8th Aug 2007 07:00
ITV PLC08 August 2007 ITV plc interim results for six months ended 30 June 2007 8 August 2007 ITV1 schedule performance stabilising Q3 advertising revenue encouraging Financial summary • ITV1 NAR £595m (2006: £654m) and total NAR £717m (2006: £752m) • Operating EBITA* £151m (2006: £202m) • Adjusted EPS# 2.3 pence (2006: 3.3 pence) • Interim dividend maintained at 1.35 pence • Net debt reduced by £66m to £668m * before exceptional items # before exceptional items, amortisation, sales of assets and businesses and with tax adjustments ITV Board Agnes Touraine and Heather Killen join ITV as non-executive directors. Theyhave significant knowledge of the media industry and career experience withVivendi Universal and Yahoo respectively. Current trading • Q3 advertising revenue estimates o ITV1 plc NAR +1% o ITV total NAR +4% • Summer ratings improving. • ITV1 adult impacts year on year from 1 January to 29 July o Volume up 0.6% o SOCI down 4.8% • In multichannel homes total ITV all time individual viewing share year on year from 1 January to 29 July up 0.7% at 21.8% Operating summary Stabilisation of ITV1 • H1 adult impact volume down by 2.1% whilst adult SOCI is down by 5.8% (compared to -5.4% and -9.0% for same period last year, despite growth in number of digital channels) • Key FA Cup, and England internationals secured from 2008 • UK's most popular programme (Coronation Street, 15 January) and most popular sporting event (UEFA Champions' League semi-final, 23 May) • Britain's Got Talent final watched by 11.6m viewers and 45% share - most popular new format across all channels Growth of digital channels • ITV digital channels increasing revenue and impacts - ITV2, 3 & 4 produced: o 42% of all multichannel revenue growth o Adult SOCI increased year on year from 5.5% to 6.4% in H1 2007 • ITV2 awarded Digital Channel of the Year and is now most popular digital entertainment channel in the UK • ITV digital only channels in multichannel homes had 4.5% individual share of viewing in H1 compared to all Five's channels at 5.7% • Acquired both returning and new US hit series. Exploitation of content • Dawn Airey appointed Head of Global Content • Awards success with 10 BAFTAs and 17 RTS Awards across ITV and ITV Productions • Acquisition of controlling stake in Jaffe Braunstein and 25% stake in Mammoth Development of Consumer businesses • Broadband-enabled itv.com now live and fully operational, featuring simulcast ITV channels, a 30 day catch-up, clips and exclusive archive material • ITV Local now available to more than 60% of UK population • Friends Reunited Group H1 revenues up 38% • Call TV revenues down in H1 following PRTS issues Commenting on the results Michael Grade, Executive Chairman of ITV, said: "I'm very pleased with progress in ITV1's schedule performance and the outlookfor revenue in Q3 is encouraging. The launch of the Autumn schedule was wellreceived with a number of returning hit series and major events including theRugby World Cup. "Our in-house production team has collected an unprecedented number ofnominations and awards for their programmes, both in the UK and internationally. "Our family of digital channels continues to grow, increasing revenue andviewers, and the launch of ITV.com has opened a valuable opportunity for us tocompete effectively for online revenues for the first time. "ITV has been affected by the incidence of editorial and compliance failureswhich have affected the television sector. Deloitte are moving towardscompletion of their review of our PRTS activity and in October we will publishthe findings of that review and an explanation of remedial actions. We areco-operating closely with Ofcom and ICSTIS during this process. "On the general regulatory front we continue to press our case with Ofcom, theOFT and the Competition Commission. "We have been carrying out a detailed business review and I will be updating themarket on 12 September. "The process of refreshing the Board has begun and I am delighted that AgnesTouraine and Heather Killen have agreed to join ITV as non-executive directors.With their knowledge of the sector, these very successful individuals bringextensive and relevant experience in digital and new media: digital talent forthe digital age. They will make a valuable contribution to our Boarddiscussions. "John McGrath will retire from the Board at the end of 2007 and I and my Boardcolleagues would like to thank him for his significant contribution to ITV,through the merger process in 2003 and as a Director and Chairman of our AuditCommittee over the last three years. Mike Clasper will take over as AuditCommittee Chairman in due course." For further information please contact: ITV plcTel: 0844 88 18000 Press enquiries Brigitte Trafford Group Communications DirectorJim Godfrey Director of Corporate Affairs Analysts' enquiriesJames Tibbitts Company SecretaryGeorgina Blackburn Head of Investor Relations Tulchan Communications GroupTel: 020 7353 4200 Andrew GrantSusanna Voyle Website: www.itv.com, investor information: www.itvplc.com An analysts presentation will be held at 09:30hrs on 8th August 2007 at the CityPresentation Centre, 4 Chiswell Street, London EC1Y 4UP Message from the Executive Chairman Michael Grade We are revitalising ITV1 and developing our medium-term strategy for thebusiness. We will update the market on the progress of that work in the autumn. We have seen some encouraging early signs of recovery as ITV1's performancebegins to stabilise in the first six months of 2007. Ratings decline has slowedand the advertising environment continues to improve, as the UK televisionadvertising market in the first half was essentially flat and is growing in thethird quarter. The adjusted earnings per share before exceptional items,amortisation and tax adjustments are 2.3 pence for the first half (2006: 3.3pence). Your Board has decided that the interim dividend for the half year ended 30 June2007 should be maintained at 1.35 pence, payable on 7 January 2008 toshareholders on the register as at 9 November 2007. The ex-dividend date will be7 November 2007. We are conducting a detailed business review and, on 12 September, we will beoutlining our plans to develop and grow our business over the medium-term. As Ihave previously said, there is no single action that will fix our business, andour plans are being formed to deliver more consistently for our viewers, ourcustomers and our shareholders. Meanwhile, there are two main areas that we have been working on during thefirst half of 2007: (a) Continue the revitalisation of ITV1 ITV1 is the most popular channel in peak time and the UK's most powerfulmarketing vehicle. We are reinvigorating the ITV1 schedule to make it bolder andmore innovative with the aim of bringing back lighter viewers, and continuing todeliver mass audiences and key demographics for our advertisers. ITV1 has successfully regained audience share in the afternoon; our priority andfocus now is to improve our performance in the important 9.00 pm slot,particularly mid week. We've secured long-term relationships with some key on-screen talent, such asAnt & Dec, Simon Cowell and David Jason. In sport we've strengthened our livefootball offering by acquiring the exclusive television and new media rights toall England home qualifiers for the 2010 World Cup, the pick of FA Cup gamesfrom 2008 and the Euro 2008 competition. This autumn we will be showing theRugby World Cup exclusively on ITV. (b) Accelerate the growth of our successful family of digital channels ITV continues to own the most successful family of commercial channels. ITV2,ITV3 and ITV4 all rank in the top 10 commercial digital channels in Freeviewhomes, with ITV2 and ITV3 taking first and second positions respectively. We are working to ensure that they continue to grow. Content and new media Our programme makers have delivered both ratings and critical successes and wewill be explaining in September how we aim to drive growth in those activitiesand leverage our content in our new media businesses. Reduce the burden of regulation We continue to seek a regulatory environment that better reflects the 21stcentury digital broadcasting market in which we operate. Many of the existingregulations were devised in an analogue world, where spectrum was scarce andhighly valuable. In our dialogue with regulators, we continue to press for moreappropriate regulation to allow us to compete more freely. Broadcasting: A Question of Trust Corporate responsibility is a wide ranging and important area for ITV. Ourbroadcasting responsibilities are an area of particular focus which our Boardand management take extremely seriously. As allegations of irregularities in premium rate telephone service (PRTS)programming across the industry began to emerge in March we took swift anddecisive action to ensure our viewers could have complete confidence in all ourinteractive activity and programming. We immediately withdrew all PRTS elementsof programming from our shows and asked Deloitte to conduct a two-stage,independent review. The first part was to ensure that all existing PRTS elementson ITV channels were fully compliant before being reinstated on air. This wascompleted in a couple of weeks. The second part was a retrospective review ofthe previous two years' output to understand the circumstances of any breachesin compliance in that time in order to avoid any recurrence. We will bepublishing the findings and recommendations of this review once it is completed. However, in the past few months a broader series of instances have come to lightin which television programmes have effectively duped the viewers. They haveinvolved all the major terrestrial broadcasters. The "contract of trust" between broadcasters and their audiences is of paramountimportance. That trust is indivisible: straight dealing in entertainmentprogrammes is just as important as straight dealing in news and current affairs.It is something the public rightly expects, and remains an essential editorialprinciple in the transition to digital broadcasting. Ensuring good practice has become an increasing challenge with the proliferationof production companies, the competitive pressures to succeed, the outsourcingof services, the rapid pace of technological change, and the increasinglyshort-term nature of editorial jobs. We at ITV are establishing a culture of zero tolerance for this apparent andcasual contempt towards viewers. We believe that by taking this zero tolerancestance, our in-house and external producers and suppliers will understand thehigh standards we expect from them and, in turn, the public will know that theyare able to continue to value, enjoy and trust what we broadcast. ITV People The process of refreshing the Board has begun and I am delighted that AgnesTouraine and Heather Killen have agreed to join ITV as non-executive directors.With their knowledge of the sector, these very successful individuals bringextensive and relevant experience in digital and new media: digital talent forthe digital age. They will make a valuable contribution to our Boarddiscussions. John McGrath will retire from the Board at the end of 2007 and I and my Boardcolleagues would like to thank him for his significant contribution to ITV,through the merger process in 2003 and as a Director and Chairman of our AuditCommittee over the last three years. Mike Clasper will take over as AuditCommittee Chairman in due course. I am also pleased that we have secured the services of Dawn Airey, who joins usin October as Director of Global Content, and Carolyn Fairbairn, who joined usin March as Director of Group Development and Strategy. Finally, I would like to extend the Board's thanks to all our colleagues fortheir contribution to this, my first set of interim results. ITV is a place ofhuge opportunity and the progress that we have made in the first half of thisyear is just the beginning. I look forward to working with them to repositionITV for the future. Michael GradeExecutive Chairman Business review Our market environment Advertising market trends The UK television advertising market over the first six months of 2007 recoveredto a similar level as in 2006 and is projected to increase in the third quarter.After the 8% fall in Q4 2006 total UK television advertising, we estimate thatthe first six months of 2007 was down by only 0.3% on the same period in 2006.The third quarter will show growth of approximately 6%, putting UK advertisingin 2007 ahead of 2006 for the nine months to September. Internet advertising, principally search-related, has continued to growstrongly. As broadband video delivery increases we expect to see furtherinternet video advertising growth and are positioning itv.com and itvlocal.comto exploit that revenue stream. Platform growth In the first quarter of 2007, Ofcom stated that 80% of the growth in UK digitaltelevision homes was accounted for by new Freeview-only homes which reached 8.4million at 31 March. That exceeded the 8 million UK BSkyB subscribers at thatdate. Ofcom also stated that at the end of the first quarter of 2007 81% of UKhomes received digital multichannel television. Freeview has continued itsstrong growth through Q2. Commercial impacts One commercial impact is defined as one person viewing one 30 second televisionadvertisement. The number of adult commercial impacts in the UK market placeincreased in the first half of 2007 by 4.0%, largely as a result of: - Increased digital multichannel penetration and the related loss of BBC viewingshare (which does not deliver any commercial impacts) to commercial channels; - an increasing number of commercial digital chanels; and - the commercial digital channels having a higher permitted advertising minutagethan ITV1, Channel 4 or five. Content creation As well as providing broadcasters in the UK and internationally with acontinuing stream of popular television programming, we are increasingly focusedon the need to develop new online and mobile content to drive our new mediaactivities. This requires some wholly new content as well as seeking ways toexploit the opportunities to tailor new media material within our existingprogramme brands. Regulation The ITV1 statement of programme policy for 2007 was published early in the year.The statement confirmed changes to ITV1's children's output, following adialogue with the regulator Ofcom. ITV1 will broadcast 250 hours of children'soutput (including films) in 2007, compared to around 400 hours of children'sprogrammes on ITV1 in 2006. ITV also confirmed that its children's output wouldbe weighted to the weekends rather than weekday afternoons as it has been in thepast. Ofcom has launched a wider review of children's programmes, which willfeed into the second Public Service Broadcasting television review, which hasbeen brought forward and will start later this year. The future of news - and in particular regional news on ITV1 - is likely to be acore focus of that review and has been addressed by the regulator in a recentdiscussion document. ITV's regional news output is highly valued by our viewers,but Ofcom concluded that regional news on ITV1 will not be sustainable in thedigital age without regulatory reform (in the form of changes to regionalservices, advertising rule reform, or even public subsidy). We hope to find acommercially viable and timely solution that will enable us to continueproviding regional news to switchover and beyond. Following reviews by the OFT and Ofcom, the Competition Commission is currentlyconsidering competition and public interest issues in connection with BSkyB's17.9% holding in ITV plc. The Commission is due to report later this year. TheOFT's decision on whether or not to review the Contract Rights Renewalmechanism, following an application by ITV some months ago, is eagerly awaited. Resources and relationships We are recruiting and developing talented people to lead our creative businessesin a competitive media industry. We have recently received the results of ourannual Employee Opinion Survey (EOS) which highlighted the pride that ouremployees take in the work they do: 86% are proud of the work they do for ITV(88% in 2005). We will continue to monitor this during the year before our nextEOS. Corporate Responsibility (CR) During the first half of 2007 our principal on-air initiative was the regional "Climate Change - Make a Difference" campaign. This drew greater attention to theissue and explained how people individually can contribute to benefit theenvironment. In July we launched a search for the "ITV Carer of the Year" which willculminate with an award being made at the Pride of Britain Awards in October. We have also introduced a payroll giving scheme for employees and continue toseek new ways to integrate CR into our business activities. Operating review ITV1 ITV1's schedule recovery gathered pace in the first half of the year. Stabilityalso began to return to the total television advertising market, as explainedearlier. Of our H1 ITV1 overall advertising revenue, sectors that are performingwell include pharmaceuticals up 9% and telecoms up 5%. Several categories wereaffected by the phasing of revenue in H1 2006, which included most of the WorldCup spend; in particular, finance was down 14% and cars and car dealers weredown 15%. Sponsorship revenues are up year-on-year by 9%. ITV's share of commercial impacts has also begun to stabilise. ITV1 adultimpacts declined in number by 2.1% in the first half as a result of the factorsreferred to under Commercial Impacts in the Business Review section on page 3,and its share of adult commercial impacts therefore declined by 5.8% to 32.2%from 34.2% in the first half of 2006. This compared to a 9.0% decline in thefirst half of 2006. The growth of ITV's digital channels resulted in ITV's overall share of adultcommercial impacts declining by only 3.3% to 41.5% from 42.9% in the first halfof 2006. ITV1 enjoyed programme successes in the first six months across a broad range ofgenres, including sport, entertainment and soaps with five of the ten topprogrammes on any channel broadcast on ITV1 (2006: 7 out of 10). So far this year, these included Coronation Street, the top programme on anychannel with 13.1 million viewers and a 50% share of viewing, brand new formatBritain's Got Talent which averaged 11.6 million viewers and a 45% share ofviewing on the final night and the UEFA Champions' League semi-final tie betweenLiverpool and Chelsea - the most popular sports event of the half year - whichwas watched by 9.3 million and had a 40% share of viewing, peaking at 11.9million viewers during penalties. These successes have helped ITV1 in peak timebeat BBC1, (its nearest competitor for viewing share in peak time), in 24 out ofthe 30 weeks so far in 2007 (2006: 25 out of 30). Six of the ten top drama programmes across all channels were broadcast on ITV1.Successful titles are a blend of our long-running classics Coronation Street andEmmerdale with more recent favourites Wild at Heart, with a series peak of 9.0million viewers (35% share of viewing), and Kingdom with a series peak of 8.6million viewers (35% share of viewing). ITV1 also had success in launching new shows and formats, with 15 new programmesachieving audiences of over five million - more than any other UK broadcaster. Anumber of these are being recommissioned, including Kingdom, Benidorm, Saturdayevening family drama series Primeval and Britain's Got Talent. Against these successful shows we had a few poor performances including: Tycoon,Tough Gig and the 24 Hours With.... series. ITV1 is also the only terrestrial channel to gain audience year-on-year inDaytime, with its viewing share up by 10% to 16.1%. This is in part due to thesuccess of new formats such as our new afternoon gameshow, Golden Balls, whichattracted 2.0 million viewers on 25 June and in part to more popular programmingreplacing some children's output. Alongside our continued coverage of the UEFA Champions' League, our coverage ofthe 2008 FA Cup will begin next year together with a deal through to June 2008for seven boxing events, six of which will be headlined by Amir Khan. FormulaOne is enjoying a renaissance with the number of adult viewers up by 45%year-on-year to an average of 3.0 million for the first nine races following thesuccesses of Lewis Hamilton. Major events coming up over the next few months include the Rugby World Cup,alongside autumn schedule highlights The X Factor and I'm A Celebrity...Get MeOut of Here!. We also made three major US acquisitions for ITV for 2008: Warner Brothers'Pushing Daisies starring Anna Friel and, from CBS Paramount, Swingtown and Cane. Digital channels ITV's family of digital channels lead the UK digital-only sector. ITV2, ITV3 andITV4 all rank in the top ten commercial digital channels in Freeview homes byviewing share, with ITV2 and ITV3 taking first and second positions. ITV2 ITV2 won Channel of the Year at the 2007 Broadcast Digital Channel Awards. Katieand Peter: The Next Chapter was the top rating show on ITV2 with a series peakof 1.4 million viewers. The channel also began commissioning its own dramaprogramming, including the forthcoming drama Secret Diary of a Call Girl basedon the notorious blog Belle de Jour, and starring Billie Piper. ITV3 In the first half of 2007 ITV3's share of adult commercial impacts is up 9% at2.4% and there have been 31 programmes with more than 500,000 viewers. ITV4 In the first half of 2007, ITV4 has increased its share of adult commercialimpacts by 33% to 0.8%. Sport has been successful for the channel, one live UEFAChampions' League match averaging 1.1 million viewers and a 5.7% viewing sharein multichannel homes. Our Tour de France highlights have also done well with anaverage of 311,000 viewers and 2.0% viewing share in multichannel homes. Content businesses ITV Productions In 2007 so far, ITV Productions has made six out of the top ten highest-ratingprogrammes on ITV1 (2006: 8 out of 10). The first half of the year saw ITV Productions earn widespread critical acclaim.In film, The Queen was awarded two BAFTAs for best film and best actress, withHelen Mirren going on to win an Oscar for her role. In television, ITV Productions won BAFTA awards for two ITV dramas broadcast in2006 - Housewife 49 (Best Actress; Best Single Drama) and See No Evil (BestDrama Serial). Our creativity and innovation in programming for other channels was alsorecognised at the BAFTAs. Channel 4's Longford won Best Actor for JimBroadbent's performance and The Street for BBC1 won Best Drama Series. Coronation Street and Emmerdale have both performed well for ITV1 in the firsthalf with average audiences of 10.5 million viewers and 7.8 million viewersrespectively, and a combined audience ahead of 2006. Non-ITV UK Production We continued to produce programmes for the other main UK broadcasters, thoughthe turnover was reduced in the first half of 2007 due to several factors: - We have reduced our production of low margin programming as we focus on highervalue content. In particular, we are ceasing to produce children's programminginternally. - The commissioning of our programmes by other major UK free-to-air commercialbroadcasters was lower in the first half. - In our drama department, some individuals left to set up their own productionbusinesses, though we have now addressed that with the appointment of a new Headof Drama. We have maintained relationships and distribution agreements with someof those former members of staff. External revenue from studios and resources was marginally ahead at £11 millionin the first half. International production International production revenue was up by 10% at £34 million in the first halfwith growth in each of our US, German and Australian businesses. In the US, theacquisition of a controlling interest in Jaffe Braunstein Entertainment LLCduring the period will help to drive growth in television movies and drama. In Australia the success of Dancing with the Stars continues as the number oneAustralian produced programme and has been recommissioned for a seventh serieslater in the year. In Germany Das Perfekte Dinner continues to perform strongly. Granada International distribution and exploitation External sales in our international distribution business were £1 million lowerin the first half at £53 million. We continue to seek opportunities to representother rights owners and have taken a minority interest in the independentproduction house Mammoth together with an exclusive distribution agreement fortheir content. DVD revenue and volumes increased, whilst retail unit pricescontinued to decline. Consumer businesses itv.com The relaunch of itv.com as a video streaming broadband site is now complete,offering live channel simulcasts, a 30-day catch-up service and archive footage,as well as supporting material around our major shows. The roll out to consumersbegan on 12 June with the new Soaps site and the channel simulcasts for ITV1,ITV2 and ITV3. Catch-up, archive and exclusive made-for-broadband contentcarries pre-roll video advertising. Early signs for the pre-roll videoadvertising market are good, with ads for Ford carried in our Britain's GotTalent online clips generating a click-through rate of 9%, a multiple of 30times normal average click-through rates. The site has been launching genre by genre and a comprehensive marketingcampaign is planned for the autumn. ITV Local Now operational in London, Central, Meridian, Granada and Wales, itvlocal.comalready covers over 60% of the UK population and will be launched in ourremaining ITV regions by the autumn. Each service is already developing its ownindividual personality, with regional partnerships like London's Best of BoroughFilm Awards helping to promote local amateur film-making across the city. Friends Reunited The family of sites (Friends Reunited, Friends Reunited Dating and GenesReunited) continues its growth, with revenues in the first half up by 38% on2006. Genes Reunited is the largest UK genealogy site and Friends ReunitedDating is in the UK's top three paid-for dating sites. ITV Play Following general industry PRTS/Call TV issues that were raised in March, wetemporarily suspended Call TV on ITV Play. Our systems were reviewed by externalauditors and brought back to air after a short suspension. Programmes have nowresumed on ITV1 although revenues are significantly reduced on 2006. We willreview the Call TV aspect of this business again later in the year. SDN SDN has signed a digital switchover transmission contract with Arqiva, givingSDN certainty over its cost base until at least the end of its next licenceperiod in 2022. Carlton Screen Advertising (CSA) Revenue from CSA reduced by £4 million in the first half and the businesssustained a trading loss as minimum guarantees on long-term contracts withcinema operators increased the cost of operation. Without significant increasesin cinema advertising revenues, the losses are likely to persist and thegoodwill and intangible assets associated with CSA of £28 million have beenwritten off and an exceptional charge of £9 million has been taken to provideagainst these onerous contracts. Outlook ITV1's volume of adult commercial impacts has risen strongly during July and forthe period from 1 January to 29 July was up 0.6%, whilst the share of adultcommercial impacts was down by 4.8%. Estimated ITV1 advertising revenue for the third quarter is up 1% year on yearand for all ITV channels is up by 4%. We are looking forward to a strong autumnschedule with some of our most popular returning series and major eventsincluding the Rugby World Cup. John CresswellChief Operating Officer and Finance Director Key Performance Indicators (KPIs) This section sets out the Key Performance Indicators (KPIs) that the Companyuses to assess its performance. From these measures our stakeholders will beable to see how our business is performing. Financial KPIs Our financial KPIs are a range of output measures which are used to measure howsuccessful we have been in achieving our objectives. 2007 2006ITV1 net advertising revenue (NAR) (£ million) 595 654 In the first half of 2007 ITV's share of total ITV1 net advertising revenues(NAR) represented 59% of the Company's total revenues before disposed businesses(2006: 61%). ITV1's advertising performance is one of the biggest factorsinfluencing the Company's financial results. The principal factor resulting inthe reduction in ITV1 NAR in the first half of 2007 was the contract rightsrenewal (CRR) effect as ITV1's share of commercial impacts fell by 10% for thefull year 2006. 2007 2006Revenue outside of ITV1 NAR (£ million) 409 423 Revenues outside ITV1 NAR consisted of total revenues adjusted for disposedbusinesses if material, less ITV1 NAR. We aim to earn more than 50% of totalrevenue from outside ITV1 NAR by 2010. In the first half of 2007 revenuesoutside ITV1 NAR were 41% of total revenues (2006: 39%). 2007 2006EBITA before exceptional items (£ million) 151 202 Earnings before interest, taxation, amortisation and exceptional items. This isthe key profit indicator used to assess our performance. The reduction largelyreflects lower revenues and profits for ITV1. 2007 2006Adjusted EPS (pence) 2.3 3.3 Adjusted earnings per share before exceptional items, amortisation and taxadjustments. This is an important metric used to demonstrate underlying valuecreation per share. Non-financial KPIs Our non-financial KPIs are a mixture of output measures. The movements in theseKPIs during the year are explained in the Operating review. 2007 2006ITV1 total adult impact volume (billions) 118.7 121.2 Total number of adult viewings of a commercial on ITV1 (ratecard weighted to 30second equivalent) across a year. Our advertising revenue divided by the numberof impacts delivered gives the cost per thousand (CPT) impacts which is themeasure of the unit advertising cost to our customers. 2007 2006ITV1 adult SOCI (%) 32.2 34.2 ITV1's share of all commercial adult impacts (ratecard weighted to 30 secondequivalent). N.B: Channels which do not carry commercials (e.g. BBC) do notgenerate commercial impacts. 2007 2006Adult SOCI excluding ITV1 (%) 9.3 8.7 ITV's (excluding ITV1) share of all commercial adult impacts (ratecard weightedto 30 second equivalent). Impact volumes and share (as well as viewing shares) are measured by theBroadcasters' Audience Research Board (BARB) which is owned by participants inthe broadcast and advertising industries. Financial review Revenue Revenue for the six months to 30 June 2007 was down 7% at £1,004 million (2006:£1,077 million). The decrease in revenue reflects a decline in Net AdvertisingRevenue (NAR) of 5% to £717 million (2006: £752 million) with lower ITV1 andGMTV NAR being partially offset by increases from the digital channels asfollows: 2007 2006 Change £m £m %ITV1 595 654 (9)ITV2, ITV3, ITV4, CITV, M & M 95 70 36GMTV 27 28 (4)Total NAR 717 752 (5)Other revenues 287 325 (12)Total 1,004 1,077 (7) Other revenues have declined primarily due to a £21 million reduction in Call TVand PRTS revenues, a £12 million decrease in external production sales and a £4million decrease in Carlton Screen Advertising revenues. Operating profit Operating profit before amortisation and exceptional items was down 25% at £151million (2006: £202 million). Operating profit of £85 million represents a 48% decrease over 2006 (£163million). Operating profit is stated after a £9 million onerous contractprovision and a £28 million intangible assets impairment charge both relating toCarlton Screen Advertising as a result of falling revenues and minimum guaranteecommitments. Profit before tax decreased by 39% to £105 million (2006: £173million). Disposal of investments and other assets During the period, as part of the ongoing process to dispose of non-corebusinesses and investments, the Group sold its investment in Liverpool FootballClub and Athletic Grounds plc. This disposal resulted in a gain of £7 million.The sale of the Group's investment in Arsenal Holdings plc, along with an optionover 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.In addition to the above, the Group also disposed of certain assets connected toa transmission outsourcing arrangement for £4 million resulting in a nil gain orloss being booked. Disposal of properties During the period the Group sold a number of non-core properties in Southampton,Birmingham and Newbury, resulting in a profit on disposal of £9 million. Tax The effective rate of tax on profit before tax is 20%. The underlying rate oftax on operating profits is 30% as shown below: £m- Profit before tax as reported 105- Exceptional items (net) (34)- Amortisation 56- Share of profits of joint ventures and associates (2)Profit before tax, exceptional items, amortisation and share of profits of joint ventures and associates 125- Tax charge as reported 21- Net credit for exceptional items 3- Credit in respect of amortisation 11- Credit in respect of prior period items 3Underlying tax charge 38Underlying rate of tax 30% Earnings per share Basic earnings per share were down 28% at 2.1 pence (2006: 2.9 pence). Adjustedbasic earnings per share before amortisation and exceptional items were 2.3pence (2006: 3.3 pence). In 2007 profits from the disposal of properties havebeen classified as exceptional items and so are deducted from the adjustedearnings per share figure. The 2006 adjusted earnings per share has thereforebeen restated from 3.4 pence to 3.3 pence to reflect this change. Dividend The interim dividend is 1.35 pence per share (2006: 1.35 pence). This is covered1.70 times (2006: 2.44 times) by the adjusted earnings per share (beforeamortisation and exceptional items) of 2.3 pence (2006: 3.3 pence). Repayment of bonds During the period, a D356 million exchangeable bond and a £200 million Eurobondmatured resulting in a combined cash outflow of £441 million. Net debt The principal movements in net debt during the period are shown in the tablebelow: £m £mNet debt at 31 December 2006 (734)Cash generated from operations 117Net interest paid (37)Taxation receipts 5Equity dividends paid (55)Expenditure on property, plant and equipment less proceeds from disposals (19)Acquisition of subsidiary (3)Proceeds from sale of assets held for sale 72Other movements (14)Net debt at 30 June 2007 (668) Cash generated from operations was £117 million (2006: £169 million) and wasdown on the prior period due to a decrease in operating profits. Cash generatedfrom operations is stated after a £33 million working capital outflow (2006: £35million) primarily relating to payments for acquired US films and series. Netinterest paid on the Group's net debt position was £37 million. Net taxationreceipts of £5 million reflect taxation repayments from prior periods more thanoffsetting payments relating to the current period. The 2006 interim dividend of£52 million was paid at the start of the period and along with a £3 millionpayment for the dividend reinvestment plan (in respect of the 2006 finaldividend) gave a £55 million outflow. Expenditure on property, plant andequipment less proceeds from disposals totalled £19 million. During the periodthe Group acquired a 51% investment in Jaffe Braunstein Entertainment LLC for acash consideration of £3 million. Proceeds from sale of assets held for sale of£72 million include cash from disposal of the Group's investment in LiverpoolFootball Club and Athletic Grounds plc, its investment in Arsenal Holdings plcalong with an option over the Group's 50% interest in Arsenal Broadband Limitedand certain assets connected to a transmission outsourcing arrangement. Pensions The IAS 19 deficit at 30 June 2007 was £162 million (31 December 2006: £285million). The reduction in the deficit is primarily due to a significantincrease in real corporate bond yields which reduced the net present value ofscheme liabilities compared to the position at 31 December 2006. This hasresulted in a £106 million net actuarial gain recognised through the statementof recognised income and expense during the period. After a period of consultation with active members of our defined benefitpension scheme, we have made some changes to future accruals under that scheme,designed to make the scheme more affordable for the Company whilst maintainingan appropriate level of benefit for members. The changes will reduce theactuarial cost to the Company of future accruals in the defined benefit pensionscheme by some £6 million a year from 2008. Consolidated income statement For the six months ended 30 June: Note 2007 2006 £m £m Revenue 1,004 1,077 Operating costs before amortisation of intangible assets and exceptional items (853) (875) Operating costs - exceptional items 1 (10) (11) Earnings before interest, tax and amortisation (EBITA) 141 191 Amortisation of intangible assets 5 (56) (28) Total operating costs (919) (914) Operating profit 85 163 Financing income 94 81 Financing costs (121) (98) Net financing costs (27) (17) Share of profit of associates and joint ventures 2 4 Investment income 1 2 Gain on sale of property - exceptional items 1 9 4 Gain on sale of businesses and investments - exceptional items 1 35 17 Profit before tax 105 173 Taxation (21) (52) Profit for the period 84 121 Attributable to: Equity shareholders of the parent company 83 120 Minority interests 1 1 Profit for the period 84 121 Basic earnings per share 2 2.1p 2.9p Diluted earnings per share 2 2.1p 2.9p All results are from continuing operations. Dividends paid during the period and shown in the cash flow statement totalled£55 million (2006: £61 million). Subsequent to the balance sheet date theCompany has declared a dividend in respect of the six months ended 30 June 2007of 1.35 pence (six months ended 30 June 2006: 1.35 pence) per ordinary sharewhich, based on the shares in issue on 30 June 2007, totals £52 million (sixmonths ended 30 June 2006: £55 million). Consolidated statement of recognised income and expenseFor the six months ended 30 June: 2007 2006 £m £mExchange differences on translation of foreign operations - (2)Revaluation of available for sale investments (9) (7)Disposals transferred from available for sale reserve to income statement (16) (29)Actuarial gains and losses on defined benefit schemes 106 -Taxation on items taken directly in equity (36) -Net income/(expense) recognised directly in equity 45 (38)Profit for the period 84 121Total recognised income and expense for the period 129 83 Attributable to: Equity shareholders of the parent company 128 82 Minority interests 1 1Total recognised income and expense for the period 129 83 Consolidated balance sheet Note 30 June 31 December 30 June 2007 2006 2006 £m £m £m Non-current assets Property, plant and equipment 200 193 250 Intangible assets 5 3,847 3,895 3,919 Investments in joint ventures and associates 7 67 66 97 Equity investments 8 29 37 85 Distribution rights 9 11 15 Deferred tax asset in respect of pension scheme deficits - - 96 Other deferred tax balances - - (52) Net deferred tax asset - - 44 4,152 4,202 4,410 Current assets Assets held for sale 72 132 19 Programme rights and other inventory 451 400 377 Trade and other receivables due within one year 394 405 358 Trade and other receivables due after more than one year 7 7 22 Trade and other receivables 401 412 380 Cash and cash equivalents 9 582 961 439 1,506 1,905 1,215 Current liabilities Liabilities held for sale (2) - - Borrowings 9 (29) (471) (490) Trade and other payables due within one year (679) (706) (681) Trade and other payables due after more than one year (28) (9) (4) Trade and other payables (707) (715) (685) Current tax liabilities (191) (159) (195) Provisions (17) (9) (22) (946) (1,354) (1,392) Net current assets/(liabilities) 560 551 (177) Non-current liabilities Borrowings 9 (1,221) (1,224) (646) Defined benefit pension deficit (162) (285) (320) Deferred tax in respect of pension scheme deficits 45 86 - Other deferred tax balances (81) (93) - Net deferred tax liability (36) (7) - Other payables (56) (56) (29) Provisions (13) (18) (9) (1,488) (1,590) (1,004) Net assets 3,224 3,163 3,229 Attributable to equity shareholders of the parent company Share capital 10 389 401 405 Share premium 10 120 120 120 Merger and other reserves 10 2,702 2,690 2,686 Translation reserve 10 (3) (3) (1) Available for sale reserve 10 (8) 17 (5) Retained earnings 10 18 (69) 17 Total attributable to equity shareholders of the parent company 10 3,218 3,156 3,222 Minority interest 10 6 7 7 Total equity 10 3,224 3,163 3,229 Consolidated cash flow statement 2007 2006For the six months ended 30 June: £m £m £m £mCash flows from operating activitiesOperating profit before exceptional items 95 174Depreciation of property, plant and equipment 15 15Amortisation of intangible assets 56 28Movement in working capital (33) (35)Cash generated from operations before exceptional items 133 182Cash flow relating to exceptional items: Operating loss (10) (11) Decrease in payables and provisions* (6) (2)Cash outflow from exceptional items (16) (13)Cash generated from operations 117 169Defined benefit pension deficit funding - (207)Interest received 34 9Interest paid on bank and other loans (69) (22)Interest paid on finance leases (2) (2)Investment income 1 2Taxation received/(paid) 5 (45) (31) (265)Net cash from/(used in) operating activities 86 (96)Cash flows from investing activitiesAcquisition of subsidiary undertakings, net of cash and cash equivalents acquired, and debt repaid on acquisition (3) -Proceeds from sale of property, plant and equipment 4 6Acquisition of property, plant and equipment (23) (55)Acquisition of intangible fixed assets (5) -Proceeds from sale of assets held for sale 72 -Loans repaid by investments 1 -Proceeds from sale of businesses - 22Proceeds from sale of investments - 86Net cash from investing activities 46 59Cash flows from financing activitiesShare buy back - (86)Purchase of own shares via employee benefit trust (6) (26)Bank and other loans - amounts repaid (441) (4)Capital element of finance lease payments (2) (2)Dividend paid to minority interest (2) (6)Equity dividends paid (55) (61)Net cash used in financing activities (506) (185)Net decrease in cash and cash equivalents (374) (222)Cash and cash equivalents at 1 January 961 663Reclassification as asset held for sale (3) -Effects of exchange rate changes and fair value movements on cash and cash equivalents (2) (2)Cash and cash equivalents at 30 June 582 439 *Includes £1 million (2006: £2 million) relating to expenditure againstprovisions held in respect of activities which have been previouslydiscontinued. Notes to the accounts 1 Exceptional items For the six months ended 30 June: 2007 2006 £m £mOperating items: Reorganisation and integration costs (1) (2) Carlton Screen Advertising onerous contract provision (9) - Costs associated with private equity approach - (11) Receipt from the liquidators of Shop! - 2 (10) (11)Non-operating items: Profit on sale of investment in Seven Network - 29 Loss on disposal of Granada Learning - (12) Profit on disposal of investment in Arsenal Holdings plc and option over investment in Arsenal Broadband Limited 28 - Profit on disposal of investment in Liverpool Football Club and 7 -Athletic Grounds plc Gain on sale of businesses and investments 35 17 Gain on sale of property 9 4Total exceptional items 34 10 2 Earnings per share 2007 2006 Basic DilutedFor the six months ended 30 June: Basic Diluted (Restated) (Restated) £m £m £m £mProfit for the period attributable to shareholders 83 83 120 120Exceptional items (including related tax effect of £3 million, 2006: £5 million) (37) (37) (5) (5)Profit before exceptional items 46 46 115 115Amortisation of intangible assets (including related tax effect of £11 million, 2006: £8 million) 45 45 20 20Prior period tax adjustments (3) (3) - -Profit for the financial period before exceptional items and amortisation of intangible assets 88 88 135 135 Weighted average number of shares in issue - million 3,875 3,875 4,105 4,105Dilution impact of share options - million - 23 - 36 3,875 3,898 4,105 4,141 Earnings per ordinary share 2.1p 2.1p 2.9p 2.9p Adjusted earnings per shareBasic earnings per share 2.1p 2.1p 2.9p 2.9pLess: Earnings per share on exceptional items (0.9)p (0.9)p (0.1)p (0.1)p Earnings per share before exceptional items 1.2p 1.2p 2.8p 2.8pAdd: Loss per ordinary share on amortisation of intangible assets 1.2p 1.2p 0.5p 0.5pLess: Profit per ordinary share on prior year tax adjustments (0.1)p (0.1)p - - Earnings per share for the period before exceptional items and amortisation of intangible assets 2.3p 2.3p 3.3p 3.3p 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. The 2006 earnings per share figures have been restated to exclude the profit onsale of properties of £4 million to reflect more accurately theunderlying 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 2007 total £70million (six months ended 30 June 2006: £74 million) and represent the 2006final dividend proposed by the Company on 7 March 2007 and approved at theannual general meeting held on 17 May 2007 (six months ended 30 June 2006: 2005final dividend proposed on 8 March 2006). Subsequent to the balance sheet date the Company has declared a dividend inrespect of the six months ended 30 June 2007 of 1.35 pence (six months ended 30June 2006: 1.35 pence) per ordinary share which, based on the shares in issue on30 June 2007, totals £52 million (six months ended 30 June 2006: £55 million)that will be paid on 7 January 2008 to shareholders on the register at 9November 2007. 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/ Other Consolidated broadcaster operations 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £mSegment revenue 962 1,026 42 51 1,004 1,077Segment result 90 161 (5) 2 85 163 5 Intangible assets Customer Film contracts and Software libraries Goodwill Brands Licences relationships Development and other Total £m £m £m £m £m £m £m CostAt 31 December 2006 3,443 199 121 338 4 78 4,183Additions 2 - - - 5 1 8At 30 June 2007 3,445 199 121 338 9 79 4,191AmortisationAt 31 December 2006 20 50 20 182 - 16 288Charge for period - 9 5 12 - 2 28Impairment charge 20 - - 8 - - 28At 30 June 2007 40 59 25 202 - 18 344Net book valueAt 30 June 2007 3,405 140 96 136 9 61 3,847At 31 December 2006 3,423 149 101 156 4 62 3,895 6 Disposal of investments During the period the Group disposed of its interests in Arsenal Holdings plcand Liverpool Football Club and Athletic Grounds plc. The Group's 9.99% interestin Arsenal Holdings plc, along with an option over the Group's 50% interest inArsenal Broadband Limited, was sold for a total cash consideration of £50million and resulted in a gain of £28 million on disposal. The Group's 9.99%interest in Liverpool Football Club and Athletic Grounds plc was sold for a cashconsideration of £17 million and resulted in a gain of £7 million on disposal. 7 Investments in joint ventures and associates Joint Associated Total ventures undertakings £m £m £mAt 31 December 2006 59 7 66Share of attributable profits 1 - 1At 30 June 2007 60 7 67 8 Equity investments £mAt 31 December 2006 37Revaluation to fair value (8)At 30 June 2007 29 9 Analysis of net debt Currency and 31 December Net cash non-cash 30 June 2006 flow movements 2007 £m £m £m £mCash 824 (354) (3) 467Cash equivalents 137 (20) (2) 115Cash and cash equivalents 961 (374) (5) 582Loans and loan notes due within one year (468) 441 1 (26)Finance leases due within one year (3) 2 (2) (3)Loans and loan notes due after one year (1,152) - 1 (1,151)Finance leases due after one year (72) - 2 (70) (1,695) 443 2 (1,250)Net debt (734) 69 (3) (668) Included within cash equivalents is £73 million (31 December 2006: £75 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 Available Retained Total Minority Total capital premium and other reserve for earnings £m interest equity £m £m reserves £m sale £m £m £m £m reserve £mAt 31 December 2006 401 120 2,690 (3) 17 (69) 3,156 7 3,163Cancellation of deferred shares (12) - 12 - - - - - -Total recognised income and expense - - - - (25) 153 128 1 129Movements due to share-based compensation - - - - - 4 4 - 4Dividends paid to minority interests - - - - - - - (2) (2)Equity dividends - - - - - (70) (70) - (70)At 30 June 2007 389 120 2,702 (3) (8) 18 3,218 6 3,224 Attributable to equity shareholders Share Share Merger Translation Available Retained Total Minority Total capital premium and other reserve for earnings £m interest equity £m £m reserves £m sale £m £m £m £m reserve £mAt 31 December 2005 423 98 2,666 (1) 33 74 3,293 12 3,305Share buy backs (8) - 8 - - (86) (86) - (86)Shares issued in the period 2 22 - - - - 24 - 24Cancellation of convertible shares (12) - 12 - - - - - -Total recognised income and expense - - - - (38) 120 82 1 83 Movements due to share-based compensation - - - - - (17) (17) - (17)Dividends paid to minority interests - - - - - - - (6) (6)Equity dividends - - - - - (74) (74) - (74)At 30 June 2006 405 120 2,686 (1) (5) 17 3,222 7 3,229 11 Basis of preparation This interim financial information has been prepared applying the accountingpolicies and presentation that were applied in the preparation of the Company'spublished consolidated financial statements for the year ended 31 December 2006. 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. As there have beenmaterial movements in the key underlying assumptions and asset values during theperiod a formal revaluation has been carried out and actuarial gains and losseshave been recognised through the statement of recognised income and expense. Afull valuation will take place at 31 December 2007 in accordance with IAS 19. The comparative information at 30 June 2006 and 31 December 2006 is abridged andtherefore not ITV plc's statutory accounts for those periods.The accounts for the year ended 31 December 2006 have been reported on by ITVplc's auditor. The report of the auditor was unqualified and did notcontain a statement under section 237(2) or (3) of the Companies Act 1985. Thisis a statutory disclosure required by the Companies Act 1985. Independent review by KPMG Audit Plc to ITV plc Introduction We have been engaged by the Company to review the financial statements and thefinancial information for the six months ended 30 June 2007 which comprises ofthe Consolidated income statement, Consolidated statement of recognised incomeand expense, Consolidated balance sheet, Consolidated cash flow statement andthe related notes. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements ofthe Listing Rules of the Financial Services Authority. Our review has beenundertaken so that we might state to the Company those matters we are requiredto state to it in this report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company for our review work, for this report, or for the conclusions we havereached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4: Review of interim financial information issued by the Auditing PracticesBoard for use in the UK. A review consists principally of making enquiries ofmanagement and applying analytical procedures to the financial information andunderlying financial data and, based thereon, assessing whether the accountingpolicies and presentation have been consistently applied unless otherwisedisclosed. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions.It is substantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore providesa lower level of assurance than an audit. Accordingly, we do not express anaudit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. KPMG Audit PlcChartered AccountantsPO Box 6958 Salisbury SquareLondon EC4Y 8BB 8 August 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ITV