ITV Regulatory News (ITV)

26th February 2014

ITV delivers another year of strong growth - full year results for the year ended 31 December 2013

Strong revenue growth driven by Non-NAR

· Total external revenues up 9% to £2,389m (2012: £2,196m)

· Non-NAR revenues up £175m to £1,211m as we continue to rebalance

· Broadcast & Online revenues up 3% driven by 16% growth in Online, Pay & Interactive and 2% growth in NAR

· ITV Studios revenues up 20% with good organic growth and acquisitions coming through as planned

Double digit profit growth for the 4th year in a row

· EBITA before exceptional items up £107m or 21% to £620m

- Broadcast & Online EBITA up 20% at £487m

- ITV Studios EBITA up 24% at £133m

· Adjusted PBT up 27% at £581m

· Adjusted EPS up 23% at 11.2p

· Basic EPS up 26% at 8.3p

Investing in content is driving progress across ITV

· Best year on year on-screen performance for 10 years with ITV main channel up 3% and ITV Family SOV up 4%

· Long form video requests up 16% driven by mobile and tablets

· ITV Studios completed four acquisitions in UK and the US

Focus remains on cash and costs

· Delivered £28m of cost savings in 2013 and targeting a further £10m in 2014

· Profit to cash conversion remains strong at 97%

· Net cash of £164m

· Continued to improve efficiency of the balance sheet through debt buybacks and redemption of the convertible bond

Delivering increased shareholder returns

· The Board has proposed an ordinary dividend of 2.4p to give a full year dividend of 3.5p up 35% and a special dividend of 4.0p in line with last year

Strong 2013 creates a solid platform for 2014

· ITV Family NAR expected to be up 5% to 6% in the 4 months to end April 2014

· Online, Pay & Interactive should again deliver double digit growth in 2014 helped by the launch of ITV Encore

· Expect good growth in ITV Studios and we will continue to look at potential acquisitions

Adam Crozier, ITV plc Chief Executive, said:

ITV has taken another significant step forward with 9% revenue growth and for the fourth year in a row we delivered double digit profit growth. All parts of the business are progressing well as we continue to rebalance ITV. Total non-advertising revenues again grew strongly up £175m driven by good performances in ITV Studios and Online, Pay & Interactive.

The investment we have made in content has driven significant revenue and profit growth in ITV Studios - up 20% and 24% respectively - both organically and through the selective acquisitions we have made in the UK and the US.

Broadcast & Online performed well. We delivered further strong growth in Online, Pay & Interactive up 16% as we again improved the quality and availability of ITV Player and ITV Family NAR was up 2% as the TV advertising market returned to growth.

Onscreen we've had our best year on year performance for ten years with share of viewing for ITV Family up 4% driven by our continued investment in our high quality schedules.

We remain focused on cash and costs. We delivered £28m of cost savings, our group margin has increased by three percentage points and our profit to cash conversion remains high. The strength of our underlying cash flow means that, even after significant investment across the business and increasing returns to our shareholders, we ended the year with £164m of net cash, a similar level to 2012.

The Board is proposing a final dividend of 2.4p to give a full year dividend of 3.5p, up 35% and a special dividend of 4.0p (£161m) in line with last year. This reflects the board's confidence in the ongoing growth and cash generation of the business and balances the need to invest in the business for future growth with increasing returns to shareholders.

ITV is now demonstrably a much stronger company both operationally and financially. 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 six fold to 11.2p and our cash conversion has been consistently strong. While we've made good progress to date there is still much to do. We remain committed to our strategy for rebalancing the business, with growth increasingly coming from Online, Pay & Interactive and from ITV Studios internationally.

In 2014 we again expect all parts of the business to see further growth. In ITV Studios we anticipate good growth, primarily driven by the acquisitions we have made in the UK and internationally. In Broadcast we have started the year with the announcement of two new channels - ITV Encore and ITVBe - and we expect to see double digit growth from Online, Pay & Interactive. The television advertising market continues to show signs of improvement, with ITV Family NAR expected to be up 5% to 6% over the four months to the end of April, and we expect to outperform our estimate of the television advertising market over the full year.

Full year results

* Following revisions to IAS 19, we have restated our prior period results which have resulted in a £7 million decrease in EBITA before exceptional items, a £7million 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 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 profit before tax and EPS from the Consolidated Income Statement are as follows:

* Following revisions to IAS 19, we have restated our prior period results which have resulted in a £14 million decrease in profit before tax and a 0.3p decrease in EPS for 2012.

Financial performance

We have again delivered a strong set of results with revenue growth and double digit adjusted EPS growth. There was good 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 financial results.

External revenues were up 9%. Total non-NAR revenues grew £175m (17%) and ITV Family NAR returned to growth up 2%. This combined with our £28m cost savings and our higher margin new revenue streams, saw us deliver 21% growth in EBITA to £620m and 23% in adjusted EPS to 11.2p. Group margins improved three percentage points to 26%.

We again maintained our tight focus on working capital management and delivered 97% profit to cash conversion. We finished the year with net cash of £164m even after significant investment across the business and increasing returns to shareholders.

Broadcast & Online

Broadcast & Online delivered a strong performance with 3% increase in revenues driven by 16% growth in Online, Pay & Interactive and 2% growth in ITV Family NAR as the television advertising market returned to growth. This combined with our tight control of costs saw us deliver a 20% increase in EBITA. Schedule costs were down year on year as a result of the savings we secured on our FA Cup and Champions League rights and lower sports costs due to absence of a large one-off sporting event.

On-screen we delivered our best year on year viewing performance for 10 years, with ITV Family SOV up 4% and looking ahead we will launch our new free to air lifestyle and reality channel, ITVBe, in 2014.

The television advertising market again showed significant fluctuations across the year, often driven by the timing of sports events and programmes delivering large audiences. ITV Family NAR was down 3% in the first half of the year due to the absence of a large one-off sporting event but this recovered over the second half. Over the full year ITV Family NAR was just behind our estimate of the television advertising market up 3% but 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. Over the full year in 2014 we expect to outperform the television advertising market. Our robust on-screen performance in 2013, the strong schedule for 2014 including the FIFA World Cup, and the advertising deals we have done to date, puts us in a good position to achieve this.

Online, Pay & Interactive continued to grow strongly as we improved the quality and distribution of our content. This has driven long form video requests up 16% and our content is now available on 19 platforms. We have further developed our pay services with the renegotiation of our deals with Virgin, BT and Sky and in 2014 we will be launching our first pay drama channel, ITV Encore, on Sky.

ITV Studios

In 2013 we again delivered strong revenue growth up 20%. Through this revenue growth and our continued focus on costs, we have delivered 24% growth in EBITA.

All parts of the business performed well, with significant growth coming from International Productions both organically and through the acquisitions we have made. Total organic growth across the business was 7% and acquisitions contributed £97m of growth as we expected.

In 2013 we have completed four acquisitions in the UK and US against strict strategic and financial criteria, as we build an increasingly global production business. In the UK we acquired The Garden and Big Talk, to enhance our capability in creating factual entertainment and comedy 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 the four acquisitions we have completed was £66m, with future consideration payable depending on the performance of the companies. The current expected total consideration for these acquisitions is £130m (undiscounted and including the initial cash consideration) and is payable only on the delivery of continued strong growth.

On 19 February 2014 we agreed to acquire 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 3 to 6 years, with the total amount payable linked to the performance of the company over that period.

The good growth in our UK and international production businesses is starting to feed our global distribution business but this is a process that does take time.

Adjusted EPS

Adjusted EPS was up 23% at 11.2p (2012: 9.1p). Adjusted financing costs were down £19m at £25m as a result of the debt bought back in 2012 and 2013. Diluted adjusted EPS was up 24% to 10.8p.

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

Basic EPS

EPS is 8.3p (2012: 6.6p) up 26%. The main differences between EPS and adjusted EPS are exceptional items including acquisition related costs, impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments and other tax adjustments.

Balance sheet and net cash/debt

Net cash at the end of December 2013 was £164m compared to net debt at the end of June 2013 of £52m and net cash at the end of December 2012 of £206m. We also look at an adjusted net debt figure which was £792m at the end of the year (31 Dec 2012: £899m) which includes our other financial commitments - expected contingent payments on acquisitions, IAS19 pension deficit and operating leases.

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 the year, including acquisitions, dividends, the pension deficit funding contribution, debt buybacks and the purchase of our London headquarters. Over the full year we increased our free cash flow by over £100m (32%) to £433m.

We have again improved the efficiency of our balance sheet having bought back £211m (nominal) of debt in the year. We bought back £138m (nominal) of the £200m 2019 loan and £73m (nominal) of the £135m convertible bond. In September we exercised our right to redeem the outstanding principle amount of the convertible bond. The redemption and conversion process was completed in October.

We improved our financial flexibility by extending the maturity of the committed £250m revolving credit facility (RCF) by a further year to July 2016. The facility remains undrawn.

Pension

The aggregate IAS 19 deficit of the defined benefit schemes at 31 December 2013 reduced to £445m (31 December 2012: £551m). This was partly as a result of the £80m 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 liabilities, reflecting an increased allowance for longer life expectancy. A change in accounting standards has also resulted in a significant actuarial gain on the value of the longevity swap, as the new standard requires the swap to be valued based on market fair values, rather than best estimates.

The 10 to 15 year funding plan that we have agreed following the actuarial valuations as at 1 January 2011 remains in place. It is a mixture of fixed and performance related contributions. The next actuarial valuation will be undertaken as at 1 January 2014 with the outcome expected by 2015.

Post balance sheet events

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

2014 Planning assumptions

· Total NPB is expected to be around £1,010m excluding the two new channels

· Cost savings of £10m as we maintain our focus on cash and costs

· Investment of £15-£20m, including the launch of two new channels

· Adjusted interest is expected to be £10-£12m as a result of the impact of debt buybacks

· Effective tax rate is expected to be 22-24%

· Capex reduces to around £40-£45m after significant investment in MediaCity in previous years

· Pension deficit contribution of £89m to reflect 2013 profit

Outlook for 2014

We expect all parts of the business to see further growth. In ITV Studios we anticipate good growth, primarily driven by the acquisitions we have made in the UK and internationally and we expect to see continued double digit growth from Online, Pay & Interactive. ITV Family NAR is expected to be up 2% in Q1 despite being adversely impacted by the timing of Easter and the unwind of 2013's benefit from the timing of other broadcasters agency deals. We expect ITV Family NAR to be up 15-20% in April and we expect to outperform our estimate of the television advertising market over the full year.

Notes to editors

1. Unless otherwise stated, all financial figures refer to the twelve month period ended 31 December 2013, with growth compared to the same period in 2012.

2.

3. ITV Family NAR was up 5% in January and up 5% in February. We expect it to be down 4% in March and up 15-20% in April. We expect Q1 to be up 2% and the four months to end of April to be up 5% to 6%. These revenues are pure NAR, excluding the benefit of sponsorship revenue.

Figures for ITV plc and TV 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.

5. Dividend payment date is 30 May 2014, ex dividend date is 30 April 2014 and dividend record date is 2 May 2014.

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, and (iv) the loss or failure of transmission facilities or core systems and (v) a significant change in demand for global content.

Undue reliance should not be placed on forward looking statements which speak only as of the date of this document. The Group accepts no obligation to 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.

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

Caroline Cook 020 7157 3709 or 07799071509

Charlotte Partleton 020 7157 3056

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 requests

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 1

Create 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.

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.

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.

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.

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 a 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 millionper 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 GriffithsFinance Director 

Financials

Introduction

In this section . . . 

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

Keeping it simple . . .

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

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Ian GriffithsGroup Finance Director

Consolidated Statement of Changes in Equity

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

Consolidated Statement of Changes in Equity

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

The Consolidated Statement of Changes in Equity has been restated to reflect the impact of amendments to IAS 19R. See section 1 for details.

Consolidated Statement of Cash Flows

Notes to the Financial Statements

Section 1: Basis of Preparation

In this section . . .

This section sets out the Group's accounting policies that relate to the financial statements as a whole. Where an accounting policy is specific to one note, the policy is described in the note to which it relates. This section also shows new EU endorsed accounting standards, amendments and interpretations, and whether they are effective in 2013 or later years. We explain how these changes are expected to impact the financial position and performance of the Group.

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

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

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

The 2012 consolidated income statement and consolidated statement of comprehensive income have been restated for the retrospective application of IAS 19 Revised (see note 3.7). In addition, the consolidated statement of financial position has been restated for fair value adjustments to the net assets acquired with acquisitions in 2012 (see note 3.4).

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

The financial information in this preliminary announcement represents non-statutory accounts within the meaning of Section 435 of the Companies Act 2006. The auditors have reported on the statutory accounts for the year ended 31 December 2013. Their 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. These accounts will be sent to the Registrar of Companies following the Company's Annual General Meeting. A separate dissemination announcement in accordance with the Disclosure and Transparency Rules (DTR) 6.3 will be made when the annual report and audited financial statements are available on the Group's website.

Going concern

As a result of the Group's continued generation of significant free cash flows the Group maintained its positive net cash position while paying a special dividend. The Group has also sought to gain further efficiencies in the balance sheet by repurchasing further debt where it is economically beneficial to do so (see section 4 for details on capital structure and financing).

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

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

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

Subsidiaries, joint ventures, associates and special purpose entities

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

A joint venture is an entity in which the Group holds an interest under a contractual arrangement where the Group and one or more other parties undertake an economic activity that is subject to joint control. The Group accounts for its interests in joint ventures using the equity method. Under the equity method the investment in the entity is stated as one line item at cost plus the investor's share of retained post-acquisition profits and other changes innet assets.

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

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

SPEs are used in limited circumstances by the Group. The only significant SPE is the pension funding partnership that was established in 2010 between the Group and the Trustee of the ITV Pension Scheme as a way of establishing payment streams to the pension scheme. The partnership, which is a Scottish Limited Partnership, is controlled and consolidated by the Group.

Current/non-current distinction

Current assets include assets held primarily for trading purposes, cash and cash equivalents, and assets expected to be realised in, or intended for sale or use in, the course of the Group's operating cycle. All other assets are classified as non-current assets.

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

Classification of financial instruments

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

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

· 'Available for sale financial assets' - measured at fair value through other comprehensive income. Includes gilts over which unfunded pension commitments have a charge and equity securities that do not meet the definition of subsidiaries, joint ventures or associates;

· 'Held to maturity investments';

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

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

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

Recognition and derecognition of financial assets and liabilities

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

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, call deposits with a maturity of less than or equal to three months from the date of acquisition, cash held to meet certain finance lease commitments and gilts over which unfunded pension commitments have a charge. The carrying value of cash and cash equivalents is considered to approximate fair value.

Foreign currencies

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

Where Group companies based in the UK transact in foreign currencies, these transactions are translated into pounds sterling at the exchange rate on that day. Foreign currency monetary assets and liabilities are translated into pounds sterling at the year end exchange rate. Where there is a movement in the exchange rate between the date of the transaction and the year end, a foreign exchange gain or loss may arise. Any such differences are recognised in the income statement. Non-monetary assets and liabilities measured at historical cost are translated into pounds sterling at the exchange rate on the date of the transaction.

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

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

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

Accounting judgements and estimates

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

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

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

· Revenue recognition (note 2.1)

· Classification of financial instruments (included in this note)

· Business combinations (note 3.3 and note 3.4)

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

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

· Taxation (note 2.3)

· Provisions (note 3.6)

· Business combinations (note 3.4)

· Impairment of assets (note 3.2 and note 3.3)

· Financial instruments (note 4.1)

New or amended EU endorsed accounting standards

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

The Directors also considered the impact on the Group of other new and revised accounting standards, interpretations or amendments on the Group that are currently endorsed but not yet effective. Except where noted below, none are considered relevant to the Group's results and are effective for periods beginning on or after 1 January 2014.