REG - ITV PLC - ITV Preliminary Results 2016 <Origin Href="QuoteRef">ITV.L</Origin> - Part 5
01/03/2017 07:07
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in pounds sterling ('£').
Where Group companies based in the UK transact in foreign currencies, these transactions are translated into pounds
sterling at the exchange rate on the transaction date. Foreign currency monetary assets and liabilities are translated into
pounds sterling at the year end exchange rate. Where there is a movement in the exchange rate between the date of the
transaction and the year end, a foreign exchange gain or loss is recognised in the income statement.
Hedge accounting is implemented on certain foreign currency firm commitments, which allows for the effective portion of any
foreign exchange gains or losses to be recognised in other comprehensive income (note 4.3).
Where a forward currency contract is used to manage foreign exchange risk and hedge accounting is not applied, any movement
in currency is taken to the income statement.
Non-monetary assets and liabilities measured at historical cost are translated into pounds sterling at the exchange rate on
the date of the transaction.
The assets and liabilities of Group companies outside of the UK are translated into pounds sterling at the year end
exchange rate. The revenue and expenses of these companies are translated into pounds sterling at the average monthly
exchange rate during the year. Where differences arise between these rates, they are recognised in the translation reserve
within other comprehensive income.
Exchange differences arising on the translation of the Group's interests in joint ventures and associates are recognised in
the translation reserve within other comprehensive income.
On disposal of a foreign subsidiary, an interest in a joint venture or an associate, the related translation reserve is
released to the income statement as part of the gain or loss on disposal.
Accounting judgements and estimates
The preparation of financial statements requires management to exercise judgement in applying the Group's accounting
policies. It also requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities,
income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis, with revisions recognised in the period in which the
estimates are revised and in any future periods affected.
The areas involving a higher degree of judgement or complexity are set out below and in more detail in the related notes:
• Revenue recognition (note 2.1)
• Business combinations (note 3.3 and note 3.4)
In addition to the above, the areas involving the most sensitive estimates and assumptions that are significant to the
financial statements are set out below and in more detail in the related notes:
• Defined benefit pension (note 3.7)
• Taxation (note 2.3)
• Testing of goodwill impairment (note 3.3)
New or amended EU endorsed accounting standards
The table below represents new or amended EU endorsed accounting standards relevant to the Group's results that are
effective in 2016:
Accounting Standard Requirement
IAS 38 Intangible Assets andIAS 16 Property, Plant and Equipment The amendments clarify acceptable methods of depreciation and amortisation introducing a rebuttable presumption that the use of revenue-based amortisation or depreciation methods is inappropriate. This presumption can be overcome when revenue and the consumption of the economic benefits of the asset are highly correlated.
IAS 27 Separate Financial Statements The amendments allow the use of the equity method in separate financial statements, and apply to the accounting not only for associates and joint ventures, but also for subsidiaries.
IAS 11 Joint Arrangements The amendments require business combination accounting to be applied to acquisitions of interests in a joint operation that constitutes a business.
IAS 1 Presentation of financial statements Amendments to clarify various standards including IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 3 Business Combinations, IFRS 8 Operating Segments, IFRS 13 Fair Value Measurement, IAS 16 Property, Plant and Equipment, IAS 24 Related Party Disclosures and IAS 38 Intangible Assets.
Annual Improvements to IFRS 2012 - 2014 cycle Amendments to clarify various standards including IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting.
Based on the Directors' analysis the amendments outlined above do not have a material impact on the Group's financial
position or performance for the year ended 31 December 2016.
The Directors also considered the impact on the Group of other new and revised accounting standards, interpretations or
amendments that are currently endorsed but not yet effective. There are none that are effective for periods beginning on or
after 1 January 2016 that are expected to have a significant impact on the Group's results.
IFRS 15 Revenue from Contracts with Customers is effective 1 January 2018. IFRS 15 will require the Group to identify
distinct promises in contracts with customers that qualify as 'performance obligations'. The price receivable from
customers must then be allocated between the performance obligations identified.
An initial assessment of impact on the Group's performance has been performed on material revenue streams. The impact is
not expected to be material for Broadcasting revenues. Studios revenues are mainly comprised of production and distribution
revenue streams. No material impact is expected on the production revenues. Further detailed analysis on licensing and
merchandising revenues is ongoing to assess whether contracts include dynamic (e.g. continued obligation to update content
over the license period) or static performance obligations, which will aid in determining whether revenue should be
recognised over the license period or at a point in time. The impact on those revenue streams is expected to be limited.
The Directors anticipate adopting IFRS 15 on 1 January 2018. When it is adopted, IFRS 15 can be applied either on a fully
retrospective basis, requiring the restatement of the comparative periods presented in the financial statements, or with
the cumulative retrospective impact of the standard applied as an adjustment to equity on the date of adoption. When the
latter is applied disclosure of the impact of IFRS 15 on each line item in the financial statements is required. The
Directors currently intend to apply the cumulative effect method.
IFRS 9 Financial Instruments is also effective 1 January 2018. Based on the initial assessment of the impact, the Directors
are currently not expecting the application to significantly impact the Group's current accounting or hedging activities.
IFRS 16 Leases is effective 1 January 2019 and has not been endorsed by the EU. IFRS 16 will change lease accounting for
lessees under operating leases. Such agreements will require recognition of an asset representing the right to use the
leased item and a liability for future lease payments. Lease costs (such as property rent) will be recognised in the form
of depreciation and interest, rather than operating cost. The detailed assessment of impact on the Group's performance is
ongoing, the adoption is likely to have a material impact on the presentation of the Group's assets and liabilities.
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 year, segmental information, exceptional items, taxation and earnings per share.
2.1 Profit before tax
Keeping it simple
This section analyses the Group's profit before tax by reference to the activities performed by the Group and an analysis
of key operating costs.
Adjusted earnings before interest, tax, amortisation (EBITA) is the Group's key profit indicator. This reflects the way the
business is managed and how the Directors assess the performance of the Group. This section therefore also shows each
division's contribution to total revenue and EBITA.
Accounting policies
Revenue recognition
Revenue is stated exclusive of VAT and equivalent sales taxes, and comprises the sale of products and services to third
parties. Judgement is required when determining the appropriate timing and amount of revenue that can be recognised,
specifically around whether there is a firm contract and that the service has been provided, and if so, whether there is a
fixed or reasonably determinable price that is reasonably certain will be collected. Complexity in advertising revenue
recognition is driven by intricate automated and manual processes involved in measuring the value delivered to the
customer.
Revenue is recognised when the Group has transferred both the significant risks and rewards of ownership and control, and
the amount of revenue can be measured reliably. Revenue recognition criteria for the Group's key classes of revenue are
recognised on the following bases:
Applicable segment Class of revenue Recognition criteria
Broadcast & Online Advertising (NAR) on transmission
Video on Demand (VOD) as audience targets are met
Sponsorship across period of transmission of the sponsored programme or series
Pay over the term of the contract or for the expected revenue per subscriber or download
Participation (Interactive & as the service is provided or event occurs
Brand Extensions)
Studios Programme production on delivery of episode and acceptance by the customer
Programme distribution rights when the contract is signed and content is available for exploitation
Format and licences at the point in time when the license is transferred and the customer is able to use and benefit from the licence; over the license period if continued involvement of the Group is required
Digital: Archive on delivery of content (one-off) or over the contract period in a manner that reflects the flow of content delivered (top-up)
The results for the year aggregate these classes of revenue into four significant categories:
2016 2016% of total 2015 2015% of total
£m £m
NAR
Broadcast & Online 1,672 47% 1,719 51%
Non-NAR
Broadcast & Online 460 427
ITV Studios: Productions 1,089 1,045
ITV Studios: Distribution 306 192
Total Non-NAR 1,855 53% 1,664 49%
Total revenue from continuing operations 3,527 100% 3,383 100%
Segmental information
Operating segments, which have not been aggregated, are determined in a manner that is consistent with how the business is
managed and reported to the Board of Directors. The Board is regarded as the chief operating decision maker.
The Board considers the business primarily from an operating activity perspective. The reportable segments for the years
ended 31 December 2016 and 31 December 2015 are therefore Broadcast & Online and ITV Studios, the results of which are
outlined in the following tables:
Broadcast ITV Studios* Consolidated
& Online 2016 2016
2016 £m £m
£m
Total segment revenue 2,143 1,395 3,538
Intersegment revenue - (463) (463)
Revenue from external customers including discontinued operations 2,143 932 3,075
Less : Discontinued operations (note 2.5) (11) - (11)
Revenue from external customers 2,132 932 3,064
Adjusted EBITA including discontinued operations** 636 243 879
Less: Operating loss from discontinued operations (note 2.5) (6) - (6)
Adjusted EBITA** 642 243 885
Broadcast ITV Studios* Consolidated
& Online 2015 2015
2015 £m £m
£m
Total segment revenue 2,146 1,237 3,383
Intersegment revenue - (411) (411)
Revenue from external customers including discontinued operations 2,146 826 2,972
Less: Discontinued operations - - -
Revenue from external customers 2,146 826 2,972
Adjusted EBITA including discontinued operations** 659 206 865
Adjusted EBITA from discontinued operations** - - -
Adjusted EBITA** 659 206 865
* Revenue of £320 million (2015: £389 million) was generated in the US during the year; the US represented £346 million
(2015: £314 million) of non-current assets at year end.
** Adjusted EBITA is before exceptional items and includes the benefit of production tax credits, it is shown
after the elimination of intersegment revenue and costs. This measure represents the continuing operations.
Intersegment revenue, which is earned on arm's length terms, is generated from the supply of ITV Studios programmes to
Broadcast & Online for transmission primarily on the ITV Network. This revenue stream is a measure which forms part of the
Group's strategic priority of building a strong international content business, as producing and retaining rights to the
shows broadcast on the ITV Network benefits the Group further from subsequent international content and format sales.
In preparing the segment information, centrally managed costs have been allocated between reportable segments on a
methodology driven principally by revenue, headcount and building occupancy of each segment. This is consistent with the
basis of reporting to the Board of Directors.
The Group's principal operations are in the United Kingdom. Revenue from external customers in the United Kingdom is £2,370
million (2015: £2,275 million), and revenue from external customers in other countries is £694 million (2015: £697
million). The Financial and Performance Review provides further detail on ITV's international revenues.
There is one media buying agency (2015: two) acting on behalf of a number of advertisers that represent the Group's major
customers. This agency is the only customer which individually represents over 10% of the Group's revenue. Revenue of
approximately £552 million (2015: £576 million) was derived from this customer. This revenue is attributable to the
Broadcast & Online segment.
Broadcast & Online
The Group operates the largest commercial family of channels in the UK and delivers content through multiple platforms. In
addition to linear television broadcast, the Group delivers its content on the ITV Hub, pay platforms, and through direct
content deals. Content commissioned and scheduled by this segment is funded primarily by television advertising, where
revenue is generated from the sale of audiences for advertising airtime and sponsorship.
Other sources of revenue are from: online advertising; HD digital channels on pay platforms (e.g. Sky and Virgin); SDN
revenue (which generates licence sales for DTT Multiplex A); and participation revenue (which includes interactive sales
from competitions) and the ITV Choice subscription service in other countries.
ITV Studios
ITV Studios is the Group's international content business, creating and producing programmes and formats that return and
travel, namely drama, entertainment and factual entertainment.
ITV Studios UK is the largest commercial producer in the UK and produces programming for the Group's own channels,
accounting for 63% of ITV main channel spend on commissioned programming. Programming is also sold to other UK broadcasters
such as the BBC, Channel 4 and Sky.
ITV America is the leading unscripted independent producer of content in the US and is growing its scripted presence by
increasing investment in high-profile dramas straight to series.
ITV Studios also operates in five other international locations being Australia, Germany, France, the Netherlands
(primarily Talpa) and the Nordics, where content is produced for local broadcasters. This content is either locally created
IP or formats that have been created elsewhere by ITV, primarily in the UK and the Netherlands.
Global Entertainment and Talpa Global, ITV's distribution businesses, license ITV's finished programmes and formats and
third-party content internationally. Within this business we also finance productions both on and off ITV to acquire global
distribution rights.
Adjusted EBITA
The Directors assess the performance of the reportable segments based on a measure of adjusted EBITA. The Directors use
this measurement basis as it excludes the effect of transactions that could distort the understanding of the Group's
performance for the year and comparability between periods. See the Financial and Performance Review on the previous pages
for the detailed explanation of the Group's use of adjusted performance measures.
A reconciliation from adjusted EBITA to profit before tax is provided as follows:
2016 2015
£m £m
Adjusted EBITA 885 865
Production tax credits (28) (23)
EBITA before exceptional items from continuing operations 857 842
Operating exceptional items (164) (109)
Amortisation of intangible assets (89) (67)
Net financing costs (51) (31)
Gain on sale of non-current assets (exceptional items) - 5
Gain on sale of subsidiaries and investments (exceptional items) - 1
Profit before tax from continuing operations 553 641
Cash generated from operations
A reconciliation from profit before tax to cash generated from operations before exceptional items is as follows:
2016 2015
£m £m
Cash flows from operating activities
Profit before tax 553 641
Gain on sale of subsidiaries and investments (exceptional items) - (1)
Gain on sale of non-current assets (exceptional items) - (5)
Net financing costs 51 31
Operating exceptional items 164 109
Depreciation of property, plant and equipment 31 27
Amortisation of intangible assets 89 67
Share-based compensation and pension service costs 10 17
(Increase)/decrease in programme rights and other inventory, and distribution rights (35) 4
(Increase) in receivables (56) (21)
Increase/(decrease) in payables 63 (42)
Movement in working capital (28) (59)
Cash generated from operations before exceptional items 870 827
Operating costs
Staff costs
Staff costs before exceptional items can be analysed as follows:
2016 2015
£m £m
Wages and salaries 336 318
Social security and other costs 46 43
Share-based compensation (see note 4.7) 10 14
Pension costs 27 25
Total staff costs 419 400
Less: staff costs allocated to productions (147) (137)
FTEE staff costs (non-production) 272 263
Exceptional staff costs are disclosed separately in Note 2.2
The number of full-time equivalent employees (FTEE) (excluding short-term contractors and freelancers who are predominantly
allocated to the cost of productions), calculated on a weighted average basis, during the year was:
2016 2015
Broadcast & Online 2,087 2,109
ITV Studios 4,034 3,449
6,121 5,558
The increase in full-time equivalent employees in ITV Studios is primarily driven by the full year effect of acquisitions
completed in 2015.
Details of Directors' emoluments, share options, pension entitlements and long-term incentive scheme interests are set out
in the Remuneration Report. Listed Directors' gains on share options for 2016 are set out in the ITV plc entity financial
statements.
Depreciation
Depreciation in the year was £31 million (2015: £27 million), of which £13 million (2015: £14 million) relates to Broadcast
& Online and £18 million (2015: £13 million) to ITV Studios.
Operating leases
The total undiscounted future minimum lease payments under non-cancellable operating leases are due for payment as
follows:
2016 Transponders Property Total
Within one year 28 19 47
Later than one year and not later than five years 129 59 188
Later than five years 92 17 109
249 95 344
2015 Transponders Property Total
Within one year 34 17 51
Later than one year and not later than five years 111 48 159
Later than five years 115 21 136
260 86 346
The Group's operating leases relate to transponder assets, offices and studio properties. The Group holds transmission
supply agreements that require the use of transponder assets for a period of up to ten years with payments increasing over
time, limited by specific RPI caps. These supply agreements are classified as operating leases, in accordance with the
Group's policy on leases detailed in note 3.2.
Property leases run for terms ranging from five to twenty years, depending on the expected operational use of the site.
Leases may include break clauses or options to renew (options to renew are not included in the commitments table). Lease
payments are generally subject to market review every five years to reflect market rentals, but because of the uncertainty
over the amount of any future changes, such changes have not been reflected in the table above. None of the lease
agreements include contingent rentals.
The total future minimum sublease payments expected to be received under non-cancellable subleases at the year end are £1
million (2015: £1 million).
The total operating lease expenditure recognised during the year was £47 million (2015: £51 million) and total sublease
payments received were £1 million (2015: £2 million).
Audit fees
The Group engages KPMG LLP (KPMG) on assignments additional to their statutory audit duties where their expertise and
experience with the Group are important and are in line with Group's policy on auditor independence.
Fees paid to KPMG and its associates during the year are set out below:
2016 2015
£m £m
For the audit of the Group's annual accounts 0.6 0.6
For the audit of subsidiaries of the Group 0.6 0.4
Audit-related assurance services 0.2 0.2
Total audit and audit-related assurance services 1.4 1.2
Taxation advisory services 0.2 0.1
Other assurance services 0.1 0.3
Total non-audit Services 0.3 0.4
Total fees paid to KPMG 1.7 1.6
There were no fees payable in 2016 or 2015 to KPMG and associates for the auditing of accounts of any associate or pension
scheme of the Group, internal audit services, services relating to corporate finance transactions entered into or proposed
to be entered into, by or on behalf of the Group or any of its associates.
Fees paid to KPMG for audit and other services to the Company are not disclosed in its individual accounts as the Group
accounts are required to disclose such fees on a consolidated basis.
2.2 Exceptional items
Keeping it simple
Exceptional items are excluded from management's assessment of profit because by their size or nature they could distort
the Group's underlying quality of earnings. They are typically gains or losses arising from events that are not considered
part of the core operations of the business (e.g. costs relating to capital transactions, such as professional fees on
acquisitions). These items are excluded to reflect performance in a consistent manner and are in line with how the business
is managed and measured on a day-to-day basis.
Accounting policies
Exceptional items as described above are disclosed on the face of the income statement.
Subsequent revisions of estimates for items initially recognised as exceptional are recorded as exceptional items in the
year that the revision is made. Gains or losses on disposal of non-core assets are also considered exceptional due to their
nature and impact on the Group's underlying quality of earnings.
Exceptional items
Operating and non-operating exceptional items are analysed as follows:
(Charge)/credit Ref. 2016 2015
£m £m
Operating exceptional items:
Acquisition-related expenses A (131) (88)
Reorganisation and restructuring costs B (14) (13)
Pension curtailment cost C (19) -
Legal related costs - (8)
Total net operating exceptional items (164) (109)
Non-operating exceptional items:
Gain on sale of non-current assets D - 5
Gain on sale and impairment of subsidiaries and investments E - 1
Total non-operating exceptional items - 6
Total exceptional items before tax (164) (103)
Tax on exceptional items 15 8
Total exceptional items net of tax (149) (95)
A - Acquisition-related expenses
Acquisition-related expenses of £131 million includes £110 million (2015: £78 million) relating to performance-based,
employment linked costs to former owners mainly in relation to Talpa Media. The remaining £21 million (2015: £10 million)
is primarily comprised of integration costs and professional fees (mainly financial and legal due diligence). See note 3.4
for further details on acquisitions.
B - Reorganisation and restructuring costs
In 2016 £14 million (2015: £13 million) of costs were incurred as a result of a Group-wide commitment to reduce the
overhead cost base by £25 million. This cost was primarily comprised of redundancy.
C - Curtailment cost
In 2016, following a member consultation, the Group decided to close the ITV Pension Scheme to future benefit accrual,
resulting in a one off non-cash curtailment cost of £19 million (see note 3.7 for further detail).
D - Gain on sale of non-current assets
In 2015 a £5 million gain on sale of non-current assets arose primarily as a result of the sale of a freehold property and
related assets in Manchester.
E - Gain on sale and impairment of subsidiaries and investments
The gain of £1 million in 2015 relates to a historical disposal.
2.3 Taxation
Keeping it simple
This section sets out the Group's tax accounting policies, the current and deferred tax charges or credits in the year
(which together make up the total tax charge or credit in the income statement), a reconciliation of profit before tax to
the tax charge for the period and the movements in deferred tax assets and liabilities.
Accounting policies
The tax charge for the period is recognised in the income statement, the statement of comprehensive income and directly in
equity, according to the accounting treatment of the related transactions. The tax charge comprises both current and
deferred tax. The calculation of the Group's tax charge involves a degree of estimation and judgement in respect of certain
items whose tax treatment cannot be fully determined until a resolution has been reached by the relevant tax authority.
Current tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment in
respect of previous years.
The Group recognises liabilities for anticipated tax issues based on estimates of the additional taxes that are likely to
become due, which require judgement. Amounts are accrued based on management's interpretation of specific tax law and the
likelihood of settlement. Where the final tax outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the current tax and deferred tax provisions in the period in which such
determination is made.
Deferred tax
Deferred tax arises due to certain temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and those for taxation purposes.
The following temporary differences are not provided for:
• the initial recognition of goodwill;
• the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a
business combination; and
• differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable
future
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of
assets and liabilities. Deferred tax is calculated using tax rates that are enacted or substantively enacted at the balance
sheet date.
A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available
to utilise the temporary difference. Recognition of deferred tax assets, therefore, involves judgement regarding the timing
and level of future taxable income.
Deferred tax assets and liabilities are disclosed net to the extent that they relate to taxes levied by the same authority
and the Group has the right of set-off.
Taxation - Income statement
The total taxation charge in the income statement is analysed as follows:
2016 2015
£m £m
Current tax:
Current tax charge on profit before exceptional items (134) (125)
Current tax (charge)/credit on exceptional items 11 6
(123) (119)
Adjustments to prior periods 10 9
(113) (110)
Deferred tax:
Origination and reversal of temporary differences 18 (20)
Deferred tax (charge)/credit on exceptional items 4 2
Impact of change in the statutory tax rate 1 (2)
23 (20)
Adjustments to prior periods (10) (9)
13 (29)
Total taxation charge in the income statement (100) (139)
In order to understand how, in the income statement, a tax charge of £100 million (2015: £139 million) arises on a profit
before tax of £553 million (2015: £641 million), the taxation charge that would arise at the standard rate of UK
corporation tax is reconciled to the actual tax charge as follows:
2016 2015
£m £m
Profit before tax 553 641
Notional taxation charge at UK corporation tax rate of 20% (2015: 20.25%) on (111) (130)
profit before tax
Non-taxable income/non-deductible expenses (25) (23)
Other taxes (1) -
Current year losses not recognised (2) -
Impact of overseas tax rates 10 (7)
Impact of changes in tax rates 1 (2)
Production tax credits 28 23
Total taxation charge in the income statement (100) (139)
Non-deductible expenses are expenses that are not expected to be allowable for tax purposes. Similarly non-taxable income
is income that is not expected to be taxable.
Adjustments to prior periods primarily arise where an outcome is obtained on certain tax matters which differs from
expectations held when the related provision was made. Where the outcome is more favourable than the provision made, the
difference is released, lowering the current year tax charge. Where the outcome is less favourable than our provision, an
additional charge to current year tax will occur. This year there is no net impact of prior year adjustments in the total
tax charge. The current tax charge includes a £10 million credit relating to prior years, and the deferred tax credit
includes an equal and opposite £10m charge.
The impact of overseas tax rates reflects the fact that some of our profits are earned in territories other than the UK,
and taxed at rates different to the UK corporation tax rate. This year losses arising in higher taxed jurisdictions, which
we recognise through deferred tax, give rise to a reconciling benefit.
The UK corporation tax rate has been enacted to fall to 19% from 1 April 2017 and 17% from 1 April 2020 (this supersedes
the originally enacted reduction to 18%). The carrying value of UK temporary differences at the balance sheet date has been
adjusted accordingly. This has given rise to a charge of £5 million (2015: £1 million) of which £1 million is recognised as
a credit in the income statement and £6 million as a charge in other comprehensive income.
The Production tax credits included within the reconciliation above are UK High-End Television (HETV) tax credits and
Children's Television tax credits, which are part of a group of incentives provided to support the creative industries. The
ability to access these tax credits is fundamental when assessing the viability of investment decisions in the production
of high-end drama and children's programmes. Under IFRS these production tax credits are reported within the total taxation
charge in the income statement, however ITV considers them to be a contribution to production costs, and therefore working
capital in nature, and excludes them from its adjusted tax charge, including them instead within Adjusted EBITA.
The effective tax rate is 18.1% (2015: 21.7%), and is the tax charge on the face of the income statement expressed as a
percentage of the profit before tax. In the years ended 31 December 2016 and 31 December 2015, the effective tax rate is
comparable to the standard rate of UK corporation tax (20% in 2016 and 20.25% in 2015). As explained in the Financial and
Performance Review, the Group uses an adjusted tax rate to show how tax impacts total adjusted earnings in a way that is
more aligned with the Group's cash tax position.
This year the current year movement on origination and reversal of temporary differences (excluding exceptional items) is a
credit of £18 million, compared with a charge of £20 million in 2015. The main reasons for this change are the recognition
of tax losses in our overseas businesses, and the unwinding of deferred tax liabilities as intangible assets are
amortised.
Taxation - Other comprehensive income and equity
As analysed in the table below, a deferred tax credit of £40 million on actuarial movements on pensions has been recognised
in other comprehensive income. A deferred tax charge of £6 million has been recognised in equity in respect of share based
payments.
A current tax credit of £2 million has also been recognised in equity in relation to share based payments.
Taxation - Statement of financial position
The table below outlines the deferred tax assets/(liabilities) that are recognised in the statement of financial position,
together with their movements in the year:
At Reclassification Recognised in Recognised in Business Foreign Exchange At
1 January £m the income OCI and equity acquisitions £m 31 December
2016 statement £m £m 2016
£m £m £m
Intangible assets (101) 14 15 - (10) (12) (94)
Programme rights 1 - - - - - 1
Pension scheme deficits 1 1 (8) 40 - - 34
Tax losses 4 - 23 - - 3 30
Share-based compensation 11 (5) (4) (6) - - (4)
Other temporary differences 5 (10) (13) - - (2) (20)
(79) - 13 34 (10) (11) (53)
At Recognised in Recognised in Business At
1 January the income OCI and equity acquisitions 31 December
2015 statement £m £m 2015
£m £m £m
Property, plant and equipment (1) 1 - - -
Intangible assets (15) (10) - (76) (101)
Programme rights 1 - - - 1
Pension scheme deficits 36 (16) (19) - 1
Tax losses 7 (3) - - 4
Share-based compensation 14 (1) (2) - 11
Other temporary differences 1 - - 4 5
43 (29) (21) (72) (79)
At 31 December 2016, total deferred tax assets are £65 million (2015: £22 million) and total deferred tax liabilities are
£118 million (2015: £101 million). After netting off balances within countries, there is a deferred tax liability of £70
million and a deferred tax asset of £17 million (2015: net deferred tax liability of £79 million) recognised in the
Consolidated Statement of Financial Position.
The deferred tax balances relate to:
• property, plant and equipment temporary differences arising on assets qualifying for tax depreciation
• temporary differences on intangible assets, including those arising on business combinations
• programme rights - temporary differences on intercompany profits on stock
• pension scheme deficit temporary differences on the IAS 19 pension deficit
• temporary differences arising from the timing of the use of tax losses
• share-based compensation temporary differences on share schemes and
• other temporary differences on provisions and other items
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 £93 million to the Group's defined benefit pension scheme. The
adjustment in other comprehensive income to the deferred tax balance primarily relates to the actuarial loss recognised in
the period.
A deferred tax asset of £377 million (2015: £399 million) in respect of capital losses of £2,215 million (2015: £2,215
million) has not been recognised due to uncertainties as to 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 of £19 million
(2015: £15 million) in respect of overseas losses that time expire between 2017 and 2027 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. In 2016 we present EPS for the
continuing business and the discontinued operation, UTV Ireland Limited (see note 2.5 for further details).
Basic EPS is calculated on the Group profit for the year attributable to equity shareholders of £448 million (2015: £495
million) divided by 4,010 million (2015: 4,006 million) being the weighted average number of shares in issue during the
year.
Diluted EPS reflects any commitments made by the Group to issue shares in the future and so it includes the impact of share
options.
Adjusted EPS is presented in order to show the business performance of the Group in a consistent manner and reflect how the
business is managed and measured on a day-to-day basis. Adjusted EPS reflects the impact of operating and non-operating
exceptional items on Basic EPS. Other items excluded from Adjusted EPS include amortisation and impairment of intangible
assets acquired through business combinations; net financing cost adjustments and the tax adjustments relating to these
items. Each of these adjustments are explained in detail in the section below.
The calculation of Basic EPS and Adjusted EPS, together with the diluted impact on each, is set out below:
Earnings per share
2016 2015
£m £m
Profit for the year attributable to equity shareholders of ITV plc 448 495
Less: Loss for the year from discontinued operations (1) -
Profit for the year attributable to equity shareholders of ITV plc from continuing operations 449 495
Weighted average number of ordinary shares in issue - million 4,010 4,006
Earnings per ordinary share and from continuing operations 11.2p 12.4p
Loss per ordinary share from discontinued operations - -
Diluted earnings per share
2016 2015
£m £m
Profit for the year attributable to equity shareholders of ITV plc from continuing operations 449 495
Weighted average number of ordinary shares in issue - million 4,010 4,006
Dilution due to share options 19 29
Total weighted average number of ordinary shares in issue - million 4,029 4,035
Diluted earnings per ordinary share and from continuing operations 11.1p 12.3p
Diluted loss per ordinary share from discontinued operations - -
Adjusted earnings per share
Ref. 2016 2015
£m £m
Profit for the year attributable to equity shareholders of ITV plc 448 495
Exceptional items (net of tax) A 149 95
Less: Loss after tax for the period from discontinued operations (1) -
Profit for the year before exceptional items from continuing operations 598 590
Amortisation and impairment of acquired intangible assets B 66 54
Adjustments to net financing costs C 19 15
Adjusted profit from continuing operations 683 659
Total weighted average number of ordinary shares in issue - million 4,010 4,006
Adjusted earnings per ordinary share and from continuing operations 17.0p 16.5p
Adjusted loss per ordinary share from discontinued operations - -
Diluted adjusted earnings per share
2016 2015
£m £m
Adjusted profit from continuing operations 683 659
Weighted average number of ordinary shares in issue - million 4,010 4,006
Dilution due to share options 19 29
Total weighted average number of ordinary shares in issue - million 4,029 4,035
Diluted adjusted earnings per ordinary share and from continuing operations 17.0p 16.3p
Diluted adjusted loss per ordinary share from discontinued operations - -
Details of the adjustments to earnings are as follows:
A. Exceptional items (net of tax) £149 million (2015: £95 million)
Calculated as total exceptional items of £164 million (2015: £103 million) net of related tax credit of £15 million (2015:
£8 million). See note 2.2 for the detailed composition of exceptional items of £164 million.
B. Amortisation and impairment of acquired intangible assets of £66 million (2015: £54 million)
Calculated as total amortisation and impairment of £89 million (2015: £67 million), less amortisation of software licences
and development of £12 million (2015: £9 million), net of related tax credit of £20 million (2015: £13 million). This is
then adjusted to recognise a £9 million cash tax benefit arising from goodwill on US acquisitions, which for tax purposes
is amortised over a 15-year period (2015: £9 million).
C. Adjustments to net financing costs £19 million (2015: £15 million)
Net financing costs are adjusted for mark-to-market movements on derivative instruments, foreign exchange and imputed
pension interest charges of £25 million (2015: £18 million) net of related tax credit of £6 million (2015: £3 million).
2.5 Discontinued operations
Keeping it simple
A discontinued operation is a distinct component of the business that has been or is in the process of being disposed.
Accounting standards dictate that the loss from discontinued operations is recognised outside of the Group's operating
results.
Management agreed to sell UTV Ireland Limited to Virgin Media on 11 July 2016 for E10 million. The sale completed on 30
November and the assets and liabilities classified as a disposal group held-for-sale have been disposed of. See section 3.4
for further details.
Results of discontinued operations
2016 2015
£m £m
Revenue 11 -
Expenses (17) -
Operating loss (6) -
Taxation - -
Loss after tax (6) -
Gain on sale of discontinued operations 5 -
Tax on gain on sale of discontinued operations - -
Loss for the period (1) -
Earnings per share
Basic loss per share - -
Diluted loss per share - -
Cash flows from (used in) discontinued operations
2016 2015
£m £m
Net cash used in operating activities (6) -
Net cash from investing activities 10 -
Net cash flow for the period 4 -
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. On
the following pages there are notes covering working capital, non-current assets and liabilities, acquisitions and
disposals, provisions and pensions.
Liabilities relating to the Group's financing activities are addressed in section 4. Deferred tax assets and liabilities
are shown in note 2.3.
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 ratio, 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%. For those subsidiaries acquired during the year,
working capital at the date of acquisition is excluded from the profit to cash calculation so that only subsequent working
capital movements in the period owned by ITV are reflected in this metric.
In the following section you will find further information regarding working capital management and analysis of the
elements of working capital.
3.1.1 Programme rights, other inventory and commitments
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 utilised are included in the statement of financial position at the lower of
cost and net realisable value. In assessing net realisable value for programmes in production, judgement is required when
considering the contracted sales price and estimated costs to complete.
Broadcast programme rights
Acquired programme rights (which include films), and sports rights, are purchased for the primary purpose of broadcasting
on the ITV Family channels, including VOD and SVOD platforms. 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 on any platform, incremental costs associated with the broadcast are
included 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.
The Broadcast programme rights and other inventory at the year end are shown in the table below:
2016 2015
£m £m
Acquired programme rights 157 111
Commissions 69 61
Sports rights 27 30
253 202
Broadcast 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:
2016 2015
£m £m
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