ITV Final Year Results 2014

ITV set for continued growth after another strong year

Full year results for the year ended 31 December 2014

Another year of strong revenue growth in all parts of the business

·     Total external revenue up 8% to £2,590 million (2013: £2,389 million)

·     6% growth in Net Advertising Revenue to £1,629 million (2013: £1,542 million)

·     Online, Pay & Interactive revenue up 30% to £153 million (2013: £118 million)

·     ITV Studios revenue up 9% to £933 million (2013: £857 million)

Fifth consecutive year of double digit profit growth

·     EBITA before exceptional items up 18%, to £730 million (2013: £620 million)

·     Broadcast & Online EBITA up 17% to £568 million (2013: £487 million)

·     ITV Studios EBITA up 22% to £162 million (2013: £133 million)

·     Adjusted PBT up 23% to £712 million (2013: £581 million)

·     Adjusted EPS up 23% to 13.8p (2013: 11.2p)

Delivering value from investment in quality content - ITV Studios, on screen and online

·     Non-NAR revenue up £116m, or 10%, to £1,327 million (2013: £1,211 million) - now 45% of total revenue

·     ITV Studios is now a global player of scale with 3 further international acquisitions in 2014

·     Online, Pay & Interactive revenue is a growing and profitable part of the business

·     Broadcast launched our first new channels in almost a decade

·     ITV Family SOV was down 5%, after 4% growth 2013, and this remains a key area of focus for 2015

·     Continued strong growth in video on demand, up 26%

Confident in delivering further strong growth in 2015

·     Expect another strong performance in 2015 with continued revenue growth in all parts of the business

·     NAR expected to be up 11% in Q1 and up 4-7% in April and we expect to outperform the market again over the
 full year

·     Online, Pay & Interactive revenue will continue to grow strongly

·     ITV Studios again expected to deliver around £100 million revenue growth on a constant currency basis in 2015 with
 a return to good organic growth

Clear opportunities for further investment while increasing shareholder returns

·     Reflecting our confidence in the ongoing growth and cash generation of the business, the Board is proposing a final dividend of 3.3p  per share, giving a full year dividend of 4.7p per share, up 34%

·     The Board is proposing a £250m special dividend of 6.25p per share

Adam Crozier, ITV Chief Executive, said:

ITV delivered another strong performance in 2014 as we continue to rebalance the business, drive new revenue streams and invest in our future growth. All parts of the business are progressing well with Group external revenue up 8% to £2.6 billion, and for the fifth year in a row we achieved double digit profit growth, up 18% to £730 million. Across ITV we maintained our emphasis on cash generation, cost control and improving margins as we continued to strengthen ITV creatively, commercially and financially.

Non advertising revenue rose 10% to £1.3 billion, driven by a 30% increase in Online, Pay & Interactive, and by our continuing investment in quality content and creative talent in ITV Studios globally.

ITV Studios performed well, with revenue up 9% to £933 million, primarily from our acquisitions, and profit up 22% to £162 million. ITV Studios is now well established as a global business, with international production revenue up 24% and almost half its total revenue coming from outside the UK. It is the largest unscripted independent production company in the US following the acquisition during the year of Leftfield Entertainment and DiGa Vision, which join our expanding family of production companies. Both in the UK and the US we remain fully focused on growing our capability in high quality drama and we're beginning to build a presence in digital content through investments in Indigenous Media, Believe Entertainment and Zealot Networks.

Our Broadcast business had a strong year with profit up 17% to £568 million and advertising revenue up 6% to £1,629 million, well ahead of the TV advertising market and our strongest outperformance of the market for five years. We launched our first new channels in almost a decade - ITV Encore, our first pay only channel, and ITVBe, a free-to-air channel focusing on a young female audience.

While our share of viewing on linear TV was down in 2014, we are firmly focused on improving viewing this year. Up and coming new dramas include Jekyll & Hyde, Home Fires, Arthur & George, The Trials of Jimmy Rose, The Forgotten and Safe House as well as the return of Doc Martin, Prey, Downton Abbey and Vera. Thunderbirds Are Go is back on our screens this spring - and we have the exclusive rights to the Rugby World Cup which takes place in the UK this autumn.

An increasingly important, profitable and high margin part of our business is Online, Pay & Interactive. In 2014 our video on demand viewing was up 26% as we further improved the quality and distribution of ITV Player, which is available on more platforms than ever before, most recently Windows Phone 8 and Amazon Kindle Fire. ITV is well placed to take advantage of the growth in viewing on connected TVs, including through our investments in YouView, Freeview Play and Freesat.

For 2015 we're confident of further good revenue growth in all parts of ITV. In ITV Studios we'll again see upside from our acquired businesses as well as a return to good organic growth as we continue to invest in creative talent and content. In our Broadcast business, Online, Pay & Interactive will deliver another strong performance and we expect again to outperform the TV advertising market.

Reflecting our confidence in the ongoing growth and cash generation of the business, the Board has committed to grow the full year ordinary dividend by at least 20% per annum for three years to 2016, by when we will achieve a dividend cover of between 2.0 and 2.5 times adjusted earnings per share. In line with this policy, the Board is proposing a final dividend for 2014 of 3.3p, which equates to a full year dividend of 4.7p (2013: 3.5p), up 34%.

ITV is now a more balanced business with strong underlying cash flows. As we enter the next phase of our strategy we continue to see investment opportunities to grow the business and enhance shareholder value but at the same time the Board recognises the importance of maintaining capital discipline and balance sheet efficiency. Therefore it is appropriate over time to increase our balance sheet leverage gradually while retaining the flexibility to continue to invest.

In line with this approach, the Board is proposing a £250 million return to shareholders by way of a special dividend
of 6.25p.

ITV is now a high growth business with increasing emphasis on international content creation and distribution, and is demonstrably much stronger, both creatively and financially, than when we set out on our five year plan. We remain firmly focused on our strategy and look forward to this year and beyond with enthusiasm and confidence.

Full year results 

Adjusted profit before tax and adjusted EPS remove the effect of exceptional items. These include acquisition related costs, impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments, restructuring costs and other tax adjustments.

The profit before tax and EPS from the Consolidated Income Statement are as follows:

Financial performance

We have delivered another strong performance in 2014, with revenue growth in all parts of the business. Together with our relentless focus on cash and costs, we are reporting our fifth consecutive year of double digit profit growth and end the year with a strong balance sheet providing the flexibility to invest for further growth in 2015 and beyond.

Total ITV revenue increased 7% in 2014 to £2,956 million (2013: £2,753 million), with external revenue up 8% at £2,590 million (2013: £2,389 million). This reflects 6% growth in net advertising revenue (NAR) and another year of double digit growth in non-NAR, up 10% to £1,327 million (2013: £1,211 million) as we further rebalanced the business. Non-NAR now accounts for 45% (2013: 44%) of total revenue.

Together with our higher margin new revenue streams and disciplined cost control we delivered 18% growth in EBITA to £730 million (2013: £620 million), corresponding to an improved EBITA margin of 28% (2013: 26%). Overall, adjusted EPS was up 23% to 13.8p (2013: 11.2p).

Broadcast & Online

Broadcast & Online delivered another strong performance with revenue up £127 million to £2,023 million (2013: £1,896 million) driven by 6% growth in NAR and continued strong growth in Online, Pay & Interactive revenue.

The advertising market showed continued improvement in 2014 with good growth across the major advertising categories. We increased our share of broadcast to 45.9% (2013: 45.4%) and delivered our strongest outperformance of the UK advertising market in five years, based on our estimate of the pure spot market. Advertising growth was geared towards the second quarter with increased spend around the World Cup and, while we expect to outperform the advertising market again in 2015 there will be fluctuations across the year driven by major events such as the Rugby World Cup and the timing of Easter.

ITV Family SOV declined 5% in 2014, following a strong year in 2013 when we were up 4%. This largely reflects a 4% decline in the ITV main channel SOV. Although benefitting from the World Cup in June, the main channel delivered a lower audience share against strong competition from the BBC. ITV2 also contributed to the decline, partly as a result of more competition from new UK digital channels in the year, but also due to our repositioning of the channel to provide more targeted audiences for our advertisers through the launch of ITVBe. We remain focused on improving viewing performance, both on screen and online.

Online, Pay & Interactive revenue increased 30% in 2014 to £153 million (2013: £118 million) as we further improved the quality, reliability and distribution of ITV Player, now available on over 20 platforms. We also continued to develop our pay services, renewing a number of deals in 2014, as well as launching our first pay only channel, ITV Encore.

Schedule costs were up £35 million year on year to £1,018 million (2013: £983 million) as a result of the World Cup and also increased programming spend relating to our new channels. Other Broadcast & Online costs increased modestly, up 2% year on year to £437 million (2013: £426 million), due to marketing costs around our new channels as well as online investment. We continue to manage our overheads tightly to mitigate inflationary pressures and to fund continued investment in the business.

Overall, reflecting the strong growth in higher margin Online and Pay revenue, as well as good growth in our highly geared advertising revenue, Broadcast & Online EBITA was up 17% at £568 million (2013: £487 million) while the Broadcast & Online EBITA margin increased 2% to 28%.

ITV Studios

In 2014 we again delivered strong revenue growth in ITV Studios as we continue to build scale in attractive content markets. Total revenue increased 9% to £933 million (2013: £857 million) reflecting our purchase of Leftfield Entertainment and growth in international production and distribution as we become a more global business. Excluding our current and prior year acquisitions as well as foreign exchange movements, organic revenue was up 1%. A decline in the UK, due to the proportion of the ITV Broadcast programme budget allocated to the World Cup reducing the available spend on other programme genres including drama and entertainment, was offset by growth from our international production companies and Global Entertainment.

We completed three acquisitions in 2014, further growing our portfolio of global production companies. In February 2014 we acquired 100% of United Production, a Danish producer of entertainment and reality programmes, and a 51% controlling interest in DiGa, a US independent producer of reality and scripted programming. There is a put and call option to buy the remainder of DiGa over three to six years, with the total amount payable linked to the performance of the company over that period. In May 2014 we made the acquisition of Leftfield Entertainment, a high margin US production company. We made an initial cash payment of $360 million for 80% of Leftfield, with further potential payments dependent upon Leftfield's continued delivery of significant profit growth. There are put and call options in place to buy the remaining 20% of Leftfield over three to five years. This acquisition, our largest to date, represents a major step forward in our strategy as we grow an international content business of scale.

Overall ITV Studios EBITA increased 22% to £162 million (2013: £133 million) and its EBITA margin increased by 1% to 17%, benefitting from a higher margin revenue mix as a result of our acquisitions, as well as production efficiencies in the year.

Adjusted EPS

Adjusted profit before tax, after financing costs, was up 23% at £712 million (2013: £581 million). Adjusted financing costs reduced £18 million in the year to £7 million (2013: £25 million) benefitting from the redemption of the 2016 convertible bond outstanding in 2013 and the repurchase of the remaining tranche of the 2019 bilateral loan in January 2014.

The total tax charge for 2014 was £132 million (2013: £105 million), corresponding to an effective tax rate on adjusted profit before tax of £712 million of 21% (2013: 23%), which is broadly in line with the standard corporation tax rate of 21.5% (2013: 23.3%).

Overall, adjusted profit after tax was up 26% at £561 million (2013: £445 million). After non-controlling interests of £7 million (2013: £4 million), adjusted EPS was 13.8p (2013: 11.2p), up 23%. The weighted average number of shares increased 2% to 4,002 million (2013: 3,929 million) largely due to the issue of shares following the convertible bond redemption in 2013. Diluted adjusted EPS in 2014 was 13.7p (2013: 10.8p) reflecting a weighted average diluted number of shares of 4,040 million (2013: 4,111 million).

Basic EPS

After adjustments for exceptional items including acquisition related costs, impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments and other tax adjustments, basic EPS increased 40% to 11.6p (2013: 8.3p).

Balance sheet and cash flow

ITV maintained its strong cash generation and tight management of working capital balances in the year, generating £665 million (2013: £604 million) of operational cash from £730 million (2013: £620 million) of EBITA before exceptional items. This equates to a strong profit to cash ratio of 91%. Our underlying cash generation after payments for interest paid, cash tax and pension funding also remained strong in the year. Free cash flow was up 10% at £478 million (2013: £433 million), slightly lower than the profit growth in the year as a result of our investments in scripted drama.

Overall, after dividends, acquisitions and debt repayments we ended the year with net cash of £41 million, compared to net debt of £201 million at 30 June 2014 and £164 million net cash at 31 December 2013. Our cash generation was weighted towards the second half of 2014 due to the timing of our pension funding contribution, debt buybacks and acquisition of Leftfield, all of which took place in the first half.

We also look at an adjusted measure of net debt, taking into consideration all of our financial commitments. At 31 December 2014, adjusted net debt was broadly in line with the prior year at £765 million (31 December 2013: £792 million) reflecting a reduction in the pension deficit under IAS 19 and lower undiscounted operating lease commitments which mainly relate to broadcast transmission contracts and property.

In 2014 we again bought back debt to improve our balance sheet efficiency further, repurchasing the remaining tranche of the 2019 bilateral loan.

We also entered into a number of new financing facilities. We obtained a committed £525 million Revolving Credit Facility provided by a number of core relationship banks in the year and also entered into a new £175 million bilateral financing facility and agreed a new £75 million invoice discounting facility, both free of financial covenants. As at 31 December 2014 all three facilities were undrawn.

As we enter the next phase of our strategy this financial flexibility and our continued strong free cash flow will enable us to invest in opportunities to grow the business and enhance shareholder value.

Going forward our objective is to run an efficient balance sheet, and to balance investment for further growth with attractive returns to shareholders. Therefore we will, over time, look to increase our balance sheet leverage. We believe that maintaining leverage below 1.5x net debt to EBITDA (before exceptionals) will optimise our cost of capital, allow us to sustain our progressive dividend policy and enable us to retain flexibility to continue to invest for further growth.

Pension

The aggregate IAS 19 deficit of the defined benefit schemes at 31 December 2014 was £346 million (31 December 2013: £445 million) reflecting pension funding contributions in March and April of £91 million. An increase in the pension liabilities, as a result of a fall in the discount rate used to measure liabilities, was offset by asset outperformance, primarily gilts and swaps.

2015 planning assumptions

·     Total network programme budget is expected to be around £1,040 million reflecting our two new channels

·     Adjusted interest is expected to be at the same level as 2014 as a result of the impact of debt buybacks

·     Effective tax rate is expected to be 21%, consistent with 2014

·     Capex is expected to remain around £40-£45 million annually

·     Profit to cash conversion is expected to be around 85% due to investment in scripted content

·     Pension deficit funding will not exceed contributions made in 2014

Outlook for 2015

We expect to deliver another strong performance in 2015 with continued revenue growth across all parts of the business.

The television advertising outlook remains positive. ITV Family NAR is expected to be up 11% in in Q1 and 4-7% in April and we expect to outperform our estimate of the television advertising market again over the full year. We remain focused on improving SOV and we are increasing investment in our programme schedule in 2015 to support a full year of our new channels as well as overall viewing performance.

Online, Pay & Interactive revenue will continue to grow strongly as we further improve the distribution of our content, capitalising on the growing demand for VOD. We will continue to invest in ITV Player and look to grow the level of interaction and engagement with our viewers through competitions, voting and social media while at the same time exploring new pay services, such as ITV Encore.

In 2015 we expect ITV Studios again to deliver around £100 million of revenue growth on a constant currency basis, with a return to good organic growth supported by a full year of the acquisitions we completed in 2014. We will start to see the benefit of our investment in scripted content and we will look to continue to develop our creative pipeline through further investment in creative talent and content.

Notes to editors

1.   Unless otherwise stated, all financial figures refer to the twelve month period ended 31 December 2014, with growth compared to the same period in 2013.

2.   Group external revenue

3.   ITV Family NAR was up 14% in January and up 13% in February. We expect it to be up 8% in March, with Q1 up 11% and April to be up 4-7%. This revenue is pure NAR, excluding the benefit of sponsorship revenue and video on demand.

      Figures for ITV plc and TV market NAR are based on ITV estimates and current forecasts. 

4.   Broadcast & Online performance indicators

      SOV data based on BARB/AdvantEdge data and Share of Commercial Impacts (SOCI) data based on BARB/DDS data. SOV data is for individuals and SOCI data is for adults. ITV Family includes: ITV, ITV2, ITV3, ITV4, ITV Encore, ITVBe, CITV, ITV Breakfast, CITV Breakfast and associated "HD" and "+1" channels. Total long form video requests across all platforms are based on data from ComScore Digital Analytix, Virgin, BT, iTunes, Amazon Prime Instant Video, Netflix, Sky, 3UK and Hospedia and include simulcast.

5.   ITV Studios revenue summary

* At constant currencies and excluding revenue from 2013 and 2014 acquisitions

6.   As we grow our international business, foreign exchange movements increasingly impact our reported performance. Total ITV Studios revenue, including acquisitions, would have been £22 million higher and EBITA £5 million higher on a constant currency basis. Our definition of constant currency assumes exchange rates remain consistent with 2013.

7.   The final dividend and special dividend for 2014 will be paid on 29 May 2015. The ex dividend date is 30 April 2015 and the record date is 1 May 2015.

8.   This announcement contains certain statements that are or may be forward looking with respect to the financial condition, results or operations and business of ITV. By their nature forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward looking statements. These factors include, but are not limited to (i) a major deterioration in the current outlook for UK advertising and consumer demand, (ii) significant change in regulation or legislation, (iii) failure to identify and obtain, or significant loss of, optimal programme rights, and (iv) the loss or failure of transmission facilities or core systems and (v) a significant change in demand for global content.

      Undue reliance should not be placed on forward looking statements which speak only as of the date of this document. The Group accepts no obligation to revise publicly or update these forward looking statements or adjust them to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

For further enquiries please contact: 

Investor Relations

Sharjeel Suleman     +4420 7157 6560 or +44 7733 002828

Clara Melia                 +4420 7157 6555 or +44 7775 036657

Media Relations

Mary Fagan                 +4420 7157 3965 or +44 7736 786448

Mike Large                  +4420 7157 3021 or +44 7768 261528

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Strategy and Operations

Chief Executive's Review

Adam Crozier

Chief Executive

ITV delivered another strong performance in 2014 building on the significant progress we have made rebalancing, strengthening and growing the business. We have recorded double digit profit growth for the fifth consecutive year reflecting growth across all areas of the business.

It's been five years since we launched our strategy for growth and, despite challenging economic conditions and the rapidly changing media landscape, performance has improved in every part of the business. Since 2009, ITV external revenue has increased 38%, EBITA before exceptional items is up over 250% to £730 million and we have increased adjusted EPS over 650% and basic EPS by over 400%. Our cash position has also significantly improved, enabling us to deliver attractive shareholder returns, with over £650 million cash returned over five years, while continuing to invest for further growth.

ITV today is a much stronger business, creatively, commercially and financially and we've made good progress on revenue diversification as we have rebalanced the business away from our dependence on UK spot advertising. Our international content business, ITV Studios, is now a global player of scale, with almost half its revenue generated outside the UK, and we will continue to grow the business both organically and through targeted acquisitions in key creative markets. Our Broadcast business remains robust and continues to deliver unrivalled audience reach for advertisers, while Online, Pay & Interactive revenue is growing strongly and is now a material and profitable part of the business.

As we continue to execute our strategy, we remain focused on our original vision of ITV as an owner and producer of world-class content. We will continue to rebalance the business and grow new revenue streams and there will be increasing emphasis on international content creation and distribution. Our renewed strategic priorities are therefore a natural evolution of our current strategy, focusing on the areas where we can achieve most growth:

1 Maximise audience and revenue share from free-to-air broadcast and VOD business

2 Grow international content business

3 Build a global pay and distribution business

We are confident that by maximising our value as an integrated producer broadcaster and making our content famous on our multiple platforms before distributing it around the world, we will continue to deliver strong growth in the UK and internationally.

Delivering value from investment in quality content

In 2014 we grew external revenue by 8% to £2,590 million, reflecting 6% growth in NAR to £1,629 million (2013: £1,542 million) and over £100 million growth in non-NAR to £1,327 million (2013: £1,211 million), up 10%. We have remained disciplined in our cost control, with the result that Group EBITA before exceptional items increased 18% to £730 million (2013: £620 million), corresponding to an improved EBITA margin of 28% (2013: 26%). Overall we have delivered another strong performance, with adjusted EPS up 23% to 13.8p (2013: 11.2p), and basic EPS up 40% to 11.6p (2013: 8.3p).

Broadcast & Online revenue was up by £127 million or 7% to £2,023 million (2013: £1,896 million), with EBITA before exceptional items increasing 17% to £568 million (2013: £487 million). The advertising market showed continued improvement in 2014 with good growth across the major categories. NAR was up 6% over the full year, reflecting our best outperformance of the UK advertising market for five years.

Over the year we also strengthened the ITV Family with the launch of our first new channels in almost a decade. ITV Encore, a new pay channel, has been on screen since June, while ITVBe, a free-to-air channel targeted at a young female demographic, launched in October.

ITV Family SOV declined 5% in 2014, following a strong year in 2013 when we were up 4%. This largely reflects a 4% decline in the ITV main channel SOV. Although benefitting from the World Cup in June, the main channel delivered a lower audience share against strong competition from the BBC. ITV2 also contributed to the decline, partly as a result of more competition from new UK digital channels in the year, but also due to our repositioning of the channel to provide more targeted audiences for our advertisers through the launch of ITVBe. We remain focused on improving viewing performance, both on screen and online.

Significant further progress in rebalancing the business and driving new revenue streams

Online, Pay & Interactive is an increasingly important, profitable and high margin part of the business. Revenue increased 30% in 2014 driven by growth in Online as we further improved the quality, reliability and distribution of ITV Player, as well as strong growth in Pay as we develop new revenue streams.

ITV Studios also continues to perform well as we build scale in attractive content markets. Total revenue increased 9% in 2014 to £933 million (2013: £857 million) reflecting our purchase of Leftfield Entertainment (Leftfield) as well as growth in international production and distribution. Following this acquisition, ITV is now the largest unscripted independent production company in the US and an increasingly international business with almost half of ITV Studios revenue generated outside the UK. In 2014 we delivered a 22% increase in ITV Studios EBITA before exceptional items to £162 million (2013: £133 million).

Clear opportunities for further investment while increasing shareholder returns

Over the last five years we have considerably improved ITV's balance sheet efficiency and in 2014 we continued to demonstrate strong profit to cash conversion, generating £478 million free cash (2013: £433 million) before investment and capital returns to end the year with net cash of £41 million (31 December 2013: £164 million).

Reflecting our confidence in the ongoing growth and cash generation of the business, the Board has committed to growing the full year ordinary dividend by at least 20% per annum for three years to 2016, by when we will achieve a dividend cover of between 2.0 and 2.5 times adjusted earnings per share. In line with this policy, the Board is proposing a final dividend for 2014 of 3.3p, which equates to a full year dividend of 4.7p (2013: 3.5p), up 34%.

ITV is now a more balanced business with strong underlying cash flows. As we enter the next phase of our strategy we continue to see investment opportunities to grow the business and enhance shareholder value but at the same time the Board recognises the importance of maintaining capital discipline and balance sheet efficiency. Therefore it is appropriate over time to increase our balance sheet leverage gradually while retaining the flexibility to continue to invest.

In line with this approach, the Board is proposing a £250 million return to shareholders by way of a special dividend of 6.25p.

Remaining responsive to a changing media environment

While the market environment in which we operate is constantly changing, it is clear that there continues to be a strong global demand for high quality content. ITV is capitalising on this demand as we further diversify our revenue streams through our investment in creative talent and production and through our unique ability to distribute content across multiple platforms, both free and pay.

We are also aware that viewers, especially the younger generation, are increasingly changing the way they consume content. The digital revolution has dramatically increased the number of devices and platforms on which content is viewed, and Online is now one of the fastest growing businesses within ITV. In response, we continue to invest in the quality and accessibility of ITV Player, available on over 20 platforms, as well as seeking new ways to monetise and distribute our content.

At the same time, although VOD is growing rapidly, viewing of broadcaster and other VOD still only accounts for around 5% of total viewing of long form content. On average viewers still spend 221 minutes per day watching television, the same as in 2004 (2004: 222 minutes), with the majority of content still watched live. Unlike any other medium, television has the power to bring audiences together and live television in particular has demonstrated resilience and a growing relevance as viewers increasingly connect through social media. 

Television also remains the most efficient and effective way for brands to achieve mass simultaneous reach. ITV is the biggest marketing platform in the UK, reaching around 80% of the television owning population every week and providing access to 99% of all commercial audiences over five million. As a result our family of channels continues to be in high demand from advertisers, and the significant profit and cash generated from our advertising revenue means that our Broadcast business remains central to our strategy.

In our view, technological advances in the availability and delivery of content will serve to support overall viewing time growth as we provide our viewers with access to a wider range of sought after content. ITV is well positioned to benefit from our commercial scale, the growing demand for high quality content, and the way we are able to maximise our revenue from the delivery and distribution of that content.

Confident in delivering further strong growth in 2015 and beyond

We expect to deliver another strong performance in 2015 with continued revenue growth across all parts of the business.

The television advertising outlook remains positive with the economic recovery driving advertising growth. ITV Family NAR is expected to be up 11% in the first quarter of 2015 and up 4-7% in April and, based on our estimates, we expect to outperform the television advertising market again over the full year. We remain focused on improving SOV and we will continue to invest in our programme schedule in 2015 to support a full year of our new channels as well as overall viewing performance on screen and online.

New dramas in 2015 include Jekyll and Hyde, Home Fires, Arthur and George and we'll also have the return of Doc Martin, Downton Abbey and Vera as well as the launch of Thunderbirds Are Go. Although we are disappointed that we will no longer hold the live rights for the Champions League from autumn, we still have a strong sporting schedule in 2015 including exclusive rights to the Rugby World Cup.

Online, Pay & Interactive revenue will continue to grow strongly as we further improve the distribution of our content, capitalising on the growing demand for VOD. We will continue to invest in ITV Player and look to grow the level of interaction and engagement with our viewers while at the same time exploring new pay services, such as ITV Encore.

In 2015 we expect ITV Studios again to deliver around £100 million of revenue growth on a constant currency basis, with a return to good organic growth supported by a full year of the acquisitions we completed in 2014. We will start to see the benefit of our investment in scripted content and we will look to continue to develop our pipeline through further investment in creative talent and content.

Overall, we see clear opportunities for further investment across the business and, benefitting from our strong financial position and cash conversion, we are confident in delivering continued growth while improving shareholder returns. The media landscape is changing rapidly and we increasingly expect growth to come from international content creation and our online, pay and distribution operations.

To ensure we maximise the value of our investment in high quality content, in the medium term we will continue to drive the debate around the implementation of retransmission fees in the UK, in particular the repeal of legislation that currently prevents us from having a normal commercial negotiation with the pay television platforms.

We are confident that ITV's financial strength and its strategic advantages including the scale of our UK channels, our unrivalled commercial audience reach, our growing global network in the development, production and distribution of content, as well as the quality of our people, places us in a strong position to continue to develop and grow the business. 

Performance Dashboard

1 Maximise audience and revenue share from free-to-air broadcast and VOD business

Milestones achieved

·     ITV NAR growth of 6%, our best outperformance of the UK advertising market in five years

·     Share of broadcast up to 45.9% in 2014 (2013: 45.4%)

·     Innovative sponsorship and brand extension partnerships with advertisers

·     Launched new free-to-air channel ITVBe providing a more targeted female demographic for our advertisers

·     ITV2 and ITV3 largest digital channels

·     Long form video requests up 26%

·     Further improved quality and reach of ITV Player

·     8.0m registered users of ITV Player, up 129% in 2014

Focus for 2015

·     Economic recovery driving advertising growth

·     Improve on screen viewing in key demographics

·     Strengthen our content, channels and brand to maintain our unique scale

·     Grow our share of total television and VOD advertising

·     Continue to drive new revenue streams through sponsorship, interactivity and brand extensions

·     Support platforms that make ITV content prominent

·     Further invest in the quality and distribution of ITV Player

Key Performance Indicators

·     ITV Family SOV

·     ITV Family SOCI

·     ITV Family share of broadcast

·     Total long form video requests

2 Grow international content business

Milestones achieved

·     ITV Studios' share of ITV main channel output increased to 60%

·     13% growth in off-ITV production revenue in the UK

·     Continued investment in creative pipeline with 5,700 hours of original content produced and delivered

·     Completed three acquisitions including Leftfield, our biggest acquisition to date

·     Now the largest unscripted independent producer in the US

·     Almost half of ITV Studios revenue generated outside the UK with 24% growth in international production revenue

·     Three US scripted series in production

Focus for 2015

·     Continue to develop IP in key creative markets to exploit growing worldwide demand

·     Maximise the use of our strong cash flows to finance the production of high profile dramas that return and travel

·     Over time build a portfolio with six to ten new scripted series per annum

·     Develop more 16 to 24 focused content

·     Attract and retain key creative talent

·     Continue to look at acquisitions

Key Performance Indicators

·     Number of new commissions for ITV Studios

·     Percentage of ITV output from ITV Studios

3 Build a global pay and distribution business

Milestones achieved

·     Grew pay revenue by 63%

·     Launched ITV Encore, our first pay only channel which was profitable from day one

·     Announced new deal with Sky and extended Virgin deal for another year

·     Continuing to trial direct to consumer pay opportunities

·     Invested in three digital content businesses: Believe, Indigenous and Zealot

·     Invested in Cirkus, a subscription VOD service for the Nordics

·     Launched 12 YouTube channels focusing on short form content

·     A leading European distributor of content with Mr Selfridge, Lewis and Hell's Kitchen US sold to over 150 countries

·     12 formats sold to three or more countries

Focus for 2015

·     Explore new models for content creation

·     Develop new pay services and channels to take advantage of demand in the UK and internationally

·     Consider wider partnerships with OTT / VOD players

·     Secure retransmission fees in the medium term

·     Scale international distribution business

·     Invest in developing third party distribution deals

·     Package and sell our content to maximise its value

Key Performance Indicators

·     Number of new commissions for ITV Studios

Key Performance Indicators across all three priorities

Our Key Performance Indicators (KPIs) align our performance and accountability to our strategy of continuing to develop a creative, commercial and global organisation. Five KPIs measure the Group's operational and financial performance across all three priorities:

EBITA before exceptional items

Adjusted EPS

Profit to cash conversion

Non-NAR revenue

Employee Engagement

Strategic Priority 1

Maximise audience and revenue share from free-to-air broadcast and VOD business

ITV has unique scale, delivering 99% of all commercial audiences over five million. We invest over £1 billion annually in our programming, significantly more than our commercial competitors, and have an unrivalled ability to deliver mass audiences across all demographics for our advertisers. This scale and the strength of our brand underpin the success of our free-to-air and on demand platforms.

Robust broadcast business remains central to our strategy

While the media environment is changing rapidly, our broadcast business has performed consistently well over the last few years and has generated significant profit and cash, supported by our strong programme schedule, tight cost control and a sustained recovery in the UK advertising market. Since 2009 we have maintained our market leading position as the only commercial broadcaster consistently able to deliver mass audiences to our advertisers, and over this period we have grown our share of broadcast from 44.7% to 45.9% in 2014.

During this time, traditional linear television viewing has remained resilient, despite significant changes in the availability and delivery of content. Average television viewing is the same as it was ten years ago, at 221 minutes per person per day compared to 222 minutes in 2004, and the majority of viewing is still live. The viewer experience has been improved by a greater choice of channels and greater flexibility in delivery, fuelling demand for high quality content that has the power to engage and bring audiences together.

Television remains the most efficient and effective way for brands to achieve mass simultaneous reach and ITV, as the biggest marketing platform in the UK, continues to be in high demand from advertisers. In 2014, ITV Family NAR grew by 6% with growth across the major categories, supporting our best outperformance of the advertising market for five years.

In addition to the ITV main channel delivering mass audiences we also deliver targeted audiences to our advertisers through our digital channels. ITV4 had a strong year in 2014 attracting male audiences, which are hard to reach, with live sport and movies. ITV2 and ITV3 remain the largest digital channels in the UK and our ambition is to have the most watched, most loved and most talked about family of channels for every household and every advertiser in the UK.

Our portfolio was further strengthened in the year by the launch of ITVBe in October, targeted at a young female audience and now the home to The Only Way Is Essex. This enabled us to reposition ITV2 for a more targeted younger audience who remain an important part of our commercial proposition as we look to grow our viewing and revenue share across all demographics.

Ongoing focus on improving viewing performance

Our family of channels provides an important platform to make ITV content famous before exploiting it internationally. We therefore remain very focused on improving on screen performance to ensure we continue to deliver mass audiences through standout content that underpins our brand.

ITV Family SOV declined 5% in 2014, following a strong year in 2013 when we were up 4%. This largely reflects a 4% decline in the ITV main channel SOV. Although benefitting from the World Cup in June, the main channel delivered a lower audience share against strong competition from the BBC. ITV2 also contributed to the decline, partly as a result of more competition from new digital channels in the year, but also due to our repositioning of the channel to provide more targeted audiences for our advertisers through the launch of ITVBe. ITV Family SOCI was down 5%, with the ITV main channel down 6%.

Despite this, we still enjoyed some real successes this year, airing the most watched programme of 2014 with the England vs Uruguay World Cup match, as well as the most watched entertainment show with Britain's Got Talent, the most watched comedy with Birds of a Feather and the most watched new drama with Cilla.

Other notable successes have included The X Factor, I'm A Celebrity... Get Me Out Of Here!, Ant and Dec's Saturday Night Takeaway, Grantchester, Prey, Vera and Downton Abbey.

Our core schedule, which underpins the ITV brand, also continues to perform well. Coronation Street was again the most watched soap of the year, averaging 8.4 million viewers in 2014. Overall, ITV continues to gain strong recognition for the quality of our programming and calibre of our talent. In 2014 we won 101 awards including eight BAFTAs.

As we look ahead to 2015 we remain focused on improving SOV. While still drawing strong audiences, some of our most successful shows are maturing. We will therefore continue to rejuvenate our schedule, creatively and commercially, increasing our investment in high quality content and seeking new ways to maximise the value of our airtime.

Capitalising on the growing demand for VOD

Changes in technology and the growing base of connected devices are supporting a rapid growth in audiences' appetite for VOD, which in turn is fuelling demand from new and existing platforms for high quality content and from advertisers for VOD inventory. ITV, as the creator and owner of content, particularly highly sought after long form drama content, is well placed to exploit this growing customer base.

Our Online business has grown strongly over the last few years, with growth in online viewing driving revenue up 21% in 2014. ITV Player, through which audiences can access ITV on different devices, is now contributing meaningful revenue to the Group.

Since launch, there have been over 16.5 million downloads of the ITV Player app and in 2014 we improved its interface, enhancing the user experience by making the most popular content more prominent. We also relaunched our Android and iOS apps in the year to improve the delivery of live streaming content.

There was continued strong growth in long form video requests in 2014, up 26%. We have been working to increase the distribution and reach of our content and ITV Player is now available on over 20 platforms having launched on a number of new platforms in 2014, including Windows Phone 8, Sky Go, Now TV, Roku and Amazon Kindle Fire.

Additionally, with eight million users of ITV Player now registered, up 129% year-on-year, we continue to explore how we can maximise the value of our digital data. Not only will this enable us to understand and communicate with our audiences better but we are also looking at integrating targeting into the advertising server to enable more addressable online advertising.

Maximising the value of our airtime

We are continually working to maximise the value of the 30 second advertising spot and drive new revenue streams through sponsorship, interactivity and brand extensions. We helped a number of brands implement successful sponsorship campaigns and off-air endorsements in 2014 including Littlewoods with I'm a Celebrity... Get Me Out Of Here!, Dolmio with saturday nights on ITV, Pets At Home with Paul O'Grady For The Love Of Dogs and Morrisons with Britain's Got Talent and Saturday Night Takeaway.

Along with our unique commercial partnerships, ITV exclusively broadcast the premiere of Sainsbury's Christmas advertising campaign as well as broadcasting an entire advertising break recreating existing television adverts in LEGO in partnership with Warner Bros. We are also offering advertisers the opportunity to extend campaigns beyond the television spot as the first broadcaster to partner with Twitter Amplify.

We continue to seek new ways to build more value from our brands through various initiatives to increase consumer engagement. Over 40 million votes were cast for The X Factor in 2014, with the new free app driving significantly higher engagement. We are also continuing to extend our brands into off-air experiences, selling over 750,000 tickets in the year for live events such as Ant & Dec's Takeaway On Tour, The Big Reunion Boyband tour and the successful Coronation Street set tour. In addition, in 2014 there were over 900,000 combined downloads of our Tipping Point and The Chase mobile apps.

2015 and beyond

As the viewing and advertising landscape continues to fragment, the scale of audience delivered by our biggest shows on the ITV family of channels becomes increasingly valuable.

Our priority for 2015 is therefore to improve our on screen performance, strengthening our content, channels and brand to maintain ITV's unique scale. As a result, we have invested in our programme schedule for the year across the premium genres of drama, entertainment and sport as well as special events around our 60th anniversary.

New dramas in 2015 will include Arthur and George, The Forgotten, Safe House and Jekyll and Hyde, while we have a number of new and returning entertainment shows including Newzoids, Eternal Glory and Saturday Night Takeaway. Additionally, Thunderbirds Are Go, our children's drama, merchandising and licensing initiative, will be broadcast in spring 2015.

Although we are disappointed that we will no longer hold the live rights for the Champions League from the autumn, we still have a strong sporting schedule in 2015 with exclusive rights to the Rugby World Cup, England qualifiers and friendlies, the French Open and Tour de France in the year.

Overall, despite our viewing performance being down in 2014, strong advertising momentum has continued into the start of 2015 and the television advertising outlook remains positive. ITV Family NAR is expected to be up 11% in Q1 and up 4-7% in April. Our Broadcast business will benefit from a full year of our new channels and online revenue will continue to grow strongly as we further improve the quality and distribution of ITV Player.

Strategic Priority 2

Grow international content business

Growing a strong international content business is central to our strategy as an integrated producer broadcaster. As ITV creates and owns more content, our channels provide a platform to showcase our programmes before distributing them across multiple platforms in the UK and internationally.

Building scale in attractive markets

The strong global demand for high quality content from broadcasters and platform owners provides a significant opportunity for ITV Studios. Our strategy is to capitalise on this demand by growing our international production presence, building scale in attractive production markets and developing IP in creative markets that has the ability to travel the world.

The US and UK are the dominant creative markets, with the US the largest exporter of scripted content and the UK the world leader for exported formats. Over the last three years, ITV has built significant scale in both markets on the back of organic growth and 11 acquisitions. We are building real momentum as we continue to invest in a strong and healthy creative pipeline, focusing specifically on genres that return and travel, namely drama, entertainment and factual entertainment.

As a result, we have cemented our position as the number one commercial producer in the UK. We are already the largest unscripted independent producer in the US as well as a top indie in Germany and a growing player in the Nordics.

Expanding our creative production pipeline

Our focus in the next phase of our growth strategy is on leveraging the scale we have in our current markets to grow our market share and expand the number of global networks and OTT players we work with, especially in the US.

ITV now has a strong portfolio of successful series and formats that are returning year after year and can be distributed globally. We are looking to expand our portfolio across a more diverse range of programming genres, particularly long-running scripted series that appeal to the international market. In addition to formats produced in-house we are growing our portfolio by partnering with new creative talent who are attracted to our independent status outside of the UK, our distribution capability and strong network relationships, and we are also acquiring and investing in third party IP.

Benefitting from the Group's strong financial position, cash generation and global distribution we are also retaining more IP by producing drama straight to series in the UK and US. Although more expensive than producing a pilot, this helps attract high profile talent to a production and raises the profile of the series to support its distribution. The production cost is partly funded by pre-selling the series to a network, while the remainder, the 'deficit', is covered by revenue from the international distribution of the finished product. As our portfolio grows, we will have a number of shows at different stages of the production cycle thereby balancing our financial exposure at any one point in time.

Investing to build an international business

Our acquisitions to date have been focused on factual and scripted reality producers in the US and UK, the two key markets with a track record for creating and owning IP. We are looking for companies with a solid financial and creative track record as well as a strong pipeline. By maintaining this strict acquisition criteria, ITV has become a top global player in non-scripted production.

In 2014 we made three acquisitions as we look to continue to diversify our revenue streams and increase our reach. In February we acquired a 51% controlling interest in DiGa Vision (DiGa), a US independent producer of reality and scripted programming, and 100% of United Production (United), a Danish producer of factual and entertainment programmes.

In May we made our largest acquisition to date, purchasing 80% of Leftfield Entertainment, a high margin US producer of reality programmes, for an initial cash payment of $360 million. Leftfield also owns Sirens Media and has established two joint ventures, Loud Television and Outpost Entertainment. Together the group produces more than 300 hours of unscripted programming for over 30 US networks with a portfolio that includes Pawn Stars, American Restoration and The Real Housewives of New Jersey.

These businesses add to our growing portfolio of production companies acquired over the last three years which have included Gurney Productions, High Noon Entertainment and Thinkfactory Media in the US, The Garden Productions, Big Talk Productions and So TV in the UK, as well as Tarinatalo and Mediacircus in the Nordics.

We are also looking to develop joint ventures with key creative talent, such as our scripted drama and comedy partnership with Marty Adelstein which launched Tomorrow ITV Studios in 2014. More recently, we announced a new entertainment label within ITV Studios, Possessed Television, in partnership with Glenn Hugill.

Number one commercial producer in the UK

Local content in the UK continues to drive the largest audiences and, as an integrated producer broadcaster, ITV is well placed to benefit from this demand. 60% of the total spend on original commissions on the ITV main channel is now with ITV Studios, up from 50% in 2009.

In 2014, ITV Studios total UK revenue was up 1% to £459 million (2013: £456 million) with growth impacted by the proportion of the ITV Broadcast programme budget allocated to the FIFA World Cup. This reduced the available spend on internal drama and entertainment shows in the year. However, during the year we continued to grow the number of shows that return and travel with 2014 recommissions for ITV including Mr Selfridge, Saturday Night Takeaway and Big Star's Little Star.

Off-ITV we delivered new series of The Graham Norton Show and In It To Win It for the BBC, and Come Dine With Me and 24 hours in A&E for Channel 4.

We continue to receive strong recognition for the quality of our programming and calibre of our talent and won five BAFTAs for our content in 2014.

Top international indie producer

Our international production business is growing strongly, with revenue up 24% to £330 million (2013: £266 million)
in 2014.

We are now the largest unscripted independent producer in the US, generating 141 programmes and 884 hours of content in 2014 in partnership with 45 networks. US revenue increased 34% to £235 million in 2014 (2013: £175 million) reflecting the acquisition of Leftfield and the longevity and international appeal of our successful returning series. In response to network demand, we have built a strong portfolio of high volume formats and shows that return year after year. Examples delivered in 2014 included Hell's Kitchen USA, Pawn Stars and Duck Dynasty.

Our other international bases in Germany, France, Australia and the Nordics produce their own original formats alongside UK formats. International revenue increased 4% in 2014 to £95 million (2013: £91 million) driven by good organic growth in Germany and France. Germany benefitted from commissions in the year which included Quizduell, series eight of Ich Bin Ein Star (the German version of I'm a Celebrity... Get Me Out Of Here!), Hell's Kitchen and Mini Beiz, Dini Beiz while France benefitted from Four Weddings and Party Wars. Other international successes delivered during the year included The Chase in Norway, Keeping the Nation Alive in Norway and Denmark, and Big Star's Little Star in Finland.

2015 and beyond

We look ahead to 2015 with confidence as the production lead times give us good visibility of our upcoming deliveries. We expect ITV Studios again to deliver around £100 million revenue growth on a constant currency basis reflecting a return to good organic growth, helped by our investment in global scripted content and supported by a full year of our 2014 acquisitions. As ever, ITV's revenue growth will not be spread evenly throughout the year because of the phasing of the delivery schedule required by our network and cable customers.

New commissions to be delivered in 2015 will include dramas Jekyll and Hyde, Home Fires and the relaunch of Thunderbirds Are Go in the UK, I'm a Celebrity... Get Me Out Of Here! in Australia and Saturday Night Takeaway in the US. While our drama production has historically been focused on the UK market, we are growing our scripted presence in the US and have three large scale dramas, Aquarius, Texas Rising and The Good Witch that will go straight to series in 2015.

Longer term, leveraging our network relationships and global scale in production and distribution, our strategy is to have an ongoing portfolio with six to ten international scripted series in production per annum. We will also look to accelerate growth through further acquisitions while working to attract and retain key creative talent to ensure our creative pipeline remains strong.

Strategic Priority 3

Build a global pay and distribution business

As digital media and consumer viewing behaviour continue to evolve, our ability to create and distribute high value content in new and efficient ways is of increasing significance. ITV is continually exploring, experimenting and developing our pay services with broadcasters and platform owners while also seeking new opportunities to extend the reach of our content for the consumer.

Exploring new models for content creation

As the way in which our viewers consume content changes, especially amongst the younger generation, we are growing our exposure to new types of content including short form and younger-focused long form programming. In 2014 we agreed a deal with YouTube to launch a number of short form channels including I'm A Celebrity... Get Me Out Of Here!, The Chase and our soaps.

We are also building a presence in international digital production. Our acquisition of US producer DiGa in the first half of 2014 gave ITV exposure to digital formats.

Following this, in 2014 we have made three further investments in the digital arena as we look to develop greater expertise in monetising online audiences. In September 2014 we made small investments in Indigenous Media, a producer of scripted digital content, and Believe Entertainment Group, a producer of digital-branded short form entertainment. Most recently, in December 2014 ITV made an investment in Zealot, a digital content multi-platform network founded by Danny Zappin, former CEO of YouTube multi-channel network Maker Studios.

Generating new sources of pay revenue

ITV earns revenue from pay television through licensing our channels and content. In 2014 Pay revenue grew by 63% as we negotiated and renewed a number of deals.

Most significantly, in January 2014 we announced a new four-year deal with Sky, which makes ITV content available through Sky's range of connected platforms including Sky+HD, Sky Go, Now TV and Sky Store. This deal included our first ever pay only channel, ITV Encore, which we launched in June. Additionally in 2014, we extended our deal with Virgin for another year covering HD versions of ITV2, ITV3 and ITV4 as well as our new FTA channel ITVBe, and signed several other deals including new deals with BT and TalkTalk.

We are also looking to develop wider partnerships with on demand players as consumer demand for VOD continues to grow. For example, in the year we made an investment in Cirkus, a UK-based subscription VOD service that offers the 'best of British' television content to pay television platforms and their customers across the Nordic region.

There remains scope to grow our UK pay revenue further through extensions of our existing propositions as we experiment with new ways of monetising our content. Past initiatives have included: trialling pay opportunities on ITV Player for episode premieres of programmes; our ad-free subscription ITV Player app on iOS which has been well received; and, most recently we made the first series of the comedy Cockroaches available exclusively online one week ahead of its broadcast, intended to enhance viewer awareness and engagement with the show's young audience. We will continue to trial new sources of pay revenue as we further develop our pay strategy.

A leading European distributor of television content

ITV Studios, through Global Entertainment, has a substantial archive of over 40,000 hours of television and film that we distribute to broadcasters around the world. This is predominantly ITV produced programming, with 2014 successes including Hell's Kitchen US, Mr Selfridge and Lewis which have all been sold to over 150 countries.

We are benefitting from the growth in our UK and international production businesses as well as deeper network relationships as we build scale. In 2014 Global Entertainment increased revenue by 7% to £144 million (2013: £135 million).

In addition to distributing ITV's own content, we are adding to our catalogue through the distribution of third party content. In 2014 we acquired the third party distribution rights to a number of international dramas including Schitt's Creek from Canada, Jordskott from Sweden and Poldark from Mammoth in the UK.

Global Entertainment also continues to license ITV and third party formats successfully. The number of UK formats sold internationally to three or more countries has increased from eight in 2013 to 12 in 2014 including I'm A Celebrity... Get Me Out Of Here!, Saturday Night Takeaway, The Chase and Tricked.

However, while Global Entertainment has a stable core of long-running series for international distribution, it takes time for the creative pipeline of production to reach its full value potential. The business's available inventory naturally expands as we produce and acquire new content and in 2015 we expect to see good growth in our distribution revenue from our strong creative pipeline, our investment in scripted content, and further third party distribution agreements.

2015 and beyond

Overall, looking ahead we expect continued good growth in pay revenue as we develop further new ways to package and sell our content to take advantage of demand in the UK and internationally. We will benefit from a full year of ITV Encore and we will continue to explore new pay services and channels while growing our exposure to new types of content, including digital.

Global Entertainment remains well positioned for growth as we expand our inventory in 2015. In addition to our existing programme and format archives, we will have new content available for distribution including our three new US dramas as well as the benefit of Thunderbirds Are Go which has already sold to countries including the UK, Australia, New Zealand and Israel.

Lastly, to ensure we maximise the value of our investment in high quality content, we will continue to drive the debate around the implementation of retransmission fees in the UK. In 2015 we will continue efforts to change the terms of UK and EU policy debate around the issue and support our argument with strong evidence, such as the Nera report we commissioned on the USA's retransmission consent scheme. We will build on existing support in both the House of Commons and the House of Lords in the next Parliament and continue our conversations with the regulator, Ofcom, to make the case that we should be fairly compensated by the major pay TV platforms in return for access to the content on the ITV main channel.

Performance and Financials

Financial and Performance Review

Ian Griffiths

Group Finance Director

We have delivered another strong performance in 2014, with revenue growth in all parts of the business. Together with our relentless focus on cash and costs, we are reporting our fifth consecutive year of double digit profit growth and end the year with a strong balance sheet providing the flexibility to invest for further growth in 2015 and beyond.

The profit before tax and EPS from the Consolidated Income Statement are as follows:

Total ITV revenue increased 7% in 2014 to £2,956 million (2013: £2,753 million), with external revenue up 8% at £2,590 million (2013: £2,389 million). This reflects 6% growth in NAR and another year of strong growth in non-NAR, up 10% to £1,327 million (2013: £1,211 million) as we further rebalanced the business. Non-NAR now accounts for 45% (2013: 44%) of total revenue.

Together with our higher margin new revenue streams and disciplined cost control we delivered 18% growth in EBITA before exceptionals to £730 million (2013: £620 million), corresponding to an improved EBITA margin of 28% (2013: 26%). Overall, adjusted EPS was up 23% to 13.8p.

Through our ongoing focus on cost control and working capital management, we delivered £15 million of cost savings while remaining strongly cash generative. Our profit to cash conversion ratio remained strong at 91%, despite significant investment in scripted programming. We also continued to take steps to improve balance sheet efficiency, and bought back a further £62 million of debt in the year to reduce our financing costs. Even after three acquisitions, increased dividend payments and our pension deficit contributions, we ended 2014 with net cash of £41 million (2013: £164 million).

The Financial and Performance Review focuses on the adjusted results which, in management's view, reflect the underlying performance of the business, providing a more meaningful comparison of how the business is managed and measured on a day-to-day basis. The adjusted results are reconciled to the reported results in the EPS section that follows.

Adjusted profit before tax and EPS remove the effect of items including acquisition related costs, impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments, restructuring costs and other tax adjustments.

Broadcast & Online

Broadcast & Online delivered another strong performance with revenue up £127 million to £2,023 million (2013: £1,896 million) driven by 6% growth in NAR and continued strong growth in Online, Pay & Interactive revenue.

The advertising market showed continued improvement in 2014 with good growth across the major advertising categories. Retail sales were again strong, driven by increased competition in the food retail sector as well as growth in furniture and department stores. Entertainment & Leisure also performed well, with increased advertising and promotions around the World Cup. Within Food there was good growth in the drinks, beverages and cooking product categories, while within Airlines, Travel & Holiday there was growth from online travel agents. Telecommunications remained down in the year due to lower new product launches following a strong year in 2013.

Overall, we increased our share of broadcast to 45.9% (2013: 45.4%) and delivered our strongest outperformance of the UK advertising market in five years, based on our estimate of the pure spot market. ITV NAR increased 6% compared to 5% growth in the market, although it is increasingly difficult to measure the market as all broadcasters use different definitions, which may include additional sources of revenue as well as pure spot advertising. Advertising growth was geared towards the second quarter with increased spend around the World Cup and, while we expect to outperform the advertising market again in 2015 there will be fluctuations across the year driven by major events such as the Rugby World Cup and the timing of Easter.

ITV Family SOV declined 5% in 2014, following a strong year in 2013 when we were up 4%. This largely reflects a 4% decline in the ITV main channel SOV. Although benefitting from the World Cup in June, the main channel delivered a lower audience share against strong competition from the BBC. ITV2 also contributed to the decline, partly as a result of more competition from new UK digital channels in the year, but also due to our repositioning of the channel to provide more targeted audiences for our advertisers through the launch of ITVBe. We remain focused on improving viewing performance, both on screen and online.

Online, Pay & Interactive revenue increased 30% to £153 million (2013: £118 million), driven by £11 million growth in Online and £20 million growth in Pay. In 2014 we further improved the quality, reliability and distribution of ITV Player, now available on over 20 platforms, which supported continued strong growth in long form video requests, up 26%. We also continued to develop our pay services, renewing a number of deals in 2014 as well as launching ITV Encore, our first pay only channel. Interactive revenue was up £4 million due to higher income from competitions.

SDN external revenue, which is generated from licence sales for DTT Multiplex A, was in line with 2013 at £71 million. In 2014 the full year benefit of the 13th video stream, which launched in 2013, was offset by lower renewal fees on existing video streams, a trend likely to continue.

Other commercial income increased 3% to £170 million (2013: £165 million), reflecting growth in sponsorship and brand extensions as we build more value from our airtime for both advertisers and for ITV. For example, in 2014 we sold over 750,000 tickets for events including the Coronation Street set tour and the Saturday Night Takeaway live tour.

Other commercial income also includes revenue from media sales, which relates to commission earned by ITV on sales of airtime for the non-consolidated licensees, as well as minority revenue from these licensees for ITV content. Both delivered revenue in line with last year.

Schedule costs were up £35 million year on year to £1,018 million (2013: £983 million) as a result of the World Cup and also increased programming spend relating to our new channels. In 2015 we will continue to focus on our schedule to improve viewing share, investing in high quality content for our existing channels as well as a full year of programming for our new channels.

Other costs increased modestly, up 2% year on year, due to marketing costs around our new channels as well as online investment. We continue to manage our overheads tightly to mitigate inflationary pressures and fund continued investment in the business.

Overall, reflecting the strong growth in higher margin Online, Pay & Interactive revenue, as well as good growth in our highly geared advertising revenue, Broadcast & Online EBITA before exceptional items was up 17% at £568 million (2013: £487 million) while the EBITA margin increased 2% to 28%.

ITV Studios

In 2014 we again delivered strong revenue growth in ITV Studios as we continue to build scale in attractive content markets. Total revenue increased 9% to £933 million (2013: £857 million) reflecting our purchase of Leftfield and growth in international production and distribution as we become a more global business. Total organic revenue, which excludes our current and prior year acquisitions as well as foreign exchange movements, was up 1%. A decline in Studios UK was offset by organic growth from international productions and Global Entertainment.

Almost half of Studios revenue is now generated outside of the UK and, as well as being the number one commercial producer in the UK, we are also now the largest unscripted independent producer in the US and a leading European distributor of television content.

Studios UK revenue was up 1% in the year and within this, internal revenue was also up 1%. However, organic revenue was down 4% as growth in factual and daytime was more than offset by a reduction in drama, due to the proportion of the ITV Broadcast programme budget allocated to the World Cup.

In the year we successfully delivered further recommissions as we continue to grow the number of shows in our portfolio that return and travel. On-ITV deliveries in 2014 included Mr Selfridge, Saturday Night Takeaway, Judge Rinder and The Chase. Off-ITV deliveries included The Graham Norton Show and Our Zoo for the BBC, and Come Dine With Me and 24 Hours in A&E for Channel 4. In 2015 we also expect a return to good organic growth from our upcoming new UK dramas, including Jekyll and Hyde, Home Fires, The Trials of Jimmy Rose and Beowulf as well as Thunderbirds Are Go.

Studios US revenue was up 34% in 2014 to £235 million (2013: £175 million), reflecting our acquisition of Leftfield. Organic revenue was up 5% in the year and we expect good organic growth to continue in 2015. We now have a strong portfolio of successful series and formats that are returning year after year including The Real Housewives of New Jersey, Pawn Stars and Duck Dynasty, and we will start to see the benefit of our investment in US drama in 2015, with three large-scale dramas, Aquarius, Texas Rising and The Good Witch, all due for delivery in the year.

Revenue from Studios RoW increased 4% to £95 million (2013: £91 million), reflecting our acquisition of United Productions in Denmark as well as good organic growth, up 7% at constant currencies. In Germany programme deliveries included Hell's Kitchen, Quizduell and Mini Beiz, Dini Beiz, and in France programme deliveries included Party Wars, Four Weddings and Saturday Night Takeaway. Other international successes delivered across our global production network included The Chase in Norway and Big Star's Little Star in Finland.

Global Entertainment revenue was up 7% to £144 million (2013: £135 million) in 2014. We continue to benefit from the growth in our UK, US and RoW businesses as well as deeper network relationships as we build scale.

Successes in the year included Hell's Kitchen US, Lewis and Mr Selfridge, which have all sold to over 150 countries. Additionally, 12 of our formats are now produced in three or more countries including I'm A Celebrity... Get Me Out Of Here!, The Chase, Keeping The Nation Alive, Surprise Surprise and Saturday Night Takeaway.

While Global Entertainment has a stable core of long-running series, its available inventory naturally expands as we produce and acquire new content. In 2015 we expect to see good growth in our distribution revenue from new programmes including our US scripted dramas and Thunderbirds Are Go, which has already pre-sold to countries including Australia, New Zealand and Israel.

Overall ITV Studios' EBITA before exceptional items increased 22% to £162 million (2013: £133 million) and the EBITA margin increased by 1% to 17% as we benefitted from a higher margin revenue mix as a result of our acquisitions as well as production efficiencies in the year.

As we grow our international business, foreign exchange movements increasingly impact our reported performance. On a constant currency basis, which assumes exchange rates remained consistent with 2013, ITV Studios revenue in 2014 would have been £22 million higher, and EBITA would have been £5 million higher.

Overall, ITV Studios' revenue is again expected to be up around £100 million in 2015 on a constant currency basis. We are increasing our investment in programming, and have produced three high profile US dramas straight to series. Aquarius, Texas Rising and The Good Witch have been pre-sold to US networks, recovering part of our production investment, while the remainder, the 'deficit', will be recovered as we earn revenue from distributing the finished series globally. This increase in drama deliveries, which are lower margin, may impact the EBITA margin in 2015. Longer term, our strategy is to have an ongoing portfolio with six to ten international scripted series in production per annum.

Acquisitions

In 2012, 2013 and 2014 we acquired a number of content businesses with a focus on factual and scripted reality producers in the US and UK, the two key markets with a track record for creating and owning IP. These have been made against strict strategic and financial criteria. Financially, we look at ownership of IP, return on capital employed and discounted cash flow. Strategically, we look at the talent, creative pipeline and type of content to ensure it has the potential to return and travel.

In 2012 we acquired Gurney Productions in the US, So TV in the UK, Mediacircus in Norway and Tarinatalo in Finland. In 2013 we acquired The Garden and Big Talk Productions in the UK along with 60% of High Noon Entertainment and 65% of Thinkfactory Media in the US. There are put and call arrangements in place to buy the remaining minority stakes.

In February 2014 we acquired 100% of United, a Danish producer of entertainment and reality programmes, and a 51% controlling interest in DiGa, a US independent producer of reality and scripted programming. There is a put and call option to buy the remainder of DiGa over three to six years, with the total amount payable linked to the performance of the company over that period.

In May 2014 we made the acquisition of Leftfield, a high margin US production company. We made an initial cash payment of $360 million for 80% and have put and call options in place to buy the remaining 20% over three to five years.

The total cash consideration for all acquisitions since 2012 was £328 million. We structure our deals with earnouts or put and call options in place for the remainder of the equity, capping the maximum consideration payable. By basing a significant part of the consideration on future performance in this way, not only can we lock in creative talent and ensure our incentives are aligned, but we also reduce our risk by only paying for the actual, not expected, performance delivered over time.

At 31 December 2014, based on our current view of performance, we expect to pay a further £79 million, giving a total expected amount payable across the portfolio of £407 million. The total maximum consideration for our portfolio of acquisitions is £847 million, reflecting the initial consideration of £328 million and an undiscounted contingent consideration of £519 million, payable only if exceptional compound earnings growth is delivered over the payment period.

* Undiscounted and including the initial cash consideration. All payments are performance related.

Net financing costs

Adjusted financing costs reduced by £18 million in the year to £7 million (2013: £25 million), benefitting from the redemption of the 2016 convertible bond outstanding in 2013 and the repurchase of the remaining tranche of the 2019 bilateral loan in January 2014.

Net financing costs were £64 million lower at £51 million (2013: £115 million) in 2014. The £30 million of losses on buybacks relate to the exceptional loss on the 2019 debt we repurchased in January 2014, saving £44 million of future adjusted financing costs. We also recorded net financial income of £12 million (2013: £nil) in the year, principally reflecting a reduction in the expected amount payable on our acquisition portfolio.

Profit before tax

* In respect of intangible assets arising from business combinations.

Adjusted profit before tax, after financing costs, was up 23% at £712 million (2013: £581 million). The total tax charge for 2014 was £132 million (2013: £105 million), corresponding to an effective tax rate on adjusted profit before tax of 21.2% (2013: 23.4%), which is broadly in line with the standard corporation tax rate of 21.5% (2013: 23.3%).

Tax

* In respect of intangible assets arising from business combinations.

Cash tax paid in the year was £85 million (2013: £67 million). This is lower than the total tax charge for 2014 due to timing differences arising from quarterly tax payments, the use of losses offsetting profit and the tax treatment of allowable pension contributions. The majority of cash tax is paid in the UK.

EPS

Overall, adjusted profit after tax was up 26% at £561 million (2013: £445 million). After non-controlling interests of £7 million (2013: £4 million), adjusted earnings per share was 13.8p (2013: 11.2p), up 23%. The weighted average number of shares increased 2% to 4,002 million (2013: 3,929 million) largely due to the issue of shares following the convertible bond redemption in 2013. Diluted adjusted EPS in 2014 was 13.7p (2013: 10.8p) reflecting a weighted average diluted number of shares of 4,040 million (2013: 4,111 million). Basic EPS increased 40% to 11.6p (2013: 8.3p).

Basic EPS is adjusted to reflect the underlying performance of the business providing a more meaningful comparison of how the business is managed and measured on a day-to-day basis. Adjustments include: acquisition-related costs such as professional fees, primarily due diligence, and performance-based employment-linked contingent payments; impairment of intangible assets; amortisation of intangible assets acquired through business combinations including customer contracts and relationships; net financing cost adjustments; and other tax adjustments. Amortisation of intangible assets that are required to run our business, including software licences, is not adjusted for. The table below reconciles basic to adjusted EPS.

Dividend per share

Reflecting our confidence in the ongoing growth and cash generation of the business, the Board has committed to growing the full year ordinary dividend by at least 20% per annum for three years to 2016, by when we will achieve a dividend cover of between 2.0 and 2.5 times adjusted earnings per share. In line with this policy, the Board is proposing a final dividend for 2014 of 3.3p, which equates to a full year dividend of 4.7p (2013: 3.5p), up 34%.

ITV is now a more balanced business with strong underlying cash flows. As we enter the next phase of our strategy we continue to see investment opportunities to grow the business and enhance shareholder value but at the same time the Board recognises the importance of maintaining capital discipline and balance sheet efficiency. Therefore it is appropriate over time to increase our balance sheet leverage gradually while retaining the flexibility to continue to invest.

In line with this approach, the Board is proposing a £250 million return to shareholders by way of a special dividend of 6.25p.

Cash generation

Profit to cash conversion

ITV maintained its strong cash generation and tight management of working capital balances in the year, generating £665 million (2013: £604 million) of operational cash from £730 million (2013: £620 million) of EBITA before exceptional items. This equates to a strong profit to cash ratio of 91%. The ratio has declined from 97% in 2013 as a result of increased investment in scripted content.

Free cash flow

Note: Except where disclosed, management views the acquisition of operating property, plant and equipment and intangibles as necessary ongoing investment in the business.

Our underlying cash generation after payments for interest paid, cash tax and pension funding, also remained strong in the year. Free cash flow was up 10% at £478 million (2013: £433 million).

Overall, after dividends, acquisitions and debt repayments we ended the year with net cash of £41 million, compared to net debt of £201 million at 30 June 2014 and £164 million net cash at 31 December 2013. Our cash generation was weighted towards the second half of 2014 due to the timing of our pension funding contribution, debt buybacks and the significant acquisition of Leftfield, all of which took place in the first half.  

Funding and liquidity

Debt structure and liquidity

In 2014 we again bought back debt to improve our balance sheet efficiency further, repurchasing the remaining tranche of the 2019 bilateral loan.

We also entered into a number of new financing facilities. We obtained a committed £525 million Revolving Credit Facility provided by a number of core relationship banks, and also entered into a new £175 million bilateral financing facility and agreed a new £75m invoice discounting facility, both of which are free of financial covenants. All three facilities were undrawn as at the year end.

As we enter the next phase of our strategy this financial flexibility and our continued strong free cash flow will enable us to invest in opportunities to grow the business and enhance shareholder value.

Leverage

Going forward our objective is to run an efficient balance sheet, and to balance investment for further growth with attractive returns to shareholders. Therefore we will, over time, look to increase our balance sheet leverage. We believe that maintaining leverage below 1.5 net debt to EBITDA (before exceptionals) will optimise our cost of capital, allow us to sustain our progressive dividend policy and enable us to retain flexibility to continue to invest for further growth.

We also look at an adjusted measure of net debt, taking into consideration all of our financial commitments. At 31 December 2014, adjusted net debt was broadly in line with the prior year at £765 million (31 December 2013: £792 million) reflecting a reduction in the pension deficit under IAS 19 and lower undiscounted operating lease commitments which mainly relate to broadcast transmission contracts and property.

This adjusted measure, by taking into consideration all of our financial commitments, reflects how credit rating agencies could look at our balance sheet.

Financing

We are financed using debt instruments with a range of maturities. Following the buyback of the 2019 loan in January 2014, the remaining debt, other than the finance leases, is publicly traded Eurobond debt. Borrowings at 31 December 2014 were repayable as follows:

Ratings

We are rated investment grade by two ratings agencies: BBB- by Standard and Poor's and Baa3 by Moody's Investor Services. The factors that are taken into account in assessing our credit rating include our degree of operational gearing, exposure to the economic cycle, as well as business and geographical diversity. Continuing to execute our strategy will strengthen our position against all these metrics.

Pensions 

IAS 19

The aggregate IAS 19 deficit of the defined benefit schemes at 31 December 2014 was £346 million (31 December 2013: £445 million) reflecting pension funding contributions in March and April of £91 million. An increase in the pension liabilities, as a result of a fall in the discount rate used to measure liabilities, was offset by asset outperformance, primarily gilts and swaps.

Pensions continue to be paid from the Scheme based on actual requirements.

Actuarial valuation

The last actuarial valuation was undertaken in 2011. On the bases adopted by the Trustee, the combined deficits as at 1 January 2011 amounted to £587 million.

The Trustee is in the process of undertaking full actuarial valuations of all three sections of the Scheme as at 1 January 2014. The Group's deficit funding contributions will be reviewed following the result of the valuation, expected in Q2 2015.

Deficit funding contributions

In 2014 the group made deficit funding contributions of £91 million (2013: £80 million). We do not expect our 2015 deficit funding contributions to exceed those made in 2014.

Ian Griffiths
Group Finance Director

Financial Statements

In this section . . . 

The financial statements have been presented in a style which attempts to make them less complex and more relevant to shareholders. We have grouped the note disclosures into five sections: 'Basis of Preparation', 'Results for the Year', 'Operating Assets and Liabilities', 'Capital Structure and Financing Costs' and 'Other Notes'. Each section sets out the accounting policies applied in producing the relevant notes, along with details of any key judgements and estimates used. The purpose of this format is to provide readers with a clearer understanding of what drives financial performance of the Group. The aim of the text in boxes is to provide commentary on each section, or note, in plain English.

Keeping it simple . . .

Notes to the financial statements provide information required by statute, accounting standards or Listing Rules
to explain a particular feature of the financial statements. The notes which follow will also provide explanations
and additional disclosure to assist readers' understanding and interpretation of the Annual Report and the
financial statements.

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

The accounts were approved by the Board of Directors on 4 March 2015 and were signed on its behalf by:

Ian Griffiths
Group Finance Director

Consolidated Statement of Changes in Equity

(a) Movements reported in merger and other reserves include a put option for the acquisition of non-controlling interests.

Consolidated Statement of Changes in Equity

(a) Movements reported in merger and other reserves include a put option for the acquisition of non-controlling interests.

Consolidated Statement of Cash Flows

Notes to the Financial Statements

Section 1: Basis of Preparation

In this section . . .

This section sets out the Group's accounting policies that relate to the financial statements as a whole. Where an accounting policy is specific to one note, the policy is described in the note to which it relates. This section also shows new EU endorsed accounting standards, amendments and interpretations, and whether they are effective in 2014 or later years. We explain how these changes are expected to impact the financial position and performance of the Group.

The financial statements consolidate those of ITV plc ('the Company') and its subsidiaries (together referred to as 'the Group') and include the Group's interests in associates and jointly controlled entities. The Company is domiciled in the United Kingdom.

As required by EU law (IAS Regulation EC 1606/2002) the Group's accounts have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ('IFRS'), and approved by the Directors.

The financial statements are principally prepared on the basis of historical cost. Where other bases are applied these are identified in the relevant accounting policy.

The Company has elected to prepare its parent company financial statements in accordance with UK GAAP.

Going concern

As at the year end the Group was in a positive net cash position, and its continued generation of significant free cash flows has enabled further acquisitions and the payment of a special dividend. The Group has also sought to gain further efficiencies in the balance sheet by repurchasing debt where it is economically beneficial to do so, and has established flexible financing through new, longer term revolving credit facility arrangements (see section 4 for details on capital structure and financing).

The Group continues to review forecasts of the television advertising market to determine the impact on ITV's liquidity position. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group will be able to operate within the level of its current funding.

The Group also continues to focus on development of the non-advertising business, and evaluates the impact of further investment in acquisitions against the strategy and cash headroom of the business.

After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements.

Subsidiaries, joint ventures, associates and special purpose entities

Subsidiaries are entities that are directly or indirectly controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of the entity in order to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.

A joint venture is a joint arrangement in which the Group holds an interest under a contractual arrangement where the Group and one or more other parties undertake an economic activity that is subject to joint control. The Group 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 and other changes in net assets.

An associate is an entity, other than a subsidiary or joint venture, over which the Group has significant influence. Significant influence is the power to participate in, but not control or jointly control, the financial and operating decisions of an entity. These investments are also accounted for using the equity method.

For investments where the Group has concluded it does not have significant influence, then the asset is held at cost in non-current assets.

A special purpose entity ('SPE') is a legal entity which the Group may establish to fulfil a specific trading and investment purpose. Judgement is required when determining if an SPE should be consolidated and involves the evaluation of the substance of its relationships with the Group and the SPE's risks and rewards. Those SPEs controlled by the Group are established under terms that impose strict limitations on the decision-making powers of their management and that result in the Group receiving the majority of the benefits related to their operations and net assets, being exposed to the majority of risks incidental to their activities and receiving the majority of the residual or ownership risks related to the SPEs or their assets.

SPEs are used in limited circumstances by the Group. The only significant SPEs are the pension funding partnerships that were established in 2010 and March 2014 between the Group and the Trustee of the ITV Pension Scheme as a way of establishing payment streams to the pension scheme. The partnerships, both Scottish Limited Partnerships, are controlled and consolidated by the Group.

Current/non-current distinction

Current assets include assets held primarily for trading purposes, cash and cash equivalents, and assets expected to 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.

Current liabilities include liabilities held primarily for trading purposes, liabilities expected to be settled in the course of the Group's operating cycle and those liabilities due within one year from the reporting date. All other liabilities are classified as non-current liabilities.

Classification of financial instruments

The financial assets and liabilities of the Group are classified into the following financial statement captions in the statement of financial position in accordance with IAS 39 Financial Instruments:

·     'Loans and receivables' - separately disclosed as cash and cash equivalents (excluding gilts over which unfunded pension commitments have a charge) and trade and other receivables;

·     'Available for sale financial assets' - measured at fair value through other comprehensive income. Includes gilts over which unfunded pension commitments have a charge;

·     'Financial assets/liabilities at fair value through profit or loss' - separately disclosed as derivative financial instruments in assets/liabilities and included in non-current other payables (contingent consideration); and

·     'Financial liabilities measured at amortised cost' - separately disclosed as borrowings and trade and other payables.

Judgement is required when determining the appropriate classification of the Group's financial instruments. Details on the accounting policies for measurement of the above instruments are set out in the relevant note.

Recognition and derecognition of financial assets and liabilities

The Group recognises a financial asset or liability when it becomes a party to the contract. Financial instruments are no longer recognised in the statement of financial position when the contractual cash flows expire or when the Group no longer retains control of substantially all the risks and rewards under the instrument.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, call deposits with a maturity of less than or equal to three months from the date of acquisition, cash held to meet certain finance lease commitments and gilts in respect of which a charging deed was executed on the unfunded pension commitments of four former Granada executives. The carrying value of cash and cash equivalents is considered to approximate fair value.

Foreign currencies

The primary economic environment in which the Group operates is the UK and therefore the consolidated financial statements are presented in pounds sterling ('£').

Where Group companies based in the UK transact in foreign currencies, these transactions are translated into pounds sterling at the exchange rate on the transaction date. Foreign currency monetary assets and liabilities are translated into pounds sterling at the year end exchange rate. Where there is a movement in the exchange rate between the date of the transaction and the year end, a foreign exchange gain or loss is recognised in the income statement.

Hedge accounting is implemented on certain foreign currency firm commitments, which allows for the effective portion of any foreign exchange gains or losses to be recognised in other comprehensive income (note 4.3).

Where a forward currency contract is used to manage foreign exchange risk and hedge accounting is not applied, any movement in currency is taken to the income statement.

Non-monetary assets and liabilities measured at historical cost are translated into pounds sterling at the exchange rate on the date of the transaction.

The assets and liabilities of Group companies outside of the UK are translated into pounds sterling at the year end exchange rate. The revenue and expenses of these companies are translated into pounds sterling at the average monthly exchange rate during the year. Where differences arise between these rates, they are recognised in the translation reserve within other comprehensive income.

Exchange differences arising on the translation of the Group's interests in joint ventures and associates are recognised in the translation reserve within other comprehensive income.

On disposal of a subsidiary outside the UK or an interest in a joint venture or an associate, the related translation reserve is released to the income statement as part of the gain or loss on disposal.

Accounting judgements and estimates

The preparation of financial statements requires management to exercise judgement in applying the Group's accounting policies. It also requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis, with revisions recognised in the period in which the estimates are revised and in any future periods affected.

The areas involving a higher degree of judgement or complexity are set out below and in more detail in the related notes:

·     Revenue recognition (note 2.1)

·     Classification of financial instruments (included in this note)

·     Business combinations (note 3.3 and note 3.4)

The areas involving the most sensitive estimates and assumptions that are significant to the financial statements are set out below and in more detail in the related notes:

·     Defined benefit pension schemes, including the related longevity swap (note 3.7)

·     Taxation (note 2.3)

·     Provisions (note 3.6)

·     Business combinations (note 3.4)

·     Impairment of assets (note 3.2 and note 3.3)

·     Financial instruments (note 4.1)

New or amended EU endorsed accounting standards

The table below represents new or amended EU endorsed accounting standards relevant to the Group's results that are effective in 2014:

The Directors also considered the impact on the Group of other new and revised accounting standards, interpretations or amendments on the Group that are currently endorsed but not yet effective. There are none that are effective for periods beginning on or after 1 January 2015 that are expected  to have a significant impact on the Group's results.

Section 2: Results for the Year

In this section . . .

This section focuses on the results and performance of the Group. On the following pages you will find disclosures explaining the Group's results for the year, segmental information, exceptional items, taxation and earnings per share.

Keeping it simple . . .

This section analyses the Group's profit before tax by reference to the activities performed by the Group and an analysis of key operating costs.

Earnings before interest, tax, amortisation (EBITA) and before exceptional items remains the Group's key profit indicator. This reflects the way the business is managed and how the Directors assess the performance of the Group. This section therefore also shows each division's contribution to total revenue and EBITA.

2.1 Profit before tax

Accounting policies

Revenue recognition

Revenue is stated exclusive of VAT and comprises the sale of products and services to third parties. Selecting the appropriate timing and amount of revenue recognised requires some judgement. Revenue from the sale of products is recognised when the Group has transferred both the significant risks and rewards of ownership and control of the products sold, and the amount of revenue can be measured reliably. Revenue recognition criteria for the Group's key classes of revenue are recognised on the following bases:

The results for the year aggregate these classes of revenue into four significant categories:

Segmental information

Operating segments, which have not been aggregated, are reported in a manner that is consistent with the internal reporting provided to the Board of Directors, regarded as the chief operating decision maker.

The Board of Directors considers the business primarily from a product or activity perspective. The reportable segments for the years ended 31 December 2014 and 31 December 2013 are therefore 'Broadcast & Online' and 'ITV Studios', the results of which are outlined in the following tables:

*  Revenue of £255 million (2013: £199 million) was generated in the US during the year, and represented £297 million (2013: £83 million) of non-current assets at year end.

Intersegment revenue, which is carried out on arm's length terms, is generated from the supply of ITV Studios programmes to Broadcast & Online for transmission primarily on ITV. This revenue stream is a measure which forms part of the Group's strategic priority of building a strong international content business, as by producing and retaining rights to the broadcast shows the Group benefits further from subsequent international content and format sales.

In preparing the segment information, centrally managed costs have been allocated between reportable segments on a methodology driven principally by revenue, headcount and building occupancy of each segment. This is consistent with the basis of reporting to the Board of Directors.

Broadcast & Online

The Group operates the largest commercial family of channels in the UK and delivers content through traditional television broadcasting. In addition to linear broadcast, the Group delivers its content either through ITV Player, which is available on multiple platforms including ITV's website and pay platforms, or through direct content deals. The content, which is commissioned and scheduled by this segment, is funded primarily by television advertising, where revenue is generated from the sale of audiences for advertising airtime and sponsorship.

Other sources of revenue are from: online advertising, revenue from pay platforms such as Sky, SDN revenue (which generates licence sales for DTT Multiplex A), and participation revenue (which includes interactive sales from competitions).

ITV Studios

ITV Studios is the Group's international content business, creating and producing programmes and formats that return and travel, namely drama, entertainment and factual entertainment.

ITV Studios UK is the largest commercial producer in the UK and produces programming for the Group's own channels, accounting for 60% of ITV network spend. Programming is also sold to other UK broadcasters such as the BBC, Channel 4 and Sky.

ITV Studios America is the largest unscripted independent producer of content in the US and is growing its scripted presence by increasing investment in high profile dramas straight to series.

ITV Studios also operates in four other international locations being Australia, Germany, France and the Nordics, where content is produced for local broadcasters. This content is either locally created IP or formats that have been created elsewhere by ITV, primarily the UK.

Global Entertainment, ITV's distribution business, licenses ITV's finished programmes and formats and third party content internationally. Within this business we also finance productions both on and off ITV to acquire global distribution rights.

EBITA before exceptional items

The Directors assess the performance of the reportable segments based on a measure of EBITA before exceptional items. The Directors use this measurement basis as it excludes the effect of non-recurring income and expenditure. Amortisation and share of profit/(losses) of joint ventures and associates are also excluded to reflect more accurately how the business is managed and measured on a day-to-day basis. Net financing costs and tax are not allocated to segments as the funding, cash and tax management of the Group are activities carried out by the central treasury and tax functions.

A reconciliation from EBITA before exceptional items to profit before tax is provided as follows:

The Group's principal operations are in the United Kingdom. Its revenue from external customers in the United Kingdom is £2,123 million (2013: £1,982 million), and total revenue from external customers in other countries is £467 million (2013: £407 million).

There are two media buying agencies (2013: three) acting on behalf of a number of customers that represent the Group's major customers. These agencies are the only customers which individually  represent over 10% of the Group's revenue. Revenue of approximately £571 million (2013: £527 million) and £312 million (2013: £235 million) was derived from these customers. This revenue is attributable to the 'Broadcast & Online' segment.

Cash generated from operations

A reconciliation from profit before tax to cash generated from operations before exceptional items is as follows:

Included in the increase in inventory is the investment by ITV Studios in high end drama, which is discussed in the Financial and Performance Review.

Operating costs

Staff costs

Staff costs before exceptional items can be analysed as follows:

The number of full-time equivalent employees ('FTEE') (excluding short-term contractors and freelancers who are predominantly allocated to the cost of productions), calculated on a weighted average basis, during the year was:

The increase in full-time equivalent employees in ITV Studios is primarily driven by the acquisitions completed in 2014.

Details of Directors' emoluments, share options, pension entitlements and long-term incentive scheme interests are set out in the Remuneration Report. Listed Directors' gains on share options for 2014 are set out in the ITV plc entity financial statements.

Depreciation

Depreciation in the year was £27 million (2013: £24 million), of which £15 million (2013: £12 million) relates to 'Broadcast & Online' and £12 million (2013: £12 million) to 'ITV Studios'.

Operating leases

The total undiscounted future minimum lease payments under non-cancellable operating leases fall due for payment as follows: