186 ITV plc Annual Report and Accounts 2023 ITV plc Annual Report and Accounts 2023 187 F I NOTES TO THE FINANCIAL STATEMENTS NAN SECTION 3: OPERATING ASSETS AND LIABILITIES CONTINUED C I AL Property, plant and equipment 3.3 Keeping The following note identifies the non-physical assets used by the Group to generate S T Property, plant and equipment can be analysed as follows: it simple revenue and profits. A Intangible T E assets These assets include formats and brands, customer contracts and relationships, M Vehicles, E Improvements to leasehold equipment contractual arrangements, licences, software development, film libraries and N Right T Freehold land and buildings and fittings of use goodwill. The cost of these assets is the amount that the Group has paid or, where S land and Long Short Owned assets Total there has been a business combination, the fair value of the specific intangible buildings £m £m £m £m £m £m assets that could be sold separately or which arise from legal rights. In the case of Cost goodwill, its cost is the amount the Group has paid in acquiring a business over and At 1 January 2022 12 87 26 235 154 514 above the fair value of the individual assets and liabilities acquired. The value of Additions – 2 – 33 57 92 goodwill is the ‘intangible’ value that comes from, for example, a uniquely strong Reclassifications – – – 4 1 5 market position and the outstanding productivity of its employees. Foreign exchange – 2 – 4 6 12 The value of intangible assets, with the exception of goodwill, reduces over the Disposals and retirements – (6) – (62) (10) (78) number of years the Group expects to use the asset, the useful economic life, via an At 31 December 2022 12 85 26 214 208 545 annual amortisation charge to the Consolidated Income Statement. Where there Additions – 2 – 28 12 42 has been a technological change or decline in business performance, the Directors Derecognition of right of use asset – – – – (14) (14) review the value of assets, including goodwill, to ensure they have not fallen below Foreign exchange – (1) – (2) (3) (6) their amortised value. Should an asset’s value fall below its amortised value, an additional impairment charge is made against profit. Disposals and retirements – (2) (8) (33) (43) (86) At 31 December 2023 12 84 18 207 160 481 This note explains the accounting policies applied and the specific judgements and estimates made by the Directors in arriving at the net book value of these assets. Depreciation At 1 January 2022 – 25 19 152 64 260 Accounting policies Charge for the year 1 3 1 31 25 61 Goodwill Goodwill represents the future economic benefits that arise from assets that are not capable of being individually Foreign exchange – – – 3 2 5 identified and separately recognised. Goodwill is stated at its recoverable amount being cost less any accumulated Disposals and retirements – (1) – (62) (4) (67) impairment losses and is allocated to the business to which it relates. At 31 December 2022 1 27 20 124 87 259 Charge for the year 1 3 1 25 22 52 All business combinations that have occurred since 1 January 2009 were accounted for using the acquisition Derecognition of right of use asset – – – – (6) (6) method. Under this method, goodwill is measured as the fair value of the consideration transferred (including the recognition of any part of the business not yet owned (non-controlling interests)), less the fair value of the Foreign exchange – – – (2) (1) (3) identifiable assets acquired and liabilities assumed, all measured at the acquisition date. The identification of Disposals and retirements – (2) (8) (32) (42) (84) acquired assets and liabilities and the allocation of the purchase price to them is considered a key judgement and is At 31 December 2023 2 28 13 115 60 218 based on the Group’s understanding and experience of the media business. Any contingent consideration expected to be transferred in the future is recognised at fair value at the acquisition date and recognised within other payables. Net book value Contingent consideration classified as an asset or liability that is a financial instrument is measured at fair value with changes in fair value recognised in the Consolidated Income Statement. The determination of fair value is based on At 31 December 2023 10 56 5 92 100 263 an estimate of discounted cash flows. The key assumptions take into consideration the probability of meeting each At 31 December 2022 11 58 6 90 121 286 performance target and the discount rate. Included within property, plant and equipment are assets in the course of construction of £19 million (2022: £34 million). Where less than 100% of a subsidiary is acquired, and call and put options are granted over the remaining interest, a non-controlling interest is initially recognised in equity at fair value, which is established based on the value of Included within the depreciation charge for the year of £52 million (2022: £61 million) is £6 million (2022: £8 million) the put option. A call option is recognised as a derivative financial instrument, carried at fair value. The put option in respect of accelerated depreciation following a change in useful life of the related assets in relation to the move is recognised as a liability within other payables, carried at the present value of the put option exercise price, and a to a new London site. This depreciation has been included in exceptional items. See note 2.2 for further details. corresponding charge is included in merger and other reserves. Any subsequent remeasurement of the put option liability is recognised within finance income or cost. Disposals and retirements for the year include assets written off with nil net book value that are not expected to generate any future economic benefits. Subsequent adjustments to the fair value of net assets acquired can only be made within 12 months of the acquisition date, and only if fair values were determined provisionally at an earlier reporting date. Included in net book value of right of use assets is £100 million (2022: £121 million) related to properties and £nil These adjustments are accounted for from the date of acquisition. (2022: £nil) relating to vehicles, equipment and fittings. Acquisitions of non-controlling interests are accounted for as transactions with owners and therefore no goodwill The Group signed a subleasing arrangement, which is classified as a finance lease in accordance with IFRS 16 is recognised as a result of such transactions. Transaction costs incurred in connection with those business ‘Leases’. In accordance with the standard, the right of use asset with a net book value of £8 million was derecognised combinations, such as legal fees, due diligence fees and other professional fees, are expensed as incurred. The and replaced by a net investment in the sublease which has been recognised within other receivables. This Directors consider these costs to reflect the cost of acquisition and to form a part of the capital transaction, and arrangement does not impact the lease liabilities arising from the original lease which have been included in note 4.6. highlight them separately as exceptional items. Capital commitments The Group has capital commitments of £2 million at 31 December 2023 (2022: £11 million).