REG - ITV PLC - ITV Final Year Results 2014 <Origin Href="QuoteRef">ITV.L</Origin> - Part 4
04/03/2015 07:00
- Part 4: For the preceding part double click ID:nRSD4544Gc
52 (6) (3) 43
At1 January2013£m Recognised inthe incomestatement(restated) £m Recognisedin OCI(restated) £m At31 December2013 £m
Property, plant and equipment (6) - - (6)
Intangible assets (34) 15 - (19)
Programme rights 1 - - 1
Pension scheme deficits 96 (27) (13) 56
UK tax losses 17 (16) - 1
Share-based compensation 9 (1) 5 13
Overseas 9 1 - 10
Other 1 - (5) (4)
93 (28) (13) 52
At 31 December 2014, total deferred tax assets are £55 million (2013: £81 million) and total deferred tax liabilities are
£12 million (2013: £29 million).
The deferred tax balance relates to:
· property, plant and equipment temporary differences arising on assets qualifying for capital allowances;
· temporary differences on intangible assets arising on business combinations;
· temporary differences on intercompany profits on programme rights;
· pension scheme deficit temporary differences on the IAS 19 pension deficit and additional contributions resulting
from funding through the SDN and LTVC pension partnerships (not recognised as contributions under IAS 19);
· UK tax loss temporary differences in receiving the benefit of the Group's tax losses;
· share-based compensation temporary differences on share schemes;
· overseas temporary differences on intangible assets and net operating losses arising in the US; and
· other temporary differences on miscellaneous items.
Deferred tax is provided at 20% (2013: 20%), which is the rate that was substantively enacted to apply from 2 July 2013.
The impact of the change in the tax rate in 2013 from 23% to 20% was £6 million.
The deferred tax balance associated with the pension deficit has been adjusted to reflect the current tax benefit obtained
in the current year following the employer contributions of £103 million, including deficit contributions of £91 million,
to the Group's defined benefit pension scheme. The adjustment in equity to the deferred tax balance primarily relates to
the actuarial gains recognised in the period.
A deferred tax asset of £444 million (2013: £446 million) in respect of capital losses of £2,221 million (2013: £2,230
million) has not been recognised due to uncertainties as to the amount and whether a capital gain will arise in the
appropriate form and relevant territory against which such losses could be utilised. For the same reasons, deferred tax
assets in respect of overseas losses of £14 million (2013: £14 million) that time expire between 2017 and 2026 have not
been recognised.
2.4 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 year attributable to equity shareholders of £466 million (2013: £326
million) divided by 4,002 million (2013: 3,929 million) being the weighted average number of shares in issue during the
year.
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. Adjusted 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.
The calculation of EPS and adjusted EPS, together with the diluted impact on each, is set out below:
Earnings per share 2014
Ref. Basic£m Diluted£m
Profit for the year attributable to equity shareholders of ITV plc 466 466
Weighted average number of ordinary shares in issue - million 4,002 4,002
Dilution due to share options A - 38
Total weighted average number of ordinary shares in issue - million 4,002 4,040
Earnings per ordinary share 11.6 11.5
Adjusted earnings per share 2014
Ref. Adjusted£m Diluted£m
Profit for the year attributable to equity shareholders of ITV plc 466 466
Exceptional items B 5 5
Profit for the year before exceptional items 471 471
Amortisation and impairment of acquired intangible assets C 44 44
Adjustments to net financing costs D 34 34
Other tax adjustments E 5 5
Adjusted profit F 554 554
Total weighted average number of ordinary shares in issue - million 4,002 4,040
Adjusted earnings per ordinary share 13.8 13.7
Earnings per share 2013
Ref. Basic£m Diluted£m
Profit for the year attributable to equity shareholders of ITV plc 326 331
Weighted average number of ordinary shares in issue - million 3,929 3,929
Dilution due to share options - 46
Dilution due to convertible bond A - 136
Total weighted average number of ordinary shares in issue - million 3,929 4,111
Earnings per ordinary share 8.3p 8.1p
Adjusted earnings per share 2013
Ref. Adjusted£m Diluted£m
Profit for the year attributable to equity shareholders of ITV plc 326 331
Exceptional items B 1 1
Profit for the year before exceptional items 327 332
Amortisation and impairment of acquired intangible assets C 42 42
Adjustments to net financing costs D 69 69
Other tax adjustments E 3 3
Adjusted profit F 441 446
Total weighted average number of ordinary shares in issue - million 3,929 4,111
Adjusted earnings per ordinary share 11.2p 10.8p
Details of the adjustments to earnings are as follows:
A. The Group dilutes EPS for the impact of any share options and convertible instruments outstanding during the year. In
the prior year the Group had a convertible Eurobond that contributed 136 million shares on a weighted average basis when
determining diluted EPS. In October 2013 the Group repurchased 55% of the 2016 convertible Eurobond and settled the
remainder for equity. This resulted in an additional 95 million new shares being issued.
B. Both operating and non-operating exceptional items (detailed in note 2.2) are adjusted to reflect profit for the year
before exceptional items. A net tax credit of £2 million (2013: £1 million credit) is recognised on the total exceptional
items charge of £7 million (2013: £2 million charge).
C. Amortisation and impairment of acquired intangible assets of £44 million (2013: £42 million) is calculated as total
amortisation and impairment of £67 million (2013: £66 million), less amortisation of software licences and development of
£11 million (2013: £12 million). A related tax credit of £12 million (2013: £12 million) is then recognised on the net
amount.
D. Gross adjustments of £44 million (2013: £90 million) have been made to net financing costs and relate to mark-to-market
movements on derivative instruments, losses on buybacks and imputed pension interest charges (see note 4.4 for details).
This is reduced by a tax credit of £10 million (2013: £21 million) to give a net adjustment of £34 million (2013: £69
million).
E. Other tax adjustments primarily reflect the cash tax benefit received on goodwill arising from the US acquisitions,
which for tax purposes is amortised over a 15 year period (2013: the adjustment reflects the impact on the deferred tax
charge resulting from a decrease in the statutory tax rate from 23% to 20%).
F. Adjusted profit for the year removes the effect of exceptional items. These include acquisition related costs
(professional fees, primarily due diligence, and performance-based, employment-linked contingent payments), amortisation of
intangible assets acquired through business combinations, net financing costs adjustments and other tax adjustments.
Section 3: Operating Assets and Liabilities
In this section . . .
This section shows the assets used to generate the Group's trading performance and the liabilities incurred as a result.
Liabilities relating to the Group's financing activities are addressed in Section 4. Deferred tax assets and liabilities
are shown in note 2.3.
On the following pages there are notes covering working capital, non-current assets and liabilities, acquisitions and
disposals, provisions and pensions.
3.1 Working capital
Keeping it simple . . .
Working capital represents the assets and liabilities the Group generates through its trading activity. The Group therefore
defines working capital as distribution rights, programme rights and production costs, trade and other receivables and
trade and other payables.
Careful management of working capital ensures that the Group can meet its trading and financing obligations within its
ordinary operating cycle.
Working capital is a driver of the 'profit to cash' conversion, a key performance indicator for the Group. The Group's
target 'profit to cash' ratio on a rolling three year basis is at least 90%.
In the following section you will find further information regarding working capital management and analysis of the
elements of working capital.
3.1.1 Distribution rights
Accounting policies
'Distribution rights' are programme rights the Group buys from producers to derive future revenue, principally through
licensing to broadcasters. These are classified as non-current assets as these rights are used to derive long-term economic
benefit for the Group.
Distribution rights are recognised initially at cost and charged through operating costs in the income statement over a
maximum five-year period that is dependent on either cumulative sales and programme genre, or based on forecast future
sales. Advances paid for the acquisition of distribution rights are disclosed as distribution rights as soon as they are
contracted. These advances are not expensed until the programme is available for distribution. Up to that point they are
assessed annually for impairment through the reassessment of the future sales expected to be earned from that title.
The net book value of distribution rights at the year are as follows:
2014£m 2013£m
Distribution rights 13 10
The movement during the year comprises additions of £21 million (2013: £16 million) and amounts charged to the income
statement of £18 million (2013: £23 million).
3.1.2 Programme rights and other inventory
Accounting policies
Rights are recognised when the Group controls the respective rights and the risks and rewards associated with them.
Programme rights and production costs not yet written off are included in the statement of financial position at the lower
of cost and net realisable value.
Broadcast programme rights
Acquired programme rights (which include films), and sports rights, are purchased for the primary purpose of broadcasting
on the ITV network. These are recognised within current assets as payments are made or when the rights are ready for
broadcast. The Group generally expenses these rights through operating costs over a number of transmissions reflecting the
pattern and value in which the right is consumed.
Commissions, which primarily comprise programmes purchased based on editorial specification and over which the Group has
some control, are recognised in current assets as payments are made and are generally expensed to operating costs in full
on first transmission. Where a commission is repeated, incremental costs are included in operating costs
Where a repeat of a programme is broadcast, the Group recognises the incremental costs associated with the broadcast in
operating costs.
In assessing net realisable value for acquired and commissioned rights, the net realisable value assessment is based on
estimated airtime value, with consideration given to whether the number of transmissions purchased can be efficiently
played out over the licence period.
Studios production costs
Production inventory comprises the costs incurred by ITV Studios in producing a programme, where the programme is part way
through the production process and not yet available for delivery to a broadcaster. They are recognised within current
assets at production cost as incurred and are recognised in operating costs on delivery of episodes.
Also included here are dramas that have been commissioned straight to series. Although more expensive than producing a
pilot, this method attracts high profile talent to the production and raises the profile of the series to support its
distribution. The production cost is partly funded by network pre-sales, while the remainder, the "deficit", is carried
internally and covered by future sales.
In assessing net realisable value for programmes in production, judgement is required when considering the contracted sales
price and estimated costs to complete.
The programme rights and other inventory at the year end are shown in the table below:
2014£m 2013£m
Acquired programme rights 101 110
Commissions 57 46
Sports rights 40 57
Production costs 169 109
367 322
Programme rights and other inventory written down in the year were £1 million (2013: £1 million).
3.1.3 Programme commitments
These are operating commitments in respect of programming entered into in the ordinary course of business with programme
suppliers, sports organisations and film distributors in respect of rights to broadcast on the ITV network. Commitments in
respect of these purchases, which are not reflected in the statement of financial position, are due for payment as
follows:
2014£m 2013£m
Within one year 464 444
Later than one year and not more than five years 462 431
More than five years 58 3
984 878
3.1.4 Trade and other receivables
Accounting policies
Trade receivables are recognised initially at the value of the invoice sent to the customer and subsequently at the amounts
considered recoverable (amortised cost). Where payments are not due for more than one year, they are shown in the financial
statements at their net present value to reflect the economic cost of delayed payment. The Group provides goods and
services to substantially all its customers on credit terms.
Estimates are used in determining the level of receivables that will not, in the opinion of the Directors, be collected.
These estimates include such factors as historical experience, the current state of the UK and overseas economies and
industry specific factors. A provision for impairment of trade receivables is established when there is sufficient evidence
that the Group will not be able to collect all amounts due.
The carrying value of trade receivables is considered to approximate fair value.
Trade and other receivables can be analysed as follows:
2014£m 2013£m
Due within one year:
Trade receivables 271 295
Other receivables 27 40
Prepayments and accrued income 87 53
385 388
Due after more than one year:
Trade receivables 7 11
Other receivables 17 3
Total trade and other receivables 409 402
Other receivables due after more than one year include £11 million (2013: £nil) relating to 2014 acquisitions (see note 3.4
for details).
£278 million (2013: £306 million) of toRecent news on ITV
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