9th Aug 2006 07:02
ITV PLC09 August 2006 ITV plc interim results for six months ended 30 June 2006 ITV plc revenue up 3% to £1,077 million Financial Highlights • Revenues outside ITV1 net advertising revenue (NAR) up 25% to £423 million • Operating EBITA* up 1% to £205 million • Operating profit up 9% to £163 million • Profit before tax up 12% to £173 million • Basic EPS up 7% to 2.9 pence • Adjusted EPS# down 3% to 3.4 pence • Interim dividend up 2% to 1.35 pence * Before exceptional items, amortisation and businesses disposed of (principallyGranada Learning) # Before exceptional items and amortisation Operating Highlights • 3% Revenue growth in H1 • ITV1 plc NAR down 8% to £654 million • Viewing performance in H1 • ITV1 SOCI cumulative % share in H1 34.2% vs. 37.5% in 2005 • ITV family SOCI cumulative % share in H1 40.2% vs. 42.2% in 2005 • Multichannel performance • ITV2, 3, 4, CITV and Men and Motors NAR up 46% to £70m • ITV's digital channels multichannel viewing increased by +12.3% • 44% of all revenue growth in multichannel in H1 from ITV's digital channels • Two channels launched in H1 2006 - CITV and ITV Play • ITV2+1 planned before end of 2006 • Exploiting our content • Production/Worldwide revenue up 9% to £127 million • Three new big hit returning series for ITV1 developed in-house: Lewis, Dancing on Ice and Soapstar Superstar • Growing new consumer revenues • Consumer revenue up over 300% to £69 million • ITV Play delivers £9 million profit in H1 • Friends Reunited H1 revenue up +50%, margins over 50% • ITV Broadband portal full launch Q1 2007 • Live streaming of Champion's League from Q4 2006 • ITV Local broadband service to roll-out across ITV regions • ITV1 will be the UK's first live streamed channel over mobile operator 3's network. • Continuing disposal of non-core assets total contribution of £108 million in first half • ITV will have returned £1.1 billion to shareholders by the end of 2006 • Outlook • Near term weakness in advertising market • ITV plc total NAR 9 months to September -8% • Continued growth outside ITV1 NAR • Strong autumn schedule • Strong programme delivery slate Commenting, Charles Allen, Chief Executive of ITV said: "Despite a tough display advertising market, these results show that ourstrategy for developing our businesses outside ITV1 is delivering and theycontinue to grow at an impressive rate. Our focus remains on revitalising theITV1 schedule performance and the Autumn and Winter schedules are lookingstrong. "We also continue to invest in ITV's digital future with the development of ITVlocal and broadband in addition to our successful family of channels." For further enquiries please contact: ITV plc Tel: 020 7843 8000 Press enquiriesBrigitte Trafford - Communications DirectorJim Godfrey - Head of Corporate Affairs Investor enquiriesJames Tibbitts - Company SecretaryGeorgina Blackburn - Head of Investor RelationsCaroline Bailey - Investor Relations Analyst Citigate Dewe RogersonTel: 020 7638 9571 Jonathan ClareSimon RigbyGeorge Cazenove Website: www.itv.com investor information: www.itvplc.com An analysts' presentation will be held at 09.30hrs on 9th August 2006 at the City Presentation Centre, 4 Chiswell Street, London EC1Y 4UP Chairman's statement First half 2006 results Operating EBITA before exceptional items, amortisation and disposed businessesat £205 million was similar to last year and basic earnings per share beforeexceptional items and amortisation was down 3% at 3.4 pence. We have decided toincrease the interim dividend this year by 2% to 1.35 pence, payable on 8January 2007 to shareholders on the register at 10 November 2006. Theex-dividend date will be 8 November 2006. Return of cash to shareholders In March, when we announced the initial return of £300 million to shareholders,we explained that we would be reviewing the ability to return more cash when ourongoing business review showed that we had surplus capital and that we wereconducting a review of our capital structure to assess the appropriate level ofdistribution to shareholders. We completed the review of our capital structure in May. The Board decided thatITV should continue to target an investment grade rating for its public debt.Our principal revenue is from television advertising, which is cyclical andcombined with the fixed nature of television programme expenditure, makes freeto air broadcasting a highly operationally geared business. As a result we announced on 21 June 2006 that we will be increasing our cashreturn to shareholders from £300 million to £500 million and we have alreadystarted an on-market buyback with £86 million worth of shares purchased prior to30 June 2006 and the shares cancelled. We entered into a closed period on 1 July 2006 and, following our half yearresults announcement on 9 August, we will continue with the cash return. ITV building new revenue streams Whilst managing the transition from analogue broadcasting to digitalbroadcasting, we have a number of challenging targets for the different areas ofthe business and a detailed strategy to deliver them. • 50% of revenues from outside ITV1 Net Advertising Revenue (NAR) by end 2010; • multichannel NAR /interactive revenues of £250 million per annum by end 2008; • ITV family share of commercial impacts (SOCI) at digital switchover (DSO) in 2012 of 38.5%; • £100 million of efficiency savings by end 2008. Commercial We are seeking a review of the ITV1 Contract Rights Renewal (CRR) arrangementsand are in dialogue with regulators. We are continuing to grow our revenuesoutside ITV1 NAR; improving our multichannel revenues, increasing sponsorship(across all our channels), interactive and online advertising revenues. Channels The aggregate viewing share of all ITV channels combined has been similar oneach major digital broadcasting platform in the first half of the year comparedto a year earlier. However, with the increasing uptake of digital TV and anincreasing number of commercial impacts in the market place, our overall adultSOCI is down in the first half this year from 42.2% to 40.2%. We have launchedtwo more channels in the first half of 2006, ITV Play and CITV, improving ourrevenue and impact growth in multichannel. As Charles explains in his operatingreview we expect our SOCI to stabilise as we approach digital switchover. Wecontinue to invest in our key ITV1 programme brands, and are seeking tomodernise our Public Service Broadcasting (PSB) obligations. Production Our sales of UK produced programmes to other UK broadcasters have continued togrow strongly, up by 10% to £32 million in the first half. After undertaking abusiness review we will be exiting Wildlife and Children's Drama. OurInternational Production and Distribution business is also growing strongly.Our production businesses have good delivery schedules for other broadcastersover the second half of the year. We have strong positions in all key marketsand are committed to further expansion of our production businessesinternationally, particularly in the US. Consumer ITV Consumer (ITVC) has continued to grow its revenue and profitabilityprincipally by building businesses which create and monetise direct consumerrelationships. These are new and significant revenue streams for ITV. ITVCcontributed £69 million of revenue in the first half of the year - only itssecond six months of trading - and launched the highly successful ITV Play.There are a number of projects in development using mobile and broadbandtechnology to continue this growth in the future. Financial Earlier this year your Board received a highly conditional and speculativeapproach from a group of private equity funds. Your Board concluded that theirproposal should be rejected for a number of reasons that were stated at thetime. The final tranche of the £325 million of pension deficit funding we announced inSeptember 2005 was paid in early 2006, reducing the December 2005 IAS19 deficitto £325 million on a pro forma basis. Apart from this pension deficit funding,there has been no material change in the net pension deficit between 31 December2005 and 30 June 2006. People Charles Allen will step down as Chief Executive and Director of the Company andwill work with John Cresswell, who will be appointed as interim Chief Executiveon 1 October 2006, to ensure an orderly transition during a handover period.The search for a permanent successor is starting immediately and headhunters arebeing appointed. Charles has been at Granada plc and then ITV plc for 15 years, 10 of which asChairman or Chief Executive. The Board of ITV plc owes its thanks to him forhis success in creating a single ITV company from the federal structure that heinherited and for preparing the company for television in the digital age.Charles has done an excellent job over the past two years in integrating thebusiness after the merger, in reducing costs and in reducing the burden ofregulation on ITV and at the same time developing ITV's successful family ofdigital channels. The growth in the Company's business and profits since themerger reflects that success. I have enjoyed working with Charles over the pasttwo and a half years and we all wish him the best in the future. We shall watchwith great interest his future contribution to UK plc. I am delighted that we have someone of the calibre of John to take over in theshort term, and the Board has every confidence in his ability to hold the fortpending the appointment of Charles' successor. I would like to take this opportunity on behalf of the Board to thank ourmanagement and employees for all their hard work in what is currently achallenging environment for free to air broadcasters. Operating review Introduction We are focused on exploiting ITV's unique assets - our brand, content,cross-promotion and position within Freeview (the UK's free to air digitalterrestrial television distribution platform) as we implement our strategy todevelop our business operations in the digital world. Following a detailedbusiness review in September 2005, we announced a management restructure. Thisnew team is taking decisive action to drive new revenues, grow significant newbusinesses particularly within our consumer and production divisions, drive costsavings through operational efficiencies and modernising regulation. Against a challenging advertising market we are continuing to develop ourbusinesses. In the first half of 2006 we have developed consumer propositionsand are growing revenues generated from direct relationships with consumers. Wehave developed our portfolio of channels by adding ITV Play and CITV,accelerated growth in our international content businesses and have increasedthe cash return to shareholders. We have also continued our disposal program fornon-core activities, selling 021 in January, Granada Learning in April and ourSeven Network stake for £87 million in May, bringing our total proceeds fromdisposals to more than £400 million since the merger that created ITV plc in2004. In the first half of 2006 revenue increased by 3%. Revenue, excluding ITV1 NAR,was up by 25% and now represents 39% of the Group total. We are targeting 50% ofrevenue outside of ITV1 NAR by 2010 to be driven by strong performances from ourdigital channels, production and consumer businesses. Operating profit beforeamortisation, exceptional items and disposed businesses increased by 1% to £205million. Profit before tax is £173 million this year, up 12% on the same periodlast year. In June we announced that we would deliver £100 million of efficiency savings bythe end of 2008 from business re-engineering and operational reviews. Thiscomprises £40 million per annum of savings from improved overhead efficienciesrepresenting 7% of the manageable cost base; £30 million per annum from scheduleefficiencies, in part as a result of the evolution of ITV's PSB requirements asdigital switchover approaches; and a further £30 million per annum from 2007 inreduced sports programming costs. Commercial UK advertising market ITV plc's NAR was down 4% in the first six months of 2006. ITV1 plc NAR was down8% on the same basis against a weakening UK TV advertising market which was down2% year-on-year. ITV1 continues to be affected by the move from analogue todigital where our SOCI performance and viewing share, in common with the othermajor terrestrial channels, is reduced. As we approach full digital take up weexpect the overall viewing share of ITV1 to stabilise at approximately the levelcurrently achieved in digital homes and at the point of digital switchover weare targeting a SOCI of 38.5% for all our channels combined. A further factoris CRR, a condition of the merger, which ties the ITV1 share of the total UK TVadvertising market to the ITV1 SOCI. We are working towards a review of the CRRmechanism and are in dialogue with the relevant regulatory bodies. The UK advertising market weakened towards the end of the second quarter of theyear with June down 6% despite the football World Cup 2006. ITV1 outperfomed itsCRR position in June and thus tracked in line with the market. We sawparticularly strong performances from retail, cars and finance who traditionallyadvertise around major sporting events but weaker sectors included food,cosmetics, toiletries and telecoms. NAR for ITV's digital channels was up 46%at £70 million in the first half and sponsorship up 21% at £23 million. We continue to believe that television advertising is a very attractive marketin which to operate and one in which ITV1 and our family of digital channelshave a competitive advantage. In an era of increasing choice, television is,more than ever, key to building enduring consumer brands. Television has beenless affected than some other traditional media and evidence suggests thatinternet advertising substitutes radio and press rather than television. WithITV1 we can offer advertisers the sole deliverer of true mass audience. ITV1broadcast 93% of programmes attracting more than four million viewers in 2005.Our digital channels hold the highest share of viewing of any commercial digitalchannel family and were responsible for 29% of total multichannel impact growthin the first half of the year. ITV is able to offer advertisers bespoke multimedia brand solutions across ourchannels and different platforms. We have seen strong growth in new areas acrossthe Group with interactive up 86% in the first half. We have developed newanalytical tools which enable us to maximise promotional effectiveness and offervaluable viewer and customer insight. Channels Channels is focused on strengthening the ITV1 schedule and building a portfolioof digital channels. In the first half of 2006 ITV1 was home to more new programmes rating over fivemillion viewers than all other channels combined. These included Wild at Heart,Lewis and Dancing on Ice which achieved over 10 million viewers. In addition, the football World Cup was extremely popular with viewers,particularly with the valuable 16-34 year old male demographic, with audiencespeaking at over 20 million viewers. We believe that there are a number of opportunities to improve on screenperformance through programming revitalisation, PSB modernisation and scheduleefficiency. We have rebuilt our commissioning team, appointing twelve new,highly experienced commissioners and expect to see the initial results from thenew commissioning team come through in Autumn 2006. ITV1 has already seenexciting talent such as Billie Piper and Trinny and Susannah join the channeland will launch new comedy and entertainment series and more contemporary iconicdrama. In the next few years there are factors which will affect this measureincluding the rate of change in ITV's Public Service Broadcasting obligations,the speed of digital take up and equalisation of advertising minutage with otherchannels. The target is based on ITV maintaining expenditure levels onprogramming. Channels will improve schedule efficiency through increasing effective spendwith the "Smart Buying" initiative across all our channels. ITV channels willcontinue to spend c.£1 billion per annum over the next three years but retainflexibility to shift spend between the digital channels and ITV1. We announcedthat we would increase programming spend by investing an additional £20 millionin the digital channels in 2007 reflecting their strong growth profile. Thisadditional investment will allow us to drive organic growth in our channels withmore original commissions, series, sport and movies. An additional channelITV2+1 (ITV2's schedule broadcast an hour later) will launch towards the end of2006, so that viewers can catch up with their favourite programmes on ITV2. PSB commitments represent almost a third of ITV1's schedule but only 11% ofITV1's impacts. Currently our ITV1 PSB slots are targeted by competitors withcommercially attractive programming. We believe that there are opportunities inthe medium term to modernise our PSB commitments including, for example,adjusting the balance of children's programming across ITV1 and our newlylaunched CITV channel; available to 90% of families with children. Across all the ITV Channels (excluding GMTV) the adult SOCI in the first half of2006 was 40.2% (compared to 42.2% in the first half of 2005). GMTV SOCI in thefirst half of 2006 was 2.5%. Production ITV's content business is a key part of the Company as an integratedproducer-broadcaster. We have creative development targeted specifically at theneeds of the ITV schedule. By creating content ITV retains the productionmargin in-house, has the ability to hold and exploit rights associated with ourvaluable programme brands, reduces exposure to programme price inflation andsecures access to key programmes and talent. We have seen particularly stronggrowth within the production business outside of ITV supply with revenues up 9%in the first half of the year. ITV Productions has continued to provide the ITV Channels with the most creativeprogrammes of scale and excitement including the highly successful Dancing onIce and Soapstar Superstar. They also continue to be the most cost effectiveprovider of successful commercial shows. Critically acclaimed programmesproduced for other channels include The Street for BBC1 and popular programmesinclude Brainiac for Sky and Countdown for Channel 4. Following an extensive strategic review, the team has put a number of lesscommercially attractive genres under review and has made the decision to exitWildlife and Children's Drama where operating margins are low. We believe that ITV has a significant growth opportunity with both InternationalProduction and International Distribution and Exploitation. Our InternationalProduction growth strategy uses a combination of: • rapid exploitation of programmes made by ITV Productions for ITV into new territories, such as Hell's Kitchen (US version); • producing original shows, which can be distributed worldwide, such as Nanny 911 (now also shown on ITV2); and • using local market knowledge (combined with rapid access to new concepts and formats from the UK) to create programming such as ITV Play participation TV. Using this strategy our US Production business has grown by 138% during the past3 years and had series aired across five networks in one year. These includedGameshow Marathon for CBS, Wallet Roulette for ABC, Poor Little Rich Girls forWB, Hit Me Baby One More Time for NBC and both Nanny 911 and Hell's Kitchen forFox. We are also working for the cable networks and have a number of showsavailable for syndication for 2007. Syndication is the sale of the right tobroadcast programmes to multiple television stations, without going through abroadcast network. It is common in the US where television is organised aroundnetworks with local affiliates, unlike Europe which has mainly centralisednetworks without local affiliates. ITV Worldwide's International Distribution and Exploitation team has a rich mixof programming assets with a substantial amount of owned UK product and also ourinternational productions, film libraries and third party assets from both theUK and international producers. In the first half revenues in this area were up8%. There is significant potential for growth through both extracting morevalue from our assets, for instance across different digital platforms with thedigitisation of our library, and by attracting more assets to offer to ourcustomers from the large number of UK and US independent producers. Consumer The Consumer team was established to build businesses which create and monetisedirect consumer relationships, exploiting ITV's unique brand and content assetsand utilising our cross-promotional capabilities. ITV Consumer is active infour main areas - transactional, mobile, broadband and other platforms and inthe first half revenue was up over 300% at £69 million including FriendsReunited. ITV Play Our interactive participation TV format, ITV Play was launched as a channel on19 April 2006 initially on Freeview and is now available on satellite. ITV Playis also streamed over broadband and broadcasts during the night time slots onITV1 and ITV2. Despite only launching a short time ago ITV Play is already themarket leader in the participation TV field and we expect it to contribute £20million of profit in its first full year. Formats include Rovers Return QuizNight with an innovative mass participation telephone system allowing manyviewers to play along together. ITV Mobile ITV Mobile was launched to consumers in June with an on-air promotional campaignwhich generated an immediate uplift in both traffic and transactions. ITV Mobilehas unique content to target all demographics from the nation's best loved ITVprogrammes as well as ringtones and other content from third party suppliers toimprove the choice offered to our customers and to grow revenues. We willmaximise distribution of ITV Mobile by making it available on the mobileoperators' portals over the coming year. We see growing consumer demand for full channel access via mobile. We haveagreed to make our channels available on 3G, initially through 3, the largestoperator. Broadband Broadband has achieved mass reach with penetration expected to reach 70% ofhomes by 2010. With speeds increasing, broadband is now a viable platform for TVchannels and TV content and also presents significant opportunities to drivedisplay and classified advertising. ITV's broadband proposition has three keyelements - ITV Local, which has completed a trial phase in the Meridian regionand we are beginning the national roll out, Friends Reunited and ITV.com. ITV Local is our broadband proposition which is designed to capitalise on ourregional presence across the UK targeting the local display and classifiedadvertising market. It offers streamed TV with news and local interestprogramming as well as providing a vehicle for locally produced User GeneratedContent and local comment. We offer local dating and jobs and are reviewingother propositions such as property advertising. Friends Reunited, the UK's largest online community website, is a high marginbusiness made up of four distinct, high growth businesses - reunion, jobs,dating and genealogy. Some initial promotion on ITV channels has already drivenstrong performance and Friends Reunited represents the cornerstone of ITV'sonline presence. The next planned phase of development will increase theintegration with ITV Broadband including advertising sales, database leverageand targeted promotion of ITV programming and services. ITV Consumer is currently developing the next phase of ITV.com to be rolled outin the first quarter of 2007. This re-engineered broadband offering will allowthe Company to capitalise on new opportunities including streaming of ITVchannels, catch-up and preview of ITV's valuable programme assets and othertransactional revenues. Freeview ITV has a key role in the marketing and development of the Freeview platformwhich is forecast to be the UK's largest digital TV platform by the end of 2006with well over 8 million homes. Freeview has just announced the launch of theFreeview Playback brand for the marketing of standardised DTT boxes with aPersonal Video Recorder. ITV is also involved in the DTT High Definitiontechnical trial in London which has used ITV content including World Cupmatches. Through our ownership of SDN, and by virtue of its Channel 3 licences,ITV now operates 38% of the commercial DTT bandwidth and has opportunity toaccess DTT capacity on a long-term basis. Between 2008 and 2010 a number of theincreasingly valuable videostreams on SDN are due for renewal which shouldsignificantly raise SDN's revenue. Outlook Whilst our businesses outside ITV1 NAR are continuing to grow strongly, thecombined effect of CRR and the acknowledged weakness in the advertising marketover this summer is reducing our overall NAR estimate for ITV plc to -14% in thequarter to September. This partly reflects ITV1 having significantlyoutperformed the CRR position in the first half of the year and a rebalancingnow taking place. Over the nine months to September 2006 we estimate that ouroverall NAR for ITV plc will be 8% lower than in the same period in 2005. Ourproduction business has a strong delivery slate over the second half and we lookforward to good programme schedules across our channels in the important Autumnseason. I have enjoyed enormously my 15 years with Granada and ITV and especially increating a single ITV Company and shaping the nation's number one commercialbroadcaster as a major player in the digital age. Over that time I have workedwith the most talented and creative people in the industry and am pleased thatso many of them are now in the strong management team that is implementing ourstrategy to develop ITV's businesses for the future. I am particularly proud ofthe work that my colleagues have done in creating one of the top productioncompanies in Europe, building the leading commercial family of digital channels,creating the foundations of our consumer business and building confidence in ournational and regional news. I have made many friends amongst my colleagues andI wish them all the best for the future. My focus now is to support John andthe Board through the transition process, following which I will move forward tothe next chapter of my life and a new set of challenges. I would like to finish by joining Sir Peter Burt and the rest of the Board inthanking employees for their continuing work and dedication in promoting ourcore businesses, developing new, exciting programming and growing our consumerbusinesses. Financial review Results for the six months ended 30 June 2006 Operating profit for the period increased by 9% to £163 million (2005: £150million) with operating profit before amortisation, exceptional items anddisposed businesses up 1% at £205 million (2005: £202 million), or £202 million(2005: £201 million) including the businesses sold. Profit before tax increasedby 12% to £173 million (2005: £154 million) with the benefit of net gains fromthe disposal of businesses and investments. Tax was charged on profits before amortisation and exceptional items at aneffective rate of 28% (2005: 28%). Basic earnings per share were up 7% at 2.9 pence (2005: 2.7 pence). Adjustedbasic earnings per share before amortisation and exceptional items were 3.4pence (2005: 3.5 pence). Revenue Revenue for the six months to 30 June 2006 was up 3% at £1,077 million (2005:£1,049 million). The increase in revenue reflects a decrease in Net AdvertisingRevenue (NAR) of 4% to £752 million (2005: £786 million) with lower ITV1 NARbeing partially offset by increases from the digital channels as follows: 2006 2005 Change £m £m % ITV1 654 710 (8)ITV2, ITV3, ITV4, ITV News Channel, M & M, CITV 70 48 46GMTV 28 28 - Total NAR 752 786 (4) Other revenue increases have exceeded the decline in NAR. The main sources ofthese increases include contributions from newly developed businesses such asITV Play (£27 million) and a first time contribution from Friends Reunited (£8million), while revenue from SDN increased by £9 million reflecting a full sixmonths contribution. Businesses sold in the period contributed £8 million ofturnover in 2006 compared to £19 million in 2005. Operating profit Operating profit of £163 million represents a 9% increase over 2005 (£150million). Operating profit was reduced by exceptional costs principally relating to theprivate equity approach made for the Group in March 2006, but benefited from areduction in amortisation costs of £22 million to £28 million (2005: £50million) and a reduction in the accrual relating to airtime deliveries of £8million. Included within operating profit are losses of £3 million in respectof the disposed businesses 021 and Granada Learning incurred during the periodup to disposal. In the six months ended 30 June 2005 these businesses madelosses of £1 million. Dividend The interim dividend is increased by 2% to 1.35 pence per share (2005: 1.32pence). This is covered 2.52 times (2005: 2.65 times) by the adjusted earningsper share (before amortisation and exceptional items) of 3.4 pence (2005: 3.5pence). Disposal of businesses and investments During the period, as part of the ongoing process to dispose of non-corebusinesses and investments, the Group sold 021 and Granada Learning and itsinvestment in Seven Network. The disposal of the 021 business for £4 millionresulted in a nil gain or loss being booked. The sale of Granada Learning tookplace in April for a potential maximum consideration of £53 million. Thiscomprises £17.5 million in cash, £17.5 million in loan notes and a further £18million which is contingent upon the future performance of the business. Thefair value of expected proceeds has been taken as £31 million for accountingpurposes resulting in a £12 million loss on disposal. The interest in SevenNetwork was sold for total consideration of £87 million resulting in a profit of£29 million booked through the income statement. Net debt The principal movements in net debt during the period are shown in the tablebelow: £m £mNet debt at 31 December 2005 (481)Cash generated from operations 169Net interest paid (15)Taxation paid (45)Equity dividends paid (61)Expenditure on property, plant and equipment less proceeds from disposals (49)Proceeds from sale of businesses and investments 108Other movements (30) 77Share buyback (86)Defined benefit pension deficit funding (207)Net debt at 30 June 2006 (697) Cash generated from operations was £169 million (2005: £196 million) and wasdown on the prior period due to a working capital outflow of £35 million. In2005 the working capital benefited by £34 million from the exercise of acurrency option hedging the Exchangeable Bond. Net interest paid on the Group's net debt position was £15 million. Taxationpaid reflects payments on account during the period. The 2005 interim dividendof £54 million was paid at the start of the period and along with a £7 millionpayment for the dividend reinvestment plan (in respect of the 2005 finaldividend) gives a £61 million outflow. Expenditure on property, plant andequipment less proceeds from disposals totalled £49 million. During the periodthe Group bought three properties that were previously held under long-termleases with the intention of subsequently disposing of them. Two of these areshown in the balance sheet as assets held for sale while the third does not meetthe criteria for classification at the half year. Cash from the sale of 021 (£4million), Granada Learning (£17.5 million) and the investment in Seven Network(£86 million) totalled £108 million. As detailed below, the plan to return cashto shareholders was started during the period with £86 million being returnedthrough share buybacks and defined benefit pension scheme funding payments of£207 million were made in the period. Refinancing of debt due in 2007 At 30 June 2006 the Group's balance sheet shows a net current liabilitiesposition compared to a net current assets position at 31 December 2005. Thisresults from a reduction in the cash balance as set out in the cash flowstatement combined with £200 million of the Group's borrowings (with a fairvalue of £204 million) now being classified as current. Two of the Group'sbonds (€356 million Exchangeable Bond and £200 million Eurobond) mature in thefirst half of 2007. In order to meet these commitments the Group has extendedthe existing £450 million bank facility to June 2011 and a new £550 million 364day bank facility, with a one year term-out option, maturing in June 2008 hasbeen signed and is planned to be refinanced in the capital markets. Pensions During the period the Group completed its planned £325 million of funding forthe Group's defined benefit pension schemes as part of a plan to address thedeficit. An initial £118 million had been paid in December 2005 and the balanceof £207 million was paid in January and February 2006. Return of cash to shareholders As discussed in the Chairman's statement the Group announced it was increasingthe cash return to shareholders to £500 million following a review of theGroup's capital structure. This process has been started through an on-marketbuyback and at 30 June 2006 a total of 81 million shares had been purchased at acost of £86 million. The closed period runs from 1 July 2006 to the resultsannouncement following which the process to return cash to shareholders will becontinued. Consolidated income statement 2006 2005 RestatedFor the six months ended 30 June: Note £m £m Group and share of joint ventures' revenue 1,110 1,078Less share of joint ventures' revenue (33) (29) Revenue 1,077 1,049 Operating costs before amortisation of intangible assets and exceptional (875) (848)itemsOperating costs - exceptional items 1 (11) (1)Earnings before interest, tax and amortisation (EBITA) 191 200Amortisation of intangible assets 5 (28) (50) Total operating costs (914) (899) Operating profit 163 150 Financing income 81 63Financing costs (98) (74) Net financing costs (17) (11)Share of profit of associates and joint ventures 4 4Investment income 2 2Gain on sale of property 4 9Gain on sale of businesses and investments (exceptional items) 1 17 - Profit before tax 173 154Taxation (52) (43) Profit for the period 121 111 Attributable to:Equity shareholders of the parent company 120 109Minority interests 1 2 Profit for the period 121 111 Basic earnings per share 2 2.9p 2.7pDiluted earnings per share 2 2.9p 2.7p All results are from continuing operations. Dividends paid during the period and shown in the cash flow statement totalled£61 million (2005: £45 million). Subsequent to the balance sheet date theCompany has declared a dividend in respect of the six months ended 30 June 2006of 1.35 pence (six months ended 30 June 2005: 1.32 pence) per ordinary sharewhich, based on the shares in issue on 30 June 2006, totals £55 million (sixmonths ended 30 June 2005: £54 million). Consolidated statement of recognised income and expense 2006 2005For the six months ended 30 June: £m £m Exchange differences on translation of foreign operations (2) (1)Movements in respect of cash flow hedges - (2)Revaluation of available for sale investments (7) 5Disposal of available for sale investments (29) - Net (expense)/income recognised directly in equity (38) 2Profit for the period 121 111 Total recognised income and expense for the period 83 113 Attributable to:Equity shareholders of the parent company 82 111Minority interests 1 2 Total recognised income and expense for the period 83 113 Consolidated balance sheet 30 June 31 December 30 June 2006 2005 2005 Restated Restated Note £m £m £m Non-current assetsProperty, plant and equipment 250 235 240Intangible assets 5 3,919 3,947 3,909Investments in joint ventures and associates 7 97 93 85Equity investments 8 85 181 170Distribution rights 15 13 16Deferred tax asset in respect of pension scheme deficits 96 160 204Other deferred tax balances (52) (86) (144)Net deferred tax asset 44 74 60 4,410 4,543 4,480Current assetsAssets held for sale 19 63 -Programme rights and other inventory 377 388 321 Trade and other receivables due within one year 358 362 356Trade and other receivables due after more than one year 22 7 10 Trade and other receivables 380 369 366Cash and cash equivalents 9 439 663 415 1,215 1,483 1,102Current liabilitiesLiabilities held for sale - (9) -Borrowings 9 (490) (288) (250) Trade and other payables due within one year (681) (734) (622)Trade and other payables due after more than one year (4) (4) - Trade and other payables (685) (738) (622)Current tax liabilities (195) (217) (221)Provisions (22) (23) (28) (1,392) (1,275) (1,121) Net current (liabilities)/assets (177) 208 (19) Non-current liabilitiesBorrowings 9 (646) (856) (549)Defined benefit pension deficit (320) (532) (679)Other payables (29) (29) (6)Provisions (9) (29) (41) (1,004) (1,446) (1,275) Net assets 3,229 3,305 3,186 Attributable to equity shareholders of the parent companyShare capital 10 405 423 423Share premium 10 120 98 94Merger and other reserves 10 2,686 2,666 2,666Translation reserve 10 (1) (1) (3)Available for sale reserve 10 (5) 33 18Retained earnings 10 17 74 (22) Total attributable to equity shareholders of the parent 10 3,222 3,293 3,176companyMinority interest 10 7 12 10 Total equity 10 3,229 3,305 3,186 Consolidated cash flow statement 2006 2005For the six months ended 30 June: £m £m £m £m Cash flows from operating activitiesOperating profit before exceptional items 174 151Depreciation of property, plant and equipment 15 15Amortisation of intangible assets 28 50Movement in working capital (35) 1 Cash generated from operations before exceptional items 182 217Cash flow relating to exceptional items:Operating loss (11) (1)Increase in receivables - (11)Decrease in payables and provisions* (2) (9) Cash outflow from exceptional items (13) (21) Cash generated from operations 169 196Defined benefit pension deficit funding (207) -Interest received 9 7Interest paid on bank and other loans (22) (20)Interest paid on finance leases (2) (2)Investment income 2 2Taxation paid (45) (66) (265) (79) Net cash (used in)/from operating activities (96) 117 Cash flows from investing activitiesAcquisition of subsidiary undertakings, net of cash and - (136)cash equivalents acquired, and debt repaid on acquisitionProceeds from sale of property, plant and equipment 6 23Acquisition of property, plant and equipment (55) (16)Acquisition of investments - (30)Proceeds from sale of businesses 22 5Proceeds from sale of investments 86 - Net cash from /(used in) investing activities 59 (154) Cash flows from financing activitiesProceeds from issue of ordinary share capital - 46Purchase of US held shares - (42)Share buyback (86) -Purchase of own shares via employee benefit trust (26) -Bank and other loans - amounts repaid (4) (88)Capital element of finance lease payments (2) (2)Dividend paid to minority interest (6) -Equity dividends paid (61) (45) Net cash used in financing activities (185) (131) Net decrease in cash and cash equivalents (222) (168)Cash and cash equivalents at 1 January 663 582Effects of exchange rate changes and fair value movements (2) 1on cash and cash equivalents Cash and cash equivalents at 30 June 439 415 *Includes £2 million (2005: £6 million) relating to expenditure againstprovisions held in respect of activities which have been previouslydiscontinued. Notes to the accounts 1. Exceptional items 2006 2005For six months ended 30 June: £m £m Operating items:Reorganisation and integration costs (2) (12)Costs associated with private equity approach (11) -Receipt from the liquidators of Shop! (2005: ONdigital) 2 11 (11) (1) Non-operating items:Profit on sale of investment in Seven Network (see note 8) 29 -Loss on disposal of Granada Learning (see note 6) (12) - Gain on sale of businesses and investments 17 - Total exceptional items 6 (1) 2. Earnings per share 2006 2005 Basic Diluted Basic DilutedFor the six months ended 30 June: £m £m £m £m Profit for the period attributable to shareholders 120 120 109 109Exceptional items (including related tax effect of £5 million, (1) (1) 1 12005: £nil) Profit before exceptional items 119 119 110 110Amortisation of intangible assets (including related tax effect 20 20 35 35of £8 million, 2005: £15 million) Profit for the financial period before exceptional items and 139 139 145 145amortisation of intangible assets Weighted average number of shares in issue - million 4,105 4,105 4,075 4,075Dilution impact of share options - million - 36 - 49 4,105 4,141 4,075 4,124 Earnings per ordinary share 2.9p 2.9p 2.7p 2.7p Adjusted earnings per shareBasic earnings per share 2.9p 2.9p 2.7p 2.7pAdd: Earnings/(loss) per share on exceptional items - - - - Earnings per share before exceptional items 2.9p 2.9p 2.7p 2.7pAdd: Loss per ordinary share on amortisation of intangible 0.5p 0.5p 0.8p 0.8passets Earnings per share for the period before exceptional items and 3.4p 3.4p 3.5p 3.5pamortisation of intangible assets All profits arise from continuing operations. An adjusted earnings per share hasbeen disclosed because in the view of the directors this gives a fairerreflection of the results of the underlying business. 3. Dividends Dividends are recognised in equity during the period in which they are declared. Dividends recognised in equity for the six months ended 30 June 2006 total £74million (six months ended 30 June 2005: £53 million) and represent the 2005final dividend declared by the Company on 8 March 2006 (six months ended 30 June2005: 2004 final dividend declared on 9 March 2005). Subsequent to the balance sheet date the Company has declared a dividend inrespect of the six months ended 30 June 2006 of 1.35 pence (six months ended 30June 2005: 1.32 pence) per ordinary share which, based on the shares in issue on30 June 2006, totals £55 million (six months ended 30 June 2005: £54 million)which will be paid on 8 January 2007 to shareholders on the register at 10November 2006. The ordinary shares will be quoted ex-dividend from 8 November2006. 4. Segmental analysis The Group has one main producer/broadcaster reportable business segment. Thissegment includes all activities related to the production and broadcasting oftelevision programmes and channels, including the exploitation of related rightsand assets. Any activities falling outside of this main segment are groupedtogether as other operations. Producer/broadcaster Other operations Consolidated 2006 2005 2006 2005 2006 2005 restated restated £m £m £m £m £m £m Segment revenue 1,026 1,006 51 43 1,077 1,049Segment result 161 149 2 1 163 150 5. Intangible assets Goodwill Brands Licences Customer Film Total £m £m £m contracts and libraries relationships and other £m £m £mCostAt 31 December 2005 3,425 199 121 336 78 4,159Additions - - - - - - At 30 June 2006 3,425 199 121 336 78 4,159 AmortisationAt 31 December 2005 - 32 11 158 11 212Charge for period - 9 5 11 3 28 At 30 June 2006 - 41 16 169 14 240 Net book valueAt 30 June 2006 3,425 158 105 167 64 3,919 At 31 December 2005 3,425 167 110 178 67 3,947 6. Disposal of businesses During the period the Group disposed of 021 and Granada Learning. 021 was soldfor proceeds of £4 million and resulted in a nil gain or loss on disposal.Granada Learning was sold for consideration consisting of cash (£17.5 million),loan notes (£17.5 million) and deferred consideration (up to £18 million) with atotal fair value of £31 million. An accounting loss of £12 million has beenbooked on disposal. 7. Investments in joint ventures and associates Joint Associated Total ventures undertakings £m £m £m At 31 December 2005 60 33 93Share of attributable profits 2 2 4 At 30 June 2006 62 35 97 8. Equity investments £m At 31 December 2005 181Disposals (90)Revaluation to fair value (6) At 30 June 2006 85 During the period the Group disposed of its investment in Seven Network forproceeds of £87 million resulting in a profit of £29 million being bookedthrough the income statement. 9. Analysis of net debt 31 December Currency and 30 June 2005 Net cash non-cash Restated flow movements 2006 £m £m £m £m Cash 522 (197) - 325Cash equivalents 141 (25) (2) 114 Cash and cash equivalents 663 (222) (2) 439 Loans and loan notes due within one year (285) 4 (207) (488)Finance leases due within one year (3) 2 (1) (2)Loans and loan notes due after one year (781) - 209 (572)Finance leases due after one year (75) - 1 (74) (1,144) 6 2 (1,136) Net debt (481) (216) - (697) Included within cash equivalents is £76 million (31 December 2005: £78 million)the use of which is restricted to meeting finance lease commitments. 10. Consolidated statement of changes in equity Attributable to equity shareholders Share Share Merger Translation Retained Total Minority Total and other reserve capital premium reserves Available earnings interest equity for sale reserve £m £m £m £m £m £m £m £m £m At 31 December 2005 423 98 2,666 (1) 33 74 3,293 12 3,305Share buybacks (8) - 8 - - (86) (86) - (86)Shares issued in the 2 22 - - - - 24 - 24periodCancellation of (12) - 12 - - - - - -convertible sharesTotal recognised income - - - - (38) 120 82 1 83and expenseMovements due to share - - - - - (17) (17) - (17)based compensationDividends paid to - - - - - - - (6) (6)minority interestsEquity dividends - - - - - (74) (74) - (74) At 30 June 2006 405 120 2,686 (1) (5) 17 3,222 7 3,229 Attributable to equity shareholders Share Share Merger Translation Available Retained Total Minority Total and other reserve for sale earnings capital premium reserves reserve interest equity £m £m £m £m £m £m £m £m £m 1 January 2005 422 91 2,666 (2) 13 (85) 3,105 8 3,113Cancellation of shares (3) (39) - - - - (42) - (42)Shares issued in the 4 42 - - - - 46 - 46periodTotal recognised income - - - (1) 5 107 111 2 113and expenseMovements due to share - - - - - 9 9 - 9based compensationEquity dividends - - - - - (53) (53) - (53) At 30 June 2005 423 94 2,666 (3) 18 (22) 3,176 10 3,186 11. Basis of preparation This interim financial information has been prepared under the same accountingpolicies and methods of computation as applied in the Group's most recent annualreport dated 31 December 2005 except where specified below. During the period the Group has reviewed its revenue recognition policy forpremium rate telephony services recognising the increasing significance of thisrevenue stream. The Group's policy has consequently been revised to reflectrevenue as the amount billed net of operator costs. Previously revenue wasshown net of other costs, such as production costs, in addition to operatorcosts. The impact on the 2005 comparative is to increase revenue and operatingcosts by £5 million. There is no impact on either profit or balance sheet.Similarly for 2006 revenue and operating costs are £7 million higher than theywould have been under the old accounting policy. At 31 December 2005, the Company had outstanding an unsecured €356 millionExchangeable Bond which matures in January 2007. The Exchangeable Bond can beexchanged at any time at the option of investors for shares in Thomson SA at anexchange rate of €41.2 per share. At 31 December 2005 the Thomson share pricewas €17.7, having traded below €24 since August 2002. Independent marketestimates were that the Thomson share price would not recover to the conversionprice by January 2007. The Company therefore took the view that the possibilityof exchange before January 2007 was remote and classified the Exchangeable Bondas a loan repayable between one and two years in the December 2005 balancesheet. As the bond reaches ultimate maturity in January 2007, it has beenclassified as a current liability in the balance sheet at 30 June 2006. IAS1.60(d) states that - "a liability shall be classified as current when theentity does not have an unconditional right to defer settlement of the liabilityfor at least twelve months after the balance sheet date". Although, asexplained above, it is very unlikely that any bondholder would exercise itsoption before January 2007, bondholders can technically exercise that right atany time. Therefore the Company does not have an unconditional right to defersettlement. Accordingly the Company has reclassified the liability as currentin its balance sheets as at 31 December 2005 (£245 million) and 30 June 2005(£240 million). For the purposes of interim reporting the defined benefit pension schemes' keyassumptions and asset values have been reviewed to assess whether material netactuarial gains and losses have occurred during the period. While there havebeen movements in the key underlying assumptions and asset values during theperiod, the net effect is such that no material change to the pensions deficitwould be expected if a formal revaluation were to be carried out. As such norevaluation has taken place at the reporting date and no actuarial gains andlosses have been recognised through the statement of recognised income andexpense. A full valuation will take place at 31 December 2006 in accordancewith IAS 19. The comparative information at 30 June 2005 and 31 December 2005 is abridged andtherefore not ITV plc's statutory accounts for those periods. The accounts forthe year ended 31 December 2005 have been reported on by ITV plc's auditor. Thereport of the auditor was unqualified and did not contain a statement undersection 237(2) or (3) of the Companies Act 1985. This is a statutory disclosurerequired by the Companies Act 1985. 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