ITV Regulatory News (ITV)

29 February 2012

Revenue and profit growth as ITV strategy begins to deliver

·; External revenues up 4% at £2,140m (2010: £2,064m) driven by non-advertising revenues

·; Total non-NAR revenues up £93m or 11% to £922m (2010: £829m), mainly due to revenue growth from UK and international studios businesses

·; ITV Family NAR up 1% - outperforming the TV advertising market

·; ITV Family SOV up 1% with strong performance by digital channels up 10%

·; EBITA before exceptional items up 13% to £462m (2010: £408m)

·; Adjusted PBT up 24% to £398m (2010: £321m)

·; Adjusted EPS up 23% at 7.9p (2010: 6.4p)

·; Cost savings of £20m delivered - funding investments aligned to the Transformation Plan - with a further £20m identified for 2012

·; Positive net cash position of £45m (2010: net debt of £188m), with profit to cash conversion again over 100%

·; Continued improvement in the efficiency of the balance sheet with £339m of bonds bought back in 2011

·; The Board has proposed a final dividend of 1.2p to give a total dividend for 2011 of 1.6p

·; We expect ITV Family NAR to be down 2% in Q1 and April broadly flat. While we remain cautious on the outlook for advertising, we expect to outperform the market over the full year.

Adam Crozier, CEO of ITV, said:

"We're now almost two years into our five-year Transformation Plan and our continued growth in revenue and profit - at a time when the advertising market is broadly flat - demonstrates that we're performing in line with our strategic priorities. The increase in non-advertising revenues of £93m, driven by our studios and online businesses, is clear evidence of progress in rebalancing the Company and our ability to grow new revenue streams.

'Our financial position was further strengthened during the year through our ongoing focus on cash generation and cost reduction. We have our first positive net cash position since ITV was created in 2004 and more than delivered our targeted cost savings.

'ITV Studios, under the new management team, has made real progress creatively and operationally both in the UK and internationally. We have delivered double digit revenue growth and a 28% increase in new commissions to 111, of which 45 are international.

'On screen we have grown family SOV and we continue to outperform the advertising market. We have seen strong growth in online video views as ITV Player was rolled out across more platforms. The VOD and pay deals we recently signed with Sky, Netflix and Lovefilm open up new pay revenue streams, which we will continue to build as part of our pay strategy.

'Although ITV Family NAR has started the year better than we anticipated, it is expected to be down 2% in Q1 against tough comparatives. We remain cautious on the market outlook for 2012 but we expect to outperform the market for the full year.

'We've made good progress and we remain focused on rebalancing the business and delivering the Transformation Plan. We will increasingly look to content, pay and online as the engines of growth in the UK and internationally as we invest further in our key strategic priorities.

FULL YEAR RESULTS

*Adjusted profit before tax and adjusted EPS remove the effect of exceptional items, impairment of acquired intangible assets, amortisation of intangible assets acquired through business combinations, financing cost adjustments, and prior period and other tax adjustments from the statutory numbers.

Financial position

We have retained our tight focus on cost and cash management in 2011, delivering £20m of cost savings which is ahead of our £15m target. Our 13% increase in EBITA and continued strong cash conversion saw us end the year with positive net cash of £45m (2010: net debt of £188m). Profit to cash conversion was 103%, well ahead of our rolling three-year target of 90%. We bought back bonds to the value of £339m during the year and now have no debt repayments due until 2014. We will continue to look at options for the balance sheet that make economic sense but we are conscious of the uncertain economic environment and the need to maintain flexibility to deliver the Transformation Plan.

We invested £28m in the year to support our strategic objectives and will invest a further £25m in 2012. Capital expenditure rose to £43m in 2011, focused mainly on fixing our core business technology and the Manchester site move to MediaCity. This will increase to £70-80m in 2012.

Broadcasting and Online

Broadcasting and Online revenues rose 3% in 2011 to £1,820m (2010: £1,771m), driven by 13% growth in non-NAR revenues. ITV Family NAR was up 1%, outperforming the television advertising market which was up 0.7%.

EBITA before exceptional items increased 16% in 2011 to £379m (2010: £327m). This was driven by the revenue uplift falling through to profit, our tight focus on cash and costs and the 2010 Football World Cup costs dropping out, although this was offset to some extent by our investment in brand defining content for the digital channels. We will continue to invest in our channels in 2012 although the total ITV programme budget will remain at around £1bn.

ITV Family share of viewing (SOV) was up 1% in 2011, with a strong performance from our digital channels which were up 10%. ITV1 SOV, which benefited from the successful launch of ITV1+1, was down 2% - below where we want it to be and we will work to improve this performance in 2012. ITV Family share of commercial impacts (SOCI) was down 1% at 39.5% in 2011.

Online revenues increased by 21% to £34m (2010: £28m). Within Online, we are continuing to invest in fixing our legacy technology and in improving the quality and distribution of ITV Player. It is now available on Android and Apple devices, Freesat and PS3, contributing to a 44% increase in long form views to 376m (2010: 261m). Our pay strategy is beginning to gain momentum through recent content deals with Netflix, Lovefilm and Sky in addition to the pay HD channels on Sky. We plan to launch our Pay Player later in the year, while YouView will also launch in 2012.

ITV Studios

Under the new ITV Studios management team we have seen operational improvements and early signs of growth. Total revenues have increased by 10% in 2011 to £612m (2010: £554m) driven by growth in both UK and international production. EBITA before exceptional items increased by £2m to £83m, the return from the increased revenues offsetting £8m of investment.

Our new management team is providing the creative leadership needed to transform the internal capability of the business. We had 111 new commissions in 2011, with 66 in the UK and 45 internationally, including our co-production of Titanic which was prefunded and has been sold to 86 countries. We have also had 101 recommissions. We will continue to invest in our strategy which is based on a 'mixed economy' approach of attracting new creative talent, building partnerships and investing internationally. In time, we may look to make acquisitions but we remain focused initially on growing the business organically. While the long lead times within production mean that it will take a while for the results to show through, there are signs of progress for ITV Studios' creative output.

Adjusted EPS

Adjusted EPS was up 23% to 7.9p (2010: 6.4p) reflecting the strong trading performance.

Adjusted financing costs are £50m (2010: £69m) helped by the impact of the £339m of buy-backs and the higher level of cash. In 2012 we expect adjusted financing costs to be broadly flat on 2011 with the full year impact of the bond buy-backs likely to be offset by the step up in costs on the 2019 debt. The adjusted effective tax rate of 23% is significantly lower than the statutory rate of UK corporation tax and is, as previously stated, expected to be maintained around this level for the next two years.

Statutory EPS

Statutory EPS is lower than 2010 at 6.4p (2010: 6.9p) due to the recognition of an exceptional deferred tax asset of £68m in 2010.

Pension

The aggregate IAS 19 deficit on the defined benefit schemes at 31st December 2011 was £390m (31st December 2010: £313m), increasing due to lower discount rates and the one-off costs associated with the longevity swap contract which was entered into by the Trustees in August. This measure was implemented as part of our long-term strategy to manage the risks and uncertainties associated with the Scheme. The one-off impact of the swap on the overall Scheme deficit was an increase of around £65m on both an accounting and a funding basis. This equates to around a one year change in life expectancy.

On 8th July we extended the SDN pension partnership, which was originally agreed between the Group and the Trustees last year, increasing the value of SDN by £50m to £200m in total.

STV

On 27th April ITV and ITV Network agreed a wide ranging settlement with STV Group plc over the various legal actions that existed at the time. All legal actions ceased with immediate effect and the terms of the settlement included an £18m payment by STV to ITV to settle the court claims, payable in full by June 2013.

Dividend

The Board has proposed a final dividend of 1.2p. With the interim dividend of 0.4p, this gives a total dividend of 1.6p for 2011. The Board is committed to a progressive dividend policy, taking into account the outlook for earnings per share while balancing the need to invest in the business and to maintain financial prudence against the backdrop of an uncertain economic environment.

Outlook for 2012

We expect ITV Family NAR to be down 2% in Q1 with April broadly flat. We remain cautious on the economic outlook but expect to outperform the television advertising market for the full year.

NOTES TO EDITORS

1. Operational summary

Broadcasting and Online performance indicators

Share of viewing and share of commercial impact data is for the twelve months to 31st December 2011, compared to equivalent period in 2010, based on BARB / AdvanetEdge data. Share of viewing data is for individuals and SOCI data is for adults. ITV Family includes: ITV1, ITV2, ITV3, ITV4, CITV, CITV Breakfast, Men&Motors and associated 'HD' and '+1' channels.

Video views are based on internal Company and ComScore Digital Analytix data for itv.com.

2. ITV Family NAR was down 4% in January and down 4% in February. We expect it to be up 2% in March and down 2% for Q1 overall. We also expect it to be broadly flat in April.

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

3. Dividend payment date is 1 June 2012 and dividend record date is 4 May 2012.

4. 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 plc. 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) adverse changes to the current outlook for the UK television advertising market, (ii) adverse changes in tax laws and regulations, (iii) the risks associated with the introduction of new products and services, (iv) pricing, product and programme initiatives of competitors, including increased competition for programmes, (v) changes in technology or consumer demand, (vi) the termination or delay of key contracts, (vii) fluctuations in exchange rates and (viii) volatility in financial markets.

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Chief Executive's Review - Strategy & Operations

Adam Crozier

Overview of results

ITV has produced a strong set of financial results with continued growth in revenue and profitability and further improvement in our balance sheet strength. This was achieved against an unsettled economic backdrop. External revenues were up 4% at £2,140 million in a broadly flat television advertising market. Revenue growth was driven largely by our non-net advertising revenue (non-NAR) which, in line with our strategic priorities, grew significantly, up 11% or £93 million to £922 million.

This revenue growth, together with our tight control on costs, has fed through to a 13% increase in EBITA to £462 million, with adjusted EPS up 23% at 7.9p. We delivered £20 million of cost savings, which was in excess of the £15 million target. Our continued focus on cash and costs and our high profit to cash conversion saw us end the year with a positive net cash position of £45 million, having begun the year with net debt of £188 million. This gives us a strong financial base as we invest further in our key strategic priorities.

We have made progress across the business and against virtually all of our key performance indicators in 2011. We saw a solid performance on-screen, with ITV Family share of viewing (SOV) up by 1% in 2011 and the digital channels continuing to show strong growth with SOV up 10%. ITV1 SOV, which benefited from the successful launch of ITV1+1, was down 2%, and ITV Family share of commercial impacts (SOCI) was down 1% but we will continue to work to improve these performances.

Online we have improved the performance of itv.com and ITV Player, we have made our content available on more platforms and, with our recent video on demand (VOD) deals with Sky, Netflix and Lovefilm, we are driving our pay strategy forward. We have also increased long form video views by 44%.

ITV Studios, under the new management team, performed strongly both in the UK and internationally. New commissions were up 28% to 111, which has driven the increase in non-NAR revenues. ITV Studios also increased its share of ITV1 output from 53% to 55% as we continue to strengthen the creative relationship between Broadcasting and Studios.

Our Vision

We are operating in an evolving and highly competitive digital market in which advances in technology are changing the way in which people consume media. We are transforming our business so that we are able to respond to the challenges of new technologies, changing patterns of user behaviour and new market entrants, while also ensuring that we are in a position to take advantage of the opportunities which the digital environment offers. The combination of our strong channel brands, access to content and commitment to our producer-broadcaster model gives us significant advantages but we are under no illusion about the need to remain focused on the task ahead.

Our vision remains to create world class content which we can make famous on our channels, before exploiting its value across multiple platforms, free and pay, in the UK and internationally. Content creation therefore lies at the heart of our Transformation Plan and we are encouraged by the momentum that is building. The high quality of content we produce and the programming we broadcast on our channels has been recognised by many industry awards.

We are also encouraged by the prospects for our free-to-air television business given current trends within the market. As we approach the end of analogue switch-off in the UK, the impact of fragmentation on audiences has already largely been felt. The daily average number of minutes of television watched has been rising in the UK in recent years, reaching record levels in 2010, and was broadly flat year-on-year in 2011 at 4 hours 2 minutes. Live viewing via television sets is still around the same level as it was in 2004, but viewing via other devices is growing. This suggests that VOD viewing to date has been incremental.

We are less than two years into the Transformation Plan and there are clear signs that we are making good progress against our strategic priorities, but there is still a great deal to do. As we continue to improve the efficiency and performance of ITV, we will also look at further ways to rebalance our revenue streams as we focus on content, pay and online.

PerformanceDashboard

Reporting Progress against our five-year Transformation Plan:

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

Milestones achieved

·; New senior leadership team delivering

·; Employee engagement up to 85% (2010: 75%)

·; Restructuring across ITV driving out waste and complexity

·; £20m of cost savings

·; More coordinated rights negotiation and management

·; Investment in technology

·; Manchester move to MediaCity under way

·; Progress in simplifying network arrangements

·; Pension longevity swap

·; £339m bond buy-backs

Focus for 2012

·; Focus on delivering the Transformation Plan

·; Continue to build strength in the team across ITV

·; Drive out further waste and complexity

·; Deliver further cost efficiency target of £20m

·; Strengthen collaborative creative process

·; Further investment of £25m behind our strategy

·; Capex of £70-80m as we implement site moves and technology improvements

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

Milestones achieved

·; Increased variety and quality within programme budget

·; Four out of top five new dramas on ITV1

·; Investment of £10m in brand defining content

·; Major sports rights deals renegotiated with savings

·; Successful launch of ITV1+1

·; ITV1 wins Terrestrial Channel of the Year

·; ITV2 and ITV3 largest digital channels

·; ITV Family SOV up 1%

·; Digital channels growing key audiences

·; ITV NAR up 1%, outperforming the market

Focus for 2012

·; Maintain ITV Family SOV

·; ITV programme budget confirmed at c.£1bn for 2012

·; Outperform the television advertising market

·; Refresh and enhance channel brands

·; Continue to invest in brand defining content

·; Build and develop non-spot advertising revenues

·; Ongoing implementation of news review

·; Focus on long running, returnable series

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

Milestones achieved

·; Investment in technology infrastructure online

·; Improved quality and distribution of ITV Player

·; 376m long form video views in 2011, up 44%

·; 9% of VOD viewing in December on mobile

·; 3m downloads of ITV Player App

·; Online revenues up 21%

·; Growing engagement with our viewers

·; ITV2, 3, 4 pay HD channels on Sky performing in line with expectations

·; New VOD deals with Sky, Netflix and Lovefilm

Focus for 2012

·; Improve ITV Player

·; Drive online viewing and revenues

·; Launch ITV Pay Player and pay 'products'

·; Increase pay VOD deals

·; Renegotiate existing VOD deals

·; Development of potential pay channels

·; Ensure ITV Player available on connected TV sets

·; Launch YouView

·; Roll out 'Total Value' exploitation

4. Build a strong international content business

Milestones achieved

·; New team in place driving creative renewal

·; Invested £8m in creative talent and developing new ideas and pilots

·; 111 new commissions in 2011

·; Developing new partnerships

·; New dramas being sold successfully internationally

·; ITV Studios (ITVS) now producing 55% of ITV1 output

·; ITVS revenues up 10%

·; ITVS EBITA before exceptional items up £2m to £83m

Focus for 2012

·; Continue to build strength of creative team and talent

·; Invest in developing and piloting further new ideas

·; Focus on long running returnable series

·; ITVS to grow its share of ITV1 original commissions

·; Target off-ITV and international commissions

·; Increased focus on international co-productions and roll-out of ITVS formats

·; Develop and invest in the ITVS international network

Strategy In Action

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

Our people remain key to ITV and to the delivery of the Transformation Plan. Our management team have now been in place for over a year and, together with the wider leadership team, are driving the Transformation Plan forward and continuing to facilitate cultural change at all levels of the business. We are very pleased to see that our employees are embracing the changes, with engagement having risen to 85% in 2011 (2010: 75%). We have also brought our recruitment operation in-house and the team have launched a brand new careers website to ensure we continue to attract and retain the best talent.

We have continued to restructure ITV where appropriate to drive out waste and complexity in the business. During 2011 we delivered cost savings of £20 million, ahead of the targeted £15 million. These savings follow on from the £40 million delivered in 2010. We will remain focused on costs to ensure that we have the appropriate cost base across the business and have identified a further £20 million of savings in 2012. Our continued commitment to the tight management of cash and costs has helped us move into a positive net cash position of £45 million at the end of 2011. We have also improved the efficiency of our balance sheet with £339 million of bond buy-backs. We continued our long-term strategy of managing the costs and risks associated with the pension schemes through our longevity swap and an extension to the SDN pension partnership.

In 2011 we launched our investment programme in technology in order to make the business fit-for-purpose. We have begun to roll out our desktop refresh, which is aimed at giving all of our people the best tools for the job, and we will continue this refresh throughout 2012. We are now taking steps towards complete digital production for all of our shows by implementing plans for tapeless content. Significant technology projects are being implemented across the organisation - we are aware that they will take time to accomplish but we are confident that they will lead to great improvements to the way in which we operate.

We remain committed to our producer-broadcaster model and want to gain maximum benefit from it. The improved rights negotiation and management process which we introduced has strengthened the collaboration between Broadcast and Studios and allows us to secure rights at the best value.

The move of the Company's Manchester base from Quay Street to MediaCity is now well under way and will deliver a bespoke, state-of-the-art production facility for Coronation Street as well as providing modern offices for everyone working in Manchester with improved technology. The first move for staff in Manchester into the new site will take place later this year. We will also be moving all staff in Leeds to one site and modernising a number of our regional offices with HD studios. As a result of our investment in technology and property, there is expected to be an increase in capital expenditure in 2012 to £70-£80 million.

During 2011, we made progress in simplifying the network structure through the acquisition of Channel Television.

Significant progress has been made towards creating a lean, creatively dynamic and fit-for-purpose organisation. This process will be ongoing as we prepare for the next stage in the plan. We continue to look for ways in which we can improve the business and make it work more efficiently.

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

Although we delivered significant growth in non-NAR revenues in 2011, we still have a high degree of reliance on advertising revenues. We therefore remain firmly focused on maximising our audience and revenue share from our free-to-air broadcast business.

Our performance relative to the market is an important metric for us and this is reflected in our share of broadcast (SOB) - one of our key performance indicators. ITV Family net advertising revenue (NAR) was up 1% in 2011, ahead of the television advertising market for the fourth consecutive year, with SOB increasing from 45.1% to 45.3%. This outperformance was driven by an improved second half performance as advertisers concentrated spend around our autumn schedule of sport, drama and entertainment.

In 2011, ITV Family's share of viewing (SOV) was up 1%, driven by the continued strong growth of our digital channels which were up 10%. ITV1 SOV, which benefited from the successful launch of ITV1+1, was down 2% - this is below where we want it to be and we will work to improve performance in 2012.

ITV Family share of commercial impacts (SOCI) was down 1% in 2011 with ITV1 Adult SOCI down 4%, although we saw stronger performances from many of our key sub-demographics (Housewives, Adult ABC1s, 16-34s) which have a bearing on the contract rights renewal mechanism. Our digital channels' SOCI was again strong, up 9%.

ITV1's on-screen successes in 2011 have included Vera, Marchlands, Scott and Bailey, Strangeways, the Rugby World Cup, Doc Martin, and Downton Abbey, which won a Golden Globe for best mini-series, as well as winning the Christmas ratings battle with a consolidated audience of 12 million. Four of the top five performing new dramas were on ITV1 in 2011 and ITV1 also won the Terrestrial Channel of the Year Award at the Edinburgh Television Festival.

Our soaps continued to perform strongly with Emmerdale (average 7.6 million viewers per episode) increasing SOV by 3% during the year, while Coronation Street (9.4 million viewers) was only marginally down (-1%) despite the tough comparative of the 50th anniversary year in 2010.

Some of our key shows, including X Factor and I'm a Celebrity, did not perform as well as in 2010, but they remain very important brands for us as they still drive large, diverse audiences, which appeal greatly to advertisers. We remain committed to these programmes and continually look at ways of refreshing them to improve their on-screen performance. ITV1 continues to deliver some of the largest audiences on television. The average X Factor audience across the series was 12.3 million, which made it the largest entertainment format on UK television in 2011, as it has been for three of the last four years. It was also the third most successful series ever of the show in terms of audience.

Our digital channels continue to perform very strongly. ITV2 and ITV3 remain the largest digital channels in the UK and saw SOV rise 8% and 11% respectively, while ITV4 saw a 13% rise in SOV making it one of the fastest growing digital channels. ITV2, which won Channel of the Year and Best Entertainment Channel at the Broadcast Digital Awards, has seen particular success with the BAFTA award-winning The Only Way is Essex (TOWIE) and Celebrity Juice, both of which will be returning in 2012. TOWIE averaged 1.8 million viewers (up 21%) across the series while Celebrity Juice averaged 2.2 million viewers (up 12%), with one episode peaking at 3.1 million (14% share) making it the most-watched non-terrestrial programme of the year. We are continuing to invest in brand-defining content for our digital channels with new drama commissions for ITV2 and rights to the French Open, Europa League and the African Cup of Nations for ITV4.

Our channel brands are increasingly important in the constantly evolving digital market. Those channels linked to a strong 'mother brand' (ITV, BBC, C4, C5 and Sky) have recorded growth in SOV this year while other independent digital channels have seen a marked 9% decline. To consolidate this strength and build upon it we will be rebranding all of our channels during the second half of 2012 to position them for the challenges and opportunities which lie ahead.

In December, Ofcom announced that it would not be referring the advertising trading model to the Competition Commission. While our strategy is not dependent upon regulatory relief, we welcomed this decision as we had always maintained that a lengthy market review, at a time of such rapid change and increasing competition, would not be beneficial for UK consumers or the UK television industry.

Television is a long-term business and Peter Fincham and his team continue to make plans for the schedule several years in advance. In 2011, we spent just over £1 billion on programming and we continue to ensure that our programming investment is made as efficiently as possible, while maintaining variety and quality. Our programme budget for 2012 will remain at around £1 billion - we believe this is a sufficient level to provide the breadth, variety and freshness that audiences and advertisers require. We recently secured c.£35 million of savings from 2013 onwards when we renegotiated a number of rights deals including the Champions' League and FA Cup. Some of these savings may be reinvested back into the schedule.

We will continue to work at delivering maximum value from our free-to-air business while at the same time building and developing new non-spot advertising revenues.

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

We are continuing to execute our strategy of developing new revenue streams that are more balanced between pay and free television through building our programme brands and platform offerings. As well as the latest programmes, ITV has a huge archive of content and the technical advances of the digital market have opened up great opportunities for monetising this archive across the many devices on which people now consume content.

Online revenues grew by 21% in 2011 to £34 million, which contributed to the 13% growth in non-NAR revenues within Broadcasting and Online to £310 million (2010: £275 million). While this represents encouraging growth we are still aware of the need to build scale within Online. Our challenge is to choose the best monetisation strategy for our content and to continue to innovate, to open up new revenue streams.

As part of this strategy, ITV Player is now available on more platforms, including PS3, Android, iOS and Freesat. This improvement in the distribution of ITV's content has driven the 44% growth in long form video views across all platforms to 376 million (2010: 261 million). This is a key performance indicator as we seek to monetise our online traffic.

While our pay revenues are still relatively small in the context of ITV, they are derived from an increasing number of sources and our pay strategy is beginning to gain momentum.

2011 was the first full year of the pay HD channels ITV2, ITV3 and ITV4 on the Sky platform, and they performed in line with our expectations. In early 2012 we signed archive video on demand (VOD) deals with Lovefilm and Netflix and a VOD and catch up deal with Sky. These are non-exclusive deals which enable us to retain the option of doing similar deals with other parties should opportunities arise. We will also be launching a pay version of ITV Player later this year, which we will start to test internally in the second quarter of 2012. While this is slightly later than originally anticipated, we want to guarantee the quality of the user experience before launching to the public.

We are continually looking at ways in which we can develop closer engagement with our viewers in order to provide greater value to advertisers. While we are starting from a small base, we have seen significant increases in audience engagement via the 15.4 million Facebook fans which we have across all of our pages (2010: 7.4 million). We have also now collected 3.6 million contactable email addresses (2010: 1.6 million). These interactions are indicative of the power of the ITV brand and aid the exploitation of our content across multiple platforms as part of our Transformation Plan.

Mobile viewing has increased rapidly in 2011, representing 9% of all VOD viewing of ITV content in December, comparable with the BBC iPlayer. This enables us to engage ever more closely with consumers. In the first seven months following its launch the ITV Player app had more than three million downloads.

These all represent encouraging trends in our engagement with consumers but our challenge is to monetise the audiences we now have across multiple platforms. We have invested in fixing our online technology platform in 2011 but still have some way to go and the quality and the performance of ITV Player will further improve. We will continue to invest in navigation, ease of use, content and robustness to improve the quality of the overall user experience on our website.

The SDN business, which operates one of the six digital terrestrial multiplex licences in the UK that make up Freeview, saw 37% growth in its revenues as a result of the renegotiation of a number of its licences in 2010. This revenue growth will not be repeated in 2011 as this was a one-off increase.

In 2011 we announced the first product placement deals in the UK with Nationwide and Nestlé but the market remains very small. We previously highlighted that the new rules which Ofcom implemented would impact our ability to exploit this new revenue stream and this continues to be the case.

Strategic Priority 4 - Build a strong international content business

Creative renewal lies at the heart of our strategy to build an international content business. 2011 saw a significant increase in our development budget and the number of new pilots created. This contributed to ITV Studios (ITVS) securing 111 new commissions in the year (up 28% compared to 2010), of which 66 were in the UK and 45 were international.

The new ITVS management team is now in place and providing the creative leadership needed to transform the internal capability of the business. We have rebuilt our creative team in the UK and internationally with several new appointments, demonstrating that we are able to attract the right talent.

Our Studios business has shown particularly strong growth in 2011. Total ITVS revenues grew 10% from £554 million to £612 million, driven primarily by international production. External revenues were up 9% to £320 million. This revenue growth has more than offset the investment made in creative renewal, enabling EBITA before exceptional items to rise £2 million to £83 million during the year.

Our new UK commissions for ITV1 include SWAGS (a six-part drama about service wives and girlfriends), Superstar (in collaboration with Lord Andrew Lloyd Webber) which will be screened in 2012, and Mr Selfridge (a ten-part drama about the life of the flamboyant American entrepreneur, Harry Gordon Selfridge) for 2013. We also had ten off-ITV commissions including The Devil's Dinner Party for Sky Atlantic and Dirk Gently for BBC.

Our strategy revolves around creating long-running, returnable drama and entertainment formats which travel well internationally, so recommission levels are also a key focus for us. 75 recommissions in the UK, including Vera, Lewis and a celebrity version of The Chase, relative to 57 in 2010, represent positive steps in this area as we build up our pipeline of content.

On top of our UK activity, we are beginning to build momentum internationally. Our 45 new international commissions included Bill Cunningham and Buried Treasure in the US, as well as a production deal for a US version of Jeremy Kyle which was sold throughout the US, with Sekretarinnen being commissioned in Germany. We also had 26 international recommissions, including Four Weddings in France and the US and I'm a Celebrity in Germany.

We have highlighted the need to have a significant stake in the intellectual property rights of the content we show on our screens, and have made progress in this area in 2011. ITVS produced 1,929 hours of original commissions (2010: 1,740) for the ITV1 network, increasing its share of the network's spend to 55% from 53% in 2010 but we want to grow our share further still.

Our strategy is based upon a 'mixed economy' approach to content production: while we want to own more of what is shown on our channels, we are also prepared to enter into partnerships to ensure we are working with the best creative talent. The UK and US remain our main creative engines but we are also investing in growth in our other production hubs (France, Sweden, Australia and Germany), as well as exploring opportunities in other emerging creative markets, as we want to be making and distributing programmes in as many countries as possible.

We continue to look at new ways of working with creative talent and have signed a development agreement with an independent production company, The Garden. We have also entered into a joint venture with BAFTA-winning Channel 4 drama commissioners Camilla Campbell and Robert Wulff-Cochrane to establish a new scripted production company, Noho Film and TV, which will begin development on a number of projects in 2012.

We have increased our co-production activity as well: in 2011, we co-produced Julian Fellowes' Titanic which has now been sold into 86 countries ahead of its screening in April to coincide with the centenary of the Titanic's disaster; we also co-produced Prime Suspect in the US with Universal Television for NBC, which was sold into 116 countries. In 2012 we will be co-producing Mrs Biggs, a drama about Ronnie Biggs' wife, with Seven Network in Australia.

We are making encouraging progress but, given the long lead time involved in production, there is still a lot of work to do to develop scale in our content business on the international stage. We will continue to develop and invest in our international network as we build on the momentum which has been created within ITVS.

2012 and beyond

We are less than two years into our five-year Transformation Plan and there is still much to do but we have made good progress and are building momentum. Our aim is to rebalance the business away from a dependency on television advertising revenues. Our non-NAR revenue growth, driven by ITVS, shows that we are making progress against our strategic priorities.

The first phase of the plan has been primarily focused on fixing the business. While we relentlessly look for ways to improve the efficiency and performance of ITV, we have put in place a solid foundation for the growth phase of the plan which lies ahead of us.

In 2012 we will look to build on the momentum we have created. In 2011 we invested £28 million in ITVS, Online, technology and our digital channels, and in 2012 we expect to invest a further £25 million.

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

In 2012 we will continue to build strength in the team across ITV to drive forward the Transformation Plan. We will look for further ways to improve efficiency and performance, driving out waste and complexity. We have identified a further £20 million of cost savings and planned further improvements in technology - our desktop refresh will continue throughout the year to ensure that our people have the right equipment to do their jobs. Capital expenditure in 2012 is expected to be £70-£80 million as we make these technological improvements and implement our site move from Manchester. We will also continue to build the improved collaborative creative process between Broadcast and Studios to help focus on creating long-running, returnable formats.

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

In 2012, we aim to repeat the performance of 2011 by outperforming the television advertising market, as we did in 2011, and hold ITV Family SOV. We will refresh and enhance all of our channel brands and continue to invest in brand defining content as efficiently as possible.

Our total programming budget for 2012 will be around £1 billion, of which around £800 million will be spent on the ITV1 NPB, as we work to improve the variety of the schedule across the year. Schedule costs in the first half will increase due to Euro 2012 in June.

We will increasingly focus on long-running, returnable series and have a strong schedule for 2012 with returning dramas such as Downton Abbey, Vera, and Scott and Bailey alongside an exciting line-up of new drama including SWAGS, Titanic and Mrs Biggs - many of which are being made by ITVS. A number of ITV's top entertainment shows will be returning in 2012, including X Factor, I'm a Celebrity, Dancing on Ice and Long Lost Family, while we will be screening new shows including Superstar and Fool Britannia.

Live top sporting events in 2012 include Euro 2012, Champions League, Europa League, Tour de France and The French Open tennis. We will also continue to implement our ongoing news review.

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

We will continue to build scale in our online business, improving the distribution and performance of ITV Player, and driving up online viewing and revenues. We also plan to make ITV Player available on manufacturers' connected television sets and launch YouView. We will expand our pay strategy in 2012, as we launch ITV Pay Player and pay products, renegotiate existing video on demand deals and negotiate new ones, and develop potential pay channels over time. We also plan to roll out our 'Total Value' exploitation under new teams.

Build a strong international content business

We will continue to invest in building our creative strength and talent and developing and piloting new ideas. We will further grow ITVS' share of ITV1 network commissions, focusing on long-running, returnable series, whilst increasing off-ITV commissions both in the UK and internationally. We will increasingly focus on new international co-productions and rolling out ITVS formats but will also look at different ways of working with creative talent. We will develop and invest in our international network through our creative engines, production hubs and emerging creative markets. In time, we may look to make acquisitions but we remain focused initially on growing the business organically.

Outlook

Our 2011 financial and operating results demonstrate the progress we are making and the momentum we have built up. We will increasingly look to content, pay and online as engines for growth in the UK and internationally as we invest further in our key strategic priorities. Everyone at ITV remains firmly focused on delivering the Transformation Plan and we remain on track to do so.

We will maintain our tight focus on cash management throughout the organisation. With positive net cash of £45 million, ITV is in a strong position financially which gives us the flexibility to invest in the business while making the right decisions for the long-term future of the business. After £339 million of bond buy-backs in 2011 we will continue to look at options for the balance sheet that make economic sense. We are conscious of the uncertain economic environment and the need to maintain flexibility to deliver our strategic priorities.

Although ITV Family NAR has started the year better than we expected, it is still down 2% in Q1 and, whilst we expect to outperform the market again in 2012, we remain cautious on the full year outlook for the television advertising market.

Adam Crozier

Chief Executive

Financial and Performance Review

Ian Griffiths

We have delivered another strong financial performance in 2011. External revenue has grown by 4%, which has been driven by non-NAR revenue, in particular from ITV Studios. This revenue growth, coupled with tight control of costs, has led to 13% growth in EBITA before exceptional items and 23% growth in adjusted EPS.

After 'profit to cash' conversion of 103% we now have positive net cash for the first time in seven years, and having bought back £339 million of debt in 2011, the gross debt levels have significantly reduced as well. Continuing this focus on cash and costs has meant that we are now in a strong financial position from which to implement the next stage of the Transformation Plan.

In 2011 we have taken further cost out of the business. £20 million of cost savings have been delivered, which is ahead of our £15 million target, and we have kept a tight grip on the schedule costs (the costs of programmes shown on air).

The cost savings have been reinvested in areas key to the Transformation Plan. Investment of £28 million was made in 2011 against specific initiatives aligned to the plan: improving the online experience and making the ITV Player available on more platforms; re-energising the creative pipeline by investing in additional creative staff and development of new programmes; more brand defining content for the digital channels; and technology investments to improve efficiency across the business. Despite this investment, we have been able to keep our average headcount flat as we reallocate resources to areas of the business which will drive the strategy.

There will be further investment in 2012 of around £25 million, which will be partly funded by new incremental cost savings of £20 million, as we continue to look at ways to improve the efficiency and performance of ITV.

The following review focuses on the adjusted results as, in management's view, these show more meaningfully our business performance in a consistent manner and reflect how the business is managed and measured on a daily basis. A reconciliation from the statutory to adjusted results is set out in the earnings per share section.

Broadcasting & Online

Total Broadcasting & Online revenue was up 3% with EBITA before exceptional items up 16%. The majority of revenue growth in the Broadcasting & Online division has come from non-NAR revenues, in particular from SDN, Online & On Demand and pay revenues. Total costs have been held flat as cost efficiencies and schedule savings have funded investment in the digital channels and Online & On Demand in line with the strategic priorities.

Despite the tough economic environment, our television advertising revenues have increased by 1%, outperforming the rest of the market for the fourth year in a row.

Our largest advertising categories of retail, food, and entertainment & leisure all declined in 2011 in the context of a challenging consumer environment, but this was compensated for by strong growth in finance, cars and car dealers, and telecommunications.

Across the wider advertising market, internet advertising has taken share from press, whilst television has remained broadly flat as a proportion of total advertising spend.

SDN external revenues increased by 37%, largely due to the full year impact of the new contracts signed in the second half of 2010. Growth of this scale will not be repeated in 2012 as there were no material changes to SDN contracts in 2011.

Online & On Demand revenues have increased by £6 million, continuing the growth of recent years which has seen these revenues almost double from £18 million in 2008.

Other commercial income includes sponsorship, minority revenues, pay, PRS, media sales and other income. The 6% growth in 2011 has been helped by the new pay revenues from ITV2, 3 and 4 HD on Sky. These pay revenues will increase again in 2012 due to the new deals signed with Sky, Lovefilm and Netflix.

Broadcasting & Online costs have been tightly managed. The £19 million decrease in schedule costs is principally due to there being no football World Cup costs in 2011. This has been offset in part by £10 million investment in more brand defining content for the digital channels, supporting their continuing growth in key demographic audiences. Other costs have increased by 4% due to investment and revenue-related costs, such as £7 million investment in Online & On Demand and the launches of ITV1+1 and pay HD channels, offset in part by general efficiency savings.

ITV Studios

ITV Studios had a good year with strong revenue growth both in the UK and internationally, driven by increased new commissions.

EBITA before exceptional items has increased by £2 million to £83 million, the return from the increased revenues offsetting £8 million of investment. The revenue growth from new commissions has a lower margin on original commission, but as these programmes are recommissioned and sold internationally the margins should rise.

UK production revenues have increased by £27 million, largely as a result of an increase in supply to ITV channels, where there has been an increase in the ITV Studios proportion of ITV1 original commissions from 53% in 2010 to 55% in 2011.

The number of original hours delivered in the UK has increased by 8%, with most of the growth coming across entertainment and factual. There was also a 13% increase in the number of original drama hours delivered with new dramas such as Vera and Marchlands.

International production revenues improved by £35 million. The US and Germany were particularly strong, with the return of Kitchen Nightmares in the US and Ich Bin Ein Star... (I'm a Celebrity) and Der Bulle in Germany. The number of hours produced internationally is up 30%, with the growth occurring in the US and France and across all genres.

Due to a challenging environment in Spain we took the decision not to progress our local production operation, ITV Studios Spain. However, we still consider Spain to be an important market for our content and we continue to work with local broadcasters through our distribution business.

Revenues in Global Entertainment, our distribution business, were down by £4 million, mainly due to a decline in DVD sales. The UK DVD market remains under pressure and was down 5%.

By nature it takes longer for the impact of the creative renewal to feed through into the distribution business, but there are signs of progress. Prime Suspect has now been sold to 116 countries and Titanic, which will air in the spring, has already been sold to 86 countries.

Most of the costs of the production business are variable and linked to revenue, hence the increased costs are primarily a function of the improved revenues and more hours being produced. There has also been £8 million investment in new creative talent and in developing the pipeline with more scripts and pilots.

The creative renewal process within ITV Studios is beginning to show signs of momentum, as evidenced by the increase in new commissions, which are up 28% in 2011. However, the lead time between commission, delivery and transmission means it takes time for this momentum to come through into the financial numbers.

Net financing costs

Adjusted financing costs are £19 million (28%) lower as we continue to make the balance sheet more efficient. Financing costs directly attributable to bonds have reduced due to the benefit of £485 million of bond buy-backs over the last two years, including £339 million in 2011. Cash-related net financing income has increased by £7 million, mainly due to the increased level of cash held and the benefit of receiving a better return through a slightly longer investment horizon.

Despite the reduction in adjusted financing costs, statutory net financing costs are flat at £75 million. This is primarily because of £39 million of one-off losses incurred on the buy-backs of certain bonds, in particular that of the 2015 £100 million bond tap which was issued at a substantial discount in 2009. These losses were partially offset by mark-to-market gains and lower imputed pension interest.

The mark-to-market gains resulted from a further reduction in implied interest rates during the year. Imputed pension interest has reduced due to the increase in the expected return on assets and a decrease in the interest on liabilities.

The adjusted financing costs in 2012 are likely to be broadly flat as the full year benefit from the bond buy-backs carried out in 2011 is likely to be largely offset by a step up in the interest rate on the 2019 loan.

Tax

The adjusted tax rate of 23% is lower than the standard tax rate due to the release of overseas prior year provisions (2010: the utilisation of available losses being in excess of normal disallowable costs). The total reported tax charge is £79 million (2010: £16 million).

* In respect of intangible assets arising from business combinations.

The total reported tax charge of £79 million results in an effective tax rate slightly lower than the statutory rate of tax of 26.5%, for the reasons noted above. The 2010 charge was lower primarily due to the recognition of a deferred tax asset of £68 million in 2010 in respect of tax losses not previously recognised.

Cash tax paid of £68 million arises as a result of a full year of making payments for taxable profits, partially offset by the use of losses and tax treatment of allowable pension contributions.

The adjusted rate of tax applied to adjusted profits is lower than the statutory rate. This is the result of the consistent application of our policy to adjust the tax charge for losses utilised in the year to more closely reflect the cash tax paid in the year.

Dividend

The Board has proposed a final dividend of 1.2p. With the interim dividend of 0.4p, this gives a total dividend of 1.6p for 2011.

The final dividend will be payable on 1 June 2012 to shareholders on the register as at 4 May 2012. The ex-dividend date will be2 May 2012.

The Board is committed to a progressive dividend policy, taking into account the outlook for earnings per share, while balancing the need to invest in the business and to maintain financial prudence against the backdrop of an uncertain economic environment.

Earnings per share

Adjusted earnings per share were 7.9 pence (2010: 6.4 pence). Basic earnings per share were 6.4 pence (2010: 6.9 pence).

Whilst statutory profit before tax of £327 million (2010: £286 million) has improved, basic earnings per share are lower than 2010 due to the statutory tax charge. The reason for this statutory tax charge increase of £63 million is primarily due to the recognition of a deferred tax asset of £68 million in 2010 in respect of tax losses not previously recognised.

Reconciliation between reported and adjusted earnings

The adjustments 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 daily basis. The adjustments made are consistent with those made last year and are explained below.

Amortisation 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 operations of the business.

The tax and net financing costs sections of this review show the adjustments to these balances.

Cash flow, working capital management and positive net cash

Cash flow and working capital management

Cash and working capital management continues to be a key priority. We have generated £474 million of adjusted cash flow from £462 million of EBITA before exceptional items, driven by further improvements in working capital. The 'profit to cash' ratio was 103% for the year, ahead of the KPI target of 90% on a three-year rolling basis.

The 'profit to cash' ratio is more in line with target this year following the very high conversion rates over the previous two years. Programme rights and other inventory have reduced by over £200 million since 2008, meaning that they are now at more normal levels.

Cash spend on acquisition of property, plant and equipment and intangible assets was £43 million (2010: £28 million), as we started to upgrade our technology across the business and invest in future-proofing our soaps, in particular the new site for Coronation Street. This is expected to increase significantly in 2012 to around £70-£80 million due to increased investment in core technology and moving the Manchester site to MediaCity.

Positive Net Cash

A £233 million improvement in the year has resulted in a positive net cash position at 31 December 2011 of £45 million (31 December 2010: net debt of £188 million). Total cash has reduced by £59 million in the year to £801 million, as a significant portion of the cash generated from operations has been used to reduce gross debt. This reduction in gross debt has been achieved through £339 million (nominal) of debt buy-backs.

Interest paid was lower than 2010 as our adjusted financing costs reduced, but we also had one-off losses on debt buy-backs of £39 million and higher corporation tax payable as we returned to a full year of making payments for taxable profits. We also resumed the payment of dividends.

The £16 million of dividend payments represents only the payment of the interim dividend whereas in 2012 we are likely to pay both the 2011 final and the 2012 interim dividends.

There is no IFRS definition of net cash/(debt) and our figures represent our measure of this metric, which is consistent with previous years; this can be seen in section 4.1 of the Financial Statements. The major credit rating agencies each adjust our definition of net cash/(debt) in assessing our credit worthiness, taking a wider view of total indebtedness, which each agency views differently. Adjustments include the IAS 19 pension deficit, an imputed level of debt in lieu of operating leases, and adjustments to cash to exclude amounts not considered available for immediate debt repayment or core.

Liquidity risk and funding

Strong free cash flow generation in 2011 further strengthened the balance sheet and liquidity position.

Financing

Our debt is financed using instruments with a range of maturities. Borrowings at 31 December 2011 (net of currency hedges and secured gilts) are repayable as follows:

* Net of Cross Currency Swaps.

† Net of £138 million (nominal) Gilts secured against the loan.

There are no financial covenants on any of our debt and the next scheduled repayment is in June 2014.

Debt Structure

During the year we took further steps to improve the efficiency of our balance sheet, where it made economic sense to do so. In 2011 we repurchased £339 million nominal value of bonds comprising all of the £110 million 2013 bonds (at a book loss of £4 million) and £229 million of the 2015 bonds. The repurchase of 2015 bonds was at a book loss of £35 million, which was mainly incurred against repurchasing all £100 million of a tap issue to this series of bonds undertaken in early 2009 at the height of the financial crisis.

In addition, during the year a €54 million Eurobond (£47 million book value) matured along with associated cross currency interest rate swaps (book value £63 million), resulting in a net cash inflow of £16 million.

These repurchases have smoothed our maturity profile and have ensured that we have no scheduled debt repayments due within two years.

Given the improved cash position, some cash deposits are now made over a longer investment horizon; this has improved the returns on our cash balances.

We are aware of the inefficiency of the balance sheet and, as noted above, have continued to take steps during the course of the year to help address this. Since October 2009 we have repurchased £662 million (nominal value) of debt.

In 2012 we will continue to look at the options for the balance sheet that make economic sense. Any potential course of action will take into account our prudent view of liquidity under an uncertain economic outlook, and ensure that sufficient flexibility is maintained to invest in the business and to deliver the Transformation Plan.

Ratings

Our credit ratings continued to improve in 2011. In April, Standard & Poor's upgraded the long-term credit rating from B+ (Stable Outlook) to BB (Stable Outlook) and Moody's Investors Service increased its rating from Ba3 (Stable Outlook) to Ba2 (Stable Outlook). In May, Fitch revised its outlook on our BB rating from Stable to Positive. In August, Moody's Investors Service similarly revised upward the outlook.

Despite improvements in the credit ratings from all three agencies over the past two years, we remain sub-investment grade and would require two notch upgrades from each agency in the future in order to restore investment grade. The sub-investment grade status reflects the business' high degree of operational gearing, exposure to the economic cycle, lack of business and geographical diversity and ongoing structural changes in the media industry. We recognise these issues and seek to address them through the Transformation Plan.

Pensions

IAS 19 - the accounting deficit

The aggregate IAS 19 deficit on defined benefit schemes at 31 December 2011 was £390 million (31 December 2010: £313 million). The most significant reason for the increase was as a result of the fall in corporate bond yields which are used to value the liabilities, although this was partially offset by a reduction in the rate of market implied inflation. The value of the assets of the ITV Pension Scheme ('the Scheme') increased during the year, driven by a strong performance by the bonds and swaps used for hedging interest and inflation risk. This gain has been reduced by losses in the Scheme's equity portfolio and the impact of the introduction of the longevity swap.

Measures to manage the costs and risks associated with the Scheme

We have a long-term strategy to implement a programme of measures to manage the costs and risks associated with the Scheme, and as part of this strategy two significant steps - a longevity swap and an extension to the SDN pension partnership - were taken during the year to reduce the exposure of our business to legacy pension risk.

(i) Longevity Swap

On 22 August 2011 the trustee of the Scheme ('the Trustee') completed a transaction that removes the risk of increases in pension liabilities that would arise if a significant portion of the Scheme's defined benefit pensioner population were to enjoy a longer life than is currently expected. The instrument is known as a longevity swap and it de-risks the future cash flows of the pension scheme.

Initial recognition of the swap resulted in a reduction to the Scheme's assets of £65 million, thereby increasing the net IAS 19 pension deficit. The valuation reflects the value of the fixed cash flows the Trustee will make to the counterparty compared to the value of the forecast payments that the counterparty makes to the Trustee based on actual requirements.

The swap is included in the valuation of Scheme assets and in the future it will move up or down in value based on changes to actuarial assumptions including mortality, discount rates and inflation. Although the value of the instrument will move, the net cash flows made by the pension scheme in respect of these members are now fixed.

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

(ii) SDN pension partnership extension

On 8 July 2011, the partnership's interest in SDN was increased by a further £50 million, enabled by the increase in the value of the SDN business. As a result of this, the partnership will increase the annual contribution to the Scheme by £3 million to £11 million per annum from 2013 onwards; the 2012 cash contribution will be £10 million. Under the partnership arrangements, we have committed to making a payment to the main section of the Scheme of up to £200 million in 2022 (an increase of £50 million compared to the original agreement made in 2010), if and to the extent that it remains in deficit.

Actuarial valuations

Full actuarial valuations are carried out every three years. The latest completed actuarial valuation of Section A of the main defined benefit scheme was carried out as at 1 January 2008 and, on the bases adopted by the Trustee, that Section was in deficit to an amount of £190 million or 9% of the liabilities in that section. An actuarial valuation of Section A is being undertaken as at 1 January 2011.

Actuarial valuations of Sections B and C of the main scheme were carried out at 1 January 2010 and on the bases adopted by the Trustees, both were in deficit with a combined deficit of £49 million or 11% of the liabilities in those sections.

Given that the timetable for the valuation of Section A of the Scheme was different to that of Sections B and C, in order to increase efficiency and to streamline the processes the Group has agreed with the Trustee that actuarial valuations of all three sections will be undertaken as at 1 January 2011. We are in ongoing discussions with the Trustee regarding the results.

Deficit funding contributions

We have agreed with the Trustee the level of contributions to the main section of the Scheme through to the end of 2014.

We expect to make deficit funding contributions of £71 million in 2012, £66 million to Section A and £5 million to Sections B and C. Details of how this is constituted can be seen in section 3.6 of the Financial Statements and are summarised below.

* Since there were no initiatives in 2011 which reduced the Scheme's deficit by at least £10 million, compared with the level had such initiatives not been implemented.

Assuming no unforeseen circumstances, no further change is currently expected in our committed contributions to Section A of the Scheme before 2015.

Ian Griffiths

Group Finance Director

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Ian Griffiths

Group Finance Director

Consolidated Statement of Changes in Equity

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Section 1 Basis of Preparation

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

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

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

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

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 2011. 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 for the year the Group reduced its current level of net indebtedness to a positive net cash position, and has also improved both its short-term and medium-term liquidity position.

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 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 in net assets.

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

The Group establishes special purpose entities (SPEs) for trading and investment purposes. An SPE is consolidated if, based on an evaluation of the substance of its relationships with the Group and the SPE's risks and rewards, it is concluded that the Group controls the SPE. 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.

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, assets/liabilities; and

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

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 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.

In respect of all Group companies outside of the UK only those translation differences arising since 1 January 2004, the date of transition to IFRS, are presented as a separate component of equity. 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)

·; Consolidation of SPEs (included in this note)

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 (note 3.6)

·; Taxation (note 2.3)

·; Provisions (note 3.5)

·; Employee benefits (note 4.7)

·; Intangible assets (note 3.3)

·; Impairment of assets (note 3.2 and note 3.3)

·; Programme rights and other inventory (note 3.1)

·; Trade receivables (note 3.1)

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 2011:

The Directors also considered the impact of other new and revised accounting standards, interpretations or amendments on the Group that are currently endorsed but not yet effective. It was concluded that none were relevant to the Group's results.

Section 2 Results for the Year

2.1 Profit before tax

Accounting policies

Revenue recognition

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

Segmental information

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

The Board of Directors considers the business primarily from a product or activity perspective. The reportable segments for the years ended 31 December 2011 and 31 December 2010 are therefore 'Broadcasting & Online' and 'ITV Studios', the results of which are outlined in the following table:

Sales between segments are carried out on arm's length terms.

In preparing the segment information, costs have been allocated between reportable segments consistently on the basis of a relevant allocation methodology. For example, rent is allocated on the basis of square feet occupied. This reflects the basis of reporting to the Board of Directors.

Broadcasting & Online

This segment is responsible for commissioning and scheduling programmes on the ITV channels, marketing and programme publicity and online rights exploitation. Broadcasting & Online derives its revenue primarily from the sale of advertising airtime and sponsorship. Other sources of revenue are from participation revenue, online advertising and the digital terrestrial multiplex, SDN.

ITV Studios 

This segment generates revenue primarily from ITV Studios UK (a commercial programme production business), international production centres in the USA, Germany, Sweden, Australia and France and the distribution and exploitation businesses in ITV Studios Global Entertainment.

A significant portion of ITV Studios' revenue is generated when it creates ideas that are then produced and sold as programming to the 'Broadcasting & Online' segment, primarily for ITV1.

ITV Studios Global Entertainment sells programming, exploits merchandising and licensing worldwide, and is a distributor of DVD entertainment primarily in the United Kingdom.

EBITA before exceptional items

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

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

The Group's principal operations are in the United Kingdom. Its revenue from external customers in the United Kingdom is £1,900 million (2010: £1,865 million), and the total revenue from external customers in other countries is £240 million (2010: £199 million).

There are three media buying agencies acting on behalf of a number of customers that represent the Group's major customers. These agencies are the only customers which individually represent over 10% of the Group's revenues. Revenues of approximately £480 million (2010: £400 million), £239 million (2010: £270 million) and £221 million (2010: £196 million) were derived from these customers. These revenues are attributable to the 'Broadcasting & Online' segment.

Operating costs

Staff costs

Staff costs before exceptional items can be analysed as follows:

There are no Staff costs within exceptional items in 2011 (2010: £11 million).

The number of full-time equivalent employees (excluding short-term contractors and freelancers), calculated on a weighted average basis, during the year was:

Details of the Directors' emoluments, share options, pension entitlements and long-term incentive scheme interests are set out in the Remuneration Report.

Depreciation

Depreciation in the year was £26 million (2010: £30 million), of which £15 million (2010: £19 million) relates to 'Broadcasting & Online' and £11 million (2010: £11 million) to 'ITV Studios'.

Operating leases

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

The Group's operating leases relate to transponder assets and office and studio properties. During the year, the Group entered new transmission supply agreements that require the use of specific transponder assets for a period of up to 12 years with payments increasing over time, limited by specific RPI caps. These supply agreements are classified as operating leases, in accordance with the Group's policy on leases detailed in Section 3.2.

Property leases typically run for a period of between 3 and 15 years and may have an option to renew after that date. Lease payments are generally subject to market review every 5 years to reflect market rentals, but because of the uncertainty over the amount of any future changes, such changes have not been reflected in the table above. None of the leases include contingent rentals. The property operating lease disclosures in 2010 have been restated principally because of revised estimations of break clauses in the lease contracts.

The total future minimum sublease payments expected to be received under non-cancellable subleases at the year end is£4 million (2010 restated: £6 million).

The total operating lease expenditure recognised during the year was £42 million (2010 restated: £12 million) and total sublease payments received was £4 million (2010 restated: £5 million).

Audit fees

The Group engages KPMG Audit Plc ('KPMG') on assignments additional to their statutory audit duties where their expertise and experience with the Group are important. The Group's policy on such assignments is set out in the Audit Committee Report.

Fees paid to KPMG and its associates during the year are set out below:

Fees payable to KPMG and associates for the auditing of accounts of any associate of the Group, internal audit services, services relating to corporate finance transactions entered into or proposed to be entered into, by or on behalf of the Group or any of its associates, and any other assurance services were £nil during 2011 and 2010.

Fees paid to KPMG for audit and other services to the Company are not disclosed in its individual accounts as the Group accounts are required to disclose such fees on a consolidated basis.

2.2 Exceptional Items

Accounting policies

Exceptional items as described above are disclosed on the face of the income statement.

Subsequent revisions of estimates for items initially recognised as exceptional provisions are recorded as exceptional items in the year that the revision is made. Gains or losses on disposal of non-core assets are also considered exceptional due to their nature and impact on the Group's underlying quality of earnings.

Exceptional items

Operating and non-operating exceptional items are analysed as follows:

A - Reorganisation and restructuring costs

There were no exceptional reorganisation or restructuring costs in 2011 (2010: £17 million in relation to cost saving restructuring initiatives).

B - Onerous property provision

A £1 million credit (2010: £7 million credit) due to revised estimates for property provisions raised as exceptional items due to the large headcount reduction in 2009.

C - Pension scheme changes (see note 3.6)

In 2010 operating exceptional gains of £28 million were recognised for service credits relating to introduction of a member option to change pension payments at retirement and one-off change to pension payments, and settlement gain in relation to the enhanced transfer value exercise.

D - Loss on sale and impairment of non-current assets

In 2011 a £3 million (2010: £4 million) loss on sale and impairment of non-current assets was incurred primarily as a result of a detailed fixed asset review undertaken in preparation for moving premises in Manchester.

E - Gain on sale, net of impairment, of subsidiaries, joint ventures and associates

The £3 million gain principally relates to the sale of Screenvision Holdings (Europe) Limited. In 2010 the £4 million gain principally related to the sale of Screenvision US (Technicolor Cinema Advertising LLC).

2.3 Taxation

Accounting policies

The tax charge for the period is recognised in the income statement and the statement of comprehensive income, according to the accounting treatment of the related transaction. The tax charge comprises both current and deferred tax. The calculation of the Group's total tax charge involves a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally determined until a resolution has been reached by the relevant tax authority.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year and any adjustment in respect of previous years. The current tax charge is based on tax rates that are enacted or substantively enacted at the year-end.

The Group recognises liabilities for anticipated tax issues based on estimates of the additional taxes that are likely to become due, which require judgement. Amounts are accrued based on management's interpretation of specific tax law and the likelihood of settlement. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Deferred tax arises due to certain temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and those for taxation purposes. The following temporary differences are not provided for:

·; the initial recognition of goodwill;

·; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and

·; differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. A deferred tax asset is recognised only to the extent that it is probable that sufficient taxable profit will be available to utilise the temporary difference.

Recognition of deferred tax assets, therefore, involves judgement regarding the timing and level of future taxable income. Deferred tax assets and liabilities are disclosed net to the extent that they relate to taxes levied by the same authority and the Group has the right of set-off.

Taxation - Income statement

The total taxation charge in the income statement is analysed as follows:

In order to understand how, in the income statement, a tax charge of £79 million (2010: £16 million) arises on a profit before tax of £327 million (2010: £286 million), the taxation charge that would arise at the standard rate of UK corporation tax is reconciled to the actual tax charge as follows:

Non-deductible expenses are expenses that are not expected to be allowable for tax purposes. Similarly non-taxable income is income that will not be taxed.

Tax losses brought forward may be utilised against current year profits if the brought forward losses and the current year profits are of the same type. Use of tax losses in this way leads to a reduction of the tax charge. Tax losses of £11 million (2010: £68 million) principally include the recognition of a deferred tax asset of £11 million (2010: £45 million) on the remaining financing losses linked to previous investments ('loan relationship deficits') following the successful conclusion of an enquiry with the tax authorities. In 2010 this also included a credit for utilisation of £16 million of previously deferred loan relationship deficits and a credit of £5 million on the recognition of a deferred tax asset on other losses.

Over provision in prior periods may arise where a more favourable outcome is obtained for tax purposes than was expected when the provision was made. Upon confirmation that the more favourable tax treatment will apply, the over provision is released to lower the current year tax charge. The opposite is true of under provisions.

The effective tax rate is the tax charge on the face of the income statement expressed as a percentage of the profit before tax. In the year ended 31 December 2011, the effective tax rate is lower than the standard rate of UK corporation tax primarily because of the release of an overseas prior year over provision. In the year ended 31 December 2010, the effective tax rate was lower than the standard rate of UK corporation tax primarily due to the recognition of deferred tax assets on brought forward tax losses. As explained in the Financial and Performance Review, the Group uses an adjusted tax rate to show the cash tax impact on its adjusted earnings.

Taxation - Other comprehensive income

Within other comprehensive income a tax credit totalling £30 million (2010: charge of £22 million) has been recognised representing deferred tax. An analysis of this is included below in the deferred tax movement table.

Taxation - Statement of financial position

The table below outlines the deferred tax assets/(liabilities) that are recognised in the statement of financial position, together with their movements in the year: