162 ITV plc Annual Report and Accounts 2023 ITV plc Annual Report and Accounts 2023 163 F I NOTES TO THE FINANCIAL STATEMENTS NAN SECTION 1: BASIS OF PREPARATION C I AL In this This section sets out the Group’s accounting policies that relate to the financial After considering the severe but plausible scenarios, the Group remains able to operate within its financial S T section statements as a whole. Where an accounting policy is specific to one note, the covenants and will have sufficient liquidity during the going concern period to 30 June 2025. A T policy is described in the note to which it relates. This section also shows new UK- E The Directors propose a final dividend of 3.3 pence per share (2022: 3.3 pence), which equates to a full year dividend M adopted accounting standards, amendments and interpretations, and whether they E N are effective in 2023 or later years. We explain how these changes are expected to of 5.0 pence per share, subject to approval by shareholders at the AGM on 2 May 2024. The Directors intend to at T impact the financial position and performance of the Group. least maintain this dividend over the medium term (this was included in all scenarios modelled). The Directors will S continue to balance shareholder returns with a commitment to maintain investment grade credit metrics over the medium term and to continue to invest in the Group’s strategy. The financial statements consolidate those of ITV plc (‘the Company’) and its subsidiaries (together referred to as the ‘Group’) and the Group’s interests in associates and jointly controlled entities. The Company is registered in Consequently, the Directors are confident that the Group will have sufficient funds to continue to meet its liabilities England and Wales. as they fall due for at least 12 months from the date of approval of these consolidated financial statements and therefore have prepared the consolidated financial statements on a going concern basis. These Group financial statements were prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. Subsidiaries, joint ventures, associates and investments The accounting policies have been applied consistently in the financial years presented, other than where new Subsidiaries are entities that are directly or indirectly controlled by the Group. Control exists where the Group is policies have been adopted. exposed, or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In assessing control, potential voting rights that are currently exercisable The financial statements are principally prepared on the basis of historical cost. Where other bases are applied, or convertible are taken into account. these are identified in the relevant accounting policy. A joint venture is a joint arrangement in which the Group holds an interest under a contractual arrangement where The parent company financial statements have been prepared in accordance with Financial Reporting Standard 101 the Group and one or more other parties undertake an economic activity that is subject to joint control. The Group ‘Reduced Disclosure Framework’ (‘FRS 101’). accounts for its interests in joint ventures using the equity method. Under the equity method, the investment in the entity is stated as one line item at cost plus the investor’s share of retained post-acquisition profits or losses, less The notes form part of the financial statements. any dividends received and other changes in net assets. Going concern An associate is an entity, other than a subsidiary or joint venture, over which the Group has significant influence. As at 31 December 2023, the Group was in a net debt position of £553 million (2022: £623 million), including gross Significant influence is the power to participate in, but not control or jointly control, the financial and operating borrowings of £893 million (2022: £971 million) offset by cash and cash equivalents of £340 million (2022: £348 million). decisions of an entity. These investments are also accounted for using the equity method. In addition to £340 million of cash and cash equivalents (2022: £348 million), the Group has a syndicated £500 million Investments are entities where the Group concludes it does not have significant influence and are held at fair value Revolving Credit Facility (RCF) entered into during 2022 which was undrawn at 31 December 2023 (31 December 2022: unless the investment is a start-up business, in which case it is valued initially at cost as a proxy for fair value. £50 million drawn). £83 million of this facility expires in January 2028 and the remaining £417 million expires in January 2029. In December 2023, the Group entered into an additional £100 million bilateral RCF which matures in December 2028, Current/non-current distinction and which is undrawn at 31 December 2023. The Group also has a £300 million committed and undrawn bilateral facility Current assets include assets held primarily for trading purposes, cash and cash equivalents, and assets expected to expiring in June 2026 (31 December 2022: undrawn). This provides £1,240 million (2022: £1,098 million) of liquidity. be realised in, or intended for sale or use in, the course of the Group’s operating cycle. All other assets are classified as non-current assets. The €259 million Eurobond matured in December 2023 and was repaid through cash proceeds drawn in full from a £230 million term loan facility entered into in August 2023. The term loan matures in July 2027 and interest on Current liabilities include liabilities held primarily for trading purposes, liabilities expected to be settled in the course the loan is determined as an aggregate of compounded Sterling Overnight Index Average (SONIA) plus a margin. of the Group’s operating cycle and those liabilities due within one year from the reporting date. All other liabilities are The term loan has the same financial covenants as the Group’s RCF facility. classified as non-current liabilities. The two RCFs are subject to leverage and interest cover semi-annual covenant tests that require the Group to maintain Classification of financial instruments nto the following financial statement captions in the a leverage ratio of below 3.5x and interest cover above 3.0x (measures as defined in the RCF documentation). In The financial assets and liabilities of the Group are classified i addition, the £500 million RCF is subject to ESG targets linked to the delivery of ITV’s science-based carbon emissions Consolidated Statement of Financial Position in accordance with IFRS 9 ‘Financial Instruments’: targets. As at 31 December 2023, the Group had covenant net debt of £415 million (2022: £461 million) and its financial • Financial assets/liabilities at fair value through OCI – measured at fair value through other comprehensive income position was well within its covenants. The leverage and interest cover tests will be tested again on 30 June 2024. – separately disclosed as financial assets/liabilities in current and non-current assets and liabilities or equity investments in non-current assets The £500 million RCF contains Scope 1, 2 and 3 greenhouse gas emissions targets which align to ITV's stated • Financial assets/liabilities at fair value through profit or loss – separately disclosed as derivative financial objective to have Net Zero carbon emissions by 2030. These targets are measured at the end of each financial year instruments in current and non-current assets and liabilities and included in other payables (put option liabilities and independently verified in July following the relevant December year end. Scope 1 and 2 emissions are measured and contingent consideration) or convertible loan receivable within other receivables separately to Scope 3 emissions. The margin on the facility reduces by 2.5bps if Scope 1, 2 and 3 targets are met, by • Financial assets measured at amortised cost – separately disclosed as cash and cash equivalents and trade and 1.25bps if either Scope 1 and 2 targets are met or Scope 3 targets are met, and increases by 2.5bps if neither target is other receivables met. Failing to meet targets does not impact the availability of the RCF. The Group met Scope 1, 2 and 3 targets for • Financial liabilities measured at amortised cost – separately disclosed as borrowings and trade and other payables 2022, however 2023 emissions will not be verified until July 2024. Over the life of the facility, it may be necessary to recalibrate the baseline emissions level set in 2019, particularly in relation to Scope 3 emissions and there is a Judgement is required when determining the appropriate classification of the Group’s financial instruments, mechanism in the RCF documentation that allows for this. requiring assessment of contractual provisions that do or may change the timing or amount of contractual cash flows. Details of the accounting policies for measurement of the above instruments are set out in the relevant note. The Directors have prepared forecasts for three cash flow scenarios (mid, high and low cases), for the period of three Where unconditional rights to set off financial instruments exist, and the Group intends to either settle on a net basis years from 1 January 2024 (in line with the viability assessment period). The mid case scenario is based on the 2024 or realise the asset and settle the liability simultaneously, the Group presents the relevant instruments net in the Board approved budget and 2024 to 2026 strategic plan, also approved by the Board. The key assumptions in the Consolidated Statement of Financial Position. scenarios relate to fluctuations in the advertising market due to audience and/or market decline and the evolving demand in the content market, specifically relating to content pipeline. All scenarios have embedded inflationary Recognition and derecognition of financial assets and liabilities impacts with increased production costs in the short to medium term as well as continued structural changes in the The Group recognises a financial asset or liability when it becomes a party to the contract. Financial instruments are advertising market and viewing habits with increased focus on streaming. The Directors have also considered a no longer recognised in the Consolidated Statement of Financial Position when the contractual cash flows expire or number of sensitivities to the mid case scenario to arrive at a severe but plausible downside scenario that has been when the Group no longer retains control of substantially all the risks and rewards under the instrument. used to assess the appropriateness of preparing these consolidated financial statements using the going concern basis. These sensitivities include settlements in respect of ongoing litigation, lost and/or delayed Studios Cash and cash equivalents productions, a failure to deliver the expected consumption hours or subscriber growth for Streaming and a decline Cash and cash equivalents comprise cash balances and call deposits with a maturity of less than or equal to three months in advertising revenue in comparison to 2023. The severe but plausible scenarios do not assume the adoption of a from the date of acquisition. The carrying value of cash and cash equivalents is considered to approximate fair value. range of mitigations available to the Board.