CRR should be amended to permit the inclusion of an ITV1+1 and ITV1 HD service within CRR.

ITV's sponsorship revenues - predominantly in connection with ITV1 programming - were £59 million in 2009 (2008: £58 million). Sponsorship revenues were considerably more resilient than NAR, reflecting longer term contracts and the value to advertisers of allying themselves with successful ITV programming. Major contracts in 2009 included esure's sponsorship of the National Weather and Harvey's sponsorship of Coronation Street. In addition, ITV secured important contracts for 2010, including Lucozade and Hyundai's sponsorship of the 2010 World Cup.

ITV's interactive revenues, primarily raised from competitions and phone voting around ITV1 programmes, were £30 million in 2009 (2008: £34 million). There were almost 100 million viewer interactions, entries to competitions and votes across the year. The X Factor final alone generated over 10 million votes, up 28% year-on-year.

Digital Channels

ITV's family of digital channels - ITV2, ITV3, ITV4 and CITV - put in another strong performance in 2009. Their combined share of viewing was 5.3%, compared to 4.3% for the BBC's digital channels and 4.1% for the Channel 4 digital family.

ITV's digital channels are broadcast free-to-air on Freeview, digital satellite and cable and are entirely funded by advertising and sponsorship. Notwithstanding wider market weakness, ITV's digital channels increased their television advertising revenues by 1% to £245 million, raising their share of the total UK television advertising market to 8.5% (2008: 7.5%). Across the year, ITV's digital channels generated more advertising revenue than the UK's third largest commercial channel, Five.

Although ITV's digital channels delivered increased viewing, advertising revenues and share across 2009, investment in programming for the channels was held at £110 million (2008: £112 million). This reflects ITV's strategy of seeking to contain its programming costs.

ITV2

ITV2, together with a timeshifted sister service, ITV2+1, is particularly targeted at the younger 16-34 year old demographic, with a schedule including a mix of original commissions, spin-offs from ITV1 programming, movies, US acquired series and repeats.

In 2009, ITV2 retained its position as the UK's top multichannel station in terms of its share of commercial impacts, with a 12% increase in adult commercial impacts translating into a 4.3% share of total market impacts. ITV2 increased its share of viewing to 2.4% (2008: 2.1%).

Impacts across ITV2's target younger audience increased by 15% on the previous year, with ITV2 overtaking the terrestrial channel Five in this commercially valuable demographic. ITV2 also delivers more upmarket impacts than any other UK digital channel and improved its audience profile further during 2009 with ABC1 impacts increasing by 13%.

ITV2 had a number of programming successes during the year. The Xtra Factor attracted the channel's highest ever peak audience of 3.5 million viewers, ahead of the Britain's Got More Talent final episode which peaked at 3.3 million viewers. Other programming successes included Peter Andre: Going It Alone, which peaked with 2.4 million viewers.

ITV3

ITV3 is aimed at an upmarket audience, with a schedule including repeated ITV drama, acquired programming, films and some original programming.

In 2009, ITV3 retained its position as the UK's second largest multichannel station in terms of commercial impact share, with a share of 3.4% (2008: 3.1%) and impact volumes up by 16% year-on-year.

Across the year, 241 ITV3 programmes achieved an audience of more than 500,000, compared to 147 programmes in 2008. ITV3 had its best ever programming performance in 2009 with Ladies of Letters delivering 1.3 million viewers and an 8.2% viewing share. Other successful programmes included Lewis and Poirot, which both had episodes with audiences of over 1.0 million.

ITV4

ITV4 targets young male viewers, with a schedule including live football, darts, Tour de France cycling, classic repeated drama and US acquisitions.

ITV4 grew its impacts by 8% in 2009 and was the UK's seventh largest multichannel station in terms of commercial impact share, with a 1.5% share of commercial impacts.

ITV4's top performing programme of the year was the UEFA Cup match between Manchester City and Hamburg, which attracted a peak audience of 2.7 million viewers and averaged a 13% share of male viewers. The top non-sport programme on ITV4 was the action movie Crank, which attracted a peak audience of 1.0 million viewers and a 10% share.

CITV

CITV is ITV's channel for younger viewers and features a range of UK and imported children's programming. In 2009, CITV's share of commercial impacts for children increased by 6% to 3.1%, with its volume of children's impacts up by 6%.

SDN

SDN is a digital terrestrial television (DTT) multiplex operator wholly owned by ITV. SDN earns revenues by leasing out capacity on the DTT platform to channel providers, generally on long-term contracts. Channels carried on the SDN multiplex include QVC, Five and CITV.

SDN holds one of six digital terrestrial multiplex licences. During 2009 the licence was renewed by the regulator Ofcom and the second licence term runs to 2022. No spectrum fee is payable until the end of 2014 at the earliest.

In 2009, SDN revenues increased by 33% to £44 million, reflecting improved terms for a channel contract renewed in early 2009 and the accommodation of a tenth broadcast channel from May 2009.

Having considered the sale of SDN earlier in the year, in October 2009 ITV announced that preliminary discussions had been opened with the Trustees of the ITV Pension Scheme over a partnership arrangement under which SDN would provide asset backing to the pension scheme. Such a partnership could serve to reduce the pension deficit on a funding basis, with ITV continuing to consolidate SDN's revenues and cash flows. Discussions regarding this proposal are continuing.

Freeview, Freesat and Project Canvas

ITV is a shareholder in Freeview, which markets the highly successful UK free-to-air DTT platform. By the end of 2009, Freeview was the primary means of television reception in 10.1 million UK homes, with a further 5.9 million homes using Freeview on one or more non-primary sets.

ITV is also a joint venture partner in Freesat, which markets subscription-free digital satellite television. Freesat was launched in early 2008 by ITV and the BBC to provide free-to-air access to digital satellite, including HD services from the BBC and ITV. By the end of the year, subscription-free digital satellite was the primary means of television reception in 0.7 million UK homes.

ITV's backing for Freeview and Freesat reflects ITV's strategy to future-proof the digital platforms on which ITV's family of channels performs strongest. Consistent with this strategy, ITV is also a partner in Project Canvas, which aims to set a standard for on demand services delivered via internet-connected set-top boxes and televisions.

Project Canvas will allow all digital viewers - free-to-air as well as pay - access to video on demand programming on the television set. ITV's partners in the project include the BBC, BT, Five, Channel 4 and Talk Talk. Having been provisionally approved by the BBC Trust in late 2009, preparations for the launch of Project Canvas are continuing.

Online

The UK online advertising market continues to grow as broadband penetration has reached 70% of UK households. With faster broadband connections, the demand for online video has increased and a number of new online video services have been launched. Digital cable subscribers can already access services, including ITV Player, via their television. New services, such as Project Canvas, promise to accelerate further the convergence of online video on demand and television platforms.

ITV's focus has been on building the reach of its online video services delivered via itv.com and a number of partnerships. In 2009, itv.com unique users averaged 8.7 million per month, increasing by 33% on 2008. Online video viewing of ITV programming has also continued to grow rapidly. Including catch-up and short form clips, video views across the year on itv.com totalled 215 million, up 150% from 2008. Both metrics peaked in May, with Britain's Got Talent boosting unique users to 12.8 million and video views reaching 50 million for the month.

Video on demand deals with Virgin Media and BT Vision allow their combined 3.5 million subscribers access to hundreds of hours of ITV content via their televisions on an on demand basis. ITV also has a partnership with iTunes which makes ITV's programming available for paid-for download.

Early in 2009, the Competition Commission blocked Project Kangaroo, the proposed joint venture between the BBC, ITV, Channel 4 and Five to deliver an online video archive service. Since that decision, ITV has been pursuing alternative means of exploiting its extensive video archive via itv.com and potential third-party partnerships.

During 2009, the online division was integrated into ITV's wider broadcasting operations, generating significant savings. As with ITV's existing digital channels, there is an opportunity to leverage ITV's investment in content and ITV1's cross-promotional power to drive traffic and revenues to online and on demand services.

Online revenues totalled £37 million in 2009, up 3% on 2008. Excluding Friends Reunited, itv.com revenues were £24 million, up 33% on 2008. The largest single element of itv.com revenues is accounted for by video advertising, with the balance including payments from video on demand deals with pay-TV platforms.

Friends Reunited's revenues declined by 28% to £13 million, impacted by the decline in online display advertising prices and the loss of subscription revenues from the core reunions site following its relaunch in 2008.

In August 2009, ITV announced that it had agreed to sell Friends Reunited to Brightsolid for £25 million. The proposed disposal is currently being reviewed by the Competition Commission.

ITV Studios

2009 was a challenging year for the UK and international television production market. The economic downturn impacted demand for original production from broadcasters. With their own advertising revenues falling, commissioners sought to apply downward pressure on producers' prices and margins or replaced original commissions with cheaper acquisitions and repeats.

Despite the downturn amongst its broadcast customers, ITV Studios increased its external revenues by 9% to £335 million (2008: £306 million). However, overall revenues fell by 4% to £597 million (2008: £622 million), reflecting a significant reduction in internal ITV commissions. Following a similar pattern of increased external revenues and reducing ITV commissions the previous year, for the first time in 2009 external revenues represented the majority of overall ITV Studios' revenues.

EBITA before exceptional items was held at £91 million (2008: £90 million), with efficiency savings, international growth and some exchange rate gains offsetting lower internal supply.

UK Production

Internal revenues, largely commissions for ITV1, fell by £54 million to £262 million. The reduction in internal commissions partly reflected a reduction in ITV1's budget. However ITV Studios' share of ITV1 commissions fell to 47% in 2009, compared to 51% in 2008.

The most significant reduction in internal commissions was in drama, with a number of established titles, including A Touch of Frost and Heartbeat, not broadcast or transmitted in shorter runs. In other cases, including Albert's Memorial and Identity, transmission has been delayed into 2010. Nonetheless ITV Studios continued to deliver more ITV1 drama than any other producer, with returning titles including Lewis and Blue Murder, and new commissions including Gunrush and The Fattest Man in Britain.

Entertainment commissions for ITV1 also reduced, but included I'm A Celebrity, Dancing on Ice and The Krypton Factor. Two new shows - The Fuse and The Chase - were delivered under an ITV pilot deal, which is being extended in 2010.

With ITV1's programme budget under pressure, more cost effective factual programming has been a focus. ITV Studios deliveries included Real Crime, Airline and Countrywise. ITV Studios also continued to produce the key pillars of ITV1's daytime schedule, including The Jeremy Kyle Show, This Morning, Loose Women and 60 Minute Makeover.

ITV Studios' two soaps - Coronation Street and Emmerdale - remained ITV1's most effective ratings drivers over the course of 2009. Coronation Street reached its 7,000th episode in January 2009 and celebrates its 50th birthday in 2010.

Trading conditions beyond ITV were tough with other UK broadcasters also cutting programme budgets. Reflecting these trends, ITV Studios' external UK production revenues reduced by 15% to £58 million. However, successful third-party commissions included The Street, Eggheads and University Challenge for the BBC, Come Dine With Me and Countdown for Channel 4 and two new formats for Living, My Ugly Best Friend and Four Weddings.

Resources revenues from ITV's studio facilities and post-production business were £13 million (2008: £17 million), reflecting the decline in UK production activity and closure of studios in Leeds.

ITV Studios won 45 awards in 2009 (2008: 61 awards), with winners including Ant & Dec's Saturday Night Takeaway, The Street and Loose Women.

International Production

ITV has been seeking to diversify its production revenues over recent years. International production has been a particular focus with ITV seeking to move from distributing programming or selling format rights to producing original programming in local markets for international broadcasters. In more challenging trading conditions, ITV's international production businesses were able to maintain strong growth across 2009, with revenues increasing by 41% to £138 million (including some foreign exchange benefit).

This growth has been founded on ITV's ability to deliver locally adapted versions of proven UK hits to the international market. ITV Studios produced Come Dine With Me - originally made by ITV Studios for Channel 4 in the UK - for VOX in Germany, for TV4 in Sweden and for Lifestyle in Australia. During the year, ITV produced local versions of I'm A Celebrity for NBC in the USA, RTL in Germany, Sony Entertainment Television in India and TV4 in Sweden - as well as on ITV1.

The largest of ITV's international production businesses, ITV Studios USA, delivered a strong slate of programming including Hell's Kitchen and Kitchen Nightmares for Fox, Room Raiders for MTV and Steven Seagal Lawman for A&E.

Alongside ITV Studios' existing production offices in Germany, Australia and Sweden, ITV opened a further production base in Spain and, early in 2010, in France.

ITV Studios Global Entertainment

ITV's distribution and exploitation business, ITV Studios Global Entertainment, held its revenues broadly flat in 2009 at £126 million (2008: £123 million). This was despite challenging trading conditions, in particular in the UK DVD market, and reflected some benefit from foreign exchange movements.

ITV Studios Global Entertainment represents more than 35,000 hours of original and formatted programming from ITV Studios and leading independent producers and distributes to broadcasters in more than 240 territories worldwide. Major revenue earners in 2009 included Coronation Street, Emmerdale, Poirot and Heartbeat, with Australia, Ireland, Canada, the USA and Scandinavia the major territories. A new version of The Prisoner, co-produced by ITV Studios and AMC in the US, will be broadcast on ITV1 in 2010.

Major format sales include Come Dine With Me, which has been sold to countries including Slovenia, Sweden, Australia and Norway. New ITV Studios format Four Weddings has also delivered international format sales following its UK success.

ITV Studios Home Entertainment markets a portfolio of over 3,000 television, music, film and publishing titles across formats including DVD, Blu-ray, and downloads in the UK and internationally. Major UK revenue earners included Harry Hill's TV Burp, Al Murray: The Pub Landlord, Coronation Street: Romanian Holiday and Inspector Morse.

 

 

Forward look

Although the wider economic environment may be more stable in 2010, the outlook remains highly uncertain and ITV faces another challenging year.

Broadcasting & Online

In early 2010, the television advertising market has returned to growth. Across the first quarter, ITV expects its television advertising revenues to be up 7%, in line with the wider UK television advertising market.

Into the second quarter, the level of Government spending on UK television advertising may be impacted by the general election. However it is hoped that this should be offset by the positive impact of the football World Cup. Whilst ITV has limited visibility on advertising beyond the first quarter, ITV is seeking to hold its share of the total market for a third year in succession. ITV has continued to deliver a stable ratings performance in early 2010, with the ITV family maintaining its share of commercial impacts year-on-year over the first six weeks. Over the same period, ITV1's share of commercial impacts was 28.7% (2009: 29.4%), reflecting the success of programming including Above Suspicion, Take Me Out and Dancing on Ice. As well as the start of the football World Cup, the second quarter includes the fourth series of Britain's Got Talent.

Following the Competition Commission review of CRR, ITV anticipates launching ITV1+1 and the ITV1 HD channel later in 2010. ITV1+1 and the HD services will strengthen ITV's channel line up and the channel offering on DTT, the platform on which ITV's channels perform best. Preparations for the launch of devices allowing free-to-air access to video on demand services via the television, as part of Project Canvas, will also continue.

With the CRR review completed, Ofcom intends to review the rules on advertising minutage. Currently ITV1 (alongside Channel 4 and Five) is required to broadcast a lower volume of advertising than other UK commercial channels and must sell all its inventory. ITV believes that it could potentially benefit from greater flexibility with respect to such restrictions.

Ofcom is also set to consult on the limited introduction of product placement to UK television later in 2010. While there is uncertainty as to the scale of the market, product placement represents an opportunity for further revenue diversification.

The requirement on ITV1 to broadcast regional news services remains a costly obligation which ITV believes is unsustainable in its current form. Government has confirmed a pilot scheme which may see ITV plc relieved of regional news costs in two regions as early as 2010/11 and a framework for external funding of regional news across ITV by 2013. The Conservative Party opposes these specific proposals, but has also supported a reduction in ITV's public service broadcasting obligations.

ITV1 has been required to make payments to the Treasury for its Channel 3 licences, which in 2009 totalled £22 million (2008: £30 million). An early review of the level of these licence payments is currently underway with new rates expected to be retrospectively applied from January 2010.

ITV Studios

Trading for ITV Studios is expected to remain tough during 2010, reflecting pressure on commissioning budgets amongst broadcasters worldwide. Internal commissions will be impacted as ITV's programme budget accommodates additional investment on the football World Cup. In international production, a number of commissions secured in 2009 are not expected to be recommissioned for 2010, but may return for 2011.

Strategic review

Early in 2010, ITV launched a major strategic review. The review will set out the journey ITV needs to embark on to deliver its strategic objectives. The new Chief Executive Adam Crozier is expected to set out the new strategy for the business later in 2010.

Having exceeded its cost savings target for 2009, ITV is continuing to keep a tight rein on costs in 2010, with total schedule costs expected to be flat and further off-screen savings in train. ITV continues to make targeted investment, in particular to support the launch of ITV1 HD, ITV1+1 and Project Canvas.

 

Stakeholders

ITV's major stakeholders include shareholders, employees, suppliers, viewers and online users, UK and international broadcasters, and advertisers.

Employees

Given the difficult economic environment, ITV has seen its headcount fall significantly during 2009. As at 31 December 2009, the Company had 4,026 employees (2008: 5,232 employees).

In tough market conditions, building employee engagement and commitment is an even greater priority for the Company. In 2009, ITV undertook regular staff surveys to track staff opinion, commitment and engagement (see page 33).

People development

Ensuring that staff have the necessary skills and experience to deliver the Company's corporate objectives in rapidly changing market conditions is a priority for ITV.

The Company's performance management process seeks to ensure that ITV employees have clear and aligned objectives which are evaluated each year. All managers are required to undertake a formal Performance and Development Review with their staff. In 2009, ITV refined its core training portfolio to focus on those core skills that best meet the priorities of the business.

ITV has also implemented a number of initiatives in 2009 that give employees broader experience and enhance company-wide commitment. These include the relaunch of the volunteering scheme which allows employees to use their creative and media skills through a range of volunteering opportunities. A 12 month Fast Track scheme allows talented ITV staff at the beginning of their careers to build experience and skills on an accelerated basis.

Rewards and incentives

In order to attract, retain and motivate the best talent, ITV aims to offer all employees a competitive package of pay, benefits and incentives. In January 2010 ITV completed its annual pay review and concluded that there should be no increase in base salary for any ITV employees. However, to provide recognition to its employees for their hard work and loyalty shown during a difficult year, ITV made a share award to the value of £340 to all eligible employees and provided an extra day's holiday.

ITV offers a number of initiatives as part of its benefits package to incentivise all employees:

-     an annual bonus scheme for all ITV employees, which is dependent on ITV's performance against key financial and non-financial targets;

-     an all-employee reward scheme, Create, which rewards employees for any new ideas that generate profit or improve the way ITV does business; and

-     a Save As You Earn scheme which gives all employees the chance to save and build a stake in the Company.

Diversity

ITV's diversity policy aims to ensure equality of opportunity irrespective of gender, marital status, race, origin, nationality, religious belief, disability, age or sexual orientation in recruitment, learning, development and promotion. This also covers the arrangements for continued employment of and appropriate training for employees who become disabled whilst working at the Company.

ITV is an active participant in the major diversity forums. Through these and direct activities undertaken by ITV regionally and nationally, the Company is committed to working towards achieving a workforce fully reflecting the audiences it serves. The table on page 29 gives further information on ITV's workplace profile.

Communication

ITV recognises that creating an effective workplace requires free circulation of information at all levels across the Company. Employees are kept informed about significant business issues and the Group's performance using emails, the Company intranet - The Watercooler - and open forums with members of the Management Board at each main location. Regular monthly leadership breakfasts are held for senior management, who are asked to cascade the information to their teams. The Watercooler also provides a platform on which employees can interact, discuss current corporate issues and register any matters of concern.

The Company has a framework for consultation and information-sharing, under which Communication Groups on each ITV site are responsible for maintaining a regular two way dialogue with management on all issues concerning employees.

Health and Safety

The health and safety (H&S) of employees, contractors and visitors at ITV is always a high priority. A management system has been developed by the internal H&S team to meet the specific risk profile of the business and is supported by a comprehensive training programme. H&S is communicated throughout the organisation by a network of local Committees, who report to the ITV H&S Steering Group. The table on page 29 gives further information on ITV's H&S statistics.

Customers

Our key customers are our viewers, our advertisers and other broadcasters. The heart of our business lies in delivering first-rate content to viewers, either directly via our family of channels, or via the sale of our content.

To understand ITV viewers and their expectations of us more fully, throughout 2009 we continued to commission an independent research company to recruit and survey our Vision Panel - a fully representative panel of 10,000 adult television viewers - and a smaller independent panel, My Digital Life, to obtain feedback from the online market. This enables ITV to measure audience reaction to our programmes and content on a daily basis and to achieve an in-depth understanding of viewer reaction and preferences. It also allows ITV to ask regular questions about the family of digital channels, using the panel to test new ideas and to find out people's views on broader media issues. The success of the research has led it to be used by a wide range of areas within the business. In 2009 for the first time it was used to help develop programme-related merchandising opportunities.

Viewers must be confident about the quality and appropriateness of ITV's content and scheduling. ITV observes the 9.00 pm watershed and alerts viewers to material that may cause offence via announcements immediately before relevant programming. ITV has detailed compliance processes and an in-house compliance team that provides support and advice for programme makers and commissioners before and during production. ITV maintains a responsive complaints handling service via ITV's Viewer Services team, and viewers can raise any issues directly with Ofcom. In 2009, 797 ITV programmes were complained about to Ofcom, compared to 1,026 in 2008, and 13 Ofcom adjudications found breaches compared to 16 in 2008.

The relationship with advertisers is essential to drive advertising revenues. ITV continues to build close relationships with the advertisers and agencies, to gain a better understanding of their objectives and to enable ITV to meet those needs more efficiently and effectively.

ITV Studios has supplied programming to broadcasters and commissioners worldwide. The business works closely with its partners to produce and supply the highest quality content, which is commercially appealing and rewarding.

Suppliers

ITV conducts business with a large variety of suppliers and believes that its terms are considered fair and reasonable. To ensure ITV contracts with responsible suppliers, environmental and health and safety questionnaires are required to be completed as part of all tender processes. A green and sustainable procurement agenda will continue to be a key focus for the centralised procurement team.

Procurement plays a significant role in driving corporate performance. A significant transformation within the function and better accounting systems have enabled ITV's procurement function to be integrated more effectively into the way ITV conducts its business. Procurement manages spending along category lines enabling it to manage spend more effectively. There are central contracts in place for technology, broadcast, production and marketing spend, with local deals only being used where a justification has been agreed.

ITV has a variety of suppliers who are key to the business. A number of the Company's major suppliers are involved in the broadcast of ITV's family of channels and include Arqiva, TNS, SES Astra and BT. Key suppliers of programming and broadcasting programme rights include ITN, who provides ITV's national news programmes, Fremantle who produce Britain's Got Talent and The X Factor for ITV1, the Football Association and NBC Universal Studios. ITV has recently signed a five year outsourcing contract with Accenture for them to provide ITV with technology operations and support services. Services will be transitioned to Accenture during 2010. ITV ensures close engagement with these suppliers and seeks to manage the risks involved in the reliance upon them, where possible holding long-term contracts. Other key suppliers include those who provide the technology for outside broadcast, for example O21 Television and SIS. ITV has de-risked its exposure to these suppliers by moving away from reliance on a single partner.

Community

ITV is committed to engaging viewers across the country on issues that affect their lives and have an impact on the community in which they live. Both on and off-screen, ITV's network and regional teams play an important role in initiatives which seek to encourage individuals to improve their lives, support community projects or promote integration of minority groups within their region.

In 2009 ITV was an active partner in the cross-industry and government campaign to improve the nation's health and fitness. As a founding member of the Business4Life movement, ITV supported the Change4Life campaign both on-screen and online by launching The Feelgood Factor. This initiative involved network and regional programming with a focus on helping viewers make positive changes to achieve a healthier lifestyle for themselves and their families.

In 2009 the ITV regional news programmes across the UK helped give away £3.5 million of lottery funding in the People's Millions competition. Around 70 community projects received awards of up to £50,000 from the Big Lottery Fund. Now in its fifth year, the People's Millions competition within regional news programmes has helped give away more than £21 million with hundreds of good causes benefiting as a result.

ITV engages in Diversity and Disability initiatives including our award-winning in-house signing facility, Signpost, which provides online signing services, news, information, entertainment and education in and about sign language. In 2009, Signpost won a national RADAR Award - the Disability Network's People of the Year Awards for 'Doing it Differently'.

Environment

Careful management of environmental matters is a priority for ITV. During 2009, ITV undertook a range of activities as part of our environmental management programme, such as supply chain and carbon management.

ITV continued to measure and monitor its carbon footprint and environmental impact during 2009. The reshaping of the business during the year, coupled with the ongoing focus on resource management, has led to a reduction in both the consumption of water and the size of the carbon footprint of certain parts of the business. This decrease reflects changes in the property profile of the Company and changing operational practices.

Environmental legislation continues to evolve and ITV has procedures in place to ensure new regulatory requirements are identified, understood and proactively managed. ITV is preparing to meet the regulatory requirements of the CRC Energy Efficiency Scheme. A cross business working group has been established to manage both the risks and opportunities presented by the requirements. In preparation for this legislation ITV has identified a wide range of organisational responses.

ITV continues to operate an innovative waste management contract with an external organisation that encourages waste reduction and the recycling of materials. This contractual arrangement has been in place since 2008 and the work associated with it has been recognised with ITV winning a Corporate Responsibility Award from the Management Consultancy Association. During 2009 ITV saw an increase in the percentage of waste that was diverted from landfill and instead sent for recycling.

Donations

The Company made contributions to charities and equivalent organisations amounting to £2 million (2008: £2 million) in cash and £10 million (2008: £5 million) in kind, totalling £12 million (2008: £7 million). Further details will be set out in our Corporate Responsibility report.

It is the Company's policy not to make cash contributions to any political party. However, within the normal activities of the Group's national and regional news gathering operations there are occasions when activity may fall within the wide definition of political expenditure contained in the Companies Act 2006. Shareholder authority for such expenditure was given at the Annual General Meeting in 2009 and a similar resolution will be proposed at the 2010 Annual General Meeting. During the year the Group made no payments falling within the definition of political expenditure (2008: £7,968).

Corporate Responsibility

ITV recognises the importance of Corporate Responsibility. Full details on ITV's Corporate Responsibility objectives and activities will be set out in the separate Corporate Responsibility report available on the Company's website, www.itvplc.com. The table below provides a summary of performance against key Corporate Responsibility performance indicators.

 

2009

2008

Protecting the environment1

 

 

CO2 emissions from business travel (tonnes)2

6,831

5,867

Total CO2 emissions (tonnes)2

46,383

50,471

Total waste (tonnes)

2,195

1,900

Total waste recycled

65%

36%

Total water use (m3)

86,656

93,175

Workplace profile (%)

 

 

Female employees

48.2

49.0

Ethnic minority employees3

9.1

9.0

Employees with a disability4

3.1

2.0

Employees aged over 50

12.9

15.0

Health and Safety5

 

 

Accidents requiring more than three days off work

6

5

Major accidents

5

2

Fatal accidents

0

0

Access Services for ITV1 (% of programmes)

 

 

Subtitling

94.5

95.5

Audio description

17.3

13.2

Signing

5.6

5.3

(1) UK only, including landlord managed sites. Assistance with data compilation by Mason Hardy Ltd.

(2) Calculated in accordance with the WRI/WBCSD Greenhouse Gas Protocol methodology.

(3) Percentage of those who disclosed their ethnicity.

(4) Percentage of those who disclosed their disability.

(5) Staff accidents excluding contractors.

 

 

Risks and uncertainties

ITV operates in a market which is being transformed by digital technologies. The broader economic environment is also uncertain. In addition, ITV is subject to regulatory risk.

The Company works hard to identify and manage the major risks to which the business is subject across all areas and including both financial and reputational risks.

ITV employs an Enterprise-wide Risk Management (ERM) programme in order to identify and monitor major risks impacting the business and in order to ensure that these risks are appropriately managed with adequate mitigating actions in place. The risk factors below were identified as most significant from the 2009 ERM programme.

These risks do not necessarily comprise all the major risks to which ITV is subject and they are not set out in any order of priority. The business may be subject to risks and uncertainties which are not known to ITV or which are currently judged to be immaterial.

Further details on governance arrangements by which risks and uncertainties are monitored and managed are set out in the Audit Committee report.

Group

Strategy execution

Risk description

ITV needs to deliver the three core objectives set out in response to the downturn - and to develop its strategy for long-term growth

Impact

-     Loss of market share

-     Reduction in EBITA before exceptional items

-     Deterioration in cash flows

Mitigation

-     Strategy review launched in early 2010 will produce clear plans for delivery of strategic objectives across all relevant areas

-     Regular review of progress against plans

Structural risk

Risk description

With the media market undergoing rapid structural change and new platforms and technologies constantly developing, ITV needs to ensure that broadcasting and content revenues and profits are not eroded

Impact

-     Reduction in television advertising revenues

-     Reduction in EBITA before exceptional items

Mitigation

-     Implementation of strategy to strengthen ITV's favoured platforms

-     Devising new products and services to take advantage of emerging opportunities

Market conditions

Risk description

As a business with a high reliance on cyclically-exposed television advertising revenues, ITV needs to adapt to any potential deterioration in economic and market conditions putting pressure on ITV's revenues, profits and cash flow

Impact

-     Lower audience for ITV programming and channels

-     Loss of volume and share of impacts

-     Loss of television advertising market share

Mitigation

-     Improving return on investment for programming spend

-     Ensuring appropriate composition and targeting of ITV's channel portfolio

-     Building strong customer relationships with agencies and advertisers

People

Risk description

ITV's success is critically dependent on its ability to attract and retain key people across the business at all levels on and off-screen

Impact

-     Business underperformance

-     Reduced staff engagement

Mitigation

-     Appropriate employment terms for on and off-screen talent

-     Investment in training and development

-     Staff surveys and communication programmes

Balance sheet

Risk description

In an uncertain economic context and a transforming media market, ITV requires a robust balance sheet, including pension obligations, in order to be able to respond to market opportunities and meet its long-term funding obligations

Impact

-     Limited access to financing and reduced liquidity

-     Inability to fund potentially profitable investment opportunities

-     Diversion of cash flows to interest and pension payments

Mitigation

-     Extending debt maturities to ensure no short-term liquidity pressure

-     Ensuring appropriate funding across debt and equity

-     Regular contributions to pension scheme and initiatives to address pension risk

Broadcasting & Online

Maintaining performance

Risk description

To ensure that its channels' audience and advertising share are both maximised, ITV needs to sustain and improve the quality of its programming schedule, including by securing key externally produced programmes, and to optimise its sales performance

Impact

-     Lower audience for ITV programming and channels

-     Loss of volume and share of impacts

-     Loss of television advertising market share

-     Loss of key externally supplied programming

Mitigation

-     Improving return on investment for programming spend

-     Ensuring appropriate composition and targeting of ITV's channel portfolio

-     Building strong customer relationships with agencies and advertisers

-     Maintaining high level of internal commissions to reduce reliance on external producers

Compliance

Risk description

To deliver on its regulatory obligations and maintain the trust of its viewers and advertisers, ITV needs to meet compliance requirements applying to its broadcasting licences, in particular with respect to premium-rate telephone services

Impact

-     Damage to the ITV brand

-     Lower audience commitment to ITV

Mitigation

-     Appropriate compliance processes and management

-     Legal input into all business contracts

-     Reporting to Ofcom on airtime sales

Regulation

Risk description

In a context of rapid market change, ITV needs to ensure that inflexible regulation does not prevent the Company delivering economically viable deals with its suppliers, network partners and customers

Impact

-     Lower audiences for ITV programming and channels

-     Loss of volume and share of impacts

-     Lower broadcast revenues

Mitigation

-     Communicating to Government and regulator the case for regulatory reform

-     Extending broadcast revenue opportunities via appropriate regulatory reform

-     Managing remaining regulatory hurdles to minimise negative business impact

ITV Studios

Rights ownership and exploitation

Risk description

With the Company's success critically dependent on its ability to develop valuable programming properties, ITV needs to sustain and exploit commercially a creative pipeline of new formats and original commissions

Impact

-     Reduction in ITV Studios EBITA before exceptional items

Mitigation

-     Ensure appropriate employment policies to attract and retain the best talent

-     Continue to build international production bases and wider broadcaster relationships

-     Exploit and extend existing critical mass of internal ITV commissions (e.g. via pilot deals)

Margin protection and growth

Risk description

With pressure on broadcasters' budgets, including ITV's own, delivering sustainable margins on production requires innovation with respect to funding models, management and cost

Impact

-     Reduction in ITV Studios EBITA before exceptional items

Mitigation

-     Development of co-production and co-development partnerships

-     Delivery of efficiency review savings targets

-     Exploitation of commercial opportunities beyond programming and format sales

 

 

 

Key Performance Indicators

ITV's Key Performance Indicators (KPIs) are used by the Company to assess its own performance against objective financial and non-financial criteria.

As detailed in last year's Annual Report, ITV has reviewed its KPIs to ensure that they reflect the focus of the business on cash and the balance sheet and on delivering public cost savings targets, as well as maintaining the core operating performance. As a result, three new KPIs have been introduced for cash conversion, cost savings and for market share.

Financial KPIs

ITV's financial KPIs provide yardsticks for assessing the financial performance of the Group overall and across its major business areas. Further detail on ITV's financial performance can be found in the Operating and Financial reviews.

Revenues and market share

 

2009

2008

Total ITV revenues

£1,879m

£2,029m

ITV net advertising revenues

£1,291m

£1,425m

ITV share of UK television advertising market

44.7%

43.8%

ITV Studios revenue (including internal)

£597m

£622m

Online revenues (excluding Friends Reunited)

£24m

£18m

Total revenues declined by 7% in 2009, with a fall in television net advertising revenues (NAR) offset partially by an increase in external studios and online revenues.

ITV NAR represents 69% of total ITV revenues. In 2009, ITV NAR declined by 9% to £1,291 million. Notwithstanding this decline, ITV substantially outperformed the wider UK television advertising market which suffered its sharpest decline on record, with revenues falling 11%.

Television advertising market share has been added as a new financial KPI, reflecting the fact that wider market growth is not under ITV's control. In 2009, ITV NAR represented 44.7% of the total UK market, compared to 43.8% the previous year.

ITV Studios revenue is a KPI reflecting ITV's focus on increasing total revenues from external customers and internal commissions. Total studios revenues were down 4%, with growth in international production offset by a significant reduction in UK production.

Online revenues represent a further key focus for growth. Reflecting its proposed disposal, Friends Reunited revenues have been excluded. On this basis, online revenues - largely from itv.com and video on demand deals - increased by 33% to £24 million.

Profits, costs and cash

 

2009

2008

Cost savings

£169m

-

EBITA before exceptional items

£202m

£211m

Adjusted earnings per share

1.8p

1.8p

'Profit to cash' conversion

177%

75%

Cost savings targets of £155 million were set out for 2009, as a key element in ITV's response to the economic downturn. ITV met this target delivering £169 million of savings over the year.

Earnings before interest, tax and amortisation (EBITA) before exceptional items remains ITV's key profit indicator, reflecting more accurately the business performance of the Group in a consistent manner and in line with how the business is managed and measured on a day-to-day basis. Despite a decline in Group revenues of £150 million, EBITA before exceptional items declined by only £9 million to £202 million, reflecting the impact of significant cost savings across the business.

Adjusted earnings per share represent the adjusted profit for the year attributable to equity shareholders. Adjusted profit is defined as profit for the year attributable to equity shareholders, before exceptional items, impairment of intangibles, amortisation of intangible assets acquired through business combinations, adjusted financing costs (see page 38) and prior period and other tax adjustments. Adjusted earnings per share have remained at 1.8 pence, with the decline in EBITA before exceptional items offset by reduced losses from joint ventures and associates.

'Profit to cash' conversion has been another key focus in 2009 and has therefore been included as a KPI. ITV is seeking to maximise the proportion of EBITA before exceptional items converted into a measure of adjusted cash (defined as cash generated from operations before exceptional items less cash related to the acquisition of property, plant and equipment). In 2009, with a significant positive working capital movement, adjusted cash represented 177% of EBITA before exceptional items, compared to 75% in 2008. ITV is seeking to keep this 'profit to cash' conversion ratio as high as possible - and in excess of 90% on a rolling three year basis - going forward.

Non-financial KPIs

ITV's non-financial KPIs provide metrics for assessing the underlying operating performance of the Group. Whilst success against each of these measures may not immediately be reflected in ITV's financial performance, each is critical to the Group's delivery of sustainable long-term success. A number of non-financial KPIs reflect ITV's performance with respect to audiences of its channels and online.

Audience and reach

 

2009

2008

ITV channels' share of commercial impacts

40.0%

41.0%

ITV1 volume of commercial impacts

232 bn

236 bn

ITV1 brand health

31%

34%

ITV channels' share of commercial impacts represent the proportion of all UK viewings of 30-second television commercials accounted for by ITV channels. In 2009, ITV delivered a 40.0% share of commercial impacts. Towards the end of the year in particular, ITV channels delivered a very strong performance, with family SOCI running at 41.8% over the fourth quarter.

ITV1 adult impact volume represents the absolute number of viewings of commercials generated by ITV1 and reflects ITV's focus on maintaining the reach of the UK's largest commercial channel. In 2009, ITV1 delivered 232 billion adult impacts, down 2% on the previous year.

ITV1 brand health reflects the outcome of a regular survey of viewers' association between ITV1 and the drivers of television viewing. Over and above ITV1's retrospective viewing performance, brand health allows the long-term strength of ITV's key channel brand and its resonance with UK viewers to be tracked. In 2009, ITV1's brand health score was 31% for the full year compared to 34% in the final quarter of 2008, when tracking commenced. A full year-on-year comparison will be possible from 2010 and ITV continues to monitor this KPI closely.

Staff engagement

 

2009

2008

Staff engagement

65%

68%

Staff engagement tracks the proportion of respondents to the annual survey of all ITV staff agreeing that they have pride in their work, are proud to work for ITV and speak highly about ITV's products and services. The 2009 survey showed a slight decrease in staff engagement year-on-year from 68% to 65%. This was a year of substantial change, including a wide-ranging redundancy process and other difficult decisions reflecting the uncertain economic outlook. The senior team is currently working on plans to drive a positive improvement in engagement with staff as part of the business plan in 2010.

Strategy review

ITV is currently undertaking a strategic review. As a result, there may be further revision of ITV's KPI framework during 2010 to ensure continuing consistency with the Company's core strategic objectives.

 

 

Financial Review

2009 was a challenging year for ITV. UK television advertising suffered its worst year-on-year decline on record and month to month trading was volatile and uncertain. Against this backdrop, ITV's focus on its core operating performance, on cash and on costs is evident in the financial results.

 

The following review focuses on the adjusted results as, in management's view, these show more accurately the business performance of the Group in a consistent manner and reflect how the business is managed and measured on a daily basis. A reconciliation from the statutory to adjusted results is set out later in this review.

 

Adjusted earnings per share represent the adjusted profit for the year attributable to equity shareholders. Adjusted profit is defined as profit for the year attributable to equity shareholders, before exceptional items, impairment of intangibles, amortisation of intangible assets acquired through business combinations, adjusted financing costs and prior period and other tax adjustments. 'Profit to cash' conversion has been another key focus in 2009. ITV is seeking to maximise the proportion of earnings before interest, tax and amortisation (EBITA) before exceptional items converted into a measure of adjusted cash (defined as cash generated from operations before exceptional items less cash related to the acquisition of property, plant and equipment). 

 

The definition of adjusted financing costs has changed in 2009 to exclude the non-cash imputed pension interest cost and mark-to-market movements on swaps and foreign exchange movements on bonds, and other financing costs. 2008 has been restated on the same basis.

 

Total revenue for the year ended 31 December 2009 was 7% lower at £1,879 million (2008: £2,029 million). Despite the substantial fall in revenues, EBITA before exceptional items was down only 4% at £202 million (2008: £211 million) as £169 million of cost savings helped to mitigate the revenue decline. Most of the key profit measures were held leading to adjusted earnings per share of 1.8p (2008: 1.8p).

 

Revenue and EBITA before exceptional items by reportable segment are as follows:


2009
£m

2008
£m

Change
£m

Broadcasting & Online revenue

1,543

1,683

(140)

Broadcasting & Online EBITA*

111

120

(9)

ITV Studios revenue

335

306

29

ITV Studios EBITA*

91

90

1

Other revenue

1

40

(39)

Other EBITA*

-

1

(1)

Total revenue

1,879

2,029

(150)

Total EBITA*

202

211

(9)

Adjusted profit

70

71

(1)

Adjusted earnings per share

1.8p

1.8p

-

*Before exceptional items.

Broadcasting & Online

Broadcasting & Online revenues

Broadcasting & Online revenues comprise net advertising revenue (NAR), sponsorship income, interactive revenues (from premium rate telephony services and red button services), SDN, online and other revenues.


2009
£m

2008
£m

Change
£m

ITV1

993

1,127

(134)

ITV digital channels

245

242

3

GMTV

53

56

(3)

ITV plc NAR

1,291

1,425

(134)

Sponsorship

59

58

1

Minority revenue

47

63

(16)

Media Sales, PRS and other income

69

68

1

SDN

44

33

11

itv.com

24

18

6

Friends Reunited

13

18

(5)

Intra-segment revenue

(4)

-

(4)

Total Broadcasting & Online Revenue

1,543

1,683

(140)

The television advertising market overall was down 11% in 2009, following a decline of 5% in 2008. ITV plc outperformed the wider market with NAR decline of 9% and, as a result, increased its share of UK television advertising to 44.7% (2008: 43.8%). Nonetheless ITV NAR decreased by £134 million to £1,291 million (2008: £1,425 million). In effect, ITV's outperformance of the market was worth £26 million compared to the decline in ITV's revenues had they performed in line with the overall market.

Under the Contract Rights Renewal remedy, advertisers are entitled to reduce their advertising share commitment to ITV1 in proportion to the decline in ITV1's share of commercial impacts (SOCI) the previous year. For all adults, ITV1 SOCI declined by 6% during 2008. In the event, across 2009 ITV1 NAR decline ran relatively close to overall market decline, down by 12% at £993 million (2008: £1,126 million), reflecting a strong on-screen performance and a successful outcome to the advertising deal round.

ITV's digital channels - ITV2, ITV3, ITV4 and CITV - increased their advertising revenues by 1% to £245 million (2008: £242 million). In the context of significant market decline, this represents a strong performance and reflects consistent growth in digital channel SOCI, which in 2009 reached 9.5% (2008: 8.8%). GMTV NAR was down 5%. GMTV outperformed the wider television advertising market as revenues include a high proportion of categories, including retail and food, which were stronger than the wider market across the year.

Sponsorship income was £59 million (2008: £58 million). Although closely related to advertising, sponsorship tends to be committed under longer term contracts which can mitigate the impact of advertising market movements in the short-term.

Minority revenues comprise ITV Network programme sales to Channel 3 licences not owned by ITV (STV, UTV and Channel). Minority revenues were £16 million lower than in the prior year partly reflecting lower schedule costs, but also as a result of STV's decision to opt out of more of ITV1 drama.

Media sales, PRS and other income comprise revenues from premium rate telephony services, airtime sales on behalf of third-parties and interactive transactions associated with ITV and GMTV programming. Revenues were held flat despite the weak market. Whilst the volume of viewer interactions increased, PRS revenues declined due to an increase in the use of free online voting.

SDN revenues were £44 million (2008: £33 million). The increase in revenues reflected the launch of a tenth videostream and new contracts with Discovery and Virgin Media coming into effect during the year.

Online revenue, which primarily comprises itv.com advertising revenues, revenues from video on demand deals with BT and Virgin Media and Friends Reunited revenues, was held flat for the year.

Revenues from itv.com increased by 33% to £24 million, reflecting increased video advertising revenue. itv.com video views were up by 150% to 215 million over the year, with key programme drivers including Britain's Got Talent, The X Factor and Coronation Street. Prices for itv.com video advertising retained a premium to television and other market competitors, but reduced during the year as online video inventory increased.

Friends Reunited revenues fell by 28% to £13 million, due in part to the loss of subscription revenues from the core reunions site following its move to a fully advertising funded model in May 2008.

Broadcasting & Online costs

Broadcasting & Online costs break down as follows:


2009
£m

2008
£m

Change
£m

ITV1

797

867

(70)

Regional news and non-news

68

112

(44)

Total ITV1

865

979

(114)

ITV2, ITV3, ITV4, CITV

110

112

(2)

GMTV

31

34

(3)

Total schedule costs

1,006

1,125

(119)

Other costs

426

438

(12)

Total costs

1,432

1,563

(131)

Schedule costs

Total ITV schedule costs reduced by £119 million in 2009 to £1,006 million (2008: £1,125 million) with ITV exceeding its stated savings targets of £105 million across network and regional programming.

ITV1 schedule costs declined by £70 million. Digital channels and GMTV schedule costs reduced by £5 million in total. In February 2009, ITV launched the new regional service moving from 17 separate 6.00 pm regional news half hours to nine programmes. As a result of this ITV delivered £44 million of savings.

Other Broadcasting & Online costs

Other Broadcasting & Online costs of £426 million (2008: £438 million) include industry and regulatory costs, as well as staff and overhead costs. The year-on-year decline is from cost savings delivered as part of the efficiency review and lower licence fees of £22 million (2008: £30 million). Some of these savings were offset by increased investment in transmission, HD and other development investment.

Broadcasting & Online EBITA before exceptional items

Broadcasting & Online EBITA before exceptional items for 2009 was £9 million lower at £111 million (2008: £120 million), with the decline in NAR offset by the delivery of targeted efficiency savings, increased SDN profits and the closure of underperforming online businesses.

 

ITV Studios

ITV Studios revenues


2009
£m

2008
£m

Change
£m

UK production

58

68

(10)

Resources

13

17

(4)

International production

138

98

40

Distribution and exploitation

126

123

3

Total external revenue

335

306

29

Original supply to ITV

262

316

(54)

Total revenue

597

622

(25)

ITV Studios revenue includes original productions for the UK and international markets, the distribution and exploitation of internally generated and acquired rights, and studios and facilities revenue.

Total external sales were £335 million (2008: £306 million). Including original supply to ITV, total revenues were £597 million (2008: £622 million).

Original UK production for other broadcasters was £58 million (2008: £68 million), as other UK broadcasters reduced commissioning budgets and changed genre mix.

International production revenues increased by 41% to £138 million (2008: £98 million). Growth was particularly strong in the US and Swedish production businesses, reflecting local versions of I'm A Celebrity for the US, Sweden and India. Commissioning cycles suggest that these productions are unlikely to return in these territories in 2010, but they remain active prospects for 2011.

Distribution and exploitation sales were £126 million (2008: £123 million), including a significant co-production deal for The Prisoner for AMC. DVD sales in the UK were relatively robust but international sales declined year on year.

External revenues benefited from a favourable £16 million foreign exchange movement across international production and a further £7 million positive movement in distribution and exploitation.

Programming made by ITV Studios for ITV channels is not included in reported ITV plc consolidated revenue as it represents an internal programming cost of sale. In 2009 internal programming amounted to £262 million of ITV network programme spend (2008: £316 million). As ITV responded to the advertising downturn by reducing its schedule costs, there was a loss of, or reduction in, episodes for a number of established ITV commissions, including Heartbeat, Lewis and The Royal. These losses were only partially offset by new commissions, such as Piers Morgan's Life Stories.

ITV Studios EBITA before exceptional items

ITV Studios EBITA before exceptional items was £91 million (2008: £90 million). Underlying margins have been impacted by the change in programme mix and reduced ITV supply, and by pricing pressures in production and distribution worldwide. However, these pressures have been offset by delivery of significant targeted cost savings and a trading foreign exchange gain of £3 million. In addition, a £2 million increase in development generated a range of options, pilots, and new business streams that are live prospects in 2010 and beyond.

Operating exceptional items


2009
£m

2008
£m

Reorganisation and restructuring

(40)

(40)

PRS

-

(6)

Pension scheme changes

110

-

Onerous contract provision

(1)

(50)

Onerous property provision

(14)

-

Kangaroo closure costs

(2)

(1)

Total operating exceptional items

53

(97)

Net operating exceptional income in the year was £53 million (2008: cost of £97 million).

These include £40 million of reorganisation and restructuring costs associated with the previously announced efficiency savings programmes.

Pension scheme changes have taken place following consultation with the scheme members to implement a cap on increases to pensionable salary levels for active members and to offer retired members the option of altering the structure of their pension by receiving an uplift now in return for giving up rights to future annual increases. Both of these changes will reduce the future costs and risks of operating the pension schemes and have resulted in a gain of £110 million to the income statement.

The onerous property provision in 2009 of £14 million relates to the vacation of large parts of the Gray's Inn Road office, following headcount reductions and consolidation of ITV's London property into the Southbank.

STV Group plc (STV)

Over the course of 2009, ITV and STV have become involved in a series of legal disputes with pleadings filed by each side. Based on its view of these matters, ITV believes that it is owed approximately £20 million net under these claims. ITV is confident in the basis of its claims, supported by legal opinion and advice, and intends to pursue resolution of these issues to a satisfactory outcome. Therefore no provision has been made. In reaching this view ITV notes that STV has recently completed a re-financing of its business. In not providing against the recoverability of these balances, ITV is relying on its expectation that STV will file unqualified financial statements prepared on a going concern basis in due course.

Amortisation and impairment of intangible assets

Total intangible assets at 31 December 2009 are £1,030 million (2008: £1,140 million), being goodwill of £711 million
(2008: £749 million) and acquired and internally developed intangible assets of £319 million (2008: £391 million). The net movement in goodwill of £38 million has resulted from the transfer of £34 million to assets held for sale regarding Friends Reunited and £4 million in relation to the disposal of Enable Media Limited.

No impairment charge for goodwill has been recognised in 2009 (2008: £2,695 million including £57 million as required by
IAS 12). The total amortisation charge for the year on acquired and internally developed intangible assets is £59 million (2008: £66 million).

Net financing costs


2009
£m

2008
£m

Financing costs directly attributable to bonds

(74)

(99)

Cash-related net financing income

1

24

Cash-related financing costs

(73)

(75)

Amortisation of bonds

(6)

(2)

Adjusted financing costs

(79)

(77)

Mark-to-Market on swaps and foreign exchange

(7)

31

Imputed pension interest

(15)

16

Other financing income/(costs)

10

(30)

Net financing costs

(91)

(60)

Reported net financing costs are £91 million (2008: £60 million). Adjusted financing costs on the new definition are £79 million (2008: £77 million).

Cash-related financing costs directly attributable to bonds of £74 million (2008: £99 million) have reduced in the year due to the changes made to the Group's debt profile and lower interest rates. Other net income is lower in 2009 due to lower interest rates. In 2009, cash on deposit was earning an average return of less than 1%, compared to 5% across 2008. Non-cash amortisation principally relates to the 2014 Eurobond, 2015 Bond tap and 2016 Convertible Bond, each of which will accrete up to par value over the life of the bond.

The difference between the reported net financing costs and adjusted financing costs largely relates to mark-to-market on swaps, foreign exchange on bonds, the imputed pension interest and other financing costs. The £7 million charge (2008: £31 million gain) relating to mark-to-market on swaps and foreign exchange on bonds, is as a result of increases in the implied interest rates at the end of 2009, compared to the end of 2008.

The 2009 charge for non-cash imputed pension interest was £15 million, a movement of £31 million compared to 2008. This is as a result of a combination of a reduction in the expected return on pension assets and an increase in the expected interest cost on liabilities.

Other financing costs include the amortised cost adjustment of £10 million, representing the unwind of part of the £30 million charge taken in 2008, when decline in ITV's credit rating to sub investment grade resulted in a step-up in the coupon rate of some of ITV's bonds. These costs also include the gains and losses from bond buy-backs during the year and the bond exchange in June, and the effective interest on the unwind of the discount on the sports provision.

Results of joint ventures and associates

The total value of the Group's investments in joint ventures and associates at 31 December 2009 is £5 million (2008: £66 million). The decline in the value primarily relates to the transfer of Screenvision US (£47 million) to assets held for sale following the decision to actively market the investment. Losses of joint ventures and associates recognised in the income statement in the year are £7 million (2008: loss of £15 million). The losses in 2009 largely related to Screenvision US, Freesat and ITN.

Non-operating exceptional items

Loss on sale and impairment of non-current assets

The charge of £22 million (2008: £17 million) results from the impairment of non-current assets, primarily leasehold improvements, relating to the regional news restructure and the partial vacation of the Gray's Inn Road building.

Loss on sale, net of impairment, of subsidiaries and investments

There is a £51 million net loss on the sale and impairment of subsidiaries and investments for the year (2008: gain of £6 million), which largely relates to the impairment of Friends Reunited (£32 million), but also impairments to the Group's investment in its associate ITN, and Carlton Screen Advertising.

Tax

The total tax credit of £69 million (2008: credit of £178 million) arises as a result of the resolution of prior periods' tax liabilities, principally in the US.

The adjusted rate of tax on adjusted profits is 32% as shown below:


2009
£m

Profit before tax as reported

25

Operating exceptional items (net)

(53)

Amortisation and impairment of intangible assets*

51

Non-operating exceptional items

73

Adjustments to net financing costs

12

Adjusted profit before tax

108

 


2009
£m

Tax credit as reported

69

Net charge for exceptional and other items

21

Credit in respect of amortisation and impairment of intangible assets*

(14)

Credit in respect of adjustments to net financing costs

(3)

Credit in respect of prior period items

(82)

Other tax adjustments

(26)

Adjusted tax charge

(35)

Adjusted rate of tax

32%

*Amortisation of intangible assets arising from business combinations.

Earnings per share

Basic earnings per share are 2.3 pence (2008: loss per share of 65.9 pence). Adjusted earnings per share (as defined earlier) are 1.8 pence (2008: 1.8 pence).

Reconciliation between reported and adjusted earnings


Reported
£m

Adjustments
£m

Adjusted
£m

EBITA pre exceptionals

202 

202 

Exceptional items

(20) 

20 

Amortisation and impairment

(59) 

51 

(8) 

Financing costs

(91) 

12 

(79) 

JVs and associates

(7) 

(7) 

Profit before tax

25 

83 

108 

Tax

69 

(104) 

(35) 

Profit after tax

94 

(21) 

73 

Non-controlling interests

(3) 

(3) 

Earnings

91 

70 

Number of shares

3,882 

 

3,882 

Earnings per share

2.3p 

 

1.8p 

The £20 million exceptional items are the operating exceptional profit of £53 million less £22 million loss on sale and impairment of non-current assets and less £51 million of loss on sale, net of impairment, of subsidiaries and investments as described earlier in this review.

The tax and financing costs sections of this review explain the adjustments to these balances.

Dividend

At the 2009 interim results the Board decided that, due to the uncertain economic context and its impact on the UK television advertising market, it was prudent to not declare an interim dividend. The trading outlook remains uncertain and ITV still has significant debt and pension obligations. As a result, the Board is not proposing the payment of a final dividend. The total dividend for the year is therefore nil pence per share (2008: 0.675 pence per share).

Assets and disposal groups held for sale

During the year the Group confirmed that it was actively marketing for sale its 100% owned subsidiary, Friends Reunited; the joint ventures, Screenvision US and Screenvision Europe; and ITV properties in Bedford, Birmingham and Bristol.

Cash flow, working capital management and net debt

Cash flow and working capital management

Cash and working capital management has been a key focus in 2009. Although EBITA before exceptional items were broadly flat, ITV's adjusted cash flow is £200 million more than the previous year. The key to this was a significant improvement in working capital where there was an inflow of £121 million (2008: outflow of £67 million). The majority of the working capital improvement came through reduced inventory levels for programme and distribution rights, as a result of managing commitments and just-in-time commissioning. The 'profit to cash' ratio increased substantially from 75% in 2008 to 177% in 2009. Going forward, it is expected that the 'profit to cash' ratio on a rolling three-year basis will be at least 90%.


2009
£m

2008
£m

EBITA before exceptional items ('profit')

202

211

Decrease/(increase) in programme rights and other inventory and distribution rights

125

(82)

Decrease/(increase) in receivables

11

(34)

(Decrease)/increase in payables

(15)

49

Working capital movement

121

(67)

Depreciation

38

36

Share-based compensation

11

10

Cash flow generated from operations*

372

190

Acquisition of property, plant and equipment ('capex')

(14)

(32)

Adjusted cash flow

358

158

Profit to cash ratio

177%

75%

*Before exceptional items.

Net debt

Net debt has fallen by £118 million to £612 million with £358 million of adjusted cash flow, arising from the focus on working capital management, which has more than offset some significant one-off cash payments required in 2009.


£m

Net debt at 31 December 2008

(730)

Adjusted cash flow

358

Net interest paid

(76)

Exceptional cash

(63)

Taxation net receipts

41

Equity dividends paid

(25)

Acquisition of subsidiaries

(73)

Defined benefit pension deficit funding

(31)

Other

(13)

Net debt at 31 December 2009

(612)

The main one off cash outflows were: £63 million of cash costs in relation to the cost of change and efficiency review; net tax receipts of £41 million reflecting taxation repayments for prior periods which more than offset payments made for the current period; equity dividends of £25 million relating to the 2008 interim dividend; £50 million final payment due under the Friends Reunited earn out; and £23 million for acquiring the 25% of GMTV not already owned.

Liquidity risk and going concern

This section regarding liquidity risk and going concern forms part of the audited accounts. See section 1.1 - Basis of preparation in Accounting policies. The Group's financial risk factors are set out in note 23 to the financial statements.

The Group has a high degree of operational gearing and is exposed to the economic cycle. It is also highly regulated, in particular in respect of television advertising sales. It competes for advertising revenues, not only with other commercial television channels, but also with other forms of display advertising, in particular online. These factors combined with technological change, in particular the migration to digital television, have resulted in declining profitability since 2005 and consequent downward pressure on ITV's credit rating. In the second half of 2008, ITV's credit ratings were lowered from investment grade (BBB-/Baa3) to sub investment grade (BB+/Ba1) as the economy weakened and television advertising revenues declined.

With the decline in television advertising revenues and the wider economic uncertainty, ITV faced significant funding risk at the start of 2009. Given the operational gearing of the business, ITV was at risk of further credit-rating downgrades and of breaching financial covenants under the Group's undrawn £450 million syndicated bank facility. In the context of wider credit market conditions, ITV could not take for granted that it could obtain finance from the capital markets, nor could it expect its banks to relax the financial covenants in the bank facility. Whilst ITV had sufficient cash to repay the £250 million bond in March 2009, it needed to strengthen its liquidity position to ensure that it could cover the repayment of the €500 million 2011 bond and thus allow the Group scope to restructure and recover.

Funding

Alongside the cost saving programme and concerted focus on working capital management, ITV also ran a number of initiatives during 2009 to strengthen liquidity, extend its debt maturity profile and improve the Group's financial ratios. These comprised raising further covenant-free finance without going to the public markets, undertaking a tender and exchange offer and various bond buy-backs. The table below sets out these initiatives and further details can be found in note 22.


Transaction date

£m

2019 New bilateral facility

February 2009

50

2009 Eurobond repaid

March 2009

(250)

2013 Loan drawdown

March 2009

125

2015 Bond tap

May 2009

58

2011 Bond tender and exchange

June 2009

(69)

2013 Loan repayment

October 2009

(75)

2016 Convertible bonds

November 2009

132

2011 Bonds partially repaid

Nov/Dec 2009

(102)

ITV also retired its £450 million revolving credit facility during the year.

Since the year end ITV has bought back €27 million of the 2011 bonds and £42 million of 2015 bonds.

As a result of these initiatives, ITV's scheduled five year debt repayments (post swaps) were reduced from £695 million at the start of 2009 to £324 million at the year end.

ITV is financed using debt instruments with a range of maturities. ITV's borrowings at 31 December 2009 (net of currency hedges and secured gilts) are repayable as follows:

Amount repayable

£m

Maturity

€118 million Eurobond*

38

October 2011

£110 million Eurobond

110

March 2013

£50 million bank loan

50

May 2013

€188 million Eurobond*

126

June 2014

£425 million Eurobond

425

October 2015

£135 million Convertible bond

135

November 2016

£250 million Eurobond

250

January 2017

£200 million bank loan**

62

March 2019

Finance leases

73

Various

Total repayable

1,269

 

*Net of Cross Currency Swaps.

**Net of £138 million (nominal) Gilts secured against the loan.

At the balance sheet date at 31 December 2009 ITV had £582 million of cash and cash equivalents. This figure excludes £4 million of cash held within the disposal group but includes £96 million of cash equivalents whose use is restricted to finance lease commitments and unfunded pension promises. Cash and cash equivalents also include £50 million held principally in overseas and part owned subsidiaries, which is therefore not readily accessible. At the reporting date ITV had a £75 million undrawn, covenant free, bilateral bank facility secured on advertising receivables available to May 2013. There are no financial covenants on any of ITV's debt.

Going concern

As a result of the funding activities undertaken and the improvements in working capital, the Group has reduced its current level of net debt and has also improved both its short-term and medium-term liquidity position. The Group continues to review forecasts of the television advertising market to determine the impact on ITV's liquidity position. At 31 December 2009, while the television market continues to present challenges to the Group's liquidity, ITV has taken decisive actions to mitigate this impact and, during 2010, will continue to evaluate opportunities to push out maturity and create further headroom. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current financing. ITV's forecasts have been prepared on a more cautious basis than external market expectations.

After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements.

Treasury operations and policies

A central department in London manages the Group's treasury operations, following policies and procedures laid down by the Board. The most significant treasury exposures faced by ITV are raising finance, managing interest rate and currency positions and investing surplus cash in high quality assets. Treasury policies have been approved by the Board for managing each of these exposures including levels of authority on the type and use of financial instruments. Transactions are only undertaken if they relate to underlying exposures. The treasury department reports regularly to the Audit Committee and treasury operations are subject to periodic reviews. Despite not having a lending facility 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 a bilateral bank facility;

-     Interest rate management: the Group's interest rate policy is to have between 50% and 70% of its total indebtedness at fixed rates 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 rates. The funding and liquidity activities undertaken by ITV in 2009 resulted in the issuance of fixed rate debt and the retirement of a portion of floating rate debt. ITV has applied the policy to total gross indebtedness thereby excluding cash which is currently treated as a deduction from floating rate debt and on which low levels of interest are being achieved;

-     Currency management: where currency exposures exist, the Group's foreign exchange policy is to hedge foreign currency denominated costs at the time of commitment and to hedge a proportion of foreign currency denominated revenues on a rolling 12-month basis. The policies significantly reduce the Group's earnings and balance sheet exposures to changes in exchange rates;

-     Investment in cash: ITV operates strict investment guidelines with respect to surplus cash and the emphasis is on preservation of capital. Counterparty limits for cash deposits are largely based upon long-term ratings published by the major credit rating agencies and perceived state support. Under the guidelines ITV can deposit up to £100 million for a period of three to six months with remaining deposits having a maturity of up to three months.

Pensions

Reducing pension risk and uncertainty

As part of the strategy to manage the risks associated with the pension schemes, the Group implemented a programme of measures to manage the cost of providing the defined benefit arrangements and to provide greater security for the benefits that members have built up. These initiatives form part of a long-term strategy to manage the group pension liabilities and reduce the principal risks and uncertainties.

The Group offered existing pensioners the opportunity to uplift part of their pension, in return giving up any rights to future annual increases on this part of their pension. This resulted in a past service pension credit of £38 million. The Group also launched an offer to active members to redesign their pension benefits. Members were offered a choice of capping any increases to their pensionable pay to a maximum of 1% per year or opting out of the defined benefit sections of the scheme to join the defined contribution section. This resulted in a curtailment gain of £72 million. These gains totalling £110 million are disclosed as exceptional operating income and have offset the deficit to an equal extent. The changes made will reduce the future costs and risks of operating the pension schemes.

Since the year end we have also announced the launch of an enhanced transfer programme aimed at the deferred pensioner population, which if successful will further reduce the pension funding liabilities.

IAS 19

The Group's defined contribution schemes gave rise to an operating charge in 2009 of £4 million (2008: £4 million).

The aggregate IAS 19 deficit on defined benefit schemes at 31 December 2009 was £436 million (2008: £178 million). This increase was primarily driven by a decrease in the discount rate applied to liabilities and an increase in the expected rate of inflation partially offset by higher than expected returns on scheme assets and the benefits from the actions taken in the year as set out above.

Actuarial valuations and deficit funding

Full actuarial valuations are carried out every three years. The latest completed actuarial valuations of Sections B and C of the main defined benefit scheme were carried out as at 1 January 2007 and, on the bases adopted by the trustees, both were in surplus with a combined surplus of £23 million or 5% of the liabilities in those sections. As a result of these surpluses no deficit funding payments are currently being paid into these sections. Actuarial valuations of Sections B and C are being undertaken as at 1 January 2010.

An actuarial valuation of Section A of the main defined benefit scheme was carried out as at 1 January 2008 and, on the bases adopted by the trustees, that section was in deficit to an amount of £190 million or 9% of the liabilities in that section. This deficit is being addressed by a recovery plan agreed with the trustees, under which the Company continues to pay £30 million in each of the five calendar years to 2013. The next valuation of Section A is due at 1 January 2011.

Trustees' investment strategy

The trustees continue to review the investment strategy for the main defined benefit pension scheme. The asset allocation has changed during 2009 and holdings of equities have been moved to other return seeking assets. At 31 December 2009, 47% of the assets of the defined benefit pension schemes were invested in return seeking assets and 53% in bonds and other interest-bearing investments. The trustees also use derivative instruments to hedge partial exposures to movements in interest rates, inflation and foreign exchange rates.

International Financial Reporting Standards

The Group has adopted International Financial Reporting Standards as adopted by the EU. The parent company financial statements continue to be reported under UK GAAP. They have been included in this report after the results of the consolidated group.

 

Ian Griffiths

Group Finance Director

 

 

Corporate Governance

ITV plc is subject to the requirements of the Combined Code on Corporate Governance adopted by the Financial Reporting Council (the Code) and seeks to comply with the voting guidelines of major institutional investors where appropriate. This report describes how the Company has applied the main principles set out in section 1 of the Code and is split into the following five sections:

-     The Board;

-     Conflicts of interest;

-     Board effectiveness;

-     Relations with shareholders; and

-     How the Board operates.

The Board considers that the Company has complied with the provisions of the Code with the following exceptions:

-     Michael Grade was Executive Chairman until 31 December 2009, contrary to Code provision A.2.1. Following the appointment of Archie Norman as non-executive Chairman and John Cresswell as Interim Chief Executive with effect from 1 January 2010, the Company now complies with this provision.

-     Archie Norman was appointed a member of the Audit Committee on 2 February 2010. This is to enable the Committee to remain quorate until Andy Haste is able to take up membership later in the year. At this point Archie Norman will resign as a Committee member ensuring compliance with Code provision C.3.1.

The Board

Composition and appointments

The composition of the Board during 2009 is set out in the table on page 48.

In April 2009 Michael Grade announced his intention to step down as Executive Chairman at the end of the year. As a result, the Board commenced a search for a non-executive Chairman and a Chief Executive. In November 2009 the Board announced that Archie Norman would take up the role of non-executive Chairman on 1 January 2010.

On 28 January 2010, the Board made a further announcement that it had appointed Adam Crozier as the new Chief Executive, and that he would take up the role later in the year. Until this time, John Cresswell will act as Interim Chief Executive. Sir George Russell, Sir James Crosby, Heather Killen and Agnès Touraine stepped down from the Board with effect from 31 December 2009.

The Board currently consists of three executive directors and five non-executive directors. Biographical details for each of the directors are set out on pages 44 and 45.

Roles

A summary of the roles of each of the Chairman, the Chief Executive and the Senior Independent Director are shown in the table on the right. Full job descriptions have been agreed by the Board.

Tenure

All directors are required by the Company's Articles of Association to be elected by shareholders at the first Annual General Meeting (AGM) following their appointment by the Board. Subsequently, all directors are subject to re-election by shareholders at least every three years. Archie Norman, who has a contract of service with the Company, will be seeking election at the AGM on 7 May 2010.

Outside appointments

With the approval of the Board, executive directors may accept external appointments as non-executive directors of other companies and retain any related fees paid to them. Details of fees received by executive directors during 2009 can be found in the Remuneration report .

Role

Description

Chairman

Archie Norman's principal responsibilities are to:

-     lead the Board, ensuring that it is effective in setting and implementing the Group's direction and strategy; and

-     act as the Company's leading representative for all key shareholders.

The Board is satisfied that his other professional commitments do not interfere with the performance of his duties for the Company.

Chief Executive

John Cresswell, as Interim Chief Executive, has responsibility for the performance of the Company's businesses, as dictated by the overall strategy agreed by the Board.

Senior Independent Director

Mike Clasper's principal responsibilities are to:

-     act as Chairman of the Board when the Chairman is conflicted;

-     act as a conduit to the Board for the communication of shareholder concerns when other channels are inappropriate; and

-     ensure that the Chairman is provided with effective performance feedback.

Non-executive directors

The Board considers each of its current non-executive directors to be independent in both character and judgement. They constructively challenge and help develop proposals on strategy, and bring strong, independent judgement, knowledge and experience to the Board's deliberations.

The Board also considers that the non-executive directors are of sufficient calibre and number that their views carry significant weight in the Board's decision making.

Terms of engagement: non-executive directors all have a contract of service, and are appointed for an initial period of three years. At the third anniversary of appointment the director will discuss with the Board whether it is appropriate for a further term to be served, subject to the Board succession planning framework which provides that any further term may be adjusted in length should that be in the interests of an orderly succession of non-executive directors to the Board. The re-appointment of directors who have served for more than nine years will be subject to annual review. Mike Clasper completed three years as a non-executive director in January 2009. It was agreed that he should serve a further term subject to the Board succession planning framework.

Time commitment: non-executive directors are expected to commit 18 to 20 days per annum. This includes attendance at Board meetings, Board committee meetings, the AGM, and an annual strategy away day. The Board is satisfied that each of the non-executive directors commits sufficient time to the business of the Company.

Professional advice and Board support

Directors are given access to independent professional advice at the Company's expense when the directors deem it necessary in order for them to carry out their responsibilities. The directors also have access to the advice and services of the Company Secretary, who acts as secretary to the Board, and Group Secretariat who ensure that board processes and corporate governance practices are followed.

Insurance and indemnities

The Company maintains liability insurance for its directors and officers with a cover limit of £75 million which is renewed on an annual basis. The Company has also entered into deeds of indemnity with its directors.

Conflicts of interest

The Board is authorised to approve conflicts. It has delegated the authorisation of conflicts to the Nomination Committee and adopted a conflicts of interest policy.

The policy outlines how conflicts will be dealt with and the process for directors to follow when notifying the Company of an actual or potential conflict. When deciding whether to authorise a conflict or potential conflict of interest, only those that have no interest in the matter under consideration will be able to take the relevant decision. In addition, the Nomination Committee will be able to impose limits or conditions when giving authorisation where appropriate.

The Board has considered in detail the current external appointments of the directors which may give rise to a situational conflict and has authorised potential conflicts where appropriate. This authorisation can be reviewed at any time but will always be subject to annual review. The Board is confident that these procedures operate effectively.

Board effectiveness

Performance evaluation

The Board has established a formal process for the annual evaluation of the performance of the Board, its committees, and individual directors (with particular attention given to those who are due for re-election) in accordance with the requirements of the Code. The directors are made aware on appointment that their performance will be subject to an annual evaluation and that a director would not be put up for re-election at an AGM unless the Chairman has decided that they continue to perform effectively and show commitment to the role.

Some of the actions taken during the year resulting from the 2008 evaluation include introducing more discussion on the corporate domain including the competitive and regulatory environment, giving more attention to stakeholder priorities and shareholder views, and reviewing the size and composition of the Board.

An internal evaluation of the effectiveness of the individual directors of the Board and its committees was carried out in 2009, led by the Senior Independent Director. The evaluation process included a confidential written questionnaire with questions covering a range of issues such as board structure, board processes, board roles and responsibilities, the Board's relationship with management, board agendas, committee processes, individual effectiveness, training and continuing professional development.

The results from the evaluation process were collated and passed to the Board for consideration. The review made the following suggestions, amongst others, for enhanced effectiveness:

-     to simplify board reporting, ensuring that non-critical items are kept to a minimum allowing the Board to focus on key strategic and operational issues; and

-     to focus on succession planning and leadership development.

The Board will review the recommendations and adopt new processes and procedures during the year as appropriate.

Induction and continuing professional development

The Company has a policy and programme for induction and continuing professional development. On appointment, each director takes part in a comprehensive induction programme where they:

-     receive information about the Group in the form of presentations by executives from all parts of the business and on the regulatory environment;

-     meet representatives of the Company's key advisers;

-     receive information about the role of the Board and the matters reserved for its decision, the terms of reference and membership of board committees and the powers delegated to those committees;

-     receive information about the Company's corporate governance practices and procedures and the latest financial information about the Group; and

-     are advised of their legal and other duties and obligations as a director of a listed company.

This is supplemented by visits to key locations, including studios and regional sites, and meetings with key senior executives and with major shareholders where appropriate.

During their period in office, the directors are continually updated on the Group's businesses and the competitive and regulatory environments in which they operate. This is done through:

-     regular updates on changes affecting the Group and the market in which it operates through written briefings and meetings with senior executives across the Group and from meetings with key advisers;

-     regular updates on changes to the legal and governance requirements of the Group and in relation to their own position as directors; and

-     presentations given before board meetings on business matters and technical update sessions from external advisers where appropriate.

The directors are expected to take responsibility for identifying their own professional development needs and to ensure that they are adequately informed about the Company and their responsibilities as directors.

Relations with shareholders

The Board attaches a high priority to effective communication with shareholders. In addition to the final and interim results presentations and the AGM, a series of meetings between institutional shareholders and senior management were held throughout 2009. In fulfilment of the obligations under the Code, the Chairman gave feedback to the Board on issues raised with him by major shareholders. This process will continue throughout 2010.

The Company maintains a corporate website containing a wide range of information of interest to institutional and private investors. The Company has frequent discussions with institutional shareholders on a range of issues affecting its performance both following the Company's announcements and in response to individual ad hoc requests.

Save in exceptional circumstances, all members of the Board will attend the AGM and shareholders are invited to ask questions during the meeting and to meet with directors prior to and after the formal proceedings. At the meeting the Chairman will review the Group's current trading. Notice of the AGM, together with any related documents, is made available to shareholders on the Company's website or mailed to them, if they have elected to receive hard copies, at least 20 working days before the meeting. Separate resolutions are proposed on each substantially separate issue. At the meeting all resolutions are taken on a poll. The level of votes lodged on a resolution is made available on a regulatory information service and on the Company's website at www.itvplc.com.

The Company regularly seeks feedback on perception of the Company amongst its shareholders and the investor community more broadly via its corporate brokers. An independent Investor Audit was last undertaken in 2007 to assess investor and wider market perception of the Company. The Company is currently considering commissioning another review during 2010.

How the Board operates

Board meetings

The number of meetings held during the year and attendance of directors is set out in the table below. Board members receive all papers tabled at meetings even if they are unable to attend. The Board approves annually a schedule of matters to be considered at each meeting and at each meeting of its Committees.

Responsibility and delegation

Specific responsibilities are set out in a schedule of matters reserved to the Board. These include:

-     setting long-term objectives and corporate strategy and approving an annual budget;

-     approving major acquisitions;

-     approving major divestments and capital expenditure;

-     approving appointments to the Board;

-     reviewing systems of internal control and risk management; and

-     approving policies relating to directors' remuneration.

Board Committees

The Board has delegated certain responsibilities to the committees detailed on the following pages. The terms of reference for each committee are reviewed annually and the current versions are available on the Company's website at www.itvplc.com.

Audit Committee: see the report of the Audit Committee on page 50.

Disclosure Committee: the Disclosure Committee comprises certain senior management of the Company. The function of the Committee, in accordance with the Company's Inside Information Policy, is to ensure compliance with continuing obligations under the Disclosure and Transparency Rules and the Listing Rules through the timely public disclosure of material information.

General Purpose Committee: the General Purpose Committee (formerly the Management Committee) comprises the executive directors. The Committee meets as required to conduct the Company's business within the clearly defined limits delegated by the Board and subject to those matters reserved to the Board.

Nomination Committee: see the Nomination Committee section on page 49.

Remuneration Committee: see the Remuneration report on page 53.

Board and Committee membership, and attendance at meetings in 2009

 

 

 

 

Attendance in 2009

 

 

 

 

Board

Audit Committee

Nomination Committee

Remuneration Committee

Strategy day


Status

Date of appointment to Board

Date of resignation from Board and Committees

8

6

2(2)

5

1

Current directors









Mike Clasper

Independent

3 January 2006


8

6

2

-

1

John Cresswell

Executive

16 January 2006


8

-

-

-

1

Ian Griffiths

Executive

9 September 2008


8

-

-

-

1

Andy Haste

Independent

11 August 2008


8

-

1

4

1

Rupert Howell

Executive

28 February 2008


8

-

-

-

1

Archie Norman

Independent(1)

1 January 2010


-

-

-

-

-

John Ormerod

Independent

18 January 2008


8

6

2

-

1

Baroness Usha Prashar

Independent

7 February 2005


7

-

2

5

1

Directors who stepped down in the year







Sir James Crosby

Independent

3 December 2003

31 December 2009

7

-

2

5

-

Michael Grade

Executive

8 January 2007

31 December 2009

8

-

-

-

1

Heather Killen

Independent

8 August 2007

31 December 2009

8

-

2

5

1

Sir George Russell

Independent

2 December 2003

31 December 2009

8

6

2

-

1

Agnès Touraine

Independent

8 August 2007

31 December 2009

8

6

2

-

1

Notes:

(1)            Independent on appointment to the Board.

(2)            A number of additional Nomination Committee meetings were held in 2009 to discuss changes to the composition of the Board.

(3)            Non-attendance has been due to illness or unavoidable prior commitments.

Nomination Committee

The Committee is comprised entirely of non-executive directors.

The current members are:

-     Archie Norman (Chairman) (appointed 1 January 2010)

-     Mike Clasper

-     Andy Haste

-     John Ormerod

-     Baroness Usha Prashar

Sir James Crosby served as Chairman of the Committee until he stepped down from the Board on 31 December 2009 and Archie Norman took over as Chairman with effect from 1 January 2010. Heather Killen, Sir George Russell and Agnès Touraine also served on the Committee during the year until they stepped down from the Board on 31 December 2009. Full details of attendance at Committee meetings can be found in the table on page 48.

Role: the role of the Committee is to:

-     review the structure, size and composition of the Board;

-     identify and nominate for board approval, candidates to fill

-     board vacancies;

-     evaluate the balance of skills, knowledge and experience on

-     the Board;

-     consider succession planning for directors and other senior executives; and

-     consider any conflicts of interest that may be reported by directors of the Company.

Activities in 2009: the Committee focused on succession planning for the Board. The objectives of the succession planning framework are to ensure:

-     board tenure is appropriate and encourages fresh thinking and

-     new ideas;

-     the Board has the appropriate mix of generalist and specialist skills for the Company's changing requirements; and

-     non-executive directors have the appropriate level of independence, from the executive directors and from each other.

Following Michael Grade's announcement of his intention to step down as Executive Chairman, the Committee commenced a search for a Chief Executive and a non-executive Chairman with the help of a professional search firm. Archie Norman was appointed Chairman with effect from 1 January 2010, and Adam Crozier will take up the position of Chief Executive on 26 April 2010.

The Committee will continue to review succession planning for key executives throughout the Group in 2010 to ensure an appropriate framework is in place.

 

Audit Committee report

Dear Shareholder,

On the following pages we set out the Audit Committee's report for 2009. The report comprises four sections:

-     Committee overview;

-     Activities in 2009;

-     Auditor's independence and objectivity; and

-     Internal control.

Throughout 2009 the Audit Committee (the Committee) continued to monitor the integrity of the financial statements of the Company, to assist the Board in reviewing the effectiveness of the Company's internal control and risk management systems, and to review arrangements for its employees to raise concerns in confidence.

The Committee has also been responsible for reviewing the effectiveness of the Company's internal audit function and making recommendations to the Board in relation to the re-appointment and remuneration of the Company's external auditor.

The Committee works to a structured programme of activities with agenda items focused to coincide with key events of the annual financial reporting cycle, together with standing items that the Committee is required to consider regularly.

This report has been written to give a full description of our activities in 2009.

John Ormerod

Chairman, Audit Committee

3 March 2010

 

Committee overview

Composition

The Committee is comprised entirely of non-executive directors. The current members are:

-     John Ormerod (Chairman)

-     Mike Clasper

-     Archie Norman (appointed 2 February 2010)

Mike Clasper served as Chairman of the Committee throughout 2009. In view of his role as Chairman of HMRC, discussions relating to the Company's tax position were chaired by John Ormerod. Following Mike Clasper's appointment as Senior Independent Director, John Ormerod took over as Chairman with effect from 1 January 2010. Archie Norman will only serve as a member of the Committee until Andy Haste is able to take up membership later in the year, in order to ensure the Committee remains quorate.

Agnès Touraine and Sir George Russell served on the Committee during the year until they stepped down from the Board on 31 December 2009. Full details of attendance at Committee meetings can be found in the table on page 48.

The Code requires the Board to be satisfied that at least one member of the Committee has recent and relevant financial experience. The Board considered this requirement during 2009, and concluded that the wide range of business and financial experience of the Committee members as a whole, gained at the highest level of UK FTSE 100 companies and other blue-chip organisations, was sufficient to enable the Committee to fulfil its terms of reference in a robust and independent manner. Biographical details of the members of the Committee including their qualifications are set out on pages 44 and 45.

At the invitation of the Chairman of the Committee, the Chief Executive, Group Finance Director, Group Financial Controller, Head of Internal Audit and representatives of senior management regularly attend Committee meetings. The Committee as a whole has the opportunity to meet privately with the internal and external auditors prior to meetings as required.

Role

The role of the Committee is to:

-     monitor the integrity of the consolidated and parent company financial statements;

-     review the effectiveness of the Group's internal control and risk management systems;

-     review the Group's arrangements for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters;

-     monitor and review the effectiveness of the Group's internal audit function; and

-     consider and make recommendations to the Board in relation to the appointment, re-appointment, replacement and remuneration of the Company's external auditor.

Activities in 2009

The Committee's activities during the year included:

-     reviewing the Group's financial statements (including detailed disclosures) prior to board approval;

-     reviewing the appropriateness of the Group's accounting policies and considering related accounting treatments in specific areas such as revenue recognition;

-     reviewing and approving the annual external audit process, the external auditors strategy and plan for the audit, considering the findings of that work and confirming that all significant matters had been satisfactorily resolved;

-     reviewing the management letter arising from the 2008 year-end external audit;

-     monitoring regularly the non-audit services being provided to the Group by its external auditor. The Committee has approved a formal policy governing the independence of the Company's external auditors and defining those non-audit services that may be provided to the Group, including those which require the prior approval of the Committee. This is explained further in the Auditor's independence and objectivity section below;

-     undertaking a review of the internal audit function, its plan and resources available. The internal audit plan is constructed by taking a risk based approach, encompassing financial, reputation, and broader macro-economic risks, with the review cycle designed such that financially material operations and areas of significant change are reviewed in a given year, with all activities reviewed at least once every three years. A decision was taken during the year to use external third parties to provide internal audit services in order to take advantage of the specialist resources available through use of consultants, and Deloitte were appointed to provide such services;

-     considering internal audit reports, the actions taken to implement the recommendations made in those reports and the status of progress against previously agreed actions;

-     reviewing the results of the Enterprise-wide Risk Management process, including consideration of a rolling programme of risk and internal control presentations made by each operating team and central service functions;

-     continuing to monitor the implementation of the integrated finance processes and system;

-     reviewing the Group's technology function, resulting in a decision to outsource this area in 2010 resulting in further cost savings and efficiencies;

-     reviewing the analysis supporting the carrying value of goodwill before consideration by the Board;

-     reviewing the Group's cash flow forecasts and facilities to support the going concern statement in the annual report before consideration by the Board. The going concern statement is contained in the Financial review on page 42;

-     reviewing the effectiveness of the whistleblowing process through which the employees may, in confidence, raise concerns;

-     considering regulatory and professional developments in respect of financial accounting and reporting; and

-     receiving reports from the Treasury department on their activities.

Auditor's independence and objectivity

The Committee regularly monitors the other services being provided to the Group by its external auditor, and has developed a formal policy to ensure this does not impair their independence or objectivity which is available in full on the Company's website at www.itvplc.com.

The policy is based on the five key principles which underpin the provision of other services by the external auditor. These are that the auditor should not:

-     audit its own firm's work;

-     make management decisions for the Group;

-     have a mutuality of financial interest with the Group;

-     develop a close personal relationship with the employees of

-     the Group; or

-     be put in the role of advocate for the Group.

The Committee has pre-approved the categories of other services that may be performed by the external auditors and explicitly set out the categories of work that they may not perform. For this purpose auditing the accounts of subsidiaries and associates pursuant to legislation and other services provided pursuant to legislation are regarded as audit services.

The policy sets a 1:1 ratio for the annual split between audit and other fees charged by the external auditor. Although the Committee believes that awareness of the 1:1 ratio is important, it is also of the view this should not act as a hard ceiling on non-audit fees but as a guide that may be exceeded from time to time to ensure flexibility so that the Company receives the best and most appropriate advice. Non-audit services will be subject to market tenders or tests and will be awarded to the most appropriate provider. Approval is required from the Committee Chairman for any engagement of the external auditor where the fee is likely to be in excess of £0.1 million. A report on the level of non-audit work is provided to the Committee half-yearly. Details of the related audit and other services are set out in note 4 of the consolidated financial statements.

The Committee performs a specific evaluation of the performance of the external auditors annually, through assessment of the results of questionnaires completed by relevant senior management in addition to committee members' own views of auditor performance. It is the Company's policy to carry out regular market testing either through benchmarking or a form of audit tender.

During the year the Committee considered the tenure, performance and audit fees of the external auditor, and the level of non-audit work undertaken, and recommended to the Board that a resolution for the re-appointment of KPMG Audit Plc for a further year as the Company's auditor be proposed to shareholders at the AGM in May 2009. The resolution was passed and KPMG Audit Plc were re-appointed for a further year.

Internal control

The Board has overall responsibility for the Group's systems of internal control and for regularly reviewing the effectiveness of those systems. The Committee assists the Board in reviewing the Group's systems of internal control. The primary responsibility for the operation of these systems is delegated to management. Such systems can only provide reasonable and not absolute assurance against material misstatement or loss. Key control procedures are designed to manage rather than eliminate risk and can be summarised as follows:

-     Strategy and financial reporting: the Group performs a comprehensive annual strategy review and budgeting process. The executive directors review budgets and strategies and the Board approves the overall Group budget as part of its normal responsibilities. The results of operating units are reported monthly, compared with their individual budgets and forecast figures and are reviewed.

-     Organisational structure and authorisation procedures: the Group has an established organisational structure with clearly stated lines of responsibility and reporting. Authorisation procedures in respect of matters such as purchase commitments, capital expenditure, investment limits and treasury transactions are clearly defined.

-     Control environment: financial controls and procedures are considered as part of the Group's ongoing risk assessment process and are reviewed as part of the Group's internal audit work programme.

-     Risk assessment and management: management is responsible for identifying the risks facing the Company's business and for establishing controls and procedures to monitor and mitigate those risks. As part of those controls and procedures, the Company has established an Enterprise-wide Risk Management (ERM) programme providing formal risk assessments. The ERM programme is co-ordinated through the Company's Risk department and the Internal Audit function provides the assurance role reporting to management, the Committee and the Board. The ERM programme is being embedded within operational processes and will help to identify new business opportunities as well as provide risk analysis for all new projects and businesses. The annual ERM programme cycle passes through a number of phases as it escalates through the business. The Committee receive presentations from senior management covering the risks of the operating units. Following such presentations and review, senior management carry out a further risk consolidation process and then present the Company's overall major risks to the Board for consideration of the top risks which are then disclosed in summary form within the published Report and accounts annually. Details on the Company's key risks can be found on pages 30 and 31.

-     Reviewing and monitoring the effectiveness of internal controls: controls are monitored by senior management, Internal Audit and the Committee. Directors of each business team are required annually to confirm compliance with internal control in their area. Serious control weaknesses (if any) are reported to the Board and actions taken as appropriate.

The Committee is authorised by the Board to seek any information that it requires from any employee and to obtain, at the Company's expense, independent legal or professional advice on any matter within its terms of reference and to call any employee to be questioned at a meeting of the Committee as and when required. The Committee members are subject to the programme of continuing professional development that applies to the full board.

The Board is required to review, at least annually, all material internal controls including financial, operational, and compliance controls and risk management systems. The Board has conducted a review of the effectiveness of the Group's systems of internal controls for the year ended 31 December 2009. In the opinion of the Board, the Company has complied with the internal control requirements of the Combined Code throughout the year, maintaining an ongoing process for identifying, evaluating and minimising risk.

Approval

The Audit Committee report was approved by the Board on 3 March 2010 and signed on its behalf by John Ormerod.

 

Remuneration Report

Dear Shareholder,

On the following pages we set out the Remuneration report for 2009. The report comprises five sections:

-     Committee overview;

-     Remuneration policy;

-     Delivering remuneration policy;

-     Non-executive directors; and

-     Detailed audited disclosures.

During the year, the Remuneration Committee (the Committee) has endeavoured to ensure that arrangements remain focused, relevant and aligned with the need to create shareholder value over the short, medium and long-term. In taking decisions during 2009, the Committee has been mindful that the market in which the Company operates continues to be complex and challenging. The Committee would encourage shareholders to note the following:

-     In considering the overall remuneration package for executive directors and senior executives of the Company (together the Senior Executive Group), the Committee looks to balance the need to attract and retain high quality talent with the need to be cost effective and to reward exceptional performance. As a result, a significant proportion of the Senior Executive Group's remuneration is dependent on the achievement of stretching performance conditions that support the creation of shareholder value.

-     In relation to 2009 performance, the Committee believes that the level of bonus awards are a fair reflection of Company performance during the year and in particular reflect the efforts made by the Senior Executive Group to maintain operational progress across the core business, reduce ITV's cost base and manage cash and working capital, which have delivered strong financial results in a very challenging advertising market.

-     In light of the current strategic review, we intend to undertake a full review of incentive plans during 2010 in consultation with major shareholders. The aim of the review will be to ensure incentive arrangements are strongly aligned with the priorities arising out of the strategic review and support the transformation of ITV.

Further details are set out in full over the following pages.

 

Baroness Usha Prashar

Chairman, Remuneration Committee

3 March 2010

 

Committee overview

Composition

The Committee is comprised entirely of non-executive directors. The current members are:

-     Baroness Usha Prashar (Chairman)

-     Mike Clasper (appointed 2 February 2010)

-     Andy Haste

-     Archie Norman (appointed 2 February 2010)

-     John Ormerod (appointed 1 March 2010)

Sir James Crosby and Heather Killen served on the Committee during the year until they stepped down from the Board on 31 December 2009. Full details of attendance at Committee meetings can be found in the table on page 48.

Role

The role of the Committee is to:

-     approve the remuneration strategy and policy for the Senior Executive Group;

-     review the ongoing appropriateness and relevance of the remuneration policy; and

-     approve the design of, and determine targets for, the Company's annual bonus arrangements and share incentive plans, and determine the level of awards made under them as they apply to the Senior Executive Group.

The Committee also maintains an active dialogue with shareholder representatives.

Activities in 2009

The Committee's activities during the year included:

-     ensuring that decisions taken in respect of the Senior Executive Group's remuneration packages are sensitive to the activities being undertaken in the wider group, while also remaining appropriate in ITV's commercial environment;

-     considering the terms of remuneration for the roles of Chairman and Chief Executive;

-     agreeing performance targets in relation to the 2010 bonus; and

-     agreeing remuneration packages for the Senior Executive Group and termination arrangements for those individuals whose employment ceased.

Advisers

The Committee obtains advice from various sources in order to ensure it makes informed decisions. The Committee's main advisers are set out below, and certain executives and other external advisers are invited to attend as appropriate. No individual is involved in decisions relating to their own remuneration.

Adviser

Area of advice

Andy Doyle,

Group HR Director

Main internal adviser, provides updates on remuneration, employee relations and human resource issues affecting the Company.

Deloitte LLP*

Independent advisers on remuneration policy and the external remuneration environment; providing performance testing for LTIPs.

Lovells LLP

Legal matters.

Towers Watson

Salary benchmarking data.

*During the year Deloitte also provided the Group with tax and corporate finance advice under separate engagement terms.

Remuneration policy

As a company that operates in the particularly competitive media market, ITV aims to balance the need to attract and retain the high quality talent that is key to the Company's success with the need to be cost effective and to reward exceptional performance. The Committee has designed a remuneration policy which balances these factors, while also taking into account prevailing best practice and investor expectations.

In addition to the above, the remuneration policy for the Senior Executive Group is based on the following key principles:

-     a significant proportion of remuneration should be tied to the achievement of specific stretching performance conditions which align remuneration with the creation of shareholder value;

-     performance is measured over clearly specified time horizons, over the short, medium and long-term, and encourages executives to take action in line with the business strategy without taking excessive risks; and

-     individuals should be rewarded for success and steps should be taken, within contractual obligations, to prevent rewards for failure. Payments to directors on termination will only reflect contractual obligations.

When developing remuneration policy, the Committee obtains advice from the key advisers outlined on page 53. The Committee also considers the wider context of the Group when taking decisions.

Components of reward

The reward package for the Senior Executive Group consists of a combination of fixed and variable elements intended to provide motivation and reward for short, medium and long-term performance and to retain key executives over the longer term. Each component is intended to fulfil a different function within the remuneration framework as set out in the table below. Details of how these components are delivered is set out in the Delivering remuneration policy section.


Components

Function

Fixed

 

Base salary

To recognise the individual's skills and experience and provide a market competitive base reward.

Pensions

To provide an opportunity for executives to build up an income for retirement.

Other benefits

To ensure remuneration is market competitive.

Variable

 

Short-term incentives

To incentivise and reward exceptional performance against financial and non-financial annual targets that deliver value to shareholders.

Long-term incentives

To drive sustained long-term performance that supports the creation of shareholder value.

By way of illustration, the balance between the fixed and variable elements of the total remuneration package (excluding pension) for executive directors is illustrated in the charts below. The charts illustrate the mix at both target and maximum performance and show the typical delivery of remuneration through cash and shares, over the short and longer term. Broadly there is a 50:50 split between fixed and variable pay at target performance and a 25:75 split at maximum performance, showing the high proportion of performance-related pay that is 'at risk' in the total remuneration package.

Shareholder alignment

The Committee continues to recognise the importance of executive directors aligning their interests with shareholders through the commitment of a significant amount of their own investment capital. Shareholding guidelines are in place, which encourage executive directors to build up and hold ITV plc shares with a value equivalent to at least 100% of their salary within five years of appointment. Details of the executive directors' current personal shareholdings are shown on page 61.

 

Delivering remuneration policy

Base salary

Market positioning of base salary is approached on an individual basis, and the Committee takes account of robust salary surveys and an individual's skills before reaching its conclusions. The aim is for base salary to be set around market median, whilst recognising the need on occasion for an appropriate premium to attract superior talent.

Executive directors' base salaries are reviewed on an annual basis, effective from 1 January. In January 2010 the Company completed its annual pay review and concluded that there should be no increase in base salary for any ITV employees. This means the salaries of John Cresswell, Ian Griffiths and Rupert Howell have not increased since 2008.

The base salaries for the executive directors are set out in the emoluments table in the Detailed audited disclosures section.

Pensions

As with other companies, the form in which pension benefits are delivered has changed for ITV in recent years. Since 2002, the Company has been offering a defined contribution pension scheme to all new employees. The majority of the Senior Executive Group receive their pension through defined contribution pension arrangements. The executive directors' pension arrangements are set out on page 61.

Other benefits

Other benefits include private medical insurance and car related allowances which are offered where appropriate.

Short-term incentives

Annual incentives are provided for the Senior Executive Group through the ITV Annual Bonus Scheme (Bonus). The performance conditions that apply are set on an individual basis and are closely linked to the Company's corporate, financial and strategic priorities. The Bonus extends to all ITV employees, providing a comprehensive and fully integrated bonus framework which rewards all employees when ITV is successful.

The total Bonus opportunity for executive directors will not normally exceed 150% of a participant's annual salary. Typically half of any pre-tax Bonus award to the executive directors has been automatically deferred into restricted shares or nil-cost options under the Deferred Share Award Plan (DSA), vesting 12 and 24 months after the end of the financial year to which the Bonus relates. Participants have been able to elect to take the balance of the Bonus in cash or as further share awards under the DSA. The DSA does not provide for any form of matching award.

2009 Bonus: Bonus opportunities for the Senior Executive Group in 2009 were designed to focus on profit generation (EBITA before exceptional items), cost savings, the efficient management of cash (profit to cash conversion) and employee engagement, with stretching targets set at the start of the financial year. In addition, the Committee determined that 2009 Bonus awards may be scaled back if profits were below a threshold level. In early 2009, it was also the Committee's intention to make all awards wholly in the form of nil-cost options or restricted shares.

ITV's performance in 2009 in these key financial areas has been strong, particularly in a challenging advertising market. As set out in the Business review section, operational progress across the core business has been maintained, significant cost savings have resulted in profits being stabilised, and extensive efforts on cash conversion have resulted in improved cash and working capital management. As a result, all the financial targets set under the Bonus were met in full. The Committee has therefore determined that the 2009 Bonus awards will not be scaled back and believes the level of Bonus to be a fair reflection of the Company's performance during the year. For executive directors awards will be made in the typical way with half being deferred into restricted shares under the DSA and the balance in cash.

2010 Bonus: The Committee has set 2010 performance targets to ensure they are heavily weighted to corporate financial performance, and with a strong emphasis on ITV's strategic goals. In setting these targets, the Committee has determined there will be no Bonus awards made if the Company's profit is below a threshold level. In addition, the performance scales have been set such that maximum bonuses will only be paid for performance that is well above budgeted performance.

It is anticipated that awards made to the executive directors for 2010 performance will continue to be made partly in deferred shares and partly in cash. However, this may form part of the incentives review that will be undertaken during 2010.

Long-term incentives

The Committee keeps the Company's long-term incentive plans under regular review to ensure they remain appropriate in fulfilling their objectives and that the performance conditions continue to represent the best way to drive the creation of shareholder value.

The plans under which awards have been made to date, and are still outstanding, are:

-     Performance Share Plan: this was the only long-term incentive used for awards made in 2009. Awards were made on 1 June 2009 after the cost savings review was completed, and were scaled back from historic levels to a maximum of 100% of salary. The performance conditions that apply to the 2009 awards are outlined in the table on page 56. The intention is to make awards under this plan in 2010.

-     Turnaround Plan: no awards have been made under this plan since 2008. Awards in the form of nil-cost options were made to a number of key senior executives in 2007 and 2008 with a maximum value of up to 550% of the individual's salary. Individuals who received this award did not receive an award under the Company's other long-term incentive plans in 2007 or 2008.
Up to 50% of the portion of the award subject to TSR (25% of the total award) was subject to performance over the three-year period to 31 December 2009. As the TSR condition was not met, 25% of the total award has lapsed. The balance will be tested at 31 December 2011.

-     Commitment Scheme: no awards have been made under this scheme since 2006. John Cresswell is the only executive director with outstanding awards.

The table on page 56 outlines the key features of the above plans. The Company also operates an all employee Save As You Earn (SAYE) scheme. The executive directors' participation in this scheme are set out in the Detailed audited disclosures section.

In line with the Turnaround Plan (TP), a corresponding long-term cash-based incentive also exists for the wider employee population, not including participants in the TP, known as the Turnaround Incentive Opportunity, which is dependent on the same performance conditions.

Performance graph

The graph below shows the Total Shareholder Return (TSR) performance of the Company against the FTSE 100 and FTSE 250 index over the five year period to 31 December 2009. Both indices have been shown as the Company has been a constituent of both over the previous five years.

Summary of long-term incentive plans

 

Performance Share Plan

(PSP)

Turnaround Plan

(TP)

Commitment Scheme

(CS)

Co-investment requirements

None

Requirement to:

-      acquire a number of shares with a value of up to 100% of salary within a specified period from date of grant; and

-      hold the shares for the duration of the relevant performance period.

Requirement to:

-      acquire a number of shares with a value of up to 300% of salary within a specified period from date of grant to receive a matching award comprised of either or both of a nil cost option and market value option each over a maximum of three times the number of shares committed; and

-      hold the shares for the duration of the relevant performance period.

Performance period

-      three years from the date of grant.

-      25% of total award - 1 January 2007 to 31 December 2009 (see page 55).

-      75% of total award - 1 January 2007 to 31 December 2011.

-      up to 50% of the matching award - three years from the date of grant.

-      remainder - four years from the date of grant.

Performance conditions

75% TSR

-      measured equally against two distinct comparator groups drawn from the FTSE 250 and a specific international industry peer group detailed in the notes on page 60.

50% TSR

-      measured against a the customised FTSE 100 comparator group detailed in the notes on page 60, excluding certain industry sectors that are less relevant as a benchmark of performance.

100% TSR

-      measured against the customised FTSE 100 comparator group detailed in the notes on page 60, excluding certain industry sectors that are less relevant as a benchmark of performance.


25% STRATEGIC

-      measured in equal proportions against two strategic targets, which for awards made on 1 June 2009 were:

50% STRATEGIC

-      measured in equal proportions against four strategic targets:

 



Strategic target

Threshold

Maximum

Strategic target

Threshold

Maximum


SOCI* (ITV Family)

36.6%

38.5%

SOCI* (ITV Family)

36.6%

38.5%

EPS Growth

RPI +3%

RPI +5%

Revenue growth

2% p.a.

5% p.a.


 

Adjusted EPS (in line with that reported in Group's financial statements)

8p

12p



 

Share price

£1.35

£2.25



-      Earnings Per Share (EPS) growth will be measured over the relevant three year financial period with EPS for the 2008 financial year as the base year.

-      share price will be measured as an average over any 28 day period within the final three years of the TP.


Vesting

75% TSR

-      Below median - nil

-      Median - nil

-      Upper quartile - 100%

-      Vesting will occur on a straight line basis in between.

50% TSR

-      Below median - nil

-      Median - 25%

-      Upper quartile - 100%

-      Vesting will occur on a straight line basis in between.

100% TSR

-      Below median - nil

-      Median - 25%

-      Upper quartile - 100%

-      Vesting will occur on a straight line basis in between.


25% STRATEGIC

-      Threshold performance - 25% of the award relating to each target will vest

-      Maximum performance - 100% of the award relating to each target will vest

-      Vesting will occur on a straight line basis in between.

50% STRATEGIC

-      Threshold performance - 25% of the award relating to each target will vest

-      Maximum performance - 100% of the award relating to each target will vest

-      Vesting will occur on a straight line basis in between.


Exercise period

-      Once vested, awards can be exercised for 12 months.

-      Any portion of the award that does not vest or is not exercised will lapse.

-      Once vested, awards can be exercised until 31 December 2012.

-      Any portion of the award that does not vest or is not exercised by 31 December 2012 will lapse and the TP will terminate.

-      Once vested, awards can be exercised for up to ten years from date of grant.

-      Any portion of the award that does not vest or is not exercised will lapse.

Leavers

Standard good leaver provisions apply (broadly relating to compassionate circumstances) and include pro-ration for service. If a participant ceases to be employed for any other reason, the award will lapse unless determined otherwise.

Change of control

Outstanding awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions. The proportion that vests may be capped depending on the time elapsed since grant.

*SOCI as a measure of performance, and its importance to the business, is explained further in the Business review.

Service contracts

Executive directors have service contracts which provide for 12 months' notice on either side. There are no special provisions that apply in the event of a change of control.

 

Date of appointment

Nature of contract

Notice period from Company

Notice period from director

Compensation provisions for early termination

John Cresswell

16 January 2006

Rolling

12 months

12 months

None

Ian Griffiths

9 September 2008

Rolling

12 months

12 months

None

Rupert Howell

28 February 2008

Rolling

12 months

12 months

None

Note: The Company retains the right to terminate employment by making payment in lieu of notice, in which case the executive would be entitled to receive 12 months' salary and benefits (including pension contributions).

Executive directors' non-executive directorships

With specific approval of the Board, executive directors may accept external appointments as non-executive directors of other companies and retain any related fees paid to them.

During the year Michael Grade retained fees for external non-executive directorships as set out below:

Company

2009 £000

2008 £000

Pinewood Shepperton Plc

102

102

Ocado Limited

100

100

Payments to outgoing executive director

When agreeing the terms of Michael Grade's departure the Committee were keen to ensure that any payments made only reflected contractual obligations.

As Michael Grade indicated his intention to leave in April 2009 and stood down in December 2009, the Committee agreed he should receive payment for the residual four months of his contractual notice period to April 2010. However, the Committee determined that this payment should be made at the rate he would have been paid as non-executive Chairman, rather than his Executive Chairman salary. As a result, a payment of £167,000 was made on his departure.

Michael Grade's Bonus payment in respect of 2009 performance was assessed against performance targets set at the start of the financial year and calculated in line with the bonus payments for other executive directors as disclosed on page 55. The payment made is included in the emoluments table on page 58.

Details of Michael Grade's outstanding awards under the Company's long-term incentive plans are outlined in the Detailed audited disclosures section.

Interim Chief Executive

John Cresswell was appointed to the position of Interim Chief Executive on 1 January 2010 and will hold the position until Adam Crozier joins the Company as Chief Executive on 26 April 2010. In order to reflect the increase in his responsibilities during this transitional period he will receive an additional allowance of £125,000 per annum pro-rata for the period he serves as Interim Chief Executive.

Non-executive directors

Each non-executive director has a contract of service with the Company, further details of which can be found in the Corporate Governance section. Fees paid to the non-executive directors are determined by the Board based on market information supplied by Deloitte, and in accordance with the restrictions contained within the Company's Articles of Association. Non-executive directors do not participate in decisions concerning their own fees.

The fees are reviewed annually. The additional fee for membership of the Nomination Committee ceased from 1 January 2010. There were no changes to the level of fees paid during 2009, and none are proposed for 2010. The annual fees payable are as follows:

Non-executive directors' fees

£000

Board member

55

Senior Independent Director

25

Audit Committee member

5

Audit Committee Chairman

20

Remuneration Committee member

5

Remuneration Committee Chairman

15

Note: Details of committee membership can be found in the Corporate Governance section.

From 1 January 2009 the non-executive directors have used 25% of their annual fees, after statutory deductions, to acquire shares in the Company. The shares are purchased quarterly and are held by a nominee on their behalf. The shares release when they retire from the Board. Details of their shareholdings can be found on page 61.

Chairman

Archie Norman joined the Company as Chairman on 1 January 2010. As announced at the time of his appointment, his remuneration will comprise a cash fee of £300,000 per annum and an annual award of 400,000 shares over the initial three-year appointment term. He will not be required to apply a percentage of his cash fee to acquire shares as the Committee considers him to be sufficiently aligned with shareholders' interests following his purchase of 380,000 shares on appointment, together with the share element of his remuneration.

Detailed audited disclosures

The following tables provide details of each of the directors' and former directors' emoluments, pension entitlements, rights to share options and awards. All of these tables have been audited by KPMG Audit Plc.

Aggregate directors' remuneration

The total amounts of directors' remuneration for the period from 1 January 2009 to 31 December 2009 were as follows:

 

 

2009

£000

2008

£000

Emoluments

5,309

2,893

Gains on exercise of share options

1,092

87

 

6,401

2,980

Notes:

(1) Gains on exercise figure for 2009 is higher as it shows both the nil-cost options awarded under the 2008 Bonus vesting and being exercised, and the value on release of the remaining restricted shares awarded under the 2007 Bonus. John Cresswell also exercised his nil-cost options under the Granada Commitment Scheme during the year. Further information is contained in the tables on pages 59 and 60.

(2) The value on release of restricted shares awarded under the DSA will be included in thegains on exercise figure going forward in order to make year-on-year comparisons more representative. The 2008 gains on exercise figure with this value included would have been £504,000.

Directors' emoluments

The directors' emoluments for the year ended 31 December 2009 are set out in the table below. The main reasons for the difference in total emoluments year-on-year are:

2008 total emoluments: £2.9 million

-     The total emoluments figure does not include any 2008 short-term incentives (Bonus), as they were awarded in nil-cost options under the DSA with no cash payments.

-     The figures for Rupert Howell and Ian Griffiths are from the date of their appointment to the Board, in February and September 2008 respectively. If the total emoluments figure for 2008 included their salary for a full year, as in 2009, then the 2008 total emolument figure is £3.2 million on a like-for-like basis.

2009 total emoluments: £5.3 million

-     The 2009 Bonus is higher as financial targets were met as described on page 53.

Emoluments

Name of director

Notes

Basic salary/

Fees £000

Benefits in kind (4) £000

Pension contributions

£000

Short-term  incentives

(cash)(5) £000  

Total for the year ended 31 December 2009 £000

Total for the year ended 31 December 2008 £000

Executive

 

 

 

 

 

 

 

Michael Grade

1, 2

825

63

74

1,164

2,126

934

John Cresswell


575

20

-

363

958

599

Ian Griffiths

3, 7

425

13

64

210

712

127

Rupert Howell

3, 7

450

49

67

267

833

474

Non-executive

 

 

 

 

 

 

 

Mike Clasper

 

80

-

-

-

80

80

Sir James Crosby

 

100

-

-

-

100

100

Andy Haste

 

65

-

-

-

65

24

Heather Killen

 

65

-

-

-

65

65

John Ormerod

 

65

-

-

-

65

62

Baroness Usha Prashar

 

75

-

-

-

75

75

Sir George Russell

 

165

-

-

-

165

165

Agnès Touraine

 

65

-

-

-

65

65

Past director's remuneration (for comparative purposes)

 

- 

-

-

-

123

Total emoluments

 

2,955

145

205

2,004

5,309

2,893

Notes:

(1)            Pension contribution represents a cash payment in lieu of pension and is described further in the pension entitlements section of this report.

(2)            The benefits in kind figure includes a cash payment in lieu of accrued but unused holiday at the year end.

(3)            Pension contributions represent payments made into Personal Pension Plans and are described further in the pension entitlements section of this report.

(4)            This disclosure includes the cost of private medical insurance and car related benefits.

(5)            Executive directors will receive a 2009 Bonus as follows. Michael Grade will receive 141% of salary and will be paid fully in cash. John Cresswell will receive 126% of salary and Rupert Howell 118.5% salary, with 50% paid in cash as shown above, and 50% awarded as restricted shares under the DSA. Ian Griffiths will receive 141% of salary, and has elected to take 65% as restricted shares under the DSA and the remainder in cash.

(6)            Non-executive directors' fees include an element which is used to purchase shares as described on page 57. Details of their shareholdings are shown on page 61.

(7)            The figures for 2008 reflect emoluments from the date of appointment to the Board which are set out on page 48.

 

Directors' interests in share options

Information given in the table below is for the period from 1 January 2009 to 31 December 2009.

Award date

Notes

At 1 January 2009

Awarded in year

Exercised/ Released in year

Lapsed in year

At 31 December 2009

Share price used for award (pence)

Exercise price (pence)

Date of exercise/

release

Share price at date of exercise/ release (pence)

Pre-tax gain at date of exercise/ release

(£)

Vesting date/ Exercise period

John Cresswell

 

 

 

 

 

 

 

 

 

 

 

Deferred Share Award Plan

14 March 2008

1

241,491

-

241,491

-

-

65.30

-

31 December 2009

54.24

130,985

-

24 April 2009

2

-

264,314

264,314

-

-

31.00

-

31 December 2009

54.24

143,634

-




264,315

-

-

264,315

31.00

-

-

-

-

31 December 2010 -

31 December 2011

Performance Share Plan

13 September 2006

 3, A

607,595

-

-

607,595

-

98.75

-

-

-

-

-

1 June 2009

B

-

1,608,392

-

-

1,608,392

35.75

-

-

-

-

June 2012 -

June 2013

Turnaround Plan

13 September 2007

4, A

2,849,100

-

-

712,275

2,136,825

111.00

-

-

-

-

31 December 2011-31 December 2012

Save As You Earn scheme

4 April 2008

5

32,307

-

-

32,307

-

-

52.00

-

-

-

-

17 July 2009

5

-

54,370

-

-

54,370

35.75

28.60

-

-

-

September 2014 -March 2015

Commitment Scheme

22 August 2003

6

301,785

-

301,785

-

-

-

-

20 October 2009

50.98

153,850

-

22 August 2003

6

471,944

-

-

-

471,944

-

100.72

-

-

-

August 2005 - August 2010

19 April 2005

10, C

283,407

-

-

283,407

-

-

-

-

-

-

-

19 April 2005

10, C

283,407

-

-

283,407

-

-

125.75

-

-

-

-

20 March 2006

11, D

518,358

-

-

259,179

259,179

-

-

-

-

-

March 2010 - March 2016

20 March 2006

11, D

518,358

-

-

259,179

259,179

-

115.75

-

-

-

March 2010 - March 2016

Executive Share Option Schemes

22 December 2000

7

959

-

-

-

959

-

217.78

-

-

-

December 2003 - December 2010

6 July 2001

7

36,399

-

-

-

36,399

-

137.02

-

-

-

July 2004 - July 2011

28 September 2001

7

113,851

-

-

-

113,851

-

91.35

-

-

-

September 2004 - September 2011

9 January 2002

7

1,040

-

-

-

1,040

-

143.27

-

-

-

January 2005 - January 2012

10 July 2002

7

19,240

-

-

-

19,240

-

106.25

-

-

-

July 2005 - July 2012

7 January 2003

7

18,200

-

-

-

18,200

-

76.92

-

-

-

January 2006 - January 2013

Michael Grade












Deferred Share Award Plan

14 March 2008

1

740,352

-

740,352

-

-

65.30

-

31 December 2009

54.24

401,567

-

24 April 2009

2

-

758,468

-

-

758,468

31.00

-

-

-

-

31 December 2009 - 31 December 2010

Turnaround Incentive Award

13 September 2007

 8, A

5,657,042

-

-

1,703,648

3,953,394

106.06

-

-

-

-

 31 December 2011 -31 December 2012

Save As You Earn scheme

4 April 2008

9

32,307

-

-

-

32,307

-

52.00

-

-

-

January 2010 - June 2010

Ian Griffiths











Deferred Share Award Plan

2 October 2008

2

177,515

-

177,515

-

-

42.25

-

31 December 2009

54.24

96,284

-

24 April 2009

2

-

48,840

48,840

-

-

31.00

-

31 December 2009

54.24

26,490

-




48,841

-

-

48,841

31.00

-

-

-

-

31 December 2010 -

31 December 2011

Performance Share Plan

1 June 2009

B

-

1,188,812

-

-

1,188,812

35.75

-

-

-

-

June 2012 -

June 2013

Turnaround Plan

2 October 2008

4, A

4,023,669

-

-

1,005,917

3,017,752

42.25

-

-

-

-

31 December 2011- 31 December 2012

Rupert Howell












Deferred Share Award Plan

14 March 2008

1

48,756

-

48,756

-

-

65.30

-

31 December 2009

54.24

26,445

-

24 April 2009

2

-

206,855

206,855

-

-

31.00

-

31 December 2009

54.24

112,198

-




206,855

-

-

206,855

31.00

-

-

-

-

31 December 2010 - 31 December 2011

Performance Share Plan

1 June 2009

B

-

1,101,399

-

-

1,101,399

35.75

-

-

-

-

June 2012 - June 2013

Turnaround Plan

3 October 2007

4, A

2,357,143

-

-

589,286

1,767,857

105.00

-

-

-

-

31 December 2011- 31 December 2012

Notes:

(1)    Awarded in the form of restricted shares.

(2)    Awarded in the form of nil-cost options. The award made to Ian Griffiths on 2 October 2008 was a one off award under the terms of his employment.

(3)    The 2006 PSP awards reached the end of their performance period in 2009 and lapsed as the TSR performance condition was not met.

(4)    25% of the award was tested on 31 December 2009, and as the performance condition was not met this portion of the award lapsed.

(5)    John Cresswell chose to withdraw from the 2008 scheme in order to participate in the 2009 scheme resulting in his options lapsing.

(6)    The performance condition applicable for the awards made under the Granada Commitment Scheme was TSR relative to Granada's international media comparator group. 25% of awards vest at median; 100% vesting occurs at upper decile. Up to 50% of these awards were capable of vesting after two years, with the remainder subject to performance over a four year period. The options are shown in ITV plc shares and were adjusted following the merger of Granada with Carlton in 2004. The balance shown represents options that have vested at the relevant vesting dates, but not been exercised.

(7)    Awards outstanding under the Granada Media and Granada Schemes. The options are shown in ITV plc shares and were adjusted following the merger of Granada with Carlton in 2004.

(8)    In accordance with the terms of the award, 25% of the total award would vest at 31 December 2009 if the TSR condition was satisfied. As the performance condition was not satisfied, this portion of the award will be tested with the remaining balance of the award on 31 December 2011. On cessation of employment on 31 December 2009, 75% of the award due to be tested on 31 December 2011 was pro-rated for service and a proportion lapsed accordingly.

(9)    On cessation of employment on 31 December 2009, the award vested and became exercisable over a pro-rated number of shares for a period of six months.

(10)   Lapsed on 19 April 2009 as performance conditions were not met.

(11)   50% lapsed on 20 March 2009 as performance conditions were not met. Remaining balance is unvested and will be tested on 20 March 2010.

The comparator groups for each award are set out in the table below, and apply as marked in the notes column:

A

British Airways, British Sky Broadcasting Group, BT Group, Capita Group, Carnival, Compass Group, Diageo, DSG International, Enterprise Inns, Home Retail Group, Intercontinental Hotels Group, Kingfisher, Marks & Spencer Group, Next, Pearson, Reed Elsevier, Thomson Reuters, SABMiller, Scottish & Newcastle, Vodafone Group, WPP and Yell Group.

B

The portion of the award subject to TSR will be measured equally against two distinct comparator groups, the constituents of the FTSE 250 index (excluding companies from the basic materials, financial services, oil and gas and industrials industries), and an industry sector specific group of 23 companies: British Sky Broadcasting Group, Scripps Networks, Canal Plus, Telecinco, CBS, Tf1 (Tv.Fse.1), Daily Mail & General Trust, Time Warner, M6-Metropole TV, Trinity Mirror, Mediaset, Viacom Digital, Modern Times Group, Virgin Media, News Corporation, Vivendi, Pearson, WPP Group, Premier AG, Yell Group, Proseiben Sat 1 Pf., Zon Multimedia and RTL Group.

C

Allied Domecq, BAA, Alliance Boots, British Airways, British Sky Broadcasting Group, BT Group, Bunzl, Cable & Wireless, Capita Group, Carnival, Compass Group, Daily Mail and General Trust, Diageo, DSG International, EMAP, Enterprise Inns, Exel, Home Retail Group, Hays, InterContinental Hotels Group, Kingfisher, Ladbrokes, Marks & Spencer Group, Next, O2, Pearson, Reed Elsevier, Rentokil Initial, Thomson Reuters, Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Whitbread, William Hill, WPP and Yell Group.

D

BAA, Alliance Boots, Brambles, British Airways, British Sky Broadcasting Group, BT Group, Cable & Wireless, Capita Group, Carnival, Compass Group, Daily Mail and General Trust, Diageo, DSG International, Enterprise Inns, Home Retail Group, InterContinental Hotels Group, Kingfisher, Ladbrokes, Marks & Spencer Group, Next, PartyGaming, Pearson, Reed Elsevier, Rentokil Initial, Thomson Reuters, Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Wolseley, WPP and Yell Group.

 

Pension entitlements

During the year John Cresswell was a member of the Company's defined benefit pension scheme and had accrued entitlements under the scheme as follows:

Name of director

Accrued pension 1 January 2009 £000

Increase in accrued pension in the year £000

Accrued pension 31 December 2009 £000

John Cresswell

108

11

119

The following table sets out the transfer value of his accrued benefits under the scheme calculated in a manner consistent with the Occupational Pension Schemes (Transfer Values) Regulations 2008. The pension benefits of John Cresswell are provided on a defined benefit basis. The accrued pension shown is that which would be paid annually based on service to the end of that year. The increase in accrued pension during the year reflects an increase in the pension entitlement as a result of an additional year of service.

During 2009, ITV consulted with defined benefit scheme members regarding changes to future benefit accrual. With effect from January 2010, pensionable salary increases for all defined benefit members, including John Cresswell, are capped at 1%. Further information on this can be found in note 6 of the consolidated financial statements or on page 43.

Name of director

Transfer value 1 January 2009 £000

Contributions made by the director £000

Increase  in transfer  value in  the year  net of  contributions (1) £000

Transfer value 31 December 2009 £000

John Cresswell

1,240

46

201

1,487

Notes:

(1)   Transfer values at 31 December 2009 have been calculated in accordance with the transfer value members would receive if they transferred their pension elsewhere. The Trustees of the ITV Pension Scheme updated the transfer value factors over 2009 to allow for increasing evidence that people are living longer than previously expected which has contributed to the increase in the transfer value to 31 December 2009. The increase in the transfer value also includes the effect of fluctuations due to factors beyond the control of the Company and directors, such as stock market movements.

(2)   John Cresswell has a normal retirement age of 63.

(3)   In the event of the death of an executive director, a pension equal to one half ofdirector's pension will become payable to a surviving spouse. A pension may become payable to any surviving dependant children.

(4)   In common with other members of the defined benefit pension scheme, the executive director may, with the consent of the Company, receive and draw a pension at any time after reaching the age of 50 (55 from 6 April 2010).

The following additional information is given to comply with the requirements of the Listing Rules which differ in some respects from the equivalent statutory requirements.

Name of director

Increase in accrued pension in the year in excess of inflation £000

Transfer value of increase in the year less director's contributions £000

John Cresswell

11

59

The transfer values disclosed above do not represent a sum paid or payable to John Cresswell. Instead they represent a potential liability of the pension scheme.

Michael Grade, Ian Griffiths and Rupert Howell were not members of any Company pension scheme during the year. The Company made contributions to Personal Pension Plans belonging to Ian Griffiths and Rupert Howell with a value of 15% of their respective basic salaries. Michael Grade received a cash payment of 9% of his basic salary in lieu of pension contributions. These payments are included in the emoluments table on page 58.

No directors were members of defined contribution schemes operated by the Group.

Directors' interests

The figures set out below represent shareholdings in the ordinary share capital of ITV plc beneficially owned by directors and their family interests. Between the end of the financial year and 3 March 2010, there were no changes in directors' interests in shares.

Director

31 December 2009

31 December 2008

Mike Clasper

46,784

18,000

John Cresswell

1,260,462

784,660

Sir James Crosby

138,388

98,058

Michael Grade

879,814

436,407

Ian Griffiths

233,358

100,000

Andy Haste

33,302

10,000

Rupert Howell

199,350

48,755

Heather Killen

45,302

22,000

John Ormerod

75,372

50,000

Baroness Usha Prashar

30,017

3,000

Sir George Russell

112,847

62,090

Agnès Touraine

124,301

100,000

 

Share price information

The market price of the ITV plc ordinary shares at 31 December 2009 was 52.35 pence and the range during the year was 17.50 pence to 55.05 pence.

Approval

The Remuneration report was approved by the Board on 3 March 2010 and signed on its behalf by Baroness Usha Prashar.

 

 

Other governance and statutory disclosures

Substantial shareholdings

As at 3 March 2010 the Company had received notifications from the following companies and institutions of the voting interests of themselves and their clients in 3% or more of the issued ordinary share capital (carrying rights to vote in all circumstances) of the Company (numbers of shares and percentage interests are as at the notification dates).

 

Shares

%

Sky Holdings Ltd(1)

291,684,730

7.50

Brandes Investment Partners, L.P.

275,411,157

7.08

Legal and General Investment Management Ltd

200,841,036

5.16

Blackrock, Inc.

194,695,694

5.01

AXA S.A.

170,580,317

4.39

Notes:

(1)            Subsidiary of British Sky Broadcasting Group plc.

(2)            A profile of shareholdings is set out on page 113.

Share capital

Issued: At the date of this report there were 3,889,129,751 ordinary shares of 10 pence each in issue, all of which are fully paid up and quoted on the London Stock Exchange. Further details of the movements in the authorised and issued share capital of the Company during the year are set out on page 110.

Rights: The rights attaching to the Company's ordinary shares, as well as the powers of the Company's directors, are set out in the Company's Articles of Association, copies of which can be obtained from the Company's website at www.itvplc.com or by writing to the Company Secretary.

Restrictions: There are no restrictions on the transfer of ordinary shares in the capital of the Company other than those which may be imposed by law from time to time. In accordance with the Listing Rules, certain employees are required to seek approval to deal in ITV shares. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfers of securities and/or voting rights. No person holds securities in the Company carrying special rights with regard to control of the Company. Unless expressly specified to the contrary, the Company's Articles of Association may be amended by special resolution of the shareholders.

Purchase of own shares: The directors have the authority to purchase up to 388.9 million of the Company's ordinary shares. The authority remains valid until the 2010 Annual General Meeting, or 13 August 2010 if earlier.

Trusts: The Company has a discretionary trust funded by loans to acquire shares for the potential benefit of employees of the Group. Details of shares held by the trust at 31 December 2009 are set out in note 30. During the year shares have been released from the trust in respect of share schemes for employees. The trust waives the right to dividends payable on those shares held by the trust that are not subject to any share plan operated by the Company where participants are the beneficial but not registered owners of shares.

Change of control

All of the Company's share schemes contain provisions relating to a change of control. Outstanding awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions. Certain of the Group's bonds/borrowing facilities have change of control clauses whereby the issuer can require ITV to repay/redeem bonds in the event of a change of control. The Company is not aware of any other significant agreements to which it is party that take effect, alter or terminate upon a change of control of the Company.

Creditor payment policy

The Company's policy, in relation to all its suppliers, is to settle the terms of payment when agreeing the terms of the transaction, ensure awareness of the terms and to abide by those terms provided that it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Company does not follow any code or standard payment practice. The number of days' purchases outstanding for payment by the Company as at 31 December 2009 was nil days (2008: nil).

Pension Scheme indemnities

Qualifying pension scheme indemnity provisions, as defined in section 235 of the Companies Act 2006, were in force for the financial year ended 31 December 2009 and remain in force for the benefit of each of the directors of ITV Pension Scheme Limited, an associated company of ITV plc. These indemnity provisions cover, to the extent permitted by law, certain losses or liabilities incurred as a director or officer of ITV Pension Scheme Limited.

Audit

The directors who held office at the date of approval of the Directors' report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each director has taken all steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information. As recommended by the Audit Committee, a resolution for the re-appointment of KPMG Audit Plc as auditor to the Company will be proposed at the 2010 Annual General Meeting.

Annual General Meeting

The Annual General Meeting will be held on Friday 7 May 2010 at 11.00 am at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE. The Notice of the Annual General Meeting contains an explanation of special business to be considered at the meeting. A copy of the Notice is available on the Company's website at www.itvplc.com.

By order of the Board

Andrew Garard

Company Secretary

3 March 2010

ITV plc

The London Television Centre

Upper Ground

London

SE1 9LT

Registered number 4967001

 

Contacts and documents for corporate governance

Chairman

Archie Norman

Senior Independent Director

Mike Clasper

Interim Chief Executive

John Cresswell

Company Secretary

Andrew Garard

Telephone: 020 7157 3000

The following documents are available on the Company's website at www.itvplc.com:

-     Terms of engagement for non-executive directors;

-     Schedule of matters reserved for the Board;

-     Terms of reference for Audit, Disclosure, General Purpose, Nomination and Remuneration Committees;

-     Guidelines for seeking independent advice;

-     Directors' indemnity; and

-     Terms of reference for remuneration consultants.

 

Statement of directors' responsibilities in respect of the annual report and the financial statements

The directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the directors are required to:

-     select suitable accounting policies and then apply them consistently;

-     make judgements and estimates that are reasonable and prudent;

-     for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

-     for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and

-     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the directors confirms that to the best of his or her knowledge:

-     the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets and liabilities, financial position and the profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

-     the Directors' report includes a review of the development and performance of the business and the position of the issue and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

Andrew Garard

Company Secretary

3 March 2010

 

Independent auditors' report to the members of ITV plc

We have audited the Consolidated and Company financial statements of ITV plc for the year ended 31 December 2009. The financial reporting framework that has been applied in the preparation of the consolidated financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/UKP.

Opinion on financial statements

In our opinion:

-     the Consolidated and Company financial statements give a true and fair view of the state of the Group's and of the parent company's affairs

-     as at 31 December 2009, and of the Group's profit for the year then ended;

-     the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;

-     the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice;

-     the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

-     the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

-     the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following:

Under the Companies Act 2006 we are required to report to you if, in our opinion:

-     adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

-     the parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or

-     certain disclosures of directors' remuneration specified by law are not made; or

-     we have not received all the information and explanations we require for our audit.

-     Under the Listing Rules we are required to review:

-     the Directors' report in relation to going concern; and

-     the part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the June 2008 Combined Code specified for our review.

Richard Bawden (Senior Statutory Auditor)

for and on behalf of KPMG Audit Plc, Statutory Auditor

Chartered Accountants

8 Salisbury Square

London EC4Y 8BB

3 March 2010

Consolidated income statement

For the year ended 31 December:

Note

2009 £m

2008 £m

Revenue

2

1,879

2,029

Operating costs

 

(1,677)

(1,818)

Earnings before interest, tax and amortisation (EBITA) before exceptional items

 

202

211

Net operating income/(costs) - exceptional items

5

53

(97)

Amortisation of intangible assets

13

(59)

(66)

Impairment of intangible assets

 

-

(2,695)

Total operating costs

4

(1,683)

(4,676)

Operating profit/(loss)

 

196

(2,647)

Financing income

 

201

316

Financing costs

 

(292)

(376)

Net financing costs

8

(91)

(60)

Share of profit or loss of joint ventures and associated undertakings

14

(7)

(15)

Investment income

 

-

1

Loss on sale and impairment of non-current assets (exceptional items)

5

(22)

(17)

(Loss)/gain on sale and impairment of subsidiaries and investments (exceptional items)

5

(51)

6

Profit/(loss) before tax

 

25

(2,732)

Taxation

9

69

178

Profit/(loss) for the year

 

94

(2,554)

Profit/(loss) attributable to:

 

 

 

 Owners of the company

 

91

(2,556)

 Non-controlling interests

 

3

2

Profit/(loss) for the year

 

94

(2,554)

Earnings/(loss) per share

 

 

 

Basic earnings/(loss) per share

11

2.3p

(65.9)p

Diluted earnings/(loss) per share

11

2.3p

(65.9)p

Operating exceptional items during the year mainly comprise reorganisation and restructuring costs, onerous property provisions and gains arising from pension scheme changes (see note 5 for details).

Consolidated statement of comprehensive income

For the year ended 31 December:

2009 £m

2008 £m

Profit/(loss) for the year

94

(2,554)

Other comprehensive income:

 

 

Exchange differences on translation of foreign operations

(4)

16

Revaluation of available for sale financial assets

2

2

Amounts recycled to the income statement in respect of cash flow hedges

(9)

-

Other movements in respect of cash flow hedges

-

4

Actuarial losses on defined benefit pension schemes

(391)

(124)

Income tax on other comprehensive income

101

35

Other comprehensive cost for the year, net of income tax

(301)

(67)

Total comprehensive cost for the year

(207)

(2,621)

Total comprehensive cost attributable to:

 

 

 Owners of the Company

(210)

(2,623)

 Non-controlling interests

3

2

Total comprehensive cost for the year

(207)

(2,621)

Consolidated statement of financial position


Note

31 December 2009 £m

31 December 2008

£m

Non-current assets

 

 

 

Property, plant and equipment

12

161

220

Intangible assets

13

1,030

1,140

Investments in joint ventures and associated undertakings

14

5

66

Available for sale financial assets

15

1

5

Held to maturity investments

22

149

-

Derivative financial instruments

25

151

199

Distribution rights

16

16

13

Net deferred tax asset

9

50

-

 

 

1,563

1,643

Current assets

 

 

 

Programme rights and other inventory

17

388

516

Trade and other receivables due within one year

18

432

444

Trade and other receivables due after more than one year

18

7

10

Trade and other receivables

18

439

454

Derivative financial instruments

25

5

19

Cash and cash equivalents

22

582

616

Assets held for sale

27

78

3

 

 

1,492

1,608

Current liabilities

 

 

 

Borrowings

22

(9)

(259)

Derivative financial instruments

25

(4)

(7)

Trade and other payables due within one year

19

(646)

(748)

Trade and other payables due after more than one year

20

(31)

(26)

Trade and other payables

 

(677)

(774)

Current tax liabilities

 

(31)

(56)

Provisions

26

(47)

(43)

Liabilities held for sale

27

(3)

-

 

 

(771)

(1,139)

Net current assets

 

721

469

Non-current liabilities

 

 

 

Borrowings

22

(1,431)

(1,264)

Derivative financial instruments

25

(30)

(25)

Defined benefit pension deficit

6

(436)

(178)

Net deferred tax liability

9

-

(55)

Other payables

21

(12)

(15)

Provisions

26

(29)

(41)

 

 

(1,938)

(1,578)

Net assets

 

346

534

Attributable to equity shareholders of the parent company

 

 

 

Share capital

30

389

389

Share premium

 

120

120

Merger and other reserves

 

308

273

Translation reserve

 

11

24

Available for sale reserve

 

8

6

Retained losses

 

(491)

(286)

Total equity attributable to equity shareholders of the parent company

 

345

526

Non-controlling interests

 

1

8

Total equity

 

346

534

Ian Griffiths

Group Finance Director

 

Consolidated statement of changes in equity

 

Attributable to equity shareholders of the parent company

 

 

Share capital £m

Share premium £m

Merger and other reserves £m

Translation reserve £m

Available for sale reserve £m

Retained losses £m

Total £m

Non-controlling

interests £m

Total equity £m

Balance at 1 January 2009

389

120

273

24

6

(286)

526

8

534

Total comprehensive income for the year

 

 

 

 

 

 

 

 

 

Profit

-

-

-

-

-

91

91

3

94

Other comprehensive income/(cost)

 

 

 

 

 

 

 

 

 

Revaluation of available for sale financial assets

 

-

 

-

 

-

 

-

2

-

2

-

2

Exchange differences on translation of foreign operations

 

-

 

-

 

-

(4)

-

-

(4)

-

(4)

Amounts recycled to the income statement in respect of cash flow hedges

 

 

-

 

 

-

 

 

-

(9)

 

 

-

 

 

-

(9)

-

(9)

Actuarial losses on defined benefit pension schemes

 

-

 

-

 

-

 

-

 

-

(391)

(391)

-

(391)

Income tax on other comprehensive income

 

-

 

-

 

-

 

-

 

-

101

101

-

101

Total other comprehensive income/(cost)

 

-

 

-

 

-

(13)

2

(290)

(301)

-

(301)

Total comprehensive income/(cost) for the year

 

-

 

-

 

-

(13)

2

(199)

(210)

3

(207)

Transactions with owners, recorded directly in equity

 

 

 

 

 

 

 

 

 

Contributions by and distributions to owners

 

 

 

 

 

 

 

 

 

Equity dividends

-

-

-

-

-

-

-

(2)

(2)

Equity portion of the convertible bond

-

-

35

-

-

1

36

-

36

Movements due to share-based compensation

 

-

 

-

 

-

 

-

 

-

8

8

-

8

Total contributions by and distributions to owners

-

-

35

-

-

9

44

(2)

42

Change in ownership interest in subsidiaries that do not result in a loss of control

 

 

 

 

 

 

 

 

 

Non-controlling interest acquired

-

-

-

-

-

(15)

(15)

(8)

(23)

Total changes in ownership interests in subsidiaries

-

-

-

-

-

(15)

(15)

(8)

(23)

Total transactions with owners

-

-

35

-

-

(6)

29

(10)

19

Balance at 31 December 2009

389

120

308

11

8

(491)

345

1

346

Merger and other reserves

Merger and other reserves at 31 December 2009 include merger reserves arising on the Granada/Carlton and previous mergers of £119 million (2008: £119 million), capital reserves of £112 million (2008: £112 million), capital redemption reserves of £36 million (2008: £36 million), revaluation reserves of £6 million (2008: £6 million) and £35 million (2008: £nil) in respect of the equity element of the 2016 convertible bond. In 2008 a transfer of £2,429 million between retained losses and merger reserves was made in respect of the impairment of goodwill that arose on the Granada/Carlton and other mergers.

Translation reserve

The translation reserve comprises all foreign exchange differences arising on the translation of the accounts of, and investments in, foreign operations. Included within the movement in the year is £9 million recycled to the income statement in respect of cash flow hedges (2008: £4 million movement).

Available for sale reserve

The available for sale reserve comprises all movements arising on the revaluation and disposal of assets accounted for as available for sale (see note 24).

Non-controlling interests

Included within the net £7 million movement in the year is £3 million profit attributable to non-controlling interests, net of £2 million for dividends paid to such interests and £8 million in respect of the 25% non-controlling interest element purchased in GMTV in November 2009.

 

Attributable to equity shareholders of the parent company

 

 

Share capital £m

Share premium £m

Merger and other reserves £m

Translation reserve £m

Available for sale reserve £m

Retained earnings/(losses) £m

Total £m

Non-controlling interests £m

Total equity £m

Balance at 1 January 2008

389

120

2,702

4

4

14

3,233

6

3,239

Total comprehensive income/(cost) for the year

 

 

 

 

 

 

 

 

 

(Loss)/profit

-

-

-

-

-

(2,556)

(2,556)

2

(2,554)

Other comprehensive income/(cost)

 

 

 

 

 

 

 

 

 

Revaluation of available for sale financial assets

-

-

-

-

2

-

2

-

2

Exchange differences on translation of foreign operations

-

-

-

16

-

-

16

-

16

Movement in respect of cash flow hedges

-

-

-

4

-

-

4

-

4

Actuarial losses on defined benefit pension schemes

-

-

-

-

-

(124)

(124)

-

(124)

Income tax on other comprehensive income

-

-

-

-

-

35

35

-

35

Transfer from merger reserve

-

-

(2,429)

-

-

2,429

-

-

-

Total other comprehensive costs

-

-

(2,429)

20

2

2,340

(67)

-

(67)

Total comprehensive income/(costs) for the year

-

-

(2,429)

20

2

(216)

(2,623)

2

(2,621)

Transactions with owners, recorded directly in equity

 

 

 

 

 

 

 

 

 

Contributions by and distributions to owners

 

 

 

 

 

 

 

 

 

Equity dividends

-

-

-

-

-

(96)

(96)

-

(96)

Movements due to share-based compensation

-

-

-

-

-

12

12

-

12

Total contributions by and distributions to owners

-

-

-

-

-

(84)

(84)

-

(84)

Total transactions with owners

-

-

-

-

-

(84)

(84)

-

(84)

Balance at 31 December 2008

389

120

273

24

6

(286)

526

8

534

Consolidated statement of cash flows

For the year ended 31 December:

Note

£m

2009 £m

£m

2008 £m

Cash flows from operating activities

 



 

 

Operating profit/(loss) before exceptional items

 

143


(2,550)

 

Depreciation of property, plant and equipment

12

38


36

 

Amortisation and impairment of intangible assets

13

59


2,761

 

Share-based compensation

7

11


10

 

Decrease/(increase) in programme rights and other inventory, and distribution rights

 

125


(82)

 

Decrease/(increase) in receivables

 

11


(34)

 

(Decrease)/increase in payables

 

(15)


49

 

Movement in working capital

 

121


(67)

 

Cash generated from operations before exceptional items

 


372

 

190

Cash flow relating to operating exceptional items:

 



 

 

 Net operating income/(costs)

5

53


(97)

 

 (Increase)/decrease in payables and provisions and the impact of the exceptional pension gain

 

(116)


57

 

Cash outflow from exceptional items

 


(63)

 

(40)

Cash generated from operations

 


309

 

150

Defined benefit pension deficit funding

 

(31)


(39)

 

Interest received

 

44


40

 

Interest paid on bank and other loans

 

(116)


(99)

 

Interest paid on finance leases

 

(4)


(4)

 

Net taxation received

 

41


43

 

 

 


(66)

 

(59)

Net cash inflow from operating activities

 


243

 

91

Cash flows from investing activities

 



 

 

Acquisition of subsidiary undertakings, net of cash and cash equivalents acquired and debt repaid on acquisition

29

 

(50)


(6)

 

Proceeds from sale of assets held for sale

 

-


35

 

Proceeds from sale of property, plant and equipment

 

4


1

 

Acquisition of property, plant and equipment

 

(14)


(32)

 

Acquisition of intangible assets

 

(13)


(21)

 

Acquisition of associates and joint ventures

 

-


(3)

 

Loans granted to associates and joint ventures

14

(6)


(26)

 

Loans repaid by associates and joint ventures

14

4


20

 

Proceeds from sale of subsidiaries and available for sale investments

 

4


-

 

Net cash outflow from investing activities

 


(71)

 

(32)

Cash flows from financing activities

 



 

 

Bank and other loans - amounts repaid

 

(508)


(25)

 

Bank and other loans - amounts raised

 

516


110

 

Capital element of finance lease payments

 

(7)


(6)

 

Acquisition of non-controlling interests

29

(23)


-

 

Dividends paid to non-controlling interest

 

(2)


-

 

Repayment of loan by employees' benefit trust

 

-


2

 

Purchase of own shares via employees' benefit trust

 

(3)


-

 

(Purchase)/sale of held to maturity investments

22

(150)


100

 

Equity dividends paid

 

(25)


(123)

 

Net cash (outflow)/inflow from financing activities

 


(202)

 

58

Net (decrease)/increase in cash and cash equivalents

 


(30)

 

117

Cash and cash equivalents at 1 January

22


616

 

498

Effects of exchange rate changes and fair value movements on cash and cash equivalents

 


 -

 

 1

Less: cash related to disposal group (note 28)

28


(4)

 

-

Cash and cash equivalents at 31 December

22


582

 

616

Notes to the accounts

1 Accounting policies

1.1) Basis of preparation

The financial information in this preliminary announcement represents non-statutory accounts within the meaning of Section 435 of the Companies Act 2006. The statutory accounts for the year ended 31 December 2009, upon which an unqualified audit opinion has been given and which did not contain a statement under Section 498 (2) or 498 (3) of the Companies Act 2006, will be sent to the Registrar of Companies following the Companies Annual General Meeting.

The Group accounts consolidate those of ITV plc, ("the Company"), a company domiciled in the United Kingdom and its subsidiaries (together referred to as "the Group") and the Group's interests in associates and jointly controlled entities.

As required by EU law (IAS Regulation EC 1606/2002) the Group's accounts have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS").

The accounts are principally prepared on the historical cost basis. Areas where other bases are applied are identified in the accounting policies below.

The Company has elected to prepare its parent company financial statements in accordance with UK GAAP.

The disclosures in respect of liquidity risk and going concern included in the Financial review above form part of the audited accounts.

The Group has adopted the following standards and amendments effective from 1 January 2009 that are relevant to these financial statements:

-     IAS 1 "Amendments to IAS 1 Presentation of Financial Statements - A revised presentation". The Group has presented both a consolidated statement of comprehensive income and a consolidated statement of changes in equity as primary financial statements. The consolidated statement of comprehensive income effectively replaces the consolidated statement of recognised income and expense . As a result, the Group presents in the consolidated statement of changes in equity all owner changes in equity, where as all non-owner changes in equity are presented in the consolidated statement of comprehensive income. The Group has elected to present a separate consolidated income statement. Comparative information has been re-presented so that it is also in conformity with the revised standard. Since the adoption of this accounting standard only impacts presentation aspects there is no impact on earnings/(loss) per share.

-     IFRS 2 "Amendment to IFRS 2 Share-Based Payment: Vesting Conditions and Cancellations". The definition of vesting conditions has been amended to clarify that vesting conditions are limited to service conditions and performance conditions. Conditions other than service or performance conditions are considered non-vesting conditions. This has had no material impact on the Group's results.

-     IFRS 7 "Amendments to IFRS 7 Improving Disclosures about Financial Instruments". These amendments enhance disclosures over fair value measurements relating to financial instruments and improving disclosures over liquidity risk. Specifically, as a result of adopting the amendment, the Group has introduced a three-level disclosure hierarchy for financial instruments held at fair value (see note 24). Since the adoption of this accounting standard only impacts presentation aspects there is no impact on earnings/(loss) per share.

-     Improvements to IFRS 1 - Various standards amended - The improvements contain 24 amendments that result in accounting changes for presentation, recognition or measurement purposes and 11 terminology or editorial amendments that have no or only minimal effects on accounting but have been reflected where relevant in the accounting policies set out in Note 1.2 to 1.30.

The Group has also chosen to early adopt the following standards that are effective from 1 July 2009:

-     IFRS 3 "Business Combinations (2008)" and IAS 27 "Consolidated and Separate Financial Statements (2008)" for all business combinations and acquisitions of non-controlling interests occurring in the financial year starting 1 January 2009. The Group has applied these standards for the acquisitions disclosed in note 29. Under the new accounting policy, the acquisition of the non-controlling interest of 25% in GMTV is accounted for as a transaction with equity holders in their capacity as equity holders and therefore no goodwill is recognised as a result of such transactions. Previously, goodwill was recognised arising on the acquisition of a non-controlling interest in a subsidiary, which represented the excess of the cost of the additional investment over the carrying amount of the interest in the net assets acquired at the date of acquisition. The change in accounting policy is applied prospectively and had no material impact on earnings/(loss) per share.

The accounting policies set out below, except as noted above, have been applied consistently in presenting the consolidated financial information.

1.2) Revenue recognition

Revenue is stated exclusive of VAT and consists of sales of goods and services to third parties. Revenue from the sale of goods is recognised when the Group has transferred the significant risks and rewards of ownership and control of the goods sold and the amount of revenue can be measured reliably. Key classes of revenue are recognised on the following bases:

Advertising and sponsorship

on transmission

Programme production

on delivery

Programme rights

when contracted and available for exploitation

Participation revenues

as the service is provided

Revenue on barter transactions is recognised only when the goods or services being exchanged are of a dissimilar nature.

Participation revenues relate to interactive and 'red button' services.

1.3) Segmental analysis

In accordance with IFRS 8, operating segments are reported in a manner that is consistent with the internal reporting provided to the Board of Directors, the chief operating decision maker.

1.4) Subsidiaries, associates, special purpose entities and joint ventures

Subsidiaries are entities that are directly or indirectly controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.

A joint venture is an entity in which the Group holds an interest under a contractual arrangement where the Group and one or more other parties undertake an economic activity that is subject to joint control. The Group accounts for its interests in joint ventures using the equity method.

An associate is an entity, other than a subsidiary or joint venture, over which the Group has significant influence. Significant influence is the power to participate in the financial and operating decisions of an entity but is not control or joint control over those policies. These investments are accounted for using the equity method. Under the equity method the investment in the entity is stated as one line item at cost plus the investor's share of retained post-acquisition profits and other changes in net assets.

The Group establishes special purpose entities (SPEs) for trading and investment purposes. An SPE is consolidated if, based on an evaluation of the substance of its relationships with the Group and the SPE's risks and rewards, it is concluded that the Group controls the SPE. SPEs controlled by the Group are established under terms that impose strict limitations on the decision-making powers of the SPEs' management and that result in the Group receiving the majority of the benefits related to the SPE's operations and net assets, being exposed to the majority of risks incidental to the SPE's activities and receive the majority of the residual or ownership risks related to the SPE's or their assets.

1.5) Current/non-current distinction

Current assets include assets held primarily for trading purposes, cash and cash equivalents, and assets expected to be realised in, or intended for sale or consumption in, the course of the Group's operating cycle. All other assets are classified as non-current assets.

Current liabilities include liabilities held primarily for trading purposes, liabilities expected to be settled in the course of the Group's operating cycle and those liabilities due within one year from the reporting date. All other liabilities are classified as non-current liabilities.

1.6) Accounting estimates and judgements

The preparation of financial statements in conformity with IFRSs requires management to exercise judgement in the process of applying the Group's accounting policies. It also requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

The areas involving a higher degree of judgement or complexity, or where the most sensitive estimates and assumptions are significant to the financial statements, are set out in accounting policies 1.7 - 1.14 below:

1.7) Intangible assets

Business combinations and goodwill All business combinations that have occurred since 1 January 2009 are accounted for by applying the acquisition method. Goodwill is measured as the fair value of the consideration transferred including the recognised amount of any non-controlling interests in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured at the acquisition date. Subsequent adjustments to the fair values of net assets acquired are made within 12 months of the acquisition date where original fair values were determined provisionally. These adjustments are accounted for from the date of acquisition. The Group measures a non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree. Transaction costs that the Group incurs in connection with a business combination, such as legal fees, due diligence fees and other professional and consulting fees, are expensed as incurred. All business combinations that have occurred since 1 January 2004 to 31 December 2008 have been accounted for by applying the purchase method in accordance with IFRS 3 "Business Combinations (2004)". Goodwill on these combinations represents the difference between the cost of the acquisition and the fair value of the identifiable net assets acquired.

For business combinations prior to 1 January 2004, but after 30 September 1998, goodwill is included at its deemed cost, which represents the amount recorded under UK GAAP at that time less amortisation up to 31 December 2003. The classification and accounting treatment of business combinations occurring prior to 1 January 2004, the date of transition to IFRS, has not been reconsidered as permitted under IFRS 1. Goodwill is stated at its recoverable amount being cost less any accumulated impairment losses and is allocated to cash generating units.

Goodwill arising on acquisitions prior to 30 September 1998 was recognised as a deduction from equity.

Other intangible assets Other intangible assets acquired by the Group are stated at cost less accumulated amortisation except those identifiable intangible assets acquired as part of a business combination which are shown at fair value at the date of acquisition less accumulated amortisation. Identifiable intangible assets are those which can be sold separately or which arise from legal rights.

In determining the fair value of intangible assets arising on acquisition the directors are required to make judgements regarding the timing and amount of future cash flows applicable to the businesses being acquired, discounted using an appropriate discount rate. Such judgements are based on current budgets and forecasts, extrapolated for an appropriate period taking into account growth rates, expected changes to selling prices, operating costs and the expected useful lives of assets following purchase. Judgements are also made regarding whether and for how long licences will be renewed. The directors estimate the appropriate discount rate using pre tax rates that reflect current market assessments of the time value of money and the risks specific to the businesses being acquired. The values of brands acquired are assessed by applying a royalty rate to the expected future revenues over the life of the brand. Licences are valued on a start-up basis. Customer relationships and contracts are valued based on expected future cash flows from those existing at the date of acquisition. Contributory charges from other assets are taken as appropriate with cash flows then being discounted back to their present value.

Amortisation Amortisation is charged to the income statement over the estimated useful lives of intangible assets unless such lives are judged to be indefinite. Goodwill is not amortised but is tested for impairment at each reporting date. Internally generated software development costs in relation to itv.com are expensed as incurred. The estimated useful lives and amortisation methods for each major class of intangible asset are as follows:

Film libraries

Sum of digits

20 years

Licences

Straight line

11 to 17 years

Brands

Straight line

up to 11 years

Customer contracts

Straight line

up to 6 years

Customer relationships

Straight line

5 to 10 years

Software development costs

Straight line

1 to 5 years

1.8) Impairment of assets

Non-financial assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Non-financial assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the income statement for the amount by which the asset's carrying amount exceeds its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. The value in use is based on the discounted present value of the future cash flows expected to arise from the cash generating unit to which the asset relates. Estimates are used in deriving these cash flows and the discount rate that reflects current market assessments of the risks specific to the asset and the time value of money. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent with the application of the intangible asset accounting policies affect the amounts reported in the financial statements. In particular, if different estimates of the projected future cash flows or a different selection of an appropriate discount rate or long-term growth rate were made, these changes could materially alter the projected value of the cash flows of the asset, and as a consequence materially different amounts would be reported in the financial statements.

Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of goodwill allocated to those units, and then to reduce the carrying amount of other assets in the unit on a pro-rata basis.

In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Impairment losses in respect of goodwill are not reversed.

1.9) Programme rights

Where programming, sports rights and film rights are acquired for the primary purpose of broadcasting, these are recognised within current assets.

Assets are recognised when the Group controls, in substance, the respective assets and the risks and rewards associated with them. For acquired programme rights assets are recognised as payments are made and are recognised in full when the acquired programming is available for transmission. Programming produced internally, either for the purpose of broadcasting or to be sold in the normal course of the Group's operating cycle, is recognised within current assets at production cost.

Programme costs and rights, including those acquired under sale and leaseback arrangements, are written off to operating costs in full on first transmission except certain film rights and programming for digital channels which are written off over a number of transmissions. Programme costs and rights not yet written off are included in the statement of financial position at the lower of cost and net realisable value. In assessing net realisable value consideration is given to the contracted sales price and estimated costs to complete for programmes in production, and the estimated airtime value of programme stock, sports rights and film rights. In assessing the airtime value of programme stock and film rights consideration is given to whether the number of transmissions purchased can be efficiently played out over the licence period. Any reversals of write downs for programme costs and rights are recognised as a reduction in operating costs.

ITV entered into sale and leaseback agreements in relation to certain programme titles. Related outstanding sale and leaseback obligations, which comprise the principal and accrued interest, are included within borrowings. The finance related element of the agreement is charged to the income statement over the term of the lease on an effective interest basis. Sale and leaseback obligations are secured against an equivalent cash balance held within cash and cash equivalents.

1.10) Trade receivables

Trade receivables are recognised initially and subsequently at amortised cost. The Group provides goods and services to substantially all its customers on credit terms. Estimates are used in determining the level of receivables that will not, in the opinion of the directors, be collected. These estimates include such factors as historical experience, the current state of the UK and overseas economies and industry specific factors. A provision for impairment of trade receivables is established when there is sufficient evidence that the Group will not be able to collect all amounts due according to their original terms.

1.11) Taxation

The tax charge for the period comprises both current and deferred tax and is based on tax rates that are enacted or substantively enacted at the reporting date. Taxation is recognised in the income statement, the statement of comprehensive income and the statement of changes in equity according to the accounting treatment of the related transaction.

The Group recognises liabilities for anticipated tax issues based on estimates of the additional taxes that are likely to become due which requires judgement. Amounts are accrued based on management's interpretation of specific tax law and the likelihood of settlement. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on any 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; and

-     differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities.

A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available to utilise the temporary difference. Recognition of deferred tax assets, therefore, involves judgement regarding the timing and level of future taxable income. Deferred tax assets and liabilities are disclosed net to the extent that they relate to taxes levied by the same authority and the Group has the right of set off.

1.12) Employee benefits

Defined contribution schemes Obligations under the Group's defined contribution schemes are recognised as an operating cost in the income statement as incurred.

Defined benefit schemes The Group's obligation in respect of defined benefit pension schemes is calculated separately for each scheme by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value and the fair value of scheme assets is deducted. The discount rate used is the yield at the valuation date on high quality corporate bonds. The Group takes advice from independent actuaries relating to the appropriateness of the assumptions which include life expectancy of members, expected salary and pension increases, inflation and the return on scheme assets. It is important to note, however, that comparatively small changes in the assumptions used may have a significant effect on the income statement and statement of financial position.

The calculations are performed by a qualified actuary using the projected unit credit method. Actuarial gains and losses are recognised in full in the period in which they arise through the statement of comprehensive income.

Share-based compensation The Group operates a number of share-based compensation schemes. The fair value of the equity instrument is measured at grant date and spread over the vesting period through the income statement with a corresponding increase in equity. The fair value of the share options and awards is measured using either a Monte Carlo or Black-Scholes model as appropriate taking into account the terms and conditions of the individual scheme. Under these valuation methods, the share price for ITV plc is projected to the end of the performance period as is the Total Shareholder Return for ITV plc and the companies in the comparator groups. Based on these projections, the number of awards that will vest and their present value is determined. The valuation of these share-based payments also requires estimates to be made in respect of the number of options that are expected to be exercised. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. Vesting conditions are limited to service conditions and performance conditions. Conditions other than service or performance conditions are considered non-vesting conditions. At each reporting date, the Group revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.

1.13) Derivative financial instruments and hedging activities

The Group uses a limited number of derivative financial instruments to hedge its exposure to fluctuations in interest and other foreign exchange rates. The Group does not hold or issue derivative instruments for speculative purposes.

Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value with the movement recorded in the income statement within net financing costs. Derivatives with a positive fair value 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 reporting date. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the reporting date, taking into account current interest rates and the current creditworthiness of swap counterparties.

Third party valuations are used to fair value the Group's derivatives. The valuation techniques use inputs such as interest rate yield curves and currency prices/yields, volatilities of underlying instruments and correlations between inputs.

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity.

Any ineffective portion of the hedge is recognised immediately in the income statement.

For financial assets and liabilities classified at fair value through profit or loss the fair value change and interest income/expense are not separated.

1.14) Provisions

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation arising from past events, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount can be measured 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. These provisions are estimates for which the amount and timing of actual cash flows are dependent on future events.

1.15) Property, plant and equipment

Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Certain items of property, plant and equipment that had been revalued to fair value prior to 1 January 2004, the date of transition to IFRS, are measured on the basis of deemed cost, being the revalued amount less depreciation up to the date of transition.

Leases Finance leases are those which transfer substantially all the risks and rewards of ownership to the lessee. Assets held under such leases are capitalised within property, plant and equipment and depreciated on a straight line basis over their estimated useful lives. Outstanding finance lease obligations, which comprise the principal plus accrued interest, are included within borrowings. The finance element of the agreements is charged to the income statement over the term of the lease on an effective interest basis.

All other leases are operating leases, the rentals on which are charged to the income statement on a straight line basis over the lease term.

Depreciation Depreciation is provided to write off the cost of property, plant and equipment less estimated residual value on a straight line basis over their estimated useful lives. The annual depreciation charge is sensitive to the estimated useful life of each asset and the expected residual value at the end of its life. The major categories of property, plant and equipment are depreciated as follows:

Freehold land

not depreciated

Freehold buildings

up to 60 years

Leasehold properties

shorter of residual lease term or 60 years

Leasehold improvements

shorter of residual lease term or estimated useful life

Vehicles, equipment and fittings

3 to 20 years

1.16) Distribution rights

Programme rights acquired primarily for the purposes of distribution are classified within the statement of financial position as non-current assets. They are recognised initially at cost and charged through the income statement over either a three or five year period depending on genre.

The estimated lives are based on historical experience with similar rights as well as anticipation of future events.

1.17) Available for sale financial assets

Available for sale financial assets comprise gilts and equity securities that do not meet the definition of subsidiaries, joint ventures or associates.

They are stated at fair value, with any resultant gain or loss recognised directly in the available for sale reserve in equity, unless the loss is a permanent impairment when it is recorded in the income statement.

1.18) Foreign currencies

Functional and presentational currency Items included in the financial statements in each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are presented in pounds sterling ("£"), which is the Company's functional and presentational currency.

Foreign currency transactions Transactions in foreign currencies are translated into the functional currency of the respective Group entity at the rate of exchange ruling at the date of the transaction. Foreign currency monetary assets and liabilities at the reporting date are translated into the functional currency of the respective Group entity at the rate of exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities measured at historical cost are translated into sterling at the rate of exchange on the date of the transaction.

Financial statements of foreign operations The assets and liabilities of foreign operations are translated into the functional currency of the Group at the rate of exchange ruling at the reporting date. The revenues and expenses of foreign operations are translated into the functional currency of the Group at the average rate of exchange ruling during the financial period. Exchange differences arising on translation are recognised directly in the translation reserve in equity and in other comprehensive income.

Net investment in foreign operations Exchange differences arising on the translation of the net investment in foreign operations are taken directly to the translation reserve within equity.

In respect of all foreign operations only those translation differences arising since 1 January 2004, the date of transition to IFRS, are presented as a separate component of equity. On disposal of an investment in a foreign operation the associated translation reserve balance is released to the income statement as part of the gain or loss on disposal.

1.19) Exceptional items

Exceptional items, as disclosed on the face of the income statement, are items which due to their material and non-recurring nature have been classified separately in order to draw them to the attention of the reader of the accounts. They are included in the adjustments that, in management's judgement, are required in order to show more accurately the business performance of the Group in a consistent manner and to reflect how the business is managed and measured on a day-to-day basis.

1.20) Cash and cash equivalents

Cash and cash equivalents comprises cash balances, call deposits with maturity of less than or equal to three months from the date of acquisition, cash held to meet certain finance lease commitments and gilts over which unfunded pension promises have a charge.

1.21) Trade payables

Trade payables are recognised initially at fair value and subsequently at amortised cost.

1.22) 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 the amount initially recognised and the redemption value is recorded in the income statement over the period of the liability on an effective interest basis.

Where the Group has identified that any such liabilities result in a mismatch between the accounting liability and the related derivative, the Group has adopted the fair value option provision of IAS 39 (revised) to eliminate this accounting mismatch. Management consider that this fair value treatment is more appropriate than amortised cost as the movements in these financial instruments largely offset each other and, as a result, they are managed on an aggregated basis. The effect of this is that the Group recognises any such financial liabilities at fair value in all periods subsequent to initial recognition, with resultant gains or losses recorded in the income statement.

1.23) Non-current assets held for sale, disposal groups and discontinued operations

Non-current assets or disposal groups are classified as held for sale if their carrying amount will be recovered principally through sale rather than continuing use, they are available for immediate sale and sale is highly probable.

On initial classification as held for sale, non-current assets or components of a disposal group are re-measured in accordance with the Group's accounting policies. Thereafter generally the assets or disposal groups are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group is first allocated to goodwill and then to remaining assets and liabilities on a pro-rata basis except to programming rights and other inventory, financial assets and deferred tax assets, which continue to be measured in accordance with the Group's accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on re-measurement are recognised in the income statement. Gains are not recognised in excess of any cumulative impairment loss.

No amortisation or depreciation is charged on non-current assets (including those in disposal groups) classified as held for sale. Assets classified as held for sale are disclosed separately on the face of the statement of financial position and classified as current assets or liabilities, with disposal groups being separated between assets held for sale and liabilities held for sale.

Disposal groups are classified as discontinued operations where they represent a major line of business or geographical area of operations. The income statement for the comparative period is re-presented to show the discontinued operations separate from the continuing operations.

1.24) ITV shares held by Employees' Benefit Trust (EBT)

Transactions of the Group-sponsored EBT are included in the Group's accounts. In particular, the EBT's purchases of shares in ITV plc are debited directly to equity.

1.25) Dividends

Dividends are recognised through equity on the earlier of their approval by the Company's shareholders or their payment.

1.26) Investment income

Investment income comprises dividends received from the Group's investments. Dividend income is recognised in the income statement on the date the Group's right to receive payment is established.

1.27) Net financing costs

Net financing costs comprises interest income on funds invested (including gilts classified as available-for-sale financial assets), gains/losses on the disposal of financial instruments, changes in the fair value of financial instruments classified at fair value through profit or loss, interest expense on borrowings and finance leases, unwinding of the discount on provisions and foreign exchange gains/losses. Interest income and expense is recognised as it accrues in profit or loss, using the effective interest method.

1.28) Derecognition and recognition

The Group recognises a financial asset or liability when it becomes a party to the contract. Financial instruments are derecognised from the balance sheet when the contractual cash flows expire or when the Group no longer retains control of substantially all the risks and rewards under the instrument.

1.29) Held to maturity assets

Where the Group has the positive intent and ability to hold financial assets to maturity, they are classified as held to maturity. Held to maturity financial assets are recognised initially at fair value including any directly attributable transaction costs. Subsequent to initial recognition, held to maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses.

1.30) Compound financial instruments

Compound financial instruments issued by the Group comprise convertible notes that can be converted to share capital at the option of the holder.

The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not remeasured subsequent to initial recognition.

1.31) Application of new EU endorsed accounting standards, amendments to existing EU endorsed standards and interpretations

Set out below are the standards, amendments and interpretations that are effective in 2009 but are not considered relevant to the Group's results:

New standards, amendments and interpretations endorsed by the EU and effective in 2009

Not relevant to the Group's results

IAS 39

Amendment to IAS 39 Reclassification of Financial Assets: Effective Date and Transition.

This amendment clarified the effective date and transition requirements of the amendment to IAS 39, and states that the entities will apply this amendment on or after 1 July 2008.

IAS 23

Amendment to IAS 23 Borrowing Costs.

Comprehensive revision to prohibit immediate expensing of borrowing costs for costs that are directly attributable to the acquisition, construction or production of a qualifying asset.

IFRS 1 & IAS 27

Amendments to IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly-Controlled Entity or Associate.

The amendments allow first-time adopters relief from certain requirements of IAS 27 and by removing the definition of the cost method from the standard and replacing it with a requirement to present dividends as income in the separate financial statements of the investor.

IAS 1 & IAS 32

Financial Instruments: Presentation - Amendments to IAS 32 and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation.

The amendments provide exemptions from the requirement to classify as a liability, financial instruments under which an entity has an unavoidable obligation to deliver cash.

IFRIC 12

Service Concession Arrangements.

This interpretation provides guidance to operators of public to private service concession arrangement in relation to certain recognition and measurement issues.

IFRIC 15

Agreements for the Construction of Real Estate.

This interpretation deals with the accounting for revenue arising from agreements for the construction of real estate.

IFRIC 16

Hedges of a Net Investment in A Foreign Operation.

This interpretation deals with hedge accounting for the foreign currency risk arising from a net investment in a foreign operation.

Other than those standards the Group has elected to adopt early (as disclosed in Note 1.1), a number of new standards, amendments and interpretations are not yet effective for the Group and have not been applied in preparing these consolidated financial statements.

New standards, amendments and interpretations endorsed by the EU but not yet effective

Not relevant to the Group's results

IAS 39

Amendment to IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items.

The amendment clarifies how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The amendment addresses two particular situations, including the designation of a one-sided risk in a hedged item; and the designation of inflation in particular situations. The amendment applies to hedging relationships in the scope of IAS 39 and is effective for annual periods beginning on or after 1 July 2009.

IFRIC 9 & IAS 39

Amendments to IFRIC 9 and IAS 39 Embedded Derivatives.

Amendment to IFRIC 9 and IAS 39 requires an entity to assess whether an embedded derivative is required to be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category and is effective for annual periods beginning on or after 30 June 2009.

IFRIC 17

Distributions of Non-Cash Assets to Owners.

The interpretation addresses the accounting when an entity distributes non-cash assets as dividends to its owners, by focusing on the measurement of the dividend payable and is effective for annual periods beginning on or after 1 July 2009.

IFRIC 18

Transfers of assets from customers.

This interpretation deals with the accounting for contributed property, plant and equipment, whereby an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services or to do both. It is effective for annual periods beginning on or after 1 July 2009.

IAS 32

Classification of Rights Issues.

The amendment requires that rights, options or warrants to acquire a fixed number of the entity's own equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments.

2. Operating segmental information

The Board of Directors considers the business primarily from a product perspective. The reportable segments are therefore Broadcasting & Online, ITV Studios and Other. All of the segments reported meet the quantitative thresholds required by IFRS 8, which the Group first adopted in 2007.

Management has determined the reportable segments based on the reports reviewed by the Board of Directors. The Broadcasting & Online segment now includes the results of the previously disclosed Online segment which is now managed as part of the Broadcasting business.

The comparatives have been restated in this note to reflect this significant change in the nature of the Group's operations. The Global Content segment has changed its name to ITV Studios to reflect the rebranding of this business during the year.

Broadcasting & Online is responsible for commissioning and scheduling programmes on the ITV channels, marketing and programme publicity and online rights exploitation. It derives its revenue primarily from the sale of advertising airtime and sponsorship. Other sources of revenue are from online advertising, premium rate services and the digital terrestrial multiplex, SDN. The Broadcasting & Online segment also includes the Group's investment in STV Group plc.

ITV Studios (formerly Global Content) derives its revenue primarily from ITV Studios UK (a commercial programme production company), international production centres in America, Germany, Sweden and Australia and the businesses in ITV Studios Global Entertainment. A proportion of revenue is generated internally via programme sales to the Broadcasting & Online segment. ITV Studios Global Entertainment sells programming, exploits merchandising and licensing worldwide, and is a distributor of DVD entertainment in the UK.

Other comprises the Group's 100% interest in Carlton Screen Advertising ("CSA"), which sells cinema screen advertising in the UK, and was put into creditors voluntary liquidation in the year and its 50% interest in Screenvision US and Europe, which operate cinema screen advertising businesses in continental Europe and the United States and were held for sale at the reporting date.

The segment information provided for the reportable segments for the years ended 31 December 2009 and 31 December 2008 is as follows:

 

Broadcasting & Online

ITV Studios

Other

Consolidated

 

2009 £m

2008 £m

2009 £m

2008 £m

2009 £m

2008 £m

2009 £m

2008 £m

Total segment revenue

1,543

1,683

597

622

1

40

2,141

2,345

Intersegment revenue

-

-

(262)

(316)

-

-

(262)

(316)

Revenue from external customers

1,543

1,683

335

306

1

40

1,879

2,029

EBITA before exceptional items

111

120

91

90

-

1

202

211

Share of (loss)/profit from joint ventures and associated undertakings

(4)

(4)

-

-

(3)

(11)

(7)

(15)

Total segment assets

1,295

1,704

745

645

-

65

2,040

2,414

Total assets include:

Investments in associates and joint ventures

3

14

2

1

-

51

5

66

Additions to non-current assets (other than financial instruments)

35

37

29

44

-

10

64

91

Total segment liabilities

(489)

(519)

(256)

(294)

-

(5)

(745)

(818)

Depreciation in the year was £38 million (2008: £36 million), of which £25 million (2008: £25 million) relates to the Broadcasting & Online, £13 million (2008: £10 million) to ITV Studios and £nil (2008: £1 million) to Other.

Sales between segments are carried out at arm's length. The revenue from external parties reported to the Board of Directors is measured in a manner consistent with the income statement. Income statement and statement of financial position allocations between reportable segments are performed on a consistent basis with the exception of pension costs, which are allocated, and pension assets and liabilities, which are not. This reflects the basis of reporting to the Board of Directors.

The Board of Directors assess the performance of the reportable segments based on a measure of EBITA before exceptional items, which is defined as operating profit/(loss) before impairment and amortisation of intangible assets and operating income/(cost) - exceptional items.

This measurement basis excludes the effect of non-recurring income and expenditure. Amortisation, investment income and share of profit/(losses) of joint ventures and associates are also excluded to reflect more accurately how the business is managed and measured on a day to day basis. Net financing costs are not allocated to segments as this type of activity is driven by the central treasury function, which manages the cash position of the Group.

A reconciliation of EBITA before exceptional items to profit/(loss) before tax is provided as follows:

 

2009 £m

2008 £m

EBITA before exceptional items

202

211

Operating income/(costs) - exceptional items

53

(97)

Amortisation and impairment of intangible assets

(59)

(2,761)

Net financing costs

(91)

(60)

Share of losses of joint ventures and associated undertakings

(7)

(15)

Investment income

-

1

Loss on sale and impairment of non-current assets (exceptional items)

(22)

(17)

(Loss)/gain on sale and impairment of subsidiaries and investments (exceptional items)

(51)

6

Profit/(loss) before tax

25

(2,732)

The amounts provided to the Board of Directors with respect to total assets are measured in a manner consistent with that of the financial statements. These assets are allocated based on the operations of the segment.

Reportable segments' assets are reconciled to total assets as follows:

 

2009 £m

2008 £m

Segment assets

2,040

2,414

Unallocated:

 

 

Held to maturity investments

149

-

Assets held for sale

78

3

Total derivative financial assets

156

218

Net deferred tax assets

50

-

Cash and cash equivalents

582

616

Total assets per the statement of financial position

3,055

3,251

The amounts provided to the Board of Directors with respect to total liabilities are measured in a manner consistent with that of the financial statements. These liabilities are allocated based on the operations of the segment.

Reportable segments' liabilities are reconciled to total liabilities as follows:

 

2009 £m

2008 £m

Segment liabilities

745

818

Unallocated:

 

 

Interest accruals

23

30

Dividends payable

-

25

Total derivative financial liabilities

34

32

Total borrowings

1,440

1,523

Current tax liabilities

31

56

Net deferred tax liability

-

55

Defined benefit pension deficit

436

178

Total liabilities per the statement of financial position

2,709

2,717

The Group's principal operations are in the United Kingdom. Its revenue from external customers in the United Kingdom is £1,621 million (2008: £1,821 million), and the total revenue from external customers in other countries is £258 million (2008: £208 million).

The total of non-current assets other than financial instruments, deferred tax assets, and employment benefit assets (there are no rights arising under insurance contracts) located in the UK is £1,212 million (2008: £1,443 million), and the total of these non-current assets located in other countries is £1 million (2008: £1 million).

Revenues of approximately £324 million (2008: £382 million), £226 million (2008: £236 million), £194 million (2008: £222 million) and £190 million (2008: £193 million) are derived from four external customers. The Group's major customers are all media buying agencies.

These revenues are attributable to the Broadcasting & Online segment and are from the only customers which individually represent over 10% of the Group's revenues.

3. Staff costs

 

2009 £m

2008 £m

Wages and salaries

244

287

Social security and other costs

33

36

Share-based compensation (see note 7)

11

10

Pension costs

16

14

Total

304

347

Staff costs within exceptional items were £32 million (2008: £26 million) principally relating to redundancy payments and reorganisation costs.

Total staff costs including exceptional items for the year ended 31 December 2009 are £336 million (2008: £373 million).

In addition to the pension costs shown above, is a net debit to net financing costs of £15 million (2008: credit of £16 million) and a net debit to retained earnings in respect of actuarial losses of £391 million (2008: losses of £124 million).

The weighted average number of employees employed by the Group during the year was:

 

2009

2008

Broadcasting & Online

2,606

3,120

ITV Studios

1,908

2,338

Other

5

139

Total

4,519

5,597

Details of the directors' emoluments, share options, pension entitlements and long-term incentive scheme interests are set out in the Remuneration report.

4. Total operating costs

 

2009 £m

2008 £m

Staff costs

 

 

Before exceptional items

304

347

Exceptional items

32

26

 

336

373

Depreciation, amortisation and impairment

 

 

Amortisation and impairment of intangible assets

59

2,761

Depreciation

38

36

 

97

2,797

Other operating costs

 

 

Broadcasting schedule costs

1,006

1,125

Broadcasting transmission costs

97

94

Broadcasting industry costs

40

44

Licence fees

22

30

CSA direct costs

1

33

ITV Studios non-staff costs

233

217

Operating lease costs

14

19

Other operating exceptional items

(85)

71

Audit and non-audit fees paid to KPMG Audit Plc (see below)

2

2

Other

106

97

 

1,436

1,732

Less: Staff costs and other costs charged to broadcasting schedule costs

(186)

(226)

Total operating costs

1,683

4,676

ITV Studios non-staff costs are net of the recharge for programmes supplied to ITV Broadcasting channels (which is eliminated on consolidation as internal revenue).

The Group engages KPMG Audit Plc ("KPMG") on assignments additional to their statutory audit duties where their expertise and experience with the Group are important. The Group's policy on such assignments is set out in the Audit Committee report.

Fees paid to KPMG during the year are set out below:

 

2009 £m

2008 £m

Fees payable to KPMG for the audit of the Group's annual accounts

0.7

0.9

Fees payable to KPMG and its associates for other services:

 

 

 The audit of the Group's subsidiaries pursuant to legislation

0.2

0.2

 Other services supplied pursuant to legislation

0.4

0.1

 Other services relating to taxation

0.2

0.5

 Services relating to corporate finance transactions entered into or proposed to be entered into by or on behalf of the Group or any of its associates

0.6

0.6

 All other services

0.1

-

Total

2.2

2.3

Fees paid to KPMG for audit and other services to the Company are not disclosed in its individual accounts as the Group accounts are required to disclose such fees on a consolidated basis.

5. Exceptional items

 

2009 £m

2009 £m

2008 £m

2008 £m

Operating exceptional items:

 

 

 

 

 Reorganisation and restructuring costs

 

(40)

 

(40)

 PRS reimbursements and fines

 

-

 

(6)

 Onerous contract provisions

 

(1)

 

(50)

 Onerous property provision

 

(14)

 

-

 Pension Scheme changes

 

110

 

-

 Kangaroo closure costs

 

(2)

 

(1)

Total net operating exceptional items

 

53

 

(97)

Non-operating exceptional items:

 

 

 

 

 Loss on sale and impairment of non-current assets

 

(22)

 

(17)

 (Loss)/gain on sale, net of impairment, of subsidiaries, joint ventures and associates

(52)

 

17

 

 Gain/(loss) on sale, net of impairment, of available for sale financial assets

(1)

 

(7)

 

 Gain/(loss) from sale of Kangaroo joint venture assets

2

 

(4)

 

(Loss)/gain on sale and impairment of subsidiaries and investments

 

(51)

 

6

Total non-operating exceptional items

 

(73)

 

(11)

Total exceptional items before tax

 

(20)

 

(108)

2009

In 2009 a charge of £40 million was incurred in respect of reorganisation and restructuring costs in relation to announced efficiency savings programmes.

An increase in provisions in respect of onerous contracts for sports rights of £1 million were put in place in 2009 as a consequence of the forecast significant decline in the advertising market over the life of those contracts.

A £14 million charge was incurred in respect of a property vacated as a result of the significant headcount reductions in the year.

Pension scheme changes have taken place following consultation with the Scheme members to implement a cap on increases to pensionable salary levels and to offer retired members the option of altering the structure of their pension by receiving an uplift now in return for giving up rights to future annual increases. Both of these changes will reduce the future cost and risks of operating the Pension Schemes and have resulted in a gain of £110 million, £38 million of which relates to a past service cost and £72 million to a curtailment gain (see note 6), and a corresponding reduction in the defined benefit pension deficit.

A £2 million charge was incurred in the year relating to closure costs associated with Kangaroo. A £2 million gain is included within non-operating exceptional items. This reverses an impairment taken in the prior year in respect of the Group's investment in Kangaroo following the sale of the joint venture's tangible assets during the year.

The £22 million charge for loss on sale and impairment of non-current assets relates to a £5 million impairment on properties included within assets held for sale to reflect their estimated market value, a £14 million impairment on property, plant and equipment to reflect their estimated recoverable amount and a net £3 million loss on the disposal of property plant and equipment. This includes a £2 million gain on disposal of a Manchester property for £2 million cash consideration, offset by the disposal of plant and equipment with a net book value of £5 million for £nil cash consideration following the efficiency reviews, primarily in regional news and studios related properties.

The net £52 million loss on sale, net of impairment, of subsidiaries, joint ventures and associates includes an impairment loss of £32 million on the remeasurement of the Friends Reunited disposal group to the lower of its carrying amount and fair value less costs to sell. It also includes a net loss on sale of subsidiaries of £5 million, £6 million loss on the sale of Enable Media Limited off set by a £1 million gain on the sale of JFMG Limited. Net impairments of joint ventures and associates of £9 million include £7 million for ITN. The remaining £2 million of this comprises numerous movements disclosed in note 14. A £6 million charge was also incurred during the year in relation to Carlton Screen Advertising Limited being put into creditors' voluntary liquidation. The charge incurred is equal to the value of its net assets no longer consolidated by the Group following the transfer of control of the entity to the liquidator. The Group has a £29 million other debtor due from Carlton Screen Advertising Limited, which is fully provided for pending the outcome of the liquidation.

The net £1 million loss on sale, net of impairment, of available for sale assets includes a £1 million impairment incurred on marking the Group's investment in STV Group plc to its fair value following a significant and sustained decline in it's share price, a £1 million impairment of the Group's 10% investment in Electric Farm Entertainment LLC and a £1 million gain on disposal of shares in Ambassador Theatre Group Limited.

2008

In 2008 a charge of £40 million was incurred in respect of reorganisation and restructuring costs. This includes £18 million related to Regional News and £22 million as a result of other efficiency programmes.

On 8 May 2008, Ofcom announced a fine to ITV of £6 million in respect of breaches of the programme code relating to premium rate services on ITV1 and ITV2. At the date of approval of the 2007 accounts, the regulator had not yet confirmed the level of any fine that might have been imposed in this context. Therefore no provision for a fine was able to be included in the 2007 accounts.

Provisions in respect of onerous contracts for sports rights of £50 million were put in place in 2008 as a consequence of the forecast significant decline in the advertising market over the life of those contracts.

A £1 million charge was incurred in the year relating to closure costs associated with Kangaroo. A £4 million charge, included within non-operating exceptional items, related to the impairment of the joint venture investment to £nil.

An impairment of £14 million was charged on the Manchester properties prior to their reclassification from assets held for sale to fixed assets and an impairment of £3 million has been charged on the remaining property classified in assets held for sale.

During the year, as part of the ongoing process to dispose of non-core businesses and investments, the Group sold its 50% interests in Arsenal Broadband Limited and Liverpool FC.tv Limited, resulting in gains of £12 million and £13 million respectively. These and other smaller gains were partially offset by £9 million of closure costs relating to CSA and a £3 million impairment in the Group's investment in Screenvision Holdings (Europe) Limited both of which are disclosed in the ''other'' reporting segment.

An impairment of the holding in STV Group plc, which is held in the Broadcasting segment, of £7 million was made in 2008 following a significant and sustained decline in its share price.

6. Pension schemes

The Group operates a number of defined benefit and defined contribution pension schemes.

The pension scheme assets are held in a separate trustee-administered fund to meet long-term pension liabilities to past and present employees. The trustees of the fund are required to act in the best interest of the fund's beneficiaries. The appointment of trustees to the fund is determined by the scheme's trust documentation.

Defined contribution schemes

Total contributions recognised as an expense in relation to defined contribution schemes during 2009 were £4 million (2008: £4 million).

Defined benefit schemes

The Group provides retirement benefits to some of its former employees and approximately 25% of current monthly paid employees through defined benefit schemes. The Group's main scheme was formed from a merger of a number of schemes on 31 January 2006. The level of retirement benefit is principally based on pensionable salary at retirement.

The liabilities of the defined benefit scheme are measured by discounting the best estimate of future cash flows to be paid out by the scheme using the projected unit method. This amount is reflected in the deficit in the consolidated statement of financial position. The projected unit method is an accrued benefits valuation method in which the scheme liabilities make allowance for projected earnings. The accumulated benefit obligation is an actuarial measure of the present value of benefits for service already rendered but differs from the projected unit method in that it includes an allowance for early leaver statutory revaluation rather than projected pensionable salary increases. At the reporting date the accumulated benefit obligation was £2,720 million (2008: £2,310 million).

The assets and liabilities of all of the Group's defined benefit pension schemes recognised in the consolidated statement of financial position at 31 December 2009 under IAS 19 (as explained in detail in this note) were £2,251 million (2008: £2,161 million) and £2,687 million (2008: £2,339 million) respectively, resulting in a net deficit in the defined benefit schemes of £436 million (2008: £178 million).

An alternative method of valuation to the projected unit method is a solvency basis, often estimated using the cost of buying out benefits at the consolidated statement of financial position date with a suitable insurer. This amount represents the amount that would be required to settle the scheme liabilities at the consolidated statement of financial position date rather than the Group continuing to fund the ongoing liabilities of the scheme. The Group estimates the shortfall in the amount required to settle the scheme's liabilities at the consolidated statement of financial position date is £1,500 million (2008: £1,800 million).

The statutory funding objective is that the scheme has sufficient and appropriate assets to pay its benefits as they fall due. This is a long-term target. Future contributions will always be set at least at the level required to satisfy the statutory funding objective. The general principles adopted by the trustees are that the assumptions used, taken as a whole, will be sufficiently prudent for pensions and benefits already in payment to continue to be paid, and to reflect the commitments which will arise from members' accrued pension rights.

The Group's main scheme, formed by merger on 31 January 2006, consists of three sections, A, B and C. The first triennial valuation of section A was completed as at 1 January 2008 by an independent actuary for the Trustees of the ITV Pension Scheme. The first triennial valuation of sections B and C were completed as at 1 January 2007 and the next triennial valuation of these sections are being undertaken as at 1 January 2010. The Group will monitor funding levels annually.

The levels of ongoing contributions are based on the current service costs and the expected future cash flows of the defined benefit scheme. Normal employer contributions into the schemes in 2010 for current service are expected to be in the region of £9 million (2009: £11 million) assuming current contribution rates continue as agreed with the scheme trustees. In addition, deficit funding payments of £30 million per annum are expected for the next four years. The Group estimates the average duration of UK scheme liabilities to be 14 years (2008: 14 years).

The movement in the present value of the defined benefit obligation for these schemes is analysed below:

 

2009 £m

2008 £m

Defined benefit obligation at 1 January

2,339

2,603

Current service cost

7

12

Curtailment gain (redundancies)

(2)

(2)

Operating exceptional curtailment gain (salary cap)

(72)

-

Past service cost (augmentations)

1

-

Operating exceptional past service credit (one off change to pension payment)

(38)

-

Interest cost

143

146

Net actuarial loss/(gain)

439

(314)

Contributions by scheme participants

4

6

Benefits paid

(134)

(112)

Defined benefit obligation at 31 December

2,687

2,339

The present value of the defined benefit obligation is analysed between wholly unfunded and funded defined benefit schemes in the table below:

 

2009 £m

2008 £m

Defined benefit obligation in respect of funded schemes

2,653

2,309

Defined benefit obligation in respect of wholly unfunded schemes

34

30

Total defined benefit obligation

2,687

2,339

The movement in the fair value of the defined benefit scheme assets is analysed below:

 

2009 £m

2008 £m

Fair value of scheme assets at 1 January

2,161

2,491

Expected return on assets

128

162

Net actuarial gain/(loss)

48

(438)

Employer contributions

44

52

Contributions by scheme participants

4

6

Benefits and expenses paid

(134)

(112)

Fair value of scheme assets at 31 December

2,251

2,161

The assets and liabilities of the scheme are recognised in the consolidated statement of financial position and shown within non-current liabilities. The total recognised is:

 

2009 £m

2008 £m

2007 £m

2006

£m

2005

£m

Total defined benefit scheme assets

2,251

2,161

2,491

2,372

2,072

Total defined benefit scheme obligations

(2,687)

(2,339)

(2,603)

(2,657)

(2,604)

Net amount recognised within the consolidated statement of financial position

(436)

(178)

(112)

(285)

(532)

Amounts recognised through the income statement are as follows:

 

2009 £m

2008 £m

Amount charged to operating costs:

 

 

 Current service cost

(7)

(12)

 Curtailment gain (redundancies)

2

2

 Past service cost (augmentations)

(1)

-

 

(6)

(10)

Amount credited to operating income - exceptional items:

 

 

 Curtailment gain

72

-

 Past service credit (one-off change to pensions payment)

38

-

 

110

-

Amount (charged)/credited to net financing costs:

 

 

 Expected return on pension scheme assets

128

162

 Interest cost

(143)

(146)

 

(15)

16

Total credited in the consolidated income statement

89

6

Two operating exceptional gains were recognised in 2009 in relation to changes made to the ITV Pension Scheme: a curtailment gain of £72 million in relation to the cap on increase to pensionable salaries; and a past service credit of £38 million in relation to the one off change to pension payments. These are included within the figures above.

The amounts recognised through the consolidated statement of comprehensive income/(cost) are:

 

2009 £m

2008 £m

Actuarial gains and (losses):

 

 

 Arising on scheme assets

48

(438)

 Arising on scheme liabilities

(439)

314

 

(391)

(124)

The cumulative amount of actuarial gains and losses recognised through the consolidated statement of comprehensive income since 1 January 2004 is an actuarial loss of £319 million (2008: £72 million gain).

Included within actuarial gains and losses are experience adjustments as follows:

 

2009 £m

2008 £m

2007 £m

2006 £m

2005 £m

Experience adjustments on scheme assets

48

(438)

15

32

219

Experience adjustments on scheme liabilities

-

-

(18)

(12)

9

At 31 December 2009 the scheme assets were invested in a diversified portfolio that consisted primarily of equity and debt securities.

The fair value of the scheme assets are shown below by major category:

 

Market value 2009 £m

Market value 2008 £m

Market value of assets - equity-type assets

869

704

Market value of assets - bonds

1,263

1,330

Market value of assets - other

119

127

Total scheme assets

2,251

2,161

Exposure through the different asset classes is obtained through a combination of executing swaps and investing in physical assets. Some of these bond investments are issued by the UK Government. The risk of default on these is very small compared to the risk of default on corporate bond investments, although some risk may remain. The trustees also hold corporate bonds and other fixed interest securities. There is a more significant risk of default on these which is assessed by various rating agencies. In 2009 yields have reduced relative to gilts which is partly attributed to a decrease in default risk in respect of these bonds.

The trustees also have a substantial holding of equity-type investments (predominantly equities with some exposure to hedge funds and infrastructure). The investment return related to these is variable, and they are generally considered much "riskier" investments. It is generally accepted that the yield on equity investments will contain a premium ("the equity risk premium") to compensate investors for the additional risk of holding this type of investment. There is significant uncertainty about the likely size of this risk premium.

In respect of overseas equity investments there is an additional risk associated with the exposure to unfavourable currency movements. To reduce this risk, the scheme aims to hedge broadly 60% of the overseas equity investment against currency movements.

The expected return for each asset class is weighted based on the target asset allocation for 2010 to develop the expected long-term rate of return on assets assumption for the portfolio.

The benchmark for 2010 is to hold broadly 47% equities and 53% bonds. The majority of the equities held by the scheme are in international blue chip entities. The aim is to hold a globally diversified portfolio of equities, with a target of broadly 22% of equities being held in UK and 78% of equities held overseas. Within the bond portfolio the aim is to hold 58% of the portfolio in government bonds (gilts) and 42% of the portfolio in corporate bonds and other fixed interest securities.

The expected rates of return on plan assets by major category and target allocations are set out below:

 

Expected long-term rate of return
2010 % p.a.

Planned asset allocation
2010 % of assets

Expected long-term rate of return
2009 % p.a.

Equity and Property

8.1

47

7.5

47

Bonds

4.0 - 5.0

53

3.6 - 6.3

53

The expected return on plan assets is based on market expectations at the beginning of the financial period for returns over the life of the related obligation. The expected yield on bond investments with fixed interest rates can be derived exactly from their market value.

The actual return on plan assets in the year ended 31 December 2009 was an increase of £176 million (2008: decrease of £276 million).

The principal assumptions used in the scheme valuations at the end of the reporting period were:

 

2009

2008

Rate of general increase in salaries

4.40%

3.80%

Rate of pensionable salary increases

0.90%

3.80%

Rate of increase in pension payment (LPI 5% pension increases)

3.30%

2.70%

Rate of increase to deferred pensions

3.40%

2.80%

Discount rate for scheme liabilities

5.70%

6.30%

Inflation assumption

3.40%

2.80%

IAS 19 requires that the discount rate used be determined by reference to market yields at the reporting date on high quality fixed income investments. The currency and term of these should be consistent with the currency and estimated term of the post-employment obligations.

The discount rate has been based on the yield available on AA rated corporate bonds of a term similar to the liabilities.

The expected rate of inflation is an important building block for salary growth and pension increase assumptions. A rate of inflation is "implied" by the difference between the yields on fixed and index-linked Government bonds. However, differences in demand for these can distort this implied figure. The Bank of England target inflation rate has also been considered in setting this assumption.

The Group has used PA92 year of birth tables with medium cohort improvements, with a 1% per annum underpin and a one year age rating (i.e. tables are adjusted so that a member is assumed to be one year older than actual age). Using these tables the assumed life expectations on retirement are:

 

2009

2009

2008

2008

Retiring today at age

60

65

60

65

Males

26.5

21.6

26.5

21.6

Females

29.8

24.8

29.8

24.8

Retiring in 20 years at age

60

65

60

65

Males

28.5

23.4

28.5

23.4

Females

31.9

26.7

31.9

26.7

The tables above reflect published mortality investigation data in conjunction with the results of investigations into the mortality experience of scheme members.

The sensitivities regarding the principal assumptions used to measure the scheme's liabilities are set out below. The illustrations consider the single change shown with the other assumptions assumed to be unchanged. In practice, changes in one assumption may be accompanied by offsetting changes in another assumption (although this is not always the case). The Group's liability is the difference between the scheme liabilities and the scheme assets. Changes in the assumptions may occur at the same time as changes in the market value of scheme assets. These may or may not offset the change in assumptions. For example, a fall in interest rates will increase the scheme liability, but may also trigger an offsetting increase in the market value of certain scheme assets so there is no net effect on the Group's liability.

Assumption

Change in assumption

Impact on scheme liabilities

Discount rate

Increase/decrease by 0.5%

Decrease/increase by 7%

Rate of inflation

Increase/decrease by 0.5%

Increase/decrease by 7%

Life expectations

Increase by 1 year

Increase by 2%

7. Share-based compensation

 


2009

 

2008

 

Number of options ('000)

Weighted average exercise price (pence)

Number of options ('000)

Weighted average exercise price (pence)

Outstanding at 1 January

116,454

71.88

131,803

79.46

Granted during the year - nil priced

26,821

-

20,929

-

Granted during the year - other

13,498

28.60

15,132

52.00

Forfeited during the year

(12,794)

39.23

(15,295)

52.99

Exercised during the year

(8,772)

-

(11,351)

6.63

Expired during the year

(33,218)

52.19

(24,764)

80.94

Outstanding at 31 December

101,989

63.94

116,454

71.88

Exercisable at 31 December

33,694

160.42

42,057

151.48

The average share price during 2009 was 38.37 pence (2008: 52.34 pence).

 

2009

2008

Range of exercise prices (pence)

Weighted average exercise price (pence)

Number of options ('000)

Weighted average remaining contractual life (years)

Weighted average exercise price (pence)

Number of options ('000)

Weighted average remaining contractual life (years)

Nil

-

47,851

3.23

-

53,272

4.20

20.00-49.99

28.60

13,326

3.71

-

-

-

50.00-69.99

55.40

5,377

2.58

53.80

14,106

3.54

70.00-99.99

84.75

1,462

1.99

84.95

4,546

2.68

100.00-109.99

101.90

11,321

1.04

101.96

12,032

2.04

110.00-119.99

114.14

6,787

4.22

114.55

11,957

5.73

120.00-149.99

137.33

3,401

1.87

133.63

6,367

3.97

200.00-249.99

217.78

1,035

0.98

217.78

1,201

1.98

250.00-299.99

270.09

11,337

0.54

270.25

12,882

1.54

300.00-385.99

385.31

91

0.40

385.31

91

1.40

Share schemes

Full details of the Turnaround Plan, Commitment Scheme, Performance Share Plan and Deferred Share Award Plan can be found in the Remuneration report.

Awards made under the Granada Media and Granada Commitment schemes, the Granada Media, Granada and Carlton Executive Share Option schemes, the Carlton Equity Participation Plan, and the Carlton Deferred Annual Bonus Plan have all reached the end of their various performance periods, and have vested or lapsed accordingly. Details of the performance criteria that applied to these awards have been detailed in the notes to previous accounts, and in previous Remuneration reports. The Granada and ITV Save As You Earn schemes are Inland Revenue Approved SAYE schemes. Although some awards remain vested but unexercised under these Plans, they are not considered material for the purposes of disclosure in this note.

Exercises 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 Deferred Share Award Plan. During the year all exercises were satisfied by using shares purchased in the market and held in the ITV Employees' Benefit Trust rather than by issuing new shares.

Assumptions relating to grants of share options during 2009 and 2008:

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)

Save As You Earn

 

 

 

 

 

 

 

 

ITV - three year

04-Apr-08

65.00

52.00

25.00%

3.25

2.84%

3.93%

17.00

ITV - five year

04-Apr-08

65.00

52.00

25.00%

5.25

2.84%

4.09%

19.00

ITV - three year

17-Jul-09

35.00

28.60

53.00%

3.25

-

2.40%

17.00

ITV - five year

17-Jul-09

35.00

28.60

43.00%

5.25

-

3.10%

18.00

Performance Share Plan

 

 

 

 

 

 

 

 

ITV - three year

01-Jun-09

40.00

-

53.00%

3.00

-

2.10%

30.20

Turnaround Plan

 

 

 

 

 

 

 

 

ITV - three year

12-Sep-08

49.90

-

25.00%

2.25

2.96%

5.04%

14.00

ITV - five year

12-Sep-08

49.90

-

25.00%

4.25

2.96%

4.98%

18.00

ITV - three year

02-Oct-08

42.30

-

25.00%

2.25

2.96%

5.04%

12.00

ITV - five year

02-Oct-08

42.30

-

25.00%

4.25

2.96%

4.98%

16.00

The expected volatility has been revised upwards for awards made in 2009, reflecting historic volatility of ITV plc's share price and equity markets as a whole over the preceding three or five years, dependent on the expected life of the award, prior to the grant date of the share options awarded. The expected volatility of the 2008 awards was based on the historic volatility of ITV plc, which was formed on the merger of Granada plc and Carlton Communications Plc on 2 February 2004.

The awards made under the Commitment Scheme, Performance Share Plan and Turnaround Plan all have market based performance conditions which are taken into account in the fair value calculation using a Monte Carlo pricing model. The Black-Scholes model is used to value the Save As You Earn Schemes as these do not have any market performance conditions.

Share-based compensation charges totalled £11 million in 2009 (2008: £10 million).

8. Net financing costs

 

2009 £m

2008 £m

Financing income:

 

 

 Interest income

23

31

 Expected return on defined benefit pension scheme assets

128

162

 Gain on bond exchange

14

-

 Change in fair value of instruments classified at fair value through profit or loss

-

123

 Foreign exchange gain

36

-

 

201

316

Financing costs:

 

 

 Interest expense on financial liabilities measured at amortised cost

(93)

(110)

 Interest on defined benefit pension plan obligations

(143)

(146)

 Losses on early settlement

(8)

-

 Change in fair value of instruments classified at fair value through profit or loss

(37)

-

 Foreign exchange loss

-

(116)

 Other interest expense

(11)

(4)

 

(292)

(376)

Net financing costs

(91)

(60)

The foreign exchange gain/loss is economically hedged by cross currency interest rate swaps. See note 25 for further details.

9. Taxation

 

2009 £m

2008 £m

Current tax

 

 

 Current tax charge before exceptional items

(13)

(28)

 Current tax credit on exceptional items

10

23

 

(3)

(5)

 Adjustment for prior periods

68

198

 

65

193

Deferred tax:

 

 

 Origination and reversal of temporary differences

21

(3)

 Deferred tax on exceptional items

(31)

-

 Adjustment for prior periods

14

(12)

 

4

(15)

Total taxation credit in the income statement

69

178

Reconciliation of taxation credit:

 

2009 £m

2008 £m

Profit/(loss) before tax

25

(2,732)

Taxation (charge)/credit at UK corporation tax rate of 28% (2008: 28.5%)

(7)

779

Non-taxable/non-deductible exceptional items

(21)

(8)

Non-taxable income/non-deductible expenses

(8)

(6)

Tax losses

26

-

Over provision in prior periods

82

186

Impact of tax rate change

-

1

Impact of goodwill impairment

-

(768)

Other

(3)

(6)

 

69

178

In the year ended 31 December 2009 the effective tax rate is lower (2008: lower) than the standard rate of UK corporation tax primarily as a result of adjustments in respect of prior periods due to progress in the agreement with revenue authorities of prior periods' tax liabilities. In addition, a tax credit totalling £101 million (2008: credit of £35 million) has been recognised directly in equity representing current tax of £nil (2008: credit of £nil) and a deferred tax credit of £101 million (2008: credit of £35 million).

Tax losses of £26 million (2008: £nil) relate to a credit for utilisation of loan relationship deficits of £23 million (2008: £nil), offset by a charge for unrecognised deferred tax on tax losses arising in the year of £9 million (2008: £nil) and a credit for other tax losses arising in the year of £12 million (2008: £nil).

Deferred tax assets/(liabilities) recognised and their movements are:

 

At 1 January 2009 £m

Recognised in the income statement £m

Recognised in equity £m

At 31 December 2009 £m

Property, plant and equipment

(15)

16

-

1

Intangible assets

(95)

13

-

(82)

Programme rights

4

(2)

-

2

Pension scheme deficits

49

(25)

98

122

Interest-bearing loans and borrowings, and derivatives

(1)

-

-

(1)

Share-based compensation

4

-

3

7

Unremitted earnings of subsidiaries, associates and joint ventures

(3)

-

-

(3)

Other

2

2

-

4

 

(55)

4

101

50

 

 

At 1 January 2008 £m

Recognised in the income statement £m

Recognised in equity £m

At 31 December 2008 £m

Property, plant and equipment

(13)

(2)

-

(15)

Intangible assets

(113)

18

-

(95)

Programme rights

3

1

-

4

Pension scheme deficits

31

(17)

35

49

Pensions funding payments

11

(11)

-

-

Interest-bearing loans and borrowings, and derivatives

(2)

1

-

(1)

Share-based compensation

4

-

-

4

Unremitted earnings of subsidiaries, associates and joint ventures

(2)

(1)

-

(3)

Other

6

(4)

-

2

 

(75)

(15)

35

(55)

At 31 December 2009 total deferred tax assets are £136 million (2008: £59 million) and total deferred tax liabilities are £86 million (2008: £114 million).

Deferred tax assets of £625 million and £60 million (2008: £625 million and £83 million) in respect of capital losses of £2,230 million (2008: £2,233 million) and loan relationship deficits of £214 million (2008: £296 million) respectively, have not been recognised due to uncertainties as to their amount and whether gain or income will arise in the appropriate form and relevant territory against which such losses could be utilised. For the same reasons, deferred tax assets in respect of overseas losses of £10 million (2008: £10 million) which time expire between 2017 and 2026 have not been recognised.

10. Dividends

Dividends declared and recognised through equity in the year were:

 

2009 £m

2008 £m

Equity shares:

 

 

 Final 2007 dividend of 1.8 pence per share

-

70

 Interim 2008 dividend of 0.675 pence per share

-

26

 

-

96

No 2009 interim dividend was declared. No final dividend will be declared for 2009 (2008 £nil).

11         Earnings per share

 


2009

 

2008 (restated)

 

Basic £m

Diluted £m

Basic £m

Diluted £m

Profit/(loss) for the year attributable to equity shareholders of the parent company

91

92

(2,556)

(2,556)

Exceptional items (including related tax effect of a debit of £21 million, 2008: credit of £23 million)

41

41

85

85

Profit/(loss) for the year before exceptional items

132

133

(2,471)

(2,471)

Amortisation and impairment of acquired intangible assets (including related tax credit of £14 million, 2008: £14 million)

37

37

2,739

2,739

Adjustments to net financing costs (including related tax effect of a credit £3 million, 2008: debit of £6 million)

9

9

(11)

(11)

Prior period tax adjustments

(82)

(82)

(186)

(186)

Other tax adjustments

(26)

(26)

-

-

Profit for the year before exceptional items, amortisation and impairment of acquired intangible assets, net financing cost adjustments and prior period and other tax adjustments

70

71

71

71

 Weighted average number of ordinary shares in issue - million

3,882

3,882

3,877

3,877

Dilution impact of share options - million

-

13

-

9

Dilution impact of convertible bond - million

-

192

-

-

 

3,882

4,087

3,877

3,886

 Earnings/(loss) per ordinary share

2.3p

2.3p

(65.9)p

(65.9)p

Adjusted earnings per ordinary share

 

 

 

 

Basic earnings/(loss) per ordinary share

2.3p

2.3p

(65.9)p

(65.9)p

Add: Loss per ordinary share on exceptional items

1.1p

1.0p

2.2p

2.2p

Earnings/(loss) per ordinary share before exceptional items

3.4p

3.3p

(63.7)p

(63.7)p

Add: Loss per ordinary share on amortisation and impairment of acquired intangible assets

1.0p

0.9p

70.6p

70.6p

Add: Gain/(loss) per ordinary share on adjustments to net financing costs

0.2p

0.2p

(0.3)p

(0.3)p

Subtract: Profit per ordinary share on prior period tax adjustments

(2.1)p

(2.1)p

(4.7)p

(4.7)p

Subtract: Profit per ordinary share on other tax adjustments

(0.7)p

(0.6)p

(0.1)p

(0.1)p

Adjusted earnings per ordinary share for the year

1.8p

1.7p

1.8p

1.8p

An adjusted earnings per share figure has been disclosed because in the view of the directors this gives a fairer reflection of core business performance. The basis for adjusted earnings per share has been changed in the year to more accurately reflect this and the 2008 comparison has been restated accordingly. Net financing costs are now adjusted for the non-cash imputed pension interest charge, mark-to-market movements on swaps and foreign exchange movements on bonds, the impact of amortised cost adjustments from coupon step-ups, one off gains and losses on exchanges and buybacks of bonds and the effective interest on the onerous contract provision. Internally generated intangible asset amortisation is now also included within adjusted earnings.

Diluted earnings per share have been impacted in 2009 by the issue of the £135 million Convertible Eurobond 2016 in November 2009. The conversion of share options in 2008 is anti-dilutive, so the diluted loss per share in 2008 has been shown as the same as basic loss per share in accordance with IAS 33 "Earnings per Share".

12. Property, plant and equipment

 

Freehold land and buildings

Improvements to leasehold land and buildings

Vehicles, equipment and fittings

Total

 

£m

Long £m

Short £m

Owned £m

Finance Leases £m

£m

Cost

 

 

 

 

 

 

At 1 January 2008

23

66

21

251

16

377

Additions

-

-

-

21

-

21

Reclassification from assets held for sale

27

3

-

-

-

30

Disposals and retirements

(1)

-

(1)

(31)

(1)

(34)

At 31 December 2008

49

69

20

241

15

394

Additions

-

-

-

14

-

14

Reclassification

5

(1)

-

(4)

-

-

Reclassification to assets held for sale

-

(14)

-

-

-

(14)

Disposals and retirements

-

(4)

-

(40)

-

(44)

At 31 December 2009

54

50

20

211

15

350

Depreciation

 

 

 

 

 

 

At 1 January 2008

-

12

8

144

2

166

Charge for the year

1

1

1

30

3

36

Disposals and retirements

(1)

-

(1)

(25)

(1)

(28)

At 31 December 2008

-

13

8

149

4

174

Charge for the year

3

3

2

27

3

38

Impairment charge for the year (see note 5)

6

2

4

2

-

14

Reclassification

3

-

-

(3)

-

-

Reclassification to assets held for sale

-

(5)

-

-

-

(5)

Disposals and retirements

-

(1)

-

(31)

-

(32)

At 31 December 2009

12

12

14

144

7

189

Net book value

 

 

 

 

 

 

At 31 December 2009

42

38

6

67

8

161

At 31 December 2008

49

56

12

92

11

220

Included within the book values above is expenditure of £3 million (2008: £10 million) on property, plant and equipment that is in the course of construction. The amount of contractual commitments for the acquisition of property, plant and equipment is disclosed in note 33.

13. Intangible assets

 

Goodwill £m

Brands £m

Customer contracts and relationships £m

Licences £m

Software development £m

Film libraries and other £m

Total £m

Cost

 

 

 

 

 

 

 

At 1 January 2008

3,478

199

338

121

26

83

4,245

Acquisition of subsidiaries

6

-

-

-

-

1

7

Purchase of brands and software development

-

1

-

-

20

-

21

At 31 December 2008

3,484

200

338

121

46

84

4,273

Purchase of software development

-

-

-

-

13

-

13

Reclassification to assets held for sale

(115)

(26)

(8)

-

-

(3)

(152)

Disposals

(4)

(1)

(2)

-

(7)

(2)

(16)

At 31 December 2009

3,365

173

328

121

52

79

4,118

Amortisation and impairment

 

 

 

 

 

 

 

At 1 January 2008

40

68

212

29

1

22

372

Charge for the year

-

18

22

9

8

9

66

Impairment charge

2,695

-

-

-

-

-

2,695

At 31 December 2008

2,735

86

234

38

9

31

3,133

Charge for the year

-

17

21

9

8

4

59

Reclassification to assets held for sale

(81)

(9)

(5)

-

-

(2)

(97)

Disposals

-

-

(1)

-

(5)

(1)

(7)

At 31 December 2009

2,654

94

249

47

12

32

3,088

Net book value

 

 

 

 

 

 

 

At 31 December 2009

711

79

79

74

40

47

1,030

At 31 December 2008

749

114

104

83

37

53

1,140

Included within the book values above is expenditure of £6 million (2008: £nil) on software development that is in the course of development.

Amortisation of intangible assets is shown within operating costs in the income statement.

Impairment tests for cash generating units containing goodwill

The following units have significant carrying amounts of goodwill:

 

2009 £m

2008 £m

Broadcasting

265

265

Online

30

68

GMTV

33

33

SDN

76

76

ITV Studios

307

307

 

711

749

The recoverable amount of each CGU is based on value in use calculations. These calculations require the use of estimates and use pre-tax cash flow projections based on the Group's current five-year plan. Cash flows beyond the five-year period are extrapolated using an estimated growth rate of 1%-2.5% depending on the CGU and are appropriate because these are long-term businesses. The growth rates used are consistent with the long-term average growth rates for the industry.

Impairment tests are carried out annually, or when indicators show that assets may be impaired. The impairment tests carried out as a consequence have resulted in no impairment charge for the year (2008: £2,695 million) being applied against the goodwill in these CGUs.

A pre-tax market discount rate of 12.9% has been used in discounting the projected cash flows for each CGU. The pre-tax market discount rate used in the previous year on the same basis was 11.9%. The discount rate has been revised to reflect the latest market assumptions for the Risk Free-rate and Equity Risk Premium and also to take into account the net cost of debt. Management believe that a consistent discount rate can be applied to all CGUs due to similarity of the risk factors affecting them and their geographical spread. Management believe that there is currently no reasonably possible change in discount rate that would reduce the headroom in any CGU to zero.

Broadcasting

The goodwill in this CGU arose as a result of the acquisition of broadcasting businesses since 1999, the largest of which were the acquisition by Granada of United News and Media's broadcast businesses in 2000 and the merger of Carlton and Granada in 2004 to form ITV plc. In 2007, as a result of the early adoption of IFRS 8 Operating Segments, this goodwill was apportioned between the Broadcasting and Online CGUs based on the relative Net Present Value of the cash flows of the two segments.

No impairment charge arose in the Broadcasting CGU during the course of 2009 (2008: £2,309 million), due to the anticipated stabilisation in the advertising market in 2010 and the cost savings achieved in 2009. Management believe that currently no reasonably possible change in the advertising market would reduce the headroom in this CGU to zero. Broadcasting goodwill was reduced in the year by £nil (2008: £57 million) as required by IAS 12, following the recognition of deferred tax assets not recognised at the time of the Carlton/Granada merger.

The main assumptions on which the forecast cash flows were based include the television share of advertising market, share of commercial impacts, programme and other costs. The key assumption in assessing the recoverable amount of Broadcasting goodwill is the size of the TV advertising market. In forming its assumptions about the TV advertising market, the Group has used a combination of long-term trends, industry forecasts and in-house estimates which place greater emphasis on recent experience. These are broadly in the range of -3% to +3% for 2010 and +2% to +5% for 2011, with our assumptions at the cautious end of these ranges. It is also assumed that ITV elects to renew its broadcasting licences in 2014.

The impairment charge in 2008 arose as a result of the downturn in the short-term outlook for the advertising market. The outlook for advertising, including Online, improved in particular towards the end of 2009 and video on demand continued to grow.

Online

As noted above, in 2007 as a result of the adoption of IFRS 8, Broadcasting goodwill was apportioned between the Broadcasting and Online CGUs based on the relative net present value of the cash flows of the two operating segments. This resulted in £257 million of Online goodwill. The remainder of the Online goodwill arose on the acquisition of Friends Reunited in 2005.

No impairment charge arose in the Online CGU during the course of 2009 (2008: £308 million). However, a net £34 million (2008: £nil) of goodwill associated with the disposal groups has been transferred from intangible assets to assets held for sale and a net £4 million was disposed of on the sale of the Enable Media business.

The key assumption on which the cash flows were based is the Group's online advertising revenue growth. Online advertising is dependent on a number of factors including Online's share of the total advertising market, as well as page impressions, unique users, average dwell times, video views and advertising rates (CPT) generated by the Group's online sites. However, no one factor is key in determining the Group's online advertising revenue. The Group's online revenue growth assumptions have been determined by using a combination of industry forecasts and in-house estimates of growth rates which are based on recent experience. Industry estimates of growth in the online advertising market range from 4% to 17% in 2010 and 9% to 20% in 2011.

Management believe that currently no reasonably possible change in the revenue assumptions would reduce the headroom in this CGU to zero. The impairment charge in 2008 arose as a result of the downturn in the short-term outlook for the advertising market which is an area highly exposed to the general downturn in the economy and the over-supply of white-space advertising on online sites, leading to a significant fall in rates. The outlook for advertising, including Online, improved in particular towards the end of 2009 and video on demand continued to grow.

GMTV

The goodwill in this CGU arose initially on the acquisition of a 75% shareholding in GMTV Limited in 2004. The remaining 25% interest in this subsidiary was purchased in November 2009 and did not give rise to an adjustment to goodwill in accordance with IAS27.

No impairment charge arose in the GMTV CGU during the course of 2009 (2008: £21 million). The main assumptions on which the forecast cash flows are based are as described under the Broadcasting CGU above. Management believe that currently no reasonably possible change in the advertising market would reduce the headroom in this CGU to zero.

The impairment charge in 2008 arose as a result of the downturn in the short-term outlook for the advertising market, which has since recovered in 2009.

SDN

The goodwill in this CGU arose on the acquisition of SDN (the licence operator for DTT Multiplex A) in 2005 and represented the wider strategic benefits of the acquisition to ITV plc. The strategic benefits were principally the enhanced ability to promote Freeview as a platform, business relationships with the channels which are on Multiplex A and additional capacity available from 2010.

The main assumptions on which the forecast cash flows were based are income to be earned from medium-term contracts and the market price of available multiplex video streams in the period up to and beyond digital switch over. These assumptions have been determined by using a combination of current contract terms, recent market transactions and in-house estimates of video stream availability and pricing. It is also assumed that the Multiplex A licence is renewed to 2022. Management believe that currently no reasonably possible change in the income and availability assumptions would reduce the headroom in this CGU to zero.

ITV Studios

The goodwill in this CGU arose as a result of the acquisition of production businesses since 1999, the largest of which were the acquisition by Granada of United News and Media's production businesses in 2000 and the merger of Carlton and Granada in 2004 to form ITV plc.

The key assumptions on which the forecast cash flows were based include revenue (including the share of total network programme budget obtained) and margin growth. These assumptions have been determined by using a combination of extrapolation of historical trends within the business, industry estimates and in-house estimates of growth rates in all markets. Management believe that currently no reasonably possible change in the revenue and margin assumptions would reduce the headroom in this CGU to zero.

14. Investments in joint ventures and associated undertakings

 

Joint ventures £m

Associated undertakings £m

Total £m

At 1 January 2008

63

16

79

Additions

17

10

27

Share of attributable losses

(18)

-

(18)

Repayment of loans

(7)

(10)

(17)

Impairment

(7)

-

(7)

Exchange movement and other

2

-

2

At 31 December 2008

50

16

66

Additions

3

3

6

Share of attributable losses

(5)

(2)

(7)

Repayment of loans

-

(4)

(4)

Transfer to assets held for sale

(47)

-

(47)

Impairment

(1)

(8)

(9)

At 31 December 2009

-

5

5

The £3 million of additions to joint ventures during the year relate to further loans granted of £3 million to Freesat.

The £5 million share of losses of joint ventures includes £3 million from Screenvision US and £2 million from Freesat. Of the share of attributable losses of joint ventures, £3 million was allocated to assets held for sale in line with their statement of financial position classification.

The £47 million transfer to assets held for sale relates to the carrying value of the joint venture investment in Screenvision US, now held for sale (see note 27). As an asset held for sale equity accounting ceases at the date of classification. This has resulted in unrecognised profits of £5 million. The joint venture investment in Freesat has also been impaired by £1 million during the year. The investment is now carried at its estimated value in use of £nil. Any unrecognised losses following its impairment to £nil, when equity accounting ceases, are immaterial.

The £3 million of additions in associated undertakings include loans granted of £2 million to ITN and £1 million to Carbon Media Limited, a new associated undertaking in the year. The £2 million share of attributable losses in associated undertakings include £2 million from ITN. ITN made £4 million of loan repayments during the year. The £8 million impairment of associated undertaking investments includes £7 million for ITN and £1 million for Crackit Productions Limited. Both are carried at their estimated value in use amount.

The aggregated summary financial information in respect of associates in which the Group has an interest is as follows:

 

2009 £m

2008 £m

Assets

52

66

Liabilities

(70)

(63)

Revenue

106

122

(Loss)/profit

(5)

-

The aggregated summary financial information in respect of the Group's share of interests in joint ventures is as follows:

 

2009 £m

2008 £m

Non-current assets

31

37

Current assets

46

75

Current liabilities

(24)

(37)

Non-current liabilities

(43)

(33)

Revenue

71

84

Expense

(73)

(102)

The Group's interests in significant joint ventures and associated undertakings are listed in note ix in the ITV plc company financial statements section of this report.

15         Available for sale financial assets

 

2009 £m

2008 £m

At 1 January

5

10

Additions

-

2

Impairment

(2)

(7)

Disposals

(2)

-

At 31 December

1

5

The Group's interests in available for sale financial assets are listed in note ix in the ITV plc Company financial statements section of this report. The Group's investment in STV Group plc is marked to market. However, following a significant and sustained decline in it's share price an impairment of £1 million has been taken against this investment in the year. A further impairment of £1 million relates to the impairment of the Group's 10% investment in Electric Farm Entertainment LLC to £nil. The £2 million disposal relates to the sale of the Group's interests in Ambassador Theatre Group Limited to a consortium including Exponent Private Equity LLP for a £3 million cash consideration resulting in a £1 million gain on sale (see note 5).

16         Distribution rights

 

2009 £m

2008 £m

Cost


 

At 1 January

82

68

Additions

17

14

At 31 December

99

82

Charged to income statement


 

At 1 January

69

61

Expense for the year

14

8

At 31 December

83

69

Net book value

16

13

The expense for the year is accounted for within operating costs in the income statement.

17         Programme rights and other inventory

 

2009 £m

2008 £m

Commissions

73

125

Sports rights

23

57

Acquired films

207

237

Production

48

62

Prepayments

36

29

Other

1

6

 

388

516

Net programme rights and other inventory written off in the year was £11 million (2008: £29 million), including £nil (2008: £2 million) for reversals relating to inventory previously written down to net realisable value. In addition to these amounts, there are exceptional costs for onerous contract provisions in respect of sports rights of £1 million (2008: £50 million), as disclosed in note 5. Of the total provision £4 million (2008: £5 million) has been written off against sports rights and £nil (2008: £1 million) has been written off against prepayments above. £35 million (2008: £44 million) remains in provisions, see note 26.

18         Trade and other receivables

 

2009 £m

2008 £m

Due within one year:

 

 

                Trade receivables

353

336

                Other receivables

22

24

                Prepayments and accrued income

57

84

 

432

444

Due after more than one year:

 

 

                Trade receivables

7

9

                Prepayments and accrued income

-

1

 

7

10

Total trade and other receivables

439

454

As at 31 December 2009, trade receivables of £8 million (2008: £14 million) were impaired and provided for. The individually impaired receivables relate mainly to the Broadcasting & Online and ITV Studios segments due to concerns over their recoverability. Movements in the Group provision for impairment of trade receivables are as follows:

 

2009 £m

2008 £m

At 1 January

14

9

Charged during the year

4

9

Receivables written off during the year as uncollectible

(6)

(1)

Unused amounts reversed

(4)

(3)

At 31 December

8

14

Trade receivables that are less than three months past due are not usually considered impaired. As at 31 December 2009, trade receivables of £130 million (2008: £134 million) were past due but not impaired. Of this, £88 million (2008: £52 million) relates to non-consolidated licensee customers in the Broadcasting & Online segment where the Group has supplier and customer relationships. Further amounts relating to these same customers of £1 million (2008: £4 million) and £7 million (2008: £14 million) are included in current trade receivables and other receivables respectively. There is also a credit of £61 million (2008: credit of £42 million) included in trade and other payables relating to these customers.

The net balance due from non-consolidated licensees is £36 million, the majority of which relates to STV Group plc.

 

2009 £m

2008 £m

Current

230

211

Up to 30 days overdue

43

48

Between 30 and 90 days overdue

8

21

Over 90 days overdue

79

65

 

360

345

19         Current liabilities - trade and other payables due within one year

 

2009 £m

2008 £m

(restated)

Trade payables

83

93

Social security

13

13

Other payables

162

223

Accruals and deferred income

388

394

Dividends

-

25

 

646

748

The 2008 comparatives for current liabilities have been restated to reflect the current year classification. This is to show a better reflection of the nature of the Group's liabilities. The Group's VAT creditor has been reclassified from trade payables to other payables and film creditors have been reclassified from trade payables to accruals where, at the reporting date, the programme is in rights but no invoice has been received.

20         Current liabilities - trade and other payables due after more than one year

 

2009 £m

2008 £m

Other payables

31

26

21         Non-current liabilities - other payables

 

2009 £m

2008 £m

Other payables

12

15

22         Analysis of net debt

 

1 January 2009 £m

Net cash flow and acquisitions £m

Currency and non-cash movements £m

31 December 2009 £m

Cash

503

(20)

(4)

479

Cash equivalents

113

(11)

1

103

Cash and cash equivalents

616

(31)

(3)

582

Cash held within the Disposal Group

-

-

4

4

Held to maturity investments

-

150

(1)

149

Loans and loan notes due within one year

(252)

249

2

(1)

Finance leases due within one year

(7)

7

(8)

(8)

Loans and loan notes due after one year

(1,192)

(221)

47

(1,366)

Finance leases due after one year

(72)

-

7

(65)

 

(1,523)

35

48

(1,440)

Currency component of swaps held against Euro denominated bonds

147

-

(39)

108

Convertible Bond Equity Component

-

(36)

1

(35)

Amortised cost adjustment

30

-

(10)

20

Net debt

(730)

118

-

(612)

 

 

 

 


 

1 January 2008 £m

Net cash flow and acquisitions £m

Currency and non-cash movements £m

31 December 2008 £m

Cash

381

122

-

503

Cash equivalents

117

(5)

1

113

Cash and cash equivalents

498

117

1

616

Held to maturity investments

100

(100)

-

-

Loans and loan notes due within one year

(27)

25

(250)

(252)

Finance leases due within one year

(6)

6

(7)

(7)

Loans and loan notes due after one year

(1,184)

(110)

102

(1,192)

Finance leases due after one year

(79)

-

7

(72)

 

(1,296)

(79)

(148)

(1,523)

Currency component of swaps held against Euro denominated bonds

30

-

117

147

Amortised cost adjustment

-

-

30

30

Net debt

(668)

(62)

-

(730)

Included within cash equivalents is £62 million (2008: £67 million), the use of which is restricted to meeting finance lease commitments under programme sale and leaseback commitments and gilts of £34 million (2008: £33 million) over which the unfunded pension promises have a charge.

The purpose of the amortised cost adjustment is to exclude the impact of the coupon step-up on total net debt. ITV's Standard & Poor's credit rating was lowered to BB+ in August 2008, resulting in a coupon step-up in the 2011 and 2017 bonds. The recalculation of the amortised cost carrying values as required by IAS 39 resulted in an increase in net debt of £30 million as at 31 December 2008. This increase will be unwound in future years as a reduction in interest expense.

In February 2009 ITV raised a net £50 million through a £200 million covenant free loan with a maturity of March 2019, secured against the purchase of 4.5% March 2019 gilts with a nominal value of £138 million (for a cost of £150 million). The cash receipt relating to the £200 million loan and the cash payment relating to the £150 million gilts are both presented within cash flows from financing activities in the consolidated statement of cash flows, as the gilts are held as security for the £200 million loan and thus form an integral part of the financing transaction. The cost of the £200 million loan is fixed at 8.85% for the first three years and a variable rate thereafter, depending in part on the performance of an interest rate algorithm. The total return on the gilts receivable by ITV is 11% of the nominal value. The gilts are accounted for as a held to maturity investment.

In March 2009 ITV repaid its £250 million Eurobond and drew down a £125 million covenant free loan with a maturity of May 2013 at a variable rate of 12-month sterling LIBOR plus 6.814%. In May 2009 ITV completed a £100 million tap of the existing £325 million October 2015 Eurobond raising net proceeds of £58 million with an effective interest rate of 15.6%.

In June 2009, under the terms of an exchange offer, ITV repaid €81 million (£69 million) of the €500 million October 2011 bond and exchanged at par €188 million of the 2011 bonds for the issuance at par of new bonds with a maturity of June 2014 and carrying a coupon of 10%; this resulted in an accounting gain of £14 million. A pro rata proportion of the cross-currency interest rate swaps entered into at the time of issue of the 2011 bond were restructured and extended to match the terms of the new 2014 bonds. Under the terms of the swaps ITV receives 10% on a notional amount of €188 million and pays 12.9% on a notional amount of £63 million and three-month sterling LIBOR plus 7.9% on a notional amount of £63 million. At maturity of the swaps ITV receives €188 million to match its principal repayment to bondholders and pays £126 million.

In October 2009 ITV repurchased £75 million of the £125 million May 2013 loan at a loss of £6 million.

In November 2009 ITV issued a £135 million convertible Eurobond with a maturity date of November 2016. The coupon on the bond is 4.0% and the initial conversion price is 70.44 pence, a premium on issue of 40%. The bonds are accounted for partly as debt and partly as equity, net of issue costs. The debt and equity components are accreted to par over the life of the bond; the accretion of the equity component is accounted for as a transfer from other reserves to retained losses. The effective interest rate on the carrying value of the debt component is 9.3%.

In November and December 2009 ITV repurchased €114 million nominal value of the remaining October 2011 bonds, resulting in an accounting loss of £2 million. As at 31 December, 2009 €118 million of these bonds remained outstanding. Subsequent to the repurchase, ITV entered into new cross currency interest rate swaps to offset existing swaps. Under the terms of the cross currency interest rate swaps matching the €118 million 2011 bonds, ITV receives 4.75% on a notional amount of €118 million and pays 26.7% on a notional amount of £5 million and three-month LIBOR minus 4.1% on a notional amount of £33 million. The net interest rate payable by ITV reflects the impact of exchange and interest rate differences between the original swaps and the new swaps. At maturity of the swaps ITV receives €118 million to match its principal repayment to bondholders and pays £38 million.

As at 31 December 2009 the currency element of the cross currency interest rate swaps is a £108 million asset (2008: £147 million asset) and this offsets the exchange rate movement of the 2011 and 2014 bonds. The interest element of the swap is a £12 million asset (2008: £5 million asset) resulting in an overall net asset total at 31 December 2009 of £120 million (2008: £152 million net asset total).

2008

In July 2008 ITV issued a £110 million bond with a maturity of March 2013 and a coupon of three-month sterling LIBOR plus 2.7%. During 2008 ITV redeemed loan notes totalling £25 million.

In November 2008 ITV redeemed for cash a £100 million senior note issued by UBS AG ("UBS") under UBS's Euro Note Programme.

Ageing of borrowings

 



2009

 

 

2008

 

Loans and loan notes £m

Finance leases £m

Total £m

Loans and loan notes £m

Finance leases £m

Total £m

Current

 

 

 

 

 

 

In one year or less, or on demand

1

8

9

252

7

259

Non-current



 

 

 

 

In more than one year but not more than two years

106

9

115

-

8

8

In more than two years but not more than five years

316

39

355

603

26

629

In more than five years

944

17

961

589

38

627

 

1,366

65

1,431

1,192

72

1,264

Total

1,367

73

1,440

1,444

79

1,523

Loans repayable between one and two years

Loans repayable between one and two years as at 31 December 2009 comprise an unsecured €118 million Eurobond which has a coupon of 6.0% and matures in October 2011. After cross currency swaps the net amount repayable in October 2011 is £38 million.

Loans repayable between two and five years

Loans repayable between two and five years as at 31 December 2009 includes an unsecured £50 million bank loan which has a coupon of 12-month sterling LIBOR plus 6.814% and matures in May 2013, an unsecured £110 million Eurobond which has a coupon of three-months sterling LIBOR plus 2.7% and matures in March 2013 and an unsecured €188 million Eurobond (£126 million net of cross currency swaps) which has a coupon of 10.0% and matures in June 2014.

Loans repayable after five years

Loans repayable after five years includes an unsecured £425 million Eurobond which has a coupon of 5.375% and matures in October 2015, an unsecured £135 million convertible Eurobond which has a coupon of 4.0% and matures in November 2016, an unsecured £250 million Eurobond which has a coupon of 7.375% and matures in January 2017 and an unsecured bank loan for £200 million which has a coupon of 8.85% for its first three years and a variable rate thereafter which matures in March 2019.

Finance leases

Finance lease liabilities are payable as follows:

 

2009

2008

 

Minimum lease payments £m

Interest £m

Principal £m

Minimum lease payments £m

Interest £m

Principal £m

In one year or less

12

4