ITV Regulatory News (ITV)

20 March 2014

ITV plc Annual Report and Accounts for the year ended 31 December 2013

Online Annual Report

The Online Annual Report is available at ar2013.itvplc.com.

Annual Financial Report

ITV plc (the 'Company') released its preliminary announcement of annual results for the year ended 31 December 2013 ('Preliminary Announcement') on 26 February 2014. Further to the Preliminary Announcement, the Company can now confirm that the Report and Accounts 2013, Notice of Annual General Meeting and Form of Proxy will be mailed to shareholders on 20 March 2014. The Report and Accounts 2013 are now available on the Company's website at www.itvplc.com/investors.

Appendix A to this announcement contains the Report and Accounts 2013 in unedited full text for the purposes of compliance with the Disclosure and Transparency Rules. Any page and note references refer to page numbers and notes in the Report and Accounts 2013.

Annual General Meeting

The Company's 2014 Annual General Meeting will be held at 11.00 a.m. on Wednesday, 14 May 2014 at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE. The Notice of Annual General Meeting and Form of proxy will be available on our website from 20 March 2014.

National Storage Mechanism

In compliance with LR 9.6.3, the following documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.hemscott.com/nsm.do

· Report and Accounts 2013

· Notice of 2014 Annual General Meeting

· Form of Proxy for 2014 Annual General Meeting

ITV plc

Tel: 020 7157 3000

For further enquiries please contact: 

Investor Relations

Pippa Foulds - 020 7157 6555 or 07778 031097

Media Relations

Mary Fagan - 020 7157 3965 or 07736 786448

Mike Large - 020 7157 3021 or 07768 261528

Website: www.itv.com; investor information: www.itvplc.com

Appendix A

ITV plc Annual Report and Accounts for the year ended 31 December 2013

Corporate Website

We maintain a corporate website at www.itvplc.com containing a wide range of information of interest to institutional and private investors including:

· Latest news and press releases

· Annual reports and investor presentations

· Governance documents

· Corporate Responsibility content

Appendix A

Strategic Report

The Strategic Report explains in detail how we have performed this year and sets out a fair review of the business, a balanced and comprehensive analysis of our performance, the use of key performance indicators to explain the progress we have made, a description of the principal risks and uncertainties facing the Company, and an indication of potential future developments. 

The Strategic Report is prepared in line with the relevant provisions of the Companies Act 2006 and the Company has had regard to the guidance issued by the Financial Reporting Council in its Exposure Draft: Guidance on the Strategic Report. It is intended to provide shareholders with a better understanding of the Company, of its position in the markets within which it operates, and of its prospects. 

In setting out the Company's main risks and uncertainties, an indication of potential future developments, and in other content, this report and accounts contains statements that are based on knowledge and information available at the date of preparation of the Strategic Report, and what are believed to be reasonable judgements, and therefore cannot be considered as indications of likelihood or certainty. A wide range of factors may cause the actual outcomes and results to differ materially from those contained within, or implied by, these various forward-looking statements. None of these statements should be construed as a profit forecast.

Investor Proposition

· We are four years into our strategic plan and ITV is now a demonstrably stronger and more efficient business -operationally, financially and creatively

· Over the last four years we've grown our revenues and delivered double digit profit growth every year, our adjusted earnings per share has increased sixfold and our cash conversion has been consistently strong

· Creativity lies at the heart of our strategy and our investment in quality content is driving revenue and profit growth across the business

· While we have made great progress and ITV is now a much more balanced business, there is still a great deal to do

· We remain committed to our strategy to build an international content business and as an integrated producer broadcaster we are building a unique position to exploit the increasing global demand for proven content across a range of platforms

· ITV Studios has grown strongly, both organically and through acquisitions, and going forward growth will come increasingly from our international business as we become a more global business

· Our Broadcast business is robust, with the best year-on-year on-screen performance for ten years, and Online, Pay & Interactive continues to deliver double digit revenue growth as we make our content available on more platforms

ITV at a Glance

ITV is an integrated producer broadcaster, operating the largest commercial family of channels in the UK. In addition to traditional broadcasting on our channels, we deliver our content on demand through numerous platforms, both directly and via ITV Player. Through ITV Studios we produce content for both our own channels and third parties in the UK and increasingly overseas. Our distribution business sells finished programmes and formats worldwide.

Broadcast & Online

ITV broadcasts a wide variety of content on its family of free to air (FTA) channels consisting of ITV, the largest commercial television channel in the UK, and the digital channels, ITV2, ITV3, ITV4 and CITV. In 2014 we will launch ITVBe, our new FTA lifestyle and reality channel. The family of channels attracted a total share of viewing of 23.1% in 2013, the largest audience of any UK commercial broadcaster. Programming is primarily funded by television advertising revenues. ITV has the largest share of our estimate of the UK television advertising market at 45.4% in 2013.

In addition to linear broadcast, ITV delivers its content across multiple platforms. This is either through ITV Player, available on ITV's website, itv.com, and platforms such as Virgin and Sky, or through direct content deals with services such as Lovefilm and Netflix. ITV's content is now available on 19 platforms and in 2014 we will launch our new pay channel, ITV Encore, on Sky.

ITV Studios

ITV Studios is the Group's international content business. It is the largest production company in the UK and produces programming for ITV's own channels and for other broadcasters such as the BBC, Channel 4 and Sky. ITV Studios also operates in five international locations, the US, Australia, Germany, France and the Nordics, producing content for local broadcasters in these regions. This content is either locally created IP or created elsewhere by ITV, mainly the UK. We have made a number of acquisitions in the UK, US and the Nordics as we look to build our international business. Global Entertainment, ITV's distribution business, licenses ITV's finished programmes and formats and third party content internationally.

ITV Strategy

Our vision remains to create world-class content which we can make famous on our channels, and exploit across multiple platforms, both free and pay, in the UK and internationally. We have a clear and consistent strategy which is based on four key strategic priorities as follows:

1. Create a lean, creatively dynamic and fit-for-purpose organisation

2. Maximise audience and revenue share from our existing free-to-air broadcast business

3. Drive new revenue streams by exploiting our content across multiple platforms, free and pay

4. Build a strong international content business

Business Model

How ITV generates value

As an integrated producer broadcaster, we have a unique opportunity to deliver value from our investment in quality content. Our investment in our programme budget for our broadcast channels delivers unrivalled audiences that drive our advertising revenues. Our channels also provide a shop window for our own content to make it famous before selling it internationally. 

By creating and owning content we can grow new revenue streams by exploiting that content across multiple platforms, both free and pay. Investment in our creative pipeline and in selective acquisitions is building our international content business as we sell our programmes and formats internationally as the demand for proven content continues to grow.

Market Review

The media environment in which ITV operates, both as broadcaster and producer, continues to be dynamic. We must ensure that we adapt as the market changes as it presents great opportunities for ITV as an integrated producer broadcaster.

Broadcast & Online

Over recent years the number of ways to watch TV has greatly increased. Viewers are now able to choose between a variety of traditional platforms, both free and pay. On demand viewing allows people to watch content away from traditional television with programmes delivered over the top to devices including mobiles, tablets and connected TVs. Linear viewing via the TV set is still dominant with on demand a relatively small part of overall viewing, but it is growing fast: we cannot be complacent and must ensure that our online offering is strong to compete in this market.

Traditional television viewing

ITV competes for viewers with the BBC and other commercial broadcasters, including the Channel 4, Channel 5 and Sky families of channels. The process of digital switchover in the UK completed in 2012, increasing the number of channels available to all viewers from the traditional five terrestrial channels to a choice of hundreds. The erosion of audience share experienced by the terrestrial broadcasters during this transition has now levelled. Relatively little has changed in terms of viewing behaviour. In the last five years the public service broadcaster (PSB) families have only lost 1.2 share points. BBC One and ITV continue to be the only channels consistently able to deliver peak audiences of more than five million, and the PSB families receive around 72% share of viewing (SOV). ITV Family SOV in 2013 was 23.1%, second only to the BBC's family of channels at 32.2%. SOV for the Channel 4, Channel 5 and Sky families was significantly smaller at 11.0%, 6.0% and 8.0% respectively.

Total television viewing has been largely stable over the past decade with average viewing of 232 minutes in 2013 compared to 224 minutes in 2003. Total viewing saw a decline of 4% in 2013 due to the lack of a large one-off sporting event and the good weather over the summer. Viewing of commercial channels was only down 1% to 153 minutes per day.

Platforms

The platforms on which viewers watch television is important to ITV as for linear viewing our SOV is higher in free to air homes. The current platform mix is around 48% free to air (Freeview and Freesat) and 52% Pay (including Sky, Virgin and BT). We continue to support free platforms with developments such as YouView, which is estimated to have distributed over 900,000 boxes by the end of 2013.

Video on demand and catch up

Video on demand (VOD) viewing of lawful long form content is growing rapidly but remained around 3% of all viewing in 2013. Growth is being driven by viewing on mobiles, tablets and the television set, while PC viewing is declining (Source: Internal estimates, 3Reasons).

The number of homes with Personal Video Recorders (PVRs) has increased to around 63%, with PVR catch up viewing of around 12% (2012: 10%). The line between catch up and VOD is becoming more blurred with the growth of connected devices as viewers no longer need to record programmes. ITV continues to improve the quality and distribution of ITV Player to take advantage of this growing demand.

Advertising revenues

ITV generates revenues from advertising through traditional broadcast and also increasingly online. ITV competes with the commercial broadcasters and other advertising mediums, such as the internet and print, for its advertising revenues. Over the last five years TV has broadly maintained its share of total advertising spend at around 28% whilst the internet, which is growing rapidly, continues to take share from press. ITV's share of the television advertising net revenues (SOB) was 45.4% in 2013, slightly behind 2012 (45.8%). However, it is getting increasingly difficult to measure the market as all broadcasters have differing definitions and therefore include sources of revenue other than pure spot advertising.

Subscription and Pay revenue

ITV also earns revenues from pay TV, both directly from the viewer and through licensing its channels and content. The total UK pay TV market has been growing moderately and was estimated to be £6.1 billion in 2012 (Source: Screen Digest). Much of this goes to platform owners such as Sky and Virgin as subscriptions from the viewer, with the remainder being paid by platform owners to content owners, such as ITV, and rights holders.

A big growth area in pay TV is now subscription VOD, where viewers have unlimited access to content for a period of time. 2012 was the first year that VOD subscription took off in the UK, and the two main services, Netflix and Lovefilm which offer ITV content, are growing fast.

ITV Studios and the Global content market

Over the last few years the proliferation of entertainment platforms and the increasingly competitive nature of the broadcasting industry has created strong demand for quality proven content and formats that travel internationally. This is because broadcasters and platform owners want to increase the certainty of their audiences, either mass or targeted, around which to sell their advertising. This provides great opportunities for ITV as a leading content creator and producer.

ITV Studios production regions

ITV Studios is the largest commercial production company in the UK, and the third largest European producer after Fremantle and Endemol, producing over 3,500 hours of content per year for ITV and other broadcasters in the UK. ITV Studios also produces programming for local broadcasters in five international locations: the US (the largest international base), Australia, Germany, France and the Nordics. Global Entertainment, ITV's distribution business, sells finished programmes and formats around the world and is one of the top three European distributors of television content.

The global content market

The global content market is estimated to be worth around $50 billion. Approximately 29% of this ($15 billion) is accounted for by the US, 8% by the UK ($4 billion), and the remaining 63% by the rest of the world.

Entertainment and factual entertainment formats such as Come Dine With Me, Hell's Kitchen and I'm A Celebrity Get Me Out Of Here! are a significant part of global content sales. We are also seeing a resurgence of drama and comedy, and a rise in reality programming, for example Duck Dynasty and Real Housewives.

The UK and US drive global creativity in TV formats and finished tape sales. The UK is the world leader for the volume of exported formats, ahead of other top exporters the US, Holland and the Nordics, and second only to the US in catalogue sales.

In the UK and internationally ITV competes with a large number of independent producers, including 'super-indies' such as Fremantle and Endemol. The independent producers are largely privately owned, and do not have the advantage of being an integrated producer broadcaster.

The US is the largest creative market in the world and while dominated by vertically integrated conglomerates, there is a thriving independent market valued at about $3.5 billion in which ITV competes. ITV Studios is now one of the five largest independent producers in the US.

Chairman's Statement

Archie Norman

Dear Shareholder

ITV today is a much stronger business in almost every respect than when the restructured Board and leadership team were formed four years ago. When we set out our transformation programme in 2010 the core objective was to rebalance the business, to open up new growth paths, and to ensure it is more resilient in a changing media landscape. Whilst there is much further to go, this programme is well under way with strong growth in all sources of non-net advertising revenue.

After years of underperformance, our content business is now delivering consistent growth under strong creative leadership. Selected international acquisitions have accelerated progress, particularly in the USA, to form the basis for a global content network. Meanwhile, online, pay and sponsorships have all shown strong and profitable growth. This has been achieved against the backdrop of difficult economic conditions and subdued consumer markets.

As a result ITV today is in unrecognisably better health, with strong leadership and a good talent base at all levels. This does not of course mean we can afford to let the pace of change diminish. While the traditional broadcast television model remains robust, the market for 'television-like' content is changing faster than ever with new forms of viewing emerging, more catch up, more consumption on connected and mobile devices and indeed new entrants competing for share of the viewers' time. Therefore we must continue to adapt ITV to take advantage of these opportunities.

We see great opportunities ahead as we build on the creative capability of ITV internationally. However, these will also pose challenges to the way we work internally and externally. And as we extend our reach it remains vital to sustain the health of our growing channel family in the UK and especially of our flagship channel ITV.

Our ability to tackle these challenges with confidence is reinforced by the transformation of our financial position which has been the result of tight cash management, debt restructuring and cost control: we now have a robust balance sheet and strong cash flow generation. The Board is very mindful of the need to balance the investment requirements of the business to deliver future growth with increasing shareholder returns. The Board has proposed a 35% increase in the ordinary dividend to 3.5p and a 4.0p special dividend in line with last year.

ITV remains a regulated business and as the media landscape changes we continue to see the need for the relaxation of regulatory constraints as non-regulated forms of competition grow. However, we are pleased that our public service licences have now finally been renewed providing a stable platform for another ten years.

Our philosophy of management has been to combine very strong commercial and management leadership with great creative talent. This approach is also reflected at Board level where we seek to retain a mix of deep commercial and creative understanding around the Board table. I am delighted therefore that Sir Peter Bazalgette has joined our Board this year. Mike Clasper, who made a huge contribution to the Board in good times and bad over the last eight years has stood down with our thanks.

Finally, we are a talent driven, people intensive business. Our progress has been driven by the leadership, creativity and motivation of our people. And I want to thank all our colleagues at ITV for their hard work, and our shareholders for their continuing support.

Archie Norman

Chairman

Strategy and Operation

Chief Executive's Review

Adam Crozier

ITV delivers another year of strong growth 

2013 was another strong year for ITV, both operationally and financially, as we continue to make progress with our strategy of growing and rebalancing the business. External revenues were up 9%, with non-NAR revenues up £175 million (17%), and for the fourth year in a row we delivered double digit profit growth.

2013's performance builds on the consistently strong results we have delivered since we announced our strategy. Since 2009 we have increased Group external revenues by 27%, EBITA before exceptional items (EBITA) by 207%, adjusted earnings per share (EPS) by 522% and improved our cash position by over £750 million, even after returns to shareholders and investment in the business.

Our Broadcast business remains in good shape. In 2013 we had the best year-on-year viewing performance for ten years with ITV Family SOV up 4%, and the television advertising market returned to growth. Online, Pay & Interactive revenues continue to grow strongly and are now a material part of the business. ITV Studios, which again delivered significant revenue growth, is becoming an increasingly international business as it grows both organically and through selective acquisitions.

Our vision remains to create world-class content, which we can make famous on our channels, before exploiting its value across multiple platforms, both free and pay, in the UK and internationally. While there is still much to do and good potential for growth, the progress we are making is clearly evident in our results.

2013 operating and financial performance

ITV's financial results reflect a good performance across the business. ITV NAR grew 2% and, in line with our strategy, non-NAR revenues grew £175 million or 17% to £1,211 million.

Good revenue growth, together with our tight cost control, has led to 21% growth in EBITA before exceptional items (EBITA) to £620 million, 27% growth in adjusted profit before tax (PBT) to £581 million and 23% growth in adjusted EPS to 11.2p. Group margins have improved by three percentage points to 26% and we delivered £28 million of cost savings, £8 million ahead of our original target.

Broadcast & Online revenues grew by 3% to £1,896 million (2012: £1,834 million) and EBITA increased by 20% to £487 million (2012: £406 million). This was driven by 2% growth in ITV Family NAR and 16% growth in Online, Pay & Interactive as we have increased the quality and distribution of ITV Player and further developed our pay opportunities.

On-screen we have had a very strong year with ITV share of viewing (SOV) up 3% and ITV Family SOV up 4% as we have continued to increase the quality and variety of the schedule.

ITV Studios delivered 20% growth in total revenue to £857 million (2012: £712 million) and 24% growth in EBITA to £133 million (2012: £107 million). This was driven by the international studios business, with growth coming both organically and from the acquisitions we have made in the UK and internationally.

Our continued focus on cash and costs and our strong profit to cash conversion, saw us grow our free cash flow by over £100 million. We generated £433 million of free cash before investment and shareholder returns to end the year with net cash of £164 million. We have taken further steps to improve the efficiency of the balance sheet with additional debt buybacks and the redemption of the convertible bond.

The Board has proposed a final dividend of 2.4p (2012: 1.8p) giving a full year dividend of 3.5p (2012: 2.6p) - an increase of 35%. The Board is committed to a progressive dividend, taking into account the outlook for the business, while balancing the need to invest for growth and to maintain a robust financial position.

In addition to the final dividend, the Board is proposing a special dividend of 4.0p per share (£161 million). The cash distribution reflects the Board's confidence in the ongoing growth and cash generation of the business. Going forward we will continue to show capital discipline and balance the need to invest for future growth with increasing returns to shareholders.

Our strategy and the changing media environment

We are now four years into our five year Transformation Plan which is based on our four key priorities. We remain committed to this strategy as the progress we have made over the last four years shows it is the right strategy for ITV.

The demand from viewers for quality content is strong not just in the UK but globally. Linear viewing remains healthy and we must ensure that our Broadcast business continues to be strong, generating significant profits and cash. However, we must not be complacent and we must adapt to the challenges and opportunities of the dynamic media environment in which we operate.

While on demand is still a relatively small part of total viewing, we must make sure that our digital offerings are high quality, competitive and widely available so we can keep up with changing consumer behaviour and demands. We continue to experiment with new free and pay offerings to explore how viewers want to consume our content.

In such a rapidly evolving market, creating and owning high quality content is more important than ever, so we will continue to invest in a quality creative pipeline and exploit our advantage as an integrated producer broadcaster.

2014 and beyond

The television advertising market continues to show signs of improvement with ITV Family NAR expected to be up 5% to 6% in the four months to the end of April. We expect to outperform our estimate of the television advertising market over the full year. Our good on-screen performance in 2013, the strong 2014 schedule including the FIFA World Cup in June and the advertising deals we have done to date, puts us in a good position to achieve this.

Online, Pay & Interactive should deliver another year of good revenue growth as we continue to exploit opportunities in digital media and drive new revenue streams. Our new pay channel, ITV Encore, which will launch on Sky in 2014, will contribute towards this.

We anticipate good revenue growth in ITV Studios, primarily driven by the recent acquisitions we have made in the UK and internationally. Key to our success is creative content and therefore we will continue to invest in the pipeline of ideas and look at potential acquisitions and partnerships.

We remain committed to our strategy of rebalancing ITV and expect all parts of the business to see further growth in 2014. While a healthy broadcast business remains at the core of ITV, going forward we expect growth to increasingly come from Online, Pay & Interactive and from ITV Studios internationally.

Performance Dashboard

1 Create a lean, creatively dynamic and fit-for-purpose organisation

Milestones achieved

· Record employee engagement at 91%

· Rolled out ITV rebrand across all of ITV

· £28 million of cost savings - £118 million since 2009

· Fourth year of double digit profit growth

· Improved group margin by 3% points to 26%

· Net cash of £164 million after increase in shareholder returns

· Cash conversion again over the 90% three year rolling target

Focus for 2014

· Maintain high levels of employee engagement in ITV

· Further simplify our operating structures as we grow in scale and geography

· £10 million cost savings target

· Relentless focus on cash

· Maintain a robust, efficient and flexible balance sheet

KPIs

· Employee Engagement

2 Maximise audience and revenue share from our existing free-to-air broadcast business

Milestones achieved

· Best ITV Family SOV year-on-year performance for ten years

· Increased variety and quality of schedule

· ITV2 and 3 largest digital channels

· ITV NAR grew 2% as TV ad market returned to growth

· Innovative sponsorship and brand extension partnerships with advertisers

· Sales team were awarded 'Sales Team of the Year' in 2013 at the Media Week Awards

· Won six National Television Awards

Focus for 2014

· Maintain strong on-screen viewing performance

· Launch new free to air channel ITVBe

· Expect to outperform our estimate of the TV ad market

· Drive further value from 30 second spot and related revenues

· Implement new ten year licence

KPIs

· ITV Family Share of Viewing (SOV)

· ITV Family Share of Commercial Impacts (SOCI)

· ITV Family Share of Broadcast (SOB)

3 Drive new revenue streams by exploiting our content across multiple platforms, free and pay

Milestones achieved

· Further improved quality of ITV Player

· ITV content available on 19 platforms

· Long form video requests up 16%

· 11.7 million downloads of ITV Player app

· Renegotiated deals with BT and Virgin and extended Virgin deal to include ITV2, 3, 4 HD channels

· Trialling direct to consumer pay opportunities

· 3.5 million registered users of ITV Player

Focus for 2014

· Continue to improve quality of ITV Player

· Increase distribution of ITV Player

· Launch new pay channel, ITV Encore

· Implement new deal with Sky which was renegotiated at the start of 2014

· Develop further innovative and targeted advertising opportunities

· Launch advertising on catch up on Sky and Virgin

KPIs

· Total long form video request

4 Build a strong international content business

Milestones achieved

· 20% growth in total revenue driven particularly by international

· 24% growth in EBITA

· ITV Studios' share of ITV output increased to 59%

· Investing in creative pipeline - 121 new commissions

· Creating programmes that return and travel

· Eight programmes that are produced in three or more countries

· Completed four acquisitions in UK and US

Focus for 2014

· Invest in creative talent and pilots to maintain a healthy pipeline

· Focus on long running returnable series

· Exploit programmes that travel

· Further strengthen global production capabilities as we become an increasingly international business

· Continue to look at potential acquisitions

· Scale international distribution business

KPIs

· Number of new commissions for ITV Studios

· Percentage of ITV output from ITV Studios

KPIs across all four priorities

· EBITA before exceptional items

· Adjusted earnings per share

· 'Profit to cash' conversion

· Non-NAR revenues

Strategic Priority 1Create a lean, creatively dynamic and fit-for-purpose organisation

In 2013 we have again made significant progress in making ITV lean, creatively dynamic and fit-for-purpose.

We continue to make ITV a better business both creatively and commercially, through driving out complexity, developing our people, driving cultural change throughout the organisation, investing in our core systems and technologies, and in our brand.

As well as operating efficiently it is vital that we also operate responsibly. Our behaviour impacts our employees, our shareholders, our viewers, the wider community and the environment. Our Corporate Responsibility strategy, which is aligned to our four key priorities, aims to help grow our business by strengthening stakeholder pride and loyalty in ITV, as well as mitigating the risks to the business. Ensuring the welfare and human rights of our employees is a key consideration in our day-to-day activity, both in the UK and internationally, and we use United Nations human rights frameworks as guiding principles.

This report highlights issues which are material to our business strategy. However, our commitment goes beyond the business plan and regulatory requirements. As a responsible industry leader we undertake a number of initiatives that demonstrate our commitment to behaving responsibly and to a sustainable future for our industry, which can be found on our website.

Our people

Our people are key to the success of ITV. It is essential that we develop and support them so that we can attract and retain the best talent. We measure our employee engagement annually and we are pleased to see it has again improved to 91% (2012: 88%), which compares to a benchmark for comparable company surveys of 77%. Employee participation has also increased to 88% (2012: 80%), which compares to a benchmark of 69%.

We have continued to simplify the way we operate and to increasingly work as One ITV. This makes it easier for people to do their jobs and to help deliver value from our integrated producer broadcaster model and to drive future growth. However, there is still more we can do.

ITV at the heart of popular culture

At the start of 2013 we successfully rolled out the ITV rebrand with the emphasis on putting ITV at the heart of popular culture. This was one of the most extensive media rebrands ever undertaken and was developed in-house by ITV Creative. We rolled out a new identity for our five channels, our entire online estate, and our production and distribution businesses in the UK and internationally, all on the same day. The rebrand has significantly improved ITV's brand health as measured by YouGov and has helped make ITV the 'most loved' commercial network in 2013.

Relentless focus on cash and costs

In 2013 we delivered £28 million of cost savings, £8 million ahead of the original target. These savings are largely not employee related. Since 2009 we have taken £118 million of costs out of the business. These savings have funded our investment in our creative and commercial capabilities, specifically in our creative pipeline, in technology and online.

Our focus on costs and cash has enabled us to significantly strengthen and improve the efficiency of our balance sheet. Our cash generation remains strong with free cash flow up over £100 million year-on-year. Profit to cash conversion was 97% and we have ended the year with net cash of £164 million even after significant investment in acquisitions, property and returns to shareholders. We have also continued to improve the efficiency of the balance sheet with £211 million of debt buybacks (nominal) and the redemption of the convertible bond, both of which deliver significant interest cost savings for 2014 and beyond.

The steps we have taken on the balance sheet along with another period of double digit profit growth has led the Board to propose a final dividend of 2.4p (2012: 1.8p) giving a full year dividend of 3.5p (2012: 2.6p) - an increase of 35%. The Board is committed to a progressive dividend, taking into account the outlook for the business, while balancing the need to invest for growth and to maintain a robust financial position.

In addition to the final dividend, the Board is proposing a special dividend of 4.0p per share (£161 million). The cash distribution reflects the Board's confidence in the ongoing growth and cash generation of the business. Going forward we will continue to show capital discipline and balance the need to invest for future growth with increasing returns to shareholders.

2014 and beyond

We have made great strides in creating a better business and we will continue to make further improvements across the organisation in 2014.

We will maintain our focus on costs but, given the savings we have made to date, further significant savings are getting harder to achieve. For 2014 we have identified a further £10 million of non-network programme budget cost savings.

It is essential that while we remain operationally and financially fit-for-purpose, we must balance cost and cash discipline with the need to invest in the business. The balance sheet we now have gives us the flexibility to invest where appropriate to drive future growth and improve shareholder returns.

Corporate Responsibility

People and diversity

Ensuring our culture, environment and processes are inclusive is essential to helping us attract diversity amongst the skills, experience and make-up of our workforce. As an example of our leadership and commitment ITV currently chairs the Creative Diversity Network, whose remit is to take joint industry responsibility for action on diversity.

Environmental matters and social, community and human rights issues: More details can be found on our Corporate Responsibility website, while the greenhouse gas disclosures are included in the Directors' Report.

Strategic Priority 2

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

A strong broadcast business is central to our strategy. As a business it generates significant profits and cash and its content can be repackaged to drive new revenues. As an integrated producer broadcaster, our family of broadcast channels provides a platform on which to make ITV Studios content famous before exploiting it internationally.

ITV Family NAR grown by 2%

In 2013, ITV Family NAR grew by 2% based on pure spot advertising. This is slightly behind our estimate of the television advertising market, up 3%. However, it is getting increasingly difficult to measure the market as all broadcasters have differing definitions and therefore include sources of revenue other than pure spot advertising.

Since 2009 we have grown our Share of Broadcast (SOB) from 44.7% to 45.4% in 2013. We have achieved this through the quality of our schedule and the unrivalled reach that ITV offers. ITV is the UK's strongest marketing platform, delivering the mass audiences which are so much in demand from advertisers. In 2013 ITV delivered 99.9% of all commercial audiences over five million viewers and 100% of audiences over six million.

Our digital channels, ITV2, 3 and 4, provide more targeted demographics, which together with ITV main channel, ensures that we deliver both mass and targeted reach.

Our broadcast performance has helped to drive 3% growth in Broadcast & Online revenues to £1,896 million.

Strong on-screen performance

The improved quality and variety of the schedule has driven a consistently strong on-screen performance throughout 2013. ITV Family SOV was up 4% over the full year - the best year-on-year performance for over ten years. ITV main channel SOV was up 3%, ITV main channel SOCI was up 1% and ITV Family SOCI was flat. ITV digital channels performed broadly in line with last year.

ITV had many on-screen successes in the year with both new and returning programmes. Based on the series average, ITV broadcast the highest rating drama with Downton Abbey, the highest rating new drama launch with Broadchurch and highest rating entertainment programme with I'm A Celebrity Get Me Out of Here! Other notable successes include Lewis, Poirot, Mr Selfridge, Doc Martin, Ant & Dec's Saturday Night Takeaway, The Chase, Tipping Point, Paul O'Grady: For the Love of Dogs, and Her Majesty's Prison: Aylesbury. Our sports programming again delivered good audiences, in particular the Champions' League and England international friendlies.

The strong on-screen performance is not just due to the success of these new and returning series. Much of our core schedule, in particular Coronation Street, Emmerdale and our News programmes, have all performed strongly in 2013. Coronation Street was the highest rating soap, and for the first time Emmerdale had a higher average share of viewers than Eastenders over the year. Both our national and regional news programmes have grown their audience share as we remain committed to providing high quality, impartial news.

The improved quality of ITV channels has again been recognised publicly in 2013 with ITV winning Channel of the Year at the Edinburgh Television Festival and ITV2 winning digital channel of the year at the Broadcast Digital Awards. ITV also won six National Television Awards including most popular serial drama for Coronation Street and most popular entertainment programme for I'm a Celebrity Get Me Out Of Here!

ITV2 and ITV3 remain the two largest digital channels in the UK and our digital channels again aired successful new and returning programmes, including Tricked, The Big Reunion, Duck Dynasty, Plebs, Celebrity Juice, The Only Way is Essex, The Tour de France and The French Open.

Our viewing performance is clearly healthy but there remain areas we would like to improve. While overall the digital channels performed well, ITV4's performance was slightly disappointing and the early daytime schedule on ITV has not performed as well as we had hoped. We will continue to rejuvenate some of our programmes and trial new ideas across our channels. We aim to increase our success rate in launching new programmes through research, viewer panels and pilots.

Our advertising is sold based upon the on-screen performance in the previous year and therefore our strong viewing performance in 2013 puts us in good stead for 2014.

During 2013 we experienced a number of transmission outages on our channels. High quality transmission is an absolute priority for ITV and we have a number of projects ongoing to ensure our transmission and distribution technologies are fit-for-purpose.

Maximising the value of our airtime

We compete with broadcasters and other media for our share of television advertising and advertising revenues in general. We aim to maximise the value of our 30 second spot and drive related revenue streams through sponsorship, interactivity and brand extensions. For example, the successful sponsorship campaigns and off-air endorsements including Morrisons with Ant & Dec's Saturday Night Takeaway, Tesco Finest with Downton Abbey, and Boots and This Morning. Following the successful broadcast of The Big Reunion on ITV2 in 2013 we also launched the live Big Reunion Tour and recommissioned the programme.

Traditional broadcast model remains robust

While the media environment is developing rapidly, the traditional television broadcast model remains structurally robust. On demand viewing is growing fast, but it remains around 3% of total viewing and people continue to watch around four hours of television a day.

We must ensure that even though our Broadcast business is strong we continue to make our digital offerings more widely available and competitive.

Renewal of licence

In February 2014, ITV's Public Service Broadcasting licences were renewed for a full ten years which gives us the certainty we require to continue to invest for the long term in our broadcast business and high quality content.

2014 and ahead

As we look into 2014 and beyond we must continue to focus on delivering a strong on-screen performance by offering a rich and varied schedule, including our new free to air lifestyle and reality channel ITVBe. There will be both challenges and opportunities. From the second half of 2015 we will no longer hold the live rights for the Champions' League but this will potentially open up parts of the schedule which will give us an opportunity to invest more in ITV Studios content.

The television advertising market continues to show signs of improvement with ITV Family NAR expected to be up 5% to 6% in the four months to the end of April. Over the full year we expect to outperform our estimate of the television advertising market. Our on-screen performance in 2013 and our strong schedule for 2014, including the FIFA World Cup and the advertising deals we have done, puts us in a good position to achieve this.

Corporate Responsibility

Using the power of our reach to inspire, engage and empower people to make a positive difference in our society.

ITV together with its much loved channels, popular programmes, celebrities and viewers have helped raise millions for charitable causes in 2013.

Social action has also been at the heart of many of our Corporate Responsibility campaigns in the form of volunteering and community action - often in collaboration with charities and other UK-wide social action organisations.Responsible programming and complying with Ofcom's Broadcasting Code is absolutely key for ITV.

Strategic Priority 3

Drive new revenue streams by exploiting our content across multiple platforms, free and pay

Online, Pay & Interactive are fast growing new revenue streams which we are driving from distributing our content across a range of platforms, both free and pay. This is either by selling advertising around our content online or pay revenues through licensing our content to third party platform owners or, to a lesser extent, through transactions directly with the consumer through ITV Player. 

In 2013 we have continued to increase the quality and the availability of ITV Player and further developed our pay services. This, combined with the continued growing demand for watching our content via non-traditional channels as well as linear channels, has seen us again deliver strong growth, with revenues up 16% to £118 million.

Online advertising

Over the last few years we have invested to improve the quality of our online offering and ITV Player is now fit to compete with the best in the digital market. In 2013 we continued to enhance our online offering with improvements to the ITV Sports and ITV News sites.

We have also been working to increase the distribution of ITV content digitally so that it is available when and how people want to watch it. Our content is now available on 19 platforms.

The rapid increase in video on demand (VOD) is adding to a huge demand for quality content, both free and pay, and as an integrated producer broadcaster we are in a unique position to create value from this. Mobile and tablet viewing is driving VOD and there have now been over 11.7 million downloads of the ITV Player app since it was launched.

The increased quality and distribution of the ITV Player has led to continued good growth in long form video requests, which were up 16% in 2013. Advertiser demand continues to be strong for ITV's VOD and we must manage our advertising load to meet that demand while maintaining a good user experience.

Pay services

As consumer viewing behaviour evolves, we continue to explore, experiment and develop our pay services - both direct-to-consumer and to broadcasters and platform owners. We have trialled pay opportunities on the ITV Player with episode premieres of programmes such as Scott & Bailey for ITV and Plebs for ITV2, and have offered box sets to download to rent. We have also launched an ad free subscription model on iOS - the first broadcaster to do so.

During the year we renegotiated a number of our current deals with platform owners and also agreed a number of new deals to make our content available on more platforms.

We renewed our deals with BT and Lovefilm and we have renegotiated our Virgin deal to include HD versions of ITV2, 3 and 4 and to enable us to deliver adverts in our catch up content in the future. We have agreed deals with Amazon for transactional VOD, simulcast channels with Everything Everywhere and a catch up service on Virgin Atlantic. We have also launched ITV Essentials, an international catch up service for our Soaps.

In January 2014 we announced that we will be launching our first pay channel, ITV Encore, on Sky. As part of the wider deal with Sky, ITV content will also be made available through Sky's range of connected platforms including Sky Go, Now TV and Sky Store.

Interactivity

We are further deepening our relationship with our viewers and ITV Player now has 3.5 million registered users. We are increasing our interaction and consumer engagement through competitions, voting, second screens and through social media to drive more value from our brands for ITV and for our advertisers.

2014 and beyond

We expect to again deliver double digit revenue growth in Online, Pay & Interactive in 2014. Our online revenues will grow through the increased distribution of ITV Player and through increased consumer demand. In 2014 we will start to deliver stitched advertising in our catch up services on Sky and Virgin. We continue to develop our pay services and during 2014 we will launch ITV Encore.

Corporate Responsibility

Building trust online

We strive to continue to build trust and confidence in our digital platforms, applying the same standards online as we do on air.

We listen to the issues that matter to our viewers, in particular safeguarding children, protection of personal data and accessibility to our programmes.

Strategic Priority 4

Build a strong international content business

A strong international content business lies at the heart of our strategy to create and own more of our own content, make it famous in the UK on our channels and distribute it across multiple platforms in the UK and internationally. As an integrated producer broadcaster we are in a unique position to do this.

The high demand globally for quality content from broadcasters and platform owners provides a significant opportunity for us. We are building real momentum as we continue to invest in a strong and healthy creative pipeline in the key creative markets and specifically in genres that return and travel - drama, entertainment and factual entertainment, good examples of which are Mr Selfridge, Come Dine With Me and The Chase.

In 2013 we delivered a 20% increase in total ITV Studios revenue with good performances across the business - particularly driven by international production - and 24% growth in EBITA. We delivered good organic growth and are building on this with the acquisitions we have made both in the UK and internationally. Our portfolio of acquisitions are performing in line with our expectations and we will continue to look at further acquisitions which fit with our strict strategic and financial criteria.

The strong performance in 2013 builds upon the significant progress we have made over the last few years. While there is still a great deal to do, ITV is now an international studios business - we are the number one commercial producer in the UK, a top five independent producer in the US and the third largest European distributor of television content.

UK Production

In the UK we have increased our production revenues by 12%. Growth has come in particular from drama, entertainment and factual, with original hours commissioned in these genres up 55%, 16% and 49% respectively, including the benefit of our acquisitions. Growth also came both on and off ITV. We have again increased ITV Studios' share of ITV output, which increased to 59%, up from 50% in 2009.

On ITV we have delivered new commissions including Lucan, Big Star's Little Star and Tricked. As we focus on programmes that return and travel, our recommissions are very important. We are building a track record for producing programmes that return, including Mr Selfridge, Ant & Dec's Saturday Night Takeaway and Surprise Surprise, which all have international appeal.

Off ITV our new commissions include Pressure Pad for the BBC and Kingfishers for Discovery while our recommissions include Graham Norton, Shetland and University Challenge for the BBC, and 24 Hours in A&E, Friday Night Dinner and Come Dine with Me for Channel 4.

International Production

Our international production business continues to grow very strongly, with revenues up 56%, driven by the US.

Our US businesses have secured a number of new commissions such as The Chase, which was originally commissioned in the UK, and many recommissions of programmes which demonstrate their longevity and their international appeal. These included Hell's Kitchen which broadcast its 11th series in 2013, Kitchen Nightmares which broadcast its 5th series, Cake Boss which broadcast its 6th series and is developing spin-off shows, and Duck Dynasty which has broken cable viewing records in the US and is now also on ITV4. A number of these shows have already been recommissioned which will be reflected in the 2014/5 results.

Our other international production bases in Australia, Germany, France and the Nordics also produce their own original formats and versions of UK formats. Their original formats include Der Letzte Bulle in Germany, Mad As Hell in Australia and Night Patrol in Norway. UK formats produced locally include I'm a Celebrity Get Me Out Of Here! and The Audience in Germany, Four Weddings in France and Hell's Kitchen in the Nordics. They have also secured a number of new commissions for 2014 including UK formats, such as Hell's Kitchen in Germany.

Global Entertainment

The growth in the UK and international production businesses is starting to feed our international distribution arm, whose revenues were up 2% to £135 million. 

Global Entertainment's successes in the year include Mr Selfridge, Poirot, Marple, Lewis and Hell's Kitchen US, which have all now been sold to over 150 countries. We also continue to sell formats successfully, for example Come Dine with Me, Four Weddings and The Chase, and we now have eight programmes sold in three or more countries. As well as distributing ITV's own content we are adding to our catalogue through the distribution of third party content, such as Rectify for AMC and River Monsters for Icon Films. We are seeing strong growth in sales to digital platforms which is more than offsetting the decline in DVD sales.

We have delivered revenue growth in the period, but it takes time for the creative pipeline to flow through and the market for third party rights remains very competitive.

Acquisitions

Our acquisitions focus to date is on the two key markets which have a track record for creating and owning intellectual property, namely the UK and US. We are looking for companies that have a good creative pipeline and produce in genres that have the potential to travel.

In the UK we are seeking to enhance our skills in key genres. In 2013 we acquired UK producers The Garden and Big Talk to increase our capability in creating factual entertainment and comedy formats that travel and in delivering commissions for other broadcasters.

In the US we continued to build strength and scale with the most recent acquisitions of High Noon and Thinkfactory who produce reality, entertainment and drama programmes, such as Cake Boss and R&B Divas. These complement our existing business, including Gurney Productions which we acquired at the end of 2012.

2014 and beyond

In 2014 we again anticipate good growth, primarily driven by the acquisitions we have made in the UK and internationally. As ever ITV's revenue growth will not be a straight line because of the phasing of the delivery schedule required by our network and cable customers. A challenge for the UK business is that ITV main channel will be spending less on original commissions given the World Cup cost in the first half of 2014.

We will continue to invest in our creative pipeline to develop programmes that return and travel and we will also look at potential acquisitions in the key creative markets. Our international production business will remain a key focus as the demand for quality content globally continues to grow and will increasingly be the main driver for ITV Studios growth.

On 19 February 2014 we acquired a 51% controlling interest in DiGa Vision, a US independent producer of reality and scripted programming. There is a put and call option to buy the remainder of the company over three to six years.

Corporate ResponsibilityResponsible programming

Through our programming we aim to tackle and portray social and community issues that are relevant to our audience, in an appropriate manner. As an international content producer we understand the influence and impact our content can have on society. 

Beyond our regulatory requirements we strive to produce content that is relevant for a global market and authentically portrays its audience. 

Performance and FinancialsA review of Operational and Financial performance in 2013

Key Performance Indicators

We have defined our Key Performance Indicators (KPIs) to align our performance and accountability to our strategy. These KPIs will be the key measures of success and cover all four strategic priorities.

EBITA before exceptional items

This is the key profitability measure used across the whole business. Earnings before interest, tax and amortisation before exceptional items ('EBITA') reflects our performance in a consistent manner and in line with how the business is managed and measured on a day-to-day basis.

Related Priority 1,2,3,4

Performance

In 2013 this has increased by £107 million or 21%. This is as a result of the 9% growth in external revenues, driven by significant growth in non-NAR and 2% increase in NAR, and our continued focus on costs delivering £28 million of savings in 2013. Since 2009 EBITA has increased by over 200%. 

The Group margin has improved year on year, up three percentage points to 26%.

Adjusted earnings per share

Adjusted earnings per share represents the adjusted profit for the year attributable to equity shareholders. Adjusted profit is defined as profit for the year attributable to equity shareholders before exceptional items, impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments and other tax adjustments.

It reflects the business performance of the Group in a consistent manner and in line with how the business is managed and measured on a day-to-day basis.

Related Priority 1,2,3,4

Performance

Adjusted earnings per share has increased by 2.1p, a 23% increase year-on-year to 11.2p. This reflects the improvement in revenue and profit and the reduction in adjusted financing costs as we improve the efficiency of the balance sheet.

Since 2009 adjusted earnings per share has increased by over 500%.

'Profit to cash' conversion

'Profit to cash' conversion represents the proportion of EBITA converted into a measure of adjusted cash flow (defined as cash generated from operations before exceptional items less cash related to the acquisition of operating property, plant and equipment and intangible assets).

A key priority is to keep tight control on cash and costs and this measure primarily reflects our working capital management and capital expenditure control. As such, it remains ITV's aim to keep this 'profit to cash' conversion as high as possible, and in excess of 90% on a rolling three year basis.

Related Priority 1,2,3,4

Performance

Profit to cash conversion is again over 90% which is our rolling three year target. This is despite significant capital expenditure. This demonstrates our continued focus on working capital management which has helped drive a significant improvement in our cash position.

Employee engagement

To turn ITV into a world-class organisation that is lean, creatively dynamic and fit-for-purpose requires high quality employees who are engaged in the work that they do, and are committed to the strategy.

Employee engagement measures pride in the work we do, pride in working for ITV and also what we say about our programmes and services.

Related Priority 1

Performance

Employee engagement has again improved year on year to 91% which indicates employees' pride in ITV and their commitment to supporting change across the business. Company participation was also high at 88%.

These measures are well above benchmark as well as having improved year-on-year.

ITV Family Share of Viewing (SOV)

Strategic priority 2 aims to maximise audience share from our existing free-to-air broadcast business, and ITV Family Share of Viewing (SOV) is the clearest indicator of this. ITV Family SOV is ITV's share of the total viewing audience over the year achieved by ITV's family of channels as a proportion of total television viewing, including the BBC family. ITV aims to at least maintain the ITV Family SOV.

Related Priority 2

Performance

ITV Family SOV had its strongest year-on-year performance for ten years, up 4%, as we further improved the quality and breadth of the schedule.

ITV Family Share of Commercial Impacts (SOCI)

Strategic priority 2 aims to maximise audience share from our existing free-to-air broadcast business, and ITV Family Share of Commercial Impacts (SOCI) is another key indicator of this. SOCI is the trading currency in the television advertising market, and since it only covers commercial television it does not include the BBC. This is the share of total UK television commercial impacts which is delivered by ITV's family of channels. An impact is one viewer watching one 30 second commercial. We aim to maximise our SOCI.

Related Priority 2

Performance

ITV Family SOCI was flat year-on-year. ITV main channel was up 1%, however, offsetting this was the performance of ITV4, which did not perform as well as we had hoped. 

ITV Family Share of Broadcast (SOB)

ITV's share of UK television advertising revenues is known as its Share of Broadcast (SOB). To maximise revenues from our free-to-air business, which is a key component of strategic priority 2, we aim to continue to maximise our SOB and to outperform the UK television advertising market.

It is getting increasingly difficult to measure the total television advertising market as all broadcasters have differing definitions and therefore include sources of revenue other than pure spot advertising.

Related Priority 2

Performance

ITV SOB was slightly down year on year. In 2014 we expect to outperform our estimate of the television advertising market over the full year. Our on-screen performance in 2013, the strong schedule for 2014 including the FIFA World Cup, and the advertising deals we have done, puts us in a good position to achieve this.

Total long form video requests

Our strategy looks to drive new revenue streams by exploiting our content across multiple platforms.

Long form video requests is a measure of the total number of our videos viewed across all platforms (such as itv.com, Virgin, Sky and mobile devices) and therefore provides a key measure of how much of our content is being viewed online.

A long form video is a programme that has been broadcast on television and is available to watch online and on demand in its entirety.

Related Priority 3

Performance

Long form video requests were up 16% at 577 million. We have improved the quality of ITV Player and increased the distribution of our content onto more platforms. ITV content is now available on 19 platforms. Growth in long form video requests has been driven by mobile and tablet viewing.

Non-NAR revenues

Growing non-NAR revenues is key to the strategy as we aim to rebalance the business away from our reliance on television advertising revenues. Non-NAR revenues include all ITV revenues, both internal and external, except net advertising revenues (NAR).

Key drivers of non-NAR revenue are the growth in Online, Pay & Interactive and Studios, particularly international.

Related Priority 2,3,4

Performance

Non-NAR revenues have grown by 17% in 2013 as we continue to rebalance the business. Non-NAR growth is driven by Studios revenues - particularly international - and Online, Pay & Interactive.

Number of new commissions for ITV Studios

A key indicator of the creative renewal pipeline is the number of new commissions won. This figure includes programmes shown both on ITV and on other broadcasters, and both in the UK and internationally.

Related Priority 4

Performance

The number of new commissions has increased in 2013 as we continue to invest in our creative pipeline both organically and through acquisitions.

Percentage of ITV* output from ITV Studios

This represents the proportion of the total spend on original commissions on ITV transmitted in the year, delivered by ITV Studios. A key part of building a strong international content business, is to increase ITV Studios' supply of programmes to ITV, where we aim to make them famous and then sell them around the world.

* Excludes ITV2, 3 and 4.

Related Priority 4

Performance

The percentage of ITV output from ITV Studios has increased again this year to 59%. The improvement has been driven by an increase in Drama commissions.

Financial and Performance Review

Ian Griffiths

Delivering revenue growth in all parts of the business

We have again delivered a strong set of results with good revenue growth and double digit profit growth. There was growth from all parts of the business, our acquisitions are making a material contribution and the relentless focus on costs and cash is evident in our healthy financial position. We ended the year with £164 million of net cash even after significant investment across the business and increased returns to shareholders.

The profit before tax (PBT) and earnings per share (EPS) from the Consolidated Income Statement are as follows:

External revenues were up 9%. Total non-NAR revenues grew £175 million (17%) and ITV Family NAR was up 2%.

This revenue growth, combined with our tight cost management and our higher margin new revenue streams, saw us deliver 21% growth in EBITA to £620 million and 23% growth in adjusted EPS to 11.2p. Group margins improved by three percentage points to 26%.

We again maintained our focus on cash and costs. We delivered £28 million of cost savings, £8 million ahead of our original target and our tight working capital management has delivered a strong profit to cash ratio at 97%, again above our 90% rolling three year target. We have continued to take steps to improve the efficiency of the balance sheet having bought back £211 million of gross debt and exercised our right to redeem the convertible bond. Together, these actions have reduced our level of total debt to £354 million and further reduced our financing costs.

The Financial and Performance Review focuses on the adjusted results, which in management's view shows our business performance in a more meaningful and consistent manner and reflects how the business is managed and measured on a daily basis. A reconciliation to the reported results is set out in the earnings per share section that follows.

Adjusted profit before tax and adjusted EPS remove the effect of exceptional items which include acquisition related costs (professional fees, primarily due diligence, and performance based employment linked contingent payments), impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments and other tax adjustments.

Following revisions to IAS 19, we are required to restate our prior period results which have resulted in the following:

Broadcast & Online

Broadcast & Online delivered a strong performance. Revenues were up £62 million (3%) and with tight control of costs and growth in new higher margin revenues, we delivered an £81 million (20%) increase in EBITA. 

Revenue growth was driven by a 16% increase in Online, Pay & Interactive revenues and 2% growth in ITV Family NAR as the television advertising market returned to growth. The television advertising market again showed significant fluctuations across the year, often driven by the timing of sporting events or programmes delivering large audiences. ITV Family NAR was down 3% in the first half of the year as there were tough comparatives in Q2 caused by the absence of a big sporting event but this recovered over the second half which was up 8%. In 2014 with the FIFA World Cup in Q2 we expect again to see significant variations by quarter.

There also continues to be volatility by sector. In 2013 we continued to see strong demand from advertising sectors driven by technology and highly competitive industries. Good growth was seen in entertainment & leisure, telecommunications, cars, publishing & broadcasting, airlines & holidays and household stores. While retail as a whole did not show significant growth as the high street subsector remained weak, supermarkets did spend more. Finance declined year-on-year driven by banks and building societies. Food was weak due to the margin pressure being experienced within the sector.

Over the full year, ITV NAR based on pure spot advertising was up 2% which is slightly behind our estimate of the television advertising market up 3%. However, it is getting increasingly difficult to measure the market as all broadcasters have differing definitions and therefore include sources of revenue other than pure spot advertising.

In 2014 we expect to outperform the television advertising market. Our on-screen performance in 2013, the strong schedule for 2014 including the FIFA World Cup, and the advertising deals we have done, puts us in a good position to achieve this.

SDN revenues increased 15% benefiting from the launch of the 12th and 13th video streams in the year. No similar one-off benefit is expected in 2014.

Online, Pay & Interactive revenues grew strongly, up 16% to £118 million. Within this, online advertising revenues increased as long form video requests grew 16%, which has been helped by our continued improvement in the quality and distribution and the enhanced offerings of itv.com and ITV Player. Our pay revenues have also grown as we have renegotiated deals with Virgin, BT and Lovefilm. These pay revenues are mainly from platform owners paying us for our channels. Our content is now available on 19 platforms. Our interactive revenues, which include competitions and voting, have been broadly flat year-on-year but we continue to drive engagement and interaction with our content.

Other commercial income includes sponsorship, minority revenues, media sales and other income. In total these are up 3%, with growth coming from sponsorship and brand extensions as we have broadened our commercial relationship with our advertisers, for example with Morrisons sponsoring Ant & Dec's Saturday Night Takeaway which included a full brand endorsement of Morrisons and Ant & Dec TV adverts.

Schedule costs were down as a result of the savings we have secured on our FA Cup and Champions League rights and lower overall sports costs as there has been no large one-off sporting event. This has enabled us to invest in more hours of drama and entertainment, including programmes from ITV Studios. Other costs were flat as we manage our overheads tightly which has mitigated inflationary pressures and funded our investment in the business.

ITV Studios

In 2013 we again delivered strong revenue growth, up 20%. All parts of the business performed well, with significant growth coming from International Productions both organically and through the acquisitions we have made.

Through this strong revenue growth, our continued focus on costs and changes in our revenue mix, we delivered 24% growth in EBITA.

Organic revenue growth was 7% and acquisitions delivered just under £100 million of revenue growth and £15 million of EBITA in line with our expectations.

UK Productions grew on and off ITV, with total revenue up 12%. This has been driven by drama, entertainment and factual with programmes such as Mr Selfridge, Lewis, Vera, Ant & Dec's Saturday Night Takeaway and The Chase for ITV as the demand for high quality content has grown. Off ITV we have produced Graham Norton and Shetland for the BBC, 24 Hours in A&E for Channel 4 and Four Weddings for Sky Living.

International Productions grew very strongly, up 56%. This was driven particularly by America for a number of reasons. Firstly they delivered good organic growth with additional volumes of programmes such as Hell's Kitchen. Secondly 2013 was the first full year of owning Gurney Productions, who produce the hugely popular show Duck Dynasty. Finally our other acquisitions also performed well with programmes such as Cake Boss produced by High Noon. We also had a good year in Germany and France with I'm A Celebrity Get Me Out Of Here! and Come Dine With Me in Germany and Four Weddings in France.

The strong growth in our UK and international production businesses is starting to feed our global distribution business, with programmes such as Mr Selfridge, Poirot, Marple, Lewis and Hell's Kitchen US selling to over 150 countries. In addition, eight of our formats have been sold in three or more countries this year, including I'm a Celebrity Get Me Out Of Here!, Dancing on Ice, Coach Trip and The Audience. However, this is a process that does take time. We are seeing strong growth in sales to digital platforms which is more than offsetting the decline in DVD sales.

The majority of costs incurred in ITV Studios vary directly with levels of activity. However, we continue to maintain our focus on costs and to drive efficiencies in the production process. 

Acquisitions

In 2012 and 2013 we acquired a number of content businesses in the UK, the US and the Nordics. These have been made against strict strategic and financial criteria. Financially we look at ownership of intellectual property, 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. We have structured the deals, with earnouts or put and call options, to base a significant part of the consideration, which is capped, on future performance and therefore align incentives and lock in creative talent. To date our portfolio of acquisitions is performing in line with our expectations.

In 2012 we acquired Gurney Productions in the US, So TV in the UK, Mediacircus in Norway and Tarinatalo in Finland. In April 2013 we acquired 100% of the UK independent producer The Garden to enhance our capability in creating factual entertainment formats that travel and to increase our strength in delivering commissions off ITV. We made an upfront payment of £18 million with a further capped cash payment contingent on The Garden's future performance. In July 2013 we acquired 100% of Big Talk Productions and associated companies (Big Talk) to strengthen our comedy and light entertainment capability. We paid an initial cash consideration of £13 million and there are further capped cash payments contingent on Big Talk's future performance.

In May 2013 in the US we acquired 60% of High Noon Entertainment for an upfront cash consideration of $26 million (£16 million) and in June we acquired 65% of Thinkfactory Media for an upfront cash consideration of $30 million (£19 million), to further build our strength and scale. There are put and call arrangements in place to buy the remaining minority stakes.

The total initial payment for 2012 and 2013 acquisitions is £108 million with a further expected £97 million (undiscounted) payable which is based upon our current view of their performance over the payment period. The total maximum consideration of £293 million (undiscounted contingent consideration of £185 million and initial consideration of £108 million) for all these acquisitions is payable only if the businesses deliver 20-30% compound average annual growth rate in earnings. 

On 19 February 2014 we acquired a 51% controlling interest in DiGa Vision, the US independent producer of reality and scripted programming. There is a put and call option to buy the remainder of the company over three to six years. 

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

Net financing costs

Net adjusted financing costs of £25 million were £19 million lower than last year as a result of the full year benefit of the debt bought back in 2012 and part year benefit of the debt buyback and the redemption of the convertible bond in 2013.

The £61 million of losses on buybacks relate to the exceptional loss on the £211 million (nominal) of debt we bought back in the year. The partial repayment of the 2019 bilateral loan in March of £138 million (nominal) resulted in an exceptional loss of £38 million and will save £48 million of future interest costs.

The £73 million convertible bond buyback, together with the early redemption of the remaining balance for equity, resulted in an exceptional loss of £23 million and will save £16 million of future interest costs as well avoiding the dilution of our shareholders.

In 2012 losses were incurred on the buyback of certain bonds.

In January 2014 we bought back the remaining tranche of the 2019 bilateral loan for £95 million.

Tax

The effective tax rate on adjusted profit before tax of £581 million is 23% which is comparable to the standard tax rate of 23.25% (2012: the effective tax rate on adjusted profits of 23% was lower than the standard rate of 24.5% due to the adjustments made for prior periods and the recognition of overseas deferred tax credits). The total tax charge is £105 million (2012: £77 million).

Cash tax paid of £67 million (2012: £62 million) arises as a result of making payments for taxable profits partially offset by the use of losses and the tax treatment of allowable pension contributions. The majority of cash tax is paid inthe UK.

* In respect of intangible assets arising from business combinations.

* In respect of intangible assets arising from business combinations.

Dividend

The Board has proposed a final dividend of 2.4p (2012: 1.8p) giving a full year dividend of 3.5p (2012: 2.6p) - an increase of 35% on 2012. The Board is committed to a progressive dividend, taking into account the outlook for the business, while balancing the need to invest for growth and to maintain a robust financial position.

In addition to the final dividend, the Board is proposing a special dividend of 4.0p per share or £161 million (2012: 4p per share special dividend). The cash distribution reflects the Board's confidence in the ongoing growth and cash generation of the business. Going forward we will continue to show capital discipline and balance the need to invest for future growth with increasing returns to shareholders.

Earnings per share

Adjusted earnings per share is 11.2p (2012: 9.1p). Earnings per share is 8.3p (2012: 6.6p).

The main differences between reported and adjusted earnings per share are exceptional items which include acquisition related costs (professional fees, primarily due diligence, and performance based employment linked contingent payments), impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments and other tax adjustments.

The adjustments shown below remove the impact of those items that in management's view do not show the performance of the business in a consistent manner and do not reflect how the business is managed and measured on a day-to-day basis.

Amortisation and impairment of intangible assets acquired through business combinations is not included within adjusted earnings. Amortisation of software licences and development is included as management considers these assets to be core to supporting the day-to-day operation of the business.

Operating exceptional items are mainly acquisition related expenses, including professional fees, primarily due diligence, and performance based employment linked contingent payments. There are no restructuring costs in 2013.

Non-operating exceptional items largely relate to the profit on disposal of STV shares in the year resulting in a gain of £6 million.

Cash flow, working capital and free cash flow

Cash flow and working capital management

* Previously reported profit to cash ratio for 2012 was 95%. This has increased to 97% because of the restatement of EBITA.

Our focus on cash remains a priority and we generated £604 million of cash from £620 million of EBITA before exceptional items. This performance is largely due to the continued management of working capital balances. Our profit to cash ratio of 97% has been maintained at a strong level and continues to be ahead of our KPI target of 90% on a three year rolling basis.

This calculation includes £45 million of capital expenditure, which largely relates to the new state-of-the-art Coronation Street set. However, it excludes the acquisition of the Company's London headquarters for £58 million as management considers it to be a material one-off capital expenditure and not a day-to-day operational investment.

Free cash flow

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

Free cash flow reflects our underlying cash generation and our strong free cash flow generation gives us flexibility to invest in the business and reward our shareholders. This is a key strength of ITV today.

Free cash flow before dividends, acquisitions and debt repayments remains very strong and is up over £100 million (32%) year-on-year, in line with the growth in profits.

Net cash, liquidity risk and funding

Net cash at the year end was £164 million, compared to net debt of £52 million at 30 June 2013 and £206 million net cash at the end of 2012.

One of the key strengths of our business is our strong cash generation but it is weighted to the second half of the year as we make a number of significant payments both regular and one-off in the first half of 2013, including acquisitions, dividends, the pension deficit funding contribution, debt buybacks and the purchase of our London headquarters. In spite of this investment and shareholder returns we ended the year with similar cash position to 2012.

Adjusted net debt

Net debt/net cash is one measure of the strength of our financial position. However, we believe it is appropriate to look at all our financial commitments and have developed an adjusted net debt measure, similar to how credit rating agencies could look at our balance sheet. The ratio of adjusted net debt to EBITDA before exceptional items is 1.2. This level of indebtedness is slightly lower than previous years and reflects the improved profitability and strong cash generation of the business as well as reduced lease commitments and a lower pension deficit as measured by IAS 19.

As can be seen from the table, adjusted net debt includes the undiscounted estimate of the contingent payments in relation to all the acquisitions we have made in 2012 and 2013, the pension deficit on an IAS 19 basis, and our operating lease commitments (undiscounted) which are mainly for broadcast transmission contracts and property. Lease commitments have reduced year on year as a result of the acquisition of our London headquarters.

Debt structure and liquidity

We continued to strengthen our balance sheet and maintain access to liquidity with our strong underlying cash generation, the £125 million invoice discounting facility and our £250 million Revolving Credit Facility (RCF). In June 2013 we extended the maturity of the RCF by a further year to July 2016. The facility remains undrawn and, subject to agreement by the banks, is extendable by a further year. The facility contains leverage and interest cover financial covenants as is normal for a facility of this nature.

We have bought back over £1.1 billion of debt (including the £73 million of convertible we bought back) since October 2009 and we now have a much more efficient balance sheet. After the year end we bought back the remaining £62 million (nominal) of the March 2019 bank loan (see post balance sheet events). Given what we have bought back over the last few years we do not expect to be able to make any further material changes in the efficiency of our balance sheet.

The debt buybacks in the year were as follows:

· In March 2013 we repaid £138 million (nominal) of the £200 million covenant free bilateral loan with a maturity of March 2019. This was satisfied by £30 million of cash and by gilts secured against the loan and resulted in an exceptional charge of £38 million. This repayment will save £48 million in future interest costs.

· During the year we repurchased £73 million (nominal) of the £135 million convertible bond with a maturity date of November 2016 for a cash cost of £169 million. In September we exercised our right to redeem the outstanding principal amount of the convertible bond. This redemption and conversion process was completed on 21 October and resulted in 95 million new shares being issued. Settling the convertible has resulted in £16 million of interest cost savings over the remaining period of the bond. Partly buying back the debt has avoided the full dilution which would have occurred if the entire convertible had been redeemed. Settling the convertible has also resulted in an exceptional charge of £23 million shown in financing costs and in a net £74 million loss attributable to equity, which has been reflected directly in retained earnings.

The actions we have taken will improve our adjusted financing costs going forward. In 2014 we expect adjusted financing costs to be about £10-£12 million, a saving of around £15 million after the repurchase of the remaining 2019 loan.

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 2013 (net of currency hedges) are repayable as follows:

* Net of cross currency swaps.† Bought back in full in January 2014

There are no financial covenants on any of our debt instruments, other than the RCF which remains undrawn.

The recent debt buyback of the 2019 loan removes the last of the high coupon debt taken out in 2008/9.

Ratings

Our credit ratings have improved during 2013 with all three ratings agencies upgrading their long-term credit ratings. In March and April respectively, Standard & Poor's and Fitch upgraded our long-term credit rating to investment grade BBB- (Stable outlook). In August Moody's Investors Service also upgraded their long-term credit rating to investment grade Baa3 (Stable outlook).

The factors that are taken into account in assessing our credit rating include our degree of operational gearing, exposure to the economic cycle, and 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 2013 was £445 million (31 December 2012: £551 million). This was partly as a result of the £80 million annual deficit funding contribution. Total liabilities have also reduced as a result of an increase in the implied discount rate used to value liabilities. This was largely offset by an increase in the rate of market-implied inflation. A review of the mortality assumption produced a further increase in the liabilities, reflecting an increased allowance for longer life expectancy.

In 2011 the Group entered into a longevity swap to protect against further increases in life expectancy. Changes in accounting standards mean that the assumptions used to value this swap are now based on market fair values, rather than best estimates. These changes have resulted in a significant actuarial gain in 2013 with the book value of the swap decreasing from a £118 million liability in 2012 to a £23 million liability in 2013.

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

Actuarial valuations

Full actuarial valuations are carried out every three years with the latest completed actuarial valuations of all three sections of the main defined benefit scheme carried out as at 1 January 2011 and, on the bases adopted by the Trustee, the combined funding deficits amounted to £587 million.

The Trustee of the Scheme will undertake actuarial valuations as at 1 January 2014 with the outcome expected by 2015.

Deficit funding contributions

Following completion of actuarial valuations as at 1 January 2011 the Group has agreed with the Trustee that the level of contributions to the main section of the ITV Pension Scheme will be a combination of fixed and performance related payments.

The fixed payments will be as follows:

2013 - 2014

£35 million per annum plus an additional £5 million if there are no initiatives in the previous year which materially reduce the deficit. This has not changed from the previous funding plan.

2015 - 2019

£48 million per annum in 2015 increasing by £0.5 million per annum to £50 million per annum in 2019.

2020 - 2025

£50 million per annum, but may be reduced by the impact of additional profit-related contributions set out below.

The performance related contributions will be calculated as follows:

2012 - 2020

If the Group's reported EBITA pre exceptional items exceeds £300 million, the Group will increase the fixed contributions by an amount representing 10% of EBITA pre exceptional items over the threshold level, subject to an annual cap which averages to £70 million per annum over the period 2015 - 2020. If the additional profit-related contributions are paid at the expected rate then the £50 million per annum fixed contributions scheduled to be paid between 2021 and 2025 (inclusive) should not be required.

In addition to the agreed deficit funding contributions, the SDN partnership established in 2010 provides an annual distribution of £11 million to this section of the Scheme for 12 years from 2011.

For Sections B and C of the Scheme the Group has agreed with the Trustee that it will make deficit funding contributions of £5.5 million per annum in order to eliminate the deficits in these sections by 31 March 2021.

In 2014 we expect to make a total deficit funding contribution of £89 million, which is £9 million higher than 2013 reflecting the increase in EBITA year-on-year.

Post balance sheet events

On 16 January 2014 we agreed to repay the remaining £62 million of the 2019 bilateral loan. This repayment will save around £44 million in adjusted financing costs over the remainder of the loan - around £8 million on an annualised basis, and will lead to an exceptional loss of £30 million for 2014. The repayment was satisfied by a one-off cash payment of £95 million.

Ian Griffiths

Finance Director

Risks and Uncertainties

ITV has a formal risk management process which is embedded within the business to support the identification and effective management of risks across the business. It is regularly reviewed and adapted as the Company, industry and macro environment evolves.

Our approach, which is consistent with previous years, covers risks at all levels of the organisation and considers risks in three core groups:

· High Impact, Low Likelihood (HILL) risks - of low inherent likelihood but where there would be major consequences were the risk to materialise;

· Strategic risks - would impact the successful execution of the strategy; and

· Process level risks - embedded into everyday activity within the organisation.

Risk management framework and risk appetite

The Board is responsible for establishing a robust and appropriate risk management framework and risk management process for ITV. The Board, supported by the Audit Committee, regularly reviews the risk management framework, its content and its operations. This includes reviewing the risks themselves and the mitigating actions.

The Board also reviews risk appetite to ensure ITV is carrying an acceptable level of risk. During the year it conducted an exercise to assess the current risk appetite of the business and the actual risk the business takes with respect to the following categories: financial, market, operational, compliance and regulation, creative investment and organisational. This is considered to be the first step towards using risk appetite as a decision making tool and further work will be undertaken in 2014 to enhance this process. The Board also continues to monitor closely ITV's specific financial risks, including foreign exchange, borrowing levels, interest rates and pension risks.

The Audit Committee keeps the overall effectiveness of the risk management framework and the risk management process under review.

Risk management process

The Management Board has responsibility for the content and operation of the risk management framework and performs regular reviews of all risks. In 2013 all the HILL and Strategic risks were reassessed and further refined to improve our risk management. As well as management review, process level risks are also subject to an ongoing review by internal audit.

Mitigating actions have been identified for all the HILL and Strategic risks. Each strategic risk has been mapped to at least one of the four key strategic priorities and, where possible, assigned key risk indicators. Where appropriate, the key risk indicators are aligned to our key performance indicators (KPIs) on page 36 or a subset of these KPIs. All HILL and strategic risks are owned by at least one member of the Management Board.

Risk monitoring process

ITV's risk monitoring process is embedded in the running and review of the business. Risks are primarily controlled through the risk management process. In addition to the risk specific mitigating actions outlined below, risks are regularly discussed and considered through day-to-day operations and through a number of divisional Board and review processes.

Internal Audit Plan

The internal audit plan is driven from ITV's risk management framework. As outlined above management has completed a number of activities with respect to HILL risks, Strategic risks and Process level risks. Internal audit reviews the auditable elements of these risks and this informs the areas and topics that internal audit focuses on.

High Impact, Low Likelihood Risks (HILL)

Strategic Risks

The key strategic risks are those that impact the successful execution of the strategy. They require regular monitoring by the Management Board and are frequently discussed at management and divisional boards.

All of the strategic risks identified have been mapped to the four strategic priorities of the Strategy and have been grouped by key risk themes.

The Strategic Report as set out on pages 2 to 55 was approved by the Board on 26 February 2014 and signed on its behalf by:

Adam Crozier

Chief Executive

Governance

Board of Directors

Archie Norman

Chairman

Appointment to the Board

1 January 2010

Age 59

Committee membership

Nomination (Chairman), Remuneration

Key areas of prior experience

Business turnaround, consumer marketing, international business and corporate finance

External appointments

· Chairman, Lazard London (2014)

· Chairman, Hobbycraft Group Ltd (2013)

· Director of Target Ltd (2012)

· Adviser to Wesfarmers Limited (2009)

· Director of Coles Group (2007)

· Governor, National Institute of Economic and Social Research (1997)

Previous experience

· Founder, Aurigo Management Partners LLP (2006-2013)

· Senior Adviser to Lazard (2003-2013)

· Chairman, HSS Hire Services Group (2007-2012)

· Chairman, Energis (2002-2005)

· Shadow Secretary of State for Department of Environment, Transport and the Regions (2000-2001), Shadow Minister for Europe (1999-2000), Chief Executive and Deputy Chairman of the Conservative Party (1998-1999), Member of Parliament (1997-2005), Founder, Policy Exchange (2001)

· Chief Executive (1991-1996) and Chairman (1996-2000), ASDA Group plc

· Finance Director, Kingfisher plc (1986-1991)

· Chairman, Chartwell Land plc (1987-1991)

· Non-executive director of British Rail (1992-1994), Railtrack plc (1994-2000), and Geest plc (1988-1991)

· Partner, McKinsey and Co (1979-1986)

Adam Crozier

Chief Executive

Appointment to the Board

26 April 2010

Age 50

Committee membership

General Purpose

Key areas of prior experience

Business turnaround and change management

External appointments

· Non-executive Director of G4S plc (2013)

Previous experience

· Non-executive Director of Debenhams plc (2006-2012)

· Group Chief Executive, Royal Mail Group (2003-2010)

· Non-executive director of Camelot Group plc (2007-2010)

· Chief Executive of the Football Association (2000-2002)

· Joined Saatchi & Saatchi Advertising in 1988, Joint Chief Executive (1995-1998)

Ian Griffiths

Group Finance Director

Appointment to the Board

9 September 2008

Age 47

Committee membership

General Purpose

Key areas of prior experience

Corporate finance and financial restructuring

External appointments

· None

Previous experience

· Group Finance Director of Emap plc (2005-2008)

· Senior Finance roles held within Emap plc including director of financial control (2000-2005) and head of finance at Emap Business Communications (1995-2000)

· Manager in audit and corporate finance, Ernst & Young (1988-1994)

Sir Peter Bazalgette

Non-executive Director

Appointment to the Board

1 June 2013

Age 60

Committee membership

Nomination

Key areas of prior experience

Media consultant, digital media investor and former television producer

External appointments

· Chairman, Arts Council of England (2013)

· Non-executive director of Nutopia (2011)

· Non-executive director of Mirriad Ltd (previously Chairman 2012-2013)

· President of the Royal Television Society (2010)

· Senior non-executive director, Chairman of Remuneration Committee and member of Audit Committee, YouGov plc (2005)

Previous experience

· Non-executive director of DCMS (2011-2013)

· Non-executive director of Base79 Ltd (2008-2013) and adviser up to 2008

· Trustee of DebateMate (2009-2013)

· Chairman of ENO (2012)

· Non-executive director of Critical Information Group plc (2009-2012)

· Adviser to Sony Music division (2009-2012) and Chairman of UK production business at Sony Pictures Television Inc (2009-2012)

· Deputy Chairman and Director of National Film and Television School (2002-2009)

· Chairman of Endemol UK Ltd (2002-2008) and adviser until 2008

· Joined Endemol in 1998, became Chief Creative Officer of Endemol Group BV and Endemol Entertainment UK Ltd (2005-2007)

· Non-executive director of Channel Four Television Corp (2001-2004)

Roger Faxon

Non-executive Director

Appointment to the Board

31 October 2012

Age 65

Committee membership

Nomination

Key areas of prior experience

Broad commercial, digital and media rights experience, development of business strategy and finance

External appointments

· Director of EMI Global Group (2011)

· Director of The John Hopkins University

· Director of the Songwriters Hall of Fame

Previous experience

· Chief Executive Officer of EMI Group Limited (2010-2012)

· Chairman and CEO of EMI Music Publishing (2007-2010)

· Director of EMI Group Plc (2002-2008)

· 1994 to 2007 various roles at EMI including Senior VP, Business Development and Strategy; President of EMI Music Publishing

· Prior to 1994 held finance, operations and general management positions with Sotheby's, Lucas Films, Tri-Star and Columbia Pictures. Overseas appointments at Music Choice (Digital Cable Radio) (chairman of Remuneration Committee), the American Society of Composers and Authors and Lancit Media Entertainment Ltd in the US, Chairman of VIVA Television in Germany and a director of Channel V Networks in Asia

Andy Haste

Senior Independent Director

Appointment to the Board

11 August 2008

Age 52

Committee membership

Audit, Nomination, Remuneration (Chairman)

Key areas of prior experience

International and emerging markets, change management, restructuring and business turnaround

External appointments

· Senior Independent Deputy Chairman, Council of Lloyd's (2012)

Previous experience

· Group Chief Executive of RSA Insurance Group plc (2003-2011)

· Chief Executive of AXA Sun Life plc (1999-2003)

· Director of AXA UK plc (life and pensions) (1999-2003)

· President and CEO, GE Capital Global Consumer Finance UK, Western Europe and Eastern Europe (1998-1999)

· CEO, GE Capital Global Consumer Finance UK (1996-1998)

· President of National Westminster Bank US Consumer Credit Business (1995-1996), senior vice-president and head of US Consumer Loan Products Division (1992-1995)

Baroness Lucy Neville-Rolfe DBE, CMG

Non-executive Director

Appointment to the Board

3 September 2010

Age 61

Committee membership

Nomination, Audit

Key areas of prior experience

International retail, communications, legal and regulatory issues

External appointments

· Member of Supervisory Board, Metro AG (2013)

· Non-executive director, 2 Sisters Food Group (2013)

· Director, Hermes Equity Ownership Services Limited (2013)

· Member UK India Business Advisory Council (2013)

· Member PWC Advisory Board (2013)

· President, Euro Commerce, Brussels (2012)

· Member of UK Trade and Investment Strategic Advisory Group (2011)

· Governor, London Business School (2011)

· Member of the Coalition Government's Efficiency and Reform Board (2010)

Previous experience

· Non-executive director, The Carbon Trust (2008-2013)

· Member of China-Britain Business Council (2007-2013)

· Executive Director, Corporate and Legal Affairs, Tesco plc (2006-2013)

· Corporate Leaders Group on Climate Change (2006-2012)

· Deputy Chair, British Retail Consortium (1998-2012)

· Chairman, Dobbies Garden Centres (2007-2011)

· Group Director of Corporate Affairs (1997-2006) and Company Secretary (2004-2006), Tesco plc

· Director of Deregulation Unit, BIS and Cabinet Office (1995-1997)

· Member of Prime Minister's Policy Unit (1992-1994)

· Ministry of Agriculture, Fisheries and Food (1973-1992)

John Ormerod

Non-executive Director

Appointment to the Board

18 January 2008

Age 65

Committee membership

Audit (Chairman), Nomination, Remuneration

Key areas of prior experience

Financial experience, developing strategy and growth

External appointments

· Non-executive Chairman of Tribal Group plc (2010, director from 2009)

· Non-executive director and chairman of audit committee of Gemalto NV (2006) and Computacenter plc (2006)

Previous experience

· Senior independent director and chairman of audit committee at Misys plc (2005-2012)

· Trustee of the Design Museum (2006-2012)

· Non-executive director and chairman of Merlin Claims Services Holdings Limited (2007-2010)

· Non-executive director of Negative Equity Protection Holdings Limited (2007-2009), Millen Group Limited (2007-2009) and BMS Associates Limited (2004-2008)

· Member of audit and retail risk control committees and HBOS plc (2005-2008)

· Trustee of The Roundhouse Trust (2003-2008)

· Chairman of Walbrook Group (2004-2007)

· Chairman of audit committee, Transport for London (2004-2006)

· Practice senior partner, London, Deloitte & Touche (2002-2004)

· Regional managing partner, UK and Ireland and senior partner, UK, Arthur Andersen (2001-2002)

· Held various positions within Arthur Andersen from 1970

Management Board

Mary Fagan

Group Communications and Corporate Affairs Director

Appointed

January 2011

Age 56

Previous experience

Mary joined ITV from the Royal Mail Group, where she was Corporate and Government Affairs Director from December 2003. A senior City and Business journalist with more than 20 years' experience, Mary's previous roles included Deputy City Editor

of the Sunday Telegraph, Industrial Correspondent for the Independent and City Reporter at the Evening Standard.

Peter Fincham

Director of Television, Channels and Online

Appointed

May 2008

Age 57

Previous experience

Peter joined ITV from the BBC where he was Controller of BBC One. He began his career in broadcasting at independent production company, Talkback Productions, where he became Managing Director in 1986. In 2001 Talkback Productions was sold to Fremantle Media and in 2003 Peter became Chief Executive of the newly merged company TalkbackThames.

Andrew Garard

Group Legal Director and Company Secretary

Appointed

November 2007

Age 47

Previous experience

Andrew joined ITV as Group Legal Director in 2007 and took on the additional role of Company Secretary in 2009. Previously Andrew was a Partner in the corporate department of LeBoeuf Lamb's London office. Prior to joining LeBoeuf Lamb, Andrew was Group General Counsel and Company Secretary at Cable & Wireless PLC where he was a member of the Group Executive responsible for Global Legal. Prior to that he was Global Head of Legal and Deputy General Counsel of Reuters Group Plc in the UK, and before that, General Counsel Asia.

Fru Hazlitt

Managing Director, Commercial, Online and Interactive

Appointed

August 2010

Age 50

Previous experience

Prior to joining ITV, Fru was Chief Executive of GCap Media Plc until it was sold to Global Radio in 2008. Her previous positions include Chief Executive of Virgin Radio, Managing Director of Yahoo UK and European Commercial Director of Yahoo Europe.

Kevin Lygo

Managing Director, ITV Studios

Appointed

August 2010

Age 56

Previous experience

Before joining ITV Kevin spent much of his career at Channel 4, most recently as Director of Television and Content which included responsibility for Channel 4 Group's portfolio of channels. Kevin's previous roles include Director of Programmes at

Channel 5 as well as a number of positions at the BBC, including Head of Independent Commissioning for Entertainment.

Simon Pitts

Director of Strategy and Technology

Appointed

January 2011

Age 38

Previous experience

Simon joined ITV in 2000 and has held roles in ITV's Public Affairs, Regulatory and New Media departments before joining the Strategy Team in 2007. He was promoted to the ITV Management Board in the role of Director of Strategy and Transformation in January 2011, and more recently to Director of Strategy and Technology to combine the leadership of ITV's Technology Group with the implementation of the Company's overall strategic plan. Prior to ITV, Simon worked in the European Parliament in Brussels where he specialised in media issues.

Directors' Report

The Directors present their report together with the audited consolidated and parent company financial statements for the year ended 31 December 2013. The comparative period is for the year ended 31 December 2012.

Directors

A table showing Directors who served in the year can be found on page 70. Biographies for Directors currently in office can be found on pages 58 and 59. In accordance with the UK Governance Code (the Code), each Director will retire and submit himself or herself for election or re-election at the AGM on 14 May 2014.

On 1 June 2013 Sir Peter Bazalgette was appointed as a Non-executive Director, and will seek election as a Director of the Company at the AGM on 14 May 2014. On 31 December 2013 Mike Clasper stepped down from the Board. Andy Haste was appointed Senior Independent Director in his place.

Post balance sheet events

Details of post balance sheet events can be found on page 173.

Dividends

The Board has proposed a final dividend for the year ended 31 December 2013. Details of this and other dividends paid for the year are as follows:

The final dividend and special dividend for 2013 will be paid on 30 May 2014 to shareholders on the register on 2 May 2014. The ex dividend date is 30 April 2014.

Share capital

Issued: At the date of this report there were 4,025,409,194 ordinary shares of 10 pence each in issue, all of which are fully paid up and quoted on the London Stock Exchange.

Rights: The rights attaching to the Company's ordinary shares, as well as the powers of the Company's Directors, are set out in the Company's Articles of Association. Unless expressly specified to the contrary, the Articles may only be amended by special resolution of the shareholders. A copy of the Articles can be obtained from the Company's website or by writing to the Company Secretary.

Restrictions: There are no restrictions on the transfer of ordinary shares in the capital of the Company other than those which may be imposed by law from time to time. In accordance with the Disclosure and Transparency Rules, certain employees are required to seek approval to deal in ITV shares. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfers of securities and/or voting rights.

Purchase of own shares: The Directors have the authority to purchase up to 391.2 million of the Company's ordinary shares. The authority remains valid until the AGM in 2014 or 15 August 2014, if earlier.

Trusts: The Company has a discretionary trust funded by loans to acquire shares for the potential benefit of employees of the Group. Details of shares held by the trust at 31 December 2013 are set out on page 166. During the year shares have been released from the trust in respect of share schemes for employees.

Substantial shareholdings

As at 31 December 2013 the Company had received notifications from the following companies and institutions of the voting interests of themselves and their clients in 3% or more of the issued ordinary share capital (carrying rights to vote in all circumstances) of the Company.

1. The number of shares is based on announcements made by each relevant shareholder using the Company's issued share capital at that date.

2. Subsidiary of British Sky Broadcasting Group plc.

3. Following the year end there have been no further notifications received.

A profile of shareholdings is set out on page 175.

Change of control

No person holds securities in the Company carrying special rights with regard to control of the Company.

All of the Company's share schemes contain provisions relating to a change of control. Outstanding awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions. Certain of the Group's bonds/borrowing facilities have change of control clauses whereby the issuer can require ITV to repay/redeem bonds in the event of a change of control. The Company is not aware of any other significant agreements to which it is party that take effect, alter or terminate upon a change of control of the Company.

Financial instruments

Note 4.5 to the accounts gives details of the Group's financial risk management policies and related exposures.

Political donations

It is the Company's policy not to make cash contributions to any political party. However, within the normal activities of the Group's national and regional news-gathering operations there may be occasions when an activity might fall within the broader definition of 'political expenditure' contained within the Companies Act 2006. Shareholder authority for such expenditure was given at the 2013 AGM. However, during 2013 the Group made no payments falling within this definition (2012: nil).

Employees

Employment of disabled persons

The Company continues to meet its legal obligations as outlined in the Equality Act 2010 by actively encouraging applicants with disabilities whilst ensuring we retain the best talent within our workforce.

This is reflected in an award of the annual Department for Work and Pensions Two Ticks Disability Symbol status.

Our policies and procedures fully support our disabled colleagues. With a robust reasonable adjustment policy, an HR Disability manager, disability specific online resources and on-site diversity experts, we have taken active measures to ensure employees are fully supported.

The Company is committed to the development and growth of all its employees. Our learning and development portfolio is inclusive and accessible to employees. Alternative formats are available to all employees, which include large print, use of British sign language interpreters and Braille.

The Company's commitment around the disability agenda extends beyond our legal obligations. For a comprehensive outline of our activity visit our Corporate Responsibility website.

Employee involvement

Attracting and retaining talent is critical to ITV's success. It is therefore in our interest to ensure that we provide the appropriate rewards and opportunities for development so that people feel engaged with the Company.

In 2013 ITV carried out an engagement campaign consisting of a series of roadshows during which the Management Board visited ITV locations. This gave employees an opportunity to feed back their thoughts and concerns about the business. Engagement was reinforced through forums such as the intranet, regular hard copy newsletters and briefings between management and its teams. These channels enabled employees to understand the financial and economic factors affecting the Company's performance, how their role contributed towards the execution of the strategy and how they could benefit from company success through involvement in employee share schemes and information on their rights and benefits. 

We have continued to measure and listen to employees through employee surveys and employee engagement has increased again in 2013 to 91% (2012: 88%) with 93% of respondents proud to work for ITV.

Pensions

The Group operates a pension scheme which provides retirement and death benefits for employees of ITV. The ITV Pension Scheme (the "Scheme") comprises three sections: A, B and C. Section A includes the defined contribution (DC) section of the Scheme. The DC section is open to new members. The defined benefit (DB) sections are closed to new members but are still open to future accrual.

ITV Pension Scheme Limited is a corporate trustee and manages the DB and DC assets of the Scheme, which are held under trust separately from those of the Group. Members of the trustee board are formally appointed as directors of ITV Pension Scheme Limited. There are nine directors including the chairman - five appointed by the Company and four nominated by the members.

A member nomination selection process took place during June 2013 and on 1 July 2013, one trustee was reappointed and two new trustees were appointed. There is currently a vacancy for a company appointed director.

The trustee has four committees: Investment, Audit and Operations, DC and Corporate Affairs. The Corporate Affairs Committee is convened as and when appropriate for dealing with any corporate activities that may arise. It is the responsibility of the trustee to have in place appropriate training for its directors and effective committee structures. The trustee board and each committee have a business plan which is reviewed and updated on an annual basis, together with the associated budget. The trustee board also has a risk register, a conflicts of interest policy and a register of interests policy, all of which are reviewed at least annually.

The trustee directors receive regular training throughout the year and also have the support of the various professional advisers. The chairman and the pensions executive identify training opportunities. Training is delivered both by attendance at external courses and with targeted training to support specific agenda items at the start of each trustee board meeting. Where appropriate, longer training sessions are organised. Comprehensive records are kept of all training completed by each trustee director and training is discussed as part of the trustee evaluations conducted on an annual basis.

The trustee board completes regular assessments of its advisers and has prepared a Service Charter that outlines the terms of the appointment and clarity on the services provided. The aim of the document is to support the ongoing monitoring of the adviser or services provider and will be introduced as they are reviewed and appointed. During 2013 The Scheme Actuary and Investment Consultant were reappointed and the DC Investment Platform provider was replaced.

To encourage greater pension savings, the Government has introduced auto-enrolment. This requires employers to enrol eligible employees into a pension scheme automatically. The requirement to comply with the auto-enrolment regulations is being phased in with larger employers required to comply first and with medium-sized and smaller employers following at a later period. The size of an employer's largest PAYE scheme determines the point at which the new duties affect their organisation (the 'staging date'). ITV had a staging date of 1 March 2013 however, in line with permitted legislation ITV postponed auto-enrolment until 29 May 2013 when eligible employees were enrolled into the ITV Auto-enrolment Pension Plan.

Pension Scheme indemnities: Qualifying pension scheme indemnity provisions, as defined in section 235 of the Companies Act 2006, were in force for the financial year ended 31 December 2013 and remain in force for the benefit of each of the directors of ITV Pension Scheme Limited, a subsidiary of ITV plc. These indemnity provisions cover, to the extent permitted by law, certain losses or liabilities incurred as a director or officer of ITV Pension Scheme Limited.

For further information please see page 50 and note 3.7.

Health and safety

The Health and Safety (H&S) of our employees, contractors and visitors is always a high priority. The significant loss of human life as the result of a major H&S incident has been identified as a specific risk to the organisation. The H&S team continue to use a management system that meets the specific risk profile of the business which is supported by a comprehensive training programme and communicated across the business.

Health and safety - performance indicators

As of 6 April 2012, RIDDOR's over-three-day injury reporting requirement changed to over-seven-day reporting. Our figures reflect this change.

The statistics are for UK permanent and fixed-term employees.

For more detail on the Company's health and safety management system and implementation visit our Corporate Responsibility website.

Greenhouse Gas emissions

The Company is required to report annually on the quantity of carbon dioxide emissions in tonnes emitted as a result of activities for which it is responsible, our Greenhouse Gas emissions.

All new regulatory data for the financial year ended31 December 2013 is disclosed below for direct and indirect emissions. Data on other emissions where available and more information on our energy use, environmental impacts, and how we aim to make a positive difference can be found on our Corporate Responsibility website.

Our total Greenhouse Gas emissions

Source: Utilyx analysis of ITV data.

The latest conversion factors specified in Defra and DECC's 2013 guidance were used as methodology. 44% of our data consumption is based on estimate. This is where we are the occupier of a property but do not pay the energy bills directly. Estimates are calculated from observed ITV consumption intensity and published benchmarks where relevant.

Risk management

Details of our High Impact Low Likelihood (HILL) and Strategic risks and our approach to risk management are set out on pages 52 to 55.

Going concern

The going concern statement is set out on page 115.

Auditor

KPMG has instigated an orderly wind-down of KPMG Audit Plc as a result of an internal reorganisation and requested that going forward the audit is instead undertaken by KPMG LLP (an intermediate parent of KPMG Audit Plc). KPMG Audit Plc will not therefore be seeking reappointment as auditor of the Company and in accordance with the Companies Act 2006, a resolution proposing the appointment of KPMG LLP as our auditor will be put to the 2014 AGM.

Annual General Meeting

The AGM will be held on Wednesday, 14 May 2014 at 11.00 am at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London, SW1P 3EE. The Notice of the AGM contains an explanation of special business to be considered at the meeting.

A copy of the Notice will be available on our website.

Directors' Responsibilities

The Directors consider that the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's and the Group's performance, business model and strategy.

Each of the Directors, whose names and functions are listed on pages 58 and 59, confirm that, to the best of their knowledge:

· the Group accounts, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

· the Directors' Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

In accordance with Section 418 of the Companies Act 2006, the Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each Director has taken all steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

The Board has conducted a review of the effectiveness of the Group's systems of internal controls for the year ended 31 December 2013. In the opinion of the Board, the Company has complied with the internal control requirements of the UK Corporate Governance Code throughout the year, maintaining an ongoing process for identifying, evaluating, and minimising risk. Further information is set out in the Audit Committee Report on page 79.

By order of the Board

Andrew Garard

Company Secretary

26 February 2014

ITV plc

Registered number 4967001

The Directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of their profit or loss for that period. In preparing each of the Group and parent company financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;

· for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent company's transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Remuneration Report and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Chairman's Governance Statement

Dear Shareholder,

The Board believes that a high standard of corporate governance is a key contributor to the long-term success of the Company. 

The Board remains committed to ensuring that a combination of good leadership and the highest standards of corporate governance is maintained through a combination of a robust internal framework of systems and controls underpinned by the right values and culture. This framework of policies and processes is regularly reviewed against developments in the legislative, regulatory and governance landscape.

This governance report comprises the following sections:

· How the Board works

· Effectiveness

· Relations with shareholders

· Audit Committee Report

· Remuneration Report

The role of the Board

The Board's main role is to work with the executive team, providing support and advice to complement and enhance the work undertaken. The Board consistently challenges processes, plans and actions and exercises a degree of rigorous enquiry and intellectual debate. This serves to promote continuous and sustained improvement across the business.

The Board consisted of a majority of independent Non-executive Directors throughout the year. Further details of our Board composition and appointments are set out in the Governance Report.

In addition to scheduled formal Board and Committee meetings, there are meetings for cross interaction among the members of the Board, Management Board, Senior Independent Director, Non-executive Directors and myself. These meetings provide a sense of value added from the engagement of the Board members in all their interaction with the Company, formal or otherwise. In 2013, the Board continued its programme of visiting different areas of the business. This year the Board members took a trip to Stockholm where they met with colleagues to discuss our continuing growth in the Nordic region. The Company has a policy and programme for induction and continuing professional development for Directors. On appointment each Director takes part in a comprehensive induction programme. To enhance performance and effectiveness, the Board has established a process for the annual development of the Board, its committees and individual Directors.

We remain committed to sharing our business vision with our shareholders by maintaining regular open dialogue and effective communication. We believe that continued engagement with our shareholders is highly beneficial to all parties as it helps to build a greater understanding of our investors' views, opinions and concerns.

The UK Corporate Governance Code

As a listed company, ITV is required to report on how it has complied with the principles of governance set out in the UK Corporate Governance Code (the Code).

I am pleased to report that ITV has complied with the provisions of the Code throughout the year ended 31 December 2013.

Archie Norman

Chairman

26 February 2014

Corporate Governance

How the Board works

Our role

The Board as a whole is collectively responsible for delivering the long-term success of the Company by:

· providing entrepreneurial leadership within a framework of prudent and effective controls which enable risk to be assessed and managed;

· supporting the executive team to formulate and execute the Company's long-term objectives and strategy, ensuring that the necessary financial and other resources are in place for the Company to meet its objectives, and reviewing management performance; and

· setting the Company's values and standards and ensuring that its obligations to its shareholders and others are understood and met.

There is a schedule of specific matters reserved to the Board for decision which is available on our website.

Our meetings

The number of meetings held during the year and attendance of Directors is set out in the table on page 70. The Board agrees an annual schedule of matters it wishes to consider at each of its meetings and those of its committees. The schedule ensures that all relevant matters are considered and receive appropriate attention. Meetings are normally held at one of the London sites and at least once a year they are held at one of the regional or international offices. Board meetings are structured around the following areas:

· Operational and functional updates

· Financial updates

· Strategy and risk

· Progress against strategy

· Other reporting and items for approval

· Feedback from committees

Senior executives and other colleagues are regularly invited to attend meetings for specific items. In addition to formal Board and Committee meetings, meetings take place between:

· Board members and Management Board members

· Chairman and Non-executive Directors

· Senior Independent Director and Non-executive Directors (without the Chairman present)

The Board has approved a formal framework for the approval of expenditure within the Company around this governance structure.

Who is on our Board and how we work as a team

Composition and appointments

In June 2013 the Board appointed Sir Peter Bazalgette as a Non-executive Director. Peter was selected from a number of potential candidates. The Board felt that Peter's wealth of experience in media consultancy, digital media and as a former television producer would be an asset to the Board assisting with the execution of the business strategy. Executive search firm, JCA Group, were engaged to assist with the rigorous selection process. JCA Group have no other connection with ITV.

Mike Clasper completed seven years as a Non-executive Director in January 2013 and was asked by the Board to continue in this position for a further twelve month period. He stepped down from the Board on 31 December 2013. Andy Haste was appointed as Senior Independent Director in his place.

As recommended by the Code, there will be resolutions to elect or re-elect each of the Directors at the AGM in May 2014.

Non-executive Directors are expected to commit at least 18 to 20 days per annum to the Company and the Board is satisfied that each of the Non-executive Directors commits sufficient time to the business of the Company. An outline of the terms of engagement for the Non-executive Directors can be found on our website.

Skills and experience

There are job descriptions in place for each of the Chairman, the Chief Executive, and the Senior Independent Director which have been agreed by the Board.

The Board is still of the view that the Non-executive Directors are independent in both character and judgement. They constructively challenge and help develop proposals on strategy, scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance.

The Board works well together bringing strong, independent, balanced judgement, knowledge, and experience to the Board's deliberations. Each non-executive Director has appropriate skills and experience that their views carry significant weight in the Board's decision making.

Board and Committee membership and attendance at meetings in 2013

Scheduled meetings shown in black and ad hoc meetings shown in orange.

Peter Bazalgette joined the Board on 1 June 2013. Four of the 11 scheduled Board meetings were held prior to his appointment.

Lucy Neville-Rolfe was appointed to the Audit Committee on 1 May 2013 and so did not attend the meeting held prior to this.

Non-attendance at Nomination Committee was due to Board meeting overrun and unavoidable other commitments.

Board Committees

The Board has delegated certain responsibilities to its committees. The terms of reference for each committee are reviewed annually and the current versions are available on the Company's website.

Nomination Committee

The Committee is composed of the Non-executive Directors.

The role of the Nomination Committee is to:

· review the structure, size, and composition of the Board, including skills, knowledge and experience;

· identify and nominate for Board approval candidates to fill Board vacancies;

· consider succession planning for Directors and other senior executives; and

· consider and review any conflicts of interest that may be reported by the Directors.

In addition to considering matters under its terms of reference, the Committee considered candidates for a Non-executive Director appointment. The Committee also reviewed a detailed succession planning framework and undertook an annual review of conflicts of interest.

Full details of attendance at Committee meetings can be found in the table above.

The Company also has the following Committees:

General Purpose Committee: the Committee is composed of the Executive Directors. The Committee meets as required to conduct the Company's business within the clearly defined limits delegated by the Board and subject to those matters reserved to the Board.

Disclosure Committee: the Committee is composed of the Executive Directors and other members of the senior management team. The function of the Committee, in accordance with the Company's Inside Information Policy, is to ensure compliance with continuing obligations under the Disclosure and Transparency Rules and the Listing Rules.

Effectiveness

Evaluation

The Board has established an ongoing evaluation and development process. The process focuses on roles and responsibilities, culture, balance of skills and experience, diversity and how the Board works together. In particular, it focuses on how effective the Directors are in assisting the executive team in achievement of the strategy.

At the end of 2012 the Board embarked on a comprehensive Board Development Programme facilitated by Gurnek Bain of YSC, a global firm of business psychologists. This included a rigorous assessment of performance, agreement on the Board's aspirations for itself and identification of steps required to achieve its objectives. Over the past 12 months each board member has had access to feedback and advice from YSC to help develop their own performance and the Board has held a number of collective discussions to review and agree on progress. At the end of the process further feedback was given and a programme for future development was agreed. It is ITV policy to ensure that all board members have continued access to coaching, feedback and support, and a further healthcheck review will be undertaken on the anniversary of the completion of the programme in 2014.

YSC have also been involved in supporting the review of the board make up and composition. They have no other connection with the Company.

Succession planning and diversity

Board tenure

All Directors are required by the Company's Articles of Association to be elected by shareholders at the first AGM following their appointment by the Board. Subsequently, all Directors are subject to annual re-election by shareholders as recommended by the Code.

Succession planning

The Board has agreed a succession planning framework to ensure that:

· board tenure is appropriate and encourages fresh thinking and new ideas;

· the Board is sufficiently diverse but most importantly has the appropriate mix of generalist and specialist skills; and

· Non-executive Directors have the appropriate level of independence, from the executive and each other.

When planning succession within the Company consideration is given to emergency cover together with medium and long-term succession. There is particular emphasis on growing the internal leadership pipeline through the launch of the following key programmes:

· Executive Development Programme for next generation potential board successors giving them an opportunity to develop their management potential and gain a greater understanding of the business.

· Developing Future Leaders Programme for delegates selected from across the business identified as a result of the performance review process. Content includes understanding what it means to be a leader at ITV, how to manage performance effectively, coaching skills and change management.

· Graduate Programme.

· Apprentice Programme.

A comprehensive portfolio of development courses and workshops for all colleagues which address common development needs is in place.

Diversity

It is the Board's policy to retain a strong but relatively small board bringing a balance of in depth commercial and creative experience. Although given the size of the Board specific formulaic targets are not appropriate it is our intention to increase the gender and ethnic diversity of board membership as opportunities arise.

Diversity within the organisation is integral to achieving our business aims. Reflecting the demographics of our customers and understanding their needs ensures that our brand, services and products are accessible, inclusive and have wide appeal.

The Company's aim is to represent our society both within the organisation and on-screen. Year-on-year progress has been achieved in working towards this target. Key activity in 2013 included:

· Diversity awareness training for line managers, supervisors and programme makers.

· Sustaining programme portrayal monitoring across 75% of our programmes.

· Workshops across the country to support future generations of diverse talent from Black, Asian, Minority Ethnics and individuals with disabilities.

· Developing and maintaining partnerships with external organisations to support and recognise diverse talent. For example, partnering with the inaugural Asia Media Awards and working with government to deliver the first ever Disability Confident conference to FTSE 100 companies.

Induction

The Company has a policy and programme for induction and continuing professional development of Directors. On appointment, each Director takes part in a comprehensive induction programme where they:

· receive information about the Group in the form of presentations by executives from all parts of the business and on the regulatory environment;

· meet representatives of the Company's key advisers;

· receive information about the role of the Board and the matters reserved for its decision, the terms of reference and membership of Board committees and the powers delegated to those committees;

· receive information about the Company's corporate governance practices and procedures and the latest financial information about the Group; and

· are advised of their legal and other duties and obligations as a director of a listed company.

This is supplemented by visits to key locations, including studios and regional sites, and meetings with key senior executives and with major shareholders where appropriate.

The key stages of the induction programme are:

Additional specific induction programmes are in place when Non-executive Directors join committees.

Continuing professional development

During their period in office, the Directors are continually updated on the Group's businesses and the competitive and regulatory environments in which they operate. This is done through:

· updates and papers which cover changes affecting the Group and the market in which it operates;

· meetings with senior executives across the Group and key advisers;

· regular updates on changes to the legal and governance requirements of the Group and in relation to their own position as Directors; and

· presentations given at board and committee meetings on business matters and technical update sessions from external advisers where appropriate.

As part of their professional development Executive Directors may accept external appointments as non-executive directors of other companies and retain any related fees paid to them. For further information on board development see the Evaluation section on page 71.

Conflicts of interest

The Board has delegated the authorisation of conflicts to the Nomination Committee and has adopted a Conflicts of Interest Policy.

The Board has considered in detail the current external appointments of the Directors which may give rise to a situational conflict and has authorised potential conflicts where appropriate.

This authorisation can be reviewed at any time but will always be subject to annual review. The Board is confident that these procedures operate effectively.

Insurance and indemnities

The Company maintains liability insurance for its Directors and officers which is renewed on an annual basis. The Company has also entered into deeds of indemnity with its Directors. A copy of the indemnity can be found on our website.

Relations with shareholders

The Board attaches a high priority to effective communication with shareholders and has regular and open dialogue with our institutional investors. The Board believes that continued engagement with our shareholders is beneficial to both ITV and its stakeholders as it helps to build a greater understanding of investors' views, opinions and concerns.
Adam Crozier, Ian Griffiths and our investor relations team meet with many institutional investors throughout the year to keep them updated on the Company's performance and the Transformation Plan. These range from one-to-one meetings to group presentations including the Full year and Interim results and the AGM. Specifically, following the Full year and Interim results one-to-one meetings are held with our largest institutional investors.

The Chairman responds to shareholder queries and holds meetings where appropriate.

The Company maintains a programme of engagement with the investment community, including the results presentations, briefings to brokers and other sales forces and attendance at a number of investor conferences. Presentations given to the investment community are available to download from our website.

We regularly seek feedback on the perception of the Company amongst shareholders and the investor community more broadly via our corporate brokers. Investor comments are fed back to the Board and its committees regularly.

The Company considers annually whether it is appropriate to commission an investor audit. No audit was undertakenin 2013.

Private shareholders represent more than 95% of our shareholders holding 3.36% of our shares. We encourage shareholders to register their email addresses to receive information from us in a timely manner.

Annual General Meeting (AGM)

The AGM will be held on 14 May 2014 (further details can be found on page 65). The Notice of Meeting sets out the resolutions being proposed. The Notice, together with any related documents, is made available to shareholders on or website or is mailed to them, if they have elected to receive hard copies, at least 20 working days before the meeting. Last year all resolutions were passed with votes ranging from 93% to 100%.

In 2013 the meeting was attended by 131 shareholders. Shareholders are invited to meet the Directors prior to and after the formal proceedings. At the meeting the Chairman and Chief Executive will review the Group's current trading which is followed by a question and answer session. Separate resolutions are proposed on each substantially separate issue and all resolutions are taken on a poll. The level of votes lodged on each resolution is made available on a regulatory information service and on the Company's website as soon as possible after the meeting.

Shareholders who are not able to attend the meeting can vote online in advance via our website or by completing and returning a form of proxy.

Save in exceptional circumstances, all members of the Board will attend the AGM.

Audit Committee Report

In this report . . .

The purpose of this report is to highlight areas that the Committee has reviewed during the year, reporting back to shareholders the significant financial reporting issues and judgements made in connection with the preparation of the Company's financial statements. The report also notes any areas or specific topics, such as risk, that the Committee has reviewed. Also highlighted is how the Committee has assisted the Board in reviewing the Company's internal control environment, and what the Committee has done to review the effectiveness of both internal and external auditors. This year the report addresses the changes in the UK Corporate Governance Code by describing in more detail what the Committee does, and what processes and controls are in place to help ensure that the annual report presents a fair, balanced and understandable view of the business.

Dear Shareholder,

On the following pages we set out the Audit Committee's Report for 2013. The report comprises four sections:

· How the Committee works

· What we focused on in 2013

· Internal controls

· Our auditors

Strong and effective risk management and control procedures underpin our ability to execute and implement our strategy. The principal aims of the Committee are to support the maintenance and continuing development

of a strong control environment across ITV and to ensure the integrity of the financial information provided to our shareholders. We do this in the context of a business with ambitious plans and a growing international footprint.

We seek not just to respond to changes but to support and challenge management to develop controls as they anticipate future opportunities and risks.

As requested by the Board, the Committee has considered the processes and controls in place to help ensure that the annual report presents a fair, balanced and understandable view of the business. As a result of this work the Committee concluded that the processes and controls were appropriate and was able to provide positive assurance to the Board.

In reporting to you, we have sought to respond to shareholders' changing requirements and expectations of audit committees. This is no doubt the start of improved communication between audit committees and shareholders and we welcome feedback.

John Ormerod

Chairman, Audit Committee

26 February 2014

Who is on the Committee

The Committee is composed entirely of Non-executive Directors. The current members are:

John Ormerod (Chairman)

Andy Haste

Lucy Neville-Rolfe (appointed 1 May 2013)

Mike Clasper stepped down from the Board and as a member of the Committee on 31 December 2013.

How the Committee works

The Committee members have between them a wide range of business and financial experience which enables the Committee to fulfil its terms of reference in a robust and independent manner. The Committee considers that John Ormerod has recent and relevant financial experience for the purposes of the Code.

The Chief Executive, Group Finance Director and internal and external auditors attended meetings during the course of the year at the invitation of the Chairman of the Committee. Members of the Management Board and other senior management have attended certain meetings by invitation. The Committee as a whole has regular private sessions with both internal and external auditors and also, when appropriate, with the Group Finance Director.

In addition, throughout the year the Chairman of the Committee has individual sessions with other Committee members and meets informally, and has open lines of communication, with the Group Finance Director, Head of internal audit and the senior engagement team from the external auditors. This group generally meets ahead of each full Committee meeting to prepare and identify key areas for consideration by the Committee.

The Committee works to a structured programme of activities with agenda items focused to coincide with key events of the annual financial reporting cycle, themes or areas of risk that the Committee has identified, together with standing items that the Committee is required to consider regularly under its terms of reference. Reports are provided by management, internal audit, and external audit, addressing the key risks and reporting matters faced by the Group. Following each meeting the Committee communicates its main discussion points and findings to the Board.

In addition to formal meetings, from time to time, Committee members have informal briefings on topics relevant to the Committee's work from members of the operational and financial management teams and external auditor.

In reviewing the various topics on its agenda the Committee members receive input from management, internal audit and external audit as appropriate. Committee members draw upon this and their own experience to provide a constructive challenge to the judgements made by management and consider alternative scenarios or accounting treatments in reaching their conclusions.

What is our role?

The role of the Committee includes to:

· monitor the integrity of the published financial information of the Company;

· review and report to the Board on the significant financial reporting issues and judgements made in connection with the preparation of the published financial information of the Company (having regard to matters communicated by the auditor);

· review the consistency of, ongoing appropriateness of, and changes to, accounting policies, consider the methods used to account for significant or unusual transactions;

· review the effectiveness of the internal control and risk management processes;

· review the Group's whistleblowing process for employees;

· review and approve the internal audit plan;

· monitor and review the effectiveness and independence of the internal audit function;

· monitor and review the effectiveness of management in addressing internal and external audit actions;

· review the quality and effectiveness of the external audit and the procedures and controls designed to ensure auditor independence;

· consider and make recommendations to the Board in relation to the appointment, reappointment, replacement, and remuneration of the Company's external auditor; and

· where requested by the Board, provide advice on whether the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

The Committees terms of reference can be accessed on our website.

What we focused on in 2013

In planning its own agenda, and reviewing the audit plan of the internal and external auditor, the Committee takes account of significant issues and risks, both operational and financial, likely to impact on the Company's financial statements. The Committee also addresses specific queries referred to it by the Board or Remuneration Committee. In 2013, the Remuneration Committee asked the Committee to report by exception on significant unusual or non-recurring transactions which came to its attention and the effect of which the Remuneration Committee may wish to consider in connection with its assessment of remuneration.

An annual review of the performance of the Committee was conducted for the year. In addition to feedback from members of the Committee, input was sought from the Group Finance Director, KPMG, internal audit and the Chairman of the Board. Overall, the review concluded that the Committee is responding appropriately to its terms of reference and will continue to develop its role.

Below is a summary of some of the more significant risks and issues discussed in the year by the Committee.

During 2013 there were no topics where there was significant disagreement between management, our external auditor and the Committee or unresolved issues which needed to be referred to the Board.

Technology Risk

As the Group has progressed through the strategy, the technology infrastructure supporting the business has evolved to support the rebalancing of the business opportunities from new revenue streams and the production business. Legacy systems supporting the existing business remain in place, while emerging technology has been adopted to support new opportunities. It is therefore important to have in place an effective technology governance framework that seeks to address the risks posed by the Group's technology environment. The governance framework, which is reviewed by the Committee, seeks to identify and manage key risks and provide oversight and methodologies around governing change and major projects.

In 2012 reviews by internal and external audit highlighted a number of opportunities to improve the governance of our core systems. The Committee and management agreed a set of actions and a workplan to address these, most of which were completed by the end of 2013. Work will continue to finalise remaining actions which will be kept under review by the Committee and internal and external audit.

The Group has a technology governance and assurance team who ensure a coordinated approach is in place to mitigate the risks faced in technology. In 2013 two key high risk areas were reviewed by the Committee:

· As part of a wider end-to-end review of the broadcast transmission infrastructure (including interaction with third party outsource providers), the incident management and governance processes were revisited, and a number of changes were agreed for implementation.

· There has been significant media coverage of the recent increase in attacks on corporate infrastructure. Examples of such issues include the loss of customer data due to hacking and the disruption of corporate social media feeds. In response to these cyber security threats, the Committee discussed management's assurance plans around information security and technology infrastructure.

Financial Reporting

As part of the Committee's review of the interim and year-end financial statements, the following were discussed:

Complex discrete transactions in the year

The Group completed certain transactions during the period which were outside the normal course of business. The Committee carefully reviewed these one-off transactions to ensure that the judgements applied by management were reasonable and any complex accounting guidance followed correctly. The topics discussed in the year covered acquisitions, debt settlements and large property acquisitions.

Acquisition accounting (see note 3.4 for details of acquisitions): following the acquisition of four businesses during the year, the Committee debated the accounting for the key areas of judgement: the determination of whether ITV has control of the entity and should therefore consolidate its accounts in the Group's accounts, the presentation of performance-related contingent payments or earn-out costs in the income statement, and determining the fair values of the net assets acquired:

· Control: this was particularly relevant for acquisitions that were structured so that the Group acquired a majority equity interest in a company, but less than 100%. The Committee debated ITV's majority representation, control of budgets and decision-making power on the new boards and concluded that the Group does control each of the businesses acquired.

· Performance-related consideration and earnouts: the Group's acquisitions include an amount which is payable based on future performance of the business. Structuring the acquisition this way helps manage risks in terms of initial capital outlay and creates a joint incentive between ITV and the previous owners to grow the business. This is a feature that is common for acquisitions in the creative industry. Where the payment is also linked to employment, IFRS requires it to be accrued as a remuneration operating cost over the period to payment. The Committee debated the presentation of the transaction and concluded that these costs are linked to a capital transaction and their size and nature warrants them being excluded from underlying earnings (adjusted profit). Once acquired and the earnout period has been completed, operational salary and bonuses payable to the sellers are treated as part of operating costs.

· Intangibles: the Committee reviewed the results of the exercise to allocate the purchase price between intangible assets and goodwill and agreed with management's allocation.

Debt settlements: as part of management's continued efforts to improve the balance sheet and remove remaining expensive debt, the Group repurchased significant debt in the year. Accounting for these repurchases, though complex, required little judgement. However, due to the significant loss of £61 million the Committee sought to ensure the accounting standards had been applied correctly. The Committee considered the source of the inputs management used in calculating the amount of loss to be recognised and concluded that the accounting was appropriate.

Acquisition of the London Television Centre: the Group acquired its headquarters in January. The Committee discussed the analysis undertaken by management to allocate the purchase price between the value of the land and building, which is required by the new accounting standard on fair value measurements. Real estate consultants were engaged to provide an estimate of the land value. The Committee considered the results of the exercise and agreed with management's allocation(see note 3.2).

Recurring transactions in the year

There are a number of areas where the Group transacts as part of its business as usual. However, these areas may require the application of judgement by management or have underlying complexity that should be considered on an ongoing basis by the Committee. Consequently, the topics noted below are regularly reviewed by the Committee:

Revenue: every year the Committee considers management's assessment of the Group's internal controls framework, which includes control over revenue. The Group's processes and controls around existing revenue streams, such as NAR and Studios revenues, have remained consistent and effective during the year.

As new revenue streams emerge - which has been seen in areas such as the Online, Pay & Interactive business - the Committee reviews policies adopted by management to recognise revenue and considers the related controls. The policies and controls adopted in 2013 are consistent with prior years and are considered appropriate by the Committee. No changes have occurred during the year.

Deal debt: deal debt is where management provides for over/under delivery of advertising value to agencies. The Committee reviews management's approach and method of determining the provision required and ensures consistency is applied in estimating inputs. The Committee is satisfied that the provision has been calculated on a consistent basis with prior years.

Royalty accruals: the Group is required to make royalty payments for content broadcast and distributed. Such payments are in accordance with individual contracts, and the large variety of terms results in a complex and manual process. As part of the agreed 2013 plan, internal audit reviewed the controls around the royalty accrual process without significant finding. As with previous years, the Committee considered the estimated accrual to be reasonable.

Pension accounting: the Group's defined benefit pension scheme is a significant liability on the Group's balance sheet (see note 3.7) and the value of the scheme will fluctuate due to changes in underlying assumptions. The main assumptions which drive these fluctuations include the forecast bond yield rates and the forecast inflation rate. A particular feature affecting 2013 has been the valuation of a longevity swap. A recent change to IFRS has required the swap to be recorded at fair value on a different basis from the best estimate of value on which the swap was previously recorded. The Committee considered both the process management undertook to finalise the assumptions, and how these assumptions benchmark against the market. In particular, because of the size of the valuation adjustment to the longevity swap of £95 million, the Committee confirmed the changes in IFRS had been appropriately applied with our auditors and the sources of information on which the recorded valuation was based. The Committee concluded that that the process was robust and the resulting calculation appropriately balanced.

Tax: the Group recognises certain provisions and accruals in respect of tax. The Committee debates the nature and key risks which give rise to corporate tax, payroll and VAT issues, and discusses the activities management undertake to resolve the matters that give rise to such provisions. Where support from our tax advisers is received, the results and views of their work are also reviewed. The Committee concluded that the provisions at the year-end were appropriate (see note 2.3).

Risk Management