REG - ITV PLC - Half Yearly Report <Origin Href="QuoteRef">ITV.L</Origin> - Part 3
28/07/2015 07:01
- Part 3: For the preceding part double click ID:nRSb2291Ub
Purchase of own shares via employees' - - - - - (30) (30) - (30)
benefit trust
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.
Condensed Consolidated Statement of Cash Flows
For the six month period to 30 June Note £m 2015 £m £m 2014 £m
Cash flows from operating activities
Profit before tax 2.1 327 250
Gain on sale and impairment of subsidiaries and investments (exceptional items) (1) (1)
Share of losses of joint ventures and associated undertakings - -
Net financing costs 11 38
Operating exceptional items 31 5
Depreciation of property, plant and equipment 13 13
Amortisation and impairment of intangible assets 27 30
Share-based compensation and pension service costs 8 8
Adjustments to profit 89 93
Decrease in programme rights and other inventory, and distribution rights 24 64
Decrease in receivables 7 2
Decrease in payables (34) (71)
Movement in working capital (3) (5)
Cash generated from operations before exceptional items 413 338
Cash flow relating to operating exceptional items
Net exceptional costs (31) (4)
Increase in payables and provisions 14 3
Decrease in other receivables 10 -
Cash outflow from exceptional items (7) (1)
Cash generated from operations 406 337
Defined benefit pension deficit funding 3.3 (66) (91)
Interest received 33 20
Interest paid on bank and other loans (41) (29)
Interest paid on finance leases - (1)
Net taxation paid (68) (35)
(142) (136)
Net cash inflow from operating activities 264 201
Cash flows from investing activities
Acquisition of subsidiary undertakings 3.1 (441) (220)
Cash balances of subsidiaries acquired in the period 3.1 34 6
Acquisition of investments (2) (1)
Acquisition of property, plant and equipment (16) (15)
Acquisition of intangible assets (9) (4)
Loans granted to associates and joint ventures (2) (2)
Proceeds from sale of subsidiaries, joint ventures and available for sale investments 1 1
Net cash (outflow) from investing activities (435) (235)
Cash flows from financing activities
Bank and other loans - amounts repaid 4.1 - (170)
Bank and other loans - amounts raised 4.1 493 270
Capital element of finance lease payments (6) (18)
Equity dividends paid (383) (257)
Dividends paid to minority interest (1) (5)
Purchase of own shares via employees' benefit trust (31) (32)
Net cash inflow/(outflow) from financing activities 72 (212)
Net decrease in cash and cash equivalents (99) (246)
Cash and cash equivalents at 1 January 4.1 297 518
Effects of exchange rate changes and fair value movements 3 (4)
Cash and cash equivalents at 30 June 4.1 201 268
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 2015 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 2014, 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 2014.
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 2015, 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 2014 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
During the six months ended 30 June 2015 the Group made a number of
acquisitions (see note 3.1) and paid 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. 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 2015 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 2014.
No new or revised accounting standards, interpretations or amendments endorsed
by the EU since the year ended 31 December 2014, are considered to have an
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
2015 and 30 June 2014 are therefore 'Broadcast & Online' and 'ITV Studios',
the results of which are outlined below:
For the six month period to 30 June Broadcast& Online2015£m ITV Studios2015£m Consolidated2015£m
Total segment revenue 1,035 496 1,531
Intersegment revenue - (175) (175)
Revenue from external customers 1,035 321 1,356
EBITA before exceptional items* 315 80 395
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
* 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 2015£m 2014£m
EBITA before exceptional items 395 322
Operating exceptional items (31) (5)
Amortisation and impairment of intangible assets (27) (30)
Net financing costs (11) (38)
Gain on sale and impairment of subsidiaries and investments (exceptional items) 1 1
Profit before tax 327 250
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 £257 million (2014: £195 million) divided by 4,004
million (2014: 4,003 million) being the weighted average number of shares in
issue during the period.
Diluted EPS reflects any commitments the Group has to issue shares in the
future and so includes the impact of share options.
Basic EPS is adjusted 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. Adjustments include: acquisition-related costs such as
professional fees, primarily due diligence, employment linked consideration
and performance-based employment linked contingent payments; impairment of
intangible assets; amortisation of intangible assets acquired through business
combinations including customer contracts and relationships; net financing
cost adjustments; and other tax adjustments. Amortisation of intangible assets
that are required to run our business, including software licences, is not
adjusted for.
The calculation of EPS and adjusted EPS, together with the diluted impact on
each, is set out below:
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
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 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 A 24 24
Profit for the period before exceptional items 281 281
Amortisation and impairment of acquired intangible assets B 17 17
Adjustments to net financing costs C 6 6
Other tax adjustments D 4 4
Adjusted profit E 308 308
Total weighted average number of ordinary shares in issue - million 4,004 4,034
Adjusted earnings per ordinary share 7.7p 7.6p
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
The rationale for determining the adjustments to profit is disclosed in the 31
December 2014 Annual Report and has not changed during the period. Details of
the adjustments to earnings are as follows:
A. Operating and non-operating items are adjusted to reflect profit for the
period before exceptional items. A tax credit of £6 million (2014: £1 million)
is recognised on the operating exceptional items of £31 million (2014: £5
million). Operating exceptional items in 2015 and 2014 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. Included within the £31 million is £24 million of employment linked
consideration and performance based employment linked payments mainly relating
to the acquisition of Talpa Media. The Group recognised a non-operating
exceptional gain of £1 million (2014: £1 million) from a historical disposal.
The related tax charge was £nil (2014: £nil).
B. Amortisation and impairment of acquired intangible assets of £22 million
(2014: £19 million) is calculated as total amortisation and impairment of £27
million (2014: £30 million), less amortisation of software licences and
development of £5 million (2014: £6 million). A related tax credit of £5
million (2014: £5 million) is then recognised on the net amount.
C. Gross adjustments to net financing costs of £7 million (2014: £34
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 £1 million (2014: £7 million) to give a net adjustment of £6
million (2014: £27 million).
D. Other tax adjustments are made to more closely align cash and income
statement tax. The adjustments in the current period include the deferred tax
credit recognised on the goodwill arising on US acquisitions.
E. Adjusted profit removes the effect of items including acquisition related
costs such as professional fees, primarily due diligence, employment linked
consideration and performance-based employment linked contingent payments;
impairment of intangible assets; amortisation of intangible assets acquired
through business combinations including customers contracts and net financing
cost 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 payment made to
the sellers 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 performance, not expected.
IFRS 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 employment linked
contingent payments known as 'earnout' payments).
The Group considers the income statement impact of all consideration to be
capital in nature and are therefore excluded from adjusted profit.
Acquisitions
During the period, the Group completed four acquisitions, all of which have
been included in the results of the ITV Studios operating segment.
Each of the businesses fit with the strategy of growing the Group's content
business and to work with other parts of the Studios segment to exploit that
content globally. The following section provides a summary of the material
acquisitions.
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, Utopia, I Love My Country and Dating In The
Dark.
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 remaining
£434 million (E600 million) is payable at three stages over the next eight
years. The deal is structured so that a large part of the payment made to the
seller is determined based on future performance of the business and these
payments are linked to employment.
The Group consolidates 100% of the earnings of the business.
Provisional acquisition accounting:
Intangibles, being the value placed on brands, customer contracts, non-compete
arrangements and libraries, of £273 million (E378 million) were identified and
goodwill was valued at £60 million (E83 million). Goodwill represents the
value placed on the opportunity to diversify and grow the content and formats
produced 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.
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 a 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.
There is a further put and call option to acquire the remaining 49% of
Mainstreet Pictures in the next three to eight years.
These payments are dependent on future performance of the business and linked
to ongoing employment.
The maximum total consideration for 100% of the business, including the
initial payment, is £280 million (undiscounted and including the acquisition
of 49% in Mainstreet Pictures).
Provisional acquisition accounting:
Due to the proximity of the acquisition to the half year, the Group has been
unable to complete detailed valuations of the intangible assets and net assets
acquired with the businesses. The surplus of consideration over fair value of
the share of net assets acquired has been allocated to goodwill at 30 June
2015. The Group expects to finalise the valuations of intangible assets,
including brands, customer contracts and libraries; and other acquired assets
and liabilities in the second half of 2015.
Goodwill represents the value placed on the opportunity to diversify and grow
the content and formats produced 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.
Other acquisitions
The Group made an initial payment of £15 million for two smaller acquisitions,
Cats on the Roof Media Ltd and Mammoth Screen Ltd, 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 the UK. The maximum additional
consideration that the Group could pay is £66 million (undiscounted).
Goodwill, which represents the value placed on the opportunity to grow the
content produced by the Group, has been provisionally valued at £11 million.
The goodwill arising on these acquisitions are not expected to be deductible
for tax purposes.
Acquisitions in 2014
In 2014 the Group made three acquisitions.
Leftfield Entertainment was acquired for an initial consideration (net of cash
acquired) of £214 million ($360 million) for 80% of the membership interests.
The maximum consideration including the put option for the remaining 20%
equity interest will be assessed at two stages in the next four years and will
be a maximum of £282 million ($440 million).
There is also a call and put option over the non-controlling interests of
Leftfield's two start-up operations that are exercisable in 2019. The final
payout is dependent on future performance over the next four years and is
linked to ongoing employment. The maximum consideration payable is £8 million
($13 million).
Any changes in the fair value of the put option liability or performance
adjustment arising from reassessment of projections will be reported within
financing costs on the income statement, and excluded from adjusted profit.
Intangible assets of £65 million ($109 million) were identified, being the
value placed on brands, customer contracts, non-compete arrangements and
libraries.
The Group also acquired 51% of the membership interest in DiGa Vision, a
US-based producer and 100% of the controlling interest in United Productions,
a company based in Denmark. The total initial consideration (net of cash
acquired) was £5 million and the maximum additional amount payable is £32
million (undiscounted). The final payout is dependent on future performance
and is linked to ongoing employment.
Intangibles of £2 million were identified, largely reflecting the value placed
on brands, customer contracts and contractual arrangements.
Effect of acquisitions
The acquisitions noted above had the following impact on the Group's assets
and liabilities:
Recognised values on acquisition
£m Talpa Media Twofour Group Other 2015 Total 2014 Total*
Consideration transferred
Initial consideration (net of cash acquired) (Note A) 349 48 10 407 214
Less: consideration classified as prepaid employment linked consideration (Note B) (109) - - (109) (29)
Total consideration 240 48 10 298 185
Fair value of net assets acquired
Property, plant and equipment 2 4 - 6 5
Intangible assets 273 - 3 276 67
Deferred tax liabilities (68) - - (68) -
Trade and other receivables 65 15 8 88 32
Trade and other payables (92) (29) (12) (133) (45)
Fair value of net assets 180 (10) (1) 169 59
Non-controlling interest measured at fair value (Note C) - - - - 20
Goodwill 60 58 11 129 146
Other information
Present value of the liability on options - - - - 20
Present value at acquisition of the earnout payment (Note D) 186 10 27 223 4
Contributions to the Group's performance
Revenue - acquisition to date 23 - - 23 62
Profit after tax - acquisition to date 4 - - 4 14
Revenue - January to June 96 29 13 138 88
Profit after tax - January to June 28 (5) - 20 20
* 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.
Note B: Total consideration is net of employment linked consideration of £109
million. IFRS 3 (R) requires the employment linked consideration to be treated
as remuneration. This is repayable to the Group should the seller terminate
the service agreement within the first two years following completion. The
balance is shown within trade and other receivables and is expensed over two
years.
Note C: Non-controlling interest arises where the Group acquires less than
100% of the equity interest in a business, but obtains control.
Note D: This represents the present value of earnouts as at acquisition.
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:
Contract provision£m Property provisions£m Other provisions£m Total£m
At 1 January 2015 3 3 15 21
Release - - - -
Additions 2 - - 2
Utilised (2) (1) - (3)
At 30 June 2015 3 2 15 20
Provisions of £15 million are classified as current liabilities (2014: £17
million).
Contract provisions comprise onerous commitments on transmission
infrastructure and data network for unused capacity.
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 £15 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
('FSDs') 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 the reference. The
reference process is ongoing and aside from procedural issues there were no
substantive case developments in the period. The Directors have previously
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 . . .
Historically, the Group offered its employees the opportunity to participate
in a number of defined benefit schemes, but these (collectively referred to as
'the Scheme') closed to new members in 2006. Since then a defined contribution
pension scheme has been made available to all new employees and, where taken
up, the Group makes fixed payments into a separate fund on their behalf, and
has no further obligation.
The IAS 19 deficit at 30 June 2015 was £285 million compared with a deficit of
£346 million at 31 December 2014, the fall was primarily as a result of
deficit funding payments of £66 million made in the period. A decrease in
liabilities arose from an increase in the discount rate of 0.2% p.a., which
has been partly offset by an increase in market expectation for long term
inflation and a negative return on assets.
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 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, to execute strategy and to invest in
opportunities to grow the business and enhance shareholder value. 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.
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 undiscounted 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 Group includes 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:
1 January 2015£m Net cash flow£m Currency and non-cash movements£m 30 June 2015£m
Cash 234 (94) 3 143
Cash equivalents 63 (5) - 58
Total cash and cash equivalents 297 (99) 3 201
Loans and facilities due within one year (78) (493) 2 (569)
Finance leases due within one year (7) 6 (4) (5)
Loans and facilities due after one year (161) - (161)
Finance leases due after one year (10) - 4 (6)
Total debt (256) (487) 2 (741)
Net cash/(debt) 41 (586) 5 (540)
Cash and cash equivalents
Included within cash equivalents is £11 million (30 June 2014: £19 million),
the use of which is restricted to meeting finance lease commitments under
programme sale and leaseback commitments, and gilts of £38 million in respect
of which a charging deed was executed on the unfunded pension commitments of
four former Granada executives. This charging deed is currently the subject of
litigation.
Loans and facilities due within one year
In May 2015 the group entered into a Bridge loan of E500 million. The loan has
an initial maturity in May 2016, but may be extended for a further 6 months at
ITV's option. The interest is based on a margin over EURIBOR. The loan margin
steps up on 30 September and then quarterly thereafter.
The unsecured £78 million Eurobond, which has a coupon of 5.375% will mature
in October 2015.
As of 30 June the Group had drawings of £130 million under the Revolving
Credit Facility ('RCF'). 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.
The facility matures in April 2019.
Loans and facilities due after one year
The Group has one loan that is repayable between two and five years as at 30
June 2015. The unsecured £161 million Eurobond matures in January 2017 and has
a coupon of 6.125%.
4.2Borrowings
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.
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 verses book value
Book value Fair value
Liabilities Maturity 30 June 2015£m 31 Dec 2014£m 30 June 2015£m 31 Dec 2014£m
£525 million Revolving Credit Facility Various* 130 - 130 -
£78 million Eurobond Oct 15 78 78 79 81
£161 million Eurobond Jan 17 161 161 171 173
E500 million Bridge Loan May 16* 354 - 354 -
723 239 734 254
* See section 4.1 for a discussion on the terms of borrowing on the RCF and
the bridge loan.
4.3 Managing market risks: derivative financial instruments
Keeping it simple . . .
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 an underlying
exposure. The Group is exposed to certain market risks, principally to changes
in interest rates on its net borrowings and to changes in foreign exchange
rates on its foreign currency transactions, profits and net assets. In
accordance with Board approved policies, the Group manages these risks by
using derivative financial instruments to hedge these underlying exposures.
Derivative financial instruments are initially recognised at fair value and
are subsequently remeasured at fair value with the movement recorded in the
income statement within net financing costs, except where derivatives qualify
for cash flow hedge accounting. In this case, the effective portion of a cash
flow hedge is recognised in OCI and presented in the hedging reserve within
equity. The cumulative gain or loss is later reclassified to the income
statement in the same period as the relevant hedged transaction is realised.
Derivatives with positive fair values are recorded as assets and negative fair
values as liabilities.
The Group's policy on the various methods used to calculate their respective
fair values is detailed in the 31 December 2014 financial statements and set
out in the table below.
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 2015 the Group's
fixed rate debt represented 34% (December 2014: 100%) of total debt, due to
the Bridge Loan facility, and the RCF.
The following table shows the fair value of derivative financial instruments
analysed by type of contract. Interest rate swap fair values exclude accrued
interest.
On issuing the 2015 and 2017 Eurobonds, the Group entered into and then
subsequently overlaid a portfolio of interest rate swaps with the result that
it is now 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.
Currency risk
As the Group expands its international operations, the performance of the
business becomes increasingly sensitive to movements in foreign exchanges
rates, primarily with respect to the US dollar and the Euro.
The Group utilises forward foreign exchange contracts and foreign exchange
swaps to manage foreign currency exposure and cash flow timing differences.
The Group's net investments in overseas subsidiaries may be hedged where the
currency exposure is considered to be material.
June 2015 Assets£m Liabilities£m
Current
Interest rate swaps - fair value through profit or loss 3 (3)
Cash flow hedges - (6)
Forward foreign exchange contracts and swaps 1 (1)
Non-current
Interest rate swaps - fair value through profit or loss 12 (8)
Cash flow hedges - (4)
16 (22)
December 2014 Assets£m Liabilities£m
Current
Interest rate swaps - fair value through profit or loss 11 (9)
Cash flow hedges - (3)
Forward foreign exchange contracts and swaps - (1)
Non-current
Interest rate swaps - fair value through profit or loss 16 (11)
Cash flow hedges - (1)
27 (25)
4.4 Fair value hierarchy
Keeping it simple . . .
The financial instruments included on the Group's 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. The Group 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.
The tables below set out the financial instruments included on the Group
Statement of Financial Position at 'fair value'.
Fair value30 June 2015£m Level 130 June 2015£m Level 230 June 2015£m Level 330 June 2015£m
Assets measured at fair value
Available for sale financial instruments -
Available for sale gilts 38 38 - -
Financial assets at fair value through profit or loss
Interest rate swaps 15 - 15 -
Forward foreign exchange contracts and swaps 1 - 1 -
Contingent consideration 32 - - 32
86 38 16 32
Fair value30 June 2015£m Level 130 June 2015£m Level 230 June 2015£m Level 330 June 2015£m
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Interest rate swaps (11) - (11) -
Forward foreign exchange contracts and swaps (1) - (1) -
Contingent consideration (3) - - (3)
Financial liabilities at fair value through reserves
Cash flow hedges (10) - (10) -
(25) - (22) (3)
Level 1
Fair values measured using quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2
Fair values 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 measured using inputs for the asset or liability that are not
based on observable market data.
Contingent consideration is the Group's only financial instrument classified
as level 3 in the fair value hierarchy. As noted in the accounting policy
disclosed in the December 2014 financial statements, 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 at the half year.
Future performance expectations for the acquisitions were revisited in the
period, resulting in a fair value release of £nil million. The unwind of
interest and fair value movements in the liability is recognised in other
interest expense in net financing costs.
Section 5: Other Notes
5.1 Related party transactions
Keeping it simple . . .
The related parties identified by the Directors include joint ventures,
associated undertakings, fixed asset investments and key management
personnel.
Related party transactions
Transactions with joint ventures and associated undertaking during the period
were:
For the six month period to 30 June 2015£m 2014£m
Sales to joint ventures 4 3
Sales to associated undertakings 4 4
Purchases from joint ventures 13 13
Purchases from associated undertakings 35 26
There have been no significant changes to the nature of related parties
disclosed in the full consolidated financial statements for the Group as at
and for the year ended 31 December 2014.
The transactions with joint ventures primarily relate to sales and purchases
of digital multiplex services with Digital 3&4 Limited.
The purchases from associated undertakings primarily relate to the purchase of
news services from ITN.
All transactions arose in the normal course of business on an arm's length
basis. None of the balances are secured.
There have been no other significant related party transactions in the six
month period ended 30 June 2015.
The amounts owed by and to these related parties at the period end were:
For the six month period to 30 June 2015£m 2014£m
Amounts owed by joint ventures 3 -
Amounts owed by associated undertakings 41 7
Amounts owed to joint ventures - 2
Amounts owed to associated undertakings 5 1
Amounts owed by pension scheme 1 2
Balances owed by associated undertakings largely relate to production funding
advanced to Tomorrow ITV Studios.
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 for the period
is as follows:
For the six month period to 30 June 2015£m 2014£m
Short-term employee benefits 4 4
Share-based compensation 3 3
7 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.
There has been no material change in the Group's contingent liabilities since
31 December 2014 and the disclosures in those annual financial statements
remain appropriate at 30 June 2015
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 consolidated 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 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 consolidated 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 and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year 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.
There have been no appointments or resignations in the period and the
Directors are listed in the ITV plc 2014 Annual Report. A list of current
Directors is maintained on the ITV plc website: www.itvplc.com
For and on behalf of the Board:
Ian Griffiths
Group Finance Director
28 July 2015
Independent Review Report to ITV plc
Introduction
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 2015, which comprises the condensed consolidated income statement,
condensed consolidated statement of comprehensive income, condensed
consolidated statement of financial position, condensed consolidated statement
of changes in equity,
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