Final Results

5th Mar 2008 07:01

ITV PLC05 March 2008 5 March 2008 ITV plc results for year ended 31 December 2007 Turnaround plan on track: ITV viewing increased and advertising revenues stabilised in 2007; ITV outperforming the market in 2008. Financial summary 12 months to 31 December (£m) 2007 2006 Change %Group revenue 2,082 2,181 (5)Operating EBITA* 311 375 (17)Profit before tax 188 288 (35)Adjusted EPS** 5.0 6.3 (21)Full year dividend 3.15 3.15 - * Before exceptional items** Before exceptional items, amortisation and tax adjustments • Group revenue impacted by reduction in PRS revenues of £58m and reduction in external Global Content revenues of £37m.• Operating EBITA impacted by increased investment in digital channels; reduction in PRS profits; and anticipated broadband start-up losses. Operating summary • Total viewing of ITV family of channels increased year-on-year for the first time since the early 1990s.• ITV1 and ITV digital channels outperformed their terrestrial and digital competitors.• Reviews of CRR and PSB secured and underway.• ITV's five year content-led growth strategy and targets announced.• Senior executive team strengthened.• Appointment to Board of Dawn Airey and Rupert Howell; Finance Director recruitment underway; Peter Fincham to join as ITV Director of TV. Segmental highlights Broadcasting ITV family • ITV net advertising revenue (NAR) held at £1,489 million (2006: £1,494 million)• ITV digital channel NAR up 33% to £209 million (2006: £157 million)• ITV family viewing share increased to 23.2% (2006: 23.1%)• Commercial impact volume rose 3.3% and share held at 41.7% (2006: 42.2%) ITV1 • NAR fell 4% to £1,224 million, vs decline of 12% in 2006 and 10% CRR ratchet• Viewing share down 2.1%, compared to double digit declines for C4 and five• Volume of impacts up 1%, with share down 3.3% (2006: down 10.5%) Global Content • Integration of all UK and worldwide production and distribution under Dawn Airey• Senior appointments with Peter Iacono joining as MD ITV Worldwide from Sony; Paul Buccieri joining as CEO Granada America from Fox's Twentieth Television• ITV Productions delivered 75% of all commissioned programmes on all UK channels attracting audiences of over 10 million• Acquisition of 12 Yard building presence in key international game show genre Online • itv.com monthly unique users (UUs) reached 6 million following H2 2007 relaunch• itvlocal monthly UUs reached 0.75 million following roll-out across ITV plc regions• Friends Reunited revenue increased 36% with strong growth across all core sites Current trading • Broadcasting: ITV outperforming the market in revenues and ratings - Total ITV NAR estimated to be up 1.9% for Q1 with total TV down 0.7%. - Total TV estimated to be down around 1% for April - ITV family viewing up year to date at 23.2% (2007: 23.0%) and SOCI held at 41.5% (2007: 41.7%) • Global Content: strong on-screen performance and international production - Performance highlights in new schedule: Dancing on Ice, Lewis, Coronation Street, Emmerdale, Ant and Dec's Saturday Night Takeaway. - Major commissions secured for networks in US and Germany • Online: strategic momentum maintained into 2008 - Streaming technology improvements leading to increased video views on itv.com - Increased Friends Reunited focus on advertising as core site evolves in 2008 Executive Chairman Michael Grade said "In my first year back at ITV, we put together a growth strategy for thebusiness and strengthened the senior team. The first priority for ITV was tostem the decline. We did more than that, delivering an increase in viewing tothe ITV family for the first time in over a decade. For the first time in manyyears, ITV1 outperformed its competitors and we've continued to do so into 2008. "We are heartened by the positive response of advertisers to the improvedon-screen performance and our investment in channels and online. Havingstabilised our advertising revenues last year, we've been able to increase ITVtelevision advertising revenues nearly 2% year on year for the first quarter of2008, running well ahead of the total market. "We have made real progress towards delivering on our 3-5 year growth strategy.We've reached agreements to launch Freesat, Kangaroo and an HD ITV service thisyear. We've taken a stake in Mammoth Screen, a controlling position in JaffeBraunstein Entertainment and acquired 12 Yard. We've re-launched itv.com,completed the roll out of itvlocal.com and continued to grow Friends Reunited. "The Board's decision to recommend holding the dividend reflects theirconfidence in the strategy for growth and the team we have in place to deliverit. The Turnaround Plan is on track." NOTES: 1) Impacts refer to adult impacts. Share of viewing refers to all-time shareof all individuals viewing. ITV family includes ITV1, GMTV and ITV digitalchannels (ITV2/+1, ITV3/+1, ITV, Citv, M&M, GMTV+1, GMTV2). Viewing share dataand commercial impact data sourced to BARB/TNS. Year to date figures cited runto 24 February 2008 (and equivalent period in 2007). 2) Net advertising revenue figures based on ITV data and estimates. ITV1 NARrefers to ITV plc share of ITV1 NAR. For further enquiries please contact: ITV plcTel: 0844 8818000 Press queriesMark Gallagher - Group Director of Corporate AffairsJim Godfrey - Director of Corporate Affairs Tel: 084488 18434 Investor queriesJames Tibbitts - Company Secretary Tel: 084488 15656Christy Swords - Director of Investor Relations Tel: 084488 15651Pippa Strong - Head of Investor Relations Tel: 084488 14767 Tulchan Communications GroupTel: 020 7353 4200 Andrew GrantSusanna VoyleDavid Allchurch Website: www.itv.com, investor information: www.itvplc.com An analysts presentation will be held at 09:30hrs on 5th March 2008 at the CityPresentation Centre, 4 Chiswell Street, London EC1Y 4UP Message from the Executive Chairman Michael Grade 2007 was a watershed year for ITV plc. We put in place the strategy and the teamto meet the challenges of the new digital era. With a much improved performanceon-screen, we have countered the myth that ITV is a business managing decline.We have set out ambitious targets for our Global Content and Online businesses.Our focus now is on implementing the Turnaround strategy and deliveringsustainable growth. In November 2007 digital switchover in the UK started as the town of Whitehaventurned off its analogue signal. By 2012 the whole of the UK will have switchedover to digital. The transition to digital marks the start of a new era for ITV. For 25 years,ITV1 lost share to new services, for example Channel 4, five and Sky. The UK'sleading commercial channel appeared locked into an inexorable cycle of decline,exacerbated by poor performance. By the end of 2007, over 85% of UK homes had converted to digital. Themultichannel fragmentation effect began to ease and ITV's performance improved.ITV1's audience started to stabilise and the channel enjoyed a number ofprogramming successes - from enduring favourites like Coronation Street and I'mA Celebrity...Get Me Out of Here! to new hits, like Britain's Got Talent,Kingdom and Primeval. A "blue chip" roster of major sports included ChampionsLeague football, Formula 1 motor racing and the Rugby World Cup. Structural changes to the schedule paid off with gains in daytime and over thesummer. Over the full course of 2007, ITV1 actually delivered to its advertisersmore viewers than it had the previous year, in terms of commercial impacts. ITV Productions played its part, delivering half of the channel's originalcommissions - and more than half of its total impacts - with a slate extendingfrom Emmerdale to Mobile, from Parkinson to Ant and Dec's Saturday NightTakeaway, from This Morning to Tonight with Trevor McDonald. ITV productions forboth ITV1 and other broadcasters continued to win plaudits and prizes, withsuccesses including The Queen, See No Evil, The Street and Longford. 75% of allprogrammes (excluding sport) on all UK channels delivering audiences over 10million in 2007 were made by ITV Productions. However, ITV Productions was not able to deliver revenue growth to match suchon-screen successes, with drama for ITV1 and production for other UK channelsboth down compared to 2006. The new strategy and structure, together withpersonnel changes made towards the end of the year, are aimed at improving thisperformance in 2008. ITV's digital channels came of age in 2007, generating in excess of £200 millionof advertising and sponsorship revenues. itv.com completed its successfulrelaunch and now offers a state of the art broadband experience. In November,ITV announced a joint venture with BBC Worldwide and Channel 4 to provide abroadband service offering access to thousands of hours of archive programmingfrom the UK's top broadcasters. We are determined that ITV's strong on-screen performance in 2007 should markthe beginning of a revival in the Company's fortunes. To this end, during theyear, we put in place the team and the strategy to deliver future growth. The ITV Senior Executive team was considerably strengthened in 2007. In GlobalContent, we recruited Dawn Airey, latterly of Sky and five. Rupert Howell, amajor figure from the advertising sector, joined us in the crucial post ofManaging Director of ITV Brand and Commercial. Carolyn Fairbairn, formerly ofthe BBC and McKinsey, leads our strategy and development function. Entering2008, we have confirmed that Peter Fincham, the controller of BBC1 until October2007, will join ITV as Director of Television. In this role, Peter will replaceSimon Shaps, who has performed a great job for ITV over many years and has beenDirector of Television since 2005. ITV's clarity of purpose is evident in the Turnaround strategy that we set outin September 2007. Our vision is for ITV to be the UK's favourite source of freeentertainment. We set a revenue target for the Company of 3-5% compound annualgrowth to 2010, rising to 5% to 2012. The Global Content business aims to doubleits annual revenues by 2012. Our broadcast channels aim to deliver a share ofcommercial impacts at or above 38.5% in 2012. We also plan to deliver £150million of Online annual revenues by 2010. Our plan will be self-funding. We have continued with the programme of disposingof non-core businesses, which has now raised over £600 million since merger.During 2007, we disposed of our stakes in Liverpool FC, Arsenal FC, MUTV andITFC. Such disposals will fund acquisitions which are consistent with ourcontent-led growth plan. During the year, we took a majority stake in USproducer Jaffe/Braunstein Entertainment, a 25% stake in new producer Mammoth andacquired UK independent producer 12 Yard. Our Turnaround strategy is not founded on any assumptions of regulatory relief.However significant regulatory relaxation is overdue in commercial publicservice broadcasting (PSB). Ahead of the launch of the Ofcom PSB review, ITV setout its detailed plans for modernising regional news. We recognise that thesewill have implications in terms of regional staffing, but we believe that it isright to be open about our plans and their rationale. Our plans would ensurethat every home in the country retains access to a high-quality ITV regionalnews service from 2009, whilst maximising investment in original networkprogramming, where the core public interest lies. It should be remembered that terrestrial television has always faced limitationsin delivering at the sub-regional and local levels with multiple unresolvedboundary issues stretching back over decades. Broadband delivery faces no suchtechnical limitations and puts regional choice with the viewer, rather than thebroadcaster. itvlocal.com was rolled out across all our regions during 2007,supplementing our on-air regional coverage and allowing us to target localclassified and display advertising, a new market for ITV. In other areas, regulatory reform remains imperative. In September 2007, theOFT confirmed its intention to review the Contract Rights Renewal ("CRR")mechanism which has applied to the sale of ITV1 advertising since 2003. Ourimproved on-screen performance in 2007 has mitigated the worst effects of CRR. But in a rapidly changing market, ITV still remains unduly restricted: ITV nowfaces competitors who didn't even exist in 2003. We look forward toparticipating in the review process over the coming year. 2007 was also a year when trust in broadcasting came to the fore. All the majorUK broadcasters faced issues over their operation of premium rate services (PRS)and allegations of misleading viewers. ITV acted swiftly when problems startedto emerge, suspending all our PRS activities until systems were independentlyassessed by Deloitte & Touche LLP ("Deloitte"). We commissioned Deloitte toundertake a review going back over two years. Where problems have beenestablished, we have made full disclosure, offered full recompense to viewersand improved our systems. We have committed to donating in full to charity anyviewer refunds that are not claimed. ITV is also co-operating fully with Ofcom's inquiry into the PRS incidents onITV channels and we await the outcome of their adjudication. GMTV, which is 75%owned by ITV, faced serious PRS issues of its own in 2007 relating to theconduct of its on-screen competitions and received a substantial fine from theregulator. Such incidents for the most part appeared to stem from misguided editorialjudgments taken with a view to maximising viewer enjoyment, not from any desireto maximise PRS revenues. Nonetheless we let our viewers down and that isinexcusable. We are determined to restore public trust in ITV and UKbroadcasting as a whole. The Remuneration Committee of the Board has takenaccount of PRS issues in calculating annual bonuses awarded to the executiveteam. I am confident that the business is in better shape going into 2008. The launchof the new ITV1 schedule shows our commitment to innovation. We have launched asuccession of ambitious dramas, from Honest to the genre-busting MovingWallpaper/Echo Beach. We have brought News at Ten back to ITV1. The weekendschedule is underpinned by great entertainment, from Dancing on Ice to HarryHill's TV Burp. As the year progresses, football fans will have Euro 2008 andEngland's home games to enjoy on ITV, as well as the Champions League. Our valuable production business needs to grow and deliver programmes for ITV,other UK broadcasters and the international market. We have the considerableadvantage of being an integrated producer/broadcaster. Our emphasis needs toshift from producing linear programmes for one-off transmission on a singlechannel to "360 degree" exploitation of the lifetime value of our content,across multiple platforms and territories. We will also be investing for thefuture: in monetising itv.com; in building on the success of ITV2; and inrolling out an HD service as part of our Freesat project with the BBC. BSkyB's acquisition of a 17.9% stake in ITV plc was subject to a CompetitionCommission review in 2007. In January 2008, the Secretary of State confirmedthat BSkyB would be required to reduce its stake to below 7.5%, although thedecision is being appealed. The Board will continue to act in the best interestof all shareholders. The Board has reviewed the level of the final dividend in light of theperformance of the Company over the course of 2007, current trading conditionsand the outlook going forward. In 2007, ITV plc NAR fell by 0.3% on the previousyear with strong growth in ITV digital channels offsetting a decline in ITV1revenues. In the first quarter of 2008, ITV plc NAR is expected to be up around1.9%, growing ahead of the total market. In the light of this trading context and the Company's stated policy of buildingback to 2 to 2.5 times dividend cover in the medium term, the Board proposesthat the final dividend for the year should be held at 1.8 pence per share tobe paid on 1 July 2008 to shareholders on the register on 18 April 2008. In February 2007 Sir James Crosby was appointed senior independent director andChairman of the Nomination Committee. Agnes Touraine and Heather Killen joinedthe Board in August 2007 and John Ormerod in January 2008. Sir Robert Phillisresigned from the Board in 2007 and John McGrath in early 2008. The Board isgrateful to Bob and John for their significant contribution to ITV plc over thelast few years. In February 2008, Dawn Airey and Rupert Howell were appointed directors,providing strengthened executive representation at board level. We confirmed ourintention to appoint a dedicated Finance Director, freeing up John Cresswell tofocus on his responsibilities as Chief Operating Officer. The Board has alsoextended my appointment as Executive Chairman to the end of 2010. All of mycontractual terms - including the terms and period of the Turnaround IncentiveAward - remain unchanged. The decision provides my management team and I withthe space to focus on the job to be done over the next crucial years, withoutdistraction. ITV made measurable progress over the course of 2007. The operationalperformance in the year was better than it has been for some time. We have alsostarted to lay the foundation for sustainable growth in the future. I would liketo thank all of my colleagues at ITV for their considerable effort, dedicationand creativity in serving the needs of our viewers, advertisers andshareholders. Michael GradeExecutive Chairman Operating review It was a tough year for ITV and all UK broadcasters, with the issues of trustcoming to the fore, in particular in the context of premium rate services ("PRS"). ITV's strategy was set out publicly in September 2007, following an in-depthanalysis of the market, competitive trends and the opportunities and challengesfacing ITV. The strategy is reflected in a new segmental structure for theCompany, incorporating Broadcasting, Global Content and Online. Broadcasting remains the primary revenue driver of the Company with ITV1 inparticular still delivering over 50% of the Company's total revenues in 2007.Broadcast incorporates all our advertising funded television channels. SimonShaps is Director of Television, responsible for commissioning and schedulingacross all ITV channels. In February 2008 we announced that Peter Fincham,former controller of BBC1, would be taking over from Simon later this year. InNovember, Rupert Howell took up a new position as Managing Director of Brand andCommercial, responsible for sales and marketing across all our channels.Together with our advertising-funded channels, for reporting purposes,Broadcasting incorporates the wholly owned SDN which is a platform businessoperating a digital terrestrial multiplex. Our strategy is driven by our content. Global Content was created during 2007 topull together all production for ITV and other UK broadcasters; internationalproduction and distribution; merchandising and other commercial ventures. DawnAirey took up a new position as Managing Director of Global Content in October2007, working closely with John Whiston as Director of ITV Productions. Finally Online incorporates our consumer-facing online activities, notablyitv.com, itvlocal.com, Friends Reunited and the new broadband joint venture withBBC Worldwide and Channel 4. Our Online division is headed by Jeff Henry asManaging Director, of ITV Consumer. Over the course of 2007, we have also significantly strengthened core centralfunctions. Carolyn Fairbairn joined the Company from McKinsey as Director ofStrategy and Development and is responsible for strategy, development andregulation across the Company. Mark Gallagher joined the Company from Camelotas Director of Group Corporate Affairs and has established an integratedcommunications and public affairs function. Andrew Garard also joined as GroupLegal Director. Outside the core divisions, ITV retains a number of businesses identified asnon-core and candidates for sale or exit. These include Carlton ScreenAdvertising, Screenvision and broadband ventures related to football clubs inwhich ITV no longer retains a stake. Key operational developments in the major business areas and with respect tothese non-core activities in 2007 are described in the following sections. Broadcasting 2007 saw improvement in ITV1's schedule and performance, with ITV's digitalfamily of channels continuing to grow. Following steep declines in 2006, the performance of the ITV1 schedule was morestable in 2007. In absolute terms, ITV1 actually delivered a higher level ofcommercial impacts - individual viewings of 30 second commercials - in 2007compared to 2006. Key long-running programmes - in particular Coronation Streetand Emmerdale in peak and This Morning and The Jeremy Kyle Show in daytime -continued to perform well, underpinning the schedule as a whole. Performance inthe afternoons improved with the introduction of a new schedule architecturewhich saw ITV's children's programming focused on the Citv channel and onweekends on ITV1. The channel's sporting output was boosted by the explosivedebut season of Lewis Hamilton in Formula 1, England defying the odds in theRugby World Cup, and the enduring excitement of Champions League football. The ITV1 schedule was refreshed with a number of successful new shows, includingBritain's Got Talent, Primeval and Kingdom, all of which return in 2008. Intotal ITV1 launched 23 new shows in 2007 which secured audiences in excess of 5million viewers (2006: 32 new shows). ITV News continued to set the agenda with award winning programmes, reportingand special broadcasts. The year began successfully with ITV News picking upfour prestigious Royal Television Society Journalism awards, including theProgramme of the Year award for the ITV Evening News. Following January's "BigMelt" climate change report from Antarctica, ITV News continued its on locationreports with a week long "Iraq Week" special in March and "Zimbabwe Week" inSeptember - the latter including interviews with Prime Minister Gordon Brown andArchbishop Desmond Tutu. ITV1 remained the leading free-to-air commercial channel in the UK, with a leadover all channels (including BBC1) in peak time between 7.00 pm and 10.30 pm inthe evening. Across all time, ITV1 recorded its best year-on-year performance inshare of viewing terms since 2001, with a fall of just 2.1% year-on-year. Thiscompared to losses of 3.2% at BBC1, 2.9% at BBC2, 10.3% at Channel 4 and 10.1%at five. ITV1's volume of commercial impacts was up 1.1% year-on-year across all adultsand was up 1.3% in terms of the ABC1 adults prized by advertisers. HoweverITV1's share of commercial impacts (SOCI) - the core currency for advertisersunder the CRR mechanism - fell to 32.0% compared to 33.1%in 2006. This isbecause the total universe of commercial impacts continues to grow rapidly asthe UK transitions to digital and the BBC loses viewing in the process. Howeverthis SOCI loss of 3.3% represents a significant improvement over 2006, when ITV1registered a decline of 10.5%. As important as on-screen progress during the year, ITV1 also laid thefoundation in 2007 for the new schedule launch in January 2008. In March 2007ITV secured the terrestrial rights to FA Cup football and England homeinternationals from the 2008/09 season. In Autumn 2007, ITV confirmed that Newsat Ten would return in 2008 with Trevor McDonald joined by Julie Etchingham andMark Austin. A raft of new programmes and returning favourites were commissionedduring the year to hit ITV1 screens in early 2008. These included exciting newdramas Honest, The Fixer and Rock Rivals, returning hits including Kingdom,Harry Hill's TV Burp, Primeval and Dancing On Ice. Beyond ITV1, ITV's digital channels also had a successful year in 2007. ITV2moved into the next phase of its development with increased commissioning ofexclusive content. Secret Diary of a Call Girl starring Billie Piper peaked withan audience of 2.2 million in September, an exceptional audience for adigital-only channel. Investment in such channel-defining, original content hasfurther cemented ITV2's proposition as a bespoke channel for younger audiences,distinct from and complementary to ITV1. ITV2's share of viewing across 2007 inmultichannel homes was 2.2%, up 11.9% on 2006. ITV2 was named non-terrestrialchannel of the year at Broadcast magazine's awards and at the 2007 EdinburghInternational Television Festival. ITV3 was the UK's ninth most popular channel for 2007 with a share of viewing of1.4% in multichannel homes. ITV4 grew its audience share in multichannel homesby almost 25% over the year as high quality sporting events in particularattracted large audiences to the channel. In its first full year of broadcastingthe Citv channel played an important role in reaching children in digital homesand in particular on the DTT platform, where it is the only free-to-aircommercial children's channel. Citv represents a far more effective means ofreaching children than children's programming on ITV1, which reduced in volumein 2007. However the Citv channel was impacted by regulatory restrictions onfood advertising to children, which came into force in 2007 and apply in full tochildren's channels from 2008. The ITV Play digital channel was closed in March2007. Revenues had been impacted by the PRS issues referred to earlier. Closureof the channel freed up DTT spectrum which ITV has redeployed to launch thetime-shifted ITV2+1 service on the platform. Between them, ITV's digital channels were responsible for 37.5% of the growth inmultichannel viewing in the UK during the year and overall advertising revenuefrom our digital channels grew by 33% to £209 million. The contribution fromITV's digital channels meant that ITV overall increased its volume of commercialimpacts year-on-year by 3.2%. In SOCI terms, ITV plc channels accounted for41.7% of all UK commercial impacts (2006: 42.2%), a 1.2% decline (2006: 5%). ITV's strong on-screen performance in 2007 was all the more impressive as it wasdelivered on approximately the same level of investment in programming as 2006.ITV has sought to improve schedule efficiency further by developing morelong-running, returnable series, rather than one-offs or short-run series. ITVmaintains tight control on costs and is one of the most efficient broadcastersin the UK as measured by the relationship between programme spend and audienceshare. ITV's performance on-screen also allowed the Company to optimise its advertisingrevenues across the year. ITV1 advertisers could reduce their share commitmentto ITV1 in 2007 by over 10% on average under the CRR ratchet because of ITV1performance in 2006. However the channel was well-placed to attract short-termadvertising revenues as ITV1 fared better than its core competitors Channel 4and five across the year. In 2007 ITV1 accounted for 498 out of the top 500shows on UK commercial television (2006: 499 out of 500), making it the UK'smost effective brand-building channel for advertisers by some margin. ITVtelevision advertising revenues fell by 0.3% in 2007 compared to an 8.4% drop in2006 and against total growth in the market in 2007 of 3.1%. A strong on-screen performance in 2007 means that ITV1 enters 2008 with thelowest CRR ratchet since merger. Rather than reducing their share commitment toITV1 by over 10% as applied going into 2007, advertisers and agencies areentitled only to reduce their commitment by around 4% in 2008. With ITV1schedule changes seeking to maximise audience levels in crucial peak viewinghours and ITV's commercial competitors continuing to lose audience share, ITVwill compete fiercely for revenues from advertisers and agencies over and abovetheir contractual minimum. The continuing growth, in audience share and SOCIterms, of ITV's digital channels also positions them well to continue stronggrowth in revenue terms over the course of 2008, depending on conditions in thewider market. The wholly-owned DTT multiplex operator, SDN, enjoyed a successful year in 2007.Early renewal of a significant contract with QVC underlined the ongoing strengthof the Freeview capacity market, and provided for improved terms for SDN.During the course of 2007, ITV also confirmed that it had contracted with thetransmission operator Arqiva to deliver the DTT transmission infrastructure thatwill take the channels occupying the capacity licensed to ITV and to SDN throughthe switchover process. Post-switchover ITV's core capacity will reach around98.5% of the UK with SDN channels available to over 90% of the UK. Theswitchover process begins in earnest in 2008 and confirmation of thepost-switchover multiplex configuration (in particular for HD and PSB channels)is also expected in 2008, which should be a further positive for the platformand for SDN. In 2007 ITV also confirmed a joint venture with the BBC to launcha "Freesat" subscription-free digital satellite service in 2008. The newservice will include free-to-air HD services from ITV and the BBC. Global Content Global Content registered a number of significant achievements in 2007 andprofits increased 2% to £90 million. But while profits were maintained, revenueswere down in particular because sufficient and consistent commissions were notsecured from ITV and other UK channels. The second series of Dancing on Ice proved a huge success for ITV1, attractingconsistently high audiences across its nine week run. Overall, Dancing on Icesecured an average audience of 8.5 million with a 37.4% share in its Saturdaynight slot (2006: 9.5 million, 41% share). Other entertainment successesincluded the 7th series of I'm A Celebrity...Get Me Out of Here and the 7thseries of Ant and Dec's Saturday Night Takeaway. Lewis returned to ITV1 on Sunday nights as a series. With an average audience of8.3 million and a 34% share, the series was one of ITV1's top performing dramasacross the year. The ITV premiere of the Oscar-winning movie The Queen deliveredan average audience of 8.7 million and a 38% share. However drama production forITV overall fell short of target. Personnel changes and a restructuring duringthe course of 2007 aim to return the business to growth going forward. ITV-produced soaps continued to draw impressive audiences in 2007: CoronationStreet was the top-performing show in the UK in 2007, excluding sport, with thehighest rating episode attracting an audience of 13.1 million, and a 49.5% share(2006: 12.6 million viewers, 52.6% share). Throughout the year it was the UK'stop performing soap, averaging an audience of 10.1 million and a 44.6% share(2006: 10.1 million viewers, 46% share). Emmerdale attracted an average audience of 7.5 million and a 37.2% share (2006:7.6 million, 38.4% share), and was scheduled against the BBC's biggest show,Eastenders, on 15 occasions in 2007. In 2008, that head-to-head battle becomes afixture, with the new ITV1 schedule pitting Emmerdale against Eastenders everyTuesday evening. Across the year, ITV Productions secured around 50% of ITV1 commissions, but wasslightly down on the previous year, as the network decided not to recommission anumber of established programmes - in particular dramas - as part of itsschedule changes. The success of ITV's content-led strategy relies in part onITV Productions growing its share of ITV1 commissions, with a target for theGlobal Content division of 75%. The Turnaround strategy also requires significant growth in commissions for UKbroadcasters other than ITV. 2007 again saw a significant volume of ITVproduction for other UK broadcasters, including The Street, UniversityChallenge, Come Dine With Me and Countdown. However UK production beyond ITV wasdown 34% year-on-year, with external drama falling short of target. However ITV can face the challenges of delivering growth in Global Content withsome confidence, as 2007 once again provided ample evidence of the quality ofthe Company's output and the creativity of its staff. ITV's Turnaround strategy targets a rate of expansion in Global Content thatwill not be delivered solely by organic growth. ITV has earmarked up to £200million of proceeds from disposals for content-related acquisitions and has alsocommitted to supplementing existing in-house operations with a variety ofinnovative partnerships and flexible structures to ensure that ITV continues totap the widest range of UK production talent. In July 2007, ITV announced thatit would be taking a 25% stake in Mammoth, a new drama producer set up by a teamwith an established track record in the genre. In December 2007 ITV confirmed the acquisition of 12 Yard, an independentproducer specialising in gameshow and quiz show formats and production.Gameshows and quiz shows represent perhaps the most internationally saleablegenre of programming, but have not been an area of strength for ITVhistorically. The majority of ITV1 gameshows and quiz shows, from Who Wants toBe a Millionaire to Goldenballs, are not in-house productions. Even where ITVhas produced or co-produced such shows itself - for example, with Countdown andGameshow Marathon - it has tended to rely on formats from third party producers.It is hoped that the acquisition of 12 Yard will help reverse this trend, with anumber of possible new commissions for ITV1 under discussion. Internationally, 2007 was a strong year for returning formats such as First 48,Celebrity Fit Club and Hell's Kitchen with Gordon Ramsay in the US, Das PerfekteDinner (Come Dine With Me) in Germany, and Dancing with the Stars in Australia.Distribution revenues at ITV Worldwide were impacted by the reduction in UKcommissions and the exchange rate. Nonetheless sales were registered with TVbroadcasters, home entertainment partners and new media platforms in more than250 countries worldwide. Top sellers in 2007 included Hell's Kitchen USA, AgathaChristie's Marple and Northanger Abbey and Mansfield Park from ITV's Jane Austenseason. Format sales included Saturday Night Takeaway, sold to Hunan TV inChina which debuted in early 2008 with an audience of 55 million viewers. Trading for Granada Ventures was challenging with price competition in areassuch as DVDs eroding margins and turnover, even where volumes were maintained.There were strong campaigns around classic ITV brands like Sharpe and InspectorMorse, and strategic acquisitions in the children's and comedy market. Mobileand online gaming products were released for Catchphrase, Bullseye andCountdown, with ITV Classic Gameshows released for Xbox, Nintendo, SonyPlaystation and PSP. A number of digital "download to own" deals were agreed in2007 and this will be a major initiative in 2008 exploiting our availablecatalogue. Online 2007 was a crucial year for Online with the relaunch of a video-enabled itv.com,full national roll out of itvlocal.com, continuing growth at Friends Reunited,and the agreement of joint venture terms for a broadband archive service withthe BBC and Channel 4. In 2007, itv.com received a complete functional and visual overhaul, enabling itto compete with other major entertainment sites. Now equipped with a broadbandvideo player and a much-expanded operations and editorial team, the site offerschannel simulcasts for ITV1, ITV2, ITV3 and ITV4 as well as a 30-day catch-upservice and access to archive material. As a result of this new look and feel,the site has achieved substantial growth, with unique users per calendar monthbreaking through the 6 million barrier for November. Moving forward, itv.com is developing key partnerships with other online playersand the first exclusive made-for-broadband commissions. A partnership with MSNfor the duration of I'm a Celebrity...Get Me Out Of Here! in November sawexclusive clips on the MSN portal in exchange for cross-promotion of itv.com. itv.com launched with Web Lives, an innovative series of short,documentary-style programmes made by Roger Graeff. In 2008 there will be furthercommissions, including a 12-part series of drama shorts linked to new ITV1dramas Moving Wallpaper and Echo Beach, called The Mole. 2007 saw the completion of the full roll-out for our regional broadband serviceitvlocal.com. From October, the service has been available in all ITV regions,and in December, it attracted over 750,000 unique users. itvlocal.com ismodernising ITV's delivery of regional news, expanding the viewing and reach ofour regional programming online. Almost 70% of visitors are coming toitvlocal.com for local news before the main regional news programme airs on ITV1at 6pm. itvlocal.com has over 1,000 hours of news, weather, short films, documentaries,viewer videos, and other material available to be viewed on demand by broadbandviewers. The Friends Reunited group of sites continued to grow during 2007 with revenuesincreasing by 36% on the previous year. Worldwide, Friends Reunited currentlyhas 19 million registered members (2006: 17 million), whilst Genes Reunited has7.9 million (2006: 5.8 million). One new name is added to Genes Reunited everysecond and a new member joins the Friends Reunited Dating site every twominutes. Following our recent strategy review, there are plans in development for muchgreater integration with each Friends Reunited business and itv.com, including areduced emphasis on subscription fees for some parts of the sites. In November 2007, ITV announced the creation of a commercial three-way jointventure with BBC Worldwide and Channel 4 to launch an on-demand content servicein 2008. The service will bring together over ten thousand hours of the UKbroadcasters' current and archive programming from the UK's three leadingbroadcasters. Content will be available to be both streamed and downloaded withviewers able to watch for free, rent or buy. Going forward, itv.com will provide access to catch-up programming and clips,and will carry exclusive simulcasts of ITV channels, whilst the joint venturebroadband service will be the home of the ITV archive. Non-core businesses and efficiency savings ITV continued its programme of non-core disposals in 2007, selling stakes inArsenal and Liverpool football clubs, MUTV and the ITFC sub-titling business.ITV retains stakes in broadband services associated with Arsenal and Liverpool,but is seeking to dispose of these businesses during the course of 2008. Carlton Screen Advertising had a challenging year in 2007. Notwithstandinghealthy cinema attendances, CSA was adversely affected by falling revenues andonerous contractual commitments, which led to a continuing trading loss. ITVtook an exceptional operating charge of £9 million and has entered into adialogue with cinema operators and other parties regarding the future of thebusiness. Our US screen advertising joint venture with Thomson enjoyed another year ofimpressive double-digit revenue and profit growth. The installed installationpipeline of digital screens is currently over 7,000 out of a total screen countof just under 15,000. Our European cinema advertising business, also a 50/50joint venture with Thomson, experienced a year of consolidation. Total revenueswere constant year on year, with strong revenue growth in France offset by adisappointing performance by the Belgian business. In 2006 we announced a programme of efficiency savings across the Company aimedat achieving a cost reduction run rate of £41 million a year by 2008. Thisprogramme is on track with an annualised £29 million of savings delivered in2007. Continuing efficiency gains and disposal of non-core businesses remain apriority for the business in the context of our turnaround strategy. Savings anddisposals will fund the investment and acquisitions that are necessary todeliver sustainable growth. Efficiency savings 2007-08 2007 2008F £m £mBack Office 11 15Property 1 1Systems and Technology 4 7Transmission 6 7Staff related 4 6Procurement 3 5Cumulative total 29 41Cumulative cost of change 15 26 Note: Efficiency gain run-rate to end of 2007 and company forecasts to 2008. Financial review Statutory results for the year ended 31 December 2007 Total revenue for the year ended 31 December 2007 was 5% lower at £2,082 million(2006: £2,181 million). Operating profit decreased to £192 million (2006: £264million) with operating profit before amortisation and exceptional items down17% at £311 million (2006: £375 million). Our reportable segments have been redefined in 2007 following the adoption ofIFRS 8, with 2006 numbers restated as appropriate. 2007 2006 Change £m £m £mBroadcasting revenue 1,738 1,797 (59)Broadcasting EBITA 244 296 (52)Global content revenue 244 281 (37)Global content EBITA 90 88 2Online revenue 33 23 10Online EBITA (12) 1 (13)Other revenue 67 80 (13)Other EBITA (11) (10) (1)Total revenue 2,082 2,181 (99)Total EBITA 311 375 (64) Note: EBITA is stated before operating exceptional items. The table above includes the revenue of disposed businesses (021 and GranadaLearning) of £8 million in 2006 within the "Other" Segment. These businesseswere sold in 2006. Broadcasting Broadcasting revenues Broadcasting revenues comprise NAR, sponsorship income, interactive revenues(PRS and Red Button), ITV Play, SDN and other revenues. Total ITV plc NAR decreased by 0.3% during the year to £1,489 million (2006:£1,494 million). 2007 2006 Change £m £m £mITV1 1,224 1,281 (57)Multichannel NAR 209 157 52GMTV 56 56 -ITV plc NAR 1,489 1,494 (5) ITV1's NAR in the year was £1,224 million (2006: £1,281 million), £57 millionlower than 2006. This reduction was almost offset by the strong performance ofITV2, ITV3 and ITV4 which, together with Men and Motors and Citv, contributed33% year-on-year growth of £52 million, resulting in total NAR of £209 million(2006: £157 million) across these channels. ITV's NAR is a function of audience share which is measured in terms ofcommercial impacts, prevailing advertising market conditions and television'sshare of that market. 2007 was a good year for the television advertising market, with growth of 3.1%compared to a decline of 4.9% in 2006. The decrease of 4.4% in ITV1's NAR was asignificantly better performance than in the prior year and was achieved despitethe considerable effect of CRR following the 10.5% decline in ITV1 SOCI in 2006.ITV1 adult SOCI declined just 3.3% to 32.0% in 2007. In 2007, ITV family's adultSOCI on UK television was 41.7% (2006: 42.2%). Sponsorship income increased by 6% in 2007 to £56 million (2006: £53 million)due to price increases as the cost of sponsorship moves closer to airtime valueand also the successful sponsorship of new programmes and events, such as the2007 Rugby World Cup. SDN revenues grew strongly in the year, increasing by 44% in 2007 to £36 million(2006: £25 million). Other broadcasting revenues of £157 million (2006: £225 million) include airtimesales on behalf of third-parties, sales of ITV programming by the ITV NetworkCentre to Channel 3 licences not owned by ITV and ITV Play and interactivetransactions including those from GMTV. Revenues were lower than in the prioryear largely because of the significant reduction in PRS revenues. Broadcasting schedule costs Total ITV schedule costs increased by £17 million in 2007 to £1,087 million(2006: £1,070 million). This breaks down as follows: 2007 2006 Change £m £m £mITV1 837 840 (3)Regional news and non-news 114 119 (5)Total ITV1 costs 951 959 (8)ITV2, ITV3, ITV4, Citv, M&M 101 75 26GMTV 35 36 (1)Total schedule costs 1,087 1,070 17 Licence fees Licence fees comprise both a fixed annual sum (the cash bid) and a variableelement representing a percentage of the Group's ITV1 and GMTV NAR andsponsorship income (PQR Levy). The PQR Levy is reduced by the percentage ofhomes which receive ITV1 in digital format. The digital licence rebate for 2007is calculated on a weighted average digital penetration of 78% (2006: 70%). 2007 2006 Change £m £m £mCash bid payment 4 4 -PQR Levy 180 187 (7)Digital rebate (140) (140) -Total 44 51 (7) The payment will continue to fall as digital penetration increases. In 2006 the digital rebate includes £6 million relating to the agreement ofprior year returns with Ofcom. Broadcasting EBITA The Broadcasting segment EBITA before exceptional items for 2007 fell by £52million to £244 million (2006: £296 million). This was primarily due to adecline in ITV1 NAR reflecting 2006 on-screen performance, PRS issues andincreased investment in digital channels. Global Content Global Content revenues 2007 2006 Change £m £m £mProduction for other broadcasters 111 138 (27)Distribution and exploitation 114 123 (9)Resources 19 20 (1)External revenues 244 281 (37)Internal revenues 320 351 (31)Total Global Content revenues 564 632 (68) The table above includes revenues from 12 Yard, acquired in December 2007 andJaffe/Braunstein Entertainment, acquired in May 2007. These totalled £7 million. Global content revenue includes original productions for the UK andinternational markets, the distribution and exploitation of internally generatedand acquired rights, and studios and facilities revenue. Programming made by ITV Productions for ITV channels is not included in thereported total revenue as it represents an internal programming cost of sale andin 2007 this internal programming amounted to £320 million of ITV networkprogramme spend (2006: £351 million). In 2007, total external sales of £244 million (2006: £281 million) includedoriginal productions for other broadcasters of £111 million (2006: £138million), distribution and exploitation sales of £114 million (2006: £123million) and revenue from the hire of studio and technical facilities of £19million (2006: £20 million). The fall in revenues was partly due to therefreshment of the ITV1 schedule which led to the ceasing of production of eightITV Productions shows and the termination of children's production. Personnelissues also temporarily affected drama commissions. Global Content profits were maintained in 2007 at £90 million (2006: £88million). Online Online revenues continued to grow in 2007 and totalled £33 million for the year(2006: £23 million). This is made up of the following revenue streams: 2007 2006 Change £m £m £mitv.com and other* 11 7 4Friends Reunited 22 16 6Total Online revenues 33 23 10 * includes itvlocal.com, ITV Mobile and other revenues. Revenues increased by 44% in the year, with major contributions from FriendsReunited and itvlocal.com. Online 2007 EBITA before exceptional items fell to a£12 million loss (2006: £1 million profit) due to the set up costs ofrelaunching itv.com and the full roll out of itvlocal.com nationally. Other Revenues from outside of the main segments for 2007 were revenues from CarltonScreen Advertising (CSA) of £67 million (2006: £72 million). In 2006, £8 millionof revenue was earned from Granada Learning and 021. In 2007 CSA EBITAcontribution was a loss of £11 million due to a decline in cinema advertisingrevenues and high minimum guarantee payments (2006: loss of £10 million,including a £3 million loss from Granada Learning). Exceptional items The operating exceptional items in the year total £35 million and include £18million relating to PRS fines and reimbursements costs, and £9 million CSAonerous contract provision as a result of falling revenues and minimum guaranteecommitments and £8 million reorganisation and integration costs relating to theefficiency programme. Net financing costs Financing income 2007 2006 £m £mInterest income on bank deposits 30 20Expected return on defined benefit pension plan scheme assets 152 144Change in fair value of financial liabilities designated at fair value through profit or loss 14 -Foreign exchange gain - 4Other interest receivable 4 2 200 170 Financing costs 2007 2006 £m £mInterest expense on financial liabilities measured at amortised cost (54) (35)Change in fair value of financial liabilities designated at fair value through profit or loss - (31)Foreign exchange loss (42) -Interest on defined benefit pension plan obligations (134) (126)Other interest expense (3) (4) (233) (196)Net financing costs (33) (26) The increase in net financing costs is primarily due to the full year impact ofthe £250 million and €500 million bonds issued in October 2006, partially offsetby fair value gains on interest rate swaps. These gains include £42 million ofcross-currency swap movements which offset the foreign exchange loss on the €356million and €500 million bonds. Investment income Investment income of £1 million comprises dividend income from our holding inSMG plc. The 2006 £3 million of income also included dividends from our formerholding in Seven Network in Australia. Gain on sale of properties The £9 million gain on sale of properties in the year principally arose from thesale of properties in Southampton, Birmingham and Newbury. Gain on sales of non-current assets and investments During the year the disposal of non-core businesses and investments resulted ina gain of £43 million. The sale of the investment in Liverpool Football Club andAthletic Grounds plc resulted in a gain of £7 million. The sale of the Group'sinvestment in Arsenal Holdings plc, along with an option over the Group's 50%interest in Arsenal Broadband Ltd, resulted in a gain of £28 million.Negotiations for the sale of Arsenal Broadband Ltd are continuing. A profit onsale of £5 million was obtained from the sale of ITFC and £3 million from thedisposal of our investment in MUTV. In addition to the above, the Group alsodisposed of certain assets connected to a transmission outsourcing arrangementfor £4 million resulting in a nil gain or loss being booked. Offsetting these disposal profits is a £26 million impairment relating to ourholding in SMG plc which has experienced a significant decline in its shareprice since October 2007. Tax The effective rate of tax on profit before tax is 27%. The underlying rate oftax on operating profits is 31% as shown below.Underlying rate of tax £mOperating profit before exceptional items, amortisation and share of profits of joint ventures andassociates- Profit before tax as reported 188- Exceptional items (net) 9- Amortisation 84- Share of profits of joint ventures and associates (2) 279Underlying tax charge- Tax charge as reported 50- Net credit for exceptional items 6- Credit in respect of amortisation 19- Credit in respect of prior period items 11 86Underlying rate of tax 31% Earnings per share Basic earnings per share are 3.5 pence (2006: 5.5 pence). Adjusted basicearnings per share before exceptional items, amortisation and tax adjustmentsare 5.0 pence (2006: 6.3 pence). Dividend The Board is proposing a final dividend of 1.8 pence per share which isunchanged on the 2006 dividend. The total dividend proposed for the period istherefore 3.15 pence which is flat year-on-year and is covered 1.6 times by theadjusted basic earnings per share (before exceptional items, amortisation andtax adjustments) of 5.0 pence. Intangible assets Total intangible assets at 31 December 2007 are £3,873 million (2006: £3,895million) being principally goodwill and acquired intangible assets. Goodwillbalances are not amortised but are instead subject to annual impairment testing.Other intangible assets are amortised over their useful lives. An impairmentcharge of £28 million has been recognised in 2007 relating to CSA as a result offalling revenues and minimum guarantee commitments. £20 million of theimpairment relates to goodwill and the remaining £8 million to other intangibleassets. The total amortisation charge for the year including the CSA impairmentis £84 million (2006: £76 million). The goodwill and intangible asset additionsin the year principally relate to the acquisitions of 12 Yard and Jaffe/Braunstein Entertainment and capitalised software development costs. Cash flow and net debt The cash generated from operations was £286 million (2006: £342 million) and wasdown on the prior period due to a £64 million decrease in operating profitbefore exceptional items and amortisation and a working capital outflow of £29million versus an outflow of £36 million in 2006. The 2007 working capitaloutflow was primarily due to payments for acquired US films and series. Net cash interest paid on the Group's net debt position was £62 million. Net taxreceipts of £18 million reflect taxation repayments from prior periods more thanoffsetting payments made relating to the current period. The equity dividendspaid comprise the 2006 interim and final dividends of £52 million and £70million respectively. Expenditure on plant, property, equipment and intangibleassets totalled £59 million. This included the investment in our new itv.comsite. During the year the Group acquired 12 Yard for an initial net cashconsideration of £26 million and a 51% share in Jaffe/Braunstein Entertainmentfor £3 million. Loans granted to associates and joint ventures include loans toFreesat, ITN and Mammoth. Proceeds from the sale of assets held for sale of £94 million, sale ofsubsidiaries (net of cash disposed) of £5 million and sale of property, plantand equipment of £4 million are from the disposal of the following assets: £mLiverpool Football Club and Athletic Grounds plc 17Arsenal Holdings plc and an option over the Group'sinvestment in Arsenal Broadband Limited 50MUTV Limited 3Properties 20Transmission assets 4Assets held for sale 94 Independent Television Facilities Centre Limited 5Sale of subsidiaries (net of cash disposed) 5 Properties 4Sale of property, plant and equipment 4Total proceeds 103 The principal movements in net debt in the year are shown in the table below: £m £mNet debt at 31 December 2006 (734)Cash generated from operations 286Net interest paid (62)Taxation net receipts 18Equity dividends paid (122)Expenditure on property, plant,equipment and intangible assets (59)Acquisitions of subsidiaries (net of cash) (29)Loans granted to associates and joint ventures (10)Proceeds from assets held for sale, property,plant and equipment and sale of subsidiaries 103Other movements (26) 99Defined benefit pension deficit funding (33)Net debt at 31 December 2007 (668) During the year, a €356 million exchangeable bond and a £200 million Eurobondmatured resulting in a combined cash outflow of £441 million. Pensions The Group's pension schemes are run independently by the schemes' trustees. Allpension scheme assets are administered separately by the trustees using a numberof external fund managers and custodians. Defined contribution scheme arrangements are offered to all new joiners and achoice of investment styles is available to them. Defined benefit schemes are funded on a long term basis with advice from thescheme actuaries. Actuarial valuations of the assets and liabilities of thedefined benefit schemes (upon which funding is based) are carried out by thetrustees at least every three years. The main defined benefit scheme is dividedinto three segregated sections: A, B and C. 1. Actuarial valuations Actuarial valuations of sections B and C of the main defined benefit scheme werecarried out as at 1 January 2007 and, on the bases adopted by the trustees, bothwere in surplus with a combined surplus of £23 million or 5% of the liabilitiesin those sections. An actuarial valuation of section A of the main definedbenefit scheme is due as at 1 January 2008 and the trustees and actuary arecurrently working on that. 2. Deficit funding The Group is currently making deficit funding payments into section A of themain defined benefit scheme. In 2007 an amount of £33 million was paid by groupcompanies as such deficit funding. No deficit funding payments are currentlybeing paid into either section B or C of the main defined benefit scheme. Whenthe actuarial valuation of section A of the main defined benefit scheme has beencompleted, the Company and trustees will discuss the terms of any recovery planthat may be appropriate, including the amount and timing of any future deficitfunding. 3. IAS 19 The Group's defined contribution schemes gave rise to an operating charge in2007 of £3 million (2006: £2 million). IAS 19 accounting for the Group's defined benefit schemes values the annual costand the assets and liabilities of the schemes on disclosed bases, and includesthese values in the Consolidated income statement and Consolidated balancesheet. In 2007 the IAS 19 operating charge for defined benefit schemes was £15million (2006: £25 million). The excess of the expected return on scheme assets,less the interest cost on liabilities, gave rise to a net financing credit of£18 million (2006: £18 million). The aggregate IAS 19 deficit on defined benefitschemes at 31 December 2007 was £112 million (2006: £285 million). The reduction in the IAS 19 deficit during the year was the result principallyof an increase in the discount rate applied upon valuing scheme liabilities. Anactuarial gain of £111 million has been recognised as a credit to reserves inthe consolidated statement of recognised income and expense. 4. Defined benefit accruals The Group's defined benefit schemes are closed to new members. There have beenhistorically a variety of accrual rates and normal pensionable ages for variousgroups of defined benefit scheme members, depending upon the separate schemesthat they were originally members of and which are now merged into the Group'smain defined benefit scheme. During 2007, and following a major staffconsultation process, the principal accrual factors were standardised and thiswas the principal reason behind the reduced IAS 19 operating charge referred toabove. The changed factors are: • Accrual rate 1/60 pa (previously mainly 1/50);• Normal pensionable age 63 (previously mainly 60);• Employee contribution rate to rise to 8% (previously mainly 5%). 5. Mortality assumptions A topical issue for defined benefit pension schemes is mortality risk. In 2004the Trustees of the ITV Pension Scheme conducted an in-depth analysis of theactual mortality experience of the Scheme. That analysis was updated in 2007with similar results. The mortality factors that the Group has used for its IAS19 valuation are similar to those used by the Trustees for their valuation workand reflect that analysis of the actual mortality experience. Continuedlongevity improvement is assumed up to 2020 for current pensioners and up to2035 for other members. The forecast for life expectancy for a 65 year-old member based upon thesefactors is: Men WomenCurrent pensioners 84.8 87.8Other members 85.8 88.7 The Group and Trustees will continue to review the mortality assumptions basedupon both actual experience in the scheme and the guidance of the actuarialprofession including the consultation launched by the Pensions Regulator inFebruary 2008. 6. Trustees' investment strategy The Trustees have been and are continuing to review the investment strategy forthe main defined benefit scheme. This has involved the use of derivativeinstruments to hedge partial exposures to movements in interest rates, inflationand foreign exchange rates and may involve further changes to the assetallocations. International Financial Reporting Standards The Group has adopted International Financial Reporting Standards as adopted bythe EU. The parent Company financial statements continue to be presented underUK GAAP. Forward look This Business review has detailed how ITV is implementing its Turnaroundstrategy with the aim of delivering sustainable growth in terms of revenues andearnings. Over the next five years, we aim to achieve stretching targets foreach of our core business segments. In Broadcasting, we are targeting a shareof commercial impacts across the ITV family of channels in excess of 38.5% in2012. Over the same period, we are targeting Global Content annual revenuesgrowing to £1.2 billion. We aim to generate £150 million in annual revenues inOnline by 2010. Across the Company as a whole, we are seeking to deliver annualcompound annual revenue growth of between 3-5% to 2010, then rising to 5% to2012. The strategy is ambitious, but we believe achievable in a rapidly changingmarket context. 2008 will see some critical developments for the UK media sectorin general and for ITV in particular. The process of digital switchover will get fully underway later this year,following last year's first pilot. The ITV Border region will start the switch,completing the process in 2009. Although digital switchover is upon us, the paceof digital take up is actually slowing, with over 85% of UK homes already havingmade the transition. To this extent the digital fragmentation effect on ITV1viewing in particular should continue to ease. The Ofcom second review of public service broadcasting will run throughout 2008.ITV has set out its plans for modernising its regional news services in 2009,which Ofcom will consider. But there are also much wider questions aboutsustaining commercial public service broadcasting - across ITV and Channel 4 -in the digital age. The Government has confirmed its own intention to reviewpublic service broadcasting, building on Ofcom's work, and it is possible thatthis could lead to further broadcasting legislation around the end of thisdecade. A separate regulatory review of the CRR mechanism is being undertaken by theOFT, working with Ofcom. The review process is expected to run into 2009,allowing any recommendations to take effect for the trading round for 2010. Themarket has changed markedly since CRR was introduced in 2003. There is morecompetition between TV and different media, but the value of the mass audiencedelivered by ITV1 is perhaps greater than ever. ITV will participate actively inthe review and looks forward to an outcome which maximises its ability to investin programming to deliver UK advertisers the mass audiences that they demand. In Broadcasting, we estimate that for the first quarter of 2008 ITV plc's totaltelevision advertising revenue will be up 1.9% at £357 million, with ITV1advertising down 0.5% at £290 million. The total television market we estimatewill be down around 0.7% over the same period. For the first time in severalyears ITV is outperforming the total television market, reflecting our strongperformance on-screen last year and into 2008, together with the increasingconfidence of advertisers in ITV. Having been created in late 2007, ITV's new Global Content segment has madepromising early progress, both in the UK market and internationally, with a highvolume of exciting productions on-screen, in production or being developed. 2008will also see significant developments in terms of Online, notably the launch ofthe broadband archive service with BBC Worldwide and Channel 4 and thedevelopment of Friends Reunited, building on its success to date. During theyear, we also expect to take an active role in the launch of a Freesat servicewith the BBC and the development of free-to-air high definition televisionservices. In a rapidly changing market of tremendous challenge and opportunity, controland exploitation of content - across UK television, in other territories and viaother media - represents the key to the Company's turnaround. Consolidated income statement For the year ended 31 December: 2006 2007 Restated Note £m £m Revenue 2,082 2,181 Operating costs before amortisation of intangible assets and exceptional items (1,771) (1,806) Operating costs - exceptional items 2 (35) (35) Earnings before interest, tax and amortisation (EBITA) 276 340 Amortisation and impairment of intangible assets 7 (84) (76) Total operating costs (1,890) (1,917) Operating profit 192 264 Financing income 200 170 Financing costs (233) (196) Net financing costs (33) (26) Share of profits of joint ventures and associated undertakings 8 2 8 Investment income 1 3 Gain on sale of properties (exceptional items) 2 9 4 Gain on sale and impairment of subsidiaries and investments (exceptional items) 2 17 35 Profit before tax 188 288 Taxation 5 (50) (66) Profit for the year 138 222 Attributable to: Equity shareholders of the parent company 137 219 Minority interests 1 3 Profit for the year 138 222 Basic earnings per share 3 3.5p 5.5p Diluted earnings per share 3 3.5p 5.4p Operating exceptional items during the year mainly comprise reimbursements,fines and other costs associated with premium rate services and an onerouscontract provision associated with Carlton Screen Advertising (see note 2 fordetails). Consolidated balance sheet At 31 December: 2006 2007 Restated Note £m £m Non-current assets Property, plant and equipment 211 193 Intangible assets 7 3,873 3,895 Investments in joint ventures and associated undertakings 8 79 66 Available for sale financial assets 9 10 37 Held to maturity investments 10 100 - Derivative financial instruments 32 3 Distribution rights 7 11 4,312 4,205 Current assets Assets held for sale 59 132 Programme rights and other inventory 440 400 Trade and other receivables due within one year 399 405 Trade and other receivables due after more than one year 8 7 Trade and other receivables 407 412 Derivative financial instruments 4 1 Cash and cash equivalents 10 498 961 1,408 1,906 Current liabilities Borrowings 10 (33) (471) Derivative financial instruments (1) (16) Trade and other payables due within one year (677) (679) Trade and other payables due after more than one year (9) (9) Trade and other payables (686) (688) Current tax liabilities (206) (159) Provisions (27) (9) (953) (1,343) Net current assets 455 563 Non-current liabilities Borrowings 10 (1,263) (1,224) Derivative financial instruments (9) (15) Defined benefit pension deficit 6 (112) (285) Net deferred tax liability 5 (75) (7) Other payables (65) (56) Provisions (4) (18) (1,528) (1,605) Net assets 3,239 3,163 Attributable to equity shareholders of the parent company Share capital 11 389 401 Share premium 11 120 120 Merger and other reserves 11 2,702 2,690 Translation reserve 11 4 (3) Available for sale reserve 11 4 17 Retained earnings 11 14 (69) Total attributable to equity shareholders of the parent company 11 3,233 3,156 Minority interest 11 6 7 Total equity 11 3,239 3,163 Consolidated cash flow statement For the year ended 31 December: 2007 2006 £m £m £m £m Cash flows from operating activities Operating profit before exceptional items 227 299 Depreciation of property, plant and equipment 35 32 Amortisation and impairment of intangible assets 84 76 Increase in programme rights and other inventory, and distribution rights (36) (10) Decrease/(increase) in receivables 2 (33) Increase in payables 5 7 Movement in working capital (29) (36) Cash generated from operations before exceptional items 317 371 Cash flow relating to operating exceptional items: Operating loss (35) (35) Increase in payables and provisions* 4 6 Cash outflow from exceptional items (31) (29) Cash generated from operations 286 342 Defined benefit pension deficit funding (33) (207) Interest received 44 22 Interest paid on bank and other loans (103) (66) Interest paid on finance leases (3) (3) Investment income received 1 3 Net taxation received/(paid) 18 (50) (76) (301) Net cash flow from operating activities 210 41 Cash flows from investing activities Acquisition of subsidiary undertakings, net of cash and cash equivalents (29) (3) acquired and debt repaid on acquisition Proceeds from sale of assets held for sale 94 40 Proceeds from sale of property, plant and equipment 4 - Acquisition of property, plant and equipment (37) (79) Acquisition of intangible assets (22) (4) Acquisition of associates and investments (2) (1) Loans granted to associates and joint ventures (10) - Loans repaid by joint ventures 2 2 Proceeds from sale of subsidiaries 5 - Proceeds from sale of investments and associates - 157 Net cash flow from investing activities 5 112 Cash flows from financing activities Bank and other loans - amounts repaid (441) (13) Bank and other loans - amounts raised - 581 Capital element of finance lease payments (3) (3) Dividends paid to minority interest (2) (8) Share buy-backs - (251) Purchase of own shares via employee benefit trust (11) (31) Purchase of held to maturity investments (100) - Equity dividends paid (122) (128) Net cash (outflow)/inflow from financing activities (679) 147 Net (decrease)/increase in cash and cash equivalents (464) 300 Cash and cash equivalents at 1 January 961 663 Effects of exchange rate changes and fair value movements on cash and 1 (2) cash equivalents Cash and cash equivalents at 31 December 498 961 * Includes £2 million (2006: £6 million) relating to expenditure againstprovisions held in respect of activities which have been previouslydiscontinued. Consolidated statement of recognised income and expense For the year ended 31 December: 2007 2006 Note £m £mExchange differences on translation of foreign operations 10 2 (2)Revaluation of available for sale investments 10 3 4Disposal and impairment transferred from available for sale reserve to income 10 (16) (20)statementMovements in respect of cash flow hedges 10 5 -Actuarial gains and losses on defined benefit pension schemes 5 111 29Taxation on items taken directly to equity 4 (47) (4)Net income recognised directly in equity 58 7Profit for the year 138 222Total recognised income and expense for the year 196 229 Attributable to: Equity shareholders of the parent company 10 195 226 Minority interests 10 1 3Total recognised income and expense for the year 10 196 229 Notes to the accounts 1 Operating segmental information Management has determined the reportable segments based on the reports reviewedby the Management Committee. The Management Committee comprises the executivedirectors. The Management Committee considers the business primarily from a productperspective. The reportable segments are therefore Broadcasting, Global Content,Online and Other. All of the segments reported meet the quantitative thresholdsrequired by IFRS 8. Broadcasting is responsible for commissioning and scheduling programmes on theITV channels, marketing and programme publicity. It derives its revenueprimarily from the sale of advertising airtime and sponsorship. Other sources ofrevenue are from premium rate services and the digital terrestrial multiplexSDN. The Broadcasting segment also includes the investments in SMG plc. Global Content derives its revenue primarily from ITV Productions in the UK (acommercial production company) and the businesses in ITV Worldwide. Aproportion of revenue is generated internally via programme sales to theBroadcasting segment. ITV Worldwide is made up of Granada International,Granada Ventures and international production centres in America, Germany andAustralia. Granada International sells programming worldwide. Granada Venturesis a distributor of DVD entertainment in the UK and exploits merchandising andlicensing worldwide. Online derives its revenue from two main areas: broadband and mobile. Broadbandincludes itvlocal.com, itv.com and Friends Reunited. Mobile manages ITV's mobileportal and arranges distribution of ITV's channels and content on mobilenetworks. Other comprises the Group's 100% interest in Carlton Screen Advertising, whichsells cinema screen advertising in the UK, and its 50% interest in Screenvision,which operates cinema screen advertising businesses in continental Europe andthe United States. The segment information provided to the Management Committee for the reportablesegments for the years ended 31 December 2007 and 31 December 2006 is asfollows: Global Broadcasting Content Online Other Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m £m £mTotal segment 1,750 1,801 564 632 33 23 67 80 2,414 2,536revenueIntersegment (12) (4) (320) (351) - - - - (332) (355)revenueRevenue from 1,738 1,797 244 281 33 23 67 80 2,082 2,181externalcustomersEBITA before 244 296 90 88 (12) 1 (11) (10) 311 375exceptionalitemsShare of profit/ (2) 3 - - 2 2 2 3 2 8(loss) fromjoint venturesand associatedundertakingsTotal segment 3,934 3,948 590 528 419 418 84 120 5,027 5,014assetsTotal assetsincludes:Investments in 12 7 4 - 2 - 61 59 79 66associates andjoint venturesAdditions to 46 33 68 24 8 21 1 1 123 79non-currentassets (otherthan financialinstruments)Total segment (389) (381) (226) (242) (74) (64) (18) (11) (707) (698)liabilities Sales between segments are carried out at arm's length. The revenue fromexternal parties reported to the Management Committee is measured in a mannerconsistent with the income statement. Income statement and balance sheetallocations between reportable segments are performed on a consistent basis withthe exception of pension costs, which are allocated, and pension assets andliabilities, which are not. This reflects the basis of reporting to theManagement Committee. The Management Committee assesses the performance of the reportable segmentsbased on a measure of EBITA before exceptional items. This measurement basisexcludes the effect of non-recurring income and expenditure. Amortisation,investment income and share of profits of joint ventures and associates are alsoexcluded as they are not reflective of the underlying business. Net financingcosts are not allocated to segments as this type of activity is driven by thecentral treasury and taxation functions, which manage the cash and taxationposition of the Group. A reconciliation of EBITA before exceptional items to profit before tax isprovided as follows: 2007 2006 £m £mEBITA before exceptional items 311 375Exceptional items (35) (35)Amortisation and impairment of intangible assets (84) (76)Net financing costs (33) (26)Share of profits of joint ventures and associated undertakings 2 8Investment income 1 3Gain on sale of properties (exceptional items) 9 4Gain on sale and impairment of subsidiaries and investments (exceptional items) 17 35Profit before tax 188 288 The amounts provided to the Management Committee with respect to total assetsare measured in a manner consistent with that of the financial statements. Theseassets are allocated based on the operations of the segment. Reportable segments' assets are reconciled to total assets as follows: 2007 2006 £m £mSegment assets 5,027 5,014Unallocated:Held to maturity investments 100 -Assets held for sale 59 132Derivative financial instruments 36 4Cash and cash equivalents 498 961Total assets per the balance sheet 5,720 6,111 The amounts provided to the Management Committee with respect to totalliabilities are measured in a manner consistent with that of the financialstatements. These liabilities are allocated based on the operations of thesegment. Reportable segments' liabilities are reconciled to total liabilities as follows: 2007 2006 £m £mSegment liabilities 707 698Unallocated:Interest accruals 23 20Derivative financial instruments 10 31Borrowings 1,296 1,695Current tax liabilities 206 159Net deferred tax liability 75 7Dividends 52 53Defined pension deficit 112 285Total liabilities per the balance sheet 2,481 2,948 The Group's principal operations are in the United Kingdom. Its revenue fromexternal customers in the United Kingdom is £1,929 million (2006: £2,012million), and the total revenue from external customers in other countries is£153 million (2006: £169 million). The total of non-current assets other than financial instruments, deferred taxassets, and employment benefit assets (there are no rights arising underinsurance contracts) located in the UK is £4,279 million (2006: £4,204 million),and the total of these non-current assets located in other countries is £1million (2006: £1 million). Revenues of approximately £382 million (2006: £365 million), £258 million (2006:£270 million) and £250 million (2006: £234 million) are derived from threeexternal customers. The Group's major customers are all media buying agencies.These revenues are attributable to the Broadcasting, Online and Other segmentsand are from the only customers which individually represent over 10% of theGroup's revenues. 2 Exceptional items 2006 2007 Restated £m £mOperating exceptional items: Reorganisation and integration costs (8) (23) PRS reimbursements and GMTV fines (18) - Onerous contract provision (9) - Fees in relation to takeover approaches - (14) Receipt from liquidators - 2 (35) (35)Non-operating exceptional items: Gain on sale of properties 9 4 Gain on sale of subsidiaries and investments 43 57 Impairment of available for sale financial assets (26) (22) 26 39Total exceptional items before tax (9) 4 In 2007 a charge of £8 million was incurred in respect of reorganisation andrestructuring costs including £4 million in respect of costs associated with theoperating review savings which form part of a larger project. Provisions in respect of onerous contracts associated with Carlton ScreenAdvertising (£9 million) were put in place in 2007. A net gain of £9 million has been recognised from the sale of properties. A gainof £17 million has been recognised from the sale of subsidiaries and investmentsnet of impairment of investments. This includes the profits on disposal of thestakes in Arsenal Holdings plc and the option over the investment in ArsenalBroadband Limited (£28 million), the investment in Liverpool Football Club andAthletic Grounds plc (£7 million), the stake in Independent TelevisionFacilities Centre Limited (£5 million) and the stake in MUTV Limited (£3million) and an impairment of the holding in SMG Plc, which is held in theBroadcasting segment, (£26 million) following a significant and sustaineddecline in its share price. Operating exceptional items include £18 million in respect of reimbursements,fines and other costs associated with issues arising on the use of premium rateinteractive services in programming on ITV and GMTV as follows: 2007 £mReimbursements and associated costs: ITV (10) GMTV (6)Fines: GMTV (2) (18) Reimbursements and associated costs include the amounts that GMTV has donatedand ITV plans to donate to charities. The terms of ITV plc's broadcasting licences require compliance with the OfcomBroadcasting Code, which requires that competitions are to be run fairly, andthat viewers must not be misled. If the Code is breached, it is open to theregulator in serious cases to impose sanctions, including a fine of up to 5% ofthe licensee's qualifying revenue. For free to air commercial broadcasters, suchas ITV and GMTV (its 75% subsidiary undertaking), qualifying revenue in thiscontext effectively equates to total advertising and sponsorship revenues. Insetting the level of fine in the past, the regulator has taken into accountwhether or not problems were systemic or one-off; the period over which problemspersisted; action taken by the broadcaster once problems came to light; and theamount of revenues generated by the affected services. The regulator has alsolevied multiple fines on broadcasters where more than one programme wasaffected. Ofcom has been provided with details of all the instances in ITV's programmeswhich have given rise to reimbursement. However at the date of approval of theseaccounts, the regulator has not yet confirmed the level of any fine that may beimposed and it is not possible to reliably estimate the level of fine that mightbe imposed by Ofcom in this context. Therefore no provision for a fine on ITV isincluded in these accounts. The regulatory process is expected to be completedin the first half of 2008 and any subsequent fine will be included in the 2008results as an operating exceptional item. 2006 exceptional items have been restated to include the gain on sale ofproperties of £4 million. 2006 exceptional items included a charge of £23 million, including £17 millionstaff costs, in respect of reorganisation and restructuring costs including theclosure of the Bristol and children's programme production centres, thecontinuation of the regional news consolidation programme and redundancy andshare costs arising from the restructuring of the senior management team. Aliquidation settlement of £2 million was received from the liquidators of theShop! Channel. Fees of £14 million were incurred in respect of the twounsolicited takeover approaches received in 2006. 2006 exceptional items also included a £35 million net gain from the sale ofsubsidiaries and the sale and impairment of investments. This included theprofit on disposal of the stakes in Seven Network (£29 million) and TV3 (£40million), the loss on sale of the education business (£12 million) and animpairment of the holding in SMG Plc, which is held within the Broadcastingsegment (£22 million) following a significant decline in its share price. 3 Earnings per share 2007 2006 Restated Basic Diluted Basic Diluted £m £m £m £mProfit for the year attributable to equity shareholders of the parent 137 137 219 219companyExceptional items (including related tax effect of a credit of £6 3 3 (2) (2)million, 2006: expense of £2 million)Profit for the year before exceptional items 140 140 217 217Amortisation and impairment of intangible assets (including related tax 65 65 59 59credit of £19 million, 2006: £17 million)Prior period tax adjustments (11) (11) (36) (36)Other tax adjustments - - 12 12Profit for the year before exceptional items, amortisation and impairment 194 194 252 252of intangible assets and prior period tax adjustmentsWeighted average number of ordinary shares in issue - million 3,874 3,874 4,017 4,017Dilution impact of share options - million - 23 - 34 3,874 3,897 4,017 4,051Earnings per ordinary share 3.5p 3.5p 5.5p 5.4pAdjusted earnings per ordinary shareBasic earnings per ordinary share 3.5p 3.5p 5.5p 5.4pAdd: Loss/(profit) per ordinary share on exceptional items 0.1p 0.1p (0.1)p (0.1)pEarnings per ordinary share before exceptional items 3.6p 3.6p 5.4p 5.3pAdd: Loss per ordinary share on amortisation and impairment of intangible 1.7p 1.7p 1.5p 1.5passetsSubtract: Profit per ordinary share on prior period tax adjustments (0.3)p (0.3)p (0.9)p (0.9)pAdd: Loss per ordinary share on other tax adjustments - - 0.3p 0.3pEarnings per ordinary share for the year before exceptional items, 5.0p 5.0p 6.3p 6.2pamortisation and impairment of intangible assets and prior period taxadjustments An adjusted earnings per share figure has been disclosed because in the view ofthe directors this gives a fairer reflection of the results of the underlyingbusiness. The 2006 adjusted earnings per share figures have been restated to exclude thegain on sale of properties of £4 million to reflect more fairly the underlyingbusiness performance. 4 Dividends Dividends declared and recognised through equity in the year were: 2007 2006 £m £mEquity shares: Final 2005 dividend of 1.8 pence per share - 74 Interim 2006 dividend of 1.35 pence per share - 53 Final 2006 dividend of 1.8 pence per share 70 - Interim 2007 dividend of 1.35 pence per share 52 - 122 127 A final dividend of 1.8 pence per share, totalling £70 million, has beenproposed after the balance sheet date in respect of the year ended 31 December2007 (2006: 1.8 pence per share, totalling £70 million). As is required by IAS10 (Events after the balance sheet date) this amount has not been provided forat the balance sheet date. 5 Taxation Recognised in the income statement: 2007 2006 £m £mCurrent tax expense: Current tax before exceptional items (58) (37) Current tax credit/(expense) on exceptional items 3 (2) (55) (39) Adjustment for prior periods 25 48 (30) 9Deferred tax: Origination and reversal of temporary differences (9) (63) Deferred tax credit on exceptional items 3 - Adjustment for prior periods (14) (12) (20) (75)Total taxation expense in the income statement (50) (66) Reconciliation of taxation expense: 2007 2006 £m £mProfit before tax 188 288Taxation expense at UK corporation tax rate of 30% (2006: 30%) (56) (86)Non-taxable/non-deductible exceptional items 3 (2)Non-taxable income/non-deductible expenses (7) (7)Effect of tax losses utilised 4 4Over provision in prior periods 11 36Impact of tax rate change 4 -Other (9) (11) (50) (66) In the year ended 31 December 2007 the effective tax rate on profits is lower(2006: lower) than the standard rate of UK corporation tax primarily as a resultof adjustments in respect of prior periods due to progress in the agreement withrevenue authorities of prior periods' tax liabilities (2006: adjustments inrespect of prior periods due to progress in the agreement with revenueauthorities of prior periods' tax liabilities). The underlying tax rate onprofits, after adjusting for the irregular tax effects caused by issues such asexceptional items, impairments, joint ventures and associates and adjustments inrespect of prior periods, is 31% (2006: 30%). The current tax expense for the prior year is reduced primarily as a consequenceof the reversal of temporary differences on which deferred tax assets previouslywere recognised relating to pension scheme deficits and funding payments. A tax expense totalling £47 million (2006: expense of £4 million) has beenrecognised directly in equity representing a current tax credit of £nil (2006:credit of £2 million) and a deferred tax expense of £47 million (2006: expenseof £6 million). Deferred tax assets and liabilities recognised and their movements are: At Business Recognised Recognised Transfer to At 1 January combinations in the in equity assets held 31 December 2007 £m income £m for sale £m statement £m 2007 £m £mProperty, plant and equipment (4) - (9) - - (13)Intangible assets (139) (1) 24 3 - (113)Programme rights 7 - (4) - - 3Pension scheme deficits 86 - (21) (34) - 31Pensions funding payments 21 - (10) - - 11Interest-bearing loans and borrowings, (4) - 2 - - (2)and derivativesShare-based payments 26 - (6) (16) - 4Unremitted earnings of subsidiaries, (3) - 1 - - (2)associates and joint venturesOther 3 - 3 - - 6 (7) (1) (20) (47) - (75) At Business Recognised Recognised Business At 1 January combinations in the in equity sale 31 December 2006 £m income £m £m £m statement 2006 £m £mProperty, plant and equipment (3) - (2) - 1 (4)Intangible assets (155) (1) 17 - - (139)Programme rights 5 - 2 - - 7Pension scheme deficits 160 - (65) (9) - 86Pensions funding payments 29 - (8) - - 21Interest-bearing loans and borrowings, 3 - (7) - - (4)and derivativesShare-based payments 32 - (9) 3 - 26Unremitted earnings of subsidiaries, - - (3) - - (3)associates and joint venturesOther 3 - - - - 3 74 (1) (75) (6) 1 (7) The amount of the deferred tax liability at 31 December 2007 has been reduced by£6 million as a consequence of the re-statement of the liability to the reduced,broadly 28%, rate at which the liability is expected to reverse as a consequenceof changes in the UK Finance Act 2007. Of this benefit £4 million has been takenthrough the income statement and net £2 million through equity in accordancewith IAS 12. At 31 December 2007 total deferred tax assets are £55 million (2006: £143million) and total deferred tax liabilities are £130 million (2006: £150million). Deferred tax assets estimated at £0.6 billion and £0.1 billion (2006: £0.6billion and £0.1 billion) in respect of capital losses and loan relationshipdeficits respectively, have not been recognised due to uncertainties as toamount and whether gain or income will arise in the appropriate form andrelevant territory against which such losses could be utilised. For the samereasons, deferred tax assets in respect of overseas losses of £10 million (2006:£10 million) which time expire between 2017 and 2026 have not been recognised. 6 Pension schemes The Group operates both defined benefit and defined contribution pensionschemes. The pension scheme assets are held in a separate trustee-administered fund tomeet long-term pension liabilities to past and present employees. The trusteesof the fund are required to act in the best interest of the fund'sbeneficiaries. The appointment of trustees to the fund is determined by thescheme's trust documentation. Defined contribution schemes Total contributions recognised as an expense in relation to defined contributionschemes during 2007 were £3 million (2006: £2 million). Defined benefit schemes The Group provides retirement benefits to some of its former and approximately30% of current monthly paid employees through defined benefit schemes. TheGroup's main scheme was formed from a merger of a number of schemes on 31January 2006. The level of retirement benefit is principally based on basicsalary at retirement. During 2007, the Group made significant changes to the scheme benefit structurein respect of future service benefits. These changes involved a combination ofan increase in normal retirement age, a reduction in the rate of benefit accrualand increased member contributions. Members were given the option to elect foralternative benefits with an equivalent adjustment to member contributions.Benefits accrued up to the date of the change were unaffected. The liabilities of the defined benefit scheme are measured by discounting thebest estimate of future cash flows to be paid out by the scheme using theprojected unit method. This amount is reflected in the deficit in the balancesheet. The projected unit method is an accrued benefits valuation method inwhich the scheme liabilities make allowance for projected earnings. Theaccumulated benefit obligation is an actuarial measure of the present value ofbenefits for service already rendered but differs from the projected unit methodin that it includes an allowance for early leaver statutory revaluations ratherthan projected earning increases. At the balance sheet date the accumulatedbenefit obligation was £2,550 million (2006: £2,580 million). The assets and liabilities of all the Group's defined benefit pension schemesrecognised in the balance sheet at 31 December 2007 under IAS 19 (as explainedin detail in this note) were £2,491 million and £2,603 million respectively,resulting in a net deficit in the defined benefit schemes of £112 million. An alternative method of valuation to the projected unit method is a solvencybasis, often estimated using the cost of buying out benefits at the balancesheet date with a suitable insurer. This amount represents the amount that wouldbe required to settle the scheme liabilities at the balance sheet date ratherthan the Group continuing to fund the ongoing liabilities of the scheme. TheGroup estimates the shortfall in the amount required to settle the scheme'sliabilities at the balance sheet date is £1,100 million (2006: £1,500 million). The statutory funding objective is that the scheme has sufficient andappropriate assets to pay its benefits as they fall due. This is a long termtarget. Future contributions will always be set at least at the level requiredto satisfy the statutory funding objective. The general principles adopted bythe trustees are that the assumptions used, taken as a whole, will besufficiently prudent for pensions and benefits already in payment to continue tobe paid, and to reflect the commitments which will arise from members' accruedpension rights. The most recently completed triennial actuarial valuations in respect of theGroup's retirement benefits funds was performed by an independent actuary forthe Trustees of the ITV Pension Scheme and was carried out as at 1 January 2005.The Group's main scheme, formed by merger on 31 January 2006, consists of threesections, A, B and C. The first triennial valuation of section A is due at 1January 2008. The first triennial valuation of the other sections was completedas at 1 January 2007. The Group will monitor funding levels annually. The levels of ongoing contributions are based on the current service costs andthe expected future cash flows of the defined benefit scheme. The Groupestimates the present value of the duration of UK scheme liabilities will onaverage fall due over 16 years. The movement in the present value of the defined benefit obligation for theseschemes is analysed below: 2007 2006 £m £mDefined benefit obligation at 1 January 2,657 2,604Current service cost 15 23Curtailment loss - 2Interest cost 134 126Net actuarial (gain)/loss (96) 3Contributions by scheme participants 5 4Benefits paid (112) (105)Defined benefit obligation at 31 December 2,603 2,657 The present value of the defined benefit obligation is analysed between whollyunfunded and funded defined benefit schemes in the table below: 2007 2006 £m £mDefined benefit obligation in respect of funded schemes 2,567 2,619Defined benefit obligation in respect of wholly unfunded schemes 36 38Total defined benefit obligation 2,603 2,657 The movement in the fair value of the defined benefit scheme assets is analysedbelow: 2007 2006 £m £mFair value of assets at 1 January 2,372 2,072Expected return on assets 152 144Net actuarial gain 15 32Employer contributions 59 225Contributions by scheme participants 5 4Benefits paid (112) (105)Fair value of assets at 31 December 2,491 2,372 The assets and liabilities of the scheme are recognised in the balance sheet andshown within non-current liabilities. The total recognised is: 2007 2006 2005 2004 £m £m £m £mTotal defined benefit scheme assets 2,491 2,372 2,072 1,685Total defined benefit scheme obligations (2,603) (2,657) (2,604) (2,357)Net amount recognised within the balance sheet (112) (285) (532) (672) Amounts recognised through the income statement are as follows: 2007 2006 £m £mAmount charged to operating costs: Current service cost (15) (23) Curtailment loss - (2) (15) (25)Amount credited/(charged) to net financing costs: Expected return on pension scheme assets 152 144 Interest cost (134) (126) 18 18Total credited/(charged) in the income statement 3 (7) The amounts recognised through the statement of recognised income and expenseare: 2007 2006 £m £mActuarial gains and (losses): Arising on scheme assets 15 32 Arising on scheme liabilities 96 (3) 111 29 The cumulative amount of actuarial gains and losses recognised through thestatement of recognised income and expense since 1 January 2004 is an actuarialgain of £52 million (2006: £59 million loss). Included within actuarial gains and losses are experience adjustments asfollows: 2007 2006 2005 2004 £m £m £m £mExperience adjustments on scheme assets 15 32 219 56Experience adjustments on scheme liabilities (18) (12) 9 (70) At 31 December 2007 the scheme assets were invested in a diversified portfoliothat consisted primarily of equity and debt securities. The scheme assets are shown below by major category along with the associatedexpected rates of return. Expected Market Expected Market long term value long term value rate 2007 rate 2006 of return £m of return £m 2007 2006 % %Market value of assets - equities and property 7.7 1,284 7.6 1,436Market value of assets - bonds 4.4 - 5.9 1,087 4.5 - 5.2 898Market value of assets - other 5.0 120 5.0 38Total scheme assets 2,491 2,372 The expected return on plan assets is based on market expectations at thebeginning of the financial period for returns over the life of the relatedobligation. Exposure through the different asset classes is obtained through acombination of executing swaps and investing in physical assets. The expectedyield on bond investments with fixed interest rates can be derived exactly fromtheir market value. Some of these bond investments are issued by the UKGovernment. The risk of default on these is very small. The trustees also holdcorporate bonds and other fixed interest securities. There is a more significantrisk of default on these which is assessed by various rating agencies. The trustees also have a substantial holding of equity investments. Theinvestment return related to these is variable and they are generally consideredmuch "riskier" investments. It is generally accepted that the yield on equityinvestments will contain a premium ("the equity risk premium") to compensateinvestors for the additional risk of holding this type of investment. There issignificant uncertainty about the likely size of the risk premium. The expected return for each asset class is weighted based on the target assetallocation for 2008 to develop the expected long term rate of return on assetsassumption for the portfolio. The fair value of the scheme assets as a percentage of total scheme assets as at31 December 2006 and 31 December 2007 and target allocations for 2008 are setout below. The benchmark for 2008 is to hold broadly 55% equities and 45% bonds. Themajority of the equities held by the scheme are in international blue chipentities. The aim is to hold a globally diversified portfolio of equities, witha target of broadly one-third of equities being held in the UK and two-thirds ofequities held overseas. Within the bond portfolio the aim is to hold 50% of theportfolio in government bonds (gilts) and 50% of the portfolio in corporatebonds and other fixed interest securities. Asset allocation is currently beingreviewed by the Trustees. The actual return on plan assets in the year ended 31 December 2007 was £167million (2006: £176 million). Planned 2007 2006 2008(as a percentage of total scheme assets)Equities and property 55% 52% 61%Bonds 45% 44% 38%Other 0% 4% 1% The principal assumptions used in the scheme valuations at the balance sheetdate were: 2007 2006Rate of general increase in salaries 4.65% 4.25%Rate of increase in pension payment (LPI 5% pension increases) 3.30% 2.90%Rate of increase to deferred pensions 3.40% 3.00%Discount rate for scheme liabilities 5.70% 5.12%Inflation 3.40% 3.00% IAS 19 requires that the discount rate used be determined by reference to marketyields at the balance sheet date on high quality fixed income investments. Thecurrency and term of these should be consistent with the currency and estimatedterm of the post-employment obligations. The discount rate has been based on theyield available on AA rated corporate bonds of a term similar to theliabilities. The expected rate of inflation is an important building block for salary growthand pension increase assumption. A rate of inflation is "implied" by thedifference between the yields on fixed and index-linked Government bonds.However, differences in demand for these can distort this implied figure. TheBank of England target inflation rate has also been considered in setting thisassumption. The Group has used PA92 tables with mortality projected to 2020 for pensionermembers and to 2035 for non-pensioner members. Using these tables, the assumedlife expectations on retirement are: 2007 2007 2006 2006Retiring today at age 60 65 60 65Males 24.4 19.8 24.4 19.8Females 27.4 22.8 27.4 22.8Retiring in 20 yearsMales 25.5 20.8 25.5 20.8Females 28.4 23.7 28.4 23.7 The tables above reflect published mortality investigation data in conjunctionwith the results of investigations into the mortality experience of schememembers. The sensitivities regarding the principal assumptions used to measure theschemes liabilities are set out below. The illustrations consider the singlechange shown with the other assumptions assumed to be unchanged. In practice,changes in one assumption may be accompanied by offsetting changes in anotherassumption (although this is not always the case). The Company liability is thedifference between the scheme liabilities and the scheme assets. Changes in theassumptions may occur at the same time as changes in the market value of schemeassets. These may or may not offset the change in assumptions. For example, afall in interest rates will increase the scheme liability, but may also triggeran offsetting increase in the market value so there is no net effect on thecompany liability. Assumption Change in assumption Impact on scheme liabilitiesDiscount rate Increase/decrease by 0.5% Decrease/increase by 8%Rate of inflation Increase/decrease by 0.5% Increase/decrease by 7%Rate of salary growth Increase/decrease by 0.5% Increase/decrease by 1%Rate of mortality Increase by 1 year Increase by 3% Normal contributions into the schemes in 2008 are expected to be in the regionof £12 million assuming current contribution rates continue as agreed with thescheme trustees. 7 Intangible assets Goodwill Brands Customer Licences Software Film Total £m £m contracts and £m development £m relationships libraries £m £m and other £mCostAt 1 January 2006 3,425 199 336 121 - 78 4,159Acquisition of subsidiaries 18 - 2 - - - 20Internal development - - - - 4 - 4At 31 December 2006 3,443 199 338 121 4 78 4,183Acquisition of subsidiaries 35 - - - - 5 40Internal development - - - - 22 - 22At 31 December 2007 3,478 199 338 121 26 83 4,245Amortisation and impairmentAt 1 January 2006 - 32 158 11 - 11 212Charge for the year - 18 24 9 - 5 56Impairment charge 20 - - - - - 20At 31 December 2006 20 50 182 20 - 16 288Charge for the year - 18 22 9 1 6 56Impairment charge 20 - 8 - - - 28At 31 December 2007 40 68 212 29 1 22 372Net book valueAt 31 December 2007 3,438 131 126 92 25 61 3,873At 31 December 2006 3,423 149 156 101 4 62 3,895 In the 2006 annual report software development was included in the filmlibraries and other category. It has been shown separately above as a result ofits increasing significance. Amortisation of intangible assets is shown within operating costs in the incomestatement. The £28 million impairment charge in 2007 related to the CarltonScreen Advertising cash-generating unit and was a result of structural changesin the cinema advertising market. Of the £28 million, £20 million of theimpairment relates to goodwill and £8 million to other intangible assets. Incalculating this impairment, growth rates and discount rates consistent withthose noted below have been used, and calculations have been made on a value inuse basis, using cash flow projections over the next seven years. Carlton ScreenAdvertising is part of the Other operations segment. Impairment tests for cash-generating units containing goodwill The following units have significant carrying amounts of goodwill: 2007 2006 £m £mBroadcasting 2,707 2,707Global Content 301 267Online 376 375GMTV 54 54CSA - 20 3,438 3,423 The recoverable amount of the cash-generating units is based on value in usecalculations. Those calculations use cash flow projections based on estimatedoperating results for the next seven years. Cash flows in perpetuity areextrapolated using a 2.5% growth rate and are appropriate because these arelong-term businesses. The growth rate used is consistent with the long-termaverage growth rate for the industry. A pre-tax discount rate of 11.9% has beenused in discounting the projected cash flows. The key assumptions and theapproach to determining the cash flows of the cash-generating units are: Broadcasting The main assumptions on which the forecast cash flows were based include thetelevision share of advertising market, share of commercial impacts, programmecosts and the level of PSB savings. The key assumptions in assessing therecoverable amount of this goodwill are the growth in the total televisionmarket and ITV's share within that market. These assumptions have beendetermined by using a combination of long term trends, industry forecasts andin-house estimates. It is also assumed that ITV is able to renew itsbroadcasting licences in 2014. Broadcasting goodwill exceeds its carryingamount by approximately £200 million. In assessing the recoverable amount,ITV's TV advertising revenues are assumed to have a net present value of £14.8billion. Goodwill would be equal to its carrying amount if there were a 12% fallin the growth rate assumed in assessing ITV's TV advertising revenues. Global Content The main assumptions on which the forecast cash flows were based includeturnover growth, share of total network programme budget obtained, and margingrowth. These assumptions have been determined by using a combination ofextrapolation of historical trends within the business, industry forecasts andin-house estimates of growth rates. Online The main assumptions on which the forecast cash flows were based include pageimpressions, unique users, average dwell time for unique users, number of videosstreamed and advertising rates. These assumptions have been determined by usinga combination of industry forecasts and in-house estimates of growth rates. GMTV The main assumptions on which the forecast cash flows were based include thetelevision share of advertising market, share of commercialimpacts, and programme costs. These assumptions have been determined by using acombination of long term trends, industry forecasts andin-house estimates. 8 Investments in joint ventures and associated undertakings Joint Associated Total ventures undertakings £m £m £mAt 1 January 2006 60 33 93Additions - 1 1Share of attributable profits 5 3 8Disposals - (29) (29)Repayment of loans (1) - (1)Reclassification as assets held for sale (3) - (3)Exchange movement and other (2) (1) (3)At 31 December 2006 59 7 66Additions 4 9 13Share of attributable profits - - -Repayment of loans (1) - (1)Exchange movement and other 1 - 1At 31 December 2007 63 16 79 Of the share of attributable profits of joint ventures £2 million (2006: £nil)was allocated to assets held for sale in line with their balance sheetclassification. The £4 million of additions in 2007 includes an investment inKangaroo, a joint venture with BBC Worldwide and Channel 4 seeking to offeronline access to archive programming from the UK's leading broadcasters. The aggregated summary financial information in respect of associates in whichthe Group has an interest is as follows: 2007 2006 £m £mAssets 69 54Liabilities (68) (56)Revenue 117 118Profit 2 4 The aggregated summary financial information in respect of the Group's share ofinterests in joint ventures is as follows: 2007 2006 £m £mNon-current assets 54 54Current assets 45 43Current liabilities (24) (26)Non-current liabilities (28) (25)Revenue 68 62Expense (68) (59) 9 Available for sale financial assets £mAt 1 January 2006 181Disposals (90)Revaluation to fair value (6)Reclassification as assets held for sale (48)At 31 December 2006 37Revaluation to fair value (1)Impairment (see note 2) (26)At 31 December 2007 10 10 Analysis of net debt 1 January Net Currency 31 December 2007 cash flow and and 2007 £m acquisitions non-cash £m £m movements £mCash 824 (444) 1 381Cash equivalents 137 (20) - 117Cash and cash equivalents 961 (464) 1 498Held to maturity investments - 100 - 100Loans and loan notes due within one year (468) 441 - (27)Finance leases due within one year (3) 3 (6) (6)Loans and loan notes due after one year (1,152) - (32) (1,184)Finance leases due after one year (72) - (7) (79) (1,695) 444 (45) (1,296)Swap held against €500m bond - - 30 30Net debt (734) 80 (14) (668) 1 January Net Currency and 31 December 2006 cash flow and non-cash 2006 £m acquisitions movements £m £m £m Cash 522 303 (1) 824Cash equivalents 141 (3) (1) 137Cash and cash equivalents 663 300 (2) 961Loans and loan notes due within one year (285) 13 (196) (468)Finance leases due within one year (3) 3 (3) (3)Loans and loan notes due after one year (781) (581) 210 (1,152)Finance leases due after one year (75) - 3 (72) (1,144) (565) 14 (1,695)Net debt (481) (265) 12 (734) Included within cash equivalents is £71 million (2006: £75 million) the use ofwhich is restricted to meeting finance lease commitments under programme saleand leaseback commitments and gilts of £32 million (2006: £31 million) overwhich the unfunded pension promises have a charge. In August 2007 ITV purchased a £100 million senior note issued by UBS AG ('UBS')under UBS' Euro Note Programme. The note matures in March 2009 and theinvestment return is a function of short term interest rates across six majorcurrencies. For the period to 31 December 2007 the return earned was 8.6% on aper annum basis. The note is designated as a held to maturity investment and,although it is the Group's intention to hold this note to maturity, it can beredeemed for cash before the maturity date, subject to agreement by UBS. At the time of issue of the €500 million bond the Group took out across-currency interest rate swap to economically hedge Euro interest rate andforeign exchange exposure. As at 31 December 2007 the currency element of theswap is a £30 million asset (2006: £1 million asset) and this offsets theexchange rate movement of the bond. The interest element of the swap is a £7million liability (2006: £4 million liability) resulting in an overall net assettotal at 31 December 2007 of £23 million (2006: £3 million net liability total). The €356 million exchangeable bond and £200 million Eurobond matured in 2007. Included within non-cash movements in 2006 is the movement of the £200 millionEurobond into amounts payable in less than one year based on its payment duedate. 11 Capital and reserves Attributable to equity shareholders of the parent company Share Share Merger Translation Available Retained Total Minority Total capital premium and reserve for sale earnings £m interest equity £m £m other £m reserve £m £m £m reserves £m £mAt 1 January 2006 423 98 2,666 (1) 33 74 3,293 12 3,305Share buy-backs (24) - 24 - - (251) (251) - (251)Shares issued in the 2 22 - - - - 24 - 24yearCancellation of (12) - - - - - (12) - (12)convertible sharesIssue of deferred 12 - - - - - 12 - 12sharesTotal recognised income - - - (2) (16) 244 226 3 229and expenseMovements due to (9) - (9)share-basedcompensation - - - - - (9)Dividends paid to - - - - - - - (8) (8)minority interestsEquity dividends - - - - - (127) (127) - (127)At 31 December 2006 401 120 2,690 (3) 17 (69) 3,156 7 3,163Cancellation of (12) - 12 - - - - - -deferred sharesTotal recognised income - - - 7 (13) 201 195 1 196and expenseMovements due to 4 4share-basedcompensation - - - - - 4 -Dividends paid to (2) (2)minority interests - - - - - - -Equity dividends - - - - - (122) (122) - (122)At 31 December 2007 389 120 2,702 4 4 14 3,233 6 3,239 Included within retained earnings is a £18 million (2006: £25 million) deductionfor investments held in ITV plc shares by the Group-sponsored employee benefittrusts. Merger and other reserves Merger and other reserves at 31 December 2007 include merger reserves arising onthe Granada/Carlton merger of £2,548 million (2006: £2,548 million), capitalreserves of £112 million (2006: £112 million), capital redemption reserves of£36 million (2006: £24 million), revaluation reserves of £6 million (2006: £6million). Translation reserve The translation reserve comprises all foreign exchange differences arising onthe translation of the accounts of, and investments in, foreign operations.Included within the movement in the year is £5 million related to cash flowhedges (2006: £nil). Available for sale reserve The available for sale reserve comprises all movements arising on therevaluation and disposal of assets accounted for as available for sale. 12 Basis of preparation The Group accounts consolidate those of ITV plc, ("the Company"), a companydomiciled in the United Kingdom and its subsidiaries (together referred to as "the Group") and the Group's interests in associates and jointly controlledentities. As required by EU law (IAS Regulation EC 1606/2002) the Group's accounts havebeen prepared and approved by the directors in accordance with InternationalFinancial Reporting Standards as adopted by the EU ("IFRS"). The accounts are principally prepared on the historical cost basis except whereother bases are applied under the Group's accounting policies. The Group has adopted IFRS 7 "Financial instruments: Disclosures", and thecomplementary amendment to IAS 1 "Presentation of financial statements - Capitaldisclosures" which introduces new disclosures relating to financial instruments.The impact on the 2006 comparatives has been to reclassify interest rate swapsand forward foreign exchange contracts from accruals and deferred income toderivative financial instruments and to reclassify amounts between financingincome and financing costs. IFRS 8 "Operating segments" has been adopted by the Group in 2007. IFRS 8replaces IAS 14 "Segment reporting". The new standard requires a "managementapproach", under which the segment information is presented on the same basis asthat used for internal reporting purposes. This has resulted in an increase inthe number of reportable segments presented. In addition, the segments arereported in a manner that is consistent with information provided to the chiefoperating decision maker. Comparatives for 2006 have been restated. The financial information set out herein does not constitute the Company'sstatutory report and accounts for the year ended 31 December 2007. Statutoryaccounts for 2007 will be delivered to the Registrar of Companies following theCompany's annual general meeting. The auditor has reported on those accounts;their report was unqualified and did not contain statements under 237(2) or (3)of the Companies Act 1985. Copies of the 2007 annual report and accounts willbe made available on our website and mailed to shareholders if they have electedto receive hard copies. They will also be available from the registered officeof the Company, 200 Gray's Inn Road, London, WC1X 8HF. This information is provided by RNS The company news service from the London Stock Exchange

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