42 ITV plc Annual Report and Accounts 2023 ITV plc Annual Report and Accounts 2023 43 S T ALTERNATIVE PERFORMANCE MEASURES R A T E G I The Annual Report and Accounts includes both statutory and adjusted Restructuring and Amortisation and impairment Net financing costs C R E reorganisation costs Amortisation and any initial impairment of Net financing costs are adjusted to reflect P measures (Alternative Performance Measures or APMs), the laer of which, O Where there has been a material change in assets acquired through business the underlying cash cost of interest for the R in management’s view, reflect the underlying performance of the business the organisational structure of a business combinations and investments are not business, providing a more meaningful T area or a material initiative, these costs are included within adjusted earnings. As these comparison of how the business is managed and provide a more meaningful comparison of how the business is highlighted and are excluded from our costs are acquisition-related, and in line with and funded on a day-to-day basis. The managed and measured on a day-to-day basis.adjusted measures. These costs arise from our treatment of other acquisition-related adjustments made remove the impact of significant initiatives to reduce the ongoing costs, we consider them to be capital in mark-to-market gains or losses on swaps cost base and improve efficiency in the nature as they do not reflect the underlying and foreign exchange, one-off fees and business to enable the delivery of our trading performance of the Group. premiums relating to the buyback of bonds, Key adjustments for EBITA, Exceptional itemsstrategic priorities. We consider each Amortisation of software licences and exceptional interest and other finance costs Our APMs and KPIs are aligned with adjusted EBITA, profit before project individually to determine whether development is included within our adjusted on acquisitions, imputed pension interest our strategy and business divisions These items are excluded to reflect its size and nature warrant separate profit before tax as management consider and other financial gains and losses that and together are used to measure the tax and EPSperformance in a consistent manner and in treatment and disclosure.these assets to be core to supporting the do not reflect the relevant interest cash performance of our business and form EBITA is calculated by adjusting statutory line with how the business is managed and operations of the business.cost to the business and are not yet the basis of the performance measures operating profit for operating exceptional measured on a day‑to‑day basis. They are realised balances. for remuneration. Adjusted results items and amortisation and impairment. typically material amounts related to costs, exclude certain items because, gains or losses arising from events that are if included, they could distort the Adjusted EBITA is calculated by adding back not considered part of the core operations of Reconciliation between statutory and adjusted results understanding of our performance high‑end production tax credits to EBITA. the business, though they may cross several for the period and the comparability Further adjustments, which include the gain/accounting periods. These include, but are 2023202320232022202220221. £85 million (2022: £49 million) adjustment relates to between periods. APMs are not defined loss on the sale of non‑current assets, not limited to, costs directly related to Twelve months to Statutory AdjustmentsAdjustedStatutory AdjustmentsAdjustedproduction tax credits which we consider to be a acquisition activity, costs related to major 31 December£m £m £m £m £m £m contribution to production costs and working capital in terms under IFRS and may not be amortisation and impairment of assets EBITA140485489 668 49 717 nature rather than a corporate tax item. EBITA is not a comparable with similarly titled acquired through business combinations and reorganisation and restructuring statutory measure measures reported by other companies.investments, and certain net financing costs, programmes, material onerous contracts, Exceptional items 2. Exceptional items of £77 million (2022: £65 million) significant impairments, employee‑related 2 largely relate to acquisition-related expenses, are made to remove their effect from (operating)(77) 77 – (65) 65 – tax provisions related to earlier financial restructuring, transformation and property move As adjusted results exclude certain adjusted profit before tax and adjusted EPS. Amortisation and costs. Refer to the Finance Review items (such as significant legal, major The tax effects of all these adjustments are periods (IR35) and other items such as legal impairment3(89)25(64)(84)57(27)3. £25 million (2022: £57 million) adjustment relates to restructuring and transaction items), reflected in the adjusted tax charge. These settlements and non‑routine legal costs (e.g. amortisation and impairment of assets acquired legal costs related to items which are Operating profit238 187 425 519 171 690 through business combinations and investments. We they should not be regarded as a adjustments are detailed below.Net financing costs4(45)16(29)(26) – (26) include only amortisation on purchased intangibles, complete picture of the Group’s themselves considered to be exceptional such as software within adjusted profit before tax financial performance. The exclusion of Adjusted EBITDA, which is used to calculate items). We also adjust for the tax effect of Share of profits on 4. £16 million (2022: £nil) adjustment is for non-cash these items. JVs and associates – – – 8 – 8 interest cost. This provides a more meaningful adjusting items may result in adjusted the Group’s leverage, is calculated by adding comparison of how the business is managed and earnings being materially higher or lower back depreciation to adjusted EBITA.Profit before tax193203396501171 672 funded on a day-to-day basis See note 2.2 to the financial statements 5. Tax adjustments are the tax effects of the adjustments than statutory earnings. In particular, for further detail.Tax516(101) (85) (66) (69) (135) made to reconcile profit before tax and adjusted profit when significant impairments, Production tax creditsProfit after tax209102311 435 102 537 before tax. A full reconciliation is included in the restructuring charges and legal costs Acquisition-related costs Finance Review are excluded, adjusted earnings will be The ability to access tax credits, which are Non-controlling 6. Weighted average diluted number of shares in the rebates based on production spend, is We structure our acquisitions with earnouts interests1–1(7) – (7) period was 4,059 million (2022: 4,046 million) higher than statutory earnings.fundamental to our ITV Studios business or put and call options, to allow part of the Earnings210 102 312 428 102 530 The Audit and Risk Committee has across the world when assessing the viability consideration to be based on the future of investment decisions, especially with performance of the business as well as Shares (million), oversight of ITV’s APMs and actively regard to drama and comedy. ITV reports tax weighted average4,023–4,0234,010–4,010 reviews, challenges, revises and to lock in and incentivise creative talent. credits generated in the US and other Where consideration paid or contingent EPS (p)5.2p–7.8p10.7p – 13.2p approves the policy for classifying adjustments and exceptional items. countries (e.g. Italy, Canada and Spain) within consideration payable in the future is Diluted EPS (p)65.2p–7.7p10.6p–13.1p Further detail is included in the cost of sales, whereas in the UK tax credits employment‑linked, it is treated as an following section. for high‑end drama must be classified as a expense (under accounting rules) and corporation tax item. However, in our view all therefore part of our statutory results. Adjusted EBITDA (used to calculate the group’s leverage) for the year is £535 million (2022: £770 million), calculated by adding back tax credits relate directly to the production of However, we exclude all consideration of depreciation of £46 million (2022: £53 million) to adjusted EBITA (which is shown in the table above). programmes. Therefore, to align treatment, this type from adjusted EBITA, adjusted regardless of production location, and to profit after tax and adjusted EPS as, in our reflect the way the business is managed view, these items are part of the capital OTHER ALTERNATIVE PERFORMANCE MEASURES and measured on a day‑to‑day basis, the UK transaction and do not form part of the tax credits are recognised in adjusted EBITA. Group’s core operations. The Finance Review Total revenue Our cash measures, including profit to explains this further. Acquisition‑related cash conversion and free cashflow are costs, including legal and advisory fees on As a vertically integrated producer broadcaster and streamer, we look at the total revenue generated by the business including internal revenue, also adjusted for the impact of production completed deals or significant deals that do which is the sale of ITV Studios programmes to M&E. ITV Studios selling programmes to the M&E business is an important part of our strategy tax credits.not complete, are also treated as an expense as a vertically integrated business and it ensures we own all the rights to the content. (under accounting rules) and therefore on a In 2024, the adjustment we make to add back statutory basis form part of our statutory A reconciliation between external revenue and total revenue is provided below. high‑end production tax credits to EBITA will results. In our view, these items also form change. See the Tax note on page 47 of the part of the capital transaction or are one‑off 2023 2022 Finance Review Section for further details. and material in nature and are therefore Twelve months to 31 December £m £m excluded from our adjusted measures.External revenue (Statutory) 3,624 3,728 Internal supply 636 617 Total revenue (Adjusted) 4,260 4,345