232 ITV plc Annual Report and Accounts 2023 ITV plc Annual Report and Accounts 2023 233 F I NOTES TO THE ITV PLC COMPANY FINANCIAL STATEMENTS CONTINUED NAN C I AL Derivatives and other financial instruments Exercises of share options granted to employees can be satisfied by market purchase or issue of new shares. No new S T nstruments to hedge its exposure to fluctuations in shares may be issued to satisfy exercises under the terms of the DSA. A The Company uses a limited number of derivative financial i T E interest and other foreign exchange rates. The Company does not hold or issue derivative instruments for During the year, all exercises were satisfied by using shares held in the ITV Employees’ Benefit Trust. The Trust is M speculative purposes. E accounted for as a separate entity and therefore is only accounted for in the consolidated ITV financial statements. N T Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value S with the movement recorded in the profit and loss account within net financing costs, except where derivatives Dividends to shareholders qualify for cash flow hedge accounting. In this case, the effective portion of cash flow hedge is recognised in other Dividends payable to shareholders are recognised through equity on the earlier of their approval by the Company’s reserves within equity. The cumulative gain or loss is later reclassified to the profit and loss account in the same shareholders or their payment. Dividends are distributed based on the realised distributable reserves (within period as the relevant hedged transaction is realised. Derivatives with positive fair values are recorded as assets retained earnings) of ITV plc (Company) and not based on the Group’s retained earnings. and negative fair values as liabilities. The fair value of foreign currency forward contracts is determined by using the difference between the contract Note ii Employees ctors) were employees of the Company during the year, exchange rate and the quoted forward exchange rate at the balance sheet date. Employees and Two (2022: two) Directors of ITV plc (i.e. the Executive Dire share-based both of whom remain employed at the year end. The costs relating to these Directors are disclosed in the The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate compensation Remuneration Report. the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of swap counterparties. Share-based compensation Third-party valuations are used to fair value the Company’s derivatives. The valuation techniques use inputs such as The weighted average share price of share options exercised during the year was 49.3 pence (2022: 50.6 pence) interest rate yield curves and currency prices/yields, volatilities of underlying instruments and correlations between (excluding nil priced share options). The options outstanding at the year end have an exercise price in the range of nil inputs. For financial assets and liabilities classified at fair value through profit or loss, the fair value change and to 135.20 pence (2022: nil to 130.61 pence) and a weighted average contractual life of one year (2022: two years) for interest income/expense are not separated. all the schemes in place for the Group. Current tax Note iii The carrying value of the Company’s investments in subsidiary undertakings at 31 December 2023 was £3,224 million Investments (2022: £3,224 million). Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment in in subsidiary respect of previous years. The carrying value of the Company’s investments in subsidiary undertakings is assessed for impairment on an annual undertakings basis. Determining whether the carrying amount has any indication of impairment requires judgement. In testing The Company recognises liabilities for anticipated tax issues based on estimates of the additional taxes that are for impairment, estimates are used in deriving cash flows and the discount rates. The estimation process is complex likely to become due, which require judgement. Amounts are accrued based on management’s interpretation of due to the inherent risks and uncertainties associated with long-term forecasting. The outcome of the value in use specific tax law and the likelihood of settlement. Where the final tax outcome of these matters is different from the calculation including borrowings supports the carrying value of the investments in subsidiary undertakings. amounts that were initially recorded, such differences will impact the current tax and deferred tax provisions in the period in which such determination is made. Due to the significant headroom, there is no reasonably possible scenario that would result in a material adjustment to the amounts reported in the financial statements. Deferred tax The tax charge for the year is recognised in the Income Statement or directly in equity according to the accounting The Company’s review resulted in no impairment for 2023 (2022: no impairment). treatment of the related transaction. The listing of subsidiary undertakings and investments is listed on page 238 to 242. Deferred tax arises due to certain temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and those for taxation purposes. The amount of deferred tax provided is based on the Note iv The Company operates an intra-group cash pool policy with certain 100% owned UK subsidiaries. The pool applies expected manner of realisation or settlement of the carrying amount of assets and liabilities. A deferred tax asset is Amounts to bank accounts where there is an unconditional right of set off and involves the daily closing cash position for recognised only to the extent that it is probable that sufficient taxable profit will be available to utilise the temporary owed (to)/from participating subsidiaries whether positive or negative, being cleared to £nil via daily bank transfers to/from ITV plc. difference. Recognition of deferred tax assets therefore involves judgement regarding timing and level of future subsidiary These daily transactions create a corresponding intercompany creditor or debtor, which can result in significant taxable income. movements in amounts owed to and from subsidiary undertakings in the Company balance sheet. Interest is payable undertakings on intra-group cash pool balances at 0.5% above base rate per annum and the balances are repayable on demand. Share-based compensation Other loans to subsidiary undertakings are repayable according to contractual terms. The classification of balances s employee remuneration packages, and therefore operates as due after more than one year is based on the intention of when the balances are expected to be settled rather The Company utilises share award schemes as part of it than the contractual terms. a number of share-based compensation schemes, namely the Deferred Share Award (DSA), Executive Share Plan (ESP) Performance Share Plan (PSP), Long Term Incentive Plan (LTIP) and Save As You Earn (SAYE) schemes. The credit risk management practices of the Company include internal review and reporting of the historical credit losses A transaction will be classed as share-based compensation where the Company receives services from employees and forward-looking data. The Company applies the IFRS 9 simplified approach in measuring expected credit losses, and pays for these in shares or similar equity instruments. If the Company incurs a liability based on the price or value which use a lifetime expected credit loss allowance for amounts due from subsidiary undertakings, and other receivables. of the shares, this will also fall under a share-based transaction. The Company recognises the retained earnings To measure expected credit losses, amounts due from subsidiary undertakings, and other receivables have been impact of the share-based compensation for the Group as awards are settled in ITV plc shares. The cost of providing grouped by shared credit risk characteristics. In addition to the expected credit losses, the Company may make those awards is recognised as a cost of investment to the subsidiaries that receive the service from employees. additional provisions for the particular receivables if the deterioration of financial position is observed. The fair value of the equity instrument granted is measured at grant date and spread over the vesting period via a During the year, the Company provided for £22 million (2022: £192 million) of doubtful debts for amounts owed by its charge to the Income Statement with a corresponding increase in equity. The fair value of the share options and subsidiary undertakings. £2 million (2022: £11 million) was written back to the Income Statement for provisions of awards is measured using either market price at grant date or, for the SAYE scheme, a Black–Scholes model, taking doubtful debts no longer required. into account the terms and conditions of the individual scheme. Vesting conditions are limited to service conditions and performance conditions. For performance-based schemes, The recoverability of the amounts owed by subsidiary undertakings is assessed on an annual basis or more the relevant performance measures are projected to the end of the performance period in order to determine the frequently when an indication of impairment exists. Determining whether there is an indication of impairment requires number of options expected to vest. The estimate is then used to determine the option fair value, discounted to judgement as the assessment is based on either net assets of the undertaking or forecast future performance. present value. The Company revises its estimates of the number of options that are expected to vest, including an estimate of forfeitures at each reporting date. The impact of the revision to original estimates, if any, is recognised in the Income Statement, with a corresponding adjustment to equity.