REG - ITV PLC - Preliminary Results - year ended 31 December 2015 <Origin Href="QuoteRef">ITV.L</Origin> - Part 4
02/03/2016 07:12
- Part 4: For the preceding part double click ID:nRSB7134Qc
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 2015 are set out in the ITV plc entity financial
statements.
Depreciation
Depreciation in the year was £27 million (2014: £27 million), of which £14 million (2014: £15 million) relates to Broadcast
& Online and£13 million (2014: £12 million) to ITV Studios.
Operating leases
The total undiscounted future minimum lease payments under non-cancellable operating leases are due for payment as
follows:
2015 Transponders Property Total
Within oneyear 34 17 51
Later than one year and not later than fiveyears 111 48 159
Later than fiveyears 115 21 136
260 86 346
2014 Transponders Property Total
Within oneyear 38 13 51
Later than one year and not later than fiveyears 123 33 156
Later than fiveyears 158 16 174
319 62 381
The Group's operating leases relate to transponder assets, offices and studio properties. The Group holds transmission
supply agreements that require the use of specific 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 (2014: £2 million).
The total operating lease expenditure recognised during the year was £51 million (2014: £49 million) and total sublease
payments received were £2 million (2014: £1 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.
Fees paid to KPMG and its associates during the year are set out below:
2015£m 2014£m
FortheauditoftheGroup'sannualaccounts 0.6 0.6
FortheauditofsubsidiariesoftheGroup 0.4 0.2
Audit-related assuranceservices 0.2 0.2
Total audit and audit-related assuranceservices 1.2 1.0
Taxation complianceservices - 0.2
Taxation advisoryservices 0.1 0.2
Other assurance services 0.3 0.2
Total non-auditServices 0.4 0.6
Total fees paid toKPMG 1.6 1.6
There were no fees payable in 2015 or 2014 to KPMG and associates for the auditing of accounts of any associate 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. 2015£m 2014£m
Operating exceptionalitems:
Acquisition-relatedexpenses A (88) (6)
Reorganisation and restructuringcosts B (13) (6)
Legal relatedcosts E (8) -
Total net operating exceptionalitems (109) (12)
Non-operating exceptionalitems:
Gain on sale of non-currentassets C 5 4
Gainonsaleandimpairmentofsubsidiariesandinvestments D 1 1
Total non-operating exceptionalitems 6 5
Total exceptional items beforetax (103) (7)
Tax on exceptionalitems 8 2
Total exceptional items net oftax (95) (5)
A - Acquisition-related expenses
Acquisition-related expenses of £88 million includes £78 million (2014: £3 million) relating to performance-based,
employment linked costs to former owners mainly in relation to Talpa Media, and professional fees (mainly financial and
legal due diligence) incurred on the acquisitions completed during the year of £10 million (2014: £3 million). See note 3.4
for further details on acquisitions.
B - Reorganisation and restructuring costs
In 2015 £13 million (2014: £6 million) of costs were incurred as a result of a Group-wide initiative to significantly
reduce the ongoing cost base, primarily comprised of restructuring of the US business, redundancy and excess space
provisions.
C - 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. The 2014 gain of £4 million arose as a result of the sale of a freehold property in Cardiff.
D - Gain on sale and impairment of subsidiaries and investments
The gain of £1 million (2014: £1 million) relates to a historical disposal.
E - Legal related costs
£8 million (2014: £nil) provision for anticipated costs of settling a legal dispute.
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 transaction. 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:
2015£m 2014£m
Currenttax:
Current tax charge before exceptionalitems (125) (118)
Currenttaxcredit/(charge)onexceptionalitems 6 (2)
(119) (120)
Adjustments to priorperiods 9 (6)
(110) (126)
Deferredtax:
Origination and reversal of temporarydifferences (20) (9)
Deferred tax credit on exceptionalitems 2 -
Impact of change in the statutory taxrate (2) -
(20) (9)
Adjustments to priorperiods (9) 3
(29) (6)
Total taxation charge in the incomestatement (139) (132)
In order to understand how, in the income statement, a tax charge of £139 million (2014: £132 million) arises on a profit
before tax of£641 million (2014: £605 million), the taxation charge that would arise at the standard rate of UK corporation
tax is reconciled to the actual tax charge as follows:
2015£m 2014£m
Profit beforetax 641 605
Notional taxation charge at UK corporation tax rate of 20.25% (2014: 21.5%) on profit beforetax (130) (130)
Non-taxable income/non-deductibleexpenses (23) 2
Adjustments to priorperiods - (3)
Impact of overseas taxrates (7) (1)
Impact of changes in taxrates (2) -
Production taxcredits 23 -
Total taxation charge in the incomestatement (139) (132)
Non-deductible expenses are expenses that are not expected to be allowable for tax purposes. Similarly non-taxable income
is income that will not be taxed.
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.
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.
On 26 October 2015, the UK corporation tax rate was substantively enacted to fall to 19% from 1 April 2017 and 18% from 1
April 2020. The carrying value of UK temporary differences at the balance sheet date has been adjusted accordingly. This
has given rise to a charge of £1 million (2014: £nil million) of which £2 million is recognised as a charge in the income
statement and £1m as a credit in other comprehensive income.
Production tax credits are incentives provided to creative industries such as UK High-End Television (HETV) tax relief. The
ability to access these tax credits is fundamental when assessing the viability of investment decisions in the production
of high-end drama. Under IFRS certain production tax credits are reported within the total taxation charge in the income
statement, however ITV considers them to be working capital in nature, and excludes them from its adjusted tax charge,
including them instead within Adjusted EBITA.
The effective tax rate 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 2015 and 31 December 2014, the effective tax rate is comparable to the standard rate of
UK corporation tax. 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.
Taxation - Other comprehensive income and equity
As analysed in the table below, a deferred tax charge of £19 million on actuarial movements on pensions has been recognised
in other comprehensive income. A deferred tax charge of £2 million has been recognised in equity in respect of share based
payments.
A current tax credit of £7 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 1January2015£m Recognisedin theincome statement£m Recognisedin OCI andequity£m Businessacquisitions£m At 31December2015£m
Property, plant andequipment (1) 1 - - -
Intangibleassets (15) (10) - (76) (101)
Programmerights 1 - - - 1
Pension schemedeficits 36 (16) (19) - 1
Taxlosses 7 (3) - - 4
Share-based compensation 14 (1) (2) - 11
Other temporarydifferences 1 - - 4 5
43 (29) (21) (72) (79)
At 1January2014*£m Recognised in the income statement*£m Recognisedin OCI andequity£m Businessacquisitions£m At 31December2014*£m
Property, plant andequipment (6) 5 - - (1)
Intangibleassets (13) (2) - - (15)
Programmerights 1 - - - 1
Pension schemedeficits 56 (16) (4) - 36
Taxlosses 2 5 - - 7
Share-based compensation 13 - 1 - 14
Other temporarydifferences (1) 2 - - 1
52 (6) (3) - 43
* The prior year movements on deferred tax relating to overseas businesses have been reallocated to the relevant temporary
difference categories.
At 31 December 2015, total deferred tax assets are £22 million (2014: £55 million) and total deferred tax liabilities are
£101 million (2014: £12 million). After netting off balances within countries, there is a net deferred tax liability of
£79m (2014: net deferred tax asset of £43 million) recognised in the Consolidated Statement of Financial Position.
The deferred tax balance relates to:
· property, plant and equipment temporary differences arising on assets qualifying for tax depreciation
· temporary differences on intangible assets arising on business combinations
· programme rights - temporary differences on intercompany profits on stock
· pension scheme deficit temporary differences on the IAS 19 pension deficit and additional contributions resulting from
funding through the SDN and LTVC pension partnerships (not recognised as contributions under IAS 19)
· 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 £102 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 gains recognised in
the period.
A deferred tax asset of £399 million (2014: £444 million) in respect of capital losses of £2,215 million (2014: £2,221
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 in respect of
overseas losses of £15 million (2014:£14 million) that time expire between 2017 and 2026 have not been recognised.
2.4 Earnings per share
Keeping it simple
Earnings per share ('EPS') is the amount of post-tax profit attributable to each share.
Basic EPS is calculated on the Group profit for the year attributable to equity shareholders of £495 million (2014: £466
million) divided by 4,006 million (2014: 4,002 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 2015
Ref. Basic£m Diluted£m
ProfitfortheyearattributabletoequityshareholdersofITVplc 495 495
Weightedaveragenumberofordinarysharesinissue-million 4,006 4,006
Dilution due to shareoptions - 29
Totalweightedaveragenumberofordinarysharesinissue-million 4,006 4,035
Earnings per ordinaryshare 12.4p 12.3p
Adjusted profit for the year removes the effect of exceptional items, as described in the 'Keeping it simple' box above.
Further detail on the composition of each adjustment is cross-referenced in the following notes.
Adjusted earnings per share 2015
Ref. Adjusted£m Diluted£m
ProfitfortheyearattributabletoequityshareholdersofITVplc 495 495
Exceptional items (net oftax) A 95 95
Profit for the year before exceptionalitems 590 590
Amortisation and impairment of acquired intangibleassets B 54 54
Adjustments to net financingcosts C 15 15
Adjustedprofit 659 659
Totalweightedaveragenumberofordinarysharesinissue-million 4,006 4,035
Adjusted earnings per ordinaryshare 16.5p 16.3p
Earnings per share 2014
Ref. Basic£m Diluted£m
ProfitfortheyearattributabletoequityshareholdersofITVplc 466 466
Weightedaveragenumberofordinarysharesinissue-million 4,002 4,002
Dilution due to shareoptions - 38
Totalweightedaveragenumberofordinarysharesinissue-million 4,002 4,040
Earnings per ordinaryshare 11.6p 11.5p
Adjusted earnings per share 2014
Ref. Adjusted£m Diluted£m
ProfitfortheyearattributabletoequityshareholdersofITVplc 466 466
Exceptionalitems A 5 5
Profit for the year before exceptionalitems 471 471
Amortisation and impairment of acquired intangibleassets B 44 44
Adjustments to net financingcosts C 34 34
Other taxadjustments B 5 5
Adjustedprofit 554 554
Totalweightedaveragenumberofordinarysharesinissue-million 4,002 4,040
Adjusted earnings per ordinaryshare 13.8p 13.7p
Details of the adjustments to earnings are as follows:
A. Refer to Note 2.2 for the detailed composition of after tax impact of exceptional items (both operating and non
operating) of £95 million (2014: £5 million).
B. Amortisation and impairment of acquired intangible assets of £58 million (2014: £44 million) is excluded from
adjusted profit. It is calculated as total amortisation and impairment of £67 million (2014: £67 million), less
amortisation of software licences and development of £9 million (2014: £11 million). A related tax credit of £13 million
(2014: £12 million) is also excluded in arriving at the net amount, which is further adjusted to recognise the £9 million
cash tax benefit arising from goodwill on US acquisitions, which for tax purposes is amortised over a 15 year period (2014:
£5 million shown within other tax adjustments).
C. Gross adjustments of £18 million (2014: £44 million) have been made to net financing costs and relate to
mark-to-market movements on derivative instruments, losses on buybacks and imputed pension interest charges (see note 4.4
for details). This is reduced by a tax credit of £3 million (2014: £10 million) to give a net adjustment of £15 million
(2014: £34 million).
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, 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 Distribution rights
Accounting policies
Distribution rights are programme rights the Group buys from producers to derive future revenue, principally through
licensing to broadcasters. These are classified as non-current assets as these rights are used to derive long-term economic
benefit for the Group.
Distribution rights are recognised initially at cost and charged through operating costs in the income statement over a
maximum five year period that is dependent on either cumulative sales and programme genre, or based on forecast future
sales. Advances paid for the acquisition of distribution rights are disclosed as distribution rights as soon as they are
contracted. These advances are not expensed until the programme is available for distribution. Up to that point they are
assessed annually for impairment through the reassessment of the future sales expected to be earned from that title.
The net book value of distribution rights at the year end are as follows:
2015£m 2014£m
Distributionrights 29 13
The movement during the year comprises additions of £43 million (2014: £21 million) and amounts charged to the income
statement of £27 million (2014: £18 million).
3.1.2 Programme rights and other inventory
Accounting policies
Rights are recognised when the Group controls the respective rights and the risks and rewards associated with them.
Programme rights and production costs not yet written off are included in the statement of financial position at the lower
of cost and net realisable value.
Broadcast programme rights
Acquired programme rights (which include films), and sports rights, are purchased for the primary purpose of broadcasting
on the ITV network. These are recognised within current assets as payments are made or when the rights are ready for
broadcast. The Group generally expenses these rights through operating costs over a number of transmissions reflecting the
pattern and value in which the right is consumed.
Commissions, which primarily comprise programmes purchased based on editorial specification and over which the Group has
some control, are recognised in current assets as payments are made and are generally expensed to operating costs in full
on first transmission. Where a commission is repeated, incremental costs 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.
Studios production costs
Production inventory comprises the costs incurred by ITV Studios in producing a programme, where the programme is part way
through the production process and not yet available for delivery to a broadcaster. They are recognised within current
assets at the production cost incurred, and are expensed in operating costs on delivery of episodes.
Also included here are dramas that have been commissioned straight to series. Although more expensive than producing a
pilot, this method attracts high profile talent to the production and raises the profile of the series to support its
distribution. The production cost is partly funded by the commissioning network licence fee, the remaining production
deficit is recovered by future distribution sales, and once the production is complete any remaining deficit is classified
as a Distribution Right.
In assessing net realisable value for programmes in production, judgement is required when considering the contracted sales
price and estimated costs to complete.
The Group's programme rights and other inventory at the year end are shown in the table below:
2015£m 2014£m
Broadcast
Acquired programmerights 111 101
Commissions 61 57
Sportsrights 30 40
ITVStudios
Productioncosts 171 169
373 367
3.1.3 Programme commitments
These are operating commitments in respect of programming entered into in the ordinary course of business with programme
suppliers, sports organisations and film distributors in respect of rights to broadcast on the ITV network. Commitments in
respect of these purchases, which are not reflected in the statement of financial position, are due for payment as
follows:
2015£m 2014£m
Within oneyear 451 464
Laterthanoneyearandnotmorethanfiveyears 633 462
More than fiveyears 141 58
1,225 984
3.1.4 Trade and other receivables
Accounting policies
Trade receivables are recognised initially at the value of the invoice sent to the customer and subsequently at the amounts
considered recoverable (amortised cost). Where payments are not due for more than one year, they are shown in the financial
statements at their net present value to reflect the economic cost of delayed payment. The Group provides goods and
services to substantially all its customers on credit terms.
Estimates are used in determining the level of receivables that will not, in the opinion of the Directors, be collected.
These estimates include such factors as historical experience, the current state of the UK and overseas economies and
industry specific factors. A provision for impairment of trade receivables is established when there is sufficient evidence
that the Group will not be able to collect all amounts due.
The carrying value of trade receivables is considered to approximate fair value.
Trade and other receivables can be analysed as follows:
2015£m 2014£m
Due within oneyear:
Tradereceivables 328 271
Otherreceivables 37 27
Prepaidemploymentlinkedconsideration(seenote3.4) 55 -
Prepayments and accruedincome 111 87
531 385
Due after more than oneyear:
Tradereceivables 8 7
Prepaidemploymentlinkedconsideration(seenote3.4) 18 -
Otherreceivables 7 17
Total trade and otherreceivables 564 409
Prepaid employment linked consideration totalling £73 million relates to the acquisition of Talpa Media (see note 3.4 for
details). This represents the portion of the initial consideration that is recoverable from the seller in the event he
leaves within the initial two years following acquisition and is amortised over that period.
£336 million (2014: £278 million) of total trade receivables that are not impaired are aged as follows:
2015£m 2014£m
Current 308 263
Up to 30 daysoverdue 17 7
Between 30 and 90 daysoverdue 8 4
Over 90 daysoverdue 3 4
336 278
The balance above is stated net of a provision of £5 million (2014: £7 million) for impairment of trade receivables. Of the
provision total, £4 million relates to balances overdue by more than 90 days (2014: £3 million) and £1 million relates to
current balances (2014: £4 million).
Movements in the Group's provision for impairment of trade receivables can be shown as follows:
2015£m 2014£m
At 1January 7 7
Charged during theyear 3 2
Receivableswrittenoffduringtheyearasuncollectable(utilisationofprovision) - -
Unused amountsreversed (5) (2)
At 31December 5 7
3.1.5 Trade and other payables due within one year
Accounting policies
Trade payables are recognised at the value of the invoice received from a supplier. The carrying value of current and
non-current trade payables is considered to approximate fair value. Trade and other payables due within one year can be
analysed as follows:
2015£m 2014£m
Tradepayables 65 49
VAT and socialsecurity 71 68
Otherpayables 177 159
Accruals 289 250
Deferredincome 184 173
786 699
3.1.6 Trade payables due after more than one year
Trade payables due after more than one year can be analysed as follows:
2015£m 2014£m
Tradepayables 48 27
This primarily relates to film creditors for which payment is due after more than one year.
3.1.7 Working capital management
Cash and working capital management continues to be a key focus. During the year the cash outflow from working capital was
£59 million (2014: outflow of £69 million) derived as follows:
2015£m 2014£m
Decrease/(increase)inprogrammerightsandotherinventoryanddistributionrights 4 (39)
(Increase)/decrease inreceivables (21) 18
Decrease inpayables (42) (48)
Working capitaloutflow (59) (69)
The working capital outflow for the year excludes the impact of balances acquired on the acquisition of subsidiaries during
the year (see note 3.4).
3.2 Property, plant and equipment
Keeping it simple
The following section shows the physical assets used by the Group to operate the business, generating revenues and profits.
These assets include office buildings and studios, as well as equipment used in broadcast transmission, programme
production and support activities.
The cost of these assets is the amount initially paid for them. A depreciation expense is charged to the income statement
to reflect annual wear and tear and the reduced value of the asset over time. Depreciation is calculated by estimating the
number of years the Group expects the asset to be used (useful economic life). If there has been a technological change or
decline in business performance the Directors review the value of the assets to ensure they have not fallen below their
depreciated value. If an asset's value falls below its depreciated value an additional one-off impairment charge is made
against profit.
This section also explains the accounting policies followed by ITV and the specific estimates made in arriving at the net
book value of these assets.
Accounting policies
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Certain items of
property, plant and equipment that were revalued to fair value prior to 1 January 2004 (the date of transition to IFRS) are
measured on the basis of deemed cost, being the revalued amount less depreciation up to the date of transition.
Leases
Finance leases are those which transfer substantially all the risks and rewards of ownership to the lessee. Certain service
contracts involve the use of specific assets (e.g. transmission equipment) and therefore contain an embedded lease.
Determining whether a lease is a finance lease requires judgement as to whether substantially all of the risks and benefits
of ownership have been transferred to the Group. Estimates used by management in making this assessment include the useful
economic life of assets, the fair value of the asset and the discount rate applied to the total payments required under the
lease. Assets held under such leases are included within property, plant and equipment and depreciated on a straight-line
basis over their estimated useful lives.
Outstanding finance lease obligations, which comprise the principal plus accrued interest, are included within borrowings.
The finance element of the agreements is charged to the income statement over the term of the lease on an effective
interest basis.
All other leases are operating leases, the rentals on which are charged to the income statement on a straight-line basis
over the lease term (see note 2.1 for further details of operating lease commitments).
Depreciation
Depreciation is provided to write off the cost of property, plant and equipment less estimated residual value, on a
straight-line basis over their estimated useful lives. The annual depreciation charge is sensitive to the estimated useful
life of each asset and the expected residual value at the end of its life. The major categories of property, plant and
equipment are depreciated as follows:
Assetclass Depreciationpolicy
Freeholdland notdepreciated
Freeholdbuildings up to 60years
Leaseholdimprovements shorterofresidualleasetermorestimatedusefullife
Vehicles,equipmentandfittings* 3 to 20years
* Equipment includes studio production and technology assets.
Impairment of assets
Property, plant and equipment that is subject to depreciation is reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Indicators of impairment may include changes in
technology and business performance.
Property, plant and equipment
Property, plant and equipment can be analysed as follows:
Freeholdland andbuildings Improvementstoleaseholdlandandbuildings Vehicles,equipmentandfittings Total
£m Long£m Short£m Owned£m Finance £m
leases£m
Cost
At 1 January2014 137 69 17 221 16 460
Additions - - - 26 - 26
Reclassification of propertyfittings - (2) - 2 - -
Disposals andretirements (17) - - (12) - (29)
At 31 December2014 120 67 17 237 16 457
Additions - - 1 37 - 38
Disposals andretirements (31) (1) - (10) - (42)
At 31 December2015 89 66 18 264 16 453
Depreciation
At 1 January2014 23 11 15 138 14 201
Charge for theyear 1 2 - 24 - 27
Disposals andretirements (7) - - (12) - (19)
At 31 December2014 17 13 15 150 14 209
Charge for theyear 1 2 - 24 - 27
Disposals andretirements (12) (1) - (9) - (22)
At 31 December2015 6 14 15 165 14 214
Net bookvalue
At 31 December2015 83 52 3 99 2 239
At 31 December2014 103 54 2 87 2 248
Additions in the year includes £6 million (2014: £5 million) relating to assets owned by subsidiaries acquired during the
year.
Included within property, plant and equipment are assets in the course of construction of £16 million (2014: £10 million).
During the year, the Group disposed of the Quay Street site and related assets in Manchester for £23 million, representing
a gain on sale of £5 million. In 2014, the Group sold a freehold property in Cardiff for proceeds of £15 million,
representing a gain on sale of £5 million. In 2013 the Group acquired the freehold for the London Television Centre for £58
million, although the Directors' view is that fair value of the property would be significantly higher.
Capital commitments
There are £2 million of capital commitments at 31 December 2015 (2014: £2 million).
3.3 Intangible assets
Keeping it simple
The following section shows the non-physical assets used by the Group to generate revenue and profits.
These assets include formats and brands, customer contracts and relationships, contractual arrangements, licences, software
development, film libraries and goodwill. The cost of these assets is the amount that the Group has paid or, where there
has been a business combination, the fair value of the specific intangible assets that could be sold separately or which
arise from legal rights. In the case of goodwill, its cost is the amount the Group has paid in acquiring a business over
and above the fair value of the individual assets and liabilities acquired. The value of goodwill is 'intangible' value
that comes from, for example, a uniquely strong market position and the outstanding productivity of its employees.
The value of intangible assets, with the exception of goodwill, reduces over the number of years the Group expects to use
the asset, the useful economic life, via an annual amortisation charge to the income statement. Where there has been a
technological change or decline in business performance the Directors review the value of assets, including goodwill, to
ensure they have not fallen below their amortised value. Should an asset's value fall below its amortised value an
additional one-off impairment charge is made against profit.
This section explains the accounting policies applied and the specific judgements and estimates made by the Directors in
arriving at the net book value of these assets.
Accounting policies
Goodwill
Goodwill represents the future economic benefits that arise from assets that are not capable of being individually
identified and separately recognised. The goodwill recognised by the Group has all arisen as a result of business
combinations. Goodwill is stated at its recoverable amount being cost less any accumulated impairment losses and is
allocated to the business to which it relates.
Due to changes in accounting standards goodwill has been calculated using three different methods depending on the date the
relevant business waspurchased.
Method 1: All business combinations that have occurred since 1 January 2009 were accounted for using the acquisition
method. Under this method, goodwill is measured as the fair value of the consideration transferred (including the
recognition of any part of the business not yet owned (non-controlling interests)), less the fair value of the identifiable
assets acquired and liabilities assumed, all measured at the acquisition date. Any contingent consideration expected to be
transferred in the future will be recognised at fair value at the acquisition date and recognised within other payables.
Contingent consideration classified as an asset or liability that is a financial instrument is measured at fair value with
changes in fair value recognised in the income statement. The determination of fair value is based on discounted cash
flows. The key assumptions take into consideration the probability of meeting each performance target and the discount
rate.
Where less than 100% of a subsidiary is acquired, and call and put options are granted over the remaining interest, a
non-controlling interest is initially recognised in equity at fair value, which is established based on the value of the
put option. A call option is recognised as a derivative financial instrument, carried at fair value. The put option is
recognised as a liability within other payables, carried at the present value of the put option exercise price, and a
corresponding charge is included in merger and other reserves. Any subsequent remeasurement of the put option liability is
recognised within finance income or cost.
Subsequent adjustments to the fair value of net assets acquired can only be made within 12 months of the acquisition date,
and only if fair values were determined provisionally at an earlier reporting date. These adjustments are accounted for
from the date of acquisition.
Acquisitions of non-controlling interests are accounted for as transactions with owners and therefore no goodwill is
recognised as a result of such transactions. Transaction costs incurred in connection with those business combinations,
such as legal fees, due diligence fees and other professional fees, are expensed as incurred.
Method 2: All business combinations that occurred between 1 January 2004 and 31 December 2008 were accounted for using the
purchase method in accordance with IFRS 3 Business Combinations (2004). Goodwill on those combinations represents the
difference between the cost of the acquisition and the fair value of the identifiable net assets acquired and did not
include the value of the non-controlling interest. Transaction costs incurred in connection with those business
combinations, such as legal fees, due diligence fees and other professional fees, were included in the cost of
acquisition.
Method 3: For business combinations prior to 1 January 2004, goodwill is included at its deemed cost, which represents the
amount recorded under UK GAAP at that time less accumulated amortisation up to 31 December 2003. The classification and
accounting treatment of business combinations occurring prior to 1 January 2004, the date of transition to IFRS, has not
been reconsidered as permitted under IFRS 1.
Other intangible assets
Intangible assets other than goodwill are those that are distinct and can be sold separately or which arise from legal
rights.
Within ITV there are two types of other intangible assets: those assets directly purchased by the Group for day-to-day
operational purposes (such as software licences and development) and intangible assets identified as part of an acquisition
of a business.
Intangible assets acquired directly by the Group are stated at cost less accumulated amortisation. Those separately
identified intangible assets acquired as part of an acquisition or business combination are shown at fair value at the date
of acquisition less accumulated amortisation.
The main intangible assets the Group has valued are formats, brands, licences, contractual arrangements, customer contracts
and relationships and libraries.
Each class of intangible asset's valuation method on initial recognition, amortisation method and estimated useful life is
set out in the table below:
Classofintangibleasset Valuation method Amortisationmethod Estimatedusefullife
Formatsand brands Applyingaroyaltyratetotheexpectedfuturerevenue overthelifeofthebrand. Straight-line 8 to 14years
Customer contracts and relationships Expected future cash flows from those contracts and relationships existing at the date of acquisition areestimated.Ifapplicable,acontributorychargeis deductedfortheuseofotherassetsneededtoexploit the cash flow. The net cash flow is then discounted back to presentvalue. Straight-line or reducing balance asappropriate up to 6 years for customercontracts5 to 10years for customer relationships
Contractual arrangements Expected future cash flows from those contracts existingatthedateofacquisitionareestimated.Ifapplicable,acontributorychargeisdeductedforthe useofotherassetsneededtoexploitthecashflow.Thenetcashflowisthendiscountedbacktopresent value. Straight-line up to 10 years depending onthe contractterms
Licences Start-up basis of expected future cash flows existing at the date of acquisition. If applicable, a contributory chargeisdeductedfortheuseofotherassetsneeded to exploit the cash flow. The net cash flow is then discounted back to presentvalue. Straight-line 11 to 17 years depending onterm oflicence
Libraries andother Initiallyatcostandsubsequentlyatcostless accumulatedamortisation. Sum of digitsor straight line as appropriate up to 20years
Software licences anddevelopment Initiallyatcostandsubsequentlyatcostless accumulatedamortisation. Straight-line 1 to 5years
Determining the fair value of intangible assets arising on acquisition requires judgement. The Directors make estimates
regarding the timing and amount of future cash flows derived from exploiting the assets being acquired. The Directors then
estimate an appropriate discount rate to apply to the forecast cash flows. Such estimates are based on current budgets and
forecasts, extrapolated for an appropriate period taking into account growth rates, operating costs and the expected useful
lives of assets. Judgements are also made regarding whether, and for how long, licences will be renewed; this drives our
amortisation policy for those assets.
The Directors estimate the appropriate discount rate using pre-tax rates that reflect current market assessments of the
time value of money and the risks specific to the assets or businesses being acquired.
Amortisation
Amortisation is charged to the income statement over the estimated useful lives of intangible assets unless such lives are
judged to be indefinite. Indefinite life assets, such as goodwill, are not amortised but are tested for impairment at each
year end.
Impairment
Goodwill is not subject to amortisation and is tested annually for impairment and when circumstances indicate that the
carrying value may be impaired.
Other intangible assets are subject to amortisation and are reviewed for impairment whenever events or changes in
circumstances indicate that the amount carried in the statement of financial position is less than its recoverable amount.
Determining whether the carrying amount of intangible assets has any indication of impairment requires judgement. Any
impairment is recognised in the income statement.
An impairment test is performed by assessing the recoverable amount of each asset, or for goodwill, the cash-generating
unit (or group of cash-generating units) related to the goodwill. Total assets (which includes goodwill) are grouped at the
lowest levels for which there are separately identifiable cash flows ('cash-generating unit' or 'CGU').
The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. The value in use is
based on the present value of the future cash flows expected to arise from the asset.
The Group applies cautious assumptions for impairment testing. Estimates are used in deriving these cash flows and the
discount rate. Such estimates reflect current market assessments of the risks specific to the asset and the time value of
money. The estimation process is complex due to the inherent risks and uncertainties associated with long-term forecasting.
If different estimates of the projected future cash flows or a different selection of an appropriate discount rate or
long-term growth rate were made, these changes could materially alter the projected value of the cash flows of the asset,
and as a consequence
- More to follow, for following part double click ID:nRSB7134QeRecent news on ITV
See all newsREG - ITV PLC - Holding(s) in Company
AnnouncementREG - ITV PLC - Directorate change
AnnouncementREG - ITV PLC - Total Voting Rights
AnnouncementREG - ITV PLC - Transfer of Treasury Shares
AnnouncementREG - ITV PLC - Response to Recent Speculation
Announcement