REG - ITV PLC - ITV Preliminary Results 2016 <Origin Href="QuoteRef">ITV.L</Origin> - Part 8
01/03/2017 07:07
- Part 8: For the preceding part double click ID:nRSA1335Yg
Inflow 8 22 9 13 - -
Outflow (6) (12) (6) (6) - -
(1,538) (1,838) (829) (320) (227) (462)
* Expected future payments depending on performance of acquisitions, the total maximum consideration is discussed in the
Financial and Performance Review.
4.4 Net financing costs
Keeping it simple
This section details the interest income generated on the Group's cash and other financial assets and the interest expense
incurred on borrowings and other financial liabilities.
In reporting 'adjusted profit', the Group adjusts net financing costs to exclude unrealised mark-to-market movements on
interest rate and foreign exchange derivatives, gains/losses on bond buybacks, net pension interest, interest and fair
value movements in acquisition-related liabilities and other financing costs.
Our rationale for adjustments made to financing costs is set out in the Financial and Performance Review.
Accounting policies
Net financing costs comprise interest income on funds invested, gains/losses on the disposal of financial instruments,
changes in the fair value of financial instruments, interest expense on borrowings and finance leases, unwinding of the
discount on provisions, unwinding of the discount on liabilities to non-controlling interest, foreign exchange
gains/losses, and imputed interest on pension assets and liabilities. Interest income and expense is recognised as it
accrues in profit or loss, using the effective interest method.
Net financing costs
Net financing costs can be analysed as follows:
2016 2015
£m £m
Financing income:
Interest income 2 3
Change in fair value of instruments classified at fair value through profit or loss - 3
2 6
Financing costs:
Interest expense on financial liabilities measured at amortised cost (25) (17)
Net pension interest (see note 3.7) (5) (10)
Change in fair value of instruments classified at fair value through profit or loss (1) -
Foreign exchange loss (8) (2)
Other finance expense (14) (8)
(53) (37)
Net financing costs (51) (31)
Interest on financial liabilities relates to the interest incurred on the Group's borrowings in the year.
Other finance expense includes the amortisation of facility commitment and upfront fees as well as movements in the
estimated value of acquisition-related contingent liabilities, which contributed to most of the 2016 expense. This is where
estimates of the future performance against stretch targets is reassessed, resulting in adjustments to the related put
option liabilities.
4.5 Fair value hierarchy
Keeping it simple
The financial instruments included on the ITV 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. ITV 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.
Level 1
Fair values are measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
Fair values are 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 are measured using inputs for the asset or liability that are not based on observable market data.
The tables below set out the financial instruments included on the ITV statement of financial position at 'fair value'.
Fair value Level 1 Level 2 Level 3
31 December 31 December 31 December 31 December
2016 2016 2016 2016
£m £m £m £m
Assets measured at fair value
Available for sale financial instruments
Other pension assets - gilts (see note 3.7) 39 39 - -
Available for sale investments (see note 3.5) 12 - - 12
Financial assets at fair value through profit or loss
Foreign exchange forward contracts and swaps 2 - 2 -
Financial liabilities at fair value through reserves
Cash flow hedges 7 - 7 -
60 39 9 12
Fair value Level 1 Level 2 Level 3
31 December 31 December 31 December 31 December
2016 2016 2016 2016
£m £m £m £m
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Contingent consideration (1) - - (1)
Foreign exchange forward contracts and swaps (3) - (3) -
Financial liabilities at fair value through reserves
Cash flow hedges (9) - (9) -
(13) - (12) (1)
Fair value Level 1 Level 2 Level 3
31 December 31 December 31 December 31 December
2015 2015 2015 2015
£m £m £m £m
Assets measured at fair value
Available for sale financial instruments
Available for sale gilts (see note 4.1) 38 38 - -
Available for sale investments (see note 3.5) 11 - - 11
Financial assets at fair value through profit or loss
Foreign exchange forward contracts and swaps 1 - 1 -
Interest rate swaps 8 - 8 -
58 38 9 11
Fair value Level 1 Level 2 Level 3
31 December 31 December 31 December 31 December
2015 2015 2015 2015
£m £m £m £m
Liabilities measured at fair value
Financial liabilities at fair value through profit or loss
Contingent consideration (3) - - (3)
Foreign exchange forward contracts and swaps (1) - (1) -
Interest rate swaps (6) - (6) -
Financial liabilities at fair value through reserves
Cash flow hedges (4) - (4) -
(14) - (11) (3)
Refer to note 4.3 for how we value interest rate swaps and forward foreign currency contracts. The available for sale
investments are valued at cost and assessed for impairment.
4.6 Equity
Keeping it simple
This section explains material movements recorded in shareholders' equity that are not explained elsewhere in the financial
statements. The movements in equity and the balance at 31 December 2016 are presented in the consolidated statement of
changes in equity.
Accounting policies
Available for sale reserve
Available for sale assets are stated at fair value, with any gain or loss recognised directly in the available for sale
reserve in equity, unless the loss is a permanent impairment, when it is then recorded in the income statement.
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company's shareholders or their payment.
4.6.1 Share capital and share premium
The Group's share capital at 31 December 2016 of £403 million (2015: £403 million) and share premium of £174 million (2015:
£174 million) is the same as that of ITV plc. Details of this are given in the ITV plc Company financial statements section
of the Annual Report.
4.6.2 Merger and other reserves
Merger and other reserves at 31 December 2016 include the following reserves:
2016 2015
£m £m
Merger reserves 98 98
Capital reserves 112 112
Capital redemption reserves 36 36
Revaluation reserves 2 2
Put option liabilities arising on acquisition of subsidiaries (27) (27)
Total 221 221
4.6.3 Translation reserve
The translation reserve comprises:
• all foreign exchange differences arising on the translation of the accounts of, and investments in, foreign operations;
and
• the gains or losses on the portion of cash flow hedges that have been deemed effective (see note 4.3).
4.6.4 Available for sale reserve
The available for sale reserve comprises all movements arising on the revaluation of gilts accounted for as available for
sale financial instruments (See note 3.7).
4.6.5 Retained earnings
The retained earnings reserve comprises profit for the year attributable to owners of the Company of £448 million (2015:
£495 million) and other items recognised directly through equity as presented in the consolidated statement of changes in
equity. Other items include the credit for the Group's share-based compensation schemes and the charge for the purchase of
ITV shares via the ITV Employees' Benefit Trust, which are described in note 4.7.
The distributable reserves of ITV plc are disclosed in note viii to the ITV plc Company Financial Statements. The Directors
of ITV plc propose a final dividend of 7.2p per share and a special dividend of 5p per share. See details on distributable
reserves on the following pages.
4.6.6 Non-controlling interests
The movement for the year comprises:
• the share of profits attributable to non-controlling interests of £4 million (2015: £7million); and
• the distributions made to non-controlling interests of £4 million (2015: £5 million).
4.7 Share-based compensation
Keeping it simple
The Group utilises share award schemes as part of its employee remuneration packages, and therefore operates a number of
share-based compensation schemes, namely the Deferred Share Award (DSA), Performance Share Plan (PSP), Long Term Incentive
Plan (LTIP) and Save As You Earn (SAYE) schemes.
A transaction will be classed as share-based compensation where the Group receives services from employees and pays for
these in shares or similar equity instruments. If the Group incurs a liability based on the price or value of the Group's
shares then this will also fall under a share-based transaction.
A description of each type of share-based payment arrangement that existed at any time during the period are set out in the
Annual Remuneration Report.
Accounting policies
For each of the Group's share-based compensation schemes, the fair value of the equity instrument granted is measured at
grant date and spread over the vesting period via a charge to the income statement with a corresponding increase in
equity.
The fair value of the share options and awards is measured using either market price at grant date or, for the Save As You
Earn scheme (SAYE), a Black-Scholes model, taking into account the terms and conditions of the individual scheme.
Vesting conditions are limited to service conditions and performance conditions. For performance-based schemes, the
relevant Group performance measures are projected to the end of the performance period in order to determine the number of
options expected to vest. The estimate is then used to determine the option fair value, discounted to present value. The
Group revises its estimates of the number of options that are expected to vest, including an estimate of forfeitures at
each reporting date. The impact of the revision to original estimates, if any, are recognised in the income statement, with
a corresponding adjustment to equity.
Exercises of share options granted to employees can be satisfied by market purchase or issue of new shares. No new shares
may be issued to satisfy exercises under the terms of the DSA. During the year all exercises were satisfied by using shares
purchased in the market and held in the ITV Employees' Benefit Trust.
Share-based compensation charges totalled £10 million in 2016 (2015: £14 million).
Share options outstanding
The table below summarises the movements in the number of share options outstanding for the Group and their weighted
average exercise price:
Number 2016 Number 2015
of options Weighted of options Weighted
('000) average ('000) average
exercise price exercise price
(pence) (pence)
Outstanding at 1 January 40,167 55.63 51,933 32.97
Granted during the year - nil priced 7,351 - 6,744 -
Granted during the year - other 8,002 167.62 4,615 198.94
Forfeited during the year (255) 151.17 (30) 143.65
Exercised during the year (12,293) 28.81 (19,477) 16.65
Expired during the year (6,439) 109.25 (3,618) 18.77
Outstanding at 31 December 36,533 67.86 40,167 55.63
Exercisable at 31 December 83 - 610 53.17
The average share price during 2016 was 209.91 pence (2015: 254.24 pence).
Of the options still outstanding, the range of exercise prices and weighted average remaining contractual life of these
options can be analysed as follows:
Range of exercise prices (pence) Weighted Number 2016 Weighted Number 2015
average of options Weighted average of options Weighted
exercise price ('000) average exercise price ('000) average
(pence) remaining (pence) remaining
contractual life contractual life
(years) (years)
Nil - 21,531 1.89 - 25,910 1.79
20.00 - 49.99 - - - - - -
50.00 - 69.99 67.71 505 0.91 67.24 991 0.98
70.00 - 99.99 - - - 73.58 301 0.92
100.00 - 109.99 102.59 185 1.92 102.59 1,672 1.14
110.00 - 119.99 - - - - - -
120.00 - 149.99 131.44 193 2.16 131.44 1,175 1.52
150.00 - 199.99 167.37 13,251 1.87 172.58 8,089 2.22
200.00 - 249.99 206.83 891 1.41 206.83 2,054 2.52
Assumptions
DSA, LTIP and PSP options are valued directly by reference to the share price at date of grant.
The options for the SAYE scheme, an HMRC approved SAYE scheme, are valued using the Black-Scholes model, using the
assumptions below:
Scheme name Date of grant Share price Exercise price Expected Expected life Gross dividend Risk-free Fair value
at grant (pence) volatility (years) yield rate (pence)
(pence) % % %
3 Year 2 April 2015 251.00 192.52 26.00 3.25 2.27 0.74 65.85
5 Year 2 April 2015 251.00 192.52 32.00 5.25 2.27 1.14 80.81
3 Year 16 Sept 2015 249.60 206.83 25.00 3.25 2.28 0.97 55.71
5 Year 16 Sept 2015 249.60 206.83 30.00 5.25 2.28 1.38 72.02
3 Year 29 March 2016 243.30 187.79 25.00 3.25 3.00 0.41 56.64
5 Year 29 March 2016 243.30 187.79 29.00 5.25 3.00 0.73 65.94
3 Year 16 Sept 2016 195.40 157.46 30.00 3.25 3.00 0.41 46.97
5 Year 16 Sept 2016 195.40 157.46 31.00 5.25 3.00 0.73 52.15
Section 5: Other Notes
Employees' Benefit Trust
The Group has investments in its own shares as a result of shares purchased by the ITV Employees' Benefit Trust ('EBT').
Transactions with the Group-sponsored EBT are included in these financial statements and primarily consist of the EBT's
purchases of shares in ITV plc, which are accounted for as a reduction to retained earnings.
The table below shows the number of ITV plc shares held in the EBT at 31 December 2016 and the purchases/(releases) from
the EBT made in the year to satisfy awards under the Group's share schemes:
Scheme Shares held at Number of shares Nominal value
(released)/purchased £
1 January 2016 16,949,851 1,694,985
DSA releases (2,889,078)
PSP releases (6,200,608)
SAYE releases (3,003,419)
Shares purchased 9,553,378
31 December 2016 14,410,124 1,438,557
The total number of shares held by the EBT at 31 December 2016 represents 0.36% (2015: 0.42%) of ITV's issued share
capital. The market value of own shares held at 31 December 2016 is £30 million (2015: £47 million).
The shares will be held in the EBT until such time as they may be transferred to participants of the various Group share
schemes. Rights to dividends have been waived by the EBT in respect of shares held which do not relate to restricted shares
under the DSA. In accordance with the Trust Deed, the Trustees of the EBT have the power to exercise all voting rights in
relation to any investment (including shares) held within that trust.
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.
To enable users of our financial statements to form a view about the effects of related party relationships on the Group,
we disclose the Group's transactions with those related parties during the year and any associated year end trading
balances.
Transactions with joint ventures and associated undertakings
Transactions with joint ventures and associated undertakings during the year were:
2016 2015
£m £m
Sales to joint ventures 8 9
Sales to associated undertakings 10 13
Purchases from joint ventures 26 24
Purchases from associated undertakings 70 65
The transactions with joint ventures primarily relate to sales and purchases of digital multiplex services with Digital 3&4
Limited.
Purchases from associated undertakings primarily relate to the purchase of news services from ITN.
All transactions with associated undertakings and joint ventures arise in the normal course of business on an arm's length
basis. None of the balances are secured.
The amounts owed by and to these related parties at the year end were:
2016 2015
£m £m
Amounts owed by joint ventures - 3
Amounts owed by associated undertakings 57 66
Amounts owed to joint ventures - 2
Amounts owed to associated undertakings - 5
Balances owed by associated undertakings largely relate to loan notes and production funding advanced to Tomorrow ITV
Studios for US scripted investment.
Amounts paid to the Group's retirement benefit plans are set out in note 3.7.
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 is as follows:
2016 2015
£m £m
Short-term employee benefits 8 9
Share-based compensation 2 6
10 15
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 are contingent liabilities in respect of certain litigation and guarantees, broadcasting issues, and in respect of
warranties given in connection with certain disposals of businesses. None of these items are expected to have a material
effect on the Group's results or financial position.
5.3 Subsequent events
Keeping it simple
Where the Group receives information in the period between 31 December 2016 and the date of this report about conditions
related to certain events that existed at 31 December 2016, we update our disclosures that relate to those conditions in
light of the new information. Such events can be categorised as adjusting or non-adjusting depending on whether the
condition existed at 31 December 2016. If non-adjusting events are material, non-disclosure could influence the economic
decisions that users make on the basis of the financial statements. Accordingly, for each material category of
non-adjusting event after the reporting period we disclose in this section the nature of the event and an estimate of its
financial effect, or a statement that such an estimate cannot be made.
Eurobond repayment
On 5 January 2017 the £161 Eurobond matured and the Group repaid the capital amount. The related interest rate swap
contracts were settled at the same time. The repayment was financed using the E500 million Eurobond issued in December
2016.
Exercise of Gurney Productions LLC call option
On 6 February 2017, the Group exercised the call option to acquire the remaining 38.5% membership interest of Gurney
Productions LLC.
The Group has initiated legal proceedings against the sellers for alleged breaches of contracts and their fiduciary duties,
as well as self-dealing and fraudulent concealment. The sellers dispute the allegations, the exercise and the value of the
call option, and they have counter-claimed for unspecified damages of at least $100 million, which the Directors believe is
completely without merit.
London Property Strategy
On 21 February 2017, the Directors announced the outcome of an extensive review of the Group's London property
requirements. The Group intends to seek planning permission to redevelop its South Bank site and build a new London home.
The teams currently located in the South Bank site will be relocated to various sites in London during the redevelopment
period.
As a result of the review of the Group's London property needs, the Directors are proposing to close The London Studios
(TLS) business and use studio capacity in the external market to meet our future business needs. The Group has begun a
period of consultation with the employees affected by this closure.
Acquisition of Tetra Media Studios SAS
On 28 February 2017, the Group announced the acquisition of 65.05% of the capital of the French production business Tetra
Media Studios SAS. The transaction is on a cash free / debt free basis, with put/call options to acquire the remaining
interest depending on future performance of the business. The acquisition was financed through the Group's existing cash
and debt facilities.
5.4 Subsidiaries exempt from audit
Keeping it simple
Certain subsidiaries of the Group can take an exemption from having an audit. Strict criteria must be met for this
exemption to be taken, and it must be agreed to by the Directors of that subsidiary entity.
Listed below are subsidiaries controlled and consolidated by the Group, where the Directors have taken the exemption from
having an audit of its financial statements. This exemption is taken in accordance with Companies Act s479A.
Company Number Company Name Company Number Company Name
10058419 Back Productions Limited 10171346 BGSS Limited
10404493 Big Talk Bliss Limited 10496857 Big Talk Cold Feet Limited
10528766 Big Talk Diana Limited 10528592 Big Talk Living the Dream Limited
1891539 Broad Street Films Limited 2285229 Campania Limited
5078683 Carbon Media Limited 4159249 Carlton Content Holdings Limited
301188 Carlton Film Distributors Limited 1692483 Carlton Finance Limited
3984490 Carlton Food Network Limited 3307790 Carltonco 103
3210452 Carlton Screen Advertising (Holdings) Limited 3053908 Carlton Programmes Development Limited
2625225 Carltonco Forty Investments 3210363 Carltonco Ninety-Six
2852812 Cosgrove Hall Films Limited 3209058 DTV Limited
290076 Granada Group Limited 3962410 Granada Limited
3106798 Granada Media Limited 5344772 Granada Screen (2005) Limited
733063 Granada Television Overseas Limited 6914987 ITV (HC) Limited
10384774 ITV Bancroft Limited 4206924 ITV Beowulf Limited
1127149 ITV Breathless Limited 4209918 ITV Cilla Limited
4206900 ITV Cradle Limited 4159210 ITV Holdings Limited
4207680 ITV Home Fires Limited 4206912 ITV J&H Limited
4206871 ITV Jericho Limited 4206927 ITV JR Limited
8723446 ITV Lewis Limited 10031419 ITV Little Boy Blue Limited
10058180 ITV Loch Ness Limited 8534385 ITV Lucan Limited
4206935 ITV Moorside Limited 4033106 ITV Mr Selfridge Limited
3916436 ITV News Channel Limited 8554937 ITV Shetland Limited
4206897 ITV Spirit Limited 10528702 ITV Studios Newco 1 Limited
10031818 ITV T&B Limited 9499040 ITV Tennison Limited
9498177 ITV Top Class Limited 8586211 ITV Thunderbirds Limited
9499012 ITV Tut Limited 10384819 ITV Trauma Limited
5518785 Juice Music UK Limited 10058008 ITV Wagstaffe Limited
10528827 Mammoth Screen (END5) Limited 10528851 Mammoth Screen (City) Limited
10031005 Mammoth Screen (Pol3) Limited 10491117 Mammoth Screen (NOK) Limited
9646520 Mammoth Screen (QV) Limited 10528763 Mammoth Screen (Pol4) Limited
4201477 Morning TV Limited 10043079 Mammoth Screen (WFTP) Limited
4206913 SOM (ITV) Limited
ITV plc Company Financial Statements
Company Balance Sheet
As at 31 December Note 2016 2016 2015 2015
£m £m £m £m
Non-current assets
Investments in subsidiary undertakings iii 1,861 1,861
Derivative financial instruments vi 4 9
Deferred tax asset 2 2
1,867 1,872
Current assets
Amounts owed by subsidiary undertakings 4,066 3,864
Derivative financial instruments vi 10 6
Other receivables 19 16
Cash and cash equivalents 438 126
4,533 4,012
Current liabilities
Borrowings v (161) -
Amounts owed to subsidiary undertakings (2,856) (3,760)
Accruals and deferred income (22) (21)
Derivative financial instruments vi (10) (6)
(3,049) (3,787)
Net current assets/(liabilities) 1,484 225
Total assets less current liabilities 3,351 2,097
Non-current liabilities
Borrowings v (1,035) (598)
Derivative financial instruments vi (9) (6)
(1,044) (604)
Net assets 2,307 1,493
Capital and reserves
Share capital vii 403 403
Share premium viii 174 174
Other reserves viii 28 36
Retained earnings viii 1,702 880
Total equity 2,307 1,493
The accounts were approved by the Board of Directors on 1 March 2017 and were signed on its behalf by:
Ian Griffiths
Director
Company Statement of Changes in Equity
Note Share Share Other Retained Total
Capital Premium Reserves Earnings £m
£m £m £m £m
Balance at 1 January 2016 403 174 36 880 1,493
Total comprehensive income for the year
Profit - - - 1,475 1,475
Net loss on cash flow hedges - - (8) - (8)
Total comprehensive income for the year - - (8) 1,475 1,467
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Equity dividends - - - (663) (663)
Movements due to share based compensation - - - 10 10
Total contributions by and distributions to owners - - - (653) (653)
Total transactions with owners - - - (653) (653)
Balance at 31 December 2016 vii/viii 403 174 28 1,702 2,307
Note Share Share Other Retained Total
Capital Premium Reserves Earnings £m
£m £m £m £m
Balance at 1 January 2015 403 174 36 654 1,267
Total comprehensive income for the year
Profit - - - 671 671
Total comprehensive income for the year - - - 671 671
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Equity dividends - - - (459) (459)
Movements due to share based compensation - - - 14 14
Total contributions by and distributions to owners - - - (445) (445)
Total transactions with owners - - - (445) (445)
Balance at 31 December 2015 vii/viii 403 174 36 880 1,493
Notes to the ITV plc Company Financial Statements
Note i Accounting policies
In this section
This section sets out the notes to the ITV plc Company only financial statements. Those statements form the basis of the
dividend decisions made by the Directors, as explained in detail in note viii below.
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework.
Basis of preparation
The Company is a qualifying entity as it is a member of the ITV plc Group where ITV plc, the ultimate parent prepares
publicly available consolidated financial statements.
Exemptions Applied
The Company is taking advantage of the following disclosure exemptions under FRS101.
• Presentation of a Statement of Cash Flows
• Disclosure of key management personnel compensation
• Disclosure of related party transactions between wholly-owned subsidiaries and parents within a group
• Disclosures required under IFRS 2 Share Based Payments in respect of group settled share based payments
• Disclosures required by IFRS 7 Financial Instrument: Disclosure
• Certain disclosures required under IFRS 13 Fair Value Measurement
• Disclosure of information in relation to new standards not yet applied
As permitted by section 408 (3) of the Companies Act 2006, a separate income statement dealing with the results of the
parent company has not been presented.
Subsidiaries
Subsidiaries are entities that are directly or indirectly controlled by the Company. Control exists where the Company has
the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The
investment in the Company's subsidiaries is recorded at cost.
Foreign currency transactions
Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the
transaction. Foreign currency monetary assets and liabilities at the balance sheet date are translated into sterling at the
rate of exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the profit and
loss account. Non-monetary assets and liabilities measured at historical cost are translated into sterling at the rate of
exchange on the date of the transaction.
Borrowings
Borrowings are recognised initially at fair value including directly attributable transaction costs, with subsequent
measurement at amortised cost using the effective interest rate method. The difference between initial fair value and the
redemption value is recorded in the profit and loss account over the period of the liability on an effective interest
basis.
Derivatives and other financial instruments
The Company uses a limited number of derivative financial instruments to hedge its exposure to fluctuations in interest and
other foreign exchange rates. The Company does not hold or issue derivative instruments for speculative purposes.
Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value with
the movement recorded in the profit and loss account within net financing costs, except where derivatives qualify for cash
flow hedge accounting. In this case, the effective portion of cash flow hedge is recognised in retained profits within
equity. The cumulative gain or loss is later reclassified to the profit and loss account 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 fair value of foreign currency forward contracts is determined by using the difference between the contract exchange
rate and the quoted forward exchange rate at the balance sheet date.
The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate the swap
at the balance sheet date, taking into account current interest rates and the current creditworthiness of swap
counterparties.
Third-party valuations are used to fair value the Company's derivatives. The valuation techniques use inputs such as
interest rate yield curves and currency prices/yields, volatilities of underlying instruments and correlations between
inputs. For financial assets and liabilities classified at fair value through profit or loss the fair value change and
interest income/expense are not separated.
Deferred tax
The tax charge for the period is recognised in the income statement or directly in equity according to the accounting
treatment of the related transaction.
Deferred tax arises due to certain temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and those for taxation purposes. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets and liabilities. 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 timing and level of future taxable
income.
Share-based compensation
The Company utilises share award schemes as part of its employee remuneration packages, and therefore operates a number of
share-based compensation schemes, namely the Deferred Share Award (DSA), Performance Share Plan (PSP), Long Term Incentive
Plan (LTIP) and Save As You Earn (SAYE) schemes.
A transaction will be classed as share-based compensation where the Company receives services from employees and pays for
these in shares or similar equity instruments. If the Company incurs a liability based on the price or value of the shares
then this will also fall under a share-based transaction. The Company recognises the retained earnings impact of the
share-based compensation for the Group as awards are settled in ITV plc shares. The cost of providing those awards is
recharged to subsidiaries that receive the service from employees.
The fair value of the equity instrument granted is measured at grant date and spread over the vesting period via a charge
to the income statement with a corresponding increase in equity. The fair value of the share options and awards is measured
using either market price at grant date or, for the Save As You Earn scheme (SAYE), a Black-Scholes model, taking into
account the terms and conditions of the individual scheme.
Vesting conditions are limited to service conditions and performance conditions. For performance-based schemes, the
relevant performance measures are projected to the end of the performance period in order to determine the number of
options expected to vest. The estimate is then used to determine the option fair value, discounted to present value. The
Company revises its estimates of the number of options that are expected to vest, including an estimate of forfeitures at
each reporting date. The impact of the revision to original estimates, if any, are recognised in the income statement, with
a corresponding adjustment to equity.
Exercises of share options granted to employees can be satisfied by market purchase or issue of new shares. No new shares
may be issued to satisfy exercises under the terms of the DSA. During the year all exercises were satisfied by using shares
purchased in the market and held in the ITV Employees' Benefit Trust.
Dividends
Dividends are recognised through equity on the earlier of their approval by the Company's shareholders or their payment.
Note ii Employees and share based payments
Two (2015: two) Directors of ITV plc were employees of the Company during the year, both of whom remain at the year end.
The costs relating to these Directors are disclosed in the Remuneration Report.
Share based payments
The weighted average share price of share options exercised during the year was 55.33p (2015: 16.65p). The options
outstanding at the year end have an exercise price in the range of nil to 206.83p (2015: nil to 206.83p) and a weighted
average contractual life of one year (2015: one year) for all the Schemes in place for the Group.
Note iii Investments in subsidiary undertakings
The principal subsidiary undertakings are listed in the Annual Report. The carrying value at 31 December 2016 was £1,861
million (2015: £1,861 million).
In 2015, the Company increased investment in subsidiaries by £156 million.
Note iv Amounts owed (to)/from subsidiary undertakings
The Company operates an intra-group cash pool policy with certain 100% owned UK subsidiaries. The pool applies to bank
accounts where there is an unconditional right of set off and involves the daily closing cash position for participating
subsidiaries whether positive or negative, being cleared to £nil via daily bank transfers to/from ITV plc. These daily
transactions create a corresponding intercompany creditor or debtor which can result in significant movements in amounts
owed to and from subsidiary undertakings in the Company balance sheet.
Note v Borrowings
Keeping it simple
The Directors manage the Group's capital structure as disclosed in Section 4 to the consolidated financial statements.
Borrowings, cash and derivative financial instruments are mainly held by ITV plc and disclosed in these Company financial
statements.
Loans and facilities due within one year
At various periods during the year the Group drew down on the Revolving Credit Facility ('RCF') to meet short-term funding
requirements. All short-term drawings were repaid by the end of the year (2015: no outstanding short-term funding). The
maximum draw down of the RCF during the year was £500 million in May.
The Group also had an unsecured £161 million Eurobond which matured in January 2017 and had a coupon of 6.125%.
Loans and loan notes due after one year
The Group has two bilateral loan facilities maturing in March 2017; both loans can be extended until 2018 at ITV's option.
The two facilities are a £100 million bilateral loan that is fully drawn down as of 31 December 2016, and a £150 million
bilateral loan with an unconditional right to set off with cash on deposit with the counterparty. The £150 million
arrangement is in a net £nil position.
In December 2016 the Group issued a seven year E500 million Eurobond at a fixed coupon of 2.0% which will mature in
December 2023. The bond has been swapped back to sterling using a cross currency interest swap. The resulting fixed rate
payable is c. 3.5%. The proceeds of the bond were for general corporate purposes including the repayment of the £161
million sterling bond which matured in January 2017.
In September 2015 the Group issued a seven year E600 million Eurobond at a fixed coupon of 2.125% which will mature in
September 2022. The bond refinanced the 12 month bridge loan facility of E500 million used for the purchase of Talpa Media
in April 2015.
Note vi Managing market risks: derivative financial instruments
What is the value of our derivative financial instruments?
Assets Liabilities
2016 2016
Current
Foreign exchange forward contracts and swaps - cash flow hedges 7 (7)
Foreign exchange forward contracts and swaps - fair value through profit or loss 3 (3)
Non-current
Cross currency interest swaps - cash flow hedges - (6)
Foreign exchange forward contracts and swaps - cash flow hedges 4 (3)
14 (19)
Assets Liabilities
2015 2015
Current
Foreign exchange forward contracts and swaps - cash flow hedges 3 (4)
Foreign exchange forward contracts and swaps - fair value through profit or loss 3 (2)
Non-current
Interest Rate Swaps - fair value through profit or loss 9 (6)
15 (12)
The Company mainly employs three types of derivative financial instruments when managing its currency and interest rate
risk:
• Foreign exchange swap contracts are derivative instruments used to hedge income statement translation risk arising from
short-term intercompany loans denominated in a foreign currency.
• Forward foreign exchange contracts are derivative instruments used to hedge transaction risk so they enable the sale or
purchase of foreign currency at a known fixed rate on an agreed future date.
• Interest rate swaps are derivative instruments that exchange a fixed rate of interest for a floating rate or vice-versa
or one type of floating interest rate for another and are used to manage interest rate risk.
• Cross-currency interest rate swaps are derivative instruments used to exchange the principal and interest coupons in a
debt instrument from one currency to another.
Cash flow hedges
The Group applies hedge accounting for certain foreign currency firm commitments and highly probably cash flows where the
underlying cash flows are payable within the next two to seven years. In order to fix the sterling cash inflows and
outflows associated with the commitments and interest payments - which are mainly denominated in AUD or euros - the Group
has taken out forward foreign exchange contracts and cross currency interest swaps for the same foreign currency amount and
maturity date as the expected foreign currency outflow.
On issuing the 2023 Eurobond, the Group entered into a portfolio of cross-currency interest rate swaps, which swapped the
euro principal and fixed rate coupons into sterling. In result the Group makes sterling interest payments at a fixed rate.
The amount recognised in other comprehensive income during the period all relates to the effective portion of the
revaluation loss associated with these contracts. There was less than £1 million (2015: £1 million) ineffectiveness taken
to the income statement and £2 million cumulative gain (2015: £6 million loss) recycled to the income statement in the
year.
Interest rate swaps
On issuing the 2017 Eurobond, the Company entered into a portfolio of fixed to floating interest rate swaps and then
subsequently overlaid a portfolio of floating to fixed interest rate swaps with the result that interest was 100% fixed on
these borrowings. The timing of entering into these swaps locked in an interest benefit for the Company, resulting in a net
mark-to-market gain on the portfolio.
Undiscounted financial liabilities
The Company is required to disclose the expected timings of cash outflows for each of its derivative financial liabilities.
The amounts disclosed in the table are the contractual undiscounted cash flows (including interest), so will not always
reconcile with the amounts disclosed on the statement of financial position.
At 31 December 2016 Carrying Total Less than Between Between Over 5 years
value Contractual 1 year 1 and 2 years 2 and 5 years £m
£m cash flows £m £m £m
£m
Non-current and current
Foreign exchange forward contracts and swaps - cash flow hedges
Inflow 11 393 237 156 - -
Outflow (10) (392) (237) (155) - -
Cross currency swaps - cash flow hedges
Inflow - 497 10 10 30 447
Outflow (6) (542) (17) (17) (51) (457)
Foreign exchange forward contracts and swaps - fair value through profit or loss
Inflow 412 412 402 10 - -
Outflow (412) (412) (402) (10) - -
Interest Rate Swaps - fair value through profit or loss
Inflow - 13 13 - - -
Outflow - (6) (6) - - -
(5) (37) - (6) (21) (10)
At 31 December 2015 Carrying Total Less than Between Between Over 5 years
value Contractual 1 year 1 and 2 years 2 and 5 years £m
£m cash flows £m £m £m
£m
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