REG - ITV PLC - Half-year Report <Origin Href="QuoteRef">ITV.L</Origin> - Part 3
27/07/2016 07:06
- Part 3: For the preceding part double click ID:nRSa3217Fb
30 858 51 909
(a) Movements reported in merger and other reserves include put option for
the acquisition of non-controlling interests.
Condensed Consolidated Statement of Cash Flows
For the six month period to 30 June Note £m 2016£m £m 2015*£m
Cash flows from operating activities
Profit before tax 2.1 309 327
Gain on sale and impairment of subsidiaries and investments (exceptional items) - (1)
Share of losses of joint ventures and associated undertakings - -
Net financing costs 21 11
Operating exceptional items 54 31
Depreciation of property, plant and equipment 15 13
Amortisation and impairment of intangible assets 40 27
Share-based compensation and pension service costs 7 8
Adjustments to profit 137 89
(Increase) /decrease in programme rights and other inventory, and distribution rights (20) 24
(Increase) /decrease in receivables (40) 7
Decrease in payables (7) (34)
Movement in working capital (67) (3)
Cash generated from operations before exceptional items 379 413
Cash flow relating to operating exceptional items
Operating exceptional items (54) (31)
Prepaid employment linked consideration 3.1 - (109)
Increase in payables and provisions 17 14
Decrease in other receivables 29 10
Cash outflow from exceptional items (8) (116)
Cash flow from discontinued operation 2.3 (5) -
Cash generated from operations 366 297
Defined benefit pension deficit funding 3.3 (47) (66)
Interest received 9 33
Interest paid on bank and other loans (15) (41)
Net taxation paid (33) (68)
(86) (142)
Net cash inflow from operating activities 280 155
Cash flows from investing activities
Acquisition of subsidiary undertakings, net of cash acquired 3.1 (97) (407)
Prepaid employment linked consideration 3.1 - 109
Net consideration paid (97) (298)
Acquisition of investments (3) (2)
Acquisition of property, plant and equipment (13) (16)
Acquisition of intangible assets (10) (9)
Loans granted to associates and joint ventures (3) (2)
Proceeds from sale of subsidiaries, joint ventures and available for sale investments - 1
Net cash (outflow) from investing activities (126) (326)
Cash flows from financing activities
Bank and other loans - amounts repaid 4.1 (505) -
Bank and other loans - amounts raised 4.1 815 493
Capital element of finance lease payments (4) (6)
Equity dividends paid (566) (383)
Dividends paid to minority interest (2) (1)
Purchase of own shares via employees' benefit trust (20) (31)
Net cash (outflow) / inflow from financing activities (282) 72
Net decrease in cash and cash equivalents (128) (99)
Cash and cash equivalents at 1 January 4.1 294 297
Effects of exchange rate changes and fair value movements 15 3
Cash and cash equivalents at 30 June 4.1 181 201
* Prepaid employment linked consideration was presented in cash flows from
investing activities in June 2015 but has been re-presented in cash flows from
exceptional items in accordance with the disclosure in the Annual Report for
December 2015.
Section 1: Basis of Preparation
This section lays out the accounting conventions and accounting policies used
in preparing these condensed interim financial statements.
These condensed consolidated interim financial statements for the six months
ended 30 June 2016 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.
The condensed consolidated interim financial statements should be read in
conjunction with the annual financial statements for the year ended 31
December 2015, 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 expense. 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 2015.
Revenues are impacted by underlying economic conditions, the cyclical demand
for advertising, seasonality of programme sales 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 3.4).
During the six months ended 30 June 2016, management also reassessed its
estimates in respect of provisions (see note 3.3) and considered the
recoverable amount of goodwill. No impairment of goodwill was identified.
These interim financial statements are not statutory accounts. The statutory
accounts for the year ended 31 December 2015 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 2016 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 acquisitions 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 funding.
The Group also continues to focus on development of the non-advertising
business, and evaluates the impact of further investment in acquisitions
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 2016 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 2015.
No new or revised accounting standards, interpretations or amendments endorsed
by the EU since the year ended 31 December 2015, are considered to have an
impact on the Group.
Section 2: Results for the Year
This section focuses on the results and performance of the Group. On the
following pages you will find disclosures explaining the Group's results for
the period, segmental information, earnings per share and discontinued
operations.
2.1 Profit before tax
Earnings before interest, tax, amortisation (EBITA) and before exceptional
items remains the Group's key profit indicator. This reflects the way the
business is managed and how the Directors assess the performance of the Group.
This section therefore also shows each division's contribution to total
revenue and EBITA.
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 therefore also shows each division's
contribution to total revenue and 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 years ended 30 June 2016 and 30
June 2015 are therefore Broadcast & Online and ITV Studios, the results of
which are outlined in the following tables:
For the six month period to 30 June Broadcast & Online 2016£m ITV Studios 2016£m Consolidated 2016£m
Total segment revenue 1,065 651 1,716
Intersegment revenue - (209) (209)
Revenue from external customers 1,065 442 1,507
Discontinued operation (4) - (4)
Revenue from external customers from continuing operations 1,061 442 1,503
Adjusted EBITA* 314 121 435
Adjusted EBITA from discontinuing operation* 3 - 3
Adjusted EBITA from continuing operations* 317 121 438
For the six month period to 30 June Broadcast & Online 2015£m ITV Studios 2015£m Consolidated 2015£m
Total segment revenue 1,035 496 1,531
Intersegment revenue - (175) (175)
Revenue from external customers 1,035 321 1,356
Discontinued operation - - -
Revenue from external customers from continuing operations 1,035 321 1,356
Adjusted EBITA* 315 85 400
Adjusted EBITA from discontinuing operation* - - -
Adjusted EBITA from continuing operations* 315 85 400
* Adjusted EBITA is before exceptional items and includes the benefit of
production tax credits and is shown after the elimination of intersegment
revenue and costs.
A reconciliation of EBITA before exceptional items to profit before tax is
provided as follows:
For the six month period to 30 June 2016£m 2015£m
Adjusted EBITA 438 400
Production tax credits (14) (5)
EBITA before exceptional items from continuing operations 424 395
Operating exceptional items (54) (31)
Amortisation and impairment of intangible assets (40) (27)
Net financing costs (21) (11)
Gain on sale and impairment of subsidiaries and investments (exceptional items) - 1
Profit before tax from continuing operations 309 327
A reconciliation of Profit before tax to Adjusted Profit before tax is
included in the Finance and Performance Review.
2.2 Earnings per share
Earnings per share ('EPS') is the amount of post-tax profit attributable to
each share.
Basic EPS is calculated on the Group profit for the year attributable to
equity shareholders of £246 million (2015: £257 million) divided by 4,011
million (2015: 4,004 million) being the weighted average number of shares in
issue during the year.
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 of intangible assets acquired
through business combinations; 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 EPS and adjusted EPS, together with the diluted impact on
each, is set out below:
Earnings per share 2016
For the six month period to 30 June Basic £m Diluted£m
Profit for the period attributable to equity shareholders of ITV plc 243 243
Loss for the period from discontinued operation 3 3
Profit for the period attributable to equity shareholders of ITV plc from continuing operations 246 246
Weighted average number of ordinary shares in issue - million 4,011 4,011
Dilution due to share options - 20
Total weighted average number of ordinary shares in issue - million 4,011 4,031
Earnings per ordinary share from continuing operations 6.1p 6.1p
Earnings per ordinary share from discontinued operations - -
Earnings per ordinary share 6.1p 6.1p
Adjusted earnings per share 2016 For the six month period to 30 June Ref. Adjusted£m Diluted£m Profit for the period attributable to equity shareholders of ITV plc 243 243 Exceptional items (net of tax) A 53 53 Loss after tax for the period
from discontinued operations 3 3 Profit for the period before exceptional items from continuing operations 299 299 Amortisation and impairment of acquired intangible assets B 31 31 Adjustments to net financing costs C 9 9 Other tax adjustments 1 1 Adjusted
profit from continuing operations 340 340 Total weighted average number of ordinary shares in issue - million 4,011 4,031 Adjusted earnings per ordinary share from continuing operations 8.5p 8.4p Adjusted earnings per ordinary share from discontinued
operations - - Adjusted earnings per ordinary share 8.5p 8.4p
Earnings per share 2015 For the six month period to 30 June Basic£m Diluted£m Profit for the period attributable to equity shareholders of ITV plc 257 257 Profit/(loss) for the period from discontinued operations - - Profit for the period
attributable to equity shareholders of ITV plcfrom continuing operations 257 257 Weighted average number of ordinary shares in issue - million 4,004 4,004 Dilution due to share options - 30 Total weighted average number of ordinary shares in issue -
million 4,004 4,034 Earnings per ordinary share from continuing operations 6.4p 6.4p Earnings per ordinary share from discontinued operations - - Earnings per ordinary share 6.4p 6.4p
Adjusted earnings per share 2015 For the six month period to 30 June Ref. Adjusted£m Diluted£m Profit for the period attributable to equity shareholders of ITV plc 257 257 Exceptional items (net of tax) A 24 24 Profit/(loss) after tax for
the period from discontinued operations - - Profit for the period before exceptional items from continuing operations 281 281 Amortisation and impairment of acquired intangible assets B 17 17 Adjustments to net financing costs C 6 6 Other tax adjustments 4
4 Adjusted profit from continuing operations 308 308 Total weighted average number of ordinary shares in issue - million 4,004 4,034 Adjusted earnings per ordinary share from continuing operations 7.7p 7.6p Adjusted earnings per ordinary share from
discontinued operations - - Adjusted earnings per share 7.7p 7.6p
243
243
Exceptional items (net of tax)
A
53
53
Loss after tax for the period from discontinued operations
3
3
Profit for the period before exceptional items from continuing operations
299
299
Amortisation and impairment of acquired intangible assets
B
31
31
Adjustments to net financing costs
C
9
9
Other tax adjustments
1
1
Adjusted profit from continuing operations
340
340
Total weighted average number of ordinary shares in issue - million
4,011
4,031
Adjusted earnings per ordinary share from continuing operations
8.5p
8.4p
Adjusted earnings per ordinary share from discontinued operations
-
-
Adjusted earnings per ordinary share
8.5p
8.4p
Earnings per share 2015
For the six month period to 30 June Basic£m Diluted£m
Profit for the period attributable to equity shareholders of ITV plc 257 257
Profit/(loss) for the period from discontinued operations - -
Profit for the period attributable to equity shareholders of ITV plcfrom continuing operations 257 257
Weighted average number of ordinary shares in issue - million 4,004 4,004
Dilution due to share options - 30
Total weighted average number of ordinary shares in issue - million 4,004 4,034
Earnings per ordinary share from continuing operations 6.4p 6.4p
Earnings per ordinary share from discontinued operations - -
Earnings per ordinary share 6.4p 6.4p
Adjusted earnings per share 2015
For the six month period to 30 June Ref. Adjusted£m Diluted£m
Profit for the period attributable to equity shareholders of ITV plc 257 257
Exceptional items (net of tax) A 24 24
Profit/(loss) after tax for the period from discontinued operations - -
Profit for the period before exceptional items from continuing operations 281 281
Amortisation and impairment of acquired intangible assets B 17 17
Adjustments to net financing costs C 6 6
Other tax adjustments 4 4
Adjusted profit from continuing operations 308 308
Total weighted average number of ordinary shares in issue - million 4,004 4,034
Adjusted earnings per ordinary share from continuing operations 7.7p 7.6p
Adjusted earnings per ordinary share from discontinued operations - -
Adjusted earnings per share 7.7p 7.6p
The rationale for determining the adjustments to profit is disclosed in the 31
December 2015 Annual Report and has not changed during the period. Details of
the adjustments to earnings are as follows:
A. Exceptional items (net of tax) £53 million (2015: £24 million)
Operating and non-operating exceptional items of £54 million (2015: £30
million), net of a tax credit of £1 million (2015: £6 million) relate
primarily to performance-based, employment linked consideration mainly in
relation to Talpa Media, and professional fees (mainly financial and legal due
diligence).
B. Amortisation and impairment of acquired intangible assets of £31 million
(2015: £17 million)
Calculated as total amortisation and impairment of £40 million (2015: £27
million), less amortisation of software licences and development of £3 million
(2015: £5 million), net of related tax credit of £10 million (2015: £5
million). This is then adjusted to recognise a £4 million cash tax benefit
arising from goodwill on US acquisitions, which for tax purposes is amortised
over a 15 year period (2015: £4 million shown within other tax adjustments).
C. Adjustments to net financing costs £9 million (2015: £6 million)
Net financing costs are adjusted for mark-to-market movements on derivative
instruments, foreign exchange and imputed pension interest charges of £11
million (2015: £7 million) net of related tax credit of £2 million (2015: £1
million).
2.3 Discontinued operation
A discontinued operation is a distinct component of the business that has been
or is in the process of being disposed.
Management agreed to sell UTV Ireland Limited to Virgin Media on 11 July 2016
for E10 million. It is therefore classified on the balance sheet as a disposal
group held-for-sale. The sale is subject to Irish regulatory approval, which
is expected to take some months. See section 3.1 for further details.
Results of discontinued operation For the six month period to 30 June 2016£m 2015£m Revenue 4 - Expenses (7) - Operating loss (3) - Taxation - - Loss after tax (3) - Gain on sale of discontinued operation - - Tax on gain on sale of discontinued operation - - Loss for the period (3) - Earnings per share Basic earnings per share - - Diluted earnings per share - - Cash flows from (used in) discontinued operation For the six month period to 30 June 2016£m 2015£m Net cash used in operating
activities (3) - Net cash from investing activities (2) - Net cash flow for the period (5) -
Results of discontinued operation
For the six month period to 30 June
2016£m
2015£m
Revenue
4
-
Expenses
(7)
-
Operating loss
(3)
-
Taxation
-
-
Loss after tax
(3)
-
Gain on sale of discontinued operation
-
-
Tax on gain on sale of discontinued operation
-
-
Loss for the period
(3)
-
Earnings per share
Basic earnings per share
-
-
Diluted earnings per share
-
-
Cash flows from (used in) discontinued operation
For the six month period to 30 June
2016£m
2015£m
Net cash used in operating activities
(3)
-
Net cash from investing activities
(2)
-
Net cash flow for the period
(5)
-
Effect of disposal on the financial position of the Group
For the six month period to 30 June Note 2016£m
Property, plant and equipment 3.2 -
Trade and other receivables 3.2 (2)
Trade and other payables 3.2 -
Net assets and liabilities (2)
Consideration received in cash -
Cash and cash equivalents disposed of -
Net cash outflow (2)
Section 3: Operating Assets and Liabilities
This section focuses on the assets used to generate the Group's trading
performance, and the liabilities incurred as a result. On the following pages
there are notes covering acquisitions, disposal group held for sale,
provisions and pensions.
3.1 Acquisitions
The following section describes the businesses which were acquired by the
Group in the period.
All of the deals are structured so that a large part of the payment made to
the sellers is determined based on future performance ('consideration'). This
is done so that the Group can both align incentives for growth, while reducing
risk so that total consideration reflects actual performance, not expected.
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 it is excluded from adjusted profit. As a
result, each acquisition, the distinction between the types of consideration
has been explained in detail below.
Acquisitions
During the period, the Group completed one acquisition 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, owns 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 licence leaving just two of the 15
licences outside the control of ITV plc.
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 commenced discussion
with Virgin Media, owner of TV3 and on 11 July 2016 the sale was agreed,
subject to regulatory approval, for consideration of E10million (£8.5
million). Further details are included in sections 2.3 and 3.2.
Key terms:
The Group purchased the businesses for a cash consideration of £100 million.
Provisional acquisition accounting:
Intangibles, being the value placed on brands and licences of £58 million were
identified and goodwill was valued at £44 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.
Acquisitions in 2015
In 2015 the Group made four acquisitions, all of which are included in the the
results of ITV Studios operating segment.
Talpa Media B.V.
On 30 April 2015 the Group acquired 100% controlling interests in Talpa Media
B.V. and its subsidiaries. Talpa Media is the entertainment show producer
behind The Voice, The Voice Kids, I Love My Country, Dating In The Dark and
Dance Dance Dance.
Key terms:
Cash consideration of £362 million (E500 million) was paid at acquisition and
the maximum total consideration for 100% of the business, including the
initial payment, is £796 million (E1,100 million, undiscounted).
The deal structure allows for a further £434 million (E600 million) payable
after two, five and eight years, on the achievement of stretching performance
targets for the business in the years following acquisition. For these amounts
to be payable in the future, the deal requires the seller to remain with the
business during the earnout period. Further, if the seller leaves within the
first two years following acquisition, a significant portion of the initial
consideration would be refunded to ITV.
Structuring the deal in this way helped manage risks in terms of initial
capital outlay and created a joint incentive between ITV and the seller to
grow the business. However, IFRS requires any payment that links a seller to
remaining in the business as an employment cost. 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.
Acquisition accounting:
Intangibles, being the value placed on formats, brands, customer contracts,
non-compete arrangements and libraries, of £276 million (E382 million) were
identified and goodwill was valued at £41 million (E57 million). Goodwill
represents the value placed on the opportunity to diversify and grow the
content and formats produced by the Group and 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.
Twofour Group
On 24 June 2015 the Group acquired Boom Supervisory Limited, the holding
company of Twofour Group. Twofour Group owns 51% of Mainstreet Pictures.
Twofour Group is an independent production business with a range of scripted
and unscripted programmes including The Jump, Educating Series (Educating
Essex, Educating Yorkshire), Hotel Inspector, Taking New York and Ibiza
Weekender.
Key terms:
The Group purchased the Twofour Group for a cash consideration of £55 million,
subsequently the sellers subscribed to 25% of the share capital of the
acquiring company. A put and call option has been granted over this 25% in
Twofour Group; these options both being exercisable over the next three to
five years. The transaction has been accounted for on an anticipated
acquisition basis and a non-controlling interest has not been recognised. The
maximum total consideration for 100% of the business, including the initial
payment, is £280 million (undiscounted). These payments are dependent on
future performance of the business and linked to ongoing employment. 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.
Acquisition accounting:
Intangibles, being the value placed on formats, brands, customer contracts,
non-compete arrangements and libraries, of £18 million were identified and
goodwill was valued at £50 million. Goodwill represents the value placed on
the opportunity to diversify and grow the content and formats and is not
expected to be deductible for tax purposes.
Other 2015 acquisitions
The Group made an initial payment of £15 million for two smaller acquisitions,
Cats on the Roof Media Ltd and Mammoth Screen Ltd. The maximum additional
consideration that the Group could pay is £66 million (undiscounted). Goodwill
totalling £11 million in respect of these acquisitions was recognised and is
not expected to be deductible for tax purposes.
Effect of acquisitions
The acquisitions noted above had the following impact on the Group's assets
and liabilities:
2016 2015
£m UTV Talpa Media Twofour Group Other 2015 Total*
Consideration transferred
Initial consideration (net of cash acquired) (Note A) 97 347 49 10 406
Less: consideration classified as prepaid employment linked consideration (Note B) - (109) - - (109)
Total consideration 97 238 49 10 297
Fair value of net assets acquired
Property, plant and equipment 4 2 4 - 6
Intangible assets 58 276 18 3 297
Deferred tax liabilities (11) (66) (5) - (71)
Trade and other receivables 5 78 15 8 101
Trade and other payables (7) (93) (33) (12) (138)
Net assets held for sale 4 - - - -
Fair value of net assets 53 197 (1) (1) 195
Goodwill 44 41 50 11 102
Other information
Present value of the liability on options - - - - -
Present value at acquisition of the earnout payment (Note C) - 186 10 27 223
Contributions to the Group's performance From date of acquisition to June 2016 From date of acquisition to December 2015
Revenue (Note F) 11 121 42 22 185
EBITA before exceptional (Notes D, F) 3 25 2 2 29
Pro-forma contributions to the Group's performance January to June 2016 January to December 2015
Revenue (Note G) 17 193 80 33 306
EBITA before exceptional (Notes E,G) 4 45 3 1 49
* Reflects acquisitions and contributions across 12 months.
Note A: Consideration for all acquisitions is net of cash acquired and
estimated debt and working capital settlements. Cash acquired during the year
is £4 million (2015: Talpa £22 million, Twofour £6 million and Other £5
million).
Note B: Total consideration is net of employment linked consideration of £nil
(2015: £109 million). IFRS 3 (R) requires the employment linked consideration
to be treated as remuneration. This amount is repayable to the Group should
the seller terminate the service agreement within the first two years
following completion. The remaining balance is shown within trade and other
receivables and is expensed over two years.
Note C: This represents the present value of earnouts as at acquisition.
Note D: Adjusting for exceptional costs relating to employment linked
consideration reduces the contribution to the Group's profit after tax for the
period from the date of acquisition to a loss of £1 million (2015: £35 million
for Talpa, a profit of £1 million for Twofour and £nil on other
acquisitions).
Note E: Adjusting for exceptional costs relating to employment linked
consideration reduces the contribution to the Group's profit after tax for the
period on a proforma basis to £2 million (2015 full year: £38 million for
Talpa, a profit of £1 million for Twofour and a loss of £1 million on other
acquisitions.
Note F: Results from both the continuing and discontinuing operations of UTV
are Revenues of £7 million, EBITA £nil and Loss after tax of £1 million. There
were no discontinued operations in the prior year.
Note G: Proforma results from January to June, for both the continuing and
discontinuing operations of UTV are Revenues of £11 million, EBITA loss of £1
million and Loss after tax of £2 million. There were no discontinued
operations in the prior year.
3.2 Disposal group
Management agreed to sell UTV Ireland Limited to Virgin Media on 11 July 2016
for E10 million. The sale is subject to Irish regulatory approval, which is
likely to take several months.
IFRS accounting standards require the business to be classified as a disposal
group held for sale as it is in the process of being disposed. See section 3.1
for further details.
As at 30 June 2016, the disposal group comprised assets of £8 million less
liabilities of £2 million detailed as follows:
For the six month period to 30 June 2016£m
Property, plant and equipment 4
Trade and other receivables 4
Trade and other payables (2)
Net assets held for sale 6
3.3 Provisions
A provision is recognised by the Group where an obligation exists relating to
events in the past and it is probable that cash will be paid to settle it.
A provision is made where the Group is not certain how much cash will be
required to settle a liability, so an estimate is required. The main estimates
relate to the cost of holding properties that are no longer in use by the
Group, the likelihood of settling legal claims and contracts the Group has
entered into that are now unprofitable.
Provisions
The movements in provisions during the period are as follows:
Contract provision Contract provisions£m Property Provisions£m Legal & other provisions£m Total£m
At 1 January 2016 6 2 25 33
Release - (1) - (1)
Additions - 1 - 1
Utilised (2) - - (2)
At 30 June 2016 4 2 25 31
Provisions of £27 million are classified as current liabilities (December
2015: £28 million).
Contract provisions comprise onerous commitments on transmission
infrastructure that are expected to be utilised over the remaining contract
period and onerous technology services contract which will not be utilised.
Legal and other provisions of £25 million (2015: £25 million) primarily relate
to potential liabilities that may arise as a result of Boxclever having been
placed into administrative receivership, most of which relate to pension
arrangements. In 2011 the Determinations Panel of the Pensions Regulator
determined that Financial Support Directions (FSDs) should be issued against
certain Group companies, which would require the Group to put in place
financial support for the Boxclever Scheme. The Group is challenging this in
the Upper Tribunal. The reference process is ongoing and aside from procedural
issues there were no substantive case developments in the period. The
Directors have obtained leading counsel's opinion and extensive legal advice
in connection with the proceedings and continue to believe that the provision
held is appropriate.
3.4 Provisions
The Group has 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.
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 manages the necessary investment, mortality and
inflation risks in order to meet these obligations. In the event of poor
returns 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 Group makes contributions to the scheme, a separate trustee-administered
fund that is not consolidated in these financial statements, but is reflected
on the defined benefit pension deficit line on the consolidated statement of
financial position. 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.
The IAS 19 deficit at 30 June 2016 was £64 million compared with a deficit of
£176 million at 31 December 2015, the fall was primarily as a result of large
gains in asset values outperforming the increase in the gross liability and
deficit funding payments of £47 million made in the period.
The gross liability increased primarily due to a decline in the discount rate
from 3.80% at 31 December 2015 to 2.95% at 30 June 2016 caused by declining AA
corporate bond yields. This was partially offset by a 0.25% improvement in the
inflation assumption for past service. Please refer to the Financial and
Performance Review for commentary on asset value performance.
June 2016£m December2015£m
Total defined benefit scheme obligations (3,956) (3,446)
Total defined benefit scheme assets 3,892 3,270
Net pension deficit (64) (176)
Section 4: Capital Structure and Financing Costs
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
Net debt is the Group's key measure used to evaluate total outstanding debt
net of the current cash resources.
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 IAS 19 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 table below analyses movements in the components of net debt during the
period:
1 January 2016£m Net cash flow £m Currency and non-cash movements£m 30 June 2016£m
Cash 238 (116) 5 127
Cash equivalents 56 (5) 3 54
Total cash and cash equivalents 294 (121) 8 181
Loans and facilities due within one year (5) (60) (161) (226)
Finance leases due within one year (6) 4 (3) (5)
Loans and facilities due after one year (598) (250) 103 (745)
Finance leases due after one year (4) - 3 (1)
Total debt (613) (306) (58) (977)
Net debt (319) (427) (50) (796)
Cash and cash equivalents
Included within cash equivalents is £6 million (30 June 2015: £11 million),
the use of which is restricted to meeting finance lease commitments under
programme sale and leasebacks and gilts of £41 million (30 June 2015: £38
million) in respect of which a charging deed was executed on the unfunded
pension commitments of four former Granada executives. Legal action is ongoing
to try and remove the charge.
Loans and facilities due within one year
The Revolving Credit Facility ('RCF') was used to meet short-term funding
requirements during the period. At 30 June 2016 the Group had drawings of £65
million under the Revolving Credit Facility ('RCF').
The maximum draw down of the RCF during the period was £500 million in May to
fund the special dividend. The maximum draw down on the RCF during the first
half of 2015 was E500 million (£362 million) in April to fund the acquisition
of Talpa Media.
An unsecured £161 million Eurobond matures in January 2017 and has a coupon of
6.125%.
Loans and facilities due after one year
In June the Group secured two new bilateral loans; the first for £150 million,
matures in March 2017 and the second for £100 million, in June 2017. Both
loans may be extended for a further 12 months at ITV's option. The loans were
fully drawn down at 30 June 2016.
A seven year E600 million Eurobond at a fixed coupon of 2.125% will mature in
September 2022.
In June 2016, the Group increased the size of its existing £175m bilateral
loan facility by £125m. The facility is free of financial covenants and is
available for use until 30 June 2021. At the Group's option draw downs under
the facility can be refinanced under the same economic terms in bond format.
Both formats will be deliverable by the lender under market standard credit
hedging contracts. The facility was undrawn at 30 June 2016.
4.2 Borrowings
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.
Here, fair value is the amount the Group would pay 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
Book Value Fair Value
Maturity 30 June 2016£m 31 Dec 2015£m 30 June 2016£m 31 Dec 2015£m
Loans due within one year
Other short-terms loans Various - 5 - 5
£525 million Revolving credit facility Various 65 - 65 -
£161 million Eurobond Jan 2017 161 161 164 168
Loans due in more than one year
£150 million bilateral loan Mar 2017/2018 150 - 150 -
£100 million bilateral loan Jun 2017/2018 100 - 100 -
E600 million Eurobond Sept 2022 495 437 514 445
971 603 993 618
4.3 Managing market risks derivative financial instruments
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
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