REG - ITV PLC - ITV Final Year Results 2014 <Origin Href="QuoteRef">ITV.L</Origin> - Part 5
04/03/2015 07:00
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the gross put option liability of £21 million, net of the performance adjustment
receivable of £32 million, on the Statement of Financial Position.
Any future changes in the fair value of the put option liability or performance adjustment 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 £6 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 £28 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 amortisation 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 £4 million of cash acquired) of £31 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 £93 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
£6 million of cash acquired) of £25 million. The maximum additional amount payable is £45 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 assets and liabilities:
£m Leftfield Other 2014 Total 2013 Total
Consideration transferred:
Initial consideration (net of cash acquired) (Note A) 209 5 214 56
Contingent consideration (Note B) (30) 1 (29) 6
Total consideration 179 6 185 62
Fair value of net assets acquired:
Property, plant and equipment 5 - 5 -
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 58 1 59 17
Non-controlling interest measured at fair value (Note C) 18 2 20 13
Goodwill 139 7 146 58
Other information:
Present value at acquisition of the liability on options 18 2 20 13
Present value at acquisition of the earnout payment 2 2 4 15
Contributions to the Group's performance:
Revenue - acquisition to date 57 5 62 61
Profit after tax - acquisition to date 14 - 14 3
Revenue - January to December 83 5 88 96
Profit after tax - January to December 20 - 20 6
Note A: Cash of £5 million was acquired with Leftfield and £1 million with DiGa.
Note B: At year end the Leftfield contingent consideration was valued at £32 million due to currency translation (see note
4.5)
Note C: Non-controlling interest arises where the Group acquires less than 100% of the equity interest in a business, but
obtains control.
3.5 Investments
Keeping it simple . . .
The Group holds minority interests in a number of different entities. Accounting for these investments, and the Group's
share of any profits and losses, depends on the level of control or influence the Group is granted via its interest. The
three principal types of non-consolidated investments are: joint arrangements (joint ventures or joint operations),
associates and fixed asset investments. A joint venture is an investment where the Group has joint control, with one or
more third parties. An associate is an entity over which the Group has significant influence (i.e. power to participate in
the investee's financial and operating decisions). Any other investment is a fixed asset investment.
Accounting policies
For joint ventures and associates the Group applies equity accounting. Under this method, it recognises the investment in
the entity at cost and subsequently adjusts this for its share of profits or losses, which are recognised in the income
statement within non-operating items and included in adjusted profit. For fixed asset investments no share of profits or
losses are recognised.
The carrying value of all investments are shown as non-current assets on the Statement of Financial Position. The £10
million increase in the year comprises £7 million in relation to the acquisition of associates and fixed asset investments
and £3 million of funding to existing joint ventures.
Principal investments
The Company indirectly held at 31 December 2014 the following holdings in significant joint ventures, associates and
investments:
Name Interest in ordinary share capital 2014% Interest in ordinary share capital 2013% Principal activity
Joint ventures
Freesat (UK) Limited 50.0 50.0 Provision of a standard and high definition enabled digital satellite proposition
Digital 3 & 4 Limited 50.0 50.0 Operates the Channel 3 & 4 digital terrestrial multiplex
Associates
Independent Television News (ITN) Limited 40.0 40.0 Supply of news services to broadcasters in the UK and elsewhere
Mammoth Screen Limited 25.0 25.0 Production of scripted content
Tomorrow ITV Studios 1 - - Production of scripted content
Indigenous Media 2 - - Production of content for digital distribution
Fixed asset investments
Believe Entertainment 3 - - Production of content for digital distribution
Zealot Networks 4 - - Digital-first media company
1. 25% preferred interest.
2. 14.7% preferred interest.
3. 5.2% preferred interest
4. 6% preferred interest.
3.6 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.
Accounting policies
A provision is recognised in the statement of financial position when the Group has a present legal or constructive
obligation arising from past events, it is probable cash will be paid to settle it and the amount can be estimated
reliably. Provisions are determined by discounting the expected future cash flows by a rate that reflects current market
assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised
as a financing cost in the income statement. The value of the provision is determined based on assumptions and estimates in
relation to the amount and timing of actual cash flows which are dependent on future events.
Provisions
The movements in provisions during the year are as follows:
Contract provisions£m Restructuring provisions£m Property provisions£m Other provisions£m Total£m
At 1 January 2014 7 1 4 15 27
Utilised (4) (1) (1) - (6)
At 31 December 2014 3 - 3 15 21
Provisions of £17 million are classified as current liabilities (2013: £19 million). Unwind of the discount is £nil in 2014
and 2013.
Contract provisions comprise onerous sports rights commitments that are expected to be utilised over the remaining contract
period and 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 £15 million primarily relate to potential liabilities that may arise as a result of Boxclever having
been placed into administrative receivership, most of which relate to pension arrangements. In 2011 the Determinations
Panel of The Pensions Regulator determined that Financial Support Directions ('FSDs') should be issued against certain
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 obtained leading
counsel's opinion and extensive legal advice in connection with the proceedings and continue to believe that the provision
held is appropriate.
3.7 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 risks and rewards associated with this type of scheme are assumed
by the members rather than the Group. It is the members' responsibility to make investment decisions relating to their
retirement benefits.
In this note we explain the accounting policies governing the Group's pension schemes, followed by analysis of the
components of the net defined benefit pension deficit, including assumptions made, and where the related movements have
been recognised in the financial statements. In addition, we have placed text boxes to explain some of the technical terms
used in the disclosure.
Accounting policies
Defined contribution scheme
Obligations under the Group's defined contribution schemes are recognised as an operating cost in the income statement as
incurred. For 2014, total contributions expensed were £14 million (2013: £8 million).
Defined benefit scheme
The Group's obligation in respect of the Scheme is calculated by estimating the amount of future benefit that employees
have earned in return for their service in the current and prior periods. That benefit is discounted to determine its
present value and the fair value of scheme assets is then deducted. The discount rate used is the yield at the valuation
date on high quality corporate bonds of a similar duration to the timing of the future expected benefit payments.
The liabilities of the Scheme are measured by discounting the best estimate of future cash flows to be paid using the
projected unit method. This method is an accrued benefits valuation method that makes allowance for projected earnings.
These calculations are performed by a qualified actuary.
Actuarial gains and losses are recognised in full in the period in which they arise through the statement of comprehensive
income.
Defined benefit schemes
Keeping it simple . . .
In a defined benefit scheme, members receive cash payments during retirement, the value of which is dependent on factors
such as salary and length of service. The Group manages the necessary investment, mortality and inflation risks in order to
meet these obligations. In the event of poor returns the Group needs to address this through a combination of increased
levels of contribution or by making adjustments to the Scheme. Schemes can be funded, where regular cash contributions are
made by the employer into a fund which is invested, or unfunded, where no regular money or assets are required to be put
aside to cover future payments.
The Group makes contributions to the Scheme, a separate trustee-administered fund that is not consolidated in these
financial statements, but is reflected on the defined benefit pension deficit line on the consolidated statement of
financial position. It is the responsibility of the Trustee to manage and invest the assets of the Scheme and its funding
position. The Trustee, appointed according to the terms of the Scheme's documentation, is required to act in the best
interest of the members and is responsible for managing and investing the assets of the Scheme and its funding position.
The level of retirement benefit for the Scheme is principally based on pensionable salary at retirement. The latest
triennial valuation of the Scheme was undertaken as at 1 January 2011 by an independent actuary appointed by the Trustee of
the Scheme and agreed in 2012. The next triennial valuation will be as at 1 January 2014 and is expected to be agreed in
2015. This will drive subsequent contribution rates.
An unfunded scheme in relation to previous Directors is accounted for under IAS 19 and the Group is responsible for meeting
the pension obligations as they fall due. It is securitised by assets held outside of the ITV Pension Scheme in the form of
gilts and included within cash and cash equivalents (see note 4.1).
The defined benefit pension deficit
The net pension deficit at 31 December 2014 was £346 million (2013: £445 million).
The assets and liabilities of the Scheme are recognised in the consolidated statement of financial position and shown
within non-current liabilities. The totals recognised in the current and previous years are:
2014£m 2013£m
Total defined benefit scheme obligations (3,687) (3,315)
Total defined benefit scheme assets 3,341 2,870
Net pension deficit (346) (445)
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