190 ITV plc Annual Report and Accounts 2023 ITV plc Annual Report and Accounts 2023 191 F I NOTES TO THE FINANCIAL STATEMENTS NAN SECTION 3: OPERATING ASSETS AND LIABILITIES CONTINUED C I AL Intangible assets ITV Studios S T Intangible assets can be analysed as follows: The goodwill for ITV Studios has arisen as a result of the acquisition of production businesses since 1999. Significant A T balances were created from the acquisition by Granada of United News and Media’s production businesses in 2000 E M Customer Software and the merger of Granada and Carlton in 2004 to form ITV plc. ITV Studios goodwill also includes the goodwill E Formats contracts and Contractual Libraries licences and N arising from acquisitions since 2012, with the largest acquisitions being Leftfield in 2014, followed by Talpa in 2015 T Goodwill and brands relationships arrangements Licences and other development Total and Plimsoll in 2022. S £m £m £m £m £m £m £m £m Cost At 1 January 2022 3,893 527 441 11 176 104 240 5,392 The key assumptions on which the forecast cash flows for the whole CGU were based (as represented by the approved financial budget for 2024 and forecast to 2026) include revenue (including international revenue and the ITV Studios Additions – – – – – – 44 44 share of ITV output, growth in commissions and hours produced), margins and the pre-tax market discount rate. Acquisitions 107 1 13 – – – – 121 These assumptions have been determined by using a combination of extrapolation of historical trends within the Disposals – – – – – – (5) (5) business, industry estimates and in-house estimates of growth rates in all markets. No impairment was identified. Foreign exchange 37 21 8 – – 2 1 69 At 31 December 2022 4,037 549 462 11 176 106 280 5,621 A pre-tax discount rate of 10.7% (2022: 10.5%) has been used in discounting the projected cash flows. No reasonably possible change in assumptions or discount rate would lead to an impairment. Additions – – – – – – 39 39 Disposals – – (1) – – – (63) (64) Media & Entertainment Foreign exchange (18) (9) (4) – – (1) – (32) The goodwill in this CGU arose as a result of the acquisition of broadcasting businesses since 1999, the largest of At 31 December 2023 4,019 540 457 11 176 105 256 5,564 which was the merger of Carlton and Granada in 2004 to form ITV plc, which was treated as an acquisition of Carlton for accounting purposes. Media & Entertainment goodwill also includes the goodwill arising on acquisition of UTV Amortisation and Limited in February 2016. impairment At 1 January 2022 2,654 460 433 11 129 93 134 3,914 The main assumptions on which the forecast cash flow projections for this CGU are based (as represented by the Charge for the year – 41 6 – 2 – 27 76 approved financial budget for 2024 and forecast to 2026) include: the size, performance and share of the television Reclassifications – – – – – – (5) (5) and streaming advertising market; share of commercial impacts; programme and other costs; and the pre-tax Foreign exchange – 19 7 – – – 1 27 market discount rate. At 31 December 2022 2,654 520 446 11 131 93 157 4,012 In forming its assumptions about the television and streaming advertising market, the Group has used a combination Charge for the year – 17 4 – 2 – 64 87 of long-term trends, industry forecasts and in-house estimates, which place greater emphasis on recent experience. Disposals – – (1) – – – (63) (64) No impairment was identified. Foreign exchange – (8) (4) – – (1) – (13) An impairment charge of £2,309 million was recognised in the Media & Entertainment CGU in 2008, as a result of the At 31 December 2023 2,654 529 445 11 133 92 158 4,022 downturn in the short-term outlook for the advertising market. The current year impairment review, set out above, Net book value results in significant headroom. Even though the advertising market has improved since the impairment was At 31 December 2023 1,365 11 12 – 43 13 98 1,542 recognised in 2008 and the impaired assets are still owned and operated by the Group, due to accounting rules the At 31 December 2022 1,383 29 16 – 45 13 123 1,609 impairment to goodwill cannot be reversed. Goodwill impairment tests A pre-tax discount rate of 10.4% (2022: 10.4%) has been used in discounting the projected cash flows. No reasonably possible change in assumptions or discount rate would lead to an impairment. The carrying amount of goodwill for each CGU is represented as follows: SDN 2023 2022 Goodwill was recognised when the Group acquired SDN (the licence operator for DTT Multiplex A) in 2005. £m £m ITV Studios 903 921 It represented the wider strategic benefits of the acquisition specific to the Group, principally the enhanced ability to promote Freeview as a platform, business relationships with the channels which are on Multiplex A and additional Media & Entertainment 386 386 capacity available from 2010. SDN’s multiplex licence was renewed during 2022 and expires in 2034. SDN 76 76 1,365 1,383 The main assumptions on which the forecast cash flows are based (as represented by the approved financial budget for 2024 and forecast to 2026) are: income to be earned from renewals of medium-term contracts; the market There has been no impairment charge for any CGU during the year (2022: £nil). price of available multiplex video streams; and the pre-tax market discount rate. These assumptions have been determined by using a combination of current contract terms, recent market transactions and in-house estimates When assessing impairment, the recoverable amount of each CGU is based on value in use calculations. These of video stream availability and pricing. No impairment was identified. calculations require the use of estimates, specifically: pre-tax cash flow projections; long-term growth rates; and a pre-tax market discount rate. Cash flow projections are based on the Group’s current long-term plan. Beyond the A pre-tax discount rate of 9.1% (2022: 9.4%) has been used in discounting the projected cash flows. No reasonably plan, these projections are extrapolated using an estimated nominal long-term growth rate of 1.5% (2022: 1.5%). The possible change in assumptions or discount rate would lead to an impairment. growth rate used is consistent with the long-term average growth rates for both the industry and the countries in which the CGUs are located and is appropriate because these are long-term businesses. The discount rate has been updated for each CGU to reflect the latest market assumptions for the risk-free rate, the equity risk premium and the net cost of debt. There is currently no reasonably possible change in discount rate that would reduce the headroom in any CGU to zero.