ITV delivers another year of strong growth

182 Pages·2014·5.64 MB·English

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ITV delivers another year of strong growth
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Stock code: ITV
23043-04 10-12-2013 Proof 1
Online Annual Report
The Online Annual Report is available at
ar2013.itvplc.com.
Corporate Website
We maintain a corporate website at www.itvplc.com
containing a wide range of information of interest to
institutional and private investors including:
●● Latest news and press releases
●● Annual reports and investor presentations
●● Governance documents
●● Corporate Responsibility content
Strategic Report
The Strategic Report explains in detail how we have performed this year and sets out a fair review of the business, a balanced and comprehensive analysis of our performance, the
use of key performance indicators to explain the progress we have made, a description of the principal risks and uncertainties facing the Company, and an indication of potential
future developments.
The Strategic Report is prepared in line with the relevant provisions of the Companies Act 2006 and the Company has had regard to the guidance issued by the Financial Reporting
Council in its Exposure Draft: Guidance on the Strategic Report. It is intended to provide shareholders with a better understanding of the Company, of its position in the markets
within which it operates, and of its prospects.
In setting out the Company’s main risks and uncertainties, an indication of potential future developments, and in other content, this report and accounts contains statements that
are based on knowledge and information available at the date of preparation of the Strategic Report, and what are believed to be reasonable judgements, and therefore cannot be
considered as indications of likelihood or certainty. A wide range of factors may cause the actual outcomes and results to differ materially from those contained within, or implied
by, these various forward-looking statements. None of these statements should be construed as a profit forecast.
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ar2013.itvplc.com
Stock code: ITV
What’s inside
Strategic Report
Overview
Welcome Investor Proposition 02 w
e
2013 Highlights 03 vi
er
ITV at a Glance 04 v
to our O
Business Model 05
Market Review 06
Chairman’s Statement 08
Annual
Strategy and Operations
Report 2013 Chief Executive’s Review 12
Performance Dashboard 16 s
n
Strategic Priority 1 19 atio
Strategic Priority 2 23 er
p
Strategic Priority 3 27 O
d
Strategic Priority 4 31 an
y
g
e
Performance and Financials at
tr
S
Key Performance Indicators 36
Financial and Performance Review 41
Risks and Uncertainties 52
s
al
ci
Governance n
a
n
Board of Directors 58 d Fi
Management Board 60 an
Directors’ Report and Responsibilities 62 ce
n
Chairman’s Governance Statement 67 a
m
Corporate Governance 68 or
Audit Committee Report 75 erf
P
Remuneration Report 82
Financial Statements
Independent Auditor’s Report 104
e
Introduction and Table of Contents 108 c
Look out for these icons n
Consolidated Income Statement 109 na
within the report Consolidated Statement of Comprehensive Income 110 ver
o
Consolidated Statement of Financial Position 111 G
Consolidated Statement of Changes in Equity 112
Read more content within this report
Consolidated Statement of Cash Flows 114
Notes to the Accounts
Indicates Corporate Responsibility content Section 1: Basis of Preparation 115
Section 2: Results for the Year 120
Section 3: Operating Assets and Liabilities 129
Read more content online
Section 4: Capital Structure and Financing Costs 151
s
Section 5: Other Notes 167 nt
e
ITV plc Company Financial Statements 169 m
e
Notes to the ITV plc Company at
t
Cover picture: FFiinnaanncciiaall SRteactoermd e nts 117704 cial S
n
a
Behind the scenes on Shareholder Information 175 Fin
Ant and Dec’s Saturday Glossary 178
Night Takeaway
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Overview
Investor Proposition
● We are four years into our strategic plan and ITV is now a demonstrably stronger and
more efficient business –operationally, financially and creatively
● Over the last four years we’ve grown our revenues and delivered double digit profit
growth every year, our adjusted earnings per share has increased sixfold and our cash
conversion has been consistently strong
● Creativity lies at the heart of our strategy and our investment in quality content is
driving revenue and profit growth across the business
● While we have made great progress and ITV is now a much more balanced business,
there is still a great deal to do
● We remain committed to our strategy to build an international content business and
as an integrated producer broadcaster we are building a unique position to exploit the
increasing global demand for proven content across a range of platforms
● ITV Studios has grown strongly, both organically and through acquisitions, and going
forward growth will come increasingly from our international business as we become
a more global business
● Our Broadcast business is robust, with the best year-on-year on-screen performance
for ten years, and Online, Pay & Interactive continues to deliver double digit revenue
growth as we make our content available on more platforms
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ar2013.itvplc.com
Stock code: ITV
2013 Highlights
Group external revenues Non-NAR revenues* EBITA before exceptionals
£2,389m £1,211m £620m
(2012: £2,196m) (2012: £1,036m) (2012: £513m)
w
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vi
£m £m £m er
9Yo%Y 27% Increase on 2009 89 22,,255000 1Y7o%Y 42% Increase on 2009 1,211 1,250 2Y1o%Y 207% Increase on 2009 20 670000 Ov
3 6 500
064 2,140 2,196 2, 2,000 36 1,000 408 462 513 430000
1,879 2, 1,750 850 829 922 1,0 750 202 210000 perations
O
1,500 500 0 d
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09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 y a
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at
tr
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Adjusted profit before tax Adjusted EPS Net cash/(debt)
£581m 11.2p £164m
(2012: £457m) (2012: 9.1p) (2012: £206m)
s
P(2r0o1f2it: b£e3f3o4rme t)ax is £435m EPS is 8.3p (2012: 6.6p) †inInccrleuadsiendg bdyis atrriobuuntido n£1s. 1t ob isllhioanre bheotlwdeeresn, c 2a0sh0 9h aasn d 2013 ancial
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2Y7o%Y 438% Inc321rease 398on 2004579 581 5436£0000m0000 2Y3o%Y 522% Inc6.4rease 7.9on 2009.19 11.2 861p2 £776m In188)crease45 on 2020609† 164 1--03£1350m500000 Performance and Fi
200 2) ( -450
4 1
6
8 100 ( -600
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1 0 1. 0 -750 e
09 10 11 12 13 09 10 11 12 13 09 10 11 12 13 nc
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Facts and Figures – 2013 vs 2012
s
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4% 16% 16% 20% e
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Increase in ITV Family Increase in Online, Pay Growth in long form Increase in ITV al
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share of viewing – best & Interactive revenue video requests Studios’ revenues an
n
year-on-year performance Fi
in ten years
* Non-NAR revenues include all ITV revenues, both internal and external, except net advertising revenues.
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Overview
ITV at a Glance
ITV is an integrated producer broadcaster, operating
the largest commercial family of channels in the UK. In ITV Total Revenues ITV EBITA
addition to traditional broadcasting on our channels,
we deliver our content on demand through numerous
£133m
platforms, both directly and via ITV Player. Through ITV
£857m
Studios we produce content for both our own channels
and third parties in the UK and increasingly overseas. £1,896m
£487m
Our distribution business sells finished programmes and
formats worldwide.
Broadcast & Online ITV Studios
Broadcast & Online ITV Studios
ITV broadcasts a wide variety of content on its family of ITV Studios is the Group’s international content
free to air (FTA) channels consisting of ITV, the largest business. It is the largest production company in the
commercial television channel in the UK, and the digital UK and produces programming for ITV’s own channels
channels, ITV2, ITV3, ITV4 and CITV. In 2014 we will launch and for other broadcasters such as the BBC, Channel 4
ITVBe, our new FTA lifestyle and reality channel. The and Sky. ITV Studios also operates in five international
family of channels attracted a total share of viewing of locations, the US, Australia, Germany, France and the
23.1% in 2013, the largest audience of any UK commercial Nordics, producing content for local broadcasters in
broadcaster. Programming is primarily funded by these regions. This content is either locally created IP
television advertising revenues. ITV has the largest share or created elsewhere by ITV, mainly the UK. We have
of our estimate of the UK television advertising market at made a number of acquisitions in the UK, US and the
45.4% in 2013. Nordics as we look to build our international business.
Global Entertainment, ITV’s distribution business,
In addition to linear broadcast, ITV delivers its content
licenses ITV’s finished programmes and formats and
across multiple platforms. This is either through ITV
third party content internationally.
Player, available on ITV’s website, itv.com, and platforms
such as Virgin and Sky, or through direct content deals
with services such as Lovefilm and Netflix. ITV’s content
is now available on 19 platforms and in 2014 we will
launch our new pay channel, ITV Encore, on Sky.
ITV Strategy
Our vision remains to create world-class content which we can make famous on our channels, and exploit across multiple
platforms, both free and pay, in the UK and internationally. We have a clear and consistent strategy which is based on four
key strategic priorities as follows:
1 Create a lean,M craexaimtiviseely a udience and revenue 3 Drive new revenue streams by
exploiting our content across
organisation multiple platforms, free and pay
Read more on Strategic Priority One on page 19
Read more on Strategic Priority Three on page 27
2 Maximise audience and revenue 4 Build a strong international
share from our existing free-to- content business
air broadcast business
Read more on Strategic Priority Two on page 23 Read more on Strategic Priority Four on page 31
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ar2013.itvplc.com
Stock code: ITV
Business Model
How ITV generates value
As an integrated producer broadcaster, we have a unique opportunity to deliver value from our investment in quality
content. Our investment in our programme budget for our broadcast channels delivers unrivalled audiences that drive
our advertising revenues. Our channels also provide a shop window for our own content to make it famous before
selling it internationally.
By creating and owning content we can grow new revenue streams by exploiting that content across multiple w
e
platforms, both free and pay. Investment in our creative pipeline and in selective acquisitions is building our ervi
v
international content business as we sell our programmes and formats internationally as the demand for proven O
content continues to grow.
Invest in
high quality content
• s
n
ITV invests roughly £1 billion p.a. commissioning o
programmes for its f amily of UK ati
cha•nnels – more than any other UK commercial broadcaster per
Create ITV acq•uirpeasr tthyi sin cdoenpteenndt efrnotm pr IoTdVu Scteurdsios and third Deliver and O
and own y
ITV Studios invests globally in a unrivalled g
world-class creative pipeline o f ideas and audiences ate
content makes selective acquisitions in • tr
• production companies with Investment in a varied S
ITV Studios is the largest attractive IP and high quality programme
commercial producer in the schedule delivers unrivalled
UK, producing over 3,500 hours of •commercial audiences in the UK
content each year for ITV channels and ITV is differentiated by the mass
•other UK broadcasters 2 4 audiences it delivers which are so highly als
ITV Studios America, the largest d•emanded by advertisers nci
part of our international business, produces over 99.9% of all commercial television audiences na
•fi7v5e0 in hdoeupres nodf ecnotn pterondt uacnedr sis i no nAem oefr tichae top ove•r 5 IT mVi ldlieolniv earres mono IrTeV t argeted audiences on nd Fi
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pro dOuucre i nttheerinr aotwionn oarl ipgrinoadlu fcotriomna btsu sinesses 4 2 IT•V2 I,T 3V a2n adn 4d a3n adr eo nth ITe Vla Prglaeysetr digital nce
and versions of UK formats for local c•hannels in the UK ma
broadcasters in these regions In 2014 ITV will launch its new free-to- or
air lifestyle and reality channel ITVBe erf
P
Integrated
producer
Exploit global content broadcaster Provide Britain’s biggest
opportunities marketing platform
• 2 •
ITV’s international distribution 4 ITV provides advertisers with
b•usiness is Global Entertainment 3 unrivalled reach, unique e
It licenses ITV Studios finished sponsorship opportunities and nc
programmes, ITV formats and third commercial partnerships that na
party content internationally to •extend beyond the television set er
v
broadcasters and platform ITV’s sales team were awarded ‘Sales Team o
3 G
ow•ners of the Year’ in 2013 at the Media Week
ITV is the third largest European Drive new revenues Awards
dis•tributor of television content on different
Growing this business with
content ITV owns, creates or • platforms
funds is a key part of the ITV makes its broadcast content
strategy • available to view on ITV Player
ITV generates revenues through selling online s
adve•rtising and sponsorship around this content ent
ITV licenses its channels and content m
e
to pay operators and online VOD services. In 2014 we will at
also •launch our first pay only channel, ITV Encore, on Sky St
ITV sells pay VOD direct to the consumer and al
monetises consumer interaction with its nci
a
biggest shows through competitions n
and voting Fi
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06
ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Overview
Market Review
The media environment in which ITV operates, both as
ITV VOD viewing by platform
broadcaster and producer, continues to be dynamic. We
4%
must ensure that we adapt as the market changes as
it presents great opportunities for ITV as an integrated 6%
producer broadcaster.
18%
Broadcast & Online
Via the television set 53%
Over recent years the number of ways to watch TV has
Tablet
greatly increased. Viewers are now able to choose between
PC 19%
a variety of traditional platforms, both free and pay. On
Mobile
demand viewing allows people to watch content away from
Other
traditional television with programmes delivered over the
top to devices including mobiles, tablets and connected Source: ComScore, Sky, Virgin, BT Vision
TVs. Linear viewing via the TV set is still dominant with on
demand a relatively small part of overall viewing, but it is Video on demand and catch up
growing fast: we cannot be complacent and must ensure Video on demand (VOD) viewing of lawful long form content
that our online offering is strong to compete in this market. is growing rapidly but remained around 3% of all viewing in
2013. Growth is being driven by viewing on mobiles, tablets
Traditional television viewing
and the television set, while PC viewing is declining (Source:
ITV competes for viewers with the BBC and other commercial
Internal estimates, 3Reasons).
broadcasters, including the Channel 4, Channel 5 and Sky
families of channels. The process of digital switchover in the UK The number of homes with Personal Video Recorders (PVRs)
completed in 2012, increasing the number of channels available has increased to around 63%, with PVR catch up viewing of
to all viewers from the traditional five terrestrial channels to a around 12% (2012: 10%). The line between catch up and VOD
choice of hundreds. The erosion of audience share experienced is becoming more blurred with the growth of connected
by the terrestrial broadcasters during this transition has now devices as viewers no longer need to record programmes.
levelled. Relatively little has changed in terms of viewing ITV continues to improve the quality and distribution of ITV
behaviour. In the last five years the public service broadcaster Player to take advantage of this growing demand.
(PSB) families have only lost 1.2 share points. BBC One and ITV
Advertising revenues
continue to be the only channels consistently able to deliver
ITV generates revenues from advertising through traditional
peak audiences of more than five million, and the PSB families
broadcast and also increasingly online. ITV competes with
receive around 72% share of viewing (SOV). ITV Family SOV in
the commercial broadcasters and other advertising mediums,
2013 was 23.1%, second only to the BBC’s family of channels at
such as the internet and print, for its advertising revenues.
32.2%. SOV for the Channel 4, Channel 5 and Sky families was
Over the last five years TV has broadly maintained its share
significantly smaller at 11.0%, 6.0% and 8.0% respectively.
of total advertising spend at around 28% whilst the internet,
Total television viewing has been largely stable over the which is growing rapidly, continues to take share from press.
past decade with average viewing of 232 minutes in 2013 ITV’s share of the television advertising net revenues (SOB)
compared to 224 minutes in 2003. Total viewing saw a was 45.4% in 2013, slightly behind 2012 (45.8%). However, it
decline of 4% in 2013 due to the lack of a large one-off is getting increasingly difficult to measure the market as all
sporting event and the good weather over the summer. broadcasters have differing definitions and therefore include
Viewing of commercial channels was only down 1% to 153 sources of revenue other than pure spot advertising.
minutes per day.
Television’s share of the advertising market
Platforms
The platforms on which viewers watch television is
important to ITV as for linear viewing our SOV is higher in
28.1%
free to air homes. The current platform mix is around 48%
Television
40.6%
free to air (Freeview and Freesat) and 52% Pay (including Sky,
Press
Virgin and BT). We continue to support free platforms with Radio
developments such as YouView, which is estimated to have Cinema 21.0%
distributed over 900,000 boxes by the end of 2013. Outdoor 6.4
Internet %
1.2% 2.7%
Source: Advertising Association, January 2014
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ar2013.itvplc.com
Stock code: ITV
and the Nordics. Global Entertainment, ITV’s distribution
ITV Family Share of Broadcast (SOB)
business, sells finished programmes and formats around the
%
world and is one of the top three European distributors of
46
television content.
8
44.7 45.2 45.3 45. 45.4 44 TThhee gglloobbaall c coonntteennt tm maarkrekte tis estimated to be worth around Overview
$50 billion. Approximately 29% of this ($15 billion) is
accounted for by the US, 8% by the UK ($4 billion), and the
42 remaining 63% by the rest of the world.
Entertainment and factual entertainment formats such as
Come Dine With Me, Hell’s Kitchen and I’m A Celebrity Get
40 Me Out Of Here! are a significant part of global content sales. ns
09 10 11 12 13 o
We are also seeing a resurgence of drama and comedy, and ati
er
Source: ITV actuals, ITV estimate for Total TV a rise in reality programming, for example Duck Dynasty and Op
Real Housewives. d
n
a
Subscription and Pay revenue y
The UK and US drive global creativity in TV formats and g
ITV also earns revenues from pay TV, both directly from finished tape sales. The UK is the world leader for the ate
the viewer and through licensing its channels and content. volume of exported formats, ahead of other top exporters Str
The total UK pay TV market has been growing moderately
the US, Holland and the Nordics, and second only to the US in
and was estimated to be £6.1 billion in 2012 (Source:
catalogue sales.
Screen Digest). Much of this goes to platform owners such
s
as Sky and Virgin as subscriptions from the viewer, with In the UK and internationally ITV competes with a large al
ci
the remainder being paid by platform owners to content number of independent producers, including ‘super-indies’ an
n
owners, such as ITV, and rights holders. such as Fremantle and Endemol. The independent producers Fi
d
are largely privately owned, and do not have the advantage an
A big growth area in pay TV is now subscription VOD, where e
of being an integrated producer broadcaster. c
viewers have unlimited access to content for a period of an
m
time. 2012 was the first year that VOD subscription took off The US is the largest creative market in the world and while or
in the UK, and the two main services, Netflix and Lovefilm dominated by vertically integrated conglomerates, there is erf
P
which offer ITV content, are growing fast. a thriving independent market valued at about $3.5 billion
in which ITV competes. ITV Studios is now one of the five
ITV Studios and the Global content market
largest independent producers in the US.
Over the last few years the proliferation of entertainment
platforms and the increasingly competitive nature of the
Global Content Market – $50 billion
broadcasting industry has created strong demand for quality e
c
n
proven content and formats that travel internationally. 8% a
n
This is because broadcasters and platform owners want ver
o
to increase the certainty of their audiences, either mass or G
targeted, around which to sell their advertising. This provides 63% 29%
great opportunities for ITV as a leading content creator and
producer. UK
US
ITV Studios production regions
Rest of the World
ITV Studios is the largest commercial production company
s
in the UK, and the third largest European producer after nt
Source: Internal estimates me
Fremantle and Endemol, producing over 3,500 hours of e
at
content per year for ITV and other broadcasters in the t
S
UK. ITV Studios also produces programming for local al
ci
broadcasters in five international locations: the US (the an
n
largest international base), Australia, Germany, France Fi
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ITV plc Annual Report and Accounts
for the year ended 31 December 2013
Overview
Chairman’s Statement
Archie Norman
of viewing emerging, more catch up, more consumption on
connected and mobile devices and indeed new entrants
competing for share of the viewers’ time. Therefore we
must continue to adapt ITV to take advantage of these
opportunities.
We see great opportunities ahead as we build on the
creative capability of ITV internationally. However, these
will also pose challenges to the way we work internally and
externally. And as we extend our reach it remains vital to
sustain the health of our growing channel family in the UK
and especially of our flagship channel ITV.
Our ability to tackle these challenges with confidence is
reinforced by the transformation of our financial position
which has been the result of tight cash management,
debt restructuring and cost control: we now have a robust
Dear Shareholder balance sheet and strong cash flow generation. The Board
ITV today is a much stronger business in almost every is very mindful of the need to balance the investment
respect than when the restructured Board and leadership requirements of the business to deliver future growth with
team were formed four years ago. When we set out our increasing shareholder returns. The Board has proposed a
transformation programme in 2010 the core objective was 35% increase in the ordinary dividend to 3.5p and a 4.0p
to rebalance the business, to open up new growth paths, and special dividend in line with last year.
to ensure it is more resilient in a changing media landscape.
ITV remains a regulated business and as the media
Whilst there is much further to go, this programme is well
landscape changes we continue to see the need for the
under way with strong growth in all sources of non-net
relaxation of regulatory constraints as non-regulated
advertising revenue.
forms of competition grow. However, we are pleased that
After years of underperformance, our content business is our public service licences have now finally been renewed
now delivering consistent growth under strong creative providing a stable platform for another ten years.
leadership. Selected international acquisitions have
accelerated progress, particularly in the USA, to form the
“We are a talent driven, people
basis for a global content network. Meanwhile, online, pay
and sponsorships have all shown strong and profitable intensive business. Our
growth. This has been achieved against the backdrop of
difficult economic conditions and subdued consumer progress has been driven by
markets.
the leadership, creativity and
As a result ITV today is in unrecognisably better health, with
strong leadership and a good talent base at all levels. This motivation of our people”
does not of course mean we can afford to let the pace of
change diminish. While the traditional broadcast television
model remains robust, the market for ‘television-like’
content is changing faster than ever with new forms
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