REG - ITV PLC - Half Yearly Report <Origin Href="QuoteRef">ITV.L</Origin> - Part 3
06/09/2014 22:34
- Part 3: For the preceding part double click ID:nRSd6632Nb
4.3 (1) (6) (10)
Trade and other payables due within one year (666) (702) (612)
Trade payables due after more than one year (24) (42) (23)
Trade and other payables (690) (744) (635)
Current tax liabilities (40) (36) (15)
Provisions 3.2 (18) (19) (18)
(967) (867) (741)
Net current (liabilities)/assets (15) 407 314
Non-current liabilities
Borrowings 4.1 (251) (318) (409)
Derivative financial instruments 4.3 (19) (27) (36)
Defined benefit pension deficit 3.3 (362) (445) (371)
Other payables (64) (40) (36)
Provisions 3.2 (5) (8) (10)
(701) (838) (862)
Net assets 790 889 797
Attributable to equity shareholders of the parent company
Share capital 403 403 393
Share premium 174 174 122
Merger and other reserves 218 248 263
Translation reserve - 7 14
Available for sale reserve 4 4 7
Retained (losses)/earnings (67) 22 (30)
Total equity attributable to equity shareholders of the parent company 732 858 769
Non-controlling interests 58 31 28
Total equity 790 889 797
Ian Griffiths
Group Finance Director
Condensed Consolidated Statement of Changes in Equity
Attributable to equity shareholders of the parent company
Items that may be reclassified to profit or loss
Sharecapital£m Sharepremium£m Mergerand otherreserves (a)£m Translationreserve£m Available for sale reserve£m Retained profits/ (losses) £m Total£m Non- controllinginterests£m Total equity£m
Balance at 1 January 2014 403 174 248 7 4 22 858 31 889
Total comprehensive income for the period
Profit for the period - - - - - 195 195 2 197
Other comprehensive income
Exchange differences on translation of foreign operations - - - (7) - - (7) - (7)
Income tax on other comprehensive income - - - - - (4) (4) - (4)
Total other comprehensive income - - - (7) - (4) (11) - (11)
Total comprehensive income for the period - - - (7) - 191 184 2 186
Transactions with owners, recorded directly in equity
Equity dividends - - - - - (257) (257) (5) (262)
Movements due to share-based compensation - - - - - 7 7 - 7
Purchase of own shares via employees' benefit trust - - - - - (30) (30) - (30)
Total transactions with owners - - - - - (280) (280) (5) (285)
Changes in non-controlling interests - - (30) - - - (30) 30 -
Balance at 30 June 2014 403 174 218 - 4 (67) 732 58 790
a) Movements reported in merger and other reserves include put options for the
acquisition of non-controlling interests.
Attributable to equity shareholders of the parent company
Items that may be reclassified to profit or loss
Sharecapital£m Sharepremium£m Mergerand otherreserves (a)£m Translationreserve£m Available for sale reserve£m Retained profits/ (losses)(restated)£m Total£m Non- controllinginterests£m Total equity£m
Balance at 1 January 2013 391 122 283 13 7 1 817 15 832
Total comprehensive income for the period
Profit for the period - - - - - 134 134 1 135
Other comprehensive income
Exchange differences on translation of foreign operations - - - 1 - - 1 - 1
Remeasurement gains on defined benefit - - - - - 114 114 - 114
pension schemes
Income tax on other comprehensive income - - - - - (22) (22) - (22)
Total other comprehensive cost - - - 1 - 92 93 - 93
Total comprehensive income for the period - - - 1 - 226 227 1 228
Transactions with owners, recorded
directly in equity
Equity dividends - - - - - (227) (227) (1) (228)
Equity portion of the convertible bond - - (7) - - (29) (36) - (36)
Movements due to share-based - - - - - 10 10 - 10
compensation
Purchase of own shares via employees' - - - - - (11) (11) - (11)
benefit trust
Issue of new ordinary shares 2 - - - - - 2 - 2
Total transactions with owners 2 - (7) - - (257) (262) (1) (263)
Changes in non-controlling interests - - (13) - - - (13) 13 -
Balance at 30 June 2013 393 122 263 14 7 (30) 769 28 797
a) Movements reported in merger and other reserves include put options for the
acquisition of non-controlling interests.
Condensed Consolidated Statement of Cash Flows
For the six month period to 30 June Note £m 2014£m £m 2013£m
Cash flows from operating activities
Profit before tax 2.1 250 179
Gain on sale and impairment of subsidiaries and investments (exceptional items) (1) -
Share of losses of joint ventures and associated undertakings - 1
Net financing costs 38 75
Operating exceptional items 5 5
Depreciation of property, plant and equipment 13 12
Amortisation and impairment of intangible assets 30 31
Share-based compensation and pension service costs 8 13
Adjustments to profit 93 137
Decrease in programme rights and other inventory, and distribution rights 64 25
Decrease in receivables 2 19
Decrease in payables (71) (47)
Movement in working capital (5) (3)
Cash generated from operations before exceptional items 338 313
Cash flow relating to operating exceptional items:
Net operating loss (4) (5)
Increase in payables and provisions 3 1
Cash outflow from exceptional items (1) (4)
Cash generated from operations 337 309
Defined benefit pension deficit funding 3.3 (91) (80)
Interest received 20 21
Interest paid on bank and other loans (29) (35)
Interest paid on finance leases (1) (2)
Net taxation paid (35) (32)
(136) (128)
Net cash inflow from operating activities 201 181
Cash flows from investing activities
Redemption of gilts - 165
Acquisition of subsidiary undertakings 3.1 (220) (54)
Cash balances of subsidiaries acquired in the period 3.1 6 8
Acquisition of investments (1) -
Acquisition of property, plant and equipment (15) (76)
Acquisition of intangible assets (4) (3)
Loans granted to associates and joint ventures (2) (5)
Loans repaid by associates and joint ventures - 6
Proceeds from sale of subsidiaries, joint ventures and available for sale investments 1 -
Net cash (outflow)/inflow from investing activities (235) 41
Cash flows from financing activities
Bank and other loans - amounts repaid 4.1 (170) (265)
Bank and other loans - amounts raised 4.1 270 -
Capital element of finance lease payments (18) (5)
Issue of share capital - 2
Equity dividends paid (257) (227)
Dividends paid to minority interest (5) (1)
Purchase of own shares via employees' benefit trust (32) (11)
Net cash outflow from financing activities (212) (507)
Net decrease in cash and cash equivalents (246) (285)
Cash and cash equivalents at 1 January 4.1 518 690
Effects of exchange rate changes and fair value movements (4) (4)
Cash and cash equivalents at 30 June 4.1 268 401
Section 1: Basis of Preparation
In this section . . .
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 2014 have been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Services 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 2013, 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 2013.
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 3.3).
During the six months ended 30 June 2014, management also reassessed its
estimates in respect of provisions (see note 3.2) 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 2013 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.
The June 2013 condensed consolidated statements of comprehensive income,
changes in equity and financial position have been restated for the
implementation of IFRS 13 with effect from 1 January 2013. As previously
disclosed in the financial statements for the year ended 31 December 2013,
IFRS 13 resulted in a change in the approach and assumptions used to value the
Group's longevity swaps to remove the risk of increases in pension liabilities
that would arise if a significant portion of the defined benefit scheme's
pensioner population were to enjoy a longer life than currently expected.
As a result, the negative value of the swaps as at 30 June 2013 has reduced by
£105 million with the associated gain being recognised as a measurement gain
on assets in other comprehensive income within equity. The valuation as at 31
December 2013 and 30 June 2014 has been carried out in accordance with IFRS
13. See note 3.7 of the December 2013 annual report for details on the change
in the approach of valuation of these swaps.
Going concern
During the six months ended 30 June 2014 the Group made a number of
acquisitions (see note 3.1), repurchased debt and issued a special dividend.
Consequently, despite continued generation of significant free cash flows, the
Group was in a net debt position at the period end. See note 4.1 for capital
and financing structure.
The Group continues to review forecasts of the television advertising market
to determine the impact on ITV's liquidity position and create further cash
headroom. The agreement of three new credit facilities in the period has
further ensured that the Group has access to sufficient cash for all
foreseeable operational requirements. 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.
After making enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, the Group continues to adopt the going
concern basis in preparing its condensed 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 2014 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 2013.
IFRS 10-12 became effective in the period but did not have a material impact
on the Group.
Section 2: Results for the Year
In this section . . .
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 and earnings per share.
2.1 Profit before tax
Keeping it simple . . .
This section shows a reconciliation from earnings before interest, tax,
amortisation and exceptional items to the Group's profit before tax. Earnings
before interest, tax, amortisation (EBITA) and 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. 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 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 period ended 30 June
2014 and 30 June 2013 are therefore 'Broadcast & Online' and 'ITV Studios',
the results of which are outlined below:
For the six month period to 30 June Broadcast& Online2014£m ITV Studios2014£m Consolidated2014£m
Total segment revenue 981 402 1,383
Intersegment revenue - (158) (158)
Revenue from external customers 981 244 1,225
EBITA before exceptional items* 250 72 322
For the six month period to 30 June Broadcast& Online2013£m ITV Studios2013£m Consolidated2013£m
Total segment revenue 914 395 1,309
Intersegment revenue - (165) (165)
Revenue from external customers 914 230 1,144
EBITA before exceptional items* 228 63 291
* Segment EBITA before exceptional items 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 2014£m 2013£m
EBITA before exceptional items 322 291
Operating exceptional items (5) (5)
Amortisation and impairment of intangible assets (30) (31)
Net financing costs (38) (75)
Share of losses of joint ventures and associated undertakings - (1)
Gain on sale and impairment of subsidiaries and investments (exceptional items) 1 -
Profit before tax 250 179
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 £195 million (2013: £134 million) divided by 4,003
million (2013: 3,901 million) being the weighted average number of shares in
issue during the period. The weighted average number of shares increased by
100 million over the comparative period (3%), largely due to the redemption of
the convertible bond in 2013 where 94 million shares were issued.
Diluted EPS reflects any commitments the Group has to issue shares in the
future. In 2014 this comprises share options, and, in order to calculate the
impact, it is assumed that all share options are exercised.
Basic EPS is adjusted in order to more accurately 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. Reported EPS is adjusted for
exceptional items which include acquisition related costs (professional fees,
primarily due diligence, and performance based, employment linked contingent
payments), impairment of intangible assets, amortisation of intangible assets
acquired through business combinations, net financing cost adjustments and
prior period and other tax adjustments. We call this Adjusted EPS.
The calculation of basic, diluted and adjusted EPS is set out below:
Earnings per share 2014
For the six month period to 30 June Basic£m Diluted£m
Profit for the period attributable to equity shareholders of ITV plc 195 195
Weighted average number of ordinary shares in issue - million 4,003 4,003
Dilution due to share options - 41
Total weighted average number of ordinary shares in issue - million 4,003 4,044
Earnings per ordinary share 4.9p 4.8p
Adjusted earnings per share 2014
For the six month period to 30 June Ref. Adjusted£m Diluted£m
Profit for the period attributable to equity shareholders of ITV plc 195 195
Exceptional items A 3 3
Profit for the period before exceptional items 198 198
Amortisation and impairment of acquired intangible assets B 19 19
Adjustments to net financing costs C 27 27
Other tax adjustments D 2 2
Adjusted profit E 246 246
Total weighted average number of ordinary shares in issue - million 4,003 4,044
Adjusted earnings per ordinary share 6.1p 6.1p
Earnings per share 2013
For the six month period to 30 June Ref. Basic£m Diluted£m
Profit for the period attributable to equity shareholders of ITV plc 134 138
Weighted average number of ordinary shares in issue - million 3,901 3,901
Dilution due to share options - 45
Dilution due to convertible bond - 191
Total weighted average number of ordinary shares in issue - million 3,901 4,137
Earnings per ordinary share 3.4p 3.3p
Adjusted earnings per share 2013
For the six month period to 30 June Ref. Adjusted£m Diluted£m
Profit for the period attributable to equity shareholders of ITV plc 134 138
Exceptional items A 4 4
Profit for the period before exceptional items 138 142
Amortisation and impairment of acquired intangible assets B 19 19
Adjustments to net financing costs C 47 47
Other tax adjustments D 2 2
Adjusted profit E 206 210
Total weighted average number of ordinary shares in issue - million 3,901 4,137
Adjusted earnings per ordinary share 5.3p 5.1p
The rationale for determining the adjustments to profit is disclosed in the 31
December 2013 Annual Report and has not changed during the period. Details of
the adjustments to earnings are as follows:
A. Exceptional items are adjusted to reflect profit for the period before
exceptional items. A tax credit of £1 million (2013: £1 million) is recognised
on the operating exceptional items of £5 million (2013: £5 million). Operating
exceptional items in 2014 and 2013 include professional fees (mainly financial
and legal due diligence) incurred on the acquisitions completed during the
period and expenses in the period with respect to performance-based,
employment-linked contingent costs accrued to former owners. The Group
recognised a non-operating exceptional gain of £1 million from a historical
disposal. The related tax charge was nil (2013: nil).
B. Amortisation and impairment of acquired intangible assets of £19 million
(2013: £19 million) is calculated as total amortisation and impairment of £30
million (2013: £31 million), less amortisation of software licences and
development of £6 million (2013: £6 million). A related tax credit of £5
million (2013: £6 million) is then recognised on the net amount.
C. Gross adjustments to net financing costs of £34 million (2013: £61
million) relate to mark-to-market movements on swaps and foreign exchange,
losses on buybacks and imputed pension interest charges. This is reduced by a
tax credit of £7 million (2013: £14 million) to give a net adjustment of £27
million (2013: £47 million).
D. Other tax adjustments are made to more closely align cash and income
statement tax. The adjustments in the current period relate to the deferred
tax credit recognised on the goodwill arising on US acquisitions. In 2013 the
adjustment primarily reflected the impact of the deferred tax charge following
a decrease in the applicable statutory tax rate from 24.5% to 23.25%.
E. Adjusted profit is defined as profit for the period before exceptional
items which include acquisition related fees and performance-based contingent
payments, impairment of intangible assets, amortisation of acquired intangible
assets acquired through business combinations, net financing cost adjustments
and other tax adjustments.
Section 3: Operating Assets and Liabilities
In this section . . .
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, provisions and pensions.
3.1 Acquisitions
Keeping it simple . . .
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 total payment that
will be made to the sellers is determined based on future performance
('consideration'). Accounting standards require some of this consideration to
be included in the purchase price used in determining goodwill ('contingent
consideration'), while the rest is required to be recognised as a liability or
expense outside of acquisition accounting (put option liabilities and
performance based, employment linked contingent payments known as 'earnout'
payments).
Acquisitions
During the first six months of 2014 the Group completed three acquisitions,
all of which have been included in the results of the Studios operating
segment. Each of the businesses fit with the Group's strategy to create world
class content for multiple platforms, free and pay, both in the UK and
internationally. The following sections provide a summary of each.
Leftfield Entertainment Group
On 7 May the Group acquired 80% of the membership interests in New York-based
producer Leftfield Entertainment Group ('Leftfield'). Leftfield owns Sirens
Media and has established two start-up operations: Loud Television and Outpost
Entertainment. Together these businesses produce unscripted programming for
over 30 US networks.
The acquisition of Leftfield makes ITV the largest unscripted independent
producer in the US and represents a significant contribution to the Group's
strategy of building a strong international content business, particularly in
the US. It gives ITV Studios a significant presence on both the east and west
coasts and strengthens and complements our existing creative capability.
Key terms:
Cash consideration of £214 million ($360 million) was paid at acquisition and
the maximum total consideration for 100% of the business, including the
initial payment, is £472 million ($800 million, undiscounted). The remaining
£258 million ($440 million) is payable at two stages in the next five years,
and the full amount will only be due should Leftfield deliver exceptional
earnings growth.
The first staged payment is a top-up due in 2016 for up to £64 million ($107
million, undiscounted maximum) and has been accounted for as contingent
consideration.
The second staged payment comes in the form of a call and put option that has
been granted over the remaining 20% non-controlling interest. The call option
is first exercisable in the first half of 2017 and then following expiry of
the vendors' put option, which is exercisable in 2019. The maximum amount that
the Group could pay for the remaining 20% equity interest is the residual of
the £258 million less any amounts paid under the top-up ($440 million in
total, undiscounted). Final payment will be entirely dependent on future
performance of the business, which would need to be exceptional for the
maximum to be achieved.
There are also call and put options over the non-controlling interest of
Leftfield's two start-up operations that are exercisable in 2019. The final
payout is also dependent on future performance over the next five years. The
maximum consideration payable by the Group is £7 million ($13 million,
undiscounted).
Provisional acquisition accounting:
The Group consolidates all of the earnings of the business and the vendors'
remaining interest is recognised as a non-controlling interest in equity.
Intangibles, being the value placed on brands, customer contracts, non-compete
arrangements and libraries, of £65 million ($109 million) were identified and
goodwill was valued at £180 million. Other fair value adjustments have been
made to the opening balance sheet, though none of them are individually
significant.
Goodwill represents the value placed on the opportunity to expand the Group's
programme offering in the United States and exploiting that offering
internationally. It also reflects the value of the assembled workforce of
creative talent who will develop that content. It is expected to be deductible
for tax purposes.
Based on the Group's projections at acquisition, the value of the put option
was valued at £28 million ($48 million, discounted). Any changes in the fair
value of the put option liability arising from a reassessment of projections
will be reported within financing costs on the income statement, and excluded
from adjusted profit.
Other acquisitions
The Group made an initial payment of £5 million for two smaller acquisitions
in the period with a view that these acquisitions will strengthen and
complement ITV's existing position as a producer for major television networks
in both the US and the Nordics.
On 14 February 2014, the Group acquired 51% of the membership interest in DiGa
Vision, a US-based producer that specialises in reality and scripted
programming. The Group consolidates all the earnings of this business and the
vendors' remaining interest will be recognised as a non-controlling interest
in equity. A call and put option has been granted over the 49% non-controlling
interest, with the put and call options both being exercisable over three to
six years. The maximum additional consideration that the Group could pay for
the remaining interest is £25 million ($42 million, undiscounted).
On 27 February 2014, the Group then acquired 100% of United Productions, a
company based in Denmark specialising in factual, entertainment and reality
programmes. Contingent consideration includes a performance-based payment of
£1 million (maximum
£3 million, undiscounted) due to be paid in 2018 and an earnout payment capped
at £1 million (undiscounted).
Key contractual arrangements of £2 million were identified across the two
acquisitions and goodwill, which represents the value placed on the
opportunity to grow the content produced by the Group, has been provisionally
valued at £7 million. The goodwill attributable to DiGa is expected to be
deductible for US tax purposes.
Acquisitions in 2013
In 2013 the Group made four acquisitions. Two were US producers High Noon and
Thinkfactory, where total initial consideration (net of cash acquired) of £27
million was paid for 60% and 65% membership interests respectively. Call and
put options were granted over the non-controlling interest and the discounted
put option liability at the acquisition date totalled £13 million. The maximum
consideration which the Group could pay for the remaining interest across both
businesses is £84 million ($144 million, undiscounted). Final payment will be
entirely dependent on future performance of the business.
A 100% equity interest was acquired in UK-based producers The Garden and Big
Talk, for total initial consideration (net of cash acquired) of £25 million.
The maximum additional amount payable is £39 million (undiscounted), and is
being accounted for as an earnout payment.
Intangibles of £26 million were identified, largely reflecting the value
placed on brands, customer contracts and contractual arrangements.
Effect of acquisition
The acquisitions noted above had the following impact on the Group's assets
and liabilities:
Recognised values on acquisition
£m Leftfield Other 2014 Total 2013Total*
Consideration transferred:
Initial consideration (net of cash acquired) (Note A) 209 5 214 56
Contingent consideration - 1 1 6
Total consideration 209 6 215 62
Fair value of net assets acquired (Note B):
Property, plant and equipment 4 - 4 -
Intangible assets 65 2 67 26
Trade and other receivables 30 2 32 32
Trade and other payables (42) (3) (45) (41)
Fair value of net assets 57 1 58 17
Non-controlling interest measured at fair value (Note B) 28 2 30 13
Goodwill 180 7 187 58
Other information:
Present value of the liability on options 28 2 30 13
Present value of the earnout payment 1 2 3 15
Contributions to the Group's performance:
Revenue - acquisition to date 8 2 10 61
Profit after tax - acquisition to date 1 - 1 3
Revenue - January to June 29 2 31 96
Profit after tax - January to June 4 - 4 6
* Reflects acquisitions and contributions across 12 months.
Note A: Cash of £5 million was acquired with Leftfield and £1 million was
acquired with DiGa.
Note B: Non-controlling interest arises where the Group acquires less than
100% of the equity interest in a business, but obtains control.
3.2 Provisions
Keeping it simple . . .
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:
At 1 January 2014 7 4 16 27
Release - (1) - (1)
Utilised (3) - - (3)
At 30 June 2014 4 3 16 23
At 30 June 2014
4
3
16
23
Provisions of £18 million are classified as current liabilities (2013: £18
million).
Contract provisions comprise onerous sports rights commitments that are
expected to be utilised over the remaining contract period. Other contract
provisions relate to onerous commitments on transmission infrastructure.
Property provisions principally relate to onerous lease contracts due to empty
space created by the ongoing review and rationalisation of the Group's
property portfolio. Utilisation of the provision will be over the anticipated
life of the leases or earlier if exited.
Other provisions of £16 million primarily relate to potential liabilities that
may arise as a result of Boxclever having been placed into administration,
most of which relate to pension arrangements. In 2011, the Determinations
Panel of The Pensions Regulator determined that Financial Support Directions
('FSD') should be issued against certain companies within the Group in
relation to the Boxclever pension scheme. The Group immediately referred this
decision to the Upper Tribunal, thereby effectively appealing it. An FSD would
require the Company to put in place financial support for the Boxclever
scheme; however, it cannot be issued during the period of reference. 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.
3.3 Pensions
Keeping it simple . . .
The Group has historically offered its employees the opportunity to
participate in the ITV defined benefit pension scheme. However, the Group
closed the Scheme to new members and instead offers employees a defined
contribution pension scheme. Where taken up, the Group makes payments into
this scheme on their behalf.
The IAS 19 deficit at 30 June 2014 was £362 million compared with a deficit of
£445 million at 31 December 2013, primarily as a result of deficit funding
payments of £91 million made in the period. An increase in liabilities arising
from a reduction of 0.3% in the implied discount rate has been largely offset
by asset outperformance and a slight lowering of market expectations for
long-term inflation.
Section 4: Capital Structure and Financing Costs
In this section . . .
This section outlines how the Group manages its capital. The Directors
consider the Group's capital structure and dividend policy at least twice a
year ahead of announcing results in the context of its ability to continue as
a going concern and to deliver its strategy. The Group focuses on leverage,
credit ratings and interest cost, particularly when considering investment.
On the following pages there are sections on the Group's net (debt)/cash,
borrowings and derivative financial instruments.
The Group renewed all credit facilities during the period. Of these, the
committed facility has leverage and interest cover financial covenants.
4.1 Net (debt)/cash
Keeping it simple . . .
Net (debt)/cash 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 expected contingent payments on acquisitions, our IAS
19 pension deficit and operating lease commitments. A full analysis and
discussion of adjusted net debt is included in the Financial and Performance
Review.
In defining total outstanding debt the Directors consider it appropriate to
include the currency impact of swaps held against those debt instruments.
Analysis of net (debt)/cash
The table below analyses the Group's components of net (debt)/cash and their
movements in the period:
Cash 438 (228) (4) 206
Cash equivalents 80 (18) - 62
Cash and cash equivalents 518 (246) (4) 268
Loans and facilities due within one year (41) (169) - (210)
Finance leases due within one year (21) 18 (5) (8)
Loans and loan notes due after one year (301) 62 - (239)
Finance leases due after one year (17) - 5 (12)
Total debt (380) (89) - (469)
Currency component of swaps held against euro denominated bonds 26 (26) - -
Net cash/(debt) 164 (361) (4) (201)
Net cash/(debt)
164
(361)
(4)
(201)
Cash and cash equivalents
Included within cash equivalents is £19 million (2013: £39 million), the use
of which is restricted to meeting finance lease commitments under programme
sale and leaseback commitments, and gilts of £36 million in respect of which a
charging deed was executed on the unfunded pension commitments of four former
Granada executives.
Loans and facilities due within one year
In April 2014 the Group signed a new Revolving Credit Facility ('RCF') with a
group of relationship banks, replacing the previous RCF disclosed at 31
December 2013. The new RCF is a £525 million committed facility with leverage
and interest cover financial covenants, and matures in 2019. The arrangement
fee is determined based on prevailing market rates when the facility is
signed.
As of 30 June the Group had drawings of £210 million under the facility. The
interest on drawn amounts is based on a margin over LIBOR. Drawings under the
facility may be for periods of between one and six months and each drawdown
may be rolled or repaid at maturity, at our discretion.
In June 2014 the unsecured £41 million (E50 million) Eurobond matured,
resulting in a net payment by the Group of £15 million, after settlement of
the Group's outstanding cross-currency interest rate swaps.
Loans and loan notes due after one year
In January 2014 the Group repurchased the remaining principal of £62 million
on the 2019 bilateral loan for a cash cost of £95 million. The repurchase is
expected to result in future cash interest savings of £44 million. The loss
arising on settlement of £30 million has been included in net financing costs
but excluded from adjusted profit for the period.
New facilities
In addition to the new RCF noted above, two further facilities were agreed in
April for a total of £250 million. The first is an
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