72 ITV plc Annual Report and Accounts 2023 ITV plc Annual Report and Accounts 2023 73 S T LONG-TERM VIABILITY STATEMENT (LTVS) DISCLOSURE R A T E G I How we assess prospects Based on this review a set of hypothetical Assumptions Applied Taking into account current operational and financial performance, the Board has analysed the impact of the following hypothetically severe C R severe but plausible scenarios were but plausible scenarios. These scenarios were assessed in isolation and as combinations of two or three risks and, although not regarded as E and risks For the LTVS, we have assumed: P developed. These scenarios have then been plausible but as a reverse stress test, an assessment of all scenarios occurring simultaneously was undertaken: O The Board continually assesses ITV’s R prospects and risks at its meetings, including modelled against the first three years of the • EBITA impacts from LTVS scenarios flow T long range financial plan and cash forecast, through to cash in full except for tax the following: both individually and collectively, in order to savings at 25%, with the exception of Scenario Modelled Link to Principal risks or Accounting judgements and estimates • Holding ‘Strategy Days’ twice a year, to assess viability. settlement impacts (in scenarios 4 and 5) 1+2 A significant and sustained downturn in advertising revenue from Principal Risk 1: Streaming; oversee the delivery of the Strategy and and Scenario 5 remedial costs which are 2024, as a result of a decline in the advertising market and linear Whilst all principal risks identified could assumed to be disallowable for tax viewing, driven by macroeconomic factors or increased Principal Risk 3: Commercial; consider changes or new initiatives to further improve the ITV Strategy. have an impact on ITV’s performance, the purposes competition from large streamers. In this scenario we also fail to Principal Risk 4: Changing Viewer Habits; scenarios reflect the specific risks which • Any settlements related to ongoing replace the advertising revenue lost as result of the confirmed Principal Risk 5: Content Pipeline; • Considering ad-hoc topics on aspects of restrictions on High in Fat, Salt or Sugar (HFSS) and potential the strategy at Board meetings. could potentially impact the Group’s litigation or fines will be treated as restrictions on other advertising categories (e.g. gambling and Principal Risk 6: Partnerships; and financial position and viability during the exceptional items (and therefore excluded high carbon products). • Performing a robust assessment of the period to 31 December 2026. from covenant calculations) Principal Risk 8: Policy & Regulation principal and emerging risks twice a year. Additionally, our Streaming strategy fails to fully deliver the Further detail on how we mitigate these risks is provided in the The output from this modelling was reviewed • No acquisitions are made (consistent with expected consumption hours (for the digital advertising element) principal risk and uncertainties section (pages 55 to 64) As part of the assessment of prospects and ‘Base case’) or subscriber growth (for the SVOD element), impacting revenue by the Audit and Risk Committee in detail, risks, the Board and management routinely with a report from the Committee to the • Management and employee Incentive Advertising revenues year on year (including digital advertising receive briefings and consider topics related Board to support the Board’s review and payments (such as the annual bonus) are revenues) (2024 vs 2023 – 3%; 2025 vs 2024 – 4%; 2026 vs 2025 – 4%) to changing viewer habits, competitor approval. In reaching its view, the Board and assumed to reflect the Impact of the LTVS Total EBITA impact in 2024 is £62 million, followed by an impact of strategies, the broadcasting advertising Committee also considered external views, scenario assumptions on earnings £130 million in 2025 and £203 million in 2026. market and developments in the global including analyst and other industry • Dividends of 5.0p per share maintained Business area impacted: Media & Entertainment content market. It is also kept informed of commentary, to understand the wider market throughout, resulting in around £180 ITV’s resilience to environmental and climate views on the Group’s future prospects, and million of dividends paid out per year related risks; technological advancements in 3 A number of key programme brands within the ITV Studios Principal Risk 4: Changing Viewer Habits the external auditor’s findings and following the disposal of ITV’s 50% division are not recommissioned and new format growth does the areas of Generative Artificial Intelligence conclusions on this matter. shareholding in BritBox International. not materialise Principal Risk 5: Content Pipeline (AI) and how the ITV Strategy responds to • Identified cost savings continue to deliver Further detail on how we mitigate these risks is provided in the these; and sessions led by external analysts The scenario assumes key shows come to an end from 2024 (2024 principal risk and uncertainties section (pages 55 to 64) on investors’ perceptions of the ITV business Assessment period for viability to plan EBITA impact: c. £28 million; 2025 EBITA impact c. £58 million and The Board is of the view that a three year 2026 EBITA impact: c. £77 million). The Board and management continued to assessment period (to 31 December 2026) We have also assumed that the revolving Business area impacted: Studios closely scrutinise the impact of the current continues to be the most appropriate. The credit facilities of £500 million and £100 macroeconomic environment on the factors the Board considered in adopting this million are available throughout the period 4 ITV is subject to a cyber-attack which results in a major Principal Risk 3: Commercial business. This included identifying cost timeframe were as follows: and that the Credit Suisse CDS facility of operational disruption, critical system outage or loss of £300 million (which matures in June 2026) intellectual property (IP), customer or business data Principal Risk 7: Data interventions/mitigations to respond to • ITV’s long range financial and strategic and the EUR 600 million Eurobond (which possible severe downside scenarios; and This scenario assumes that a class action is filed against ITV, Principal Risk 10: Cyber Security planning cycle matures in September 2026) are re-financed increasing the focus and detail provided in (and not repaid from cash reserves). The following a major cyber attack which results in a blank screen Principal Risk 15: Operational Resilience financial performance reviews and • Visibility over ITV’s advertising business is causing £100 million of lost advertising revenue, which requires a short term. Advertising remains cyclical intention is to refinance a significant substantial compensation payment and results in a fine from the Further detail on how we mitigate these risks is provided in the reforecasting to track performance. proportion of the 2026 full year financing principal risk and uncertainties section (pages 55 to 64) and closely linked to the UK and global Information Commissioner’s Office (ICO). How we assess viability economic growth and impacted by the arrangements well before maturity. Business area impacted: Group uncertain macroeconomic environment. When assessing the longer-term viability of • The commissioning process and life cycle ITV, we considered 5 Settlements for ongoing litigation are significantly higher than The complexity and potential scale of the ongoing litigation cases of programming gives the Studios division estimated, resulting in large one-off cash payments result in a lack of certainty in the final liabilities and payments. • ITV’s strategy and business plan (pages 2 a more medium-term outlook. However, while non-returning brands are replaced This scenario assumes a higher than provisioned cash outflow in Further detail of the accounting judgements and estimates applied and 10); 2024 and 2025 in respect of settlements for ongoing litigation. to ongoing litigation and earnouts are provided in Section 1 to the • The principal risks and uncertainties with new commissions, over time there is Financial Statements. An overview the assessments performed by less visibility as programmes can Business area impacted: Group the Audit and Risk Committee with respect to these accounting (pages 55 to 64); experience changes in viewer demand or judgements is provided within the Audit and Risk Committee report • The Group’s financing facilities including come to a natural expiration from pages 106 to 116 covenant clauses and future funding plans (page 50); • Technology in the media industry continues to rapidly change the demand 6 A combination of scenarios 1 to 3 above occurring simultaneously. Principal Risk 1: Streaming; • The long range financial plan and cash for content and also how it is consumed forecast; and This scenario would result in an EBITA impact of £90m in 2024, Principal Risk 3: Commercial; • ITV’s business model does not typically £188m in 2025 and £280 million in 2026. Neither covenant is breached Principal Risk 4: Changing Viewer Habits; • Other sensitivity factors or risks which necessitate investment in large capital at any time during the assessment period and liquidity headroom have the potential to materially impact projects that would require a longer-term is maintained Principal Risk 5: Content Pipeline; liquidity and/or covenant headroom in the horizon assessment or returns Business area impacted: Group Principal Risk 6: Partnerships; and assessment period. • Pension funding, which is one of ITV’s key Principal Risk 8: Policy & Regulation funding obligations, is agreed triennially Further detail on how we mitigate these risks is provided in the principal with the Trustees of the pension scheme risk and uncertainties section (pages 55 to 64) We have considered the impact of climate change risks and do not believe they would have a significant financial impact on the business in the assessment period. Please refer to our Climate-related Financial Disclosures section for further details.