TIDMITV
RNS Number : 0795M
ITV PLC
26 July 2017
ITV on Track to deliver
Interim results for the six months to 30 June 2017
Peter Bazalgette, ITV Executive Chairman, said:
"ITV's performance in the first six months of the year is very
much as we anticipated and our guidance for the full year remains
unchanged.
"Total external revenue was down 3% with the decline in NAR
partly offset by continued good growth in non-advertising revenues,
which is a clear indication that our strategy of rebalancing the
business is working. We are confident in the underlying strength of
the business as we continue to invest both organically and through
acquisitions.
"ITV Studios total revenues grew 7% to GBP697m including
currency benefit. ITV Studios adjusted EBITA was down 9% at
GBP110m. This was impacted by our ongoing investment in our US
scripted business and the fact that the prior year includes the
full benefit of the four year license deal for The Voice of China.
We have a very strong pipeline of new and returning drama and
formats and we are building momentum in our US scripted business.
We continue to grow our global family of production companies and
in H1 we further strengthened our international drama and format
business with the acquisition of Line of Duty producer World
Productions in the UK, Tetra Media Studio in France and Elk
Production in Sweden.
"The Broadcast business remains robust despite the 8% decline in
NAR caused by ongoing economic and political uncertainty with
Broadcast & Online adjusted EBITA down 8% at GBP293m. On-screen
we are performing well. To the end of May our ITV Family share of
viewing grew although we ended the first half flat as June last
year included the benefit of the Euros. ITV continues to deliver
the mass audiences demanded by advertisers as well as delivering
the key target demographics. ITV is the only channel to deliver a
commercial audience over five million and Love Island demonstrates
that young viewers engage in great TV content.
"Online, Pay & Interactive grew revenues by 5% to GBP112m
with double digit growth across Online and Pay. Online viewing was
again up strongly at 34%. We continue to grow our digital
capabilities and invest in the ITV Hub, ITV Hub+, BritBox US, our
SVOD joint venture with the BBC and Cirkus, our SVOD proposition in
the Nordics and Germany.
"Looking ahead our guidance for 2017 remains unchanged. ITV
Studios has already secured 85% of expected full year revenues,
over GBP100m more than this time last year and is firmly on track
to deliver good organic revenue growth. ITV Studios adjusted EBITA
will be broadly flat year on year impacted by continued investment
and the timing of programme deliveries. We anticipate further good
growth in Online, Pay & Interactive driven by VOD and Pay. We
expect ITV Family NAR in Q3 to be down around 4%, again impacted by
wider economic uncertainty and over the full year we expect to
outperform the TV advertising market.
"We see opportunities to continue to invest in growing an even
stronger and more resilient business. The strength of our balance
sheet and healthy cashflows allow us to do so while delivering
sustainable returns to our shareholders.
"The Board has declared an interim dividend of 2.52p, an
increase of 5%, reflecting our confidence in the underlying
strength of the business.
"We are delighted that Carolyn McCall will be joining ITV as
Chief Executive. Carolyn brings a strong track record in media,
experience of an international operation, clear strategic acumen
and a reputation for delivering value to shareholders. We look
forward to her arrival on 8 January 2018."
H1 Performance in line with expectations
-- Total external revenue down 3% at GBP1,458 million (2016:
GBP1,503 million), with 6% growth in non-NAR partly offsetting the
decline in NAR
-- Total ITV Studios revenue up 7% at GBP697 million (2016:
GBP651 million), including GBP42 million of currency benefit
-- Online, Pay & Interactive up 5% at GBP112 million (2016:
GBP107 million), with double digit growth across Online and Pay
-- ITV Family NAR down 8% at GBP769 million (2016: GBP838 million)
-- Adjusted EBITA down 8% at GBP403 million (2016: GBP438 million)
-- ITV Studios adjusted EBITA down 9% at GBP110 million (2016:
GBP121 million) impacted as expected by ongoing investment and the
fact that the prior year includes the full benefit of the four year
license deal for The Voice of China
-- Broadcast & Online adjusted EBITA down 8% at GBP293 million (2016: GBP317 million)
-- Adjusted EPS down 9% at 7.7p (2016: 8.5p)
-- Statutory EPS down 16% at 5.1p (2016: 6.1p)
Confident in underlying strength of Business
-- Broadcast business remains robust
- ITV Family SOV flat, ITV2 SOCI for 16 to 34's up 15% and
online viewing up 34%
-- ITV Studios has a healthy pipeline of new and returning programmes
-- Continuing to invest in our digital business in Broadcast and Studios
Strong balance sheet and healthy liquidity
-- Flexibility and capacity to continue to invest across the business
-- The Board has declared an interim dividend of 2.52p, an
increase of 5%, reflecting our confidence in the underlying
strength of the business
Outlook for 2017
-- No change in full year guidance
-- Confident that ITV Studios will deliver good organic revenue
growth with adjusted EBITA broadly in line with last year, impacted
by ongoing investment in drama and the timing of programme
deliveries
-- ITV Family NAR forecast to be down around 4% in Q3 and we
expect to again outperform the TV ad market in 2017
-- Online, Pay & Interactive will deliver good growth driven
by a strong performance in Online and Pay
-- Will deliver GBP25m overhead savings and a GBP25m reduction
in the programme budget as previously announced
Half year results - adjusted and
statutory
--------------------------------------- ----- ----- ------- ------
Six months to 30 June - on an adjusted 2017 2016 Change Change
basis GBPm GBPm GBPm %
--------------------------------------- ----- ----- ------- ------
Broadcast & Online revenue 1,000 1,061 (61) (6)
--------------------------------------- ----- ----- ------- ------
ITV Studios revenue 697 651 46 7
--------------------------------------- ----- ----- ------- ------
Total revenue 1,697 1,712 (15) (1)
--------------------------------------- ----- ----- ------- ------
Internal supply (239) (209) 30 14
--------------------------------------- ----- ----- ------- ------
Group external revenue 1,458 1,503 (45) (3)
--------------------------------------- ----- ----- ------- ------
Broadcast & Online EBITA 293 317 (24) (8)
--------------------------------------- ----- ----- ------- ------
ITV Studios EBITA 110 121 (11) (9)
--------------------------------------- ----- ----- ------- ------
EBITA 403 438 (35) (8)
--------------------------------------- ----- ----- ------- ------
Group EBITA margin 28% 29% - -
--------------------------------------- ----- ----- ------- ------
Profit before tax 381 425 (44) (10)
--------------------------------------- ----- ----- ------- ------
EPS 7.7p 8.5p (0.8p) (9)
--------------------------------------- ----- ----- ------- ------
Ordinary dividend per share 2.52p 2.4p 0.12p 5
--------------------------------------- ----- ----- ------- ------
Management look at adjusted results as they reflect the way the
business is managed and measured on a day-to-day basis. Adjusted
EBITA is before exceptional items and includes the benefit of
production tax credits. Adjusted profit before tax and adjusted EPS
also remove the effect of amortisation and impairment of assets
acquired through business combinations and investments and net
financing costs. A full reconciliation between the adjusted and
statutory results is provided later in the press release in the EPS
section.
The statutory profit before tax and EPS from the Condensed
Consolidated Income Statement are as follows:
2017 2016 Change Change
Six months to 30 June GBPm GBPm GBPm %
---------------------- ----- ----- ------- ------
Profit before tax 259 309 (50) (16)
---------------------- ----- ----- ------- ------
EPS 5.1 6.1p (1.0p) (16)
---------------------- ----- ----- ------- ------
Diluted EPS 5.1 6.1p (1.0p) (16)
---------------------- ----- ----- ------- ------
Statutory EPS declined by 16% to 5.1p (2016: 6.1p) primarily due
to higher amortisation and impairment of acquired assets.
Financial Performance
The strategy we set out a number of years ago was to rebalance
the business and reduce our reliance on the UK and on spot
advertising. The progress we have made against this strategy is
clearly evident in our performance for the first half of 2017.
Non-NAR grew 6%, partly offsetting an 8% decline in spot
advertising revenue, to give external revenue down 3%. Adjusted EPS
was down 9% in the first half impacted by advertising, ongoing
investment in the business and the fact that the prior year
includes the full benefit of the four year license deal for The
Voice of China. Statutory EPS was down 16% year-on-year.
One of our key strengths is our high margins and healthy
cashflows, which places us in a good position to continue to invest
in growing an even stronger and more resilient business to meet the
opportunities and challenges ahead.
We remain focused on balance sheet efficiency and working
capital management. Our profit to cash ratio on a rolling 12-month
basis remained strong at 91%. We ended the period with net debt of
GBP1,074 million (31 December 2016: net debt of GBP637 million)
after acquisitions and earnout payments within ITV Studios, the
ordinary and special dividend payments and pension deficit
contributions. At 30 June 2017, net debt to adjusted EBITDA on a
12-month rolling basis was 1.2x (30 June 2016: 0.9x).
Cost management remains a key priority and we are on track to
deliver the previously announced GBP25 million reduction in
overheads across the business in 2017. This together with our
strong balance sheet and a more balanced business gives us the
flexibility to continue to invest, while delivering sustainable
returns to our shareholders. The Board has declared an interim
dividend of 2.52p, an increase of 5%, reflecting our confidence in
the underlying strength of the business.
Broadcast & Online
Broadcast & Online revenue declined by 6% to GBP1,000
million (2016: GBP1,061 million) with the decrease in NAR partly
offset by good growth in Online, Pay & Interactive.
Continued economic and political uncertainty in the UK during
the first half of 2017 led to an 8% decrease in ITV Family NAR to
GBP769 million (2016: GBP838 million). The first quarter was down
9% and the second quarter was down 8%. Over the first half,
including sponsorship, VOD and self-promotion, ITV total
advertising was down 7%.
Advertising categories such as Retail, Finance and Food
continued to see declines due to uncertainty on the economic
outlook along with the weakening of the pound, causing inflationary
pressure and leading advertisers to reduce advertising spend in
order to maintain margins.
Entertainment & Leisure are down impacted by the tough
comparatives from the Euro Football Championship in 2016. Several
categories have remained strong, increasing spend year-on-year,
such as Cars & Car Dealers, Telecommunications and
Supermarkets. Digital brands continue to spend heavily on
television to build brand awareness.
On-screen we performed well. To the end of May our ITV Family
share of viewing grew although we ended the first half flat as June
last year included the benefit of the Euros. There were strong
performances from drama including The Good Karma Hospital, Vera and
The Loch, entertainment including Saturday Night Takeaway, The
Voice and Britain's Got Talent, sport with The Six Nations Rugby
Championships and ITV horse racing, along with an improvement in
daytime and the soaps. As well as mass audiences, we also deliver
more targeted demographics. ITV2, which is aimed at younger
audiences, saw a 15% increase in SOCI for the 16-34s demographic
driven by programmes such as Love Island, Family Guy and Celebrity
Juice. ITV4, which targets male audiences, had a 5% increase in
male SOCI helped by ITV's horse racing coverage, The French Open
and the Isle of Man TT Races. We remain focused on our viewing
performance and continuing to deliver both mass audiences and key
demographics which are highly demanded by advertisers.
Online, Pay & Interactive revenue showed good growth, up 5%
to GBP112 million (2016: GBP107 million) with double-digit growth
in our online advertising and pay businesses. Audience demand for
VOD remains strong, as does the demand for online advertising.
Supported by our strong on-screen proposition we delivered a 31%
increase in long-form video requests and a 34% increase in
consumption on our OTT service the ITV Hub which
now has 20 million registered users. Interactive revenue was
down 5%, with reduced entries for daytime competitions.
As we build our digital business, we will continue to invest in
the ITV Hub, ITV Hub+, BritBox US, our SVOD joint venture with the
BBC and Cirkus, our SVOD proposition in the Nordics and
Germany.
SDN external revenue, which is generated from license sales for
DTT Multiplex A, increased 6% to GBP35 million (2016: GBP33
million). This was driven by the 16th stream which launched in May
2016.
Other commercial income includes revenue from programme
sponsorship and revenue from STV plc for commission earned by ITV
for airtime sales and for the delivery of ITV programming. This
revenue was up 1% at GBP84 million (2016: GBP83 million) with new
sponsorship around ITV horse racing and The Voice offset by a
reduction in third party airtime sales commission and revenue
primarily from UTV following ITV's acquisition of the business
in February 2016.
Schedule costs were down 3% year-on-year at GBP532 million
(2016: GBP547 million) with higher spend on entertainment offset by
lower spend on sports rights, drama and factual. We continue to
expect our total annual programming budget for the full year to be
around GBP1,025 million which includes the previously announced
GBP25 million year on year reduction as a result of no major sports
tournament in 2017.
Other Broadcast costs were down 11% year-on-year at GBP175
million (2016: GBP197million) which includes a portion of the
previously announced
GBP25 million overhead savings and timing of other costs,
including marketing, which this year will be more weighted towards
the second half of the year.
Overall Broadcast & Online adjusted EBITA was down 8% at
GBP293 million (2016: GBP317 million) with the good growth in
Online, Pay & Interactive more than offset by the decline in
the advertising market. This has led to a 1% reduction in the
adjusted EBITA margin to 29% (2016: 30%).
As a result of the Digital Economy Bill which received Royal
Assent in April, s73 will be repealed with effect from 31 July,
which paves the way for the introduction of retransmission
fees.
ITV Studios
ITV Studios total revenue saw good growth in the first half, up
7% to GBP697million (2016: GBP651 million) driven by Studios UK,
ITV America and Global Entertainment as we continue to build scale
in the key creative content markets and strengthen our
international portfolio of programmes that return and travel. Total
organic revenue, which excludes our current year acquisitions, was
up 6%, and excluding foreign exchange movements, it was flat. We
delivered good organic revenue and profit growth across the
business except in Studios Rest of World (RoW) and specifically
Talpa Media which was impacted by the inclusion of the full benefit
of the four year license deal for The Voice of China in the prior
year.
Reflecting our growth and increasing scale in key production
markets in Europe and the US, 52% of ITV Studios total revenue in
the first half was generated outside the UK. As our Studios
business grows internationally, foreign currency movements have an
increasing impact on our results. On a constant currency basis,
which assumes exchange rates remained consistent with 2016, ITV
Studios revenue for the period would have been.
GBP42 million lower and adjusted EBITA would have been GBP8
million lower as a result of a stronger US dollar and Euro during
the period.
Studios UK revenue was up 5% to GBP306 million (2016: GBP292
million) driven by 13% growth in internal revenue. Programming
sales to ITV Broadcast grew strongly and benefited from new drama
deliveries including Unforgotten, Little Boy Blue, The Loch and
Fearless along with new and returning entertainment programmes The
Voice, The Voice Kids, Saturday Night Takeaway and Love Island.
Off-ITV revenue declined by 13% driven by the timing of deliveries
along with non-returning programmes such as Friday Night Dinner and
Raised By Wolves. This was offset by new and returning deliveries
including Poldark and Second Chance Summer for the BBC, Blind Date
for Channel 5 and Bliss for Sky. For the full year we expect
off.
ITV revenue to be up year on year with new programmes for the
second half including Living The Dream for Sky, The City & The
City and Ordeal of Innocence for the BBC and Back for Channel
4.
ITV America's total revenue increased 49% to GBP143 million
(2016: GBP96 million) with organic revenue, excluding foreign
exchange, up 31%. This increase was driven by new and returning
formats such as Big Star's Little Star, Sideserf, World Hip Hop
Star, Car Spotters, American Grit, Alone, Forged In Fire and First
48 along with new scripted commission Sun Records and the third
series of Good Witch. The second half of 2017 will see the delivery
of two series of the successful entertainment format Hell's Kitchen
USA, new scripted commissions Somewhere Between for ABC and a pilot
of Snowpiercer for TNT along with unscripted commission Queer Eye
for the Straight Guy for Netflix. We have a number of scripted
titles in development which include Highland for TNT and both
scripted and unscripted programmes for Netflix, Amazon and
Facebook.
Studios RoW total revenue was down 14% to GBP159 million (2016:
GBP184 million), with organic revenue, excluding foreign exchange,
down 26%.
The decline was primarily driven by Talpa Media as explained
earlier. We saw good growth from producing Studios UK and Talpa
Media formats across our RoW territories. First half deliveries
included The Voice in Australia, The Chase in Australia and Germany
and Bagges Hundar in Sweden which is based on the UK format For The
Love of Dogs. We have a strong pipeline of new and returning
formats in the second half, which includes The Voice and The Voice
Kids, This Time Next Year, Love Island, 5 Gold Rings and Big Star's
Little Star.
Global Entertainment revenue increased 13% in the period to
GBP89 million (2016: GBP79 million), with revenue excluding foreign
exchange up 4%. As we continue to grow our portfolio of programmes
and formats to distribute internationally, first half revenue was
supported by our strong programme slate including Poldark, Good
Witch, Harlots, Fearless and Prime Suspect 1973. We have around 15
scripted programmes and five entertainment and factual
entertainment formats sold to more than 100 countries. So far in
2017 we have sold 44 different formats internationally, nine of
which are being produced by ourselves or other producers in three
or more countries. We have also increased distribution of our
content to OTT providers including Amazon, Netflix and Hulu in the
UK and internationally.
Overall, ITV Studios adjusted EBITA decreased 9% to GBP110
million (2016: GBP121 million) with the adjusted EBITA margin
reducing to 16% (2016: 19%). This is a result of the ongoing
investment we are making in our US scripted creative business and
the fact that the prior year includes the full benefit of the four
year license deal for The Voice of China.
Acquisitions
In the first half of the year we have again strengthened our
drama and formats business. In February 2017, we acquired a
majority stake in Tetra Media Studio, the French television
production group behind leading dramas including crime series
Profilage and Les Hommes de l'Ombre. In April we acquired a 45%
stake in Blumhouse Television, established by Jason Blum, the
renowned film and television producer. In April we also acquired a
majority stake in World Productions, the company behind Line of
Duty. In June we acquired a majority stake in Elk Production, a
Swedish entertainment production company.
EPS
Adjusted profit before tax, after the adjustments to add back
amortisation and impairment and net financing costs, was GBP381
million (2016: GBP425 million).
Statutory EPS is adjusted to reflect the underlying performance
of the business, providing a more meaningful comparison of how the
business is managed and measured on a day-to-day basis. The table
below reconciles our statutory to adjusted results. Adjustments
include: all exceptional items, primarily acquisition-related costs
such as employment linked consideration and professional fees for
due diligence; amortisation and impairment of assets acquired
through business combinations; net financing cost adjustments; and
tax adjustments relating to these items.
Amortisation of intangible assets that are required to run our
business, including software licenses, is not adjusted for. The
total adjusted tax charge for the first half was GBP71 million
(2016: GBP85 million), corresponding to an effective tax rate on
adjusted PBT of 19% (2016: 20%) which is broadly in line with the
standard UK corporation tax rate of 19.25% (2016: 20%). We expect
this effective tax rate to be sustainable in the medium term.
Adjusted basic EPS was 7.7p (2016: 8.5p), down 9%.
Statutory EPS declined by 16% to 5.1p (2016: 6.1p) primarily due
to higher amortisation and impairment of acquired assets.
Six months to 30 June - on a continuing Statutory Adjustments Adjusted
basis GBPm GBPm GBPm
---------------------------------------- --------- ------------------ ----------
EBITA 395 8 403
---------------------------------------- --------- ------------------ ----------
Exceptional items (operating) (53) 53 -
---------------------------------------- --------- ------------------ ----------
Amortisation and impairment (58) 55 (3)
---------------------------------------- --------- ------------------ ----------
Operating profit 284 116 400
---------------------------------------- --------- ------------------ ----------
Net financing costs (23) 6 (17)
---------------------------------------- --------- ------------------ ----------
Share of losses and impairment
on JV's and Associates (2) - (2)
---------------------------------------- --------- ------------------ ----------
Profit before tax 259 122 381
---------------------------------------- --------- ------------------ ----------
Tax (53) (18) (71)
---------------------------------------- --------- ------------------ ----------
Profit after tax 206 104 310
---------------------------------------- --------- ------------------ ----------
Non-controlling interests (3) - (3)
---------------------------------------- --------- ------------------ ----------
Earnings 203 104 307
---------------------------------------- --------- ------------------ ----------
Shares (million), weighted average 4,010 4,010
---------------------------------------- --------- ------------------ ----------
EPS 5.1p 7.7p
---------------------------------------- --------- ------------------ ----------
Balance Sheet and Cash Flow
One of ITV's strengths is its strong cashflows reflecting its
continued tight management of working capital balances and our
disciplined approach to cash and costs. In the year we generated
GBP292 million (2016: GBP377 million) of adjusted operational cash
from GBP403 million (2016: GBP438 million) of adjusted EBITA, which
equates to a strong profit to cash ratio of 91% (2016: 86%) on a
12-month rolling basis. In the period we saw an increase in working
capital relating to a build-up of programme stock, such as
Victoria, Cold Feet, Next of Kin and Living the Dream which will
reverse in the second half when they are delivered.
After payments for interest, tax and pension funding, our net
cashflow was GBP151 million (2016: GBP269 million). Overall, after
dividends (ordinary and special), acquisitions and acquisition
related costs and pension deficit contributions, we ended the first
half with net debt of GBP1,074 million, compared to net debt of
GBP637 million at 31 December 2016 and net debt of GBP796 million
at 30 June 2016. Our net cash generation is weighted towards the
second half of 2017 due to the payment of the special dividend,
payment of the Talpa earnout and content acquisitions, which were
all paid in the first half of 2017.
We are financed using debt instruments and facilities with a
range of maturities. Our balance sheet strength, together with our
healthy free cash flow, enables us to continue to invest in
opportunities to grow the business and make returns to our
shareholders. We currently have two bonds - a EUR600 million
Eurobond which matures in 2022 and a EUR500 million Eurobond which
matures in 2023, having repaid the GBP161 million Eurobond as it
matured on 5th January 2017.
We have a number of facilities in place to preserve our
financial flexibility. We have a GBP630 million Revolving Credit
Facility (RCF) in place until 2021 (with the option to extend to
2023). We also have a bilateral financing facility of GBP300
million, which is free of financial covenants and matures in 2021.
This provides us with sufficient liquidity to meet the requirements
of the business in the short to medium term. The RCF has the usual
financial covenants for this type of financing. Of the total GBP930
million of facilities in place, GBP240 million was drawn down at 30
June 2017. Our policy is to maintain at least GBP250 million of
available liquidity at any point.
We believe maintaining leverage below 1.5x net debt to adjusted
EBITDA will optimise our cost of capital and maintain our
investment grade credit. At 30 June 2017, net debt to adjusted
EBITDA on a 12-month rolling basis was 1.2x (31 December 2016: 0.7x
and 30 June 2016: 0.9x).
Our objective is to run an efficient balance sheet. Our priority
is to invest to drive organic growth and make acquisitions in line
with our strategic priorities. We will balance this investment with
attractive returns to shareholders where we have surplus
capital.
Dividend per share
The Board has declared an interim dividend of 2.52p, an increase
of 5%, reflecting our confidence in the underlying strength of the
business. The full year dividend will be set in line with the
Board's commitment to a long-term sustainable dividend policy and
for ordinary dividends to grow broadly in line with earnings,
targeting dividend cover of around 2x adjusted earnings per share
over the medium term.
Pension
The net pension deficit for the defined benefit schemes at 30
June 2017 was GBP343 million (31 December 2016: GBP328 million).
The increase reflects a rise in pension liabilities following a
decrease in corporate bond yields partly offset by a decrease in
market expectations of long-term inflation. The overall increase in
liabilities, and a small decrease in asset values, has more than
offset the deficit funding contribution. The net pension deficit
includes GBP39 million of gilts which are held by the Group as
security for future unfunded pension payments of four former
Granada executives, the liabilities of which are included in our
pension obligations.
The last actuarial valuation was undertaken in 2014. On the
basis adopted by the Trustee, the combined deficits as at 1 January
2014 amounted to GBP540 million and is estimated to be at a broadly
similar level today. The Trustee is in the process of undertaking a
full actuarial valuation of all sections of the Scheme as at 1
January 2017 which we expect to agree in late 2017 or early 2018.
ITV currently makes annual deficit funding contributions of GBP80
million with the payments made evenly throughout the year.
2017 full year planning assumptions
-- Total network programme budget is expected to be around
GBP1,025 million as a result of no major sports tournament in
2017
-- We are on track to deliver GBP25 million of overhead cost savings across the business
-- Total investments of around GBP25 million, GBP15 million in
profit and GBP10 million in JVs including BritBox US and US
scripted
-- Adjusted interest is expected to be around GBP40 million,
reflecting the new EUR500 million Eurobond
-- The adjusted effective tax rate is expected to be around 19%,
sustainable over the medium term
-- Around GBP50m of regular capex across the group and in
addition there will be further capex relating to ITV's move out of
the South Bank site, currently estimated to be around GBP30
million
-- Profit to cash is expected to be 85-90%, reflecting our
continued strong cash generation and investment in scripted
content
-- Total pension deficit funding is expected to be GBP80 million, unchanged
-- The translation impact of foreign exchange, assuming rates
remain at current levels, could benefit revenues by around GBP50
million and profit by around GBP10 million in the year
-- Exceptional items are expected to be around GBP110 million in
2017, again as a result of the treatment of employment linked
consideration for our acquisitions which is included within
statutory EPS, but excluded from adjusted EPS as in our view it is
part of capital consideration. The cash cost of exceptional items
will be around GBP150 million, which is primarily around GBP130
million of acquisition related contingent consideration. The above
guidance includes some exceptional costs relating to ITV's planned
move out of the South Bank building.
Outlook
While the economic outlook remains uncertain, ITV is now a much
more balanced and resilient business and our guidance for the full
year remains unchanged.
ITV Studios has a strong pipeline of new and returning drama and
entertainment and we are confident that it will deliver good
organic growth over the full year. We have already secured over 85%
of expected full year revenues, over GBP100 million more than this
time last year. ITV Studios adjusted EBITA will be broadly in line
with last year, impacted by ongoing investment in our US scripted
business and the fact that the prior year includes the full benefit
of the four year license deal for The Voice of China.
ITV NAR is expected to be down around 4% in Q3 impacted by wider
economic uncertainty. Over the full year we again expect to
outperform the television advertising market and Online, Pay &
Interactive will deliver further good growth driven by a strong
performance in Online and Pay.
As previously announced we will deliver GBP25 million of
overhead savings and a GBP25 million reduction in the programme
budget over the full year due to the absence of a major sports
tournament. We have a strong slate of new and returning programmes
for the remainder of the year and into next year including
Victoria, Cold Feet, Liar, Next of Kin, Bad Move, Cannonball, I'm A
Celebrity...Get Me Out Of Here!, X Factor and ITV's horse
racing.
We see clear opportunities to continue to invest in growing an
even stronger and more resilient business. Our strong balance sheet
and healthy cashflows allows us to do so while delivering
sustainable returns to our shareholders.
Notes to editors
1. Unless otherwise stated, all financial figures refer to the 6
month period ended 30 June 2017, with growth compared to the same
period in 2016.
2. Group external revenue
2017 2016 Change Change
Six months to 30 June GBPm GBPm GBPm %
----------------------- ----- ----- --------------------- ------
ITV Family NAR 769 838 (69) (8)
----------------------- ----- ----- --------------------- ------
Non-NAR revenue 928 874 54 6
----------------------- ----- ----- --------------------- ------
Internal Supply (239) (209) 30 14
----------------------- ----- ----- --------------------- ------
Group external revenue 1,458 1,503 (45) (3)
----------------------- ----- ----- --------------------- ------
3. ITV Family NAR was down 8% in H1 as expected, with May down
7% and June down 18%. ITV Family NAR is forecast to be down around
4% in Q3 with July down 5%, August down 4%, September flat to down
5% and the 9 months to the end of September down around 7%. These
revenues are pure NAR, excluding the benefit of sponsorship, online
revenue and self-promotion. Figures for ITV plc and TV market NAR
are based on ITV estimates and current forecasts. For the full year
we again expect to outperform our estimate of the TV advertising
market.
4. Broadcast & Online performance indicators
Broadcast & Online performance Change
indicators 2017 2016 %
------------------------------------ ----- ----- ------
ITV Family SOV - weeks 1 to 26 21.6% 21.7% -
------------------------------------ ----- ----- ------
ITV SOV - weeks 1 to 26 15.5% 15.7% (1)
------------------------------------ ----- ----- ------
ITV Family SOCI - weeks 1 to 26 34.5% 34.6% -
------------------------------------ ----- ----- ------
ITV SOCI - weeks 1 to 26 24.3% 24.4% -
------------------------------------ ----- ----- ------
ITV adult impacts - weeks 1 to
26 106bn 108bn (2)
------------------------------------ ----- ----- ------
Long form online viewing - 6 months
to 30 June (hrs) 151m 113m 34
------------------------------------ ----- ----- ------
Total long form video requests
(all platforms) - 6 months to 30
June 665m 506m 31
------------------------------------ ----- ----- ------
SOV data based on BARB/Advantage data and Share of Commercial
Impacts (SOCI) data based on BARB/DDS data. SOV data is for
individuals and SOCI data is for adults. ITV Family includes: ITV,
ITV2, ITV3, ITV4, ITV Encore, ITVBe, CITV, ITV Breakfast, CITV
Breakfast and associated "HD" and "+1" channels. Total long form
video requests is measured across all platforms, based on data from
comScore Digital Analytix, Virgin, BT, iTunes, Amazon Video,
Netflix and Sky and include simulcast. Long form online viewing is
the total number of hours ITV VOD content is viewed on ad funded
platforms, based on data from comScore Digital Analytix. % change
for performance indicators is calculated on unrounded figures.
5. The 2017 interim dividend will be paid on 27 November 2017.
The ex-dividend date is 26 October 2017 and the record date is 27
October 2017.
6. This announcement contains certain statements that are or may
be forward looking with respect to the financial condition, results
or operations and business of ITV. By their nature forward looking
statements involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future.
There are a number of factors that could cause actual results and
developments to differ materially from those expressed or implied
by such forward looking statements. These factors include, but are
not limited to (i) a major deterioration in the current outlook for
UK advertising and consumer demand, (ii) significant change in
regulation or legislation, (iii) failure to identify and obtain, or
significant loss of, optimal programme rights, (iv) the loss or
failure of transmission facilities or core systems and (v) a
significant change in demand for global content.
Undue reliance should not be placed on forward looking
statements which speak only as of the date of this document. The
Group accepts no obligation to revise publicly or update these
forward looking statements or adjust them to future events or
developments, whether as a result of new information, future events
or otherwise, except to the extent legally required.
For further enquiries please contact:
Investor Relations Media Relations
Pippa Foulds +44 20 7157 6555 or +44 7778 031097 Mary Fagan +44
20 7157 3965 or +44 7736 786448
Faye Dipnarine +44 20 7157 6581 Mike Large +44 20 7157 3021 or
+44 7768 261528
Strategy and Operations
ITV's performance in the first six months of the year is very
much as we anticipated as we continue to strengthen the business
creatively, commercially and financially and our guidance for the
full year remains unchanged.
We measure performance through a range of metrics, most
particularly through our alternative performance measures and KPIs,
as well as statutory results, all of which are set out in more
detail later in the report.
Total external revenue was down 3% to GBP1,458 million (2016:
GBP1,503 million) in the first half, with the decline in net
advertising revenue (NAR) partly offset by continued good growth in
non-advertising revenues, a clear indication that our strategy of
rebalancing the business is working. Total revenue from sources
other than traditional spot advertising (non-NAR) were up 6% and
55% of total group revenues came from sources other than
traditional spot advertising. Adjusted EBITA declined 8% to GBP403
million (2016: GBP438 million) and adjusted EPS declined 9% to 7.7p
(2016: 8.5p) impacted by the 8% decline in NAR, the ongoing
investment across the business and the timing of programme
deliveries in ITV Studios, in particular the fact that the prior
year includes the full benefit of the four year license deal for
The Voice of China.
Statutory profit before tax declined by 16% to GBP259 million
(2016: GBP309 million) and statutory EPS declined by 16% to 5.1p
(2016: 6.1p) primarily due to higher amortisation and impairment of
acquired assets which is explained in more detail in the Financial
and Performance Review.
Our international production business, ITV Studios, is now a
global player of scale and total ITV Studios revenues grew 7% to
GBP697 million (2016:
GBP651 million) including currency benefit. We have a strong
creative pipeline of high quality programmes, particularly drama
and entertainment, and we continue to perform well across the key
genres that return and travel.
The Broadcast & Online business remains robust and continues
to generate strong cashflows despite the decline in NAR caused by
ongoing economic and political uncertainty. We performed well
on-screen with share of viewing (SOV) flat across the ITV Family.
Our overall viewing was strong across the key target demographics
and we continued to deliver unrivalled audience reach for our
advertisers. High margin Online, Pay & Interactive revenue was
up 5% to GBP112 million (2016: GBP107 million) with double digit
growth across Online and Pay revenues. Online viewing was again up
strongly at 34%.
We continue to deliver on our strategy to diversify the business
and grow new revenue streams, further reducing our reliance on UK
spot advertising and making ITV a stronger and more resilient
business. In doing this we remain focused on our three key
priorities:
1. Maximise audience and revenue share from free-to-air
broadcast and VOD business
2. Grow an international content business
3. Build a global pay and distribution business
We have a strong balance sheet and our profit to cash conversion
on a 12-month rolling basis remains high at 91%. At 30 June 2017 we
had net debt of GBP1,074 million (31 December 2016: net debt of
GBP637 million) and net debt to adjusted EBITDA on a 12-month
rolling basis was 1.2x. Our net cash generation is weighted towards
the second half of 2017 due to the payment in the first half of the
special dividend, the first Talpa earnout and content acquisitions.
We see clear opportunities to continue to invest both organically
and through acquisitions and because of our strong financial
position we can continue to invest in the business and deliver
increasing returns to our shareholders.
The Board has declared an interim dividend of 2.52p, an increase
of 5%, reflecting our confidence in the underlying strength of the
business. The full year dividend will be set in line with the
Board's commitment to a long-term sustainable dividend policy and
for ordinary dividends to grow broadly in line with earnings,
targeting dividend cover of around 2x adjusted earnings per share
over the medium term.
Maximise audience and revenue share from free-to-air broadcast
and VOD business
The media environment in which we operate is constantly changing
and our Broadcast business remains strong and is evolving to take
advantage of the significant opportunities for growth. ITV through
its free-to-air channels offers unique audience scale and reach as
well as the key demographics demanded by advertisers. The ITV Hub,
the digital home for all our channels and content, is growing
rapidly, driven by the viewers' appetite for Video on Demand (VOD)
and the quality of our content.
Broadcast & Online revenue was down 6% in the first half at
GBP1,000 million (2016: GBP1,061 million). The 5% growth in Online,
Pay & Interactive revenue to GBP112 million (2016: GBP107
million) was offset by the 8% decline in NAR caused by the
continued economic and political uncertainty. Broadcast &
Online EBITA was down 8% at GBP293 million (2016: GBP317
million).
Strengthened ITV's on-screen and online performance
On-screen we performed well. To the end of May our ITV Family
SOV grew, although we ended the first half flat as June last year
included the benefit of the Euros. We broadcast the most watched
drama with Broadchurch, the most watched entertainment programme
with Britain's Got Talent and the most watched Soap with Coronation
Street. Our daytime schedule including programmes such as Good
Morning Britain and This Morning, have grown their audiences and
Coronation Street and Emmerdale, continue to perform well and are
now the UK's two largest soaps. We have successfully aired a range
of new dramas including Good Karma Hospital, Fearless, The Loch and
Little Boy Blue, new entertainment shows The Voice, The Voice Kids,
Keith and Paddy Picture Show and 5 Gold Rings and we continue to
drive significant audiences with our returning brands such as Vera,
Unforgotten, Ant & Dec's Saturday Night Takeaway, Britain's Got
Talent and The Chase. Our sporting schedule has performed strongly
with the Six Nations Rugby Championships and the launch of horse
racing on ITV.
We continue to target the key demographics through our digital
channels and online and have seen a very significant increase in
our target demographics on ITV2 and ITV4. 16 to 34 share of
commercial impacts (SOCI) on ITV2 was up 15% over the first 26
weeks helped by the phenomenal success of Love Island and male SOCI
on ITV4 was up 5% helped by ITV's horse racing coverage, The French
Open and the Isle of Man TT Races. ITV3 has not performed as well
as we had hoped, impacted by the allocation of some of our
programming exclusively to ITV Encore.
The ITV Hub
The ITV Hub continues to grow rapidly driven by viewing on
connected televisions with long form video requests up 31% and
online viewing consumption, which measures how long viewers are
spending online, up 34%. It is available on 28 platforms, has 20
million registered users and the app has been downloaded over 25
million times.
The ITV Hub helps ITV reach valuable younger audiences with 75%
of the UK's 16-24 year olds and 65% of the UK's 16-34 year olds
registered. Younger audiences increasingly use it for simulcast
viewing as well as catch up, with programmes such as Love Island
delivering record viewing.
We are using the insight we gain from our registered users to
develop more targeted advertising solutions and to increasingly
drive viewing through personalisation and have recently launched
personalised home pages for our viewers on the ITV Hub.
ITV's strong advertising proposition driven by our unique
offering
While political and economic uncertainty has led advertisers to
reduce their current spend on television advertising, television
remains one of the most efficient and effective advertising medium
for advertisers to achieve mass simultaneous reach.
As viewing and advertising becomes more fragmented, the scale of
advertising that television, and particularly ITV, delivers becomes
increasingly valuable. In the first half ITV delivered 100% of all
commercial audiences over five million and 98% of all commercial
audiences over three million. SOV provides an overall measure of
viewing performance, but because advertisers are buying scale and
breadth of audience, SOV is not necessarily a direct indicator of
advertising performance.
Television provides a trusted, measured and transparent
environment in which to advertise and Thinkbox estimates that the
cost of advertising is 40% cheaper in real terms than it was 10
years ago.
We continue to maximise the value of our airtime and drive new
revenue streams through sponsorship, interactivity and branded
content. Utilising our strong brand and reputation, unique
commercial relationships and high quality production capability we
delivered a variety of marketing solutions for advertisers such as
William Hill around ITV horse racing and Suzuki with Saturday Night
Takeaway.
Remain responsive to a changing media environment
Traditional linear television viewing remains resilient despite
significant changes in the market and in the availability and
delivery of content. On average viewers watched 212 minutes of
television a day in 2016, which is a similar level to 2015 of 216
minutes. The majority of viewing remains live at just under 80% as
television continues to have the power to bring audiences together.
VOD viewing continues to grow rapidly while PVR viewing has
remained relatively constant over the last few years at around 12%.
Younger people are watching less linear television than they used
to but through delivering great content such as Britain's Got
Talent, Saturday Night Take Away and Love Island, television
reaches 90% of young people each week and remains their dominant
choice of media.
Developing ITV's digital broadcast assets
We are further developing our social media assets across our
international portfolio of programmes as live television continues
to demonstrate a growing relevance as viewers increasingly connect
through social media. We now have around 160 YouTube branded
channels and we expect to have around 30 programme apps across the
year which together with the quality of our content is driving
significant growth in viewer engagement.
Grow an international content business
Growing a scaled international content business is central to
ITV as an integrated producer broadcaster. As ITV creates and owns
more content, our channels provide a platform to showcase our
programmes before distributing them across multiple platforms in
the UK and internationally.
Growing demand for global content
The strong global demand for content from broadcasters and
platform owners provides a significant opportunity for ITV Studios.
To capitalise on this growth, we continue to develop, own and
manage content rights in genres that return and travel
internationally, namely drama, entertainment and factual
entertainment and we have built a healthy pipeline of new and
returning programmes.
International producer of scale
In the first half, total revenue grew 7% to GBP697 million
(2016: GBP651 million) including currency benefit. Total organic
revenue which excludes our current year acquisitions and foreign
exchange was flat. As we expected adjusted EBITA was impacted by
our ongoing investment in US drama and the fact that the prior year
includes the full benefit of the four year license deal for The
Voice of China and was down 9% at GBP110 million (2016: GBP121
million). In the first half Studios UK, ITV America and Global
Entertainment all delivered good organic revenue and profit
growth.
Over the full year we are on track to deliver good organic
revenue growth and we have already secured 85% of expected full
year revenues, over
GBP100 million more than this time last year. Adjusted EBITA
over the full year will be broadly flat on prior year impacted by
continued investment and the timing of programme deliveries.
ITV Studios is becoming an increasingly scaled and international
business with 52% of our revenue coming from outside the UK: we are
the number one commercial producer in the UK and a leading producer
in Europe and the US.
Building scale in creative markets
ITV Studios has three production divisions - Studios UK, ITV
America and Studios Rest of World (RoW).
The US and UK are the dominant creative markets, with the US the
largest exporter of scripted content and the UK the world leader in
exported formats. Over the last few years we have built scale in
these key markets, organically and through acquisitions and now
have a significant portfolio of successful series and formats that
travel.
Studios UK has performed well in the first half with revenue up
5% at GBP306 million (2016: GBP292 million). We continue to grow
our sales to ITV which were up 13% with programmes such as The
Voice, The Voice Kids, The Loch, Fearless, Little Boy Blue and
Unforgotten. Our off-ITV revenues were down 13% in the first half
driven by the timing of deliveries and some programmes not
returning. Deliveries in the first half included Poldark for BBC,
Blind Date for Channel 5 and Bliss for Sky. We expect off-ITV
revenues to be up over the full year with new programmes such as
City And The City for BBC, Living The Dream for Sky and Back for
Channel 4 all delivering in the second half. We have strengthened
our UK drama business with the acquisition in May of a majority
stake in World Productions, the producer of Line of Duty.
ITV America grew revenue by 49% to GBP143 million (2016: GBP96
million). We have delivered two US dramas - the third series of
Good Witch and Sun Records - and we have delivered a high volume of
programmes from our portfolio of unscripted series including Pawn
Stars, Cake Boss, Alone, Killing Fields, First 48 and Fixer Upper
and new commissions including Sideserf, World Hip Hop Star and Big
Star's Little Star .
Studios RoW has seen a decline in revenue of 14% to GBP159
million (2016: GBP184 million) as a result of the fact that the
prior year includes the full benefit of the four year license deal
for The Voice of China which has more than offset the good growth
we have seen across our other production territories.We have
production bases in Australia, Germany, France, the Netherlands and
the Nordics where we produce original content as well local
versions of ITV Studios UK and Talpa Media formats. Across these
territories our first half deliveries included The Voice in
Australia, The Chase in Australia and Germany and Bagges Hundar in
Sweden. Talpa continues to develop new formats including A Whole
New Beginning and Around The World With 80 Year Olds.
We have also strengthened our international business with a
number of small acquisitions. In February we acquired a majority
stake in Tetra Media Studio, a French scripted production company,
in April we acquired a 45% stake in Blumhouse Television which
finances and produces original scripted and unscripted 'dark' genre
programming for global audiences, in May we entered into a joint
venture with the US talent agent and production company, Circle of
Confusion and in June we acquired Elk, a Swedish entertainment
production company.
Investing in content with international appeal
To continue growing internationally we must keep expanding our
portfolio of successful series and formats that return and can be
distributed globally. We have a strong mix of programmes across
genres and also across their content life cycle which balances our
risk and financial exposure.
Demand for drama is growing strongly, as standout original
content becomes brand defining for both broadcasters and OTT
players. To capitalise on this we are investing in our global
scripted business, particularly in the US, to build on the success
of our UK drama business. In 2017 we have five drama commissions in
the US - Sun Records for CMT, Good Witch for Hallmark, Somewhere
Between for ABC, and two pilots for TNT - Snowpiercer and
Highland.
With the acquisition of Talpa Media, we have significantly
strengthened our global capability in entertainment and formats.
Across the business we have grown a solid portfolio of high volume
and high margin formats that travel internationally and which we
produce in many production bases. These include The Voice, The
Voice Kids, Love Island, Pawn Stars, Come Dine With Me, Hell's
Kitchen, Four Weddings, Big Star's Little Star, The Chase, This
Time Next Year and I'm A Celebrity...Get Me Out Of Here!.
Investing in our digital capabilities
Through building our digital assets and content we are
increasingly able to engage with younger audiences.
While demand from traditional broadcasters continues to be
strong we are also seeing increasing demand from OTT platforms for
original long-form content, secondary rights and short form
content. As well as distributing library content to OTT platforms
through Global Entertainment, we are also producing and jointly
commissioning a number of scripted and unscripted programmes such
as Vanity Fair with Amazon and Robozuna and Queer Eye For A
Straight Guy for Netflix. We currently have over 200 programme
supply agreements in place with online platforms including Netflix,
Amazon and Hulu.
Build a global pay and distribution business
The environment in which we operate is constantly evolving and
we are seeing significant changes in digital media and consumer
behaviour. ITV, as a creator, owner and distributor of sought after
content, is well positioned to take advantage of the opportunities
that arise from these changes as we seek to further monetise our
content. We continue to explore and trial new ways, both free and
pay, to distribute content to broadcasters and platform owners as
well as directly to consumers.
Building our pay offering in the UK and internationally
As we look to build our pay offerings we are developing a range
of subscription video on demand (SVOD) services to target direct to
consumer pay revenues. We have launched our joint venture with the
BBC, BritBox US, an ad-free SVOD service offering the most
comprehensive collection of British content in the US.
Over the last few years we have also established a number of
smaller pay propositions. We own a controlling stake in Cirkus, a
best of British SVOD service in Sweden, Norway, Finland, Iceland
and recently launched in Germany. We have also set up ITV
Essentials, an online service for expats available in 13 countries
and ITV Choice, a general entertainment channel for emerging
markets available in over 100 countries.
We are continuing to develop the ITV Hub+, our ad-free
subscription version of the ITV Hub. We have rolled it out onto
more platforms, including most recently Amazon and we have added
new functionality, such as download on iOS devices for offline
viewing.
Looking ahead it is our intention to roll out our best of
British SVOD services internationally through BritBox and our other
SVOD services.
Further developing our pay revenues
ITV's pay revenues continue to grow well through licensing our
channels and content across multiple platforms.
In the UK our pay business includes deals with Sky and Virgin
Media for our HD digital channels and catch-up VOD, ITV Encore for
Sky and a deal with Sky to make our content available through its
connected platforms.
Expanding our global distribution network
Global Entertainment, the distribution arm within ITV Studios,
delivered revenue growth of 13% to GBP89 million (2016: GBP79
million) as we continue to drive value from our investment in
creating and owning rights to quality content with international
appeal.
We are using our strong cash flows not only to fund and create
new content from ITV Studios, but also to invest in third-party
producers and their content from all over the world.
Our content continues to sell well internationally to
Broadcasters and OTT platforms and in particular, our scripted
programmes with titles including Victoria, Poldark, Vera, Good
Witch, The Murdoch Mysteries, Schitts Creek, Fearless and Harlots.
Around 15 of our scripted programmes have been sold to more than
100 countries. Our entertainment and factual entertainment formats
are highly demanded and includes programmes such as Come Dine With
Me, The Voice, Hell's Kitchen, Four Weddings, Big Star's Little
Star, This Time Next Year, The Job Interview and The Chase, with
five of these programmes selling to more than 100 countries. So far
in 2017 we have sold 44 different formats internationally, nine of
which are being produced by ourselves or other producers in three
or more countries.
Retransmission fees
As a result of the Digital Economy Bill which received Royal
Assent in April, s73 will be repealed with effect from 31 July,
which paves the way for the introduction of retransmission
fees.
Outlook for 2017 and beyond
Looking ahead our guidance for the full year remains
unchanged.
ITV Studios has a strong pipeline of new and returning drama and
entertainment and we are confident that it will deliver good
organic growth over the full year. We have already secured over 85%
of expected full year revenues, over GBP100 million more than this
time last year. ITV Studios adjusted EBITA will be broadly in line
with last year, impacted by ongoing investment in our US scripted
business and the timing of programme deliveries, in particular the
fact that the prior year includes the full benefit of the four year
license deal for The Voice of China.
ITV NAR is expected to be down around 4% in Q3 impacted by wider
economic uncertainty. Over the full year we again expect to
outperform the television advertising market and Online, Pay &
Interactive will deliver further good growth driven by a strong
performance in Online and Pay.
As previously announced we will deliver GBP25 million of
overhead savings and a GBP25 million reduction in the programme
budget over the full year due to the absence of a major sports
tournament. We have a strong slate of new and returning programmes
for the remainder of the year including Victoria, Cold Feet, Liar,
Next of Kin, Bad Move, Cannonball, I'm A Celebrity...Get Me Out Of
Here!, X Factor and ITV horse racing.
We see clear opportunities to continue to invest in growing an
even stronger and more resilient business. Our strong balance sheet
and healthy cashflows allows us to do so while delivering
sustainable returns to our shareholders. The Board is committed to
a long-term sustainable dividend policy and for ordinary dividends
to grow broadly in line with earnings, targeting dividend cover of
around 2x adjusted earnings per share over the medium term.
Following Adam Crozier's departure at the end of June, Carolyn
McCall will be joining ITV as Chief Executive on 8 January
2018.
Alternative Performance Measures
The Interim Report includes both statutory and adjusted
measures, the latter of which, in management's view, reflects the
underlying performance of the business and provides a more
meaningful comparison of how the business is managed and measured
on a day-to-day basis.
Our APMs and KPIs are aligned to our strategy and together are
used to measure the performance of our business and form the basis
of the performance measures for remuneration.
Adjusted results exclude certain items because if included,
these items could distort the understanding of our performance for
the year and the comparability between periods.
Key adjustments for Adjusted EBITA, profit before tax and
EPS
Adjusted EBITA is calculated by adding back exceptional items
and high end production tax credits to EBITA. Further adjustments,
which include amortisation and impairment of assets and net
financing costs, are made to remove their effect from adjusted
profit before tax and EPS. The tax effects of all these adjustments
are reflected in the adjusted tax charge. These adjustments are
detailed below.
Production tax credits
The ability to access tax credits, which are rebates based on
production spend, is fundamental to our Studios business when
assessing the viability of investment in green-lighting decisions,
especially with regards to high-end drama. ITV reports tax credits
generated in the US and other countries (e.g. Ireland, Hungary,
Canada and South Africa) within cost of sales, whereas in the UK
tax credits for high-end drama must be classified as a corporation
tax item. However, in our view all tax credits relate directly to
the production of programmes. Therefore to align treatment,
regardless of production location, and to reflect the way the
business is managed and measured on a day-to-day basis, these are
recognised in adjusted EBITA.
Exceptional Items
This includes acquisition related costs (further detail below),
reorganisation and restructuring costs, property costs and
non-recurring legal costs. These items are excluded to reflect
performance in a consistent manner and are in line with how the
business is managed and measured on a day-to-day basis. They are
typically gains or losses arising from events that are not
considered part of the core operations of the business or are
considered to be one-off in nature. We also adjust for the tax
effect of these items.
Acquisition related costs
We structure our acquisitions with earnouts or put and call
options, to allow part of the consideration to be based on the
future performance of the business as well as to lock in creative
talent. Where consideration paid or contingent consideration
payable in the future is employment linked, it is treated as an
expense (under accounting rules) and therefore part of our
statutory results. However, we exclude all consideration of this
type from adjusted EBITA after tax and adjusted EPS as, in our
view, these items are part of the capital transaction. The
Financial and Performance Review explains this further.
Restructuring and reorganisation costs
These arise from Group-wide initiatives to reduce the ongoing
cost base and improve efficiency in the business. They are
non-recurring costs and because of their size and nature, are
excluded from our adjusted measures.
Property costs
In 2018 ITV will relocate to a new property, Waterhouse Square
in London, on a temporary basis while its South Bank site is
redeveloped. Waterhouse Square is currently being refurbished and
ITV is incurring rent when the property is vacant. These
incremental one-off project costs are not in the normal course of
business and are therefore excluded from our adjusted measures.
Amortisation and impairment
Amortisation and impairment of assets acquired through business
combinations and investments is not included within adjusted
earnings. As these costs are acquisition-related, and in line with
our treatment of other acquisition-related costs, we consider them
to be capital in nature and they do not reflect the underlying
trading performance of the Group. Amortisation of software licences
and development is included within our adjusted results as
management consider these assets to be core to supporting the
operations of the business.
Net financing costs
Net financing costs are adjusted to reflect the underlying cash
cost of interest for the business, providing a more meaningful
comparison of how the business is managed and funded on a
day-to-day basis. The adjustments made remove the impact of
mark-to-market on swaps and foreign exchange, imputed pension
interest and other financial gains and losses, which do not reflect
the relevant interest cash cost to the business.
A full reconciliation between our adjusted and statutory results
is provided below.
Reconciliation between statutory and adjusted results
2017 2017 2017 2016 2016 2016
Six months to 30 June - on Statutory Adjustments Adjusted Statutory Adjustments Adjusted
a continuing basis GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
EBITA(1) 395 8 403 424 14 438
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Exceptional items (operating)(2) (53) 53 - (54) 54 -
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Amortisation and impairment(3) (58) 55 (3) (40) 37 (3)
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Operating profit 284 116 400 330 105 435
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Net financing costs(4) (23) 6 (17) (21) 11 (10)
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Share of losses and impairment
on JV's and Associates (2) - (2) - - -
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Profit before tax 259 122 381 309 116 425
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Tax(5) (53) (18) (71) (63) (22) (85)
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Profit after tax 206 104 310 246 94 340
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Non-controlling interests (3) - (3) - - -
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Loss from discontinuing operations
(net of tax) - - - (3) 3 -
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Earnings 203 104 307 243 97 340
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
Shares (million), weighted
average 4,010 4,010 4,011 4,011
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
EPS (p) 5.1p 7.7p 6.1p 8.5p
----------------------------------- ---------- ------------ --------- ---------- ------------ ---------
1. GBP8 million adjustment relates to production tax credits
which we consider to be a contribution to production costs and
working capital in nature rather than a corporate tax item.
2. GBP53 million adjustment to operating exceptional items
relates to GBP50 million of acquisition costs, primarily employment
linked consideration, as well as GBP3 million of restructuring
costs and property project costs.
3. GBP55 million adjustment relates to amortisation and
impairment of assets acquired through business combinations and
investments. We include only amortisation on purchased intangibles
such as software within adjusted PBT.
4. GBP6 million adjustment is primarily for non-cash interest
cost. This provides a more meaningful comparison of how the
business is managed and funded on a day-to-day basis.
5. Tax adjustments are the tax effects of the adjustments made
to reconcile PBT and adjusted PBT.
Other alternative performance measures
Total revenue
As an integrated producer broadcaster, we look at the total
revenue generated in the business which includes internal revenue,
which is the sale of ITV Studios programmes to Broadcast &
Online. Our broadcast channels are a significant customer for ITV
Studios and selling programmes to Broadcast & Online is an
important part of our strategy as it ensures we own all the
rights.
A reconciliation between external revenue and total revenue is
provided below.
2017 2016
Six months to 30 June GBPm GBPm
----------------------------- ----- -----
External revenue (Statutory) 1,458 1,503
----------------------------- ----- -----
Internal supply 239 209
----------------------------- ----- -----
Total revenue (Adjusted) 1,697 1,712
----------------------------- ----- -----
Adjusted net debt
Net debt (as defined in Note 4.1) is adjusted for all our
financial commitments. This better reflects how credit rating
agencies look at our balance sheet. A reconciliation between net
debt and adjusted net debt is provided below.
2017 2016
Six months to 30 June GBPm GBPm
------------------------------- ------- -------
Net debt (1,074) (796)
------------------------------- ------- -------
Expected contingent payments
on acquisitions (257) (316)
------------------------------- ------- -------
Net pension deficit (343) (64)
------------------------------- ------- -------
Operating leases (404) (345)
------------------------------- ------- -------
Adjusted net debt (2,078) (1,521)
------------------------------- ------- -------
Adjusted net debt to adjusted
EBITDA* 2.4x 1.6x
------------------------------- ------- -------
Statutory net debt to adjusted
EBITDA* 1.2x 0.9x
------------------------------- ------- -------
* On a 12-month rolling basis
Net pension deficit
This is our defined benefit pension deficit under IAS 19
adjusted for other pension assets, mainly gilts, over which the
pension scheme holds a charge, held by the Group as security for
future unfunded pension payments of four former Granada
executives.
Profit to cash conversion
This is our measure of cash generation used for working capital
management. It is calculated as adjusted cash flow as a proportion
of adjusted EBITA. Profit to cash conversion is based on adjusted
measures to reflect the cash generation of our underlying business
after operating capex, excluding the effect of exceptional items,
non-cash expenses such as depreciation and share based
payments.
Key Performance Indicators
We have defined our Key Performance Indicators (KPIs) to align
performance and accountability to our strategy.
Further detail on our financial performance and KPIs can be
found in the Strategy & Operations section and the Financial
and Performance Review.
Absolute
Six months to 30 June 2017 2016 Change
------------------------------------------ ------- ------- --------
Adjusted EBITA GBP403m GBP438m GBP(35)m
------------------------------------------ ------- ------- --------
Adjusted earnings per share 7.7p 8.5p (0.8)p
------------------------------------------ ------- ------- --------
Profit to cash ratio 12 months rolling 91% 86% 5%
------------------------------------------ ------- ------- --------
ITV Family Share of Viewing (SOV) - weeks
1 - 26 21.6% 21.7% (0.1)%
------------------------------------------ ------- ------- --------
ITV Family Share of Commercial Impacts
(SOCI) - weeks 1 - 26 34.5% 34.6% (0.1)%
------------------------------------------ ------- ------- --------
Total long-form video requests 665m 506m 160m
------------------------------------------ ------- ------- --------
Non-NAR revenue GBP928m GBP874m GBP54m
------------------------------------------ ------- ------- --------
Note: Results are on a continuing basis
Four of our KPIs are only reported on a full year basis: ITV
Family Share of Broadcast (SOB), percentage of ITV output from ITV
Studios, number of new commissions for ITV Studios and employee
engagement.
ITV SOB is not reported externally at the half year as it has
become increasingly difficult to measure the total television
market particularly in the short term, as all broadcasters have
different definitions and include sources of revenue other than
pure spot advertising. Over the full year we expect ITV Family NAR
to outperform the total TV advertising market.
ITV Studios KPIs are not reported externally on a six monthly
basis as they are materially impacted by phasing and therefore the
full year number gives a more meaningful measurement of
performance. Employee engagement is based on an annual survey with
the next scheduled for 2018.
Financial and Performance Review
ITV's performance for the first six months of the 2017 is as
anticipated and our guidance for the full year remains
unchanged.
The strategy we set out a number of years ago was to rebalance
the business and reduce our reliance on the UK and on spot
advertising. The progress we have made against this strategy is
clearly evident in our performance for the first half of 2017.
Non-NAR grew 6%, partly offsetting an 8% decline in spot
advertising revenue, to give external revenue down 3%. Adjusted EPS
was down 9% in the first half impacted by advertising, ongoing
investment in the business and the fact that the prior year
includes the full benefit of the four year license deal for The
Voice of China. Statutory EPS was down 16% year-on-year. One of our
key strengths is our high margins and healthy cashflows which,
together with our ongoing focus on costs, places us in a good
position to continue to invest in growing an even stronger and more
resilient business while delivering sustainable returns to our
shareholders.
Six months to 30 June - on a continuing 2017 2016 Change Change
basis GBPm GBPm GBPm %
---------------------------------------- ------- ------------- ------- ------
NAR 769 838 (69) (8)
---------------------------------------- ------- ------------- ------- ------
Total non-NAR 928 874 54 6
---------------------------------------- ------- ------------- ------- ------
Total revenue 1,697 1,712 (15) (1)
---------------------------------------- ------- ------------- ------- ------
Internal supply (239) (209) 30 14
---------------------------------------- ------- ------------- ------- ------
Group external revenue 1,458 1,503 (45) (3)
---------------------------------------- ------- ------------- ------- ------
Adjusted EBITA 403 438 (35) (8)
---------------------------------------- ------- ------------- ------- ------
Group adjusted EBITA margin 28% 29%
---------------------------------------- ------- ------------- ------- ------
Adjusted EPS 7.7p 8.5p (0.8) (9)
---------------------------------------- ------- ------------- ------- ------
Adjusted diluted EPS 7.6p 8.4p (0.8) (10)
---------------------------------------- ------- ------------- ------- ------
Dividend per share 2.52p 2.4p 0.12p 5
---------------------------------------- ------- ------------- ------- ------
Net debt as at 31 December (1,074) (796) (278)
---------------------------------------- ------- ------------- ------- ------
The statutory profit before tax and EPS from the Condensed
Consolidated Income Statement are presented below. A full
reconciliation between our statutory and adjusted results is
included in the Alternative Performance Measures section.
2017 2016 Change Change
Six months to 30 June GBPm GBPm GBPm %
---------------------- ----- ------------------ ----------------- ------
Profit before tax 259 309 (50) (16)
---------------------- ----- ------------------ ----------------- ------
EPS 5.1p 6.1p (1.0)p (16)
---------------------- ----- ------------------ ----------------- ------
Diluted EPS 5.1p 6.1p (1.0)p (16)
---------------------- ----- ------------------ ----------------- ------
Total ITV revenue decreased 1% to GBP1,697 million (2016:
GBP1,712 million), with external revenue down 3% at GBP1,458
million (2016: GBP1,503 million). NAR declined as expected by 8% to
GBP769 million (2016: GBP838 million) which was partly offset by 6%
growth in non-NAR revenue to GBP928 million (2016: GBP874 million).
Non-NAR now accounts for 55% (2016: 51%) of total revenue.
Adjusted EBITA declined by 8% to GBP403 million (2016: GBP438
million) with the adjusted EBITA margin decreasing to 28% (2016:
29%), impacted by the decline in NAR, ongoing investment in the
business and the fact that the prior year includes the full benefit
of the four year license deal for The Voice of China. Adjusted EPS
was down 9% to 7.7p (2016: 8.5p) while statutory EPS declined by
16% to 5.1p (2016: 6.1p). Statutory EPS declined due to higher
amortisation and impairment which is explained over the following
pages.
We remain focused on balance sheet efficiency and working
capital management. Our profit to cash ratio on a rolling 12-month
basis remained strong at 91%. We ended the period with net debt of
GBP1,074 million (31 December 2016: net debt of GBP637 million)
after acquisitions and earnout payments within ITV Studios, the
ordinary and special dividend payments and pension deficit
contributions. We believe maintaining leverage below 1.5x net debt
to adjusted EBITDA will optimise our cost of capital and maintain
our investment grade credit. At 30 June 2017, net debt to adjusted
EBITDA on a 12-month rolling basis was 1.2x (31 December 2016: 0.7x
and 30 June 2016: 0.9x).
Cost management remains a key priority and we are on track to
deliver the previously announced GBP25 million reduction in
overheads across the business in 2017. This together with our
strong balance sheet and a more balanced business gives us the
flexibility to continue to invest and make sustainable returns to
shareholders.
The Board has declared an interim dividend of 2.52p, an increase
of 5%, reflecting our confidence in the underlying strength of the
business.
Broadcast & Online
Six months to 30 June - on a continuing 2017 2016 Change Change
basis GBPm GBPm GBPm %
---------------------------------------- ----- ------------- ------- ------
NAR 769 838 (69) (8)
---------------------------------------- ----- ------------- ------- ------
Online, Pay & Interactive revenue 112 107 5 5
---------------------------------------- ----- ------------- ------- ------
SDN external revenue 35 33 2 6
---------------------------------------- ----- ------------- ------- ------
Other commercial income 84 83 1 1
---------------------------------------- ----- ------------- ------- ------
Broadcast & Online non-NAR revenue 231 223 8 4
---------------------------------------- ----- ------------- ------- ------
Total Broadcast & Online revenue 1,000 1,061 (61) (6)
---------------------------------------- ----- ------------- ------- ------
Total schedule costs (532) (547) 15 3
---------------------------------------- ----- ------------- ------- ------
Other costs (175) (197) 22 11
---------------------------------------- ----- ------------- ------- ------
Total Broadcast & Online adjusted
EBITA 293 317 (24) (8)
---------------------------------------- ----- ------------- ------- ------
Adjusted EBITA margin 29% 30%
---------------------------------------- ----- ------------- ------- ------
Broadcast & Online revenue declined by 6% to GBP1,000
million (2016: GBP1,061 million) with the decrease in NAR partly
offset by good growth in Online, Pay & Interactive.
Continued economic and political uncertainty in the UK during
the first half of 2017 led to an 8% decrease in ITV Family NAR to
GBP769 million (2016: GBP838 million). The first quarter was down
9% and the second quarter was down 7%. Over the first half,
including sponsorship, VOD and self-promotion, ITV total
advertising was down 7%.
Advertising categories such as Retail, Finance and Food
continued to see declines due to uncertainty on the economic
outlook along with the weakening of the pound causing inflationary
pressure and leading advertisers to reduce advertising spend in
order to maintain margins.
Entertainment & Leisure are down impacted by the tough
comparatives from the Euro Football Championship in 2016. Several
categories have remained strong, increasing spend year-on-year,
such as Cars & Car Dealers, Telecommunications and
Supermarkets. Digital brands continue to spend heavily on
television to build brand awareness.
On-screen we performed well. To the end of May our ITV Family
share of viewing grew although we ended the first half flat as June
last year included the benefit of the Euros. There were strong
performances from drama including The Good Karma Hospital, Vera and
The Loch, entertainment including Saturday Night Takeaway, The
Voice and Britain's Got Talent, sport with The Six Nations Rugby
Championships and ITV horse racing, along with an improvement in
daytime and the soaps. As well as mass audiences, we also deliver
more targeted demographics. ITV2, which is aimed at younger
audiences, saw a 15% increase in SOCI for the 16-34s demographic
driven by programmes such as Love Island, Family Guy and Celebrity
Juice. ITV4, which targets male audiences, had a 5% increase in
male SOCI helped by ITV's horse racing coverage, The French Open
and the Isle of Man TT Races. We remain focused on our viewing
performance and continuing to deliver both mass audiences and key
demographics which are highly demanded by advertisers.
Online, Pay & Interactive revenue showed good growth, up 5%
to GBP112 million (2016: GBP107 million) with double-digit growth
in our online advertising and pay businesses. Audience demand for
VOD remains strong, as does the demand for online advertising.
Supported by our strong on-screen proposition we delivered a 31%
increase in long-form video requests and a 34% increase in
consumption on our OTT service the ITV Hub which now has 20 million
registered users. Interactive revenue was down 5%, with reduced
entries for daytime competitions.
As we build our digital business, we will continue to invest in
the ITV Hub, ITV Hub+, BritBox US, our SVOD joint venture with the
BBC and Cirkus, our SVOD proposition in the Nordics and
Germany.
SDN external revenue, which is generated from licence sales for
DTT Multiplex A, increased 6% to GBP35 million (2016: GBP33
million). This was driven by the 16th stream which launched in May
2016.
Other commercial income includes revenue from programme
sponsorship and revenue from STV plc for commission earned by ITV
for airtime sales and for the delivery of ITV programming. This
revenue was up 1% at GBP84 million (2016: GBP83 million) with new
sponsorship around ITV horse racing and The Voice offset by a
reduction in third party airtime sales commission and revenue
primarily from UTV following ITV's acquisition of the business in
February 2016.
Schedule costs were down 3% year-on-year at GBP532 million
(2016: GBP547 million) with higher spend on entertainment offset by
lower spend on sports rights, drama and factual. We continue to
expect our total annual programming budget for the full year to be
around GBP1,025 million which includes the previously announced
GBP25 million year on year reduction as a result of no major sports
tournament in 2017.
Other Broadcast costs were down 11% year-on-year at GBP175
million (2016: GBP197million) which includes a portion of the
previously announced GBP25 million overhead savings and timing of
other costs, including marketing, which this year will be more
weighted towards the second half of the year.
Overall Broadcast & Online adjusted EBITA was down 8% at
GBP293 million (2016: GBP317 million) with the good growth in
Online, Pay & Interactive more than offset by the decline in
the advertising market. This has led to a 1% reduction in the
adjusted EBITA margin to 29% (2016: 30%).
Looking to the second half of 2017, we expect ITV Family NAR to
be down 5% in July, down 4% in August and in September to be flat
to down 5%, equating to down around 4% in the third quarter. Over
the full year we expect to again outperform the television
advertising market. Online Pay & Interactive is on track to
deliver good growth over the full year.
As a result of the Digital Economy Bill which received Royal
Assent in April, s73 will be repealed with effect from 31 July,
which paves the way for the introduction of retransmission
fees.
ITV Studios
2017 2016 Change Change
Six months to 30 June GBPm GBPm GBPm %
------------------------------ ----- ------------- --------- ------
Studios UK 306 292 14 5
------------------------------ ----- ------------- --------- ------
ITV America 143 96 47 49
------------------------------ ----- ------------- --------- ------
Studios RoW 159 184 (25) (14)
------------------------------ ----- ------------- --------- ------
Global Entertainment 89 79 10 13
------------------------------ ----- ------------- --------- ------
Total Studios revenue 697 651 46 7
------------------------------ ----- ------------- --------- ------
Total Studios costs (587) (530) (57) (11)
------------------------------ ----- ------------- --------- ------
Total Studios adjusted EBITA* 110 121 (11) (9)
------------------------------ ----- ------------- --------- ------
Studios adjusted EBITA margin 16% 19%
------------------------------ ----- ------------- --------- ------
* Includes the benefit of production tax credits
2017 2016 Change Change
Six months to 30 June GBPm GBPm GBPm %
------------------------------------ ----- ------ ------- ------
Sales from ITV Studios to Broadcast
& Online 239 209 30 14
------------------------------------ ----- ------ ------- ------
External revenue 458 442 16 4
------------------------------------ ----- ------ ------- ------
Total Studios revenue 697 651 46 7
------------------------------------ ----- ------ ------- ------
ITV Studios total revenue saw good growth in the first half, up
7% to GBP697million (2016: GBP651 million) driven by Studios UK,
ITV America and Global Entertainment as we continue to build scale
in the key creative content markets and strengthen our
international portfolio of programmes that return and travel. Total
organic revenue, which excludes our current year acquisitions, was
up 6%, and excluding foreign exchange movements, it was flat. We
delivered good organic revenue and profit growth across the
business except in Studios Rest of World (RoW) and specifically
Talpa Media which was impacted by the inclusion of the full benefit
of the four year license deal for The Voice of China in the prior
year.
Reflecting our growth and increasing scale in key production
markets in Europe and the US, 52% of ITV Studios total revenue in
the first half was generated outside the UK. As our Studios
business grows internationally, foreign currency movements have an
increasing impact on our results. On a constant currency basis,
which assumes exchange rates remained consistent with 2016, ITV
Studios revenue for the period would have been GBP42 million lower
and adjusted EBITA would have been GBP8 million lower as a result
of a stronger US dollar and Euro during the period.
Studios UK revenue was up 5% to GBP306 million (2016: GBP292
million) driven by 13% growth in internal revenue. Programming
sales to ITV Broadcast grew strongly and benefited from new drama
deliveries including Unforgotten, Little Boy Blue, The Loch and
Fearless along with new and returning entertainment programmes The
Voice, The Voice Kids, Saturday Night Takeaway and Love Island.
Off-ITV revenue declined by 13% driven by the timing of deliveries
along with non-returning programmes such as Friday Night Dinner and
Raised By Wolves. This was offset by new and returning deliveries
including Poldark and Second Chance Summer for the BBC, Blind Date
for Channel 5 and Bliss for Sky. For the full year we expect
off-
ITV revenue to be up year on year with new programmes for the
second half including Living The Dream for Sky, The City & The
City and Ordeal of Innocence for the BBC and Back for Channel
4.
ITV America's total revenue increased 49% to GBP143 million
(2016: GBP96 million) with organic revenue, excluding foreign
exchange, up 31%. This increase was driven by new and returning
formats such as Big Star's Little Star, Sideserf, World Hip Hop
Star, Car Spotters, American Grit, Alone, Forged In Fire and First
48 along with new scripted commission Sun Records and the third
series of Good Witch. The second half of 2017 will see the delivery
of two series of the successful entertainment format Hell's Kitchen
USA, new scripted commissions Somewhere Between for ABC and a pilot
of Snowpiercer for TNT along with unscripted commission Queer Eye
for the Straight Guy for Netflix. We have a number of scripted
titles in development which include Highland for TNT and both
scripted and unscripted programmes for Netflix, Amazon and
Facebook.
Studios RoW total revenue was down 14% to GBP159 million (2016:
GBP184 million), with organic revenue, excluding foreign exchange,
down 26%.
The decline was primarily driven by Talpa Media as explained
earlier. We saw good growth from producing Studios UK and Talpa
Media formats across our RoW territories. First half deliveries
included The Voice in Australia, The Chase in Australia and Germany
and Bagges Hundar in Sweden which is based on the UK format For The
Love of Dogs. We have a strong pipeline of new and returning
formats in the second half which includes The Voice and The Voice
Kids, This Time Next Year, Love Island, 5 Gold Rings and Big Star's
Little Star.
Global Entertainment revenue increased 13% in the period to
GBP89 million (2016: GBP79 million), with revenue excluding foreign
exchange up 4%. As we continue to grow our portfolio of programmes
and formats to distribute internationally, first half revenue was
supported by our strong programme slate including Poldark, Good
Witch, Harlots, Fearless and Prime Suspect 1973. We have around 15
scripted programmes and five entertainment and factual
entertainment formats sold to more than 100 countries. So far in
2017 we have sold 44 different formats internationally, nine of
which are being produced by ourselves or other producers in three
or more countries. We have also increased distribution of our
content to OTT providers including Amazon, Netflix and Hulu in the
UK and internationally.
Overall, ITV Studios adjusted EBITA decreased 9% to GBP110
million (2016: GBP121 million) with the adjusted EBITA margin
reducing to 16% (2016: 19%). This is a result of the ongoing
investment we are making in our US scripted creative business and
the fact that the prior year includes the full benefit of the four
year license deal for The Voice of China.
For the first half of 2017 we invested GBP96 million in scripted
content, which is GBP30 million higher than the prior year due to
programmes such as Living The Dream, City & The City and
Somewhere Between, as we continue to invest in drama across the
business. We finance our larger-scale scripted projects through our
strong underlying cashflows. The production cost is partly funded
by the initial sale of the series to a broadcaster, while the
deficit (the difference between the cost and what the broadcaster
pays), is recovered through distribution revenue from selling the
finished product globally to other broadcasters and platforms. We
balance our financial exposure through building a portfolio of
programmes, with successful international dramas offsetting the
risk that we will not recover the full deficit on every show.
ITV Studios has continued to deliver many creative successes in
the period and the second half of 2017 will see the delivery of
many new and returning entertainment and drama programmes, and as a
result we remain on track to deliver good organic revenue growth
over the full year.
ITV Studios currently has 85% of full year revenue already
secured which is GBP100 million more than this time last year.
Adjusted EBITA will be broadly flat year-on-year due to continued
investment in our US scripted business and the fact that the prior
year includes the full benefit of the four year license deal for
The Voice of China.
Acquisitions
We continue to look at potential acquisitions and partnerships
as we further build scale in our international content business.
Since 2012 we have acquired a number of content businesses in the
UK, US and creative locations across Europe, developing a strong
portfolio of programmes that return and travel. As we have grown in
size and expanded our network relationships and distribution
capability, this has helped to renew and strengthen our creative
talent and build our reputation as a leading European producer and
distributor and leading unscripted independent production company
in the US.
In February 2017, we acquired a majority stake in Tetra Media
Studio, the French television production group behind leading
dramas including crime series Profilage, now in its seventh series,
and Les Hommes de l'Ombre, the critically acclaimed political
thriller.
In April we acquired a 45% stake in Blumhouse Television,
established by Jason Blum, the renowned film and television
producer, which finances and produces original scripted and
unscripted 'dark' genre programming for global audiences, including
The Jinx and Cold Case Files.
In April we also acquired a majority stake in World Productions,
the company behind the critically acclaimed and multi-award winning
Line of Duty.
In June we acquired a majority stake in Elk Production, one of
the leading independent production companies in Sweden. The company
produces original formats such as the award winning reality TV
series Parneviks along with acquired formats including Ninja
Warrior and Dessertmästarna.
We have strict criteria for evaluating potential acquisitions.
Financially, we assess ownership of intellectual property, earnings
growth and valuation based on return on capital employed and
discounted cash flow. Strategically, we ensure an acquisition
target has a strong creative track record and pipeline in content
genres that return and travel, namely drama, entertainment and
factual entertainment, as well as succession planning for key
individuals in the business.
We generally structure our deals with earnouts or with put and
call options in place for the remainder of the equity, capping the
maximum consideration payable. By basing a significant part of the
consideration on future performance in this way, not only can we
lock in creative talent and ensure our incentives are aligned, but
we also reduce our risk by only paying for the actual, not
expected, performance delivered over time. We believe this is the
right way to structure our deals as we should not pay upfront for
future performance and should incentivise and reward delivery by
the business over time.
The majority of earnouts or put and call options are dependent
on the seller remaining within the business, the most significant
of which is for Talpa Media whereby the total maximum
consideration, including the initial payment, is up to EUR1.1
billion which is contingent on Talpa Media continuing to deliver
significant profit growth to 2022 as well as John de Mol's
continued commitment to the business during this time. To date we
have paid EUR600 million to John de Mol including EUR100 million
for the first tranche of the earnout which was paid out in full in
May 2017. Under the deal structure, because all future payments are
directly related to John de Mol remaining with the business, these
payments are treated as employment costs and therefore are part of
our statutory results. However, we exclude them from adjusted
profits and adjusted EPS as an exceptional item, as in our view for
the reasons set out above, these items are part of capital
consideration reflecting how we structure our transactions. This is
consistent with our treatment of all costs of this type.
Acquisitions - 2012 to 2017 (undiscounted)
----------------------------------------------------------------------------------------------------------------------
Additional Total
consideration Expected Total maximum
Initial paid future expected consideration
Consideration in 2017 payments* consideration** **
Expected
payment
Company Geography Genre (GBPm) (GBPm) (GBPm) (GBPm) period (GBPm)
-------- ---------- ----------- ------------- ------------- --------- --------------- --------- --------------
2017
----------------------------------------------------------------------------------------------------------------------
Various Various Content 33 - 15 48 2020-2024 253
-------- ---------- ----------- ------------- ------------- --------- --------------- --------- --------------
Total for
2017 33 - 15 48 253
--------------------------------- ------------- ------------- --------- --------------- --------- --------------
Content
&
Total for Broadcas 2017
2012- 2016 t 860 88 242 1,190 - 2021 1,911
-------------------- ---------- ------------- ------------- --------- --------------- --------- --------------
Total 893 88 257 1,238 2,164
--------------------------------- ------------- ------------- --------- --------------- --------- --------------
* Undiscounted and adjusted for foreign exchange. All future
payments are performance related. Of the GBP257 million expected
future payments, GBP103 million has been recorded on the balance
sheet to date.
** Undiscounted and adjusted for foreign exchange, including the
initial cash consideration and excluding working capital
adjustments.
The table above sets out the initial consideration payable on
our acquisitions, our expected future payments based on our current
view of performance and the total maximum consideration payable
which is only payable if exceptional compound earnings growth is
delivered.
We closely monitor the forecast performance of each acquisition
and where there has been a change in expectations, we adjust our
view of potential future commitments.
Expected future payments has reduced by GBP71 million since 31
December 2016 which is the net of the additional future payments
relating to our 2017 acquisitions, the payment made to John de Mol
for the first tranche of his earnout and future payments
denominated in foreign currency. Of the GBP257 million of expected
future payments, GBP103 million had been recorded on the balance
sheet at 30 June 2017.
Net financing costs
--------------------------------------------- ----- ------
2017 2016
Six months to 30 June GBPm GBPm
--------------------------------------------- ----- ------
Financing costs directly attributable
to loans and bonds (15) (10)
--------------------------------------------- ----- ------
Cash-related net financing costs (2) -
--------------------------------------------- ----- ------
Adjusted financing costs (17) (10)
--------------------------------------------- ----- ------
Mark-to-market on swaps and foreign exchange - 1
--------------------------------------------- ----- ------
Imputed pension interest (4) (2)
--------------------------------------------- ----- ------
Unrealised foreign exchange and other
net financial losses (2) (10)
--------------------------------------------- ----- ------
Net financing costs (23) (21)
--------------------------------------------- ----- ------
Adjusted financing costs increased to GBP17 million (2016: GBP10
million) primarily due to the new EUR500m Eurobond issued in
December 2016 and the two bilateral loans which we did not have in
the first half of 2016.
Net financing costs were GBP2 million higher in 2017 at GBP23
million (2016: GBP21 million) with the increase in adjusted
financing costs offset by a decrease in unrealised foreign exchange
losses due to a reduction in the unhedged portion of the Eurobond
year-on-year.
Profit before tax
Adjusted profit before tax, after amortisation and impairment of
assets and financing costs, was down 10% to GBP381 million (2016:
GBP425 million). Statutory profit before tax decreased by 16% at
GBP259 million (2016: GBP309 million), primarily a result of higher
amortisation and impairment of acquired assets.
Profit before tax (PBT)
---------------------------------------- ----- ------
Six months to 30 June - on a continuing 2017 2016
basis GBPm GBPm
---------------------------------------- ----- ------
Profit before tax 259 309
---------------------------------------- ----- ------
Production tax credits 8 14
---------------------------------------- ----- ------
Total exceptional items 53 54
---------------------------------------- ----- ------
Amortisation and impairment of assets* 55 37
---------------------------------------- ----- ------
Adjustments to net financing costs 6 11
---------------------------------------- ----- ------
Adjusted profit before tax 381 425
---------------------------------------- ----- ------
* In respect of assets arising from business combinations and investments
Exceptional Items
----------------------------------------- ----- ------
2017 2016
Six months to 30 June GBPm GBPm
----------------------------------------- ----- ------
Operating exceptional items:
----------------------------------------- ----- ------
Acquisition related expenses (50) (54)
----------------------------------------- ----- ------
Restructuring and property related costs (3) -
----------------------------------------- ----- ------
Total exceptional items (53) (54)
----------------------------------------- ----- ------
Total exceptional items in the year were GBP53 million (2016:
GBP54 million). Operating exceptional items principally relate to
acquisition related expenses which are mainly performance based
employment linked consideration. Restructuring and property related
costs includes incremental one-off project costs associated with
our planned London property move in 2018.
Tax
Adjusted tax charge
The total adjusted tax charge for the period was GBP71 million
(2016: GBP85 million), corresponding to an effective tax rate on
adjusted PBT of 19% (2016: 20%) which is broadly in line with the
standard UK corporation tax rate of 19.25% (2016: 20%). We expect
this effective tax rate to be sustainable in the medium term. The
adjustments made to reconcile the tax charge with the adjusted tax
charge are the tax effects of the adjustments made to reconcile PBT
and adjusted PBT, as discussed earlier.
2017 2016
Six months to 30 June GBPm GBPm
---------------------------------------- ----- ------
Tax charge (53) (63)
---------------------------------------- ----- ------
Production tax credits (8) (14)
---------------------------------------- ----- ------
Charge for exceptional items (3) (1)
---------------------------------------- ----- ------
Charge in respect of amortisation and
impairment* (7) (6)
---------------------------------------- ----- ------
Charge in respect of adjustments to net
financing costs (1) (2)
---------------------------------------- ----- ------
Other tax adjustments 1 1
---------------------------------------- ----- ------
Adjusted tax charge (71) (85)
---------------------------------------- ----- ------
Effective tax rate on adjusted profits 19% 20%
---------------------------------------- ----- ------
* In respect of intangible assets arising from business
combinations and investments. Also reflects the cash tax benefit of
tax deductions for US goodwill.
Cash tax
Cash tax paid in the period was GBP65 million (2016: GBP33
million), the majority of which is paid in the UK. The 2017 cash
tax figure is net of GBP9 million of production tax credits
received in the period. The cash tax paid is higher than the
interim tax charge for 2017 of GBP53 million largely due to the
phasing of cash tax payments in the UK and The Netherlands.
Tax strategy
ITV is a responsible business, and we take a responsible
attitude to tax, recognising that it affects all of our
stakeholders. In order to allow those stakeholders to understand
our approach to tax, we have published our Global Tax Strategy
which is available on our corporate website.
www.itvplc.com/investors/governance/policies
We have four key strategic tax objectives:
1. Engage with tax authorities in an open and transparent way in
order to minimise uncertainty
2. Pro-actively partner with the business to provide clear,
timely, relevant and business focused advice across all aspects of
tax
3. Take an appropriate and balanced approach when considering
how to structure tax sensitive transactions
4. Manage ITV's tax risk by operating effective tax governance
and understanding our tax control framework with a view to
continuously adjusting our approach to be compliant with our tax
obligations
Our tax strategy is aligned with that of the business and its
commercial activities, and establishes a clear Group-wide approach
based on openness and transparency in all aspects of tax reporting
and compliance, wherever the Company and its subsidiaries operate.
Within our overall governance structure, the governance of tax and
tax risk is given a high priority by the Board and Audit and Risk
Committee, including through the operation of the Tax &
Treasury Committee. The ITV Global Tax Strategy as published on the
ITV plc website is compliant with the UK tax strategy publication
requirement set out in Part 2 Schedule 19 Finance Act 2016.
EPS - adjusted and statutory
Overall, adjusted profit after tax was down 9% at GBP310 million
(2016: GBP340 million), this is after non-controlling interests of
GBP3 million (2016: GBPnil). Adjusted basic earnings per share was
7.7p (2016: 8.5p), down 9% which is marginally higher than the
decrease in adjusted EBITA of 8% due to an increase in adjusted
financing costs to GBP17 million (2016: GBP10 million). The
weighted average number of shares was broadly in line at 4,010
million (2016: 4,011 million). Diluted adjusted EPS in 2017 was
7.6p (2016: 8.4p) reflecting a weighted average diluted number of
shares of 4,019 million (2016: 4,031 million).
Statutory EPS declined by 16% to 5.1p (2016: 6.1p) primarily due
to higher amortisation and impairment of acquired assets.
A full reconciliation between statutory and adjusted EPS is
included within the Alternative Performance Measures section.
Dividend per share
The Board has declared an interim dividend of 2.52p, an increase
of 5%, reflecting our confidence in the underlying strength of the
business. The full year dividend will be set in line with the
Board's commitment to a long-term sustainable dividend policy and
for ordinary dividends to grow broadly in line with earnings,
targeting dividend cover of around 2x adjusted earnings per share
over the medium term.
Cash generation
Profit to cash conversion
--------------------------------------------- ----- ------
2017 2016
Six months to 30 June GBPm GBPm
--------------------------------------------- ----- ------
Adjusted EBITA 403 438
--------------------------------------------- ----- ------
Working capital movement (114) (60)
--------------------------------------------- ----- ------
Depreciation 17 15
--------------------------------------------- ----- ------
Share-based compensation and pension
service costs 9 7
--------------------------------------------- ----- ------
Acquisition of property, plant and equipment
and intangible assets (23) (23)
--------------------------------------------- ----- ------
Adjusted cash flow 292 377
--------------------------------------------- ----- ------
Profit to cash ratio six months to 30
June 72% 86%
--------------------------------------------- ----- ------
Profit to cash ratio 12 months rolling 91% 86%
--------------------------------------------- ----- ------
Note: Except where disclosed, management views the acquisition
of operating property, plant and equipment and intangibles as
necessary ongoing investment in the business.
One of ITV's key strengths is its healthy cashflows reflecting
our ongoing tight management of working capital balances and our
disciplined approach to cash and costs. This is particularly
important when there is wider political and economic uncertainty
and places us in a good position to continue to invest across the
business and deliver sustainable returns to our shareholders.
In the period we generated GBP292 million (2016: GBP377 million)
of operational cash from GBP403 million (2016: GBP438 million) of
adjusted EBITA, which equates to a strong profit to cash ratio of
91% on a 12-month rolling basis (2016: 86%). In the period we saw
an increase in working capital relating to a build-up of programme
stock, such as Victoria, Cold Feet, Next of Kin and Living the
Dream which will reverse in the second half when they are
delivered.
To facilitate our working capital management, we have a GBP100
million non-recourse receivables purchase agreement (free of
financial covenants). At 30 June 2017, GBP35 million of receivables
were sold under the purchase agreement.
Free cash flow
---------------------- ----- ------
2017 2016
Six months to 30 June GBPm GBPm
---------------------- ----- ------
Adjusted cash flow 292 377
---------------------- ----- ------
Net interest paid (20) (6)
---------------------- ----- ------
Adjusted cash tax* (74) (55)
---------------------- ----- ------
Pension funding (47) (47)
---------------------- ----- ------
Free cash flow 151 269
---------------------- ----- ------
*Adjusted cash tax of GBP74 million is total cash tax paid of
GBP65 million excluding receipt of production tax credits, which
are included within adjusted cashflow from operations, as these
production tax credits relate directly to the production of
programmes.
After payments for interest, tax and pension funding, our free
cash flow remained healthy in the period, at GBP151 million (2016:
GBP269 million).
Overall, after dividends (ordinary and special), acquisitions
and acquisition related costs, pension and tax payments, we ended
the first half with net debt of GBP1,074 million, compared to net
debt of GBP637 million at 31 December 2016 and net debt of GBP796
million at 30 June 2016. Our net cash generation is weighted
towards the second half of 2017 due to the payment in the first
half of the special dividend, the Talpa earnout and content
acquisitions.
Funding and liquidity
Debt structure and liquidity
Our balance sheet strength, together with our healthy free cash
flow, enables us to continue to invest in opportunities to grow the
business and to make sustainable returns to our shareholders. We
have a number of facilities in place to preserve our financial
flexibility. We have a GBP630 million Revolving Credit Facility
(RCF) in place until 2021 (with the option to extend to 2023). We
also have a bilateral financing facility of GBP300 million, which
is free of financial covenants and matures in 2021. This provides
us with sufficient liquidity to meet the requirements of the
business in the short to medium term. The RCF has the usual
financial covenants for this type of financing. Of the total GBP930
million of facilities in place, GBP240 million was drawn down at 30
June 2017. Our policy is to maintain at least GBP250 million of
available liquidity at any point.
In January 2017 we repaid the GBP161 million Eurobond as it
matured.
Leverage
Our objective is to run an efficient balance sheet. We believe
maintaining leverage below 1.5x net debt to adjusted EBITDA will
optimise our cost of capital and maintain our investment grade
credit. At 30 June 2017, net debt to adjusted EBITDA on a 12-month
rolling basis was 1.2x (31 December 2016: 0.7x and 30 June 2016:
0.9x). Our priority is to invest to drive organic growth and make
acquisitions in line with our strategic priorities as we find the
right opportunities to do so. We will balance this investment with
additional returns to shareholders where we have surplus
capital.
We also look at an adjusted measure of net debt, taking into
consideration all of our other debt-like commitments including the
expected, undiscounted contingent payments on acquisitions, the
pension deficit under IAS 19, net of gilts held as security against
a proportion of those liabilities and the undiscounted operating
lease commitments which mainly relate to broadcast transmission
contracts and property. This adjusted leverage measure better
reflects how the credit rating agencies look at our balance sheet.
This is important to monitor as our investment grade rating is a
key criteria when considering our overall capital allocation. At 30
June 2017 adjusted net debt was GBP2,078 million (30 June 2016
:GBP1,521 million) and adjusted net debt to adjusted EBITDA on a
rolling 12-month basis was 2.4x (30 June 2016: 1.6x). A
reconciliation of net debt to adjusted net debt is provided in the
Alternative Performance Measures section.
Net Debt
-------------- ------- ------
2017 2016
As at 30 June GBPm GBPm
-------------- ------- ------
Gross cash 123 181
-------------- ------- ------
Gross debt** (1,197) (977)
-------------- ------- ------
Net debt (1,074) (796)
-------------- ------- ------
Financing
We are financing using debt instruments and facilities with a
range of maturities. Borrowings as at 30 June 2017 were repayable
as follows:
Amount repayable as at 30 June 2017 GBPm Maturity
------------------------------------------- ----- -------------
GBP630 million Revolving Credit Facility 240 2021
*
------------------------------------------- ----- -------------
EUR600 million Eurobond 523 Sep 2022
------------------------------------------- ----- -------------
EUR500 million Eurobond** 425 Dec 2023
------------------------------------------- ----- -------------
Other loans 3 Various
------------------------------------------- ----- -------------
Finance leases 6 Various
------------------------------------------- ----- -------------
Total debt repayable on maturity 1,197
------------------------------------------- ----- -------------
* Option to extend to 2023
** Net of GBP15 million cross currency swaps
Ratings
We are rated investment grade by two ratings agencies: BBB-
(stable outlook) by Standard and Poor's and Baa3 (stable outlook)
by Moody's Investor Services. The factors that are taken into
account in assessing our credit rating include our degree of
operational gearing, exposure to the economic cycle, as well as
business and geographical diversity. Continuing to execute our
strategy will strengthen our position against all these
metrics.
Foreign exchange
As ITV continues to grow internationally, we are increasingly
exposed to foreign exchange on our overseas operations. We do not
hedge our exposure to revenues and profits generated overseas, as
this is seen as an inherent risk. We may elect to hedge our
overseas net assets, where material. To date we have hedged a
significant portion of the Euro net assets arising from the Talpa
Media acquisition.
ITV is also exposed to foreign exchange risk on transactions we
undertake in a foreign currency. Our policy is to hedge a portion
of any transaction that is either a firm commitment for up to five
years forward or a highly probable forecast for up to 18 months,
depending on the level of certainty we have on the final size of
the transaction.
Finally, ITV is exposed to foreign exchange risk on the
retranslation of foreign currency loans and deposits. Our policy is
to hedge such exposures where there is an expectation that any
changes in the value of these items will result in a realised cash
movement over the short to medium term.
The foreign exchange and interest rate hedging strategy is
discussed and approved by the ITV plc Board and implemented by our
internal Tax and Treasury Committee who oversee governance and
approval of Tax and Treasury related policies and procedures within
the business.
Foreign Exchange Sensitivity
The following table highlights ITV's sensitivity, on a full year
basis, to translation resulting from a 10%
appreciation/depreciation in Sterling against the US dollar and
Euro, assuming all other variables are held constant. An
appreciation in Sterling has a negative effect on revenue and
adjusted EBITA, a depreciation has a positive effect.
Adjusted
Revenue EBITA
Currency (GBPm) (GBPm)
---------- -------- --------
US Dollar +/-50-60 +/-8-10
---------- -------- --------
Euro +/-25-30 +/-3-4
---------- -------- --------
Pensions
The net pension deficit for the defined benefit schemes at 30
June 2017 was GBP343 million (31 December 2016: GBP328 million).
The increase reflects a rise in pension liabilities following a
decrease in corporate bond yields partly offset by a decrease in
market expectations of long-term inflation. The overall increase in
liabilities, and a small decrease in asset values, has more than
offset the deficit funding contribution. The net pension deficit
includes GBP39 million of gilts which are held by the Group as
security for future unfunded pension payments of four former
Granada executives, the liabilities of which are included in our
pension obligations.
Actuarial valuation
The last actuarial valuation was undertaken in 2014. On the
basis adopted by the Trustee, the combined deficits as at 1 January
2014 amounted to GBP540 million and is estimated to be at a broadly
similar level today.
The Trustee is in the process of undertaking a full actuarial
valuation of all sections of the Scheme as at 1 January 2017 which
we expect to agree in late 2017 or early 2018.
Deficit funding contributions
The Group continues to make deficit funding contributions in
line with the most recent valuation in order to eliminate the
deficits in each section.
The Group's deficit funding contributions in the first half of
2017 were GBP47 million (2016: GBP47 million). The total expected
deficit funding contribution for 2017 is GBP80 million which is
consistent with the contributions payable in 2016. Further details
are included within Note 3.2.
Ian Griffiths
Chief Operating Officer and Group Finance Director
Risks and Uncertainties
ITV continues to apply the risk management framework outlined in
the 2016 Annual Report and Accounts (pages 50-57).
When preparing the Interim results, the High Impact Low
Likelihood (HILL) risks and Strategic risks as reported in the 2016
Annual Report and Accounts were reviewed to ensure they remained
appropriate and adequate. No significant new risks were identified
and there has been no change to the risk direction of any of the
Strategic risks reported in the 2016 Annual Report. Below is a
summary of the key risks.
High impact low likelihood (HILL) risks
HILL risks are of low inherent likelihood but there would be
major consequence were the risk to materialise. They are
categorised according to risk theme.
Risk Theme HILL Risks
----------- --------------------------------------------
Financial ITV loses its credit status or lines
of funding with existing lenders or
there is an event that
impacts financial arrangements/availability
of credit.
----------- ----------------------------------------------
There is a major collapse in investment
values or a material change in liabilities
leading to an impact on the pension
scheme deficit.
----------- ----------------------------------------------
Operational A significant event removes a number
of the key management team from the
business on long-term or permanent
basis.
----------- ----------------------------------------------
There is a sustained cyber/viral attack
causing prolonged system denial or
major reputational damage, for example
the ability to broadcast our channels
or the availability of the ITV Hub
or ITV loses a significant volume
of personal or sensitive data.
----------- ----------------------------------------------
Reputation An event with public interest that
causes significant reputational and
brand damage. There is a major health
and safety incident that results in
loss of human life.
----------- ----------------------------------------------
A major incident results in ITV being
unable to continue with scheduled
broadcasting for a sustained period
----------- ----------------------------------------------
There is a significant or unexpected
change in regulation or legislation.
----------- ----------------------------------------------
Cyber/Viral attack
The Board reviews and monitors risks on an on-going basis and
given the increase in cyber related incidents across the world, it
is reviewing the current classification of a potential cyber/viral
attack as a HILL risk. The Board will continue to monitor cyber
risk and may update the classification as part of the Group's risk
management framework.
Impact of exiting the Eurpoean Union
As a result of the UK European Union membership referendum,
macro uncertainty may have an impact on the overall health of the
UK television advertising market.
Further, there could be wider changes in regulation or
legislation within the markets in which we operate. While the
potential changes and the impact of any such changes will remain
unknown for a while, ITV could, for example, be affected by changes
to:
-- EU broadcasting legislation and/or rules around EU market
access, for example potential barriers against UK companies selling
programming to, or investing in, EU companies;
-- indirect taxation, direct taxation or transfer pricing regulation;
-- restrictions to free movement of our staff.
In addition, given the reciprocal nature of worldwide trade
deals, there could also be knock on changes to UK legislation
affecting broadcasting and intellectual property laws. For example,
there may be pressure to weaken obligations to purchase original
content made in the UK or to broaden exceptions from intellectual
property protection.
The likelihood or extent of any impact is currently unknown but
going forward we will closely monitor and evaluate any potential
areas of risk.
Strategic risks
Strategic risks are those that would impact the successful
execution of the strategy. They are categorised according to risk
theme and mapped to ITV's strategic priorities.
1. Maximising: Maximise audience and revenue share from free-to-air and VOD business.
2. Growing: Grow international content business.
3. Building: Build a global pay and distribution business
Risk Theme Strategic Risks
--------------- ----------------------------------------------- --------------- --------------- --------------
There is a major decline in
advertising revenue and ITV
does not build sufficient non-NAR
revenue streams to mitigate
the financial impact of this
The Market decline. 1 2 3
----------------------------------------------- --------------- --------------- --------------
The television market moves
significantly towards pay television
as a preferred model, negatively
impacting ITV's free-to-air
revenue. 1 3
--------------------------------------------------------------- --------------- --------------- --------------
A faster than expected shift
to VOD or other new technologies,
such as internet enabled TVs
or online only services, causes
a sustained loss of advertising
revenue. 1 3
--------------------------------------------------------------- --------------- --------------- --------------
ITV fails to evolve its organisational
structure and culture to ensure
that it is capable of delivering
continued growth from the new
businesses or revenue streams
and fails to attract, develop
and retain key creative, commercial
Organisation, and management talent with the
Structure skills required for the ongoing
and Processes business. 1 2 3
----------------------------------------------- --------------- --------------- --------------
There is significant loss of
programme rights or ITV fails
to identify and obtain the optimal
rights packages. 1 2 3
--------------------------------------------------------------- --------------- --------------- --------------
ITV fails to create and own
a sufficient number of hit programmes/formats
across its international portfolio
of content companies. 1 2 3
--------------------------------------------------------------- --------------- --------------- --------------
ITV fails to properly resource,
financially, creatively and
operationally, the new growth
businesses, in particular online
and international content. 1 2 3
--------------------------------------------------------------- --------------- --------------- --------------
ITV remains heavily reliant
on legacy systems, which could
potentially restrict the ability
to grow the business. These
systems and processes may not
be appropriate for non-advertising
revenue or international growth. 1 2 3
--------------------------------------------------------------- --------------- --------------- --------------
A significant high-profile incident
or series of events e.g. a system
failure, a technology issue,
or a major regulatory breach
that causes significant reputational
Technology and/or commercial damage. 1 2 3
----------------------------------------------- --------------- --------------- --------------
ITV fails to ensure appropriate
business continuity planning
and resilience within its core
systems and infrastructure. 1 2 3
--------------------------------------------------------------- --------------- --------------- --------------
Interim Condensed Financial Statements
In this section
Our objective is to make ITV's financial statements less
complex, more relevant to shareholders and provide readers with a
clearer understanding of what drives financial performance of the
Group. We have grouped notes under five key headings: 'Basis of
Preparation', 'Results for the Period', 'Operating Assets and
Liabilities', 'Capital Structure and Financing Costs' and 'Other
Notes'. The aim of the text in boxes is to provide commentary on
each section, or note, in plain English.
Contents
Primary Statements
Condensed Consolidated Income Statement
Condensed Consolidated Statement of Comprehensive
Income
Condensed Consolidated Statement of Financial
Position
Condensed Consolidated Statement of Changes
in Equity
Condensed Consolidated Statement of Cash Flows
-------------------------------------------------
Section 1: Basis of Preparation
-------------------------------------------------
Section 2: Results for the Period
2.1 Profit before tax
2.2 Earnings per share
-------------------------------------------------
Section 3: Operating Assets and Liabilities
3.1 Acquisitions
3.2 Pensions
-------------------------------------------------
Section 4: Capital Structure and Financing Costs
4.1 Net debt
4.2 Borrowings
4.3 Managing market risks: derivative financial
instruments
4.4 Fair value hierarchy
-------------------------------------------------
Section 5: Other Notes
5.1 Related party transactions
5.2 Contingent liabilities
-------------------------------------------------
Responsibility Statement of the Directors in
Respect of the Half-Yearly Financial Report
-------------------------------------------------
Independent Review Report
Condensed Consolidated Income Statement
2017 2016
For the six month period to 30 June Note GBPm GBPm
------------------------------------------------- ---- ------- -------
Revenue 2.1 1,458 1,503
------------------------------------------------- ---- ------- -------
Operating costs (1,174) (1,173)
------------------------------------------------- ---- ------- -------
Operating profit 284 330
------------------------------------------------- ---- ------- -------
Presented as:
------------------------------------------------- ---- ------- -------
Earnings before interest, tax and amortisation
(EBITA) before exceptional items 2.1 395 424
------------------------------------------------- ---- ------- -------
Operating exceptional items (53) (54)
------------------------------------------------- ---- ------- -------
Amortisation and impairment (58) (40)
------------------------------------------------- ---- ------- -------
Operating profit 284 330
------------------------------------------------- ---- ------- -------
Financing income 2 2
------------------------------------------------- ---- ------- -------
Financing costs (25) (23)
------------------------------------------------- ---- ------- -------
Net financing costs (23) (21)
------------------------------------------------- ---- ------- -------
Share of losses of joint ventures and
associated undertakings (2) -
------------------------------------------------- ---- ------- -------
Profit before tax 259 309
------------------------------------------------- ---- ------- -------
Taxation (53) (63)
------------------------------------------------- ---- ------- -------
Profit from continuing operations 206 246
------------------------------------------------- ---- ------- -------
Loss after tax for the period from
discontinued operation - (3)
------------------------------------------------- ---- ------- -------
Profit for the period 206 243
------------------------------------------------- ---- ------- -------
Profit attributable to:
------------------------------------------------- ---- ------- -------
Owners of the Company from continuing
operations 203 243
------------------------------------------------- ---- ------- -------
Non-controlling interests 3 -
------------------------------------------------- ---- ------- -------
Profit for the period from continuing
operations 206 243
------------------------------------------------- ---- ------- -------
Earnings per share
------------------------------------------------- ---- ------- -------
Basic earnings per share 2.2 5.1p 6.1p
------------------------------------------------- ---- ------- -------
Diluted earnings per share 2.2 5.1p 6.1p
------------------------------------------------- ---- ------- -------
Earnings per share from continuing
operations
------------------------------------------------- ---- ------- -------
Basic earnings per share 2.2 5.1p 6.1p
------------------------------------------------- ---- ------- -------
Diluted earnings per share 2.2 5.1p 6.1p
------------------------------------------------- ---- ------- -------
Condensed Consolidated Statement of Comprehensive Income
2017 2016
For the six month period to 30 June GBPm GBPm
-------------------------------------------- ------ -----
Profit for the period 206 243
--------------------------------------------- ------ -----
Other comprehensive income:
-------------------------------------------- ------ -----
Items that are or may be reclassified
to profit or loss
-------------------------------------------- ------ -----
Revaluation of available-for-sale financial
assets (1) 3
--------------------------------------------- ------ -----
Net (loss)/gain on cash flow hedges (6) 7
--------------------------------------------- ------ -----
Exchange (loss)/gain on translation
of foreign operations (net of hedging) (18) 42
--------------------------------------------- ------ -----
Items that will never be reclassified
to profit or loss
-------------------------------------------- ------ -----
Remeasurement (losses)/gains on defined
benefit pension schemes (59) 67
--------------------------------------------- ------ -----
Income tax credit/(charge) on items
that will never be reclassified 8 (12)
--------------------------------------------- ------ -----
Other comprehensive (loss)/income for
the period, net of income tax (76) 107
--------------------------------------------- ------ -----
Total comprehensive income for the
period 130 350
--------------------------------------------- ------ -----
Total comprehensive income attributable
to:
-------------------------------------------- ------ -----
Owners of the Company 127 350
--------------------------------------------- ------ -----
Non-controlling interests 3 -
--------------------------------------------- ------ -----
Total comprehensive income for the
period 130 350
--------------------------------------------- ------ -----
Condensed Consolidated Statement of Financial Position
30 June 31 December 30 June
2017 2016 2016
Note GBPm GBPm GBPm
------------------------------------- ---- ------- ------------ --------
Non-current assets
------------------------------------- ---- ------- ------------ --------
Property, plant and equipment 241 244 240
------------------------------------- ---- ------- ------------ --------
Intangible assets 1,650 1,624 1,634
------------------------------------- ---- ------- ------------ --------
Investments in joint ventures,
associates and equity investments 74 76 36
------------------------------------- ---- ------- ------------ --------
Derivative financial instruments 4.3 3 1 1
------------------------------------- ---- ------- ------------ --------
Distribution rights 35 31 55
------------------------------------- ---- ------- ------------ --------
Other pension asset 3.2 39 39 -
------------------------------------- ---- ------- ------------ --------
Deferred tax asset 22 17 -
------------------------------------- ---- ------- ------------ --------
2,064 2,032 1,966
------------------------------------- ---- ------- ------------ --------
Current assets
------------------------------------- ---- ------- ------------ --------
Programme rights and other inventory 485 406 370
------------------------------------- ---- ------- ------------ --------
Trade and other receivables
due within one year 471 526 535
------------------------------------- ---- ------- ------------ --------
Trade and other receivables
due after more than one year 45 39 36
------------------------------------- ---- ------- ------------ --------
Trade and other receivables 516 565 571
------------------------------------- ---- ------- ------------ --------
Current tax receivable 10 11 12
------------------------------------- ---- ------- ------------ --------
Derivative financial instruments 4.3 6 8 14
------------------------------------- ---- ------- ------------ --------
Assets held for sale - - 8
------------------------------------- ---- ------- ------------ --------
Cash and cash equivalents 4.1 123 561 181
------------------------------------- ---- ------- ------------ --------
1,140 1,551 1,156
------------------------------------- ---- ------- ------------ --------
Current liabilities
------------------------------------- ---- ------- ------------ --------
Borrowings 4.1 (243) (165) (231)
------------------------------------- ---- ------- ------------ --------
Derivative financial instruments 4.3 (1) (3) (6)
------------------------------------- ---- ------- ------------ --------
Trade and other payables due
within one year (862) (960) (775)
------------------------------------- ---- ------- ------------ --------
Trade payables due after more
than one year (48) (57) (57)
------------------------------------- ---- ------- ------------ --------
Trade and other payables (910) (1,017) (832)
------------------------------------- ---- ------- ------------ --------
Current tax liabilities (65) (76) (94)
------------------------------------- ---- ------- ------------ --------
Provisions (19) (19) (27)
------------------------------------- ---- ------- ------------ --------
Liabilities held for sale - - (2)
------------------------------------- ---- ------- ------------ --------
(1,238) (1,280) (1,192)
------------------------------------- ---- ------- ------------ --------
Net current (liabilities)/assets (98) 271 (36)
------------------------------------- ---- ------- ------------ --------
Non-current liabilities
------------------------------------- ---- ------- ------------ --------
Borrowings 4.1 (969) (1,035) (746)
------------------------------------- ---- ------- ------------ --------
Derivative financial instruments 4.3 (1) (9) -
------------------------------------- ---- ------- ------------ --------
Defined benefit pension deficit 3.2 (382) (367) (64)
------------------------------------- ---- ------- ------------ --------
Deferred tax liabilities (67) (70) (97)
------------------------------------- ---- ------- ------------ --------
Other payables (66) (63) (105)
------------------------------------- ---- ------- ------------ --------
Provisions (4) (4) (4)
------------------------------------- ---- ------- ------------ --------
(1,489) (1,548) (1,016)
------------------------------------- ---- ------- ------------ --------
Net assets 477 755 914
------------------------------------- ---- ------- ------------ --------
Attributable to equity shareholders
of the parent company
------------------------------------- ---- ------- ------------ --------
Share capital 403 403 403
------------------------------------- ---- ------- ------------ --------
Share premium 174 174 174
------------------------------------- ---- ------- ------------ --------
Merger and other reserves 220 221 221
Translation reserve 55 79 84
------------------------------------- ---- ------- ------------ --------
Available-for-sale reserve 6 7 9
------------------------------------- ---- ------- ------------ --------
Retained earnings (418) (162) (8)
------------------------------------- ---- ------- ------------ --------
Total equity attributable to
equity shareholders of the parent
company 440 722 883
------------------------------------- ---- ------- ------------ --------
Non-controlling interests 37 33 31
------------------------------------- ---- ------- ------------ --------
Total equity 477 755 914
------------------------------------- ---- ------- ------------ --------
Ian Griffiths
Chief Operating Officer and Group Finance Director
Condensed Consolidated Statement of Changes in Equity
Attributable to equity
shareholders of the parent
company
------------------- ---------------------------------------------------------------------- ----- ----------- ------
Merger
and Non-
Share Share other Translation Available-for-sale Retained controlling Total
capital premium reserves reserve reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Balance at 1 January
2017 403 174 221 79 7 (162) 722 33 755
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Total comprehensive
income for the
period
------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Profit for the
period - - - - - 203 203 3 206
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Other comprehensive
income/(loss)
------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Revaluation of
available-for-sale
financial assets - - - - (1) - (1) - (1)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Net loss on cash
flow hedges - - - (6) - - (6) - (6)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Exchange differences
on translation
of foreign
operations
(net of hedging) - - - (18) - - (18) - (18)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Disposal of
subsidiary - - 2 - - (2) - - -
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Remeasurement
loss on defined
benefit pension
schemes - - - - - (59) (59) - (59)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Income tax credit
on other
comprehensive
income - - - - - 8 8 - 8
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Total other
comprehensive
income/(loss) - - 2 (24) (1) (53) (76) - (76)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Total comprehensive
income/(loss)
for
the period - - 2 (24) (1) 150 127 3 130
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Transactions with
owners, recorded
directly in equity
------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Contributions
by and
distributions
to owners
------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Equity dividends - - - - - (394) (394) (2) (396)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Movements due
to share-based
compensation - - - - - 6 6 - 6
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Purchase of own
shares via
employees'
benefit trust - - - - - (18) (18) - (18)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Total transactions
with owners - - - - - (406) (406) (2) (408)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Changes in
non-controlling
interests - - (3) - - - (3) 3 -
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Balance at 30
June 2017 403 174 220 55 6 (418) 440 37 477
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Attributable to equity
shareholders of the parent
company
----------------------------------------------------------------------
Merger
and Non-
Share Share other Translation Available-for-sale Retained controlling Total
capital premium reserves reserve reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Balance at 1 January
2016 403 174 221 35 6 275 1,114 33 1,147
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Total comprehensive
income for the
period
------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Profit for the
period - - - - - 243 243 - 243
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Other comprehensive
income/(loss)
------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Revaluation of
available-for-sale
financial assets - - - - 3 - 3 - 3
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Net gain on cash
flow hedges - - - 7 - - 7 - 7
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Exchange differences
on translation
of foreign
operations
(net of hedging) - - - 42 - - 42 - 42
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Remeasurement
gains on defined
benefit pension
schemes - - - - - 67 67 - 67
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Income tax charge
on other
comprehensive
income - - - - - (12) (12) - (12)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Total other
comprehensive
income - - - 49 3 55 107 - 107
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Total comprehensive
income for the
period - - - 49 3 298 350 - 350
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Transactions with
owners, recorded
directly in equity
------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Contributions
by and
distributions
to owners
------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Equity dividends - - - - - (566) (566) (2) (568)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Movements due
to share-based
compensation - - - - - 7 7 - 7
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Tax on items taken
directly to equity - - - - - (2) (2) - (2)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Purchase of own
shares via
employees'
benefit trust - - - - - (20) (20) - (20)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Total transactions
with owners - - - - - (581) (581) (2) (583)
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Balance at 30
June 2016 403 174 221 84 9 (8) 883 31 914
-------------------- ------- ------- -------- ----------- ------------------ --------- ----- ----------- ------
Condensed Consolidated Statement of Cash Flows
For the six month period 2017 2016
to 30 June Note GBPm GBPm GBPm GBPm
-------------------------------------- ---- ----- ----- ----- -----
Cash flows from operating
activities
-------------------------------------- ---- ----- ----- ----- -----
Profit before tax 2.1 259 309
-------------------------------------- ---- ----- ----- ----- -----
Share of losses of joint
ventures and associated undertakings 2 -
-------------------------------------- ---- ----- ----- ----- -----
Net financing costs 23 21
-------------------------------------- ---- ----- ----- ----- -----
Operating exceptional items 53 54
-------------------------------------- ---- ----- ----- ----- -----
Depreciation of property,
plant and equipment 17 15
-------------------------------------- ---- ----- ----- ----- -----
Amortisation and impairment 58 40
-------------------------------------- ---- ----- ----- ----- -----
Share-based compensation
and pension service costs 9 7
-------------------------------------- ---- ----- ----- ----- -----
Adjustments to profit 162 137
-------------------------------------- ---- ----- ----- ----- -----
Increase in programme rights
and other inventory,
and distribution rights (80) (20)
-------------------------------------- ---- ----- ----- ----- -----
Decrease/(increase) in receivables 33 (40)
-------------------------------------- ---- ----- ----- ----- -----
Decrease in payables (68) (7)
-------------------------------------- ---- ----- ----- ----- -----
Movement in working capital (115) (67)
-------------------------------------- ---- ----- ----- ----- -----
Cash generated from operations
before exceptional items 306 379
-------------------------------------- ---- ----- ----- ----- -----
Cash flow relating to operating
exceptional items:
-------------------------------------- ---- ----- ----- ----- -----
Operating exceptional items (53) (54)
-------------------------------------- ---- ----- ----- ----- -----
(Decrease)/increase in exceptional
payables (70) 17
-------------------------------------- ---- ----- ----- ----- -----
Decrease in exceptional prepayments
and other receivables 20 29
-------------------------------------- ---- ----- ----- ----- -----
Cash outflow from exceptional
items (103) (8)
-------------------------------------- ---- ----- ----- ----- -----
Operating cash flow from
discontinued operations - (5)
-------------------------------------- ---- ----- ----- ----- -----
Cash generated from operations 203 366
-------------------------------------- ---- ----- ----- ----- -----
Defined benefit pension deficit
funding 3.2 (47) (47)
-------------------------------------- ---- ----- ----- ----- -----
Interest received 21 9
-------------------------------------- ---- ----- ----- ----- -----
Interest paid on bank and
other loans (41) (15)
-------------------------------------- ---- ----- ----- ----- -----
Net taxation paid (65) (33)
-------------------------------------- ---- ----- ----- ----- -----
(132) (86)
-------------------------------------- ---- ----- ----- ----- -----
Net cash inflow from operating
activities 71 280
-------------------------------------- ---- ----- ----- ----- -----
Cash flows from investing
activities
-------------------------------------- ---- ----- ----- ----- -----
Acquisition of subsidiary
undertakings, net of cash
acquired 3.1 (24) (97)
-------------------------------------- ---- ----- ----- ----- -----
Acquisition of property,
plant and equipment (14) (13)
-------------------------------------- ---- ----- ----- ----- -----
Acquisition of intangible
assets (12) (10)
-------------------------------------- ---- ----- ----- ----- -----
Acquisition of investments (15) (3)
-------------------------------------- ---- ----- ----- ----- -----
Loans granted to associates
and joint ventures (2) (3)
-------------------------------------- ---- ----- ----- ----- -----
Net cash outflow from investing
activities (67) (126)
-------------------------------------- ---- ----- ----- ----- -----
Cash flows from financing
activities
-------------------------------------- ---- ----- ----- ----- -----
Bank and other loans - amounts
repaid 4.1 (341) (505)
-------------------------------------- ---- ----- ----- ----- -----
Bank and other loans - amounts
raised 4.1 320 815
-------------------------------------- ---- ----- ----- ----- -----
Capital element of finance
lease payments (4) (4)
-------------------------------------- ---- ----- ----- ----- -----
Equity dividends paid (394) (566)
-------------------------------------- ---- ----- ----- ----- -----
Dividend paid to minority
interest (2) (2)
-------------------------------------- ---- ----- ----- ----- -----
Purchase of own shares via
employees' benefit trust (18) (20)
-------------------------------------- ---- ----- ----- ----- -----
Net cash outflow from financing
activities (439) (282)
-------------------------------------- ---- ----- ----- ----- -----
Net decrease in cash and
cash equivalents (435) (128)
-------------------------------------- ---- ----- ----- ----- -----
Cash and cash equivalents
at 1 January 4.1 561 294
-------------------------------------- ---- ----- ----- ----- -----
Effects of exchange rate
changes and fair value movements (3) 15
-------------------------------------- ---- ----- ----- ----- -----
Cash and cash equivalents
at 30 June 4.1 123 181
-------------------------------------- ---- ----- ----- ----- -----
Notes to the Interim Condensed Financial Statements
Section 1: Basis of Preparation
In this section
This section lays out the accounting conventions and accounting
policies used in preparing these condensed consolidated interim
financial statements.
These condensed consolidated interim financial statements for
the six months ended 30 June 2017 have been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34, 'Interim financial reporting' as adopted
by the European Union.
These condensed consolidated interim financial statements should
be read in conjunction with the annual financial statements for the
year ended 31 December 2016, which were prepared in accordance with
IFRS as adopted by the European Union.
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amount of assets and liabilities, income and expenses. Actual
results may differ from these estimates. Except as described below,
in preparing these condensed consolidated interim financial
statements, the significant judgements made by management in
applying the Group accounting policies and the key sources of
estimation uncertainty were the same as those applied to the
consolidated financial statements as at and for the year ended 31
December 2016.
Revenues are impacted by underlying economic conditions, the
cyclical demand for advertising, seasonality of programme sales,
significant licensing deals and the timing of delivery of ITV
Studios' programmes. Major events, including sporting events, will
impact the seasonality of schedule costs and the mix of programme
spend between sport and other genres, especially drama and
entertainment. Other than this, there is no significant seasonality
or cyclicality affecting the interim results of the operations.
For the purposes of interim reporting, the defined benefit
pension schemes' key assumptions and asset values have been
reviewed to assess whether material net actuarial gains and losses
have occurred during the period (see note 3.2).
During the six months ended 30 June 2017, management also
reassessed its estimates in respect of provisions and considered
the recoverable amount of goodwill and other intangible assets. No
impairment of goodwill or other intangible assets was
identified.
These interim financial statements and the comparative figures
are not statutory accounts. The statutory accounts for the year
ended 31 December 2016 have been reported on by the Company's
auditors and delivered to the Registrar of Companies. The auditors'
report was: (i) unqualified; (ii) did not include a reference to
any matters to which the auditors drew attention by way of emphasis
without qualifying their report; and (iii) did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
Going concern
At 30 June 2017 the Group was in a net debt position. The
Group's strong balance sheet and continued generation of
significant free cash flows has enabled further investment as well
as the payment of a special dividend. See section 4 for details on
capital structure and financing.
The Group continues to review forecasts of the television
advertising market to determine the impact on ITV's liquidity
position. The Group's forecasts and projections, taking account of
reasonably possible changes in trading performance, show that the
Group will be able to operate within the level of its current
available funding.
The Group also continues to focus on development of the
non-advertising business, and evaluates the impact of further
investment against the strategy and cash headroom of the
business.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operation for at least twelve months from the date of this report.
Accordingly, the Group continues to adopt the going concern basis
in preparing its consolidated financial statements.
New or amended EU endorsed accounting standards
Details of new or revised accounting standards, interpretations
or amendments which are effective for periods beginning on or after
1 January 2017 and which are considered to have an impact on the
Group can be found in the annual financial statements for the year
ended 31 December 2016.
IFRS 15 Revenue from Contracts with Customers is effective 1
January 2018. IFRS 15 will require the Group to identify distinct
promises in contracts with customers that qualify as 'performance
obligations'. The price receivable from customers must then be
allocated between the performance obligations identified.
An initial assessment of the impact on the Group's performance
has been performed on material revenue streams. The impact is not
expected to be material for either Broadcast & Online or ITV
Studios revenues.
The Directors anticipate adopting IFRS 15 on 1 January 2018.
When IFRS 15 is adopted it can be applied either on a fully
retrospective basis, requiring the restatement of the comparative
periods presented in the financial statements, or with the
cumulative retrospective impact of the standard applied as an
adjustment to equity on the date of adoption. The Directors
currently intend to apply the fully retrospective method.
IFRS 9 Financial Instruments is also effective 1 January 2018.
Based on the initial assessment of the impact, the Directors are
currently not expecting the application to significantly impact the
Group's current accounting or hedging activities.
IFRS 16 Leases is effective 1 January 2019 and has not yet been
endorsed by the EU. IFRS 16 will change lease accounting for
lessees under operating leases. Such agreements will require
recognition of an asset representing the right to use the leased
item and a liability for future lease payments. Lease costs (such
as property rent) will be recognised in the form of depreciation
and interest, rather than operating cost. The detailed assessment
of impact on the Group's performance is ongoing, the adoption is
likely to have a material impact on the presentation of the Group's
assets and liabilities.
Section 2: Results for the Period
In this section
This section focuses on the results and performance of the
Group. In the following section you will find disclosures
explaining the Group's results for the period, segmental
information and earnings per share.
2.1 Profit before tax
Keeping it simple
Adjusted earnings before interest, tax and amortisation
(adjusted EBITA) is the Group's key profit indicator. This reflects
the way the business is managed and how the Directors assess the
performance of the Group.
The Group has two divisions, or operating segments, namely
'Broadcast & Online' and 'ITV Studios', the performance of
which are managed and assessed separately by management. This
section also shows each division's contribution to total revenue
and adjusted EBITA.
Segmental information
Operating segments, which have not been aggregated, are
determined in a manner that is consistent with how the business is
managed and reported to the Board of Directors. The Board is
regarded as the chief operating decision maker.
The Board considers the business primarily from an operating
activity perspective. The reportable segments for the periods ended
30 June 2017 and 30 June 2016 are therefore Broadcast & Online
and ITV Studios, the results of which are outlined in the following
tables:
Broadcast
& Online ITV Studios Consolidated
2017 2017 2017
For the six month period to 30 June GBPm GBPm GBPm
------------------------------------ --------- ----------- ------------
Total segment revenue 1,000 697 1,697
------------------------------------ --------- ----------- ------------
Intersegment revenue - (239) (239)
------------------------------------ --------- ----------- ------------
Revenue from external customers 1,000 458 1,458
------------------------------------ --------- ----------- ------------
Adjusted EBITA** 293 110 403
------------------------------------ --------- ----------- ------------
Broadcast
& Online ITV Studios Consolidated
2016 2016 2016
For the six month period to 30 June GBPm GBPm GBPm
-------------------------------------------- --------- ----------- ------------
Total segment revenue 1,065 651 1,716
-------------------------------------------- --------- ----------- ------------
Intersegment revenue - (209) (209)
-------------------------------------------- --------- ----------- ------------
Revenue from external customers including
discontinued operations 1,065 442 1,507
-------------------------------------------- --------- ----------- ------------
Less: Discontinued operations* (4) - (4)
-------------------------------------------- --------- ----------- ------------
Revenue from external customers 1,061 442 1,503
-------------------------------------------- --------- ----------- ------------
Adjusted EBITA including discontinued
operations 314 121 435
-------------------------------------------- --------- ----------- ------------
Adjusted EBITA from discontinued operations 3 - 3
-------------------------------------------- --------- ----------- ------------
Adjusted EBITA** 317 121 438
-------------------------------------------- --------- ----------- ------------
* Following the purchase of the 100% controlling interest in UTV
Limited in February 2016, management concluded that the best
prospect of delivering a strong and sustainable Irish broadcaster
was to bring UTV Ireland under common ownership with TV3, and
subsequently sold UTV Ireland Limited to Virgin Media, owner of
TV3, on 11 July 2016 for EUR10 million.
** Adjusted EBITA is before exceptional items and includes the
benefit of production tax credits. It is shown after the
elimination of intersegment revenue and costs. This measure
represents the continuing operations.
Adjusted EBITA
A reconciliation from adjusted EBITA to profit before tax is
provided as follows:
2017 2016
For the six month period to 30 June GBPm GBPm
------------------------------------------------- ----- -----
Adjusted EBITA 403 438
------------------------------------------------- ----- -----
Production tax credits (8) (14)
------------------------------------------------- ----- -----
EBITA before exceptional items from continuing
operations 395 424
------------------------------------------------- ----- -----
Operating exceptional items (53) (54)
------------------------------------------------- ----- -----
Amortisation and impairment (58) (40)
------------------------------------------------- ----- -----
Net financing costs (23) (21)
------------------------------------------------- ----- -----
Share of losses of joint ventures and associated
undertakings (2) -
------------------------------------------------- ----- -----
Profit before tax from continuing operations 259 309
------------------------------------------------- ----- -----
A reconciliation of Profit before tax to Adjusted Profit before
tax is included in the Finance and Performance Review.
2.2 Earnings per share
Keeping it simple
Earnings per share ('EPS') is the amount of post-tax profit
attributable to each share.
Basic EPS is calculated on the Group profit for the period
attributable to equity shareholders of GBP203 million (2016: GBP246
million) divided by 4,010 million (2016: 4,011 million) being the
weighted average number of shares in issue during the period.
Diluted EPS reflects any commitments made by the Group to issue
shares in the future and so it includes the impact of share
options.
Adjusted EPS is presented in order to show the business
performance of the Group in a consistent manner and reflect how the
business is managed and measured on a day-to-day basis. Adjusted
EPS reflects the impact of operating and non-operating exceptional
items on Basic EPS. Other items excluded from Adjusted EPS include
amortisation and impairment; net financing cost adjustments and the
tax adjustments relating to these items. Each of these adjustments
are explained in detail in the section below.
The calculation of Basic EPS and Adjusted EPS, together with the
diluted impact on each, is set out below:
Earnings per share
2017 2016
For the six month period to 30 June GBPm GBPm
------------------------------------------------ ----- -----
Profit for the period attributable to equity
shareholders of ITV plc 203 243
------------------------------------------------ ----- -----
Less: Loss for the period from discontinued
operations - (3)
------------------------------------------------ ----- -----
Profit for the period attributable to equity
shareholders of ITV plc from continuing
operations 203 246
------------------------------------------------ ----- -----
Weighted average number of ordinary shares
in issue - million 4,010 4,011
------------------------------------------------ ----- -----
Earnings per ordinary share and from continuing
operations 5.1p 6.1p
------------------------------------------------ ----- -----
Loss per ordinary share from discontinued - -
operations
------------------------------------------------ ----- -----
Diluted earnings per share
2017 2016
For the six month period to 30 June GBPm GBPm
-------------------------------------------------- ----- -----
Profit for the period attributable to equity
shareholders of ITV plc from continuing
operations 203 246
-------------------------------------------------- ----- -----
Weighted average number of ordinary shares
in issue - million 4,010 4,011
-------------------------------------------------- ----- -----
Dilution due to share options 9 20
-------------------------------------------------- ----- -----
Total weighted average number of ordinary
shares in issue - million 4,019 4,031
-------------------------------------------------- ----- -----
Diluted earnings per ordinary share and
from continuing operations 5.1p 6.1p
-------------------------------------------------- ----- -----
Diluted loss per ordinary share from discontinued - -
operations
-------------------------------------------------- ----- -----
Adjusted earnings per share
2017 2016
For the six month period to 30 June Ref. GBPm GBPm
------------------------------------------- ----- ----- -----
Profit for the period attributable
to equity shareholders of ITV plc 203 243
-------------------------------------------------- ----- -----
Exceptional items (net of tax) A 50 53
------------------------------------------- ----- ----- -----
Less: Loss after tax for the period
from discontinued operations - (3)
-------------------------------------------------- ----- -----
Profit for the period before exceptional
items from continuing operations 253 299
-------------------------------------------------- ----- -----
Amortisation and impairment B 48 31
------------------------------------------- ----- ----- -----
Adjustments to net financing costs C 5 9
------------------------------------------- ----- ----- -----
Other tax adjustments 1 1
-------------------------------------------------- ----- -----
Adjusted profit from continuing operations 307 340
-------------------------------------------------- ----- -----
Total weighted average number of ordinary
shares in issue - million 4,010 4,011
-------------------------------------------------- ----- -----
Adjusted earnings per ordinary share
and from continuing operations 7.7p 8.5p
-------------------------------------------------- ----- -----
Adjusted loss per ordinary share from - -
discontinued operations
-------------------------------------------------- ----- -----
Diluted adjusted earnings per share
2017 2016
For the six month period to 30 June GBPm GBPm
--------------------------------------------- ----- -----
Adjusted profit from continuing operations 307 340
--------------------------------------------- ----- -----
Weighted average number of ordinary shares
in issue - million 4,010 4,011
--------------------------------------------- ----- -----
Dilution due to share options 9 20
--------------------------------------------- ----- -----
Total weighted average number of ordinary
shares in issue - million 4,019 4,031
--------------------------------------------- ----- -----
Diluted adjusted earnings per ordinary share
and from continuing operations 7.6p 8.4p
--------------------------------------------- ----- -----
Diluted adjusted loss per ordinary share - -
from discontinued operations
--------------------------------------------- ----- -----
The rationale for determining the adjustments to profit is
disclosed in the 31 December 2016 Annual Report and has not changed
during the period. Details of the adjustments to earnings are as
follows:
A. Exceptional items (net of tax) GBP50 million (2016: GBP53
million)
Operating and non-operating exceptional items of GBP53 million
(2016: GBP54 million), net of a tax credit of GBP3 million (2016:
GBP1 million) relate to GBP50 million of acquisition-related
expenses, primarily performance-based, employment linked
consideration and other items including restructuring costs and
property project costs of GBP3 million.
B. Amortisation and impairment of GBP48 million (2016: GBP31
million)
Calculated as total amortisation and impairment of assets
acquired through business combinations and investments of GBP55
million (2016: GBP37 million), which excludes amortisation and
impairment of software licenses and development of GBP3 million
(2016: GBP3 million), net of a related tax credit of GBP10 million
(2016: GBP10 million). This is then adjusted to recognise a GBP3
million cash tax benefit arising from goodwill on US acquisitions,
which for tax purposes is amortised over a 15-year period (2016:
GBP4 million).
C. Adjustments to net financing costs GBP5 million (2016: GBP9
million)
Net financing costs are adjusted for mark-to-market movements on
derivative instruments, foreign exchange and imputed pension
interest charges of GBP6 million (2016: GBP11 million), net of a
related tax credit of GBP1 million (2016: GBP2 million).
Dividends
Equity dividends are derived from the distributable reserves of
the ITV plc Company and not from the consolidated Group, and
therefore the consolidated retained loss presented on the condensed
consolidated balance sheet does not represent a block to our
dividend policy. The Board is committed to a long-term sustainable
dividend policy and for ordinary dividends to grow broadly in line
with earnings, targeting dividend cover of around 2x adjusted
earnings per share over the medium term.
The Board has declared an interim dividend of 2.52p, an increase
of 5%, reflecting our confidence in the underlying strength of the
business.
Section 3: Operating Assets and Liabilities
In this section
This section shows the assets used to generate the Group's
trading performance and the liabilities incurred as a result. In
the following section there are notes covering acquisitions and
pensions.
Liabilities relating to the Group's financing activities are
addressed in section 4.
3.1 Acquisitions
Keeping it simple
The following section outlines what the Group has acquired in
the period.
Most of the deals are structured so that a large part of the
payment made to the sellers ('consideration') is determined based
on future performance. This is done so that the Group can both
align incentives for growth, while reducing risk so that total
consideration reflects actual, not expected performance.
IFRS accounting standards require some of this consideration to
be included in the purchase price used in determining goodwill
('contingent consideration'). Examples of contingent consideration
include top-up payments and recoupable performance adjustments. Any
remaining consideration is required to be recognised as a liability
or expense outside of acquisition accounting (put option
liabilities and employment-linked contingent payments known as
'earnout' payments).
The Group considers the income statement impact of all
consideration to be capital in nature and therefore excludes it
from adjusted profit. Therefore, for each acquisition below, the
distinction between the types of consideration has been explained
in detail.
Acquisitions
During the period, the Group made payments totalling GBP33
million for three acquisitions: Tetra Media Studios SAS, World
Productions Limited and Elk Production AB, all of which have been
included in the results of the ITV Studios operating segment. The
Group also has a present right to convert its 75% preference
shareholding in Tomorrow ITV Studios LLC into 75% common shares for
GBPnil consideration.
The businesses fit with the strategy of strengthening the
Group's existing position as a producer for major television
networks in the UK and Europe.
Key terms:
Tetra Media Studios SAS
On 28 February 2017, the Group purchased 65.04% of the share
capital of Tetra Media Studios SAS, a French television production
group which specialises in drama, including flagship crime series
Profilage, now in its seventh series, and political crime thriller
Les Hommes de l'Ombre. The cash consideration of GBP20 million
(EUR22.9 million) was paid on acquisition. A put and call option
has been granted over the remaining 34.96% of share capital
exercisable over the next seven years. In addition, a further
payment, capped at EUR2 million, is payable in two years. The total
maximum consideration is capped at EUR50 million. All future
payments are dependent on future performance of the business and
linked to ongoing employment.
World Productions Limited
On 30 April 2017, the Group purchased 92% of the share capital
of World Productions Limited, a company which specialises in
producing drama series with titles including Line of Duty, an
award-winning British police crime drama, and Born to Kill, a
British thriller television mini-series. The initial cash
consideration of GBP8 million was paid on acquisition. A put and
call option is held over the remaining 8% share capital,
exercisable over the next seven years. The total future payments
are capped at GBP4 million and are dependent on future performance
of the business and linked to ongoing employment.
Elk Production AB
On 21 June 2017, the Group acquired 96% of the share capital of
Elk Production AB for cash consideration of GBP5 million (SEK 51.9
million) paid on acquisition. Elk is one of the leading independent
production companies in Sweden. Key acquired titles include Ninja
Warrior, an obstacle course competition series, and
Dessertmästarna, a dessert cooking competition, whilst original
formats include Parneviks, an award winning reality TV show. A put
and call option have been agreed for the non-controlling interest,
exercisable over the next six years, with the total future payment
capped at SEK 30 million. All future payments are dependent on
future performance of the business and linked to ongoing
employment.
Tomorrow ITV Studios LLC
On 1 April 2017, the Group has gained de facto control of
Tomorrow ITV Studios LLC due to the right to convert its 75%
preference share capital into 75% ordinary share capital for GBPnil
consideration. The company produced Aquarius, a US period crime
drama television series, which aired for two seasons on NBC in 2015
and 2016. A put and call option has been granted over the resultant
25% minority equity interest, exercisable in 2021. The future
payment is capped at $200 million. A portion of the future payment
is dependent on future performance of the business and linked to
ongoing employment.
Acquisition accounting:
The total maximum additional consideration that the Group could
pay as a result of these acquisitions is GBP192 million
(undiscounted) if their performance exceeds expectations. Goodwill
totalling GBP57 million arising on these acquisitions is not
expected to be deductible for tax purposes and represents the value
placed on the opportunity to grow the content produced by the
Group.
While IFRS accounting standards considers future payments that
are linked to ongoing employment as an expense, recorded over the
applicable employment period, the Group considers these payments as
capital in nature and therefore expenses in relation to these
payments are excluded from adjusted profits as an exceptional
item.
Acquisitions in 2016
In 2016 the Group completed the acquisition of UTV Limited,
which has been included in the results of the Broadcast &
Online operating segment. The business fits with the strategy of
strengthening the Group's free-to-air business and enables it to
run a more efficient network. The following section provides a
summary of the acquisition.
UTV Limited
On 29 February 2016 the Group acquired a 100% controlling
interest in UTV Limited which, together with its 100% subsidiary
UTV Ireland Limited, owned the television assets of UTV Media plc.
UTV is the market leading commercial broadcaster in Northern
Ireland, broadcasting ITV content alongside high-quality local
programming. The strategic rationale for the acquisition was to
purchase the Northern Irish Channel 3 license.
UTV Limited launched a new dedicated channel for the Republic of
Ireland in 2015 via its subsidiary UTV Ireland Limited. Management
concluded that the best prospect of delivering a strong and
sustainable Irish broadcaster was to bring UTV Ireland under common
ownership with TV3. ITV therefore sold the company to Virgin Media,
owner of TV3, on 30 November 2016, for consideration of
EUR10million.
Key terms:
The Group purchased the businesses for cash consideration of
GBP100 million.
UTV Limited acquisition accounting:
Intangibles, being the value placed on brands and licences, of
GBP58 million were identified and goodwill was valued at GBP44
million. Goodwill represents the value placed on the opportunity to
diversify and grow the business by the Group. The goodwill arising
on acquisition is not expected to be deductible for tax purposes.
Other fair value adjustments have been made to the opening balance
sheet, though none of them are individually significant.
Effect of acquisitions
The acquisitions noted above had the following impact on the
Group's assets and liabilities:
2017 2016
GBPm Total Total
----------------------------------------------- ------ ------
Consideration transferred:
----------------------------------------------- ------ ------
Initial consideration (net of cash acquired)
(Note A) 24 97
----------------------------------------------- ------ ------
Total consideration 24 97
----------------------------------------------- ------ ------
Fair value of net assets acquired:
----------------------------------------------- ------ ------
Property, plant and equipment 6 4
----------------------------------------------- ------ ------
Intangible assets 12 58
----------------------------------------------- ------ ------
Deferred tax liabilities (3) (11)
----------------------------------------------- ------ ------
Deferred tax assets 2 -
----------------------------------------------- ------ ------
Inventory 4 -
----------------------------------------------- ------ ------
Trade and other receivables 17 5
----------------------------------------------- ------ ------
Trade and other payables (38) (7)
----------------------------------------------- ------ ------
Net assets held for sale - 4
----------------------------------------------- ------ ------
Fair value of net assets - 53
----------------------------------------------- ------ ------
Fair value of previously held preference
shares (Note B) 29 -
----------------------------------------------- ------ ------
Non-controlling interest measured at fair
value (Note C) 4 -
----------------------------------------------- ------ ------
Goodwill 57 44
----------------------------------------------- ------ ------
Other information:
----------------------------------------------- ------ ------
Present value of the liability on options 2 -
----------------------------------------------- ------ ------
Present value at acquisition of the earnout
payment 13 -
----------------------------------------------- ------ ------
Contributions to the Group's performance:
----------------------------------------------- ------ ------
From date of acquisition to June
----------------------------------------------- ------ ------
Revenue 6 11
----------------------------------------------- ------ ------
Adjusted EBITA (1) 3
----------------------------------------------- ------ ------
Proforma - January to June
----------------------------------------------- ------ ------
Revenue 26 17
----------------------------------------------- ------ ------
Adjusted EBITA (1) 4
----------------------------------------------- ------ ------
Note A: Consideration for all acquisitions is net of cash
acquired and estimated debt and working capital settlements. Cash
acquired during the period is GBP9 million (2016: GBP3
million).
Note B: The acquisition of Tomorrow Studios was effected by the
right to convert of the Group's non-controlling preference shares
into a controlling stake of ordinary shares. On change of control
the IFRS accounting standards require the Group to fair value the
previously held preference shares and include within the
calculation of goodwill.
Note C: Non-controlling interest arises where the Group acquires
less than 100% of the equity interest in a business, but obtains
control.
3.2 Pensions
Keeping it simple
In this note we explain the accounting policies governing the
Group's pension scheme, followed by analysis of the components of
the net defined benefit pension deficit, including assumptions
made, and where the related movements have been recognised in the
financial statements.
What are the Group's pension schemes?
There are two types of pension schemes. A 'Defined Contribution'
scheme that is open to ITV employees, and a number of 'Defined
Benefit' schemes that have been closed to new members since 2006
and have been closed to future accrual in 2017. A curtailment loss
was recognised in 2016 in relation to the closure. In 2016 on
acquisition of UTV Limited the Group took over the UTV Defined
Benefit Scheme.
What is a Defined Contribution scheme?
The 'Defined Contribution' scheme is where the Group makes fixed
payments into a separate fund on behalf of those employees that
have elected to participate in saving for their retirement. ITV has
no further obligation to the participating employee and the risks
and rewards associated with this type of scheme are assumed by the
members rather than the Group. It is the members' responsibility to
make investment decisions relating to their retirement
benefits.
What is a Defined Benefit scheme?
In a 'Defined Benefit' scheme, members receive cash payments
during retirement, the value of which is dependent on factors such
as salary and length of service. The Group makes contributions to
the scheme, a separate trustee-administered fund that is not
consolidated in these financial statements, but is reflected on the
consolidated statement of financial position within the defined
benefit pension deficit line. It is the responsibility of the
Trustee to manage and invest the assets of the Scheme and its
funding position. The Trustee, appointed according to the terms of
the Scheme's documentation, is required to act in the best interest
of the members and is responsible for managing and investing the
assets of the scheme and its funding position.
In the event of changes in the deficit position the Group needs
to address this through a combination of increased levels of
contribution or by making adjustments to the scheme. Schemes can be
funded, where regular cash contributions are made by the employer
into a fund which is invested, or unfunded, where no regular money
or assets are required to be put aside to cover future
payments.
The net pension deficit is presented consistently with
definitions presented in the Group's 2016 Annual Report.
The net pension deficit at 30 June 2017 was GBP343 million,
compared with a deficit of GBP328 million at 31 December 2016. The
increase in deficit was primarily as a result of losses in asset
values along with the increase in the gross liability offset by
deficit funding payments of GBP47 million made in the period (30
June 2016: GBP47 million).
The gross liability increased primarily due to a decline in the
discount rate from 2.6% at 31 December 2016 to 2.5% at 30 June 2017
caused by declining AA corporate bond yields. This was partially
offset by a 0.1% decrease in the market expectation of long-term
inflation rates.
30 June 31 December
2017 2016
GBPm GBPm
----------------------------------------- ------- -----------
Total defined benefit scheme obligations (4,199) (4,200)
----------------------------------------- ------- -----------
Total defined benefit scheme assets 3,817 3,833
----------------------------------------- ------- -----------
Defined benefit pension deficit (IAS 19) (382) (367)
----------------------------------------- ------- -----------
Other pension asset 39 39
----------------------------------------- ------- -----------
Net pension deficit (343) (328)
----------------------------------------- ------- -----------
Section 4: Capital Structure and Financing Costs
In this section
This section outlines how the Group manages its capital
structure and related financing costs, including its balance sheet
liquidity and access to capital markets.
The Directors determine the appropriate capital structure of
ITV, specifically how much is raised from shareholders (equity) and
how much is borrowed from financial institutions (debt) in order to
finance the Group's activities both now and in the future.
Maintaining capital discipline and balance sheet efficiency remains
important to the Group. Any potential courses of action will take
into account the Group's liquidity needs, flexibility to invest in
the business, pension deficit initiatives and impact on credit
ratings.
The Directors consider the Group's capital structure and
dividend policy at least twice a year ahead of announcing results
and do so in the context of its ability to continue as a going
concern, to execute the strategy and to invest in opportunities to
grow the business and enhance shareholder value.
A Tax and Treasury committee acting under delegated authority
from the Board, approves certain financial transactions and
monitors compliance with the Group's tax and treasury policies.
4.1 Net debt
Keeping it simple
Net debt is the Group's key measure used to evaluate total cash
resources net of the current outstanding debt.
Adjusted net debt is also monitored by the Group and more
closely reflects how credit agencies see the Group's gearing. To
arrive at the adjusted net debt amount, we add our total
undiscounted expected contingent payments on acquisitions, our net
pension deficit and our undiscounted operating lease commitments. A
full analysis and discussion of adjusted net debt is included in
the Financial and Performance Review.
The tables below analyse movements in the components of net debt
during the period:
Net cash Currency
flow and
1 January and non-cash 30 June
2017 acquisitions movements 2017
GBPm GBPm GBPm GBPm
---------------------------------- --------- ------------- ---------- -------
Cash 549 (432) (2) 115
---------------------------------- --------- ------------- ---------- -------
Cash equivalents 12 (4) - 8
---------------------------------- --------- ------------- ---------- -------
Total cash and cash equivalents 561 (436) (2) 123
---------------------------------- --------- ------------- ---------- -------
Loans and facilities due within
one year (161) (81) - (242)
---------------------------------- --------- ------------- ---------- -------
Finance leases due within
one year (4) 3 - (1)
---------------------------------- --------- ------------- ---------- -------
Loans and facilities due after
one year (1,035) 99 (28) (964)
---------------------------------- --------- ------------- ---------- -------
Finance leases due after one
year - (5) - (5)
---------------------------------- --------- ------------- ---------- -------
Total debt (1,200) 16 (28) (1,212)
---------------------------------- --------- ------------- ---------- -------
Currency component of swaps
held against euro denominated
bonds 2 - 13 15
---------------------------------- --------- ------------- ---------- -------
Net debt (637) (420) (17) (1,074)
---------------------------------- --------- ------------- ---------- -------
Loans and facilities due within one year
The Group has GBP630 million of available funding through a
Revolving Credit Facility ('RCF') with a group of relationship
banks. During the period the Group drew down on the RCF to meet
short-term funding requirements. At 30 June 2017 the Group had
drawings of GBP240 million (31 December 2016: GBPnil). The maximum
draw down of the RCF during the period was GBP320 million (2016:
maximum draw down was GBP500 million).
The Group also had an unsecured GBP161 million Eurobond which
matured in January 2017 and had a coupon of 6.125%.
Loans and loan notes due after one year
The Group had a GBP100 million bilateral loan facility which
could be extended to June 2018 (31 December 2016: GBP100 million),
but was repaid in full in June 2017.
The Group has issued the following Eurobonds:
-- A seven-year EUR600 million Eurobond at a fixed coupon of
2.125% which matures in September 2022.
-- A seven-year EUR500 million Eurobond at a fixed coupon of
2.0% which will mature in December 2023. The bond issued in
December 2016 has been swapped back to sterling using a cross
currency interest swap. The resulting fixed rate payable is c.
3.5%. The proceeds of the bond were for general corporate purposes
including the repayment of the GBP161 million Eurobond which
matured in January 2017 and settling acquisition related
liabilities due in 2017.
4.2 Borrowings
Keeping it simple
The Group borrows money from financial institutions in the form
of bonds, bank facilities and other financial instruments.
The Group is required to disclose the fair value of its debt
instruments. The fair value is the amount the Group would pay a
third party to transfer the liability. It is calculated based on
the present value of future principal and interest cash flows,
discounted at the market rate of interest at the reporting
date.
Fair value versus book value
The tables below provide fair value information for the Group's
borrowings:
Book value Fair value
-------------------- --------------------
30 June 31 December 30 June 31 December
2017 2016 2017 2016
Maturity GBPm GBPm GBPm GBPm
--------------------------- --------- ------- ----------- ------- -----------
Loans due within one year
--------------------------- --------- ------- ----------- ------- -----------
Other short-term loans Various 2 - 2 -
--------------------------- --------- ------- ----------- ------- -----------
Revolving Credit Facility Various 240 - 240 -
--------------------------- --------- ------- ----------- ------- -----------
GBP161 million Eurobond Jan 2017 - 161 - 162
--------------------------- --------- ------- ----------- ------- -----------
242 161 242 162
------------------------------------- ------- ----------- ------- -----------
Loans due in more than one
year
--------------------------- --------- ------- ----------- ------- -----------
Other long-term loans Various 1 - 1 -
--------------------------- --------- ------- ----------- ------- -----------
Bilateral loan facility Jun 2018 - 100 - 100
--------------------------- --------- ------- ----------- ------- -----------
Sept
EUR600 million Eurobond 2022 523 508 547 529
--------------------------- --------- ------- ----------- ------- -----------
EUR500 million Eurobond Dec 2023 440 427 448 431
--------------------------- --------- ------- ----------- ------- -----------
964 1,035 996 1,060
------------------------------------- ------- ----------- ------- -----------
4.3 Managing market risks: derivative financial instruments
Keeping it simple
What is a derivative?
A derivative is a type of financial instrument typically used to
manage risk. A derivative's value changes over time in response to
underlying variables such as exchange rates or interest rates and
is entered into for a fixed period. A hedge is where a derivative
is used to manage exposure in such risks.
The Group is exposed to certain market risks. In accordance with
Board approved policies, which are set out in this note, the Group
manages these risks by using derivative financial instruments to
hedge the underlying exposures.
Why do we need them?
The key market risks facing the Group are:
-- Currency risk arising from:
i. translation risk, that is, the risk in the period of adverse
currency fluctuations in the translation of foreign currency
profits, assets and liabilities ('balance sheet risk') and
non-functional currency monetary assets and liabilities ('income
statement risk'); and
ii. transaction risk, that is, the risk that currency
fluctuations will have a negative effect on the value of the
Group's non-functional currency trading cash flows.
A non-functional currency transaction is a transaction in any
currency other than the reporting currency of the subsidiary.
-- Interest rate risk to the Group arises from significant
changes in interest rates on borrowings issued at or swapped to
floating rates.
How do we use them?
The Group mainly employs four types of derivative financial
instruments when managing its currency and interest rate risk:
-- Foreign exchange swap contracts are derivative instruments
used to hedge income statement translation risk arising from short
term intercompany loans denominated in a foreign currency;
-- Forward foreign exchange contracts are derivative instruments
used to hedge transaction risk so they enable the sale or purchase
of foreign currency at a known fixed rate on an agreed future date
;
-- Interest rate swaps are derivative instruments that exchange
a fixed rate of interest for a floating rate, or vice versa, or one
type of floating rate for another, and are used to manage interest
rate risk; and
-- Cross-currency interest rate swaps are derivative instruments
used to exchange the principal and interest coupons in a debt
instrument from one currency to another.
The Group's policy on the various methods used to calculate
their respective fair values is detailed in the 31 December 2016
Annual Report and summarised below.
Currency risk
As the Group expands its international operations, the
performance of the business becomes increasingly sensitive to
movements in foreign exchange rates, primarily with respect to the
US dollar and the euro.
The Group's foreign exchange policy is to use forward foreign
exchange contracts to hedge material non-functional currency
denominated costs or revenue at the time of commitment for up to
five years forward. The Group also hedges a proportion of highly
probable non-functional currency denominated costs or revenue on a
rolling 18-month basis.
The Group ensures that its net exposure to foreign currency
denominated cash balances is kept to a minimal level by using
foreign currency swaps to exchange balances back into sterling or
by buying or selling foreign currencies at spot rates when
necessary.
The Group also utilises foreign exchange swaps and
cross-currency interest rate swaps both to manage foreign currency
cash flow timing differences and to hedge foreign currency
denominated monetary items. On issuing the 2023 Eurobond, the Group
entered into a portfolio of cross-currency interest rate swaps,
which swapped the euro principal and fixed rate coupons into
sterling. As a result the Group makes sterling interest payments at
a fixed rate.
The Group's net investments in overseas subsidiaries may be
hedged where the currency exposure is considered to be material.
The Group has designated a portion of its euro borrowings into a
net investment hedge against its euro denominated assets following
the acquisition of Talpa Media.
Interest rate risk
The Group's interest rate policy is to allow fixed rate gross
debt to vary between 20% and 100% of total gross debt to
accommodate floating rate borrowings under the revolving credit
facility.
At 30 June 2017 the Group's fixed rate debt represented 80% of
total gross debt (31 December 2016: 92%). Consequently a 1%
movement in interest rates on floating rate debt would impact the
2017 post-tax profit for the period by less than GBP1 million.
Cash flow hedges
The Group applies hedge accounting for certain foreign currency
commitments and highly probably cash flows where the underlying
cash flows are payable within the next two to six years. In order
to fix the sterling cash outflows associated with these cash flows
- which are mainly denominated in Australian dollars or euros - the
Group has taken out forward foreign exchange contracts and cross
currency interest swaps for the same foreign currency amount and
maturity date as the expected foreign currency cash flows.
The amount recognised in other comprehensive income during the
period relates to the effective portion of the revaluation loss
associated with these contracts. Any hedging relationships that are
ineffective in managing the underlying exposure is taken to the
income statement. There was less than GBP1 million (2016: GBP1
million) ineffectiveness taken to the income statement during the
period. The cumulative gain or loss on cash flows which are
realised during the period are recycled from equity to the income
statement. A GBP15 million cumulative gain (2016: GBP1 million
loss) was recycled to the income statement in the period.
Net investment hedges
The Group uses euro denominated debt to partially hedge against
the change in the sterling value of its euro denominated net assets
due to movements in foreign exchange rates. The fair value of debt
in the net investment hedges was GBP173 million (31 December 2016:
GBP168 million). A foreign exchange loss of GBP5 million (2016:
GBP18 million) relating to the net investment hedges has been
netted off within exchange gains or losses on translation of
foreign operations as presented on the consolidated statement of
comprehensive income for the period.
Interest rate swaps
On issuing the GBP161 million 2017 Eurobond, the Group entered
into a portfolio of fixed to floating interest rate swaps and then
subsequently overlaid a portfolio of floating to fixed interest
rate swaps with the result that interest was 100% fixed on these
borrowings. The timing of entering into these swaps locked in an
interest benefit for the Group, resulting in a net mark-to-market
gain on the portfolio. These swaps matured with the Eurobond in
January 2017.
Assets Liabilities
At 30 June 2017 GBPm GBPm
--------------------------------------------- ------ -----------
Current
--------------------------------------------- ------ -----------
Foreign exchange forward contracts and swaps
- cash flow hedges 4 (1)
--------------------------------------------- ------ -----------
Foreign exchange forward contracts and swaps
- fair value through profit or loss 2 -
--------------------------------------------- ------ -----------
Non-current
--------------------------------------------- ------ -----------
Cross currency interest swaps - cash flow
hedges 3 -
--------------------------------------------- ------ -----------
Foreign exchange forward contracts and swaps
- cash flow hedges - (1)
--------------------------------------------- ------ -----------
9 (2)
--------------------------------------------- ------ -----------
Assets Liabilities
At 31 December 2016 GBPm GBPm
--------------------------------------------- ------ -----------
Current
--------------------------------------------- ------ -----------
Foreign exchange forward contracts and swaps
- cash flow hedges 6 (1)
--------------------------------------------- ------ -----------
Foreign exchange forward contracts and swaps
- fair value through profit or loss 2 (2)
--------------------------------------------- ------ -----------
Non-current
--------------------------------------------- ------ -----------
Cross currency interest swaps - cash flow
hedges - (6)
--------------------------------------------- ------ -----------
Foreign exchange forward contracts and swaps
- cash flow hedges 1 (3)
--------------------------------------------- ------ -----------
9 (12)
--------------------------------------------- ------ -----------
Commitments on acquisitions
Other payables include GBP103 million (31 December 2016: GBP158
million) of acquisition related liabilities, of which GBP50 million
(31 December 2016: GBP110 million) is employment linked contingent
consideration and GBP53 million (31 December 2016: GBP48 million)
is payable to sellers under put options agreed on acquisition.
4.4 Fair value hierarchy
Keeping it simple
The financial instruments included on the ITV condensed
consolidated statement of financial position are measured at either
fair value or amortised cost. The measurement of this fair value
can in some cases be subjective, and can depend on the inputs used
in the calculations. ITV generally uses external valuations using
market inputs or market values (e.g. external share prices). The
different valuation methods are called 'hierarchies' and are
described below.
Level 1
Fair values are measured using quoted prices (unadjusted) in
active markets for identical assets or liabilities.
Level 2
Fair values are measured using inputs, other than quoted prices
included within Level 1, that are observable for the asset or
liability either directly or indirectly.
Interest rate swaps and options are accounted for at their fair
value based upon termination prices. Forward foreign exchange
contracts are accounted for at the difference between the contract
exchange rate and the quoted forward exchange rate at the reporting
date.
Level 3
Fair values are measured using inputs for the asset or liability
that are not based on observable market data.
The tables below set out the financial instruments included in
the Group's condensed consolidated statement of financial position
at 'fair value'.
Fair Level Level Level
value 1 2 3
30 June 2017 GBPm GBPm GBPm GBPm
----------------------------------------- ------ ----- ----- -----
Assets measured at fair value
----------------------------------------- ------ ----- ----- -----
Available-for-sale financial instruments
----------------------------------------- ------ ----- ----- -----
Other pension assets - gilts (see
note 3.2) 39 39 - -
----------------------------------------- ------ ----- ----- -----
Available-for-sale investments 3 - - 3
----------------------------------------- ------ ----- ----- -----
Financial assets at fair value
through profit or loss
----------------------------------------- ------ ----- ----- -----
Foreign exchange forward contracts
and swaps 2 - 2 -
----------------------------------------- ------ ----- ----- -----
Financial assets at fair value
through reserves
----------------------------------------- ------ ----- ----- -----
Cash flow hedges 7 - 7 -
----------------------------------------- ------ ----- ----- -----
51 39 9 3
----------------------------------------- ------ ----- ----- -----
Liabilities measured at fair value
----------------------------------------- ------ ----- ----- -----
Financial liabilities at fair
value through profit or loss
----------------------------------------- ------ ----- ----- -----
Contingent consideration (1) - - (1)
----------------------------------------- ------ ----- ----- -----
Financial liabilities at fair
value through reserves
----------------------------------------- ------ ----- ----- -----
Cash flow hedges (2) - (2) -
----------------------------------------- ------ ----- ----- -----
(3) - (2) (1)
----------------------------------------- ------ ----- ----- -----
Available-for-sale investments and contingent consideration are
the Group's only financial instruments classified as level 3 in the
fair value hierarchy. As noted in the accounting policy disclosed
in the December 2016 Annual Report, the key assumptions taken into
consideration when measuring this acquisition related liability are
the performance expectations of the acquisition and a discount rate
that reflects the size and nature of the new business. There is no
reasonable change in discount rate or performance targets that
would give rise to a material change in the liability in these
condensed consolidated financial statements.
Section 5: Other Notes
5.1 Related party transactions
Keeping it simple
The related parties identified by the Directors include joint
ventures, associated undertakings, available-for-sale investments
and key management personnel.
To enable users of our financial statements to form a view about
the effects of related party relationships on the Group, we
disclose the Group's transactions with those related parties during
the period and any associated period end trading balances.
Transactions with joint ventures and associated undertakings
Transactions with joint ventures and associated undertakings
during the period were:
2017 2016
GBPm GBPm
--------------------------------------- ----- -----
Sales to joint ventures 8 4
--------------------------------------- ----- -----
Sales to associated undertakings 6 2
--------------------------------------- ----- -----
Purchases from joint ventures 13 13
--------------------------------------- ----- -----
Purchases from associated undertakings 35 33
--------------------------------------- ----- -----
The transactions with joint ventures primarily relate to sales
and purchases of digital multiplex services with Digital 3&4
Limited.
Sales to associated undertakings largely relate to advertising
sold to DTV. Purchases from associated undertakings primarily
relate to the purchase of news services from ITN.
All transactions with associated undertakings and joint ventures
arise in the normal course of business on an arm's length basis.
None of the balances are secured.
The amounts owed by and to these related parties at the period
end were:
30 June 31 December
2017 2016
GBPm GBPm
---------------------------------------- -------- ------------
Amounts owed by joint ventures 1 -
---------------------------------------- -------- ------------
Amounts owed by associated undertakings 19 57
---------------------------------------- -------- ------------
Amounts owed to joint ventures 3 -
---------------------------------------- -------- ------------
Amounts owed to associated undertakings 5 -
---------------------------------------- -------- ------------
Balances owed by associated undertakings largely relate to loan
notes.
Transactions with key management personnel
Key management consists of ITV plc Executive and Non-executive
Directors and the ITV Management Board. Key management personnel
compensation is as follows:
2017 2016
For the six month period to 30 June GBPm GBPm
------------------------------------ ----- -----
Short-term employee benefits 4 4
------------------------------------ ----- -----
Share-based compensation 1 3
------------------------------------ ----- -----
5 7
------------------------------------ ----- -----
5.2 Contingent liabilities
Keeping it simple
A contingent liability is a liability that is not sufficiently
certain to qualify for recognition as a provision where uncertainty
may exist regarding the outcome of future events.
The Group has initiated legal proceedings against the minority
owners of Gurney Productions LLC for alleged breaches of contracts
and their fiduciary duties, as well as self-dealing and fraudulent
concealment. The minority owners dispute the allegations and they
have counter-claimed for damages of at least $100 million. The
action is at an early stage, however having taken legal advice the
Directors believe this counter-claim is completely without
merit.
There are contingent liabilities in respect of certain
litigation and guarantees, broadcasting issues, and in respect of
warranties given in connection with certain disposals of
businesses. None of these items are expected to have a material
effect on the Group's results or financial position.
Responsibility Statement of the Directors in Respect of the
Half-Yearly Financial Report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules
, being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules
, being related party transactions that have taken place in the
first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
For and on behalf of the Board:
Ian Griffiths
Chief Operating Officer and Group Finance Director
26 July 2017
Independent Review Report to ITV plc
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2017 which comprises Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Comprehensive Income, Condensed Consolidated Statement of Financial
Position, Condensed Consolidated Statement of Changes in Equity,
Condensed Consolidated Statement of Cash Flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2017 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in Section 1, annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Paul Sawdon
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
26 July 2017
This information is provided by RNS
The company news service from the London Stock Exchange
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