ITV Regulatory News (ITV)

ITV plc Interim Resultsfor the half year ended 30 June 2013

ITV delivers strong growth and continues to rebalance

Continued double digit growth in Non-NAR revenues

·; Total Non-NAR revenues up 11% to £568m driven by ITV Studios and Online, Pay & Interactive

·; Total ITV Studios revenues up 11% to £395m

·; Online, Pay & Interactive revenues up 19% to £56m

·; ITV Family NAR down 3% as expected

·; Total external revenues up 1% to £1,144m

Improved margins and double digit profit growth

·; EBITA before exceptional items up 11% to £291m

·; ITV Studios EBITA up 26% to £63m

·; Broadcast & Online EBITA up 7% to £228m

·; Adjusted PBT up 16% to £270m

·; Adjusted EPS up 15% to 5.3p

Investing in strategic acquisitions and delivering increased shareholder returns

·; ITV Studios completed acquisitions in the UK and the US

·; £20m cost savings on track

·; Profit to cash conversion strong at 100%

·; Net debt of £52m following acquisitions, dividends and further debt repayments

·; Board has declared an interim dividend of 1.1p up 38%

Positive outlook underpins performance for the rest of 2013

·; Expect ITV Family NAR for nine months to the end of September to be broadly flat following a good Q3 up 9%

·; Confident of delivering double digit revenue growth in Online, Pay & Interactive and ITV Studios over the full year

Adam Crozier, ITV Chief Executive, said:

"We're making good progress with our strategy of growing and rebalancing the business as we build new revenue streams and improve margins.

In the first six months of the year ITV continued to increase group profits and revenues despite the expected fall in our H1 advertising revenues. Non-advertising revenues were up by 11% to £568m, driven by significant growth in Online, Pay & Interactive and in ITV Studios.

ITV Studios delivered further growth in the UK and internationally both organically and through selective acquisitions in our key target markets - with total Studios revenues up 11%. We're showing real momentum in our strategy of creating a robust international content business and in building substantial strength and scale in the US market.

The improved variety and quality of the ITV schedule has driven a strong on-screen performance in the first half of the year with ITV Family SOV up 1%.

Our cash generation remains strong and we continue to have a robust balance sheet to support the strategy and invest in our future growth.

As we anticipated, the shape of the television advertising market this year is very different to 2012. In spite of monthly volatility we expect ITV Family NAR to be broadly flat for the nine months to the end of September with Q3 up 9%. We expect both ITV Studios and Online, Pay & Interactive to deliver double digit revenue growth for the year as a whole as we continue to rebalance and strengthen ITV."

Half year results

* Following revisions to IAS 19, we have restated our prior period results which has resulted in a £2 million decrease in EBITA before exceptional items and a £2 million decrease in adjusted profit before tax and a 0.1p decrease in adjusted EPS for 2012.

Adjusted profit before tax and adjusted EPS remove the effect of exceptional items which include professional fees and performance based contingent payments relating to acquisitions, impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments, and prior period and other tax adjustments. The profit before tax and basic EPS from the Condensed Consolidated Income Statement are as follows:

* Following revisions to IAS 19, we have restated our prior period results which has resulted in a £6 million decrease in profit before tax and a 0.1p decrease in Basic EPS for 2012.

Financial performance

We have delivered a good performance in the first half of the year growing revenues and delivering double digit growth in adjusted EPS even with ITV Family NAR down 3% as we expected. This strong financial performance was driven by non-NAR revenues which grew 11% as we continued to strengthen and rebalance the business and maintain our focus on cash and costs. Our £20m cost saving target remains on track and we will use these savings to fund our investments in our creative and commercial capabilities.

We have ended the first half with net debt of £52m following the acquisitions we have made in the UK and US, dividend payments, debt buybacks, pension contributions and the acquisition of our London headquarters. Our profit to cash conversion remains strong at 100%.

Broadcast & Online

Although Broadcast & Online saw a 1% decline in revenues it delivered a 7% improvement in EBITA before exceptional items (EBITA) because of the higher margin Online, Pay & Interactive revenues and our focus on costs. Schedule costs were down in the first half as a result of lower sports costs which have helped fund more hours of drama and entertainment.

As we anticipated, the shape of the television advertising market this year is very different to 2012. The combination of a strong first quarter followed by tough comparatives in Q2 resulted in ITV Family NAR falling 3% in the first half as a whole. In spite of monthly volatility we expect ITV Family NAR to be broadly flat for the nine months to the end of September with Q3 up 9%.

Over the first half ITV Family NAR was behind our estimate of the television advertising market, which was down 1%. Our objective remains to outperform the television advertising market over the full year. On-screen we have had a strong start to the year with ITV main channel SOV and SOCI both flat and ITV Family SOV and SOCI both up 1%.

Online, Pay & Interactive revenues continue to grow strongly up 19% as we make our content available on more platforms driving long form video requests up 17%. We are further developing our pay revenues with more direct to consumer pay offerings on ITV Player and with third party platform owners, such as the renegotiation of the Virgin deal and an ad free subscription model on iOS.

ITV Studios

ITV Studios again delivered strong revenue and profit growth in the first half of 2013. Total revenue grew 11% to £395m and EBITA increased 26% to £63m as we continue to invest in our creative pipeline in content that travels internationally, namely drama, entertainment and factual entertainment.

All parts of the business delivered organic growth which was enhanced through a number of strategic acquisitions in the UK and US. Organic revenue growth was 5%, going against the comparative period in 2012 which benefited from the front loaded delivery of programmes.

The acquisitions we have made have been in the key creative markets that create and own intellectual property that travels. In the UK we acquired The Garden to enhance our capability in creating factual entertainment formats and to increase our strength in delivering commissions off-ITV. In the US we acquired Thinkfactory Media and High Noon Entertainment to continue to build our strength and scale.

The initial consideration for all acquisitions completed in H1 was £53m with future consideration payable depending on the performance of the companies. The maximum total consideration for these H1 acquisitions is £174m (undiscounted and including the initial cash consideration) and is payable only on the delivery of continued strong growth.

The UK and International production businesses both delivered double digit revenue growth up 12% and 16% respectively, which is beginning to feed into our international distribution business which grew 3%.

Adjusted EPS

Adjusted EPS was up 15% to 5.3p (2012: 4.6p). Adjusted financing costs were £14m, which is £11m lower than prior year as a result of the bonds bought back in June 2012 and the debt bought back in March 2013. Diluted adjusted EPS was up 13% to 5.1p.

The adjusted effective tax rate of 23% is largely in line with the statutory rate of UK corporation tax.

Basic EPS

Basic EPS is 3.4p (2012: 3.1p). The main differences between basic and adjusted earnings per share are exceptional items including professional fees and performance based contingent payments relating to acquisitions, losses incurred in net financing costs from debt buybacks, mark-to-market on swaps and the regular adjustment for amortisation and impairment of intangible assets acquired through business combinations and other tax adjustments.

Balance sheet and Net debt

Net debt at the end of June 2013 was £52m compared to net cash of £206m at the end of December 2012. This net debt is after the following payments were made in the first half of 2013: acquisition cash costs of £54m, the payment of the final and special dividend of £227m, the £100m cash impact of the debt buybacks we have completed, pension deficit contribution of £80m and the acquisition of the Company's headquarters and studios in London for £58m.

We have again improved the efficiency of our balance sheet with £138 million (nominal) repayment of the £200 million 2019 loan and £34 million (nominal) repayment of the £135 million convertible bond. We improved our financial flexibility by extending the maturity of the committed £250 million Revolving Credit Facility (RCF) by a further year to July 2016. The facility remains undrawn.

Pension

The aggregate IAS 19 deficit at 30th June was £476m (31 Dec 2012: £551m). This was primarily as a result of the £80m total annual deficit funding contribution for 2013 made in the first half. The increase in the implied discount rate has reduced the level of liabilities, which has largely been offset by an increase in the market expectation of long term inflation.

The 10 to 15 year funding plan that we agreed following the actuarial valuations as at 1st January 2011 remains in place. It is a mixture of fixed and performance related contributions.

Dividend

The steps we have taken with our balance sheet and another period of double digit profit growth has led the Board to declare an interim dividend of 1.1p, a 38% increase on 2012. This dividend reflects the Board's confidence in the ongoing growth and cash generation of the business. The Board has set the dividend to be roughly one third of the total dividend for the year. We will continue to balance capital discipline with the need to invest for future growth and maintain flexibility. The Board remains committed to a progressive dividend policy.

2013 Planning assumptions - no material changes

·; Cost savings of £20 million will fund investments in the creative development pipeline, technology and online

·; Total NPB is expected to be around £980m

·; Adjusted interest is expected to be around £27m-28m as a result of the impact of debt buybacks

·; Effective tax rate is expected to remain between 22-24%

·; Capex will be around £110-£120m which includes normal Capex of around £55m and the acquisition of the London Television Centre in January 2013

Outlook for full year

In spite of monthly volatility we expect ITV Family NAR to be broadly flat for the nine months to the end of September, with July up 12%, August up 20% and September broadly flat.

Both ITV Studios and Online, Pay & Interactive are on track to deliver double digit revenue growth for the year as a whole as we continue to grow and rebalance the business.

Notes to editors

1. Unless otherwise stated, all figures refer to the six month period ending 30th June 2013, with growth compared to the same period in 2012.

2.

3. ITV Family NAR was down 6% in May and down 16% in June. We expect ITV Family NAR to be up 12% in July, up 20% in August and broadly flat in September. Overall we expect ITV Family NAR for the nine months to end of September to be broadly flat.

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

4. Operational summary

Share of viewing data based on BARB/AdvantEdge data and share of commercial impact (SOCI) data based on BARB/DDS data. Share of viewing data is for individuals and SOCI data is for adults. ITV Family includes: ITV, ITV2, ITV3, ITV4, CITV, ITV Breakfast, CITV Breakfast and associated "HD" and "+1" channels. Total long form video requests across all platforms are based on data from ComScore Digital Analytix, Virgin, BT, iTunes, Lovefilm, Netflix, Sky, 3UK and Hospedia and include simulcast. Share of Broadcast KPI is calculated based upon our estimates of the total Television advertising market.

5. Dividend payment date is 29 November 2013 and dividend record date is 1 November 2013.

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

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

Strategy & Operations

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

Overview

In the first half of 2013 we continued the good progress with our strategy of growing and rebalancing the business. Total Non-NAR revenues were up 11% driven by significant growth in Online, Pay & Interactive and in ITV Studios, which have more than offset the expected decline in ITV Family NAR. Total external revenues were up 1% to £1,144 million.

We have again delivered double digit profit growth. Total EBITA before exceptional items was up 11% to £291 million and adjusted EPS was up 15% to 5.3p as a result of our continued focus on costs and our higher margin new revenues. Group margins improved by two percentage points from 23% to 25%.

Broadcast & Online delivered 7% EBITA growth despite a 1% decline in revenues. ITV Studios grew EBITA by 26% on total revenues up 11%.

We have ended the first half with net debt of £52 million following the acquisitions we have made in the UK and US, dividend payments to shareholders, debt buybacks, pension deficit contributions and the acquisition of our London headquarters. Our profit to cash conversion remains strong at 100%.

We are on track to deliver our strategy based on our four key priorities. This strategy remains unchanged. Our vision remains to create world class content which we can make famous on our channels, and exploit across platforms, both free and pay, in the UK and internationally. While there is still much to do, the progress we are making is clearly evident in our financial and operating results.

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

We are making significant progress in making ITV lean, creatively dynamic and fit for purpose. This remains a key priority of our strategy as we continue to make ITV a better business.

As previously announced we have identified £20 million of cost savings to be delivered in 2013, on top of the £90 million of savings delivered between 2010 and 2012. We are on track to deliver this over the full year as we continue to drive out complexity from the business.

These cost savings will fund investment in our creative and commercial capabilities across the business, specifically in our creative pipeline, in technology and online. We will also continue to invest in our people and in working as OneITV to help drive value from our integrated producer broadcaster model and deliver future growth.

At the beginning of 2013 we 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, rolling 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.

In the first half of the year we have again improved the efficiency of our balance sheet as we strive to make the best use of our cash. We have bought back £172 million of debt (nominal) leading to further interest cost savings and have delivered profit to cash conversion for the six months of 100%.

The steps we have taken with our balance sheet and another period of double digit profit growth has led the Board to declare an interim dividend of 1.1p, a 38% increase on 2012. This dividend reflects the Board's confidence in the ongoing growth and cash generation of the business. The Board has set the dividend to be roughly one third of the total dividend for the year. We will continue to balance capital discipline with the need to invest for future growth and maintain flexibility. The Board remains committed to a progressive dividend policy.

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

A strong Broadcast business remains central to our strategy. It generates significant profit and cash to help fund our new revenue streams and it provides a platform on which to make our content famous before distributing it internationally.

Our on-screen performance has been strong in the first half of the year through the improved variety and quality of the ITV schedule. ITV main channel SOV and SOCI were both flat for the six months to the end of June and ITV Family SOV and SOCI were both up 1%. New and returning programmes including Mr Selfridge, Broadchurch, Britain's Got Talent, Splash!, Catchphrase, Marple, Champions League, the soaps and our daytime shows continue to perform well. ITV2 and ITV3 remain the largest digital channels and ITV2 won the Channel of the Year at the Broadcast Digital Awards 2013. New and returning successes this year on our digital channels include Plebs, Celebrity Juice, The Only Way is Essex and The French Open.

ITV continues to drive mass audiences that advertisers demand, delivering 99.8% of all commercial audiences over five million viewers and 100% of audiences over 7 million. Based on series average in the first half of the year ITV broadcast the highest rating new drama in Broadchurch, the highest rating entertainment show in Britain's Got Talent, the highest rating soap in Coronation Street and the highest rating sports programme in the Champions League Manchester United vs. Real Madrid match.

As we compete with broadcasters and other media for our share of television advertising, and advertising revenues in general, we continue to explore ways to increase the value of our commercial offerings. We continue to look at ways to maximise the value of the 30 second slot, for example Shazam enabled advertising. We are also looking to drive more value from our sponsorship deals through increased interactivity and brand extensions. For example the successful Morrisons sponsorship of Ant & Dec's Saturday Night Takeaway and off-air brand endorsements and ticket sales to the live Big Reunion tour.

As we anticipated, the shape of the television advertising market this year is very different to 2012, partly as a result of the timing of sports events. The combination of a strong first quarter followed by tough comparatives in Q2 resulted in ITV Family NAR falling 3% in the first half as a whole. In spite of monthly volatility we expect ITV Family NAR to be broadly flat for the nine months to the end of September with Q3 up 9%.

Over the first half ITV Family NAR was behind our estimate of the television advertising market, which was down 1%. Our objective remains to outperform the television advertising market over the full year.

Structurally the Broadcast business remains robust. While online viewing is growing very rapidly, it remains less than 2% of total viewing and people continue to watch around four hours a day which has been reasonably consistent over the last five years. Catch up viewing is around 10% of total viewing but the line between VOD and catch up is becoming more blurred with the growth of connected devices.

Following the Secretary of State for Culture, Media and Sport's agreement at the end of 2012, the renewal of ITV's Public Service Broadcasting licences for a full ten year term is in the final stages.

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

Online, Pay & Interactive again delivered strong revenue growth, up 19% in the first half with the growth in new technology platforms and the rapid increase in VOD driving demand for quality content both free and pay.

Over the last few years we have invested to improve the quality of our online offering and the distribution of our content which is now available on 15 platforms including YouView. This has led to continued good growth in long form video requests which were up 17% in the first half of 2013.

Mobile viewing and new platforms are driving the demand for VOD. There have now been over nine million downloads of the ITV Player app since it was launched. We have redeveloped our ITV Sports site and our award winning ITV News site.

We continue to explore and develop our pay services. On the ITV Player we have trialled further direct-to-consumer pay opportunities with episode premieres of programmes such as Scott & Bailey for ITV and Plebs for ITV2. We have also launched a pay proposition on iOS which is an ad free subscription model - the first broadcaster to do so. We renegotiated our Virgin deal to include HD versions of ITV2, 3 and 4 and the ability to deliver adverts in our catch up content in the future.

We are further deepening our relationship with our consumers and we now have more than two million registered users of ITV Player. We are also interacting further with our customers to drive value from our brands, both for ITV and for our advertisers, for example we had over one million downloads of the Britain's Got Talent app and we continue to feature heavily on and communicate through social media.

4 Build a strong international content business

A strong international content business lies at the core 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.

The continued strong demand for quality content globally from broadcasters and platform owners provides a huge opportunity for us. As an integrated producer broadcaster we are in a unique position to take advantage of this as we can make our content famous on our channels before distributing it internationally.

In the first half of the year we made good progress creatively and commercially. We continued to build our creative strength globally as we grew our revenues 11% and profits 26%. We are investing in a strong and healthy creative pipeline and in genres that travel internationally and which deliver higher margins, namely drama, entertainment and factual entertainment.

All parts of the business delivered organic growth which was enhanced by a number of acquisitions in the UK and US. Our acquisition focus is on the two key markets which have a track record for creating and owning intellectual property and for companies that produce in genres that travel. In the UK we acquired The Garden to enhance our capability in creating factual entertainment formats that travel and to increase our strength in delivering commissions off-ITV. In the US we are building strength and scale with the most recent acquisitions of High Noon and Thinkfactory who produce reality, entertainment and drama which complement our existing business, including the Gurney business acquired at the end of 2012.

In the UK we grew our revenues on and off ITV, particularly in drama, entertainment and daytime. This has been driven by programmes such as Mr Selfridge, Ant & Dec's Saturday Night Takeaway, Marple, Poirot and The Chase for ITV, and off ITV by Graham Norton for BBC and Four Weddings for Sky Living. Some of our key shows in 2013 have already been recommissioned such as Mr Selfridge and Ant & Dec's Saturday Night Takeaway for ITV and Shetland for BBC, all of which will come through in 2013/14.

International production continues to grow strongly with revenues up 16% in H1 particularly driven by the US with programmes such as Hell's Kitchen, Kitchen Nightmares and Duck Dynasty. We have already secured a number of key new commissions such as The Chase which was originally commissioned in the UK and recommissions of programmes such as Hell's Kitchen, Kitchen Nightmares, America Now, Duck Dynasty and CakeBoss which will impact 2013/14.

With the acquisitions we have recently made we estimate that ITV Studios America is now one of the five largest independent producers in the US and over the full year expect it to deliver 64 different shows to 34 channels, supplying 899 hours of content annually. This compares to 12 shows, 7 channels and 119 hours in 2010.

The strong growth in the UK and international production businesses is starting to feed our international distribution business which we are adding to through the distribution of third party content, such as Rectify for AMC. We have sold Mr Selfridge to more than 100 countries and we also continue to sell our formats successfully, for example Come Dine With Me India was the 36th international version, and we have recently sold Four Weddings to Russia and Romania.

Outlook

In spite of monthly volatility we expect ITV Family NAR to be broadly flat for the nine months to the end of September, with July up 12%, August up 20% and September broadly flat.

Both ITV Studios and Online, Pay & Interactive are on track to deliver double digit revenue growth for the year as a whole as we continue to grow and rebalance the business.

We continue to look at ways to improve the efficiency of the balance sheet and make the best use of our cash, whilst balancing capital discipline with the need to invest for future growth and maintain flexibility.

Adam Crozier

Chief Executive

Key Performance Indicators

We have defined our Key Performance Indicators (KPIs) to align performance and accountability to our strategy.

Further detail on our financial performance and KPIs can be found in the Strategy and Operations section and the Financial and Performance Review.

* Following revisions to IAS 19, we have restated our prior period results which have resulted in a £2 million decrease in EBITA before exceptional items and a 0.1p decrease in adjusted EPS.

Three of our KPIs are only reported on a full year basis: percentage of ITV output from ITV Studios, number of new commissions and employee engagement. The ITV Studios KPIs are not reported externally on a six monthly basis as they are materially impacted by phasing and therefore the full year number gives a more meaningful measurement of performance. Employee engagement is based on an annual survey undertaken in the autumn but our monthly abbreviated surveys suggest that engagement remains strong.

Disclaimer on forward-looking statements

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

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

Financial and Performance Review

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

We have again delivered a strong set of results in the first half of 2013 with revenue growth and double digit profit growth. Our performance was driven by growth in our Non-NAR revenues up 11% as we continue to rebalance the business.

Overall external revenues were up 1%, with strong growth in Online, Pay & Interactive and in ITV Studios which was partly offset by the expected decline in NAR. With our continued focus on costs and the higher margin new revenue streams, we delivered 11% growth in EBITA to £291 million and 15% growth in adjusted EPS to 5.3p. Group margins have improved two percentage points from 23% to 25%.

We have maintained our focus on cash and costs. Our £20 million cost savings target over the full year is on track and we have again taken steps to improve the efficiency of the balance sheet and make the best use of our cash. We have bought back £172 million (nominal) of debt which has reduced our level of debt to £457 million and further reduced our net financing costs. At the end of June we had £52 million of net debt as a result of the acquisitions we have made, dividend payments and debt repayments. Our profit to cash ratio remains strong at 100%.

The steps we have taken with our balance sheet and another period of double digit profit growth has led the Board to declare an interim dividend of 1.1p, a 38% increase on 2012. This dividend reflects the Board's confidence in the ongoing growth and cash generation of the business. The Board has set the dividend to be roughly one third of the total dividend for the year. We will continue to balance capital discipline with the need to invest for future growth and maintain flexibility. The Board remains committed to a progressive dividend policy.

The remainder of 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 statutory results is set out in the earnings per share section.

Adjusted profit before tax and adjusted EPS remove the effect of exceptional items which include professional fees and performance based contingent payments relating to acquisitions, impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments, and prior period and other tax adjustments.

Following revisions to IAS 19, we have restated our prior period results which have resulted in: a £2 million decrease in EBITA before exceptional items, Broadcast EBITA, adjusted profit before tax and the tax charge for the period; a £4 million increase in net financing costs; a £6 million decrease in profit before tax; a £1 million increase in the adjusted tax charge; a £4 million decrease in profit after tax and a 0.1p decrease in basic and adjusted earnings per share. A full discussion of the revisions to the standard are included in note 3.4 of the interim financial statements.

Broadcasting & Online

Broadcast & Online revenues were down 1% over the first half because the strong growth in Online, Pay & Interactive was offset by the decline in ITV Family NAR.

As we anticipated, the shape of the television advertising market this year is very different to 2012. The combination of a strong first quarter followed by tough comparatives in Q2 resulted in ITV Family NAR falling 3% in the first half as a whole. In spite of monthly volatility we expect ITV Family NAR to be broadly flat for the nine months to the end of September with Q3 up 9%.

There also continues to be volatility by sector. Good growth has been seen in entertainment & leisure, airlines & travel, publishing & broadcasting and household stores. We continue to see demand for advertising from sectors driven by technology and highly competitive industries. Sectors showing declines year on year are retail, despite increased spend by supermarkets, finance, food, cosmetics, telecommunications and cars.

SDN external revenues grew 13% benefiting from the introduction of a 12th stream which went live on January 2013.

Online, Pay & Interactive revenues grew strongly up 19%. Within this Online revenues increased as long form video requests have continued to grow as we have improved the quality and distribution and enhanced the offering of itv.com and ITV Player. Our pay revenues have also grown as we have renegotiated the Virgin deal and the usage of our content on other platforms continues to grow.

Other commercial income includes sponsorship, minority revenue, media sales and other income. These are broadly flat year on year, with growth coming from sponsorship and brand extensions offsetting a marginal decline in minority revenues.

Despite the decline in ITV Family NAR we have grown Broadcast & Online EBITA by 7% because of the higher margin new revenues and our focus on costs. Schedule costs are down in the first half as a result of lower sports costs which have helped fund more hours of drama and entertainment. Other costs are down 4% as we continue to manage our overheads tightly.

ITV Studios

We continue to deliver strong growth in ITV Studios through organic growth and acquisitions, with revenues up 11% and EBITA up 26%. We have achieved this through our continued focus on costs and changes in our revenue mix.

Organic revenue growth was 5%, going against the comparative period in 2012 which benefited from the front loaded delivery of programmes. Acquisitions have delivered £24 million of revenue and £4 million of EBITA in the first half as expected.

UK Production grew on and off ITV with revenues up 12%. This has been driven by drama, entertainment and daytime with programmes such as Mr Selfridge, Marple, Poirot, Ant & Dec's Saturday Night Takeaway and The Chase for ITV and off ITV programmes such as Graham Norton for BBC and Four Weddings for Sky Living. Entertainment and drama original hours delivered were both up around 15% in the first half.

International Productions again grew strongly with revenues up 16%, particularly in America, with programmes including Hell's Kitchen, Kitchen Nightmares and Duck Dynasty. Germany has also shown good growth with programmes such as I'm A Celebrity Get Me Out Of Here and Celebrity Come Dine With Me.

The strong growth in our UK and international production businesses are starting to feed our global distribution business.

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

During the first half of the year we have acquired businesses in the UK and US. These have been made against strict financial and strategic criteria including ownership of intellectual property, return on capital employed and discounted cashflow. We have structured the deals to base a large part of the consideration on future performance and therefore align incentives and lock in creative talent.

In April 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. The additional consideration is only payable on the delivery of significant profit growth over the next five years.

In the US we acquired 60% of High Noon Entertainment for an upfront cash consideration of $26 million in May and in June we acquired 65% of Thinkfactory Media for an upfront cash consideration of $30 million, to further build our strength and scale. There are put and call arrangements in place to buy the remaining minority stakes from years 3 to 5 following the acquisitions.

Over the full year we expect the acquisitions we have made in 2012 and 2013 to contribute around £100 million of revenue.

The total maximum consideration of £174 million (undiscounted) for all these acquisitions is payable only on the delivery of continued strong growth. The initial payment for these 2013 acquisitions is £53 million with a further maximum £121 million (undiscounted) payable depending on performance.

Acquisitions made in 2013

* Undiscounted and including the initial cash consideration


On the 26 July we acquired 100% of Big Talk Productions and associated companies (Big Talk).

Net financing costs

Adjusted financing costs in the first half of 2013 are £11 million lower than in the prior year as a result of the debt bought back in June 2012 and in the first half of 2013.

The £44 million losses on buybacks relate to the exceptional loss on the £172 million (nominal) debt we bought back in H1. The partial repayment of the 2019 bilateral loan in March of £138 million loan resulted in an exceptional interest charge of£38 million. The £34 million convertible bond buyback resulted in an exceptional interest charge of £6 million. In 2012 similar losses were incurred on the buyback of certain bonds.

Tax

The effective tax rate on adjusted profit before tax of 23% is largely in line with the standard tax rate of 23.25% (2012: the adjusted tax rate of 23% was lower than the standard rate due to adjustments made for prior periods and the recognition of overseas deferred tax credits). The total reported tax charge is £44 million (2012: £42 million). Cash tax paid of £32 million (2012: £28 million) arises as a result of making payments for taxable profits partially offset by losses and the tax treatment of allowable pension contributions.

* In respect of intangible assets arising from business combinations.

* In respect of intangible assets arising from business combinations.

Dividend

The steps we have taken with our balance sheet and another period of double digit profit growth has led the Board to declare an interim dividend of 1.1p, a 38% increase on 2012. This dividend reflects the Board's confidence in the ongoing growth and cash generation of the business. The Board has set the dividend to be roughly one third of the total dividend for the year. We will continue to balance capital discipline with the need to invest for future growth and maintain flexibility. The Board remains committed to a progressive dividend policy.

Earnings per share

Adjusted earnings per share is 5.3p (2012: 4.6p). Basic earnings per share is 3.4p (2012: 3.1p). The main differences between reported and adjusted earnings per share are exceptional items, the losses incurred in net financing costs from the bond buybacks, adjustment for the amortisation of intangible assets acquired through business combinations and the tax effects of these.

The adjustments shown above 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.

Exceptional items are mainly acquisition related expenses, including professional fees and performance based contingent payments, in relation to the selective acquisitions we made in the ITV Studios business. The tax and net financing costs sections of this review show the adjustments to these balances which mainly include mark-to-market on swaps and foreign exchange and loses on buybacks. There are no restructuring costs in 2013.

Cash flow, working capital management and free cash flow

Cash flow and working capital management

Our focus on cash remains a priority and in the first half we generated £292 million of cash from £291 million of EBITA before exceptional items. Our strong profit to cash ratios of 100% on a six month basis and 96% on a rolling 12 month basis continue to be ahead of our KPI target of 90% on a three-year rolling basis. This calculation excludes the acquisition of the Company's London headquarters as management consider it to be a material one-off capital expenditure.

This performance is largely due to the continued management of working capital balances.

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 before dividends, acquisitions and debt repayments remains strong up £30 million or 22%, despite the step up in pension funding contributions.

Free cash flow reflects our underlying cash generation and gives us flexibility to invest in the business.

Net debt, liquidity risk and funding

Net debt at the end of June 2013 was £52 million compared to net cash of £206 million at the end of December 2012. This net debt is after the following payments were made in the first half of 2013: acquisition cash costs of £54 million, the payment of the final and special dividend of £227 million, the £100 million cash impact of the debt buybacks we have completed, pension deficit contribution of £80 million and the acquisition of the Company's headquarters and studios in London for £58 million which includes £2 million of stamp duty.

In the first half of 2013 we have again taken steps to strengthen and improve the efficiency of our balance sheet and to maintain our access to liquidity. We have delivered strong cash generation, bought back more debt and extended the maturity of our Revolving Credit Facility.

We continue to look at opportunities to further improve the efficiency of our balance sheet and make the best use of our cash whilst maintaining the flexibility to invest in the business. Having repurchased or repaid early £1,109 million (nominal) of debt since October 2009 further step changes are harder to achieve but we will continue to evaluate options on a case by case basis.

Debt Structure

In March 2013 we repaid £138 million of the £200 million covenant free bilateral loan with a maturity of March 2019. This was satisfied by cash and by gilts secured against the loan and resulted in an exceptional charge of £38 million. In June 2013 we repurchased £34 million (nominal) of the £135 million convertible Eurobond with a maturity date of November 2016. These were repurchased at prices above carrying amounts resulting in an exceptional charge of £6 million shown in financing costs. The bond contains an option for the issuer to convert the debt into ITV's equity and the buyback has also resulted in a £30 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. Over the full year we expect adjusted financing costs to be about £27-28 million compared to £44 million in 2012 and £50 million in 2011.

We have reduced our debt repayable by £39 million to £457 million at 30 June 2013 primarily as a result of the convertible bond repurchases.

In June 2013 we extended the maturity of the committed £250 million Revolving Credit Facility 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.

Financing

We are financed using debt instruments with a range of maturities. Borrowings at 30 June 2013 (net of currency hedges and secured gilts) are repayable as follows:

* Net of Cross Currency Swaps.

There are no financial covenants on any of the debt instruments above and our net repayments in the next three years total less than £100 million.

Adjusted net debt

Adjusted net debt is our key measure of our future cash commitments. The ratio of adjusted net debt to EBITDA before exceptionals is 2.0x on a rolling 12 month basis.

As can be seen from the table, adjusted net debt includes the maximum total contingent payments in relation to all the acquisitions we have made in 2012 and 2013 (undiscounted), the pension deficit 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.

Ratings

Our credit ratings continued to improve in the first half of 2013. In March and April respectively, Standard & Poor's and Fitch upgraded our long-term credit ratings from sub investment grade BB+ (Stable Outlook) to investment grade BBB- (Stable Outlook). ITV's credit rating with Moody's Investors Service remains sub investment grade at Ba1 (Positive Outlook) and would require a further notch upgrade in order to restore investment grade.

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. We aim to continue to strengthen our position against all these metrics through delivering our strategy.

Pensions

IAS 19

The aggregate IAS 19 deficit on defined benefit schemes at 30 June 2013 was £476 million (31 December 2012: £551 million). This was primarily as a result of the £80 million total annual deficit funding contribution for 2013 made in the first half. The implied discount rate used to value liabilities has increased which has reduced the level of liabilities, although this has largely been offset by an increase in the market expectation of long-term inflation. Asset values have been volatile over the six month period.

Actuarial valuations

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

The next actuarial valuations are due as at 1 January 2014.

Deficit funding contributions

The Group has agreed with the Trustee that the level of contributions to Section A of the ITV Pension Scheme will be a combination of fixed and performance related payments.

The fixed payments to the main section of the scheme will be as follows:

The performance related payments to the main section of the scheme will be as follows:

During the period 2012 to 2020 if our reported EBITA before exceptional items exceeds £300 million, we will contribute an amount representing 10% of EBITA before exceptional items over the threshold level, subject to an annual cap for total contributions 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) may not be required.

In addition to the agreed deficit funding contributions above, the SDN pension funding partnership (PFP) established in 2010 provides an annual distribution of £11 million to this section of the Scheme from 2013 to 2022 (£10 million in 2012).

Sections B and C:

The Group has agreed with the Trustee to pay deficit funding contributions of £5.5 million per annum in order to eliminate the deficits in these sections by 31 March 2021.

We have paid £80 million in the first half of 2013 in total and there will be no further deficit funding contributions in the second half of the year.

Post balance sheet events

On the 26 July we acquired 100% of Big Talk Productions and associated companies (Big Talk). We will pay an initial cash consideration and further capped cash payments contingent on Big Talk's future performance. The initial cash consideration will be dependent on the 2012/13 financial performance and is expected to be in the region of £12.5 million. The further capped cash payments are only payable on the delivery of significant profit growth over the next five years. The multiple paid was similar to the range paid on our previous acquisitions.

Principal Risks and Uncertainties

ITV continues to apply the risk management framework outlined in the 2012 Annual Report and Accounts (pages 48 and 49). When preparing the Interim results the three core risk groups, High Impact Low Likelihood (HILL) risks, Strategic risks and Process level risks, were reviewed to ensure they remained appropriate and adequate. No significant new risks were identified but several of the strategic risks have been clarified with revised descriptions as set out below. Below is a summary of the key risks.

High Impact Low Likelihood (HILL) risks

HILL risks are of low inherent likelihood but there would be major consequence were the risk to materialise. They are categorised according to risk theme.

Strategic risks

Strategic risks are those that would impact the successful execution of the strategy. They have been mapped to the four strategic priorities of the strategy and categorised by risk theme.

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

Condensed Consolidated Interim Financial Statements

In this section . . .

In preparing these condensed consolidated interim financial statements we continue to adopt the same style as the 2012 year end accounts. Our objective is to make ITV's financial statements less complex and more relevant to shareholders and to provide readers with a clearer understanding of what drives financial performance of the Group. We have grouped notes under three key headings, 'Results for the Year', 'Operating Assets and Liabilities' and 'Capital Structure and Financing Costs'. Text in boxes provides commentary on each section in plain English.

Condensed Consolidated Income Statement

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Statement of Financial Position

Ian Griffiths

Group Finance Director

Condensed Consolidated Statement of Changes in Equity

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

Condensed Consolidated Statement of Changes in Equity

Condensed Consolidated Statement of Cash Flows

Section 1: Basis of Preparation

In this section . . .

This section lays out the accounting conventions and accounting policies used in preparing these condensed interim financial statements.

These condensed consolidated interim financial statements for the six months ended 30 June 2013 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2012, which were prepared in accordance with IFRS as adopted by the European Union.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expense. Actual results may differ from these estimates. Except as described below, in preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 31 December 2012.

Revenues are impacted by underlying economic conditions, the cyclical demand for advertising, seasonality of programme sales and the timing of delivery of ITV Studios' programmes. Major events, including sporting events, will impact the seasonality of schedule costs. Other than this, there is no significant seasonality or cyclicality affecting the interim results of the operations.

For the purposes of interim reporting the defined benefit pension schemes' key assumptions and asset values have been reviewed to assess whether material net actuarial gains and losses have occurred during the period (see note 3.4).

During the six months ended 30 June 2013, management also reassessed its estimates in respect of provisions (see note 3.3) and considered the recoverable amount of goodwill. No impairment of goodwill was identified.

These interim financial statements are not statutory accounts. The statutory accounts for the year ended 31 December 2012 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditor's report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Going concern

During the six months ended 30 June 2013 the Group made a number of acquisitions (see note 3.2), repurchased debt and issued a special dividend. Consequently, despite continued generation of significant free cash flows, the Group was in a net debt position at the period end. See note 4.1 for capital and financing structure.

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

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

New or amended EU endorsed accounting standards

The table below represents new or amended EU endorsed accounting standards relevant to the Group's results that are effective in 2013:

Section 2: Results for the Year

In this section . . .

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

2.1 Profit before tax

Keeping it simple . . .

This section shows the Group's profit before tax and a reconciliation from earnings before interest, tax, amortisation and exceptional items. Earnings before interest, tax, amortisation and exceptional items remains the Group's key profit indicator. This reflects the way the business is managed and how the Directors assess the performance of the Group.

Following revisions to IAS 19, we have restated our prior period results and the details of those restatements are included in note 3.4.

Segmental information

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

The Board of Directors considers the business primarily from a product or activity perspective. The reportable segments for the period ended 30 June 2013 and 30 June 2012 are therefore 'Broadcast & Online' and 'ITV Studios', the results of which are outlined below:

* Segment EBITA before exceptional items is shown after the elimination of intersegment revenue and costs.

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