REG - ITV PLC - Annual Report and Accounts 2014 <Origin Href="QuoteRef">ITV.L</Origin> - Part 8
26/03/2015 10:31
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criteria
Broadcast & Online Advertising (NAR), Video on Demand (VOD) in month of transmission
Broadcast & Online Sponsorship across period of transmission of the sponsored programme or series
Broadcast & Online Pay an estimate is accrued in the month and trued up on receipt of third party reports showing revenue share calculation (showing subscribers or number of downloads)
Broadcast & Online Participation (interactive & brand extensions) as the service is provided or event occurs
Studios Programme production on delivery of episode and acceptance by the customer
Studios Programme distribution rights when the contract is signed and content is available for exploitation
Studios Digital: Archive on delivery of content (one-off) or over the contract period in a manner that reflects the flow of content delivered (top-up)
The results for the year aggregate these classes of revenue into four significant categories:
2014£m 2013£m
Broadcast & Online
NAR 1,629 1,542
Non-NAR 394 354
ITV Studios
Productions 789 722
Distribution 144 135
Total revenue 2,956 2,753
Segmental information
Operating segments, which have not been aggregated, are reported in a manner that is consistent with the internal reporting
provided to the Board of Directors, regarded as the chief operating decision maker.
The Board of Directors considers the business primarily from a product or activity perspective. The reportable segments for
the years ended 31 December 2014 and 31 December 2013 are therefore 'Broadcast & Online' and 'ITV Studios', the results of
which are outlined in the following tables:
Broadcast& Online2014£m ITV Studios*2014£m Consolidated2014£m
Total segment revenue 2,023 933 2,956
Intersegment revenue - (366) (366)
Revenue from external customers 2,023 567 2,590
EBITA before exceptional items 568 162 730
Share of losses of joint ventures and associated undertakings - - -
Broadcast& Online2013£m ITV Studios*2013£m Consolidated2013£m
Total segment revenue 1,896 857 2,753
Intersegment revenue - (364) (364)
Revenue from external customers 1,896 493 2,389
EBITA before exceptional items 487 133 620
Share of losses of joint ventures and associated undertakings (2) - (2)
* Revenue of £255 million (2013: £199 million) was generated in the US during the year, and represented £297 million
(2013: £83 million) of non-current assets at year end.
Intersegment revenue, which is carried out on arm's length terms, is generated from the supply of ITV Studios programmes to
Broadcast & Online for transmission primarily on ITV. This revenue stream is a measure which forms part of the Group's
strategic priority of building a strong international content business, as by producing and retaining rights to the
broadcast shows the Group benefits further from subsequent international content and format sales.
In preparing the segment information, centrally managed costs have been allocated between reportable segments on a
methodology driven principally by revenue, headcount and building occupancy of each segment. This is consistent with the
basis of reporting to the Board of Directors.
Broadcast & Online
The Group operates the largest commercial family of channels in the UK and delivers content through traditional television
broadcasting. In addition to linear broadcast, the Group delivers its content either through ITV Player, which is available
on multiple platforms including ITV's website and pay platforms, or through direct content deals. The content, which is
commissioned and scheduled by this segment, is funded primarily by television advertising, where revenue is generated from
the sale of audiences for advertising airtime and sponsorship.
Other sources of revenue are from: online advertising, revenue from pay platforms such as Sky, SDN revenue (which generates
licence sales for DTT Multiplex A), and participation revenue (which includes interactive sales from competitions).
ITV Studios
ITV Studios is the Group's international content business, creating and producing programmes and formats that return and
travel, namely drama, entertainment and factual entertainment.
ITV Studios UK is the largest commercial producer in the UK and produces programming for the Group's own channels,
accounting for 60% of ITV network spend. Programming is also sold to other UK broadcasters such as the BBC, Channel 4 and
Sky.
ITV Studios America is the largest unscripted independent producer of content in the US and is growing its scripted
presence by increasing investment in high profile dramas straight to series.
ITV Studios also operates in four other international locations being Australia, Germany, France and the Nordics, where
content is produced for local broadcasters. This content is either locally created IP or formats that have been created
elsewhere by ITV, primarily the UK.
Global Entertainment, ITV's distribution business, licenses ITV's finished programmes and formats and third party content
internationally. Within this business we also finance productions both on and off ITV to acquire global distribution
rights.
EBITA before exceptional items
The Directors assess the performance of the reportable segments based on a measure of EBITA before exceptional items. The
Directors use this measurement basis as it excludes the effect of non-recurring income and expenditure. Amortisation and
share of profit/(losses) of joint ventures and associates are also excluded to reflect more accurately how the business is
managed and measured on a day-to-day basis. Net financing costs and tax are not allocated to segments as the funding, cash
and tax management of the Group are activities carried out by the central treasury and tax functions.
A reconciliation from EBITA before exceptional items to profit before tax is provided as follows:
2014£m 2013 £m
EBITA before exceptional items 730 620
Operating exceptional items (12) (8)
Amortisation of intangible assets (67) (66)
Net financing costs (51) (115)
Share of losses of joint ventures and associated undertakings - (2)
Gain on sale of non-current assets (exceptional items) 4 -
Gain on sale of subsidiaries and investments (exceptional items) 1 6
Profit before tax 605 435
The Group's principal operations are in the United Kingdom. Its revenue from external customers in the United Kingdom is
£2,123 million (2013: £1,982 million), and total revenue from external customers in other countries is £467 million (2013:
£407 million).
There are two media buying agencies (2013: three) acting on behalf of a number of customers that represent the Group's
major customers. These agencies are the only customers which individually represent over 10% of the Group's revenue.
Revenue of approximately £571 million (2013: £527 million) and £312 million (2013: £235 million) was derived from these
customers. This revenue is attributable to the 'Broadcast & Online' segment.
Cash generated from operations
A reconciliation from profit before tax to cash generated from operations before exceptional items is as follows:
2014£m 2013£m
Cash flows from operating activities
Profit before tax 605 435
Gain on sale of subsidiaries and investments (exceptional items) (1) (6)
Gain on sale of non-current assets (exceptional items) (4) -
Share of losses of joint ventures and associated undertakings - 2
Net financing costs 51 115
Operating exceptional items 12 8
Depreciation of property, plant and equipment 27 24
Amortisation of intangible assets 67 66
Share-based compensation and pension service costs 14 20
Increase in programme rights and other inventory, and distribution rights (39) (42)
Decrease/(increase) in receivables 18 (15)
(Decrease)/increase in payables (48) 42
Movement in working capital (69) (15)
Cash generated from operations before exceptional items 702 649
Included in the increase in inventory is the investment by ITV Studios in high end drama, which is discussed in the
Financial and Performance Review on pages 42 and 43.
Operating costs
Staff costs
Staff costs before exceptional items can be analysed as follows:
2014£m 2013£m
Wages and salaries 293 255
Social security and other costs 45 42
Share-based compensation (see note 4.7) 14 14
Pension costs 22 19
Total staff costs 374 330
Less: staff costs allocated to productions (136) (103)
FTEE staff costs (non-production) 238 227
The number of full-time equivalent employees ('FTEE') (excluding short-term contractors and freelancers who are
predominantly allocated to the cost of productions), calculated on a weighted average basis, during the year was:
2014 2013
Broadcast & Online 2,042 2,049
ITV Studios 2,517 2,208
4,559 4,257
The increase in full-time equivalent employees in ITV Studios is primarily driven by the acquisitions completed in 2014.
Details of Directors' emoluments, share options, pension entitlements and long-term incentive scheme interests are set out
in the Remuneration Report. Listed Directors' gains on share options for 2014 are set out in the ITV plc entity financial
statements.
Depreciation
Depreciation in the year was £27 million (2013: £24 million), of which £15 million (2013: £12 million) relates to
'Broadcast & Online' and £12 million (2013: £12 million) to 'ITV Studios'.
Operating leases
The total undiscounted future minimum lease payments under non-cancellable operating leases fall due for payment as
follows:
2014 Transponders Property Total
Within one year 38 13 51
Later than one year and not later than five years 123 33 156
Later than five years 158 16 174
319 62 381
2013 Transponders Property Total
Within one year 36 12 48
Later than one year and not later than five years 138 23 161
Later than five years 194 11 205
368 46 414
The Group's operating leases relate to transponder assets and office and studio properties. The Group holds transmission
supply agreements that require the use of specific transponder assets for a period of up to ten years with payments
increasing over time, limited by specific RPI caps. These supply agreements are classified as operating leases, in
accordance with the Group's policy on leases detailed in note 3.2.
Property leases typically run for a period of up to eight years and may have an option to renew after that date (options to
renew are not included in the commitments table). Lease payments are generally subject to market review every five years to
reflect market rentals, but because of the uncertainty over the amount of any future changes, such changes have not been
reflected in the table above. None of the lease agreements include contingent rentals.
The total future minimum sublease payments expected to be received under non-cancellable subleases at the year end are £2
million (2013: £2 million).
The total operating lease expenditure recognised during the year was £49 million (2013: £45 million) and total sublease
payments received were £1 million (2013: £2 million).
Audit fees
The Group engages KPMG LLP ('KPMG') on assignments additional to their statutory audit duties where their expertise and
experience with the Group are important.
Fees paid to KPMG and its associates during the year are set out below:
2014£m 2013£m
For the audit of the Group's annual accounts 0.6 0.7
For the audit of subsidiaries of the Group 0.2 0.2
Audit-related assurance services 0.2 0.1
Total audit and audit-related assurance services 1.0 1.0
Taxation compliance services 0.2 0.1
Taxation advisory services 0.2 0.2
Other assurance services 0.2 0.2
Total non-audit Services 0.6 0.5
Total fees paid to KPMG 1.6 1.5
There were no fees payable in 2014 or 2013 to KPMG and associates for the auditing of accounts of any associate of the
Group, internal audit services, services relating to corporate finance transactions entered into or proposed to be entered
into, by or on behalf of the Group or any of its associates.
Fees paid to KPMG for audit and other services to the Company are not disclosed in its individual accounts as the Group
accounts are required to disclose such fees on a consolidated basis.
2.2 Exceptional items
Keeping it simple . . .
Exceptional items are material and are excluded from management's assessment of profit because by their nature they could
distort the Group's underlying quality of earnings. They are typically gains or losses arising from events that are not
considered part of the core operations of the business (e.g. costs relating to capital transactions, such as professional
fees on acquisitions). These items are excluded to reflect performance in a consistent manner and are in line with how the
business is managed and measured on a day-to-day basis.
Accounting policies
Exceptional items as described above are disclosed on the face of the income statement.
Subsequent revisions of estimates for items initially recognised as exceptional are recorded as exceptional items in the
year that the revision is made. Gains or losses on disposal of non-core assets are also considered exceptional due to their
nature and impact on the Group's underlying quality of earnings.
Exceptional items
Operating and non-operating exceptional items are analysed as follows:
(Charge)/credit Ref. 2014£m 2013£m
Operating exceptional items:
Reorganisation and restructuring costs A (6) -
Acquisition-related expenses B (6) (8)
Total net operating exceptional items (12) (8)
Non-operating exceptional items:
Gain on sale of non-current assets C 4 -
Gain on sale and impairment of subsidiaries and investments D 1 6
Total non-operating exceptional items 5 6
Total exceptional items before tax (7) (2)
Total exceptional items net of tax (5) (1)
A - Reorganisation and restructuring costs
In 2014 £6 million of non-recurring costs were incurred as
a result of an ITV Studios restructuring initiative with the
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