ITV plc Report and accounts 2006 I T ITV plc V p l 200 Gray’s Inn Road c R e

London WC1X 8HF p o r www.itv.com t a n d a

Investors: www.itvplc.com c Stories for c o u n t s 2 0 0 6 our time. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da Contents Financial highlights Message from the Executive Chairman 01 Revenue ITV at a glance 14

Business Review Our market environment 17 Our strategy 21 £2,181m Resources and relationships 24 Key performance indicators 29 05 £2,196m (restated) Risks and uncertainties 30 Operating review 31 Operating Profit Financial review 37 Forward look 42 Glossary of terms 43

Governance £264m Board of directors 44 Directors’ report 46 05 £329m Statement of directors’ responsibilities 49 Independent auditor’s report to 50 Profit before tax the members of ITV plc Corporate governance 89 Remuneration report 93 Shareholder information 102 Financial record 104 £288m Financial Statements 05 £311m Consolidated income statement 51 Consolidated balance sheet 52 Cash generated from operations Consolidated cash flow statement 53 Consolidated statement of recognised 54 income and expense Notes to the accounts 55 ITV plc Company Financial Statements 84 £342m ITV’s Business Review 05 £456m The Business Review explains in detail how we have performed this year and sets out a fair review of the business, balanced and comprehensive analysis of our performance, the use of Earnings per share financial and non-financial key performance indicators to explain how much progress we have made, a description of the principal risks and uncertainties facing the Company, and an indication of likely future developments. The Business Review is prepared in line with the relevant provisions of the Companies Act 1985 and in accordance with the guidance issued by the Accounting Standards Board in its 5.5 pence Reporting Statement on narrative reporting. It is intended that the Business Review will provide shareholders with a greater 05 5.4 pence understanding of the Company, of its position in the markets within which it operates, and of its prospects. Dividend per share In setting out the Company’s main risks and uncertainties, an indication of likely future developments, and in other content, this Annual Report contains statements which, by their nature, cannot be considered indications of likelihood or certainty. The statements are based on the knowledge and information available at the date of preparation of this Business Review, and what are believed to be reasonable judgments. A wide range of factors may cause the actual outcomes and results 3.15 pence to differ materially from those contained within, or implied by, these various forward-looking statements. Nor should any of 05 3.12 pence these statements be construed as a profit forecast.

Cover image Helen Mirren in the Oscar winning ITV Production, Design and production Radley Yeldar The Queen, go to page 32 for more details. Print St Ives Westerham Press, environmentally accredited printers ISO 14001, using vegetable based inks. Paper Hello silk, made from virgin wood fibre from sawmill residues, forest thinnings and sustainable forests in Europe. It is fully biodegradable and recyclable and produced in mills which hold ISO 9002 and ISO 14001 accreditation. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da

01_ITV plc Report and accounts 2006 Message from the Executive Chairman Michael Grade Together I believe we can raise our game to create more innovative content for our viewers and more valuable airtime for our advertisers.

On Monday, 8 January, 2007 I returned to work for ITV. From – The Consumer businesses represent an area of proven growth the moment I was approached by the Board last year, I had no which we will seek to accelerate; and doubt that I would accept this most stimulating and challenging – The Board’s strategy which I inherit is essentially sound. position in British broadcasting. The businesses that have been recently acquired and developed ITV has not had an easy time in recent history, operating in the are all natural extensions of the core operations. highly competitive and technology driven media sector. It faced On the negative side: a challenging advertising market and speculation over both its leadership and its ownership. – Whilst the strategy is sound, we are playing catch up in many areas, no doubt due to the efforts required to ‘bed in’ the My brief is to restore the fortunes of the Group and thus return successful Carlton/Granada merger. We have a valuable the business to growth. multichannel offering and exciting web opportunities – but Having been in post for two months it is too soon to conclude still a long way to grow; definitive plans for the business, but generally I have developed – There is a lack of innovation in our programming, partly more positive impressions than negative ones, and the latter are resulting from a fear of ratings failure and the punitive mostly within our control to remedy. consequences that follow under the Contract Rights Renewal On the positive side: (CRR) remedy (described below); – There are talented and dedicated people across all areas – The Company has developed a tendency towards bureaucracy. of the Company; The cure for this lies with the example set by the leadership team within the businesses. I will improve delegation, and place – ITV Productions is a superb business of real scale with the ability emphasis on the need to make the ITV values (described on to deliver outstanding content, from the Oscar winning film page 25) a reality in our actions; “The Queen” starring Dame Helen Mirren, to Coronation Street and Emmerdale, to Dancing on Ice; – We need to continue strengthening the relationship between our commissioning teams and both internal and external – ITV remains a much-loved brand and ITV1 is still the UK’s most producers. This is critical to ensure that the commissioning popular television channel in peak-time with the England v pipeline is filled with the high-quality programmes that deliver Sweden game during the football World Cup achieving the the audiences which in turn our commissioning team need to highest audience (18.5 million) on any channel in 2006; fulfil our advertisers’ and viewers’ aspirations; and – Our strong regional presence is a greater asset than is – Our regulatory environment needs to reflect the reality of recognised and the growth in regional advertising has been our 21st century structure and the developing market in which particularly buoyant against a depressed national TV advertising we operate these days. ITV may have consolidated, but it market. We need to find ways to sustain and even enhance is a long way from the advertising monopoly of yesteryear. this valuable public service. It is part of what binds ITV to its The regulatory burden has yet fully to reflect this. audiences throughout the UK and distinguishes us from our competitors. – Our digital channels are the most successful free to air commercial family of digital channels in the UK, each with distinctive branding and programming. We must ensure that they have the investment they need to grow their leading market position as we approach digital switchover; WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 02_ITV plc Report and accounts 2006

Message from the Executive Chairman Michael Grade The value chain for content is getting longer and more lucrative thanks to the digital present – and future.

My task, after the recent distractions, – together with ITV’s New media platforms senior management team – is to build a sense of confidence Increasingly our viewers are demonstrating a desire to move in our people and the wider creative community to ensure beyond a simple passive viewing experience and expect to that together we deliver more consistently for our viewers, interact with, and participate in, our programming. People are our customers and our shareholders. There is a section on ITV also accessing our content from a much wider range of media strategy later in this report on pages 21 to 22. platforms. Our Consumer team has responded, developing My immediate priorities are developing the strength of our ways of enabling viewers to do this. Technology creates new programming and new media businesses, and working to opportunities for content consumption, and we must ensure reduce overly onerous regulatory constraints. that we exploit the opportunities that this brings, delivering new services that viewers can access whenever, wherever, and however Raising our creative sights they want. The launch of our new broadband proposition this Spring will significantly enhance our online offering. I will be On the programming side we must raise our creative ambition. promoting the acceleration of our new media businesses. We must be more innovative and take more risks. We must With our high-quality content and services for viewers, I believe be more relevant and we must be ahead of audience tastes. that 2007 will be the year that ITV comes of age as a deliverer of In particular we must regain our pre-eminence in drama series online entertainment with real commercial opportunities. on ITV1 at 9.00 pm. I am definitely encouraged by what I have heard and seen so far from the new commissioning team headed Appropriate regulation for the digital age by Simon Shaps. They have already started to cull some of the older programmes which were past their sell by date, and we ITV is subject to a high degree of regulation, some of it the are introducing a range of new programmes in 2007. legacy of an age of analogue broadcasting and an oligopolistic commercial broadcasting structure. This regulatory burden is not I am now working with them on the plans that are being entirely compatible with the increase in competition driven by formulated for 2008 and beyond. digital technology and new media, and by the public’s appetite to access new distribution platforms as they appear. A section Content creation is at the core of our future on regulation appears later in this Business Review, and one of High quality, home produced, popular content attracts our priorities is to seek some alternative to the Contracts Rights the mass audiences which only ITV can offer advertisers, Renewal remedy (CRR). The CRR undertakings were given in 2003 thus generating value. Content creation is today, as a pre-condition to the merger of Carlton and Granada to create and will remain, at the heart of ITV. I am committed to ITV, and the effect is to link ITV1’s advertising share (Share of the continuing development of ITV Productions. It is already Broadcast) directly to its commercial viewing share measured by one of Europe’s most successful commercial production Share of Commercial Impacts (SOCI). It has become apparent that companies supplying programmes in many different genres this not only prevents ITV from receiving fair value for the mass both for ITV and other UK broadcasters. Our licensing, audiences it delivers, and which are so sought after by advertisers, distribution and international production businesses which but it is also damaging to the overall UK television advertising are also important to our content development strategy, market. A number of well respected figures in media and are growing and moving into new markets and territories, advertising now accept that CRR needs urgent review, and we providing important additional revenue streams. The value are lobbying hard for that process to begin. chain for content is getting longer and more lucrative thanks We continue to look for operating efficiencies across the business. to the digital present – and future. We announced in June 2006 an operational review with plans to save £40 million over three years. We are on track to deliver these efficiency savings. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 03_ITV plc Report and accounts 2006

Conclusion growing advertising revenue from our successful digital channels. Having regard to this, your Board has decided to propose that During 2006, ITV was the subject of much bid speculation, with the final dividend for the year ended 31 December 2006 should potential offerors being forced on two occasions to make public be held at the same rate as for 2005 of 1.8 pence, to be paid statements about their intentions. In neither case was a formal on 2 July 2007 to shareholders on the register on 20 April 2007. offer tabled, and in both cases the Board carefully considered firstly the limited information provided by the potential offerors, My Board colleagues and I would formally like to record our and secondly detailed internal and external valuation work. thanks to Sir Peter Burt and Charles Allen for their contributions On both occasions the Board concluded that it was in all ITV to ITV. The creation of “one ITV” from 11 separate regional ITV shareholders’ interests that such proposals should be rejected. companies owes much to Charles’ vision and determination. Under Sir Peter’s steady stewardship through an unsettling On 17 November 2006, British Sky Broadcasting (BSkyB) acquired period, Charles directed the integration of Granada and a 17.9% holding in ITV at a price of 135 pence per share. At the Carlton ahead of schedule and produced greater synergies present time, BSkyB’s holding is subject to regulatory reviews by than originally forecast. Ofcom, the OFT and the DTI in relation to both competition and broader public interest issues; Ofcom is also separately reviewing I would like to thank all of my new colleagues within ITV “change of control” under the Broadcasting Act. ITV has made for their warm welcome, and to express my belief that submissions in response to the authorities, at their request, and together we can lift our game and create new and valuable has noted the concern that BSkyB (as a competitor) may be able, content for our viewers and uniquely effective airtime with the size of its holding and given historic voting patterns, to for our advertisers. block a shareholder resolution requiring a 75% majority and that this may not be in the interest of ITV’s shareholders as a whole. The authorities will consider whether there should be any form of restriction on BSkyB in respect of their holding in the Company. The Board will continue to act in the interests of all shareholders. Michael Grade Executive Chairman In reviewing the level of the final dividend to propose at the forthcoming AGM your Board has considered a number of factors. The UK television advertising market deteriorated over the late Summer and Autumn of 2006, resulting in a near 5% fall for the calendar year. It was in part as a result of this that the Board of ITV plc decided to halt the share buy-back programme at £251 million. Market estimates for 2007 were that the UK television advertising market would be either flat or decline a little further, with the first half of 2007 likely to be more adversely affected as a result of comparative 2006 monthly revenue patterns. Over the first quarter of 2007 we believe that the UK television market will be approximately 0.5% higher than 2006, and ITV’s total advertising revenue will be down by approximately 4.5% as the effect of CRR and SOCI decline on ITV1 reduce the channel’s share of advertising. Whilst we expect this decline to slow and stabilise as multichannel digital television fully replaces analogue, it is probable that ITV1 revenues will decline in 2007, and may not be wholly made up by the WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 04_ITV plc Report and accounts 2006 Stories that deliver. ITV delivers the largest commercial audiences in the UK and was watched by around 80% of the population every week in 2006. ITV1 has dominated the top shows of the year, broadcasting the most popular programme of 2006 – ITV1’s coverage of the World Cup match between England and Sweden, – and the highest rating shows across major genres including drama and sport. ITV1 remains the most popular channel in the UK across peak hours. ITV’s portfolio of digital channels continues to deliver. Measured by share of commercial impacts in 2006, ITV2 is the biggest non-terrestrial channel in the UK, with ITV3 the second biggest and ITV4, which was only launched in late 2005, the 11th and increasing its audience.

The top programme of the year in the UK was ITV1’s coverage of the World Cup match between England and Sweden on 20 June 2006 with 18.5 million and 67.8% of the available audience tuning in. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 05_ITV plc Report and accounts 2006 WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 06_ITV plc Report and accounts 2006 WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 07_ITV plc Report and accounts 2006 Stories of passion. ITV is about great programmes and high quality content. We invest around £1 billion each year in programming, more than any other European commercial broadcaster, and support production centres around the UK. Built on a heritage of 50 years of programme making, ITV Productions make programmes and content across a wide range of genres, from drama to arts, to factual, entertainment and sport, to daytime and lifestyle programming both for ITV and most other major UK broadcasters.

Billie Piper stars in Mansfield Park, part of ITV’s Jane Austen season airing in Spring 2007. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 08_ITV plc Report and accounts 2006 Stories of change. ITV is changing. ITV is now available on broadcast TV, online and on mobile, giving viewers access to ITV’s quality content on every major platform. In 2006 ITV1 became the first terrestrial TV channel to stream on 3G phones. Online, we will be launching a new broadband portal, ITV.com, in Spring 2007. Viewers will be able to watch ITV’s channels online, get 30 day catch up TV, and access exclusive preview content and programmes from ITV’s extensive archive.

Primeval is ITV’s new family drama for Saturday nights, starring Douglas Henshall and Hannah Spearritt. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 09_ITV plc Report and accounts 2006 WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 10_ITV plc Report and accounts 2006

Stories of realism.

ITV News continues to set the agenda with award-winning journalism and world exclusive stories, at home and abroad, including special reports on climate change and a series of live transmissions presented by Mark Austin from Antarctica. In 2006 ITV News enhanced its international coverage opening a news bureau in Beijing, and continued to invest in cutting-edge technology in UK local newsrooms to deliver outstanding regional news services. In addition, Tonight with Trevor McDonald is the UK’s most popular commercial current affairs series, providing popular, relevant and hard-hitting stories covering a wide range of issues across the year.

In March 2006, ITV News launched the highly acclaimed Three Degrees from Disaster series investigating the evidence of climate change around the world. This was followed earlier this year with a week-long special anchored live from Antarctica by Mark Austin. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 11_ITV plc Report and accounts 2006 WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 12_ITV plc Report and accounts 2006 WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 13_ITV plc Report and accounts 2006 Stories of success. ITV has successful merchandising, licensing, DVD, distribution and international production businesses. We have production centres in America, Germany and Australia. We sell thousands of hours of programming to over 200 countries worldwide and licence more than 1,000 products across a wealth of major programme brands. We successfully exploit programme brands beyond broadcast from both ITV Productions and major hits acquired from other leading producers including Pocoyo, Thunderbirds, Prime Suspect, Coronation Street, Dancing on Ice, I’m A Celebrity…Get Me Out of Here, Little Britain and The Catherine Tate Show.

Granada International sold the format of ITV’s hit show Dancing on Ice around the world in 2006, with international versions in Russia, Australia, Germany, Spain, Belgium and the Netherlands. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 14_ITV plc Report and accounts 2006 ITV at a glance

Introduction For more than 50 years ITV1 has been the UK’s largest and most popular commercial channel. Today ITV is a multichannel, multiplatform, content-driven business, firmly focused on the needs of viewers and advertisers.

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Our heritage Our people ITV sells advertising on behalf of all 15 Channel ITV employs almost 6,000 people worldwide. 3 regional licences. ITV also produces much of The majority work in production centres the programming broadcast on ITV channels. around the UK, with large centres ITV has played an important part in the in London, Manchester and Leeds. Outside the growth of multichannel television, with the UK we have offices in Los Angeles, New York, launch of ITV2 in 1998, ITV3 in 2004 and ITV4 Sydney and Cologne with smaller in 2005. In 2006 ITV launched more channels: representation in Rio de Janeiro and including the children’s channel, Citv; and two Hong Kong. We also employ a large body catch up channels, ITV2+1 and ITV3+1. of freelance writers, performers and ITV began broadcasting in the London technical staff who contribute to our area in 1955, following the Television Act of programme production. 1954 which made commercial television in the UK possible. By 1973 there were 15 separate Channel 3 regional companies, each with its own licence. A period of consolidation between these companies began in 1993 and, in 2004, Carlton Communications Plc and Granada plc merged to form ITV plc, which today owns 11 of the 15 regional licences. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 15_ITV plc Report and accounts 2006

Our businesses: At an operational level, the Company is based around three major businesses: Broadcasting, Content and Consumer.

ppp p Listen to what viewers Develop great content Deliver through our family Capitalise on other opportunities and advertisers want We invest in original UK content of digital channels We exploit content on an increasing We gain valuable insight into what across a wide range of profitable We broadcast the most successful number of media platforms, such as our audiences want through in-depth genres and formats. commercial family of channels in the online and mobile, and our Worldwide viewer research and working closely UK, with each targeted to appeal to team create new opportunities through with our advertisers to ensure we distinct demographics. We operate merchandising, licensing, distribution deliver the highest quality programmes complementary scheduling to ensure and international production. and content. that we attract the widest possible range of viewers to our channels.

Broadcasting Content Consumer Other businesses ITV has the most successful Our Content team comprises ITV ITV’s Consumer team was established – We own 100% of Carlton Screen commercial family of channels in the Productions in the UK and the in 2005. The team works with the Advertising based in the UK and the UK. Within Broadcasting the Channels businesses in ITV Worldwide. Broadcasting and Content teams to Republic of Ireland. In the UK, Carlton team are responsible for commissioning capitalise on opportunities to deliver Screen Advertising has exclusive rights ITV Productions is one of Europe’s and scheduling programmes on all the ITV content to consumers through to sell advertising on more than 2,200 leading commercial production ITV channels. This fully integrated new platforms. It consists of four cinema screens, accounting for 75% companies producing more than 3,000 television team ensures that ITV is main areas: platforms, broadband, of UK cinema admissions. hours of original programming each strongly positioned for growth in the transactional and mobile. year. It is responsible for some of the – We have a 50% interest in both digital age and continues to deliver most popular brands on UK television – Platforms manages our wholly-owned Screenvision Europe and attractive programming to viewers and including Coronation Street, digital terrestrial multiplex SDN and Screenvision US, joint ventures with advertisers. ITV also owns 75% of Emmerdale, I’m a Celebrity…Get Me ITV’s relationship with Freeview, Sky Thomson S.A., which operate leading GMTV, the holder of the Channel 3 Out of Here!, Dancing on Ice and and the cable operators. cinema screen advertising businesses breakfast time licence. Prime Suspect. It also produces in continental Europe and the United – Broadband includes ITV Local, itv.com The other key part of the Broadcasting highly-rated work for other channels States respectively. and the community website Friends business is the Commercial team which such as The Street and The Royle Reunited. ITV Local was tested in the – We own a 16.78% interest in SMG plc, markets and sells our advertising Family for the BBC, Brainiac for Sky Meridian region and is now being which operates the two regional airtime and is also responsible for and Countdown and Longford for launched in London and Central. Channel 3 licences in Scotland. programme publicity. In 2006 ITV Channel 4. ITV Productions also made It will be rolled out across the rest of created a new Integrated Planning the successful, critically-acclaimed and – We hold a 40% stake in ITN – the ITV during 2007. itv.com will relaunch team to build stronger relationships Oscar winning feature film of 2006, national news provider for ITV and in the Spring of 2007 with extensive with strategic planning agencies, The Queen. Channel 4. broadband video capabilities. working alongside the Trading team, ITV Worldwide is made up of Granada – We also have a stake of 9.99% who negotiate directly with media – Transactional includes our International, Granada Ventures and in Arsenal Holdings plc and a; buying agencies selling airtime and participation TV brand, ITV Play, international production centres in sponsorship on ITV’s portfolio of alongside our interactive and – 50% share of Arsenal Broadband America, Germany and Australia. programming and digital channels. premium rate telephony businesses. Limited and 50% of Liverpool Granada International sells thousands The two teams work closely with our FC.tv Limited. of hours of programming from ITV – Mobile manages ITV’s mobile portal advertisers to offer them bespoke Productions, and many other and arranges distribution of ITV’s multimedia solutions for both mass independent producers, to more than channels and content on mobile audiences with ITV1 and targeted 200 countries worldwide. Granada networks such as 3, Virgin, O2 audiences across our digital channels Ventures is a major distributor of and Vodafone. and new media platforms such as DVD entertainment in the UK and mobile and online. exploits merchandising and licensing in the UK and worldwide from both ITV Productions’ bank of television programmes and other independent rights owners. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da

16_ITV plc Report and accounts 2006 Business Review Business Review by John Cresswell ITV is a vibrant company with many unique assets operating in a challenging business environment. We are executing a clear strategy to manage ITV into the digital age, ensuring we deliver for all our viewers, customers, employees and shareholders.

John Cresswell Chief Operating Officer and Finance Director WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 17_ITV plc Report and accounts 2006 Our market environment

Advertising trends The challenge for all media companies is to work within the context of these changes and prepare their businesses for ITV is a vibrant company with many unique assets operating the future. With the success of ITV’s digital channels, and the in a challenging and highly regulated commercial environment. development of our broadband and mobile businesses, ITV is As the UK’s leading commercial free-to-air broadcaster we well positioned to take advantage of the digital environment. generate the majority of our revenues from television advertising, which remains the largest display advertising medium in the UK. Share of Commercial Impacts However, many traditional display advertising media have continued to decline in 2006, with the only major exception Our advertising revenues are based primarily on our share of being online advertising. Although not immune to this decline, commercial impacts (SOCI), with an impact measured as one television has proved more resilient than some other traditional person watching one thirty second advertisement (defined as areas, such as radio. ‘spot’ advertising). Television remains the major “brand building” display advertising In 2006, ITV’s total share of adult commercial impacts on UK medium. Over the five years to 2006, television’s share of the UK television was 42.2% (2005: 44.6%). The reduction in 2006 was display market has remained relatively stable at around 40%. principally on ITV1 where a combination of factors was operating: The rapid growth in internet advertising is largely in search, – The rapid take-up of digital multichannel television; which is “brand searching” in a similar fashion to direct marketing. – An increasing number of channels available to viewers in Internet display advertising has also grown in 2006, though it multichannel homes; represents less than a quarter of internet advertising growth. – Some weakness in ITV1’s programming line-up including Freeview to overtake Sky in 2007 Digital penetration at 80% lower audiences for some long-running series; and 2003 2004 2005 2006 2007 million – Strong competition from digital channels. homes 10 Whilst the development of the ITV family of channels has mitigated some of the loss of market share from ITV1, it is also 8 clear that we must seek to improve the quality of programming 6 on ITV1 itself. 4 Revenues outside of traditional ITV1 net advertising revenue are 2 becoming increasingly important to the Company, and in 2006 0 these grew to over 41% of our total revenue vs 32% in 2005. Dsat DTT/Freeview Dcable Source: Ofcom DTV ITV strength on Freeview % SOCI from DTT adults (peak time) Platform growth 0 10 20 30 40 50 60 ITV1 The growth of the Freeview platform has ensured that three Ch4 out of four households now have access to at least 30 television Five channels. As Freeview is the digital platform on which ITV’s family ITV3 of channels has the highest viewing share, that digital take up ITV2 E4 of Freeview is to the benefit of ITV. In addition, nearly half of all UKTV History UK households have broadband internet access – and mobile ITV4 phone penetration is at more than 100%, with 3G penetration More4 Sky Three rising more slowly. These new platforms have resulted in shifts Film4 in viewing patterns and methods of consumption. FTN E4+1 TMF The Hits Source: Barb/Infosys, DTT Adults Jan–Dec 06. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 18_ITV plc Report and accounts 2006 Business Review

Our market environment

ITV Productions is one of Europe’s leading commercial production companies, and makes programmes in the UK for both ITV and other broadcasters. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 19_ITV plc Report and accounts 2006

Spectrum usage in UK media TV GSM 3G WiFi Long wave Radio B BMedium wave Radio FM RadioBBBBBB Satellite Broadcasting VLF LF MF HF VHF UHF SHF EHF 3 30 300 3 30 300 3 30 300 kHz MHz GHz Increasing Range Decreasing Range M Decreasing Bandwidth Increasing Bandwidth C Source: Ofcom

Content creation Under the Act, 25% of the time allocated to qualifying programmes (i.e. all programmes except acquired material, news, As platforms and channels have multiplied, so has the demand repeats and party political broadcasts) must be commissioned for and the value of content. ITV Productions is one of Europe’s from independent producers who are not more than 25% owned leading commercial production companies, and makes by a broadcaster. This condition is included in all regional Channel programmes in the UK for both ITV and other broadcasters. 3 licences (as well as the arrangements for Channels 4 and 5, Within ITV Worldwide, our international production operations GMTV and the BBC). The Act also requires every public service make programmes for broadcasters in the US, Germany broadcaster to have in place a code of practice for commissioning and Australia. programmes from independent producers, and for these codes to As new distribution channels such as broadband and mobile be approved by Ofcom. In addition, ITV1 seeks to commission at develop, creators of content like ITV will be able to access least 50% of qualifying programmes (in terms of hours and viewers directly. investment) from outside the London area. ITV Channel 3 licences run to the end of 2014 and may be Regulation renewed at ITV’s option for a further 10 year period from that UK commercial television broadcasting is regulated under the point. These licences include the obligation to broadcast Communications Act 2003 (the Act) by the communications simultaneously in analogue in each region until that region is industry regulator, Ofcom. Ofcom has authority to impose fines, converted fully to digital transmission, with the final ITV regional and revoke or vary licences in pursuit of its consumer protection licence owned by the Company expected to convert fully by responsibilities relating to impartiality and accuracy of news 2012. ITV pays a licence fee for its Channel 3 licences. This fee was programming, taste and decency, the use of sponsorship and £51 million in 2006 and is expected to reduce to approximately the quantity and content of advertisements. Advertising is also £4 million in constant prices when all regions have fully switched regulated by the Advertising Standards Authority. over to digital. In addition, Channel 3 licencees have to meet significant In July 2006 Ofcom consulted on proposals for the introduction of positive requirements covering, for example, original spectrum pricing for all users of spectrum including public service productions/commissions, independent productions, news, broadcasters from 2014. ITV does not support the introduction regional production, networking, equal opportunities, training, of spectrum pricing although, unlike most other public service provision for the deaf or hearing impaired and blind or partially broadcasters, ITV already pays for the spectrum it uses for its sighted, national television archiving, and party political television channels (via cash payments as well as the delivery broadcasts. of substantial public service obligations). Ofcom has not yet issued a final position paper following its consultation. Channel 3 licensees are required to fulfil their public service broadcasting (PSB) remit, requiring them to provide a range of high quality and diverse programming. For ITV1, a significant share of its programme schedule airtime is filled with PSB programming, including: childrens, religion, current affairs, national and local news, and regional non-news programmes. Whilst news is a core and fundamental part of ITV output, much of this other PSB airtime delivers low audiences. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 20_ITV plc Report and accounts 2006 Business Review

Our market environment

The Communications Act contains provisions on cross-media Merger undertakings ownership and industry consolidation. Cross-media ownership As a condition of the merger between Carlton and Granada rules prevent the owner of a national newspaper owning more to form ITV plc, undertakings were given in 2003 to the other than 20% of a Channel 3 licence. On 17 November 2006, British regional Channel 3 licensees – STV Central Limited (formerly Sky Broadcasting (BSkyB) purchased a 17.9% shareholding in Scottish Television Limited), STV North Limited (formerly ITV plc from other shareholders. Ofcom is currently considering Grampian Television Limited), Ulster Television Limited and whether this shareholding constitutes a change of control Channel Television Limited. These undertakings related to the of any of our Channel 3 licences, which would trigger a regulatory ITV1 network programme budget, the commissioning and review examining the possible impact of BSkyB’s holding on broadcasting of programmes, and the sale of airtime. areas such as regional programming. The OFT is also separately considering whether BSkyB’s acquisition gives rise to competition Undertakings were also provided in relation to measures to concerns and, in a third review, the Secretary of State has issued implement a system of Contract Rights Renewal (CRR) covering a Public Interest Intervention Notice requesting that Ofcom the sale of commercial airtime on ITV1. CRR provides advertisers consider the effect of the acquisition on media plurality. The DTI and media buyers the fallback option, for the duration of the has the power to refer BSkyB’s holding to the Competition remedy, of renewing the terms of their 2003 pre ITV merger Commission for a further in-depth review of any consequent contracts without change – except that where a contract competition and/or public interest issues, in light of the OFT’s specified a share of broadcast (ie share of advertiser’s total and Ofcom’s findings. spend on UK television) allocated to ITV1, this share varies in direct proportion to the reduction in ITV1's share of commercial ITV has also made submissions to a number of regulatory reviews impacts (SOCI). and consultations conducted over the year. The legislative process to revise the Television Without Frontiers Directive (which The CRR undertakings also include general obligations regarding sets the framework for much television regulation in the UK) the terms offered by ITV for advertising on ITV1 to new continued throughout the year. ITV is focusing on the case for a advertisers and media buyers, and to advertisers and media liberalisation of the rules on advertising and product placement; buyers seeking to vary or renegotiate their existing contracts. to sustain a flourishing audio-visual industry in Europe which The effect of CRR, under the current system of contractual is able to invest in original European content. Although the guarantees and caps, is that ITV is unable to pursue contract revision process is not yet complete some relaxation of these negotiations which reflect market conditions in the current rules is anticipated. rapidly-evolving commercial environment. ITV was involved in debate on the advertising of foods with We believe CRR is having a detrimental impact on the interests high fat, salt and sugar (HFSS) content to children. New Ofcom of ITV1 and all television advertisers and viewers. We are seeking regulations will mean that the advertising of certain foods that a review of whether CRR continues to be an appropriate classify as having HFSS content will be restricted in programmes behavioural remedy. of particular appeal to children. The new restrictions came into Further information on the regulation of programmes and force in 2007. advertising is given in ITV’s Corporate Responsibility report 2006 There have also been a number of regulatory and policy reviews which is available online at www.itvplc.com/itv/responsibility. of participation and quiz TV services, which include ITV Play programming. The approach to the issue may also be impacted by developments at the EU level. ITV has responded to all these processes outlining our compliance with the extensive regulations in place and the additional measures ITV takes to ensure that consumer interest is safeguarded, together with underlining the entertainment that this programming offers to viewers. Ofcom announced a consultation in December 2006 as to how it should deal with the spectrum released following the transition from analogue to digital broadcasting in the UK – a process which begins in 2008 and finishes in 2012, proposing an open auction of the spectrum which is released. ITV, together with the other public service broadcasters, believes that such an approach is not necessarily in the long-term interests of viewers, in particular as it may not provide for an HD offering on the UK’s freeview digital platform. ITV will continue to push this case in 2007 as the consultation on the future use of spectrum continues. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 21_ITV plc Report and accounts 2006 Our strategy Content innovation is at the heart of our strategy for success.

The market environment within which we operate will – Michael Grade is working with the commissioning team, continue to evolve rapidly. 2006 was, and 2007 will be, a year and seeking to return a greater sense of confidence to our of transition as we follow our strategy to address the market programmes. A fear of failure should not stop new and challenges. 2006 revenue from continuing businesses was innovative material being made, but it should stop us carrying little changed on 2005, and our strategy seeks to slow the on with shows that no longer deliver the audiences that our decline in our ITV1 advertising revenue, whilst building our clients seek or are overly derivative in their nature; and revenues in other expanding markets. Our priorities are to: – CRR has acted as a block to new programme ideas on ITV1, – develop the strength of our programming – improve ITV1; with some old series continued beyond their time because of a fear of trying new material in case of failure or damage – accelerate the growth of our successful family of to the channel’s SOCI performance. This effect is now being digital channels; addressed, with a number of old series decommissioned and – grow our content and exploitation businesses; many new titles in production. In addition we are seeking a review of CRR. – develop our consumer new media businesses; and – reduce the burden of regulation. Accelerate the growth of our successful family of digital channels Alongside these priorities we continue to achieve efficiency savings, where we are currently implementing a plan Our digital channels have been a great success growing both to save £40 million a year by 2008 (see below). revenue and SOCI and are the UK’s most successful commercial family of digital channels. These channels are all aimed at specific Improve ITV1 programming audience segments where we can deliver demographic audiences that our advertisers are seeking. Quality content, and our ability to produce, exploit, distribute and monetise this content, is the foundation of our success as a They benefit from cross promotion both from ITV1 and between business and at the heart of our strategy. We currently invest the digital channels themselves. Our family of digital channels approximately £1 billion each year in programming, with the vast comprises: majority being spent on original UK programming to be broadcast on ITV1. This investment demonstrates our commitment to ITV2 ITV3 ITV4 Citv on all digital platforms producing and broadcasting the highest quality and most Men & Motors ITV2+1 ITV3+1 Satellite and Cable only attractive programming to our viewers. We will raise our investment in these channels in both acquired Maintaining the health and success of our flagship channel ITV1 material and increasingly with some original material, with the is therefore a key strategic priority for the Company. Successful aim of growing their viewing share. We are also reviewing both channels and television brands have to continually re-invent the channel line-up and branding for additional opportunities themselves in order to maintain their popularity and relevance, to exploit. as viewers become more sophisticated and demanding in their viewing habits. Grow our content and exploitation businesses – Our 2007 ITV plc programme investment will be maintained In the UK, ITV Productions makes programmes for other at approximately £1 billion; broadcasters as well as for ITV, and we are seeking to grow this – we have appointed a new team of commissioners under business further. Production for other broadcasters enables us to Simon Shaps, recruiting some of the best and most highly generate a significant revenue stream and achieve a critical mass regarded commissioners from across the UK broadcasting that helps attract talent to us, both in front of and behind the sector. The lead time from commissioning to screen is nine camera. It also allows us to create programme rights that we can to eighteen months or longer and material ordered by this exploit elsewhere. team is now beginning to come to screen; WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 22_ITV plc Report and accounts 2006 Business Review

Our strategy

ITV Worldwide will also be developed to deliver a growing Other areas where ITV is keen to achieve modernisation of revenue stream: regulation or a level playing field with other broadcasters include: – International production, currently in USA, Australia and – PSB programming – ITV1 is subject to overall output quotas, Germany, exploits formats created by us in the UK as well to licence requirements for particular PSB genres, and must as ideas developed in each home market. Productions created meet a broader PSB remit. ITV is maintaining a dialogue with internationally are also available for ITV channels and for Ofcom to ensure that in each case requirements on ITV1 remain Granada International to exploit worldwide, including US hits proportionate to the reducing benefits of ITV’s PSB status; Nanny 911 and Hell’s Kitchen. We will continue to expand this – Advertising – in line with the proposed revisions to the EU business as opportunities arise. Television Without Frontiers directive, ITV is seeking measured – Granada International and Granada Ventures exploit the rights deregulation of rules restricting advertising airtime, in particular (merchandising, licensing, DVD, distribution, etc) that we have for UK commercial PSB channels, and rapid progress towards built up through our UK and international production and also the introduction of product placement on UK commercial rights from third parties on whose behalf we sell. television; and – Regional programming – uniquely in commercial television, Develop our consumer businesses ITV1 provides regional news and programme services across We are developing a number of business to consumer businesses the UK. ITV is pursuing regional “self help” in the form of greater within ITV Consumer. These are principally aimed at exploiting efficiency and commercial diversification. However ITV believes our content through direct interaction with our viewers, through that sustaining such services in the digital era is likely to different platforms and content formats and increasingly at require targeted regulatory intervention and potentially times that ITV viewers want to access it. funding support. Our major development is in broadband where we will be pushing Efficiency savings hard to develop three businesses. Our itv.com broadband portal and the ITV Local regional service will both be rolled out in the During 2006 we announced a programme of efficiency savings Spring of 2007 with greater functionality and content, and across the Company aimed at achieving a cost reduction of Friends Reunited which has been growing even more strongly, £40 million a year by 2008. This programme is on track with stimulated by a TV advertising campaign in late 2006. These savings to be delivered across a number of areas: businesses are discussed in more detail in the Operating review. £m In our transactional businesses we are developing the ITV Play Back office functions 14 formats and programming and will respond to any new Property 4 regulation that may arise in this area of participation TV. We are aiming to conclude a relationship with a new gaming Systems and technology 7 and betting partner that will allow greater variety of interactive Transmission and distribution 7 formats to be introduced under the ITV Play brand. Employee related inc defined benefit pension scheme 6 Procurement 2 Our platform business SDN operates one of the Freeview multiplexes and, together with other Freeview spectrum that 40 we use to broadcast our channels, and shareholding in the One of the major elements of this programme has been the Freeview consortium which promotes Digital Terrestrial Television, decision, following a rigorous internal review, to outsource our we are strongly involved in the development of the DTT platform. transmission operations to Thomson’s Technicolor Network We are also supportive of the principle of the development of a Services (TNS) in January 2007. As a company specialising in free-to-air offering on the digital satelite platform – “Freesat”. transmission services, TNS is investing heavily in new technology We are making our channels available on mobile and will develop and can achieve economies of scale that will enable ITV to other material for mobile delivery, though the slower than achieve a flexible modern transmission operation at significantly expected take up of 3G phones, currently at 4.6 million reduced costs. subscribers in the UK, is affecting the speed of development. Meanwhile, work continues apace across a wide range of We are actively considering developments in alternative activities, including the build of a digital content store to enable technologies to 3G, particulary DMB and DVB-H. more efficient materials management, to facilitate “catch up” TV for itv.com, and to ensure more effective exploitation of Reduce the burden of regulation the programme archive. A root and branch review of our The extent of regulation of our industry, and especially of ITV1, finance processes and systems will deliver improved service is explained in the section on Regulation on pages 19 to 20. to the business teams, and projects on procurement, production efficiencies, improved technology systems, and property A priority for ITV is, and will be, to achieve some relaxation rationalisation, all remain on track to deliver the forecast benefits. or change to the CRR mechanism. We believe that CRR unduly impacts ITV1 and is also having a deflationary effect on the UK television advertising market overall. We are pressing for a review of CRR to be started by the competition authorities as soon as possible to avoid further deflationary presssure on UK commercial television, which will otherwise reduce the ability to invest in programmes. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 23_ITV plc Report and accounts 2006

We are developing new businesses within ITV Consumer which offer direct interaction with our viewers, offering content and services to them whenever, wherever and however they want to receive it. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 24_ITV plc Report and accounts 2006 Business Review Resources and relationships Recruiting and retaining the very best people is key to our success as a business.

ITV enjoys unique assets and capabilities which strengthen our Incentives competitiveness, and help us deliver our strategy. These strengths It is vital for the Group to offer the right reward and have allowed us to address the challenges of the last year and incentivisation in order to attract and retain the best talent. will, over the next few years, provide the basis on which the ITV offers all employees a consistent, competitive and attractive Company will continue to develop. range of benefits. The Group’s incentive programmes are structured to give employees a stake in the future success of the People Group. As well as a SAYE scheme which is open to all employees Key to our success is the recruitment and retention of the and enables them to save for shares in the Company, the Group programme making, commercial, management, technical and runs the Prime Mover scheme which ensures that those with administrative talent that drive the content of our programming, the brightest and best ideas are encouraged. This Scheme allows and the innovation of our market offering. The contribution the originators of programme formats that have the potential made by a highly-motivated workforce aligned to the values and for international and UK exploitation to have a substantial stake aspirations of the business makes the development of human in the success of those formats. The Group also operates an capital one of our highest priorities. ITV’s employee branding all-employee annual bonus scheme which will allow employees was relaunched in 2006 alongside ITV’s channel brand relaunch. to receive a bonus when the Group is successful.

Training and skills Diversity We have a number of programmes in place to ensure we attract The Group’s Diversity Policy aims to ensure equality of the best people, retain our high performers and develop talent. opportunity in both recruitment and retention to support the Television’s reliance on ever-changing technology also requires best content creation and the most innovative approach to that we keep our employees well-trained. A new team assembled business development. The Group consistently reports on-screen in 2005 has had an impact on the development of our training portrayal performance for both news and network productions. and development strategy across the business. The Company The Company chaired the Cultural Diversity Network in 2006 is represented at board level on Skillset, which is the industry and is an active participant in the major diversity forums Sector Skills Council and contributes both to its core funding whose focus is the employment and development of minority and the freelance training fund it manages. This means that groups – Opportunity Now, the Employers’ Forum on Disability we are fully represented to ensure we are part of both the and the Broadcasters’ Disability Network. design and implementation of the training strategy for the wider broadcasting industry. Communication During another year of intensive change, our communication Development with employees has been crucial and evaluation of a range Of particular importance is our ability to develop talent. of mechanisms deployed has already indicated the positive 2006 saw the early completion of the first phase of our impact these initiatives have had, collectively, on morale and ‘Creating Strong Leaders Programme’ one year ahead of engagement. The results of our 2006 employee opinion survey schedule. This programme offered a development programme carried out in December showed noticeable improvement in levels for all leaders in ITV from the Executive team to our First Level of engagement across the Company and we were delighted to be Leaders covering leaders in creative, technical and general awarded the PR Week award for Internal Communications in management. In total, 750 managers have attended one of 2006. We aim for similar levels of improvement in 2007. the three management development programmes and we have seen positive impact on management capability as a result which is measured in a number of ways. Our Employee Opinion Survey shows improvements in the way our employees feel that they are managed. Individual managers re-run assessment data at intervals following the training which again is showing improvement. All managers will undergo this training over three years. Succession planning for all levels will be a major feature of activity in 2007 so we can deliver the right balance between internal succession and new skills. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 25_ITV plc Report and accounts 2006

Innovation and creativity Our values ITV is a highly innovative company that is succeeding in creating We recognise that values drive behaviours, and behaviours in some of the most popular broadcasting both in the UK and turn drive performance. We have developed a series of carefully internationally. considered statements about ITV’s values. We are committed to driving the business forward with our values at the centre of our In 2006 we have developed a centralised innovations unit called operations and in 2007 a significant proportion of management ITV Imagine with a two-fold remit. incentive opportunity will be set against the delivery of these – To generate ideas to enhance the commercial content offering values across the business. to our audiences. The unit monitors established and emerging trends on both a national and global scale, drawing upon a Commercial – we focus on the Company as a business in a variety of sectors such as, but not limited to, technology, arts competitive industry; we respond quickly to the ever-evolving and leisure and popular culture. By connecting these sectors in market place; we develop for the future while maximising alternative ways, the aim is to create new content opportunities short term returns. that can resonate with our viewers, and new opportunities for already existing properties. Leading – we seek to lead by example to create the best results; we motivate and direct others toward a common goal; – To contribute to the collective creativity of the Company. we build strong cohesive teams with long term potential. ITV Imagine has a core role helping to enhance and foster a strong creative environment for new ideas and our people. Customer-centred – we understand our viewers and This takes the form of workshops with different parts of the customers better than anyone, making their needs our Company specifically addressing creative issues or opportunities, first priority and exceeding their expectations; striving to and the design of idea-generating tools and practices. offer the choice that they desire. Inclusive – we act as one when seeking the best solution for Reputation and corporate responsibility customers and the Company; we aspire to cross-organisational Our reputation is of paramount importance to us. The ITV Values, teamwork and mutual support, aiming for the greater good our corporate responsibility (CR) policy and the code of conduct of ITV. for employees, provide the foundation for our responsibility Bold – we push boundaries in production, commissioning, programme. These details are also contained in our recently- technology and formats; we seek to be innovative, published Corporate Responsibility report 2006, which is available collaborating and sharing know-how; we take risks and on our website: challenge conventions.

www.itvplc.com/itv/responsibility Respectful – we celebrate diversity and acknowledge a differences; listen to everyone’s views and value all contributions; we ensure all progress is in the best interests of ITV. Our CR activities play a vital role in creating the right climate within which the Company can grow its business with the full Excellent – we achieve the highest standards in our products, support of its stakeholders, including investors, employees, performance and processes; we offer the best quality services customers, suppliers and the regulators. As a media company across all platforms, demonstrating excellence in all areas we have the ability to raise awareness, influence opinion and of business. shape discussions. With such influence comes responsibility. Committed – we are committed to our business, our CR is therefore embedded within the strategic thinking of programmes and to each other; we use every opportunity the Company, notably through a senior management CR to make ITV the best and we are proud to be part of and Operational Risk Steering Group. This is chaired by the the Company. Company Secretary, with significant issues being reported to the senior management and Board to ensure proper exposure of the issues which most affect our business. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 26_ITV plc Report and accounts 2006 Business Review

Resources and relationships

Sound editorial decision making, strong creative values and sensitive scheduling are necessary so that we can make popular and engaging TV, without being offensive, harmful, misleading or unfair. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 27_ITV plc Report and accounts 2006

Corporate Responsibility (CR) How we have performed in 2006 Our principal CR issues relate to the programmes we make Because of our commitment to take CR issues seriously, ITV has and broadcast. Television plays a significant role in society and gained a reputation for effective management of stakeholder is highly regulated (a section on regulation is included within concerns. For the second year in succession, we have been voted this Report on pages 19 and 20). This environment has enabled sectoral leader in the Global Dow Jones Sustainability Index us to establish a strong culture of responsible programming over (DJSI). DJSI considers that we have performed among the best the last 50 years. in the social dimension, particularly in employment practice indicators, social reporting, editorial policy and protection of Our diverse CR issues divide into two main categories: those to do children. Our performance in the environmental and economic with what we broadcast (“On Air”) and those to do with how we dimensions, and in terms of corporate governance and codes of operate (“Behind the Scenes”). Whilst it is important that our CR conduct/compliance, are considered to constitute good to leading reporting addresses the issues that matter to our stakeholders, practice. We are included in the FTSE4Good Index and are proud we appreciate that only some of these issues are material to our to be a Company that Counts as a result of our ranking of 42nd business, because of their relevance to our strategy and the risks in the Business in the Community CR index (2005: joint 60th). posed by a failure to manage them effectively. We consider that the following CR issues, poorly managed, pose the greatest potential risk to the delivery of our business plan:

On Air – Responsible programming – a breach of regulations could harm our reputation and potentially alienate viewers and advertisers – Independent reporting – providing balanced, informative and impartial news and current affairs underpins the credibility of our wider market offering – Reflecting society – the more relevant the programmes to our audience, the more popular they will be and the more attractive to our advertisers – Responsible advertising – we need to reflect, and anticipate, Looking forward growing stakeholder concerns to avoid reputational impacts We will be conducting more analysis during the year on the and restrictive regulation materiality of the issues contained within our CR programme, – Supporting communities – failure to leverage the unique and how this can be used to improve our risk analysis and regional nature of our business could undermine an important processes. We will be considering how we can strengthen the growth area for ITV integration of CR activities within the Company. We recognise the potential challenges to society created by issues such as climate Behind the Scenes change and will be considering in more detail how to integrate treatment of these topics more fully into our CR strategy. – Creative economy – ITV has an important supply chain which needs to be consistent with ITV’s values for ITV to deliver its Brand business plan In October 2005, in order to improve our understanding of the – Our people – our most important asset in creating the unique perception of the ITV brand, we appointed Hall & Partners products and services which help us compete successfully Europe to carry out a continuous brand tracking study. – Health, Safety and the Environment – not managing our Gaining insight into our strengths and weaknesses over time, health and safety and environmental impacts in line with this study allows us to track our performance on a like-for-like society’s expectations could undermine our credibility with basis against previous periods and to measure our relative position key stakeholders compared to our key competitors. All of the following metrics were measured for the 4th quarter of 2006 with comparatives for the 4th quarter of 2005. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 28_ITV plc Report and accounts 2006 Business Review

Resources and relationships

Over the course of the study we have identified two key drivers of We believe it is important that our viewers can be confident viewer behaviour: Spontaneous Consideration and Commitment. that they know in advance whether programmes will be suitable Overall, the ITV family of channels has retained strong albeit slightly for them or their family. To minimise the risk of offence, we declining, Spontaneous Consideration at 64% (2005: 66%), give pre-transmission on-air announcements where appropriate. comparing with the BBC at 70% (2005: 70%) and C4 at 36% We have a duty office which deals with any issues that our (2005: 35%). viewers may have and in addition they may raise concerns directly with Ofcom and the Advertising Standards Authority. For individual channels, the Spontaneous Consideration picture is similar with ITV1 at 57% (2005: 61%), BBC1 at 64% (2005: 62%) Our relationship with our advertising community represents one and C4 at 28% (2005: 30%). Meanwhile, ITV2 has experienced of the most important aspects of our ability to drive value in the growth in Spontaneous Consideration to 15% (2005: 13%), Company’s operations. We have a team which manages the well ahead of its nearest free-to-air channel competitor E4 relationships with advertisers through our partnership programme at 8% (2005: 8%). by identifying where longer-term relationships are possible and by developing a closer understanding of our customers’ needs. A harder measure to improve is Commitment. Being a “favourite” channel is more difficult as viewers face an ever-increasing Suppliers number of television entertainment choices. Against this backdrop, ITV1 Commitment has declined to 40% (2005: 43%). ITV commissions programmes from independent producers In the same period BBC1 Commitment reduced to 48% consistent with a Code of Practice which is subject to regulation (2005: 52%) and C4 increased to 35% (2005: 34%). by Ofcom. ITV’s terms of trade for producers have resulted from discussions with the producers’ body PACT and ITV believes Our marketing efforts are focused on addressing this latter issue that they are considered to be fair and reasonable by market and early results in our brand tracking study are encouraging, participants. showing that viewers who had been exposed to and recognised our promotional activity have a Commitment level approximately We operate a procurement department to deal with many ten percentage points higher than non-recognisers. of our major suppliers and to ensure that we deal with them in a consistent and appropriate manner. Customers We also involve our supply chain in our CR programme and are We have a range of customers, including our viewers and our seeking assurances from selected suppliers that they themselves advertisers, with relationships overseen by a range of commercial have appropriate CR programmes in place. and managerial processes. Serving our viewers lies at the heart of everything we do, and our business is based on the ability to deliver the right kind of quality content that people want to watch. To understand this we commission an independent research company to recruit and survey a panel of 5,000 adults in the UK. The panel, selected to be representative of the UK population in its demographic constituency, is regularly asked about programmes that maximise ITV’s audience share. The information gathered represents an important input into the decision-making process of our Broadcasting business. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 29_ITV plc Report and accounts 2006 Key Performance Indicators (KPIs)

This section sets out the Key Performance Indicators (KPIs) that the Company uses to assess its performance. From these measures our stakeholders will be able to see how our business is performing.

Financial KPIs Non-financial KPIs Our financial KPIs are a range of output measures which are Our non-financial KPIs are a mixture of output measures. used to measure how successful we have been in achieving our The movements in these KPIs during the year are explained objectives. These are explained further in the Financial review. in the Operating review.

2006 2005 2006 2005 ITV1 net advertising revenue (NAR) (£ million) 1,281 1,462 ITV1 total adult impact volume (billions) 234.8 258.2 In 2006 ITV’s share of total ITV1 net advertising revenues Total number of adult viewings of a commercial on ITV1 (ratecard (NAR) represented 59% of the Company’s total revenues before weighted to 30 second equivalent) across a year. Our advertising disposed businesses (2005 68%). ITV1's advertising performance revenue divided by the number of impacts delivered gives the is one of the biggest factors influencing the Company’s financial Cost per Thousand (CPT) impacts which is the measure of the results. The principal factors resulting in the reduction in ITV1 unit advertising cost to our customers. NAR in 2006 were a 5% fall in the TV advertising market and the CRR effect as ITV1's share of commercial impacts fell in 2005, as explained on page [17]. 2006 2005 ITV1 adult SOCI (%) 33.1 37.0

2006 2005 ITV1's share of all commercial adult impacts (ratecard weighted Revenue outside of ITV1 NAR (£ million) 892 697 to 30 second equivalent). N.B: Channels which do not carry commercials (e.g. BBC) do not generate commercial impacts. Revenues outside ITV1 NAR consisted of total revenues adjusted for disposed businesses, less ITV1 NAR. We aim to earn more than

50% of total revenue from outside ITV1 NAR by 2010. In 2006 2006 2005 revenues outside ITV1 NAR were 41% of total revenues (2005: Adult SOCI excluding ITV1 (%) 9.1 7.6 32%). ITV’s (excluding ITV1) share of all commercial TV adult impacts (ratecard weighted to 30 second equivalent). 2006 2005 Operating EBITA (£ million) 375 460 Impact volumes and share (as well as viewing shares) are Operating profit before interest, taxation, amortisation and measured by the Broadcasters’ Audience Research Board exceptional items. This is the key profit indicator used to assess (BARB) which is owned by participants in the broadcast and our performance. advertising industries. We are currently in the process of developing other potential KPIs which assess the strengths we have, and are developing, to grow 2006 2005 the long term value of the business. Adjusted EPS (pence) 6.4 8.0 Earnings per share before exceptional items, amortisation and tax adjustments. This is an important metric used to demonstrate underlying value creation per share. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 30_ITV plc Report and accounts 2006 Business Review Risks and uncertainties

Detail on the governance arrangements by which risks and We consider the following to be the most significant risk factors, uncertainties are monitored and managed is set out in the relating to the Company’s operations. The risks listed do not Corporate Governance section of the report at pages 89 to 92. necessarily comprise all those associated with ITV, and are not set out in any order of priority. Additional risks and uncertainties not We view our work on risk as central to our aim of gauging the presently known to ITV, or that ITV currently deem immaterial, Company’s risk appetite in a way which also allows market may also have an adverse effect on its business. opportunities to be identified, and potential new revenue streams to be developed.

Broadcasting Risk description Impact Mitigation Erosion of television’s share – Loss of revenue – Development of revenue streams outside Broadcast advertising. of total display advertising – Promotion of TV versus other advertising media via active participation in the trade body (Thinkbox) – Review of the impact of new technologies e.g. PVRs. Continued decline in audience on ITV1 – Decline in SOCI – Development of predictive tools versus other commercial channels – Loss of revenue – Growth of the ITV family of channels (ITV 2, ITV 3, ITV 4, Citv) – Investment in the ITV1 schedule The CRR remedy remains in place – Pricing constraints on – Application to OFT to review remedy delivery of volume audiences – Design packages for advertisers that drive enhanced value – Growth of non-ITV1 revenue streams Delivery of value from Network – Ineffective use of funds – Annual budget approval Programme Budget, including cost – Segregation of commissioning and price negotiation of sports rights and acquisitions – Formal approval process (including financial limits) for individual commissions/acquisitions – ROI analysis performed on all sports rights and acquisition deals (e.g. films etc) as well as for key programme commissions – Performance ratchets in key talent deals and for key shows – Key programme brands produced in house Loss of transmission – Loss of revenue – Northern and Southern transmission centres act – Reputational risk as complementary back-up facilities – Business continuity testing programme – Emergency procedures in place – Constant monitoring of systems by service providers – Regular service and project review meetings with key suppliers

Content Risk description Impact Mitigation Retention of key ITV employees – Loss of profit – Incentivisation schemes for key talent Volume and international appeal of – Loss of revenue – Continually building new relationships with independent UK programme supply for sales exploitation and overseas producers – Increased development of programme ideas in owned overseas production centres (USA, Australia, Germany ) – Increased focus on exploiting the existing catalogue in new and traditional media Consumer Risk description Impact Mitigation Regulatory risk in relation to participation – Loss of revenue – Working pro-actively with the various regulators on the various TV revenues consultation processess in progress – Examination of additional revenue streams Delivery of new consumer propositions e.g. – Loss of revenue – Appointment of management with proven track record itv.com, ITV Local – Reputational risk of success in these new areas – Technology Action plan to provide clear strategic framework for internet-based initiatives. General Risk description Impact Mitigation Pension scheme funding gap – Additional funding – Appointment of Investment Fund managers requirement and Custodians – Trustees meet regularly to consider matters such as investment criteria, funding policy and legislative changes – An Investment Committee of Trustees which reviews investment policies – Formal actuarial valuations performed at least every three years to identify the solvency position Interest and exchange rate risk – Loss of profit – Formal interest rate and exchange rate risk policies – Regular review of financial instruments position – Weekly monitoring of mark to market values – Policy to hedge major balance sheet exposures – Formal quarterly forecasting of currency exposures WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 31_ITV plc Report and accounts 2006 Operating review 2006 was a year of significant change for both the sector and the company.

Introduction Operating review 2006 was a year of significant change for both the sector and Broadcasting the Company. Our traditional core business, ITV1, continued to In 2006 we put in place the strategies we believe will deliver be affected by a number of negative factors and we continued long-term sustainable growth in our broadcasting business. to develop new businesses and revenue streams. These include: The Market environment section of the Business Review – a new commissioning team and continued investment of (on pages 17 to 20) outlines the structural changes and approximately £1 billion per annum in our programme schedule; other factors impacting on our business, and the Strategy section (on pages 21 to 22) explains how the Board is positioning – investing in new programming and channel brands; the Company to address those challenges. The KPI section – optimising schedule efficiency; and (on page 29) confirms the extent to which evolving market pressures have affected the Company’s operations and financial – working to modernise our regulation including CRR and our results. The Operating review places these sections in the context Public Service Broadcasting (PSB) obligations. of the Company’s performance in 2006 in its three areas of We maintain tight control on costs and are one of the most operations: broadcasting, content and consumer. efficient broadcasters in the UK as measured by the relationship 2006 has seen ITV continue to adapt to the demands of the between programme spend and audience share. digital world. Our programming consistently delivers mass audiences on ITV1 and we have launched more new channels Highly efficient UK broadcaster to add to our successful family of digital channels. Our online presence will achieve a significant step forward with the launch Share of total Total audience UK channels programme efficency (2005) programme spend share Efficiency of our new itv.com broadband portal in the Spring of this year. £m (%) (%) ratio The Board of ITV have made significant changes to the leadership Five 4.0 6.6 1.65 of the Company in recent months. In November the Board ITV1 17.3 21.3 1.23 announced the appointment of Michael Grade as its new BBC1 19.2 23.1 1.20 Executive Chairman. He took up his position on 8 January 2007 BBC2 8.0 9.5 1.19 and assumed the responsibilities of the Chairman, Sir Peter Burt, C4 10.4 9.8 0.94 who resigned on the same day, and the executive responsibilities Source: 1 Ofcom Communications Market of the former Chief Executive, Charles Allen, who left the 2 BARB, Ofcom Communications Market, BBC Annual Report 2005 company on 4 January 2007. Although the appointment of an In 2006, ITV remained the leading free to air commercial Executive Chairman is not consistent with the provisions of the broadcaster in the UK, and ITV1 was the most popular channel Combined Code, the Board considered the circumstances within in peak time between 7.00pm and 10.30pm in the evening. which it was made justifiable in terms of restoring strategic In our programming, we broadcast a mixed portfolio of genres leadership to the Company. The appointment has been warmly including high budget entertainment and drama, major sporting welcomed by ITV’s leading investors, the broadcasting industry, events, popular factual programming and agenda setting news media commentators, the advertising community and other and current affairs. Whilst long-running popular shows such as key stakeholders. Coronation Street, Emmerdale and The Bill have seen some In 2007 John Cresswell, ITV Finance Director, was also appointed overall audience decline during 2006, we are working hard to to the role of Chief Operating Officer. He takes on all operating revitalize them. ITV had significant rating successes in 2006 responsibility and the executive team report directly to him. with newer programmes such as Dancing on Ice, Wild At Heart, Soapstar Superstar and Lewis. In 2006, ITV produced more new programmes with an audience in excess of 5 million viewers than all other UK broadcasters combined including the BBC. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 32_ITV plc Report and accounts 2006 Business Review

Operating review

Generating new programme successes Digital channels New programme brands and titles with audiences over 5 million in 2006 We increased our investment in our digital channels by 0 5 10 15 20 25 30 35 £14 million to £75 million in 2006, with a further £25 million ITV 1 projected for 2007 to increase our audience reach, and we BBC 1 BBC 2 launched a number of new channels. Because of the strength of C4 ITV’s family of digital channels, we were able to keep high-value Five audiences within the ITV family through cross-promotion, (Source: BARB) complementary scheduling and strong distinctive branding for In 2006, ITV News opened a bureau in Beijing to expand its each of our channels. We increased audience reach using the ITV coverage from one of the world’s largest economies and, in family of channels to target valuable, but distinct, demographics October, China correspondent John Ray marked the opening at different times of day. For example, our younger audiences with a week of special reports from the region. In March 2006, were attracted to programmes on ITV2 or ITV4, when ITV1 ITV News launched the highly acclaimed Three Degrees from was showing programming with more appeal to older viewers. Disaster series, assessing the evidence of climate change around The success of this approach in 2006 was that ITV2, ITV3 and the world. This has been followed up in January 2007 with ITV4 produced 29% of all year on year multichannel adult Mark Austin providing the first ever live coverage from impact volume growth and 50% of all year on year multichannel Antarctica for ITV News, with film of the melting glacial ice cap. advertising revenue growth. Overall advertising revenue from our ITV News also managed to secure exclusively the only phone digital channels grew by 41% to £157 million in 2006 exceeding video footage of the police raids in Forest Gate on 2 June. our target of £150 million p.a. a full year ahead of plan. In the week that marked the anniversary of the 7/7 London bombings, ITV News set the news agenda after undertaking Delivering for our advertisers the biggest ever survey of British Muslims. In 2006, ITV1 broadcast all the programmes on any commercial channel achieving over 8.2 million viewers (2005 – all programmes ITV’s awards over 7.5 million). With this scale, ITV helped advertisers achieve their brand building objectives of high impact delivery and In 2006, ITV won over 100 awards. The Queen, starring Helen viewer engagement. Mirren and made by ITV Productions, scooped best female actor and best screenplay awards at the Venice Film Festival. In 2006, ITV created a new Integrated Planning team to build This popular and critical acclaim continued into 2007 stronger relationships with strategic planning advertising with the award of two BAFTAs (best film and best actress agencies. They work alongside the airtime Trading team, who for Helen Mirren) and best actress Academy Award for focus on ITV’s portfolio of programming and digital channels and Helen Mirren at the 2007 Oscars. negotiate directly with media buying agencies. The two teams work closely with our advertisers to offer them bespoke ITV Productions’ one-off drama See No Evil: The Moors multimedia solutions for both mass audiences with ITV1, and Murders won two RTS Awards. In entertainment, Ant & Dec’s targeted audiences across our digital channels and new media popularity continued as the duo were awarded a best platforms such as mobile and online. We are also unique in our entertainment award for Saturday Night Takeaway at the competitive environment in having regional and local advertising Broadcast Awards, most popular entertainment presenter sales capabilities, and our ability to offer regional and sub-regional and most popular quiz for Gameshow Marathon at the advertising solutions has driven regional advertising revenue National Television Awards. growth by 14% in 2006. In children’s programming, our own Pocoyo won a BAFTA Children’s Award for best pre-school animation and the SOCI performance in 2006 Cristal best animated TV series gong at the International As described in Our Market Environment on page 17, a number Animated Film Festival. Our news teams had an excellent of factors have contributed to the decline in ITV SOCI during 2006. year, scooping accolades for programme of the year and For ITV1 the decline in adult SOCI was 10% to 33.1%. Under the news event of the year at the RTS Journalism Awards, CRR mechanism our advertisers would be able to reduce the as well as the RTS London award for London Tonight. share of their total UK TV advertising committed to ITV1 by a Our soaps continued to entertain and amuse our viewers, with proportionate 10% in 2007 whilst retaining their previous discount Emmerdale and Coronation Street winning nine awards at the and pricing structure. This loss will be partially offset through the British Soap Awards, including best comedy performance for continued investment and growth in our digital channels’ revenue Charlie Hardwick as Val Lambert in Emmerdale. And ITV Sport and through some outperformance against CRR on ITV1, where won eight awards at the RTS Television Sport Awards, for for instance regional advertising has been performing strongly. creativity, innovation and commentating. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 33_ITV plc Report and accounts 2006

It is almost impossible for all programmes to be instant Share of commercial impacts successes, and ITV Productions during 2006 did make a number – ITV1 was the biggest UK commercial channel in Adult SOCI of programmes that did not deliver the expected audiences. terms in 2006 with a 33.1% share (2005: 37.0%). Whilst acknowledging that there will continue to be some programmes, including well made and presented programmes, – ITV2 was the biggest non-terrestrial channel in Adult SOCI that do not achieve the ratings expected of them, we are working terms in 2006 with a 3.0% share (2005: 2.8%). hard to improve the hit rate for both new and returning shows – ITV3 was the second biggest non-terrestrial channel in and recognise that we must not be risk averse. Adult SOCI terms in 2006 with a 2.3% share (2005: 1.6%). As a producer-broadcaster ITV generates a significant amount of – ITV4 ranked 11th biggest non-terrestrial channel in Adult content in-house. There are clear synergies involved in combining SOCI terms in 2006 with a 0.7% share. our broadcasting and production operations. For broadcasting, the advantages are that we can secure development and innovation in-house, keep programme inflation ITV Channels 2006 all time adult impact share costs to a minimum, and gain access to rights and key talent. and volume in all homes For our production team the advantages include; a high volume

Share of commercial Volume of impacts of production attracting and supporting key talent both in front impacts (%) (billion) of and behind the camera, the ability to develop formats for ITV Channel 2006 2005 2006 2005 that can then be produced for and sold to broadcasters in other ITV1 33.1 37.0 234.8 258.2 countries, and increasingly the opportunities in digital and new ITV2 3.0 2.8 21.5 19.3 media to exploit the rights that are created when programmes ITV3 2.3 1.6 16.7 11.3 are commissioned. ITV4 0.7 0.1 5.0 0.6 We continued to grow our production for other broadcasters, M&M 0.4 0.4 2.6 2.6 in the UK, with hits like The Street for BBC. Citv 0.1 – 0.8 – ITV News – 0.1 – 1.1 GMTV 2.5 2.6 17.3 17.8 ITV Productions success GMTV2 0.1 – 0.4 0.3 – Lewis, an Inspector Morse spin-off, achieved an outstanding Total 42.2 44.6 299.1 311.2 audience of 11.0 million and a 48.4% share, making it the top (Source: BARB) performing drama of the year on UK television. Content – David Jason confirmed his leading place among UK talent ITV Productions is one of Europe’s largest and most successful with Ghostboat ranking as the highest two-part drama commercial producers, creating more than 3,000 hours of original in 2006 (audience of 8.6 million, and a 36.5% share) and programming each year. A Touch Of Frost ‘Endangered Species’ winning an impressive audience of 9.7 million and a 41.7% share. ITV Productions has dominated ITV1's list of top ten most popular programmes in terms of viewing share in 2006 with – Dancing on Ice became an immediate new hit, ranking eight of the top ten programmes (2005: six of the top ten). as the top performing entertainment programme on Five of the top ten shows on all UK television were made by ITV1, averaging 8.5 million viewers (41.0% share) and peaking ITV Productions (2005: four of the top ten). ITV Productions with nearly 11 million viewers. made seven of the top ten dramas on all UK television – ITV soaps continued to draw impressive audiences. (2005: five of the top ten). (Source: BARB) Coronation Street was the top-performing show in the UK Moving forward, as part of ITV’s strategy for growth, ITV in 2006, excluding sport, with one episode delivering an Productions is focusing on high-value genres, such as high-end audience of 11.4 million, and a 53.1% share. Throughout the contemporary drama and factual entertainment, and exiting year it was the top performing soap, averaging an audience low-growth and low-margin businesses. of 9.4 million and a 46.6% share (2005: 10.1 million viewers, 49.5% share). Emmerdale attracted an average audience of 7.1 million and a 39.5% share (2005: 8.0 million, 44.7% share), and won the head-to-head battle with EastEnders for all nine out of the nine times they competed directly in 2006 (2005: seven out of the eight times). Note: Statistics are for adult impacts and share of viewing achieved. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 34_ITV plc Report and accounts 2006 Business Review

Operating review

Worldwide Broadband Internationally, our ITV Worldwide production businesses Our online presence has three key components. In 2006 increased their turnover by 16% in 2006. Growth at Granada we started the planning and preparation for itv.com to be America, Granada Germany and Granada Australia was fuelled by re-launched with improved functionality, content and design. a strong year for returning formats such as Nanny 911 and Hell’s In Spring 2007, we will re-launch the new itv.com, having Kitchen with Gordon Ramsay in America, Das Perfekte Dinner committed more than £20 million to the development of a (Come Dine With Me) in Germany, and Dancing on Ice and fully interactive broadband platform and content digitisation. Dancing with the Stars (Strictly Come Dancing) in both Australia The site will enable viewers to watch all of ITV’s channels live, and Germany. In 2006 Granada America produced programmes catch up on any programme from the last 30 days, and access for major cable television and US networks including Hit Me Baby ITV’s extensive archive. Revenues will initially be delivered through One More Time (NBC), Gameshow Marathon (CBS) and Nanny advertising, and the ITV brand and cross-promotional capability 911 (Fox). will be used to drive traffic to the site. Alternative revenue models such as subscription and pay per view will be trialled in due Granada International increased its sales by 31% in 2006 to TV course, building on the success of the on-demand Champions broadcasters, home entertainment partners and new media League service launched in September 2006. platforms in more than 200 countries worldwide. Particular successes included TV movies, and format sales including Dancing Our wholly-owned community website, Friends Reunited, is On Ice to 12 territories including Russia, Belgium and Holland. the second key part of our online strategy and builds on user- generated content. Friends Reunited has grown under ITV’s Granada Ventures increased revenue in 2006 by 13%, particularly ownership with EBITA of £8.8 million in 2006 up 52% on 2005. from DVD sales. Key programming included box sets for Cracker and Agatha Christie’s Poirot, the launch of Pocoyo on DVD, Integration of Friends Reunited moved apace during the year, and a range of interactive DVD games launched at Christmas. with work undertaken to maintain its leading market positions Two of these interactive games featured in the Top 10 releases in schools reunion and genealogy, improve the consumer in the UK, with Little Britain the fourth best selling title in the proposition, and increase functionality through the upload of UK active charts. user-generated content. Advertising sales for the sites are now handled in-house at ITV, and Friends Reunited provides dating Consumer and jobs services for itv.com and ITV Local. Friends Reunited also provides itv.com with the infrastructure and traffic to leverage a Throughout 2006, ITV continued to develop its presence host of significant, related commercial opportunities, including and pursue growth opportunities in new markets and on targeted advertising, the provision of enriched online content, new platforms. ITV’s expanding Consumer team raised our and interactive services, to drive further growth. These are some business-to-consumer capability through a range of innovative of the ways that Friends Reunited and our other operations can market offerings, and ‘new pay’ revenue opportunities. In 2006 leverage off each other’s core competencies. ITV Consumer made a number of senior appointments to help drive this growth forward in the coming months. ITV Local is the third business in our online portfolio. Following a The performance of its separate businesses are set out below. successful trial in the Meridian area, we have identified a strong consumer demand for local information, news and services that Platforms are accessible online. ITV Local blends two key ITV strengths, our regional news brands, and our relationships with advertisers. Our platforms business focuses on exploiting and managing In 2006, ITV acquired business directory specialist Enable Media ITV’s interests in broadcasting platforms. Our Freeview multiplex (currently operating as Scoot) which gave us an immediate and SDN – one of the six multiplexes carrying digital channels on significant foothold into the online business directory listings Freeview – will deliver increasing revenues as the digital terrestrial sector, a market which is estimated to be worth approximately platform grows in popularity and our contracts with channel £150 million, and is projected to grow by 20% in 2007 and operators come up for review from 2008 onwards. strongly thereafter. Intended as a richer video-led, more interactive, version of a local paper, ITV Local is now adding London and Central regions to its service, with other regions to follow throughout the year. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 35_ITV plc Report and accounts 2006

ITV further developed its web presence in 2006 offering a wide range of streamed content, video on demand and services such as the Emmerdale interactive web channel. ITV will launch a full broadband channel in Spring 2007 with streaming of ITV's channels, 30 day catch-up, archive programming and many other interactive features. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 36_ITV plc Report and accounts 2006 Business Review

Operating review

Transactional Mobile In 2006 we launched ITV Play, our participation TV brand. 2006 saw some strategic developments for ITV’s mobile presence. This has proved popular with both viewers and those who We re-launched our entertainment portal, which offers news, participate. In 2006 we have given away nearly £12 million to entertainment, TV listings, weather, ring-tones and wallpapers, over 26,000 winners. ITV Play has a well-used and well-publicised and many other services for mobile users. ITV also agreed content free route through which comes one in five entries. The vast partnerships with Virgin Mobile and 3, becoming the first UK majority of viewers enjoy ITV Play without phoning in – three terrestrial to stream its channels on 3G phones. Within a month quarters of viewers typically watch the show on ITV1 during the of operation more than 100,000 sessions took place on the night without participating. Viewers generally play in moderation. 3 mobile TV simulcast service, demonstrating a real demand for When they do play, 77% of entrants play fewer than five times a ITV’s mobile TV services. We will continue to work with mobile day and typically play once every five weeks. network operators as they experiment with new offerings. We await the result of the current enquiry into participation TV Summary formats, and we are ensuring that our own systems are robust and our programmes are compliant. The Operating review highlights how the strengths of ITV’s operations helped us deliver programmes and services to satisfy ITV Play Viewer Care our viewing and advertising customers. Many of our successes have been significant peaks of performance in the face of ever Participation TV is a new sector, and we will continue more challenging competitive pressures. However, our aim is to to work with all relevant regulatory bodies to ensure that achieve more consistency in our on-screen performance. standards of viewer care across the industry are appropriate. Examples of measures ITV Play has in place include: The degree of structural market change, especially the move to digital and channel proliferation, has meant that some – Reminder phone alerts every 10 calls areas of performance have declined, as shown by some of our – On-screen information about all available entry routes, non-financial KPIs. Some of these pressures will reduce, as the referred to regularly by the presenters move to digital nears completion. – An in-house viewer care team The Financial review that follows explains how these factors have translated into the financial results. – Caller activity monitoring with pro-active calls to high-volume players – Daily limit on all entry routes – Entry limited to over 18s – A code of conduct in place with our production company suppliers WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 37_ITV plc Report and accounts 2006 Financial review

Statutory results for the year ended 31 December 2006 2006 was a difficult year for the television advertising market, with a decline of 4.9% compared to growth of 2.6% in 2005. Total revenue for the year ended 31 December 2006 was Coupled with the effect of CRR (following the 11% decline in slightly lower at £2,181 million (2005 restated: £2,196 million) ITV1 SOCI in 2005), this results in ITV1's 2006 NAR being down whilst revenue before disposed businesses was slightly up at 12% on 2005. £2,173 million (2005 restated: £2,159 million). Operating profit decreased to £264 million (2005: £329 million) with underlying In 2006, ITV’s total share of adult commercial impacts on UK operating profit before amortisation and exceptional items television was 42.2% (2005: 44.6%). The reduction in 2006 is down 18% at £375 million (2005: £460 million). Profit before explained in Our market environment on page 17. tax, amortisation and exceptional items decreased by 19% to The 2007 advertising trading season is now substantially £364 million (2005: £452 million). complete, with the majority of agency deals agreed. Our ITV1 negotiations are within the framework of the Contracts Rights Revenue Renewal (“CRR”) remedy agreed with the Office of Fair Trading

2005 as a condition to the merger creating ITV plc. 2006 Restated £m £m Sponsorship income increased by 29% in 2006 to £53 million Broadcasting 1,665 1,783 (2005: £41 million) due to price increases as the cost of Content 652 672 sponsorship moves closer to airtime value and also the successful – less internal (370) (432) sponsorship of new programmes and events such as the 2006 World Cup. 282 240 Consumer 126 61 Other broadcasting revenues of £118 million (2005: £111 million) Other revenues 12 20 include airtime sales on behalf of third parties, sales of ITV Producer/Broadcaster programming by the Network Centre to Channel 3 licences segment 2,085 2,104 not owned by ITV and interactive transactions from GMTV. Other segment 96 92 Total 2,181 2,196 Content Content revenue includes original productions for the UK and PRTS restatement (19) international markets, the distribution and exploitation of Total previously reported 2,177 internally generated and acquired rights, and studios and facilities revenue. Programming made by ITV for ITV channels The table above includes the revenue of disposed businesses is not included in Group revenue as it represents an internal (021 and Granada Learning) of £8 million in 2006 and £37 million programming cost of sale and in 2006 this internal programming in 2005. These businesses were sold in 2006. amounted to £370 million of ITV network programme spend (2005: £432 million). In 2006, total external sales of £282 million Broadcasting (2005: £240 million) included original productions for other Broadcasting sales comprise net advertising revenues, sponsorship broadcasters of £139 million (2005: £122 million), distribution income and other revenues. and exploitation sales of £123 million (2005: £99 million) and revenue from the hire of studio and technical facilities of Total ITV NAR decreased by 8% during the year to £1,494 million £20 million (2005: £19 million). (2005: £1,631 million). Consumer 2006 2005 Change £m £m £m Consumer revenues include interactive and online transactions of ITV1 1,281 1,462 (181) £47 million (2005: £44 million), income from the first full year of ITV2, ITV3, ITV4, ITV News Channel, ITV Play of £54 million (2005: £1 million) and revenues from our M&M, Citv 157 111 46 digital terrestrial multiplex SDN of £25 million (2005: £16 million). GMTV 56 58 (2) Total NAR 1,494 1,631 (137) Other revenues ITV1’s NAR in the year was £1,281 million (2005: £1,462 million), Other revenues include property rental income and 021 £181 million lower than 2005, however, this reduction was partially (sold in 2006). offset by the strong performance of ITV2, ITV3 and ITV4 which, together with Men and Motors and Citv contributed 41% year on year growth of £46 million resulting in total NAR of £157 million (2005: £111 million) across these channels. ITV’s NAR is a function of audience share which is measured in terms of commercial impacts, prevailing advertising market conditions and television’s share of that market. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 38_ITV plc Report and accounts 2006 Business Review

Financial review

Other segment Licence fees Revenues from outside of the main producer/broadcaster Licence fees comprise both a fixed annual sum (the cash bid) segment include those for Carlton Screen Advertising of and a variable element representing a percentage of our ITV1 £72 million (2005: £61 million), Friends Reunited of £16 million NAR and sponsorship income (PQR Levy). The PQR Levy is reduced (2005: £1 million) and Granada Learning of £8 million by the percentage of homes which receive ITV1 in digital format. (2005: £30 million). The digital licence rebate for 2006 is based on a digital penetration of 70% (2005: 61%). Restatement 2006 2005 Change During the period the Group has reviewed its revenue recognition £m £m £m policy for premium rate telephony services acknowledging the Cash bid payment 4 4 – increasing significance of this revenue stream. The Group’s policy PQR Levy 175 192 (17) has consequently been revised to reflect revenue as the amount Digital rebate (128) (121) (7) billed net of operator costs. Previously revenue was shown net Total 51 75 (24) of other costs, such as production costs, in addition to operator costs. 2005 revenue and operating costs have therefore been The payment will continue to fall as digital penetration increases restated, reflecting an increase in both of £19 million. The impact and will reduce to around £4 million in constant prices by the of this change in accounting policy in 2006 was that revenue time analogue transmissions cease. and operating costs are both £16 million higher than under the previous accounting policy. 2006 was the first full year of Exceptional items operation of ITV Play which also earns revenues from premium rate telephony services. ITV Play’s revenue and operating costs in The operating exceptional items in the year total a net 2006 would have been £34 million lower if the new accounting £35 million and include costs associated with takeover policy had not been adopted. There is no impact on either profit approaches, the departure of senior management and the £40 or balance sheet. million efficiency programme referred to in the Strategy section.

Broadcasting schedule costs Net financing charge

2006 2005 2006 2005 Financing income £m £m £m £m ITV1 (ITV plc share) 783 776 Expected return on pension scheme assets 144 112 Regional news and non-news 119 125 Interest income 23 21 902 901 Net gain on remeasurement of interest rate swaps to fair value – 11 ITV2 36 38 167 144 ITV3 14 9

ITV4 18 6 2006 2005 GMTV 36 36 Financing costs £m £m Other channels 7 8 Interest cost on pension scheme liabilities (126) (125) Total ITV plc schedule costs 1,013 998 Interest expense on debt instruments and finance leases (66) (54) Cost of programmes sold to minorities 57 53 Net loss on remeasurement of Total Broadcasting schedule costs 1,070 1,051 interest rate swaps to fair value (1) – The £6 million savings in regional programme costs are from (193) (179) increased efficiencies across our regional production centres and Net finance charge (26) (35) the greater use of co-productions. The increased investment in ITV’s digital channels has been a key factor in attracting new The decrease in the net finance charge in 2006 is primarily due to advertisers and viewers to our channels offering. a higher expected return on pension scheme assets as a result of the deficit funding payments. The increase in interest expense on debt instruments and finance leases is due to the bonds issued in October 2005 and 2006. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 39_ITV plc Report and accounts 2006

Investment income Earnings per share Investment income of £3 million comprises dividend income Basic earnings per share are 5.5 pence (2005: 5.4 pence). principally from holdings in SMG and Seven Network in Australia. Adjusted earnings per share before exceptional items, amortisation, and tax adjustments are 6.4 pence Gain on sale of property (2005: 8.0 pence). The £4 million profit from the sale of properties in the year Dividend principally arose from a gain on the sale of the Newcastle site. The Board is proposing a final dividend of 1.8 pence per share Gain on sales of fixed asset investments which is unchanged on the 2005 final dividend. The total dividend proposed for the period is therefore 3.15 pence which During the period, as part of the ongoing process to dispose of is an increase of 1% over 2005 and is covered 2.03 times by non-core businesses and investments, the Group sold 021 and the adjusted earnings per share (before exceptional items, Granada Learning and its investments in Seven Network and TV3. amortisation and tax adjustments) of 6.4 pence. The disposal of the 021 business for £4 million resulted in a nil gain or loss being booked. The sale of Granada Learning took Acquisitions of businesses place in April for a potential maximum consideration of £53 million. This comprises £17.5 million in cash, £17.5 million In November ITV acquired Enable Media Limited (formerly trading in loan notes (of which £28 million was received in 2006) and as Scoot) which provides online business directories, for a total a further £18 million which is contingent on the future cash outflow in 2006 of £3 million. performance of the business. The fair value of expected proceeds has been taken as £31 million for accounting purposes resulting Intangible assets in a £12 million loss on disposal. Total intangible assets at 31 December 2006 are £3,895 million The interest in Seven Network was sold for total consideration of being principally goodwill and acquired intangible assets. £87 million resulting in a profit of £29 million booked through the Goodwill balances are not amortised but are instead subject to income statement. The interest in TV3 was sold for a total annual impairment testing. An impairment charge of £20 million consideration of £70 million resulting in a profit of £40 million has been recognised in 2006 relating to Carlton Screen Advertising booked through the income statement. Offsetting these disposal as a result of reduced profitability following structural changes profits is a £22 million impairment relating to our interest in SMG in the cinema advertising market. Other intangible assets are which has experienced a significant decline in its share price since amortised over their useful lives. The total amortisation charge July 2006. for the year including the £20 million impairment is £76 million (2005: £102 million). After the year end ITV announced that it had given an irrevocable undertaking to sell its 9.99% shareholding in The Liverpool Football Club and Athletic Grounds plc, for proceeds of £17 million. The profit to be booked through the income statement is forecast to be £7 million in 2007.

Tax The effective rate of tax on PBT is 23%. The underlying rate of tax on operating profits is 30% as shown below:

Underlying rate of tax £m Operating profit before exceptional items, amortisation and share of profits of joint ventures and associates – Profit before tax as reported 288 – Exceptional items (net) – – Amortisation 76 – Share of profits of joint ventures and associates (8) 356 Underlying tax charge – Tax charge as reported 66 – Net charge for exceptional items (2) – Credit in respect of amortisation 17 – Credit in respect of prior period items 36 – Other irregular tax effects (11) 106 Underlying rate of tax 30% WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 40_ITV plc Report and accounts 2006 Business Review

Financial review

Cash flow and net debt Treasury operations and policies The cash generated from operations was £342 million A central department in London manages the Group’s treasury (2005: £456 million) and was down on the prior period due to operations, following policies and procedures laid down by the a £85 million decrease in operating profit before exceptional Board. The most significant treasury exposures faced by ITV are items and amortisation and a working capital outflow in 2006 raising finance, managing interest rate and currency positions and of £36 million versus a £10 million outflow in 2005. In 2005 investing surplus cash in high quality assets. Treasury policies have the working capital benefited by £34 million from the exercise been approved by the Board for managing each of these of a currency option hedging the Exchangeable Bond, which exposures including levels of authority on the type and use of was no longer required. financial instruments. Transactions are only undertaken if they relate to underlying exposures. The treasury department reports Net cash interest paid on the Group’s net debt position was regularly to the Audit Committee and treasury operations are £47 million. Taxation paid reflects payments on account during subject to periodic independent reviews and internal audit. the period. The equity dividends paid comprise the 2005 interim and final dividends of £54 million and £74 million respectively. ITV has established and retains strong relationships with a Expenditure on property, plant and equipment totalled number of banks to ensure a balanced spread of risk and to £79 million. During the period the Group bought three properties facilitate future funding requirements. that were previously held under long-term leases with the Set out below are ITV’s principal treasury policies: intention of subsequently disposing of them. Two of these are shown in the balance sheet as assets held for sale. Cash received – Financing: ITV’s financing policy is to fund itself long-term using from the sale of the investment in Seven Network (£87 million) debt instruments with a range of maturities. It is substantially and TV3 (£70 million) totalled £157 million. Cash received from funded from the UK and European capital markets and has assets held for sale of £40 million included the proceeds from bank facilities from the UK syndicated debt market. the sale of 021 (£4 million), Granada Learning (£28 million) – Interest rate management: the Group’s interest rate policy and three properties (£8 million). is to have fixed interest rate debt of between 30% and 70% As announced in November 2006, the Group has suspended its of its total net indebtedness over the medium term in order to share buy-back programme at £251 million. provide a balance between certainty of cost and benefit from low floating rates. ITV uses interest rate swaps and options in As described in more detail under pensions, a £207 million deficit order to achieve the desired mix between fixed and floating. funding payment into the defined benefit schemes is reflected in cash flows. – Currency management: the Group’s foreign exchange policy is to hedge foreign currency-denominated costs at the time of In October 2006, the Group issued a D500 million Eurobond with commitment and to hedge a proportion of foreign currency- a 2011 maturity and a £250 million Eurobond with a 2017 denominated revenues on a rolling 12 month basis. The policies maturity. The interest coupons currently payable on these significantly reduce the Group’s earnings and balance sheet instruments are 4.75% pa and 6.125% pa respectively. exposures to changes in exchange rates. The principal movements in net debt in the year are shown – Investment in cash: ITV operates strict investment guidelines in the table below: with respect to surplus cash and the emphasis is on preservation

£m £m of capital. Counterparty limits for cash deposits are largely Net debt at 31 December 2005 (481) based upon long-term ratings published by the major credit rating agencies. Deposits longer than three months require Cash generated from operations 342 the approval of the Management Committee of the Board. Net interest paid (47) Taxation paid (50) Equity dividends paid (128) Expenditure on property, plant and equipment (79) Proceeds from sale of investments and assets held for sale 197 Other movements (30) 205 Share buy-back (251) Defined benefit pension deficit funding (207) Net debt at 31 December 2006 (734) WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 41_ITV plc Report and accounts 2006

Pensions The IAS 19 deficit at 31 December 2006 was £285 million (2005: £532 million). A net actuarial gain of £29 million has The Group’s pension schemes are run independently by the been recognised as a credit to reserves. schemes’ trustees. All pension scheme assets are administered separately by the trustees using a number of external fund The reduction in the IAS 19 deficit during 2006 is primarily managers and custodians. due to the funding payments made as described above and the £29 million of net actuarial gains. The defined benefit schemes are funded on a long-term basis with advice from the scheme actuaries. Actuarial valuations of The funding of the defined benefit pension schemes is the assets and liabilities of the schemes are carried out every based upon the actuarial funding valuations conductedby three years with the most recent valuation of the main scheme the scheme actuaries. having been conducted by the scheme actuaries at 1 January 2005. Following the scheme merger referred to below, actuarial iv) Pension tax simplification funding valuations of certain sections of the merged scheme are The new tax regime for pension funds came into effect on being prepared as at 31 December 2006. 6 April 2006. This change, referred to as “A” Day, has significant consequences for senior executives for whom tax relief on i) Scheme merger pension accruals changed from that time. ITV took professional At the beginning of 2006 there were six separate defined benefit advice and concluded that it should not separately compensate pension schemes in the Group, a legacy of the company mergers any executives for this change, but should establish alternate that created ITV. Terms were agreed with the trustees to merge pension arrangements for those immediately impacted which those into a single scheme and that process completed at the leave both the individual and the Group in positions broadly end of January 2006, with the merged scheme comprising three similar to the past. separate sections. This will save significantly on the costs of administration and professional advice, and also enable a clearer v) Proposed changes to future defined benefit scheme accruals focus on the issues for a single scheme than was possible with During 2006 ITV concluded that the future cost of defined separate schemes. benefit pension scheme accruals was too great, being approximately 24% of salary as the employer’s contribution in ii) Deficit funding the main section of the scheme, and that the wide range of It was announced in September 2005 that ITV plc would make benefit levels across the merged scheme should be standardised. a £325 million contribution into the defined benefit pension ITV started a consultation with employees proposing possible schemes as part of a plan to address the deficit. The amount changes from April 2007. This consultation has involved many had been calculated so that, together with estimated future presentations and meetings with staff, and consideration of the investment returns on the schemes’ assets, it would enable the changes that might be made. Members will be notified of schemes to move towards being fully funded (on an ongoing changes prior to implementation. basis) over an appropriate period of time. The funding was made in cash with £118 million paid in International Financial Reporting Standards December 2005 and £207 million in January and February 2006. ITV plc has adopted EU endorsed IFRS for group reporting. The ITV plc parent company accounts continue to be presented under UK iii) IAS 19 GAAP. They have been included in this report following the results IAS 19 accounting for the Group’s defined benefit schemes of the consolidated group. values the annual cost and assets and liabilities of the scheme on disclosed bases and includes those in the Company’s consolidated income statement and consolidated balance sheet. In 2006 the IAS 19 operating charge for defined benefit schemes was £25 million (2005: £24 million). The charge within net financing costs for the net result of the expected return on scheme assets less the interest cost on liabilities was a credit of £18 million (2005: £13 million). The Group’s defined contribution schemes gave rise to an operating charge of £2 million (2005: £2 million). WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 42_ITV plc Report and accounts 2006 Business Review Forward look

This Business Review has set out the reasons why we believe that, Our estimates for net advertising revenue in the first quarter despite a challenging market environment, ITV has the strengths of 2007 are: and strategy to regain and grow market share beyond the ITV1 channel. UK television market +0.5% ITV1 (reflecting CRR effect) -9.2% at £291.8 million The media industry changes at an ever swifter pace: ITV plc excluding ITV1 +28.2% at £58.8 million – New channels continue to be launched; Total ITV plc -4.5% at £350.6 million – Digital switchover is approaching, starting in 2008; While it is difficult to predict how and where people will choose to – New distribution platforms develop: broadband, mobile, watch or consume content in the long-term, as one of Europe’s portable devices; and leading commercial production companies we can be confident that we will find more outlets and channels for our content, both – Interactivity increases and viewers expect their content to be in the UK and internationally. We are also growing our consumer delivered when and where they want it, not simply within a businesses which will provide ITV with new and sustainable broadcast schedule. revenue streams in the future. Our new broadband portal, itv.com, These changes offer ITV opportunities for our broadcasting, will launch in the Spring of 2007 and we believe will help drive the content and consumer teams. We believe we have the right way consumers use broadband to access top quality content. strategy, and the execution skills, to develop our business within these new areas. In a world of fragmented viewing, the channels that are able to offer a shared viewing experience for viewers and a mass audience to advertisers become ever more valuable. ITV1 remains the most-watched channel in peak-time and is still the most effective way for advertisers to build awareness and brands in a short space of time. We also believe that ITV’s regional presence, an intrinsic part of the Company’s history and identity, will increasingly be a point of difference and a competitive advantage as other commercial players will be unable to match our “local” connection with viewers or our regional advertising opportunities. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 43_ITV plc Report and accounts 2006 Glossary of terms

3G – third generation mobile phone network capable of transmitting high Product Placement – Product placement is the inclusion of, or reference to, a data levels including video product or service within a programme in return for payment or other valuable Analogue television – UK terrestrial television broadcasting format supporting consideration to the programme maker or broadcaster five channels (BBC1, BBC2, ITV1, C4 and Five) PRTS – premium rate telephony service – a telephone number charging a higher BARB – Broadcasters’ Audience Research Board – owned by broadcasters and rate than normal local calls and often used by television channels for participation advertisers and providing data on viewing statistics in UK households TV and quizzes Cable – Cable television – often also providing telephony and broadband Public Service Broadcasting (PSB) – the considerable requirements internet services placed on certain broadcasters including obligations to transmit particular material which may not be wholly commercial (eg religion and current affairs) Catch-up channel – a channel transmitted usually with a one hour delay, and within their schedules showing identical programmes to, a main channel eg ITV2+1 Rate-card – in relation to ITV1, the comparative pricing for advertisements of Channel 3 (licences) – the 15 regional licences and one national licence awarded different time duration (where the comparative price may not be directly to transmit Channel 3 across the UK. Eleven of the regional licences are held by proportionate to duration) the ITV Group. ITV also owns 75% of the national licence GMTV Share of Broadcast (SOB) – the term used to define the share of total Combined Code – the Combined Code on corporate governance published by UK television advertising revenue which is taken by one channel or group the Financial Reporting Council of channels Commitment – proportion of people who said that any of the ITV channels were Share of commercial impacts (SOCI) – the term used to define the share of either their favourite channel or one of their favourite channels total UK television commercial impacts which is delivered by one channel or Communications Act 2003 – the Act of Parliament under which the majority of group of channels UK television broadcasting is governed Spontaneous Consideration – proportion of people who said that ITV1 was Contract Rights Renewal (CRR) – the remedy agreed by Carlton, Granada and a channel they would consider watching when they sat down to watch TV. ITV in 2003 as a precondition of the merger of Carlton and Granada and which Weighted Impacts/Messages – Impacts can be weighted to take account governs the way in which ITV1 airtime is sold by ITV to its advertising customers of differing commercial durations. Weighted impacts are usually reported as Corporate Responsibility (CR) – term used to cover all areas of responsible “30 second equivalents”, where each commercial length is given a weighting value behaviour by companies including ethical behaviour, corporate governance relative to a 30 second commercial and environmental impact Wifi: – describes the technology of wireless local area networks developed for Cross Promotion – information given about programming on a channel by mobile computing devices such as laptops and increasingly for more services other channels in the same family either by on air announcement or specific including Internet and phone access, gaming connectivity of televisions, DVD programme trailers players, digital cameras DAB – Digital audio broadcasting DMB – Digital multimedia broadcast KPI GLOSSARY DVB-H – Digital video broadcasting for handheld Financial KPI’s: Defined benefit pension scheme – a pension scheme for employees under ITV1 Net Advertising Revenue – the NAR earned by ITV1 which the ultimate pension benefit is usually related to salary, either at date of Revenue outside ITV1 NAR – the aggregate revenues of ITV less ITV1 NAR retirement/leaving or at date of accrual Operating EBITA – the operating earnings before interest, tax and amortisation Defined contribution pension scheme – a pension scheme for employees under disclosed in the profit and loss account which the ultimate pension is usually related to the contributions paid into the Adjusted EPS – the earnings per share adjusted by excluding exceptional items, scheme by employee and employer and to the investment returns earned on adding back amortisation and adjusting for irregular tax effects such contributions up to retirement Non-financial KPIs: Dow Jones Sustainability Index – an index compiled by Dow Jones based upon CR measures assessed by them Total impact volume – measured in billions of impacts for ITV1 Digital Switch Over (DSO) – the point at which the UK terrestrial analogue ITV1 adult SOCI – SOCI for the adult demographic delivered on ITV1 transmissions will cease and DTT will take over – planned to be a rolling Adult SOCI other – SOCI for the adult demographic delivered on programme by region across the UK starting in 2008 and finishing in 2012 ITV channels excluding ITV1 Digital Terrestrial Television (DTT) – the digital transmission system (currently comprising six multiplexes each capable of transmitting between six and ten television channels) that is often referred to as Freeview and will fully replace analogue transmissions at DSO Freeview – the name by which UK digital terrestrial television is often known Impact or commercial impact – one advertising impact is one viewer watching one 30 second commercial (usually referred to as rate card weighted and relating to a specific demographic group) Net Advertising Revenue (NAR) – the amount of money received by the broadcaster as payment for spot advertising net of any commission Ofcom – the regulator established to govern UK broadcasting as well as other areas of the media and telephony industry OFT – the Office of Fair Trading is the UK’s principal competition regulator Peak-time – the evening period of heaviest television viewing activity normally between 7.00pm and 10.30pm PVRs – personal video recorders are machines able to record broadcast television programmes to a storage medium (usually a hard disk) from which it can be played back to a television and rewound/fast forwarded or paused and then continued WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 44_ITV plc Report and accounts 2006 Governance Board of directors

Michael Grade CBE Sir Robert Phillis Position: Executive Chairman Position: Non-executive director Appointment to the Board: 8 January 2007 Appointment to the Board: 7 February 2005 Age: 63 (8 March 1943) Age: 61 (3 December 1945) Committee Membership: Management Committee Membership: Remuneration (Chairman), Nomination External Appointments: Non-executive chairman of Pinewood External Appointments: Non-executive chairman of All3Media Holdings Limited Shepperton plc (2000) and Ocado Limited (2006). Non-executive (2004) and president of the Royal Television Society (2004) director of Charlton Athletic plc (1997) Previous Experience: Chief executive of Guardian Media Group plc (1997 – 2006). Previous Experience: Chairman of the BBC (2004 – 2006). Non-executive chairman Non-executive director of Jazz FM plc (1999 – 2006), group managing director of Hemsott plc (2000 – 2006). Non-executive director of SMG plc (2003 – 2004), of Carlton Communications Plc (1987 – 1991), managing director of Central Camelot Group plc (2000 – 2004) and Leisure & Media VCT plc (2001 – 2004). Independent Television plc (1981 – 1987), deputy director general of BBC Chief Executive of Channel 4 (1988 – 1997), Director of Programmes then (1993 – 1997), chief executive of BBC Worldwide (1994 – 1997), chairman of Managing Director, Television (Designate) BBC (1986 – 1988), Controller of BBC Enterprises Limited (1993 – 1994), chief executive of Independent Television BBC1 (1984 – 1986). President of Embassy Television, USA (1981 – 1984). News Limited (1991 – 1993) Director of programming, London Weekend Television (1973 – 1981). Qualifications: BA, FRSA, FRTS Fellow of the Royal Television Society and Vice-President of BAFTA Sir Brian Pitman Sir George Russell CBE Position: Non-executive director Position: Deputy Chairman Appointment to the Board: 2 December 2003, appointed to the Appointment to the Board: 2 December 2003, board of Carlton in 1998 appointed to the board of Granada in 2002 Age: 75 (13 December 1931) Age: 71 (25 October 1935) Committee Membership: Remuneration Committee Membership: Remuneration, Nomination External Appointments: Non-executive director of The Carphone Warehouse External Appointments: Director of The Wildfowl and Wetlands Trust (2002) Group PLC (2001), Singapore Airlines Limited (2003), Virgin Atlantic Airways Previous Experience: Non-executive director of Northern Rock plc (1996 – 2006). Limited (2004), Virgin Atlantic Limited (2004), Virgin Travel Group Limited (2004), Chairman of 3i Group plc (1992 – 2001), Northern Development Company Tomkins plc (2000), director of Acturis Limited (2000), The White Ensign (1994 – 2002), Camelot Group plc (1995 – 2002), Independent Broadcasting Association Limited (1999). He is also a senior adviser to Morgan Stanley (2001) Authority and its successor, the Independent Television Commission Previous Experience: Chief executive of Lloyds TSB Group plc for 13 years and (1989 – 1996), Independent Television News Limited (1988 – 1989), deputy chairman for four years, non-executive chairman of Next Plc (1998 – 2002). chairman of Channel 4 (1987 – 1989). Non-executive director of Taylor Woodrow Non-executive director of UbiNetics Holdings Limited (2002 – 2005) (1992 – 2004). Non-executive director of British Alcan Aluminium plc Qualifications: FCIB (1997 – 2001) and chief executive (1982 – 1985). Chief executive and then chairman of Marley plc (1986 – 1997) Qualifications: BA, DEng, FIMgt, FRSA WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da From left to right: Michael Grade CBE, Sir George Russell CBE, Sir Robert Phillis, Sir Brian Pitman. 45_ITV plc Report and accounts 2006

Baroness Usha Prashar CBE John McGrath Position: Non-executive director Position: Non-executive director Appointment to the Board: Appointment to the Board: 3 December 2003, appointed to 7 February 2005 the board of Carlton in 2003 Age: 58 (29 June 1948) Age: 68 (20 June 1938) Committee Membership: Audit Committee Membership: Audit (Chairman) External Appointments: Chairman – Judicial Appointments Committee (2005), External Appointments: Chairman of The Cicely Saunders Foundation (2001), chairman of the Royal Commonwealth Society director of Kensington Green (Management) Limited (2003) Previous Experience: Chancellor of De Montfort University (1996 – 2006). Previous Experience: Chairman (2000 – 2003) of The Boots Company PLC (director First Civil Service Commissioner (2000 – 2005). Non-executive director of Unite 1997 – 2000), group chief executive of Grand Metropolitan plc (1994 – 1997) and Group plc (2001 – 2004), Channel Four Television Corporation (1992 – 1999), Diageo PLC (1997 – 2000), director of Justerini and Brooks Limited (1996 – 2000), Chairman of the National Literacy Trust (2000 – 2005), member of the BBC The Prince of Wales International Business Leaders Forum (1996 – 2001) Educational Broadcasting Council (1987 – 1988), the Arts Council of Great Britain Qualifications: BSc (1994 – 1997), the Council Royal Holloway College London (1992 – 1997), trustee of BBC World Service Trust (2002 – 2005) John Cresswell Qualifications: BA, Diploma in Social Administration Position: Chief Operating Officer and Finance Director Appointment to the Board: 16 January 2006, joined the Group in 2000 Sir James Crosby Age: 45 (2 May 1961) Position: Senior independent non-executive director Committee Membership: Management Appointment to the Board: 3 December 2003, appointed to the External Appointments: Non-executive director of The Liverpool Football Club board of Granada in 2002 and Athletic Grounds plc (2003) Age: 50 (14 March 1956) Previous Experience: Finance Director Meridian Broadcasting Limited Committee Membership: Remuneration, Nomination (Chairman) (1993 – 1995), Finance Director United Broadcasting and Entertainment Limited External Appointments: Non-executive director of Compass Group PLC (2007) (1996 – 1998) and Chief Operating Officer (1998 – 2000). Director of Operations and of the Financial Services Authority (2004). Granada Content (2000 – 2001), Chief Operating Officer and FD Granada Content Previous Experience: Chief executive of HBOS plc (2001 – 2004) and Chief Operating Officer, Granada and ITV (2004 – 2006) (1999 – 2006) Qualifications: BSc, ACA Qualifications: BA, FFA Mike Clasper Position: Non-executive director Appointment to the Board: 3 January 2006 Age: 53 (21 April 1953) Committee Membership: Audit, Nomination External appointments: Management committee of Prince of Wales Business and Environment Programme. Chairman of the Marketplace Impact Taskforce of Business in the Community. Founder member of the Corporate Leaders Group on Climate Change. Member of the National Employment Panel Previous Experience: Chief Executive of BAA plc (2003 – 2006). Deputy Chief Executive BAA plc (2001 – 2003). President of Global Home Care, Procter & Gamble (1999 – 2001) Qualifications: MA WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da From left to right: Baroness Usha Prashar CBE, Sir James Crosby, Mike Clasper, John McGrath, John Cresswell. 46_ITV plc Report and accounts 2006 Governance Directors’ report

The directors submit their report with the audited financial statements for the year ended 31 December 2006.

Business review and results for the year Under section 234 ZZB of the Companies Act 1985, the Company is required to produce a fair review of the business of the Company, including a description of the principal risks and uncertainties facing the Company. This review is contained in the Market environment, Strategy, Resources and relationships, Key performance indicators, Risks and uncertainties, Operating review, Financial review and Forward look sections of the Business Review on pages 16 to 42. These sections of the Business Review are incorporated in this report by reference. The results for the year are set out on page 51. Profit after tax was £222 million (2005: £226 million).

Principal transactions and post balance sheet events On 5 April 2006 the Group disposed of Granada Learning Ltd to Veronis Suhler Stevenson for £35 million with a further £18 million payable subject to performance over a two year period. On 23 May 2006 the Group disposed of its 11.6% holding in Seven Network Ltd for £87 million. On 31 August 2006 the Company sold its 45% interest in CanWest Granada Media Holdings Ltd (the holding company for the Irish commercial broadcaster TV3 Television Network Ltd) to Doughty Hanson for £70 million. In October 2006, the Company issued a d500 million Eurobond with a 2011 maturity and a £250 million Eurosterling bond with a 2017 maturity. Further details are given in the Financial review section of the Business Review on page 37. On 4 January 2007 the Group repaid a d356 million exchangeable bond at par. On 6 February 2007 the Company gave an irrevocable undertaking to sell its 9.99% holding (3,482 shares) in the Liverpool Football Club and Athletic Grounds Plc at a price of £5,000 per share. Post balance sheet events are described in note 34 of these financial statements.

Dividends A final dividend on the ordinary shares is proposed for the year ended 31 December 2006 of 1.8 pence per share payable on 2 July 2007 to shareholders on the register at the close of business on Friday 20 April 2007. The shares will be quoted ex-dividend from Wednesday 18 April 2007. The total dividends paid and proposed for the year ended 31 December 2006 are therefore as follows:

2006 2005 Interim dividend 1.35p 1.32p Final dividend 1.80p 1.80p Total 3.15p 3.12p The Dividend Reinvestment Plan is being offered to the holders of ordinary shares in respect of the final dividend and further information about the Plan is given on page 102.

Substantial shareholdings As at 7 March 2007 the Company had received notifications from the following companies and institutions of interests of themselves and their clients in 3% or more of the issued ordinary share capital (carrying rights to vote in all circumstances) of the Company (numbers of shares and percentage interests are as at the notification dates).

Shares % Sky Holdings Ltd (a subsidiary of British Sky Broadcasting Group plc) 696,046,825 17.90 Brandes Investment Partners L.P. 321,967,023 8.24 Legal & General Investment Management Ltd 155,374,971 3.99 A profile of shareholdings is set out on page 102.

Share capital Full details of the movements in the authorised and issued share capital of the Company during the year are set out in note iv on page 86. The Company has the authority to purchase up to 412,980,000 of its ordinary shares. The authority remains valid until the 2007 Annual General Meeting or, 9 August 2007 if earlier. A resolution will be put to shareholders to renew the authority at the 2007 Annual General Meeting. During the year the Company purchased 240,800,000 ordinary shares at a total cost of £251 million as part of its share buy-back programme. As announced on 28 November 2006 the Company has decided to suspend the share buy-back programme until further notice. The Company has a number of discretionary trusts funded by loans to acquire shares for the potential benefit of employees of the Group. Details of shares held by the trusts at 31 December 2006 are set out in note 29 to the accounts. During the period shares have been released from these trusts in respect of share award schemes for employees. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 47_ITV plc Report and accounts 2006

Directors The following were directors of the Company during the year:

Appointed Resigned Sir Peter Burt 8 January 2007 Sir George Russell Charles Allen 1 October 2006 David Chance 13 February 2006 Mike Clasper 3 January 2006 Sir James Crosby John Cresswell 16 January 2006 John McGrath Sir Robert Phillis Sir Brian Pitman Baroness Usha Prashar Henry Staunton 29 March 2006 Michael Grade was appointed as a director on 8 January 2007 and will retire from the Board at the forthcoming Annual General Meeting and being eligible will offer himself for election. Sir Brian Pitman and Sir George Russell retire from the Board, and being eligible, offer themselves for re-election. Sir Brian Pitman and Sir George Russell do not have service contracts with the Company. The service contract of Michael Grade is terminable upon one year’s notice provided that such notice may not be served prior to 8 January 2008. Further information on service contracts is set out in the Remuneration report on page 95. No director had any interest in any contract with the Company or its subsidiary undertakings except as disclosed in these financial statements.

Directors’ interests Shareholdings in the share capital of ITV plc beneficially owned by directors and their family interests at 31 December 2006 are set out below. Details of directors’ interests over ordinary shares under company share schemes are set out in the Remuneration report on pages 93 to 101.

31 December 2005 31 December 2006 or appointment date if later ITV ITV ITV ITV Ordinary Convertible Ordinary Convertible Sir Peter Burt 30,000 – 30,000 – Sir George Russell 4,214 – 4,100 – Mike Clasper 18,000 – –– Sir James Crosby 23,058 – 23,058 – John Cresswell 409,083 – 317,923 – John McGrath 10,236 – 9,760 923 Sir Robert Phillis 10,000 – 10,000 – Sir Brian Pitman 2,097 – 2,097 198 Baroness Usha Prashar 3,000 – – – The ITV convertible shares were cancelled on 1 January 2006. Between the end of the financial year and 7 March 2007 there were no changes in directors’ interests except for the beneficial acquisition by Sir George Russell of 56 ITV ordinary shares under the Dividend Reinvestment Plan.

Employees The Company had 5,788 employees as at 31 December 2006, of which 68 were employed outside of the UK. Employees are informed about significant business issues and the Group’s performance using email, the Company’s intranet and briefing meetings at each main location. Communication and consultation with employees is a high priority and the Company has a framework for consultation and information under which Communication Groups on each site have joint responsibility for maintaining a regular dialogue on all issues concerning the employees. ITV’s creative, sales, management, technical and administrative talent are key to the Company’s success. The Company’s Diversity Policy which aims to ensure equality of opportunity irrespective of gender, marital status, race, origin, nationality, religious belief, disability, age, sexual orientation, or gender reassignment in recruitment, learning and development and promotion, also covers arrangements for the continued employment of and appropriate training for employees who become disabled whilst working for the Company. The policy includes a range of measures such as training in recruitment, communication strategy, 15 bursaries and over 60 traineeship opportunities and extensive monitoring which includes an equal pay audit. Diversity strategy is cascaded from the Board through to each business area, delivering action plans addressing both “On” and “Off” screen representation of diversity and the commercial impact diversity has. The Company is a leading and active participant in the major bodies whose focus is the employment and development and on-screen representation of minority groups – Opportunity Now, the Employers’ Forum on Disability, the Broadcasters’ Disability Network, Stonewall and The Employers Forum on Age. The Company has just completed a two year term as Chair of the Cultural Diversity Network. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 48_ITV plc Report and accounts 2006 Governance

Directors’ report

The Company has a strong commitment to training which includes both off-the-job courses, such as technical and programme courses in camera operations, presentation skills for journalists, script writing and copyright law; and on-the-job training such as coaching and mentoring. The Company’s management development programme, “Creating Strong Leaders” was further developed in 2006. Since its launch in 2005, more than 750 managers have now attended a programme. Television’s reliance on ever-changing technology requires that we keep our employees well trained. We supported another two regional newsrooms in the move to digital technology in 2006. It is vital for the Company to offer a comprehensive remuneration, benefits and incentive package to help recruit and retain the best talent in the market. The range of benefits the Company offers includes a contributory pension scheme, childcare support, life assurance and an extensive employee discount scheme called ITV Deals. Details of the Company benefits are made available to all employees via the Company intranet. The Company incentive programmes are structured to give our employees a stake in the future success of the Company. As well as a SAYE scheme open to all staff that enables them to save for shares in ITV plc; the Company, also operates an innovative bonus scheme that encourages employees to be creative and develop great programmes, content and new business ideas. Senior management incentives are based on achieving corporate financial targets and an assessment of individual performance against objectives, including behavioural performance against the ITV Values, diversity and people development. The Company also has an all-employee bonus scheme which allows employees to receive a bonus when the Company is successful. The breadth of these packages is designed for employees to maximise the value they obtain from being part of ITV. The health and safety of employees, contractors and visitors is considered as a priority. There are well established health and safety policies and procedures in place throughout the business and these are supported by an effective training programme. Further information is given in our Corporate Responsibility report 2006.

Donations The Company made contributions to charities and equivalent organisations amounting to £10.6 million (2005: £19.3 million). It is the Company’s policy not to make cash contributions to any political party. However, the Political Parties, Election and Referendums Act 2000 (“the Act”) requires companies to obtain shareholder approval for any donations to political organisations or political expenditure in excess of an aggregate of £5,000. Within the normal activities of the Group’s national and regional news gathering operations there are occasions when the Group may provide some hospitality at functions where politicians are present. The Group, as part of its normal industry activities, is also keen to maintain contact with all political parties to ensure that they are aware of the key issues affecting its business. Under the Act the definition of political expenditure and donations to political organisations is extremely wide and may be construed as covering such areas of the Group’s normal activities. Shareholder authority for such expenditure was given at the Annual General Meeting held in May 2006 and a similar resolution will be proposed at the 2007 Annual General Meeting. During the year the Group made the following payments totalling £40,787 (2005: £31,406) to cover the cost of hosting receptions at the Autumn party conferences: Labour Party £23,061; Conservative Party £9,184; Liberal Democrat Party £6,556 and Plaid Cymru Party £1,986.

Treasury operations and financial instruments Note 25 to the accounts gives details of the Group’s financial risk management policies and related exposures.

Creditor payment policy The Company’s policy, in relation to all its suppliers, is to settle the terms of payment when agreeing the terms of the transaction, ensure awareness of the terms and to abide by those terms provided that it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Company does not follow any code or standard on payment practice. The number of days’ purchases outstanding for payment by the Company as at 31 December 2006 was nil days (2005: nil days).

Going concern The directors are satisfied that the Company has sufficient resources to continue in operation for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Statements.

Properties Note 12 to the accounts gives details of the valuations of the Group’s operational properties as at the balance sheet date.

Audit The directors who held office at the date of approval of the Directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware: and each director has taken all steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. A resolution for the re-appointment of KPMG Audit Plc as auditor to the Company will be proposed at the forthcoming Annual General Meeting.

Annual General Meeting The Annual General Meeting will be held on Thursday 17 May 2007 at 11.00 am in the Whittle Room at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE. Accompanying this report is the Notice of meeting together with an explanation of special business to be considered at the meeting.

By order of the Board

James Tibbitts Company Secretary

200 Gray’s Inn Road London WC1X 8HF 7 March 2007 WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 49_ITV plc Report and accounts 2006 Statement of directors’ responsibilities in respect of the Annual Report and the financial statements

The directors are responsible for preparing the Annual Report and the Group and parent company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and parent company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). The Group financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and the performance of the Group; the Companies Act 1985 provides in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. The parent company financial statements are required by law to give a true and fair view of the state of affairs of the parent company. In preparing each of the Group and parent company financial statements, the directors are required to: – select suitable accounting policies and then apply them consistently; – make judgments and estimates that are reasonable and prudent; – for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; – for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and – prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the parent company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations the directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 50_ITV plc Report and accounts 2006 Governance Independent auditor’s report to the members of ITV plc

We have audited the consolidated and parent company financial statements (the “financial statements’’) of ITV plc for the year ended 31 December 2006 which comprise the consolidated income statement, the consolidated and parent company balance sheets, the consolidated cash flow statement, the consolidated statement of recognised income and expense and the related notes. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited. This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the Group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the parent company financial statements and the Directors’ Remuneration Report in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities on page 49. Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements. The information given in the Directors’ Report includes that specific information presented in the Market environment, Strategy, Resources and relationships, Key performance indicators, Risks and uncertainties, Operating review, Financial review and Forward look sections, that are on pages 17 to 42. In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We review whether the Corporate Governance Statement reflects the Company’s compliance with the nine provisions of the 2006 Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ Remuneration Report to be audited.

Opinion In our opinion: – the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Group’s affairs as at 31 December 2006 and of its profit for the year then ended; – the Group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; – the parent company financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the parent Company’s affairs as at 31 December 2006; – the parent company financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985; and – the information given in the Directors’ Report is consistent with the financial statements.

KPMG Audit Plc Chartered Accountants Registered Auditor

London 7 March 2007 WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 51_ ITV plc Report and Accounts 2006 Financial Statements Consolidated income statement

2005 2006 Restated For the year ended 31 December: Note £m £m Revenue 2 2,181 2,196 Operating costs before amortisation of intangible assets and exceptional items (1,806) (1,736) Operating costs – exceptional items 5 (35) (29) Earnings before interest, tax and amortisation (EBITA) 340 431 Amortisation and impairment of intangible assets 13 (76) (102) Total operating costs 4 (1,917) (1,867) Operating profit 264 329 Financing income 8 167 144 Financing costs 8 (193) (179) Net financing costs 8 (26) (35) Share of profits of joint ventures and associated undertakings 14 8 11 Investment income 3 5 Gain on sale of properties 4 11 Gain/(loss) on sale and impairment of subsidiaries and investments (exceptional items) 5 35 (10) Profit before tax 288 311 Taxation 9 (66) (85) Profit for the year 222 226

Attributable to: Equity shareholders of the parent company 219 222 Minority interests 3 4 Profit for the year 222 226

Basic earnings per share 11 5.5p 5.4p Diluted earnings per share 11 5.4p 5.3p Operating exceptional items during the year comprise reorganisation and integration costs and expenditure relating to the two takeover approaches (see note 5 for details). WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 52_ ITV plc Report and Accounts 2006 Financial Statements Consolidated balance sheet

2005 2006 Restated At 31 December: Note £m £m Non-current assets Property, plant and equipment 12 193 235 Intangible assets 13 3,895 3,947 Investments in joint ventures and associated undertakings 14 66 93 Equity investments 15 37 181 Distribution rights 16 11 13 Net deferred tax asset 9 – 74 4,202 4,543 Current assets Assets held for sale 27 132 63 Programme rights and other inventory 17 400 388 Trade and other receivables due within one year 18 405 362 Trade and other receivables due after more than one year 19 7 7 Trade and other receivables 412 369 Cash and cash equivalents 23 961 663 1,905 1,483 Current liabilities Liabilities held for sale – (9) Borrowings 24 (471) (288) Trade and other payables due within one year 20 (706) (734) Trade and other payables due after more than one year 21 (9) (4) Trade and other payables (715) (738) Current tax liabilities (159) (217) Provisions 26 (9) (23) (1,354) (1,275)

Net current assets 551 208

Non-current liabilities Borrowings 24 (1,224) (856) Defined benefit pension deficit 6 (285) (532) Net deferred tax liability 9 (7) – Other payables 22 (56) (29) Provisions 26 (18) (29) (1,590) (1,446)

Net assets 3,163 3,305

Attributable to equity shareholders of the parent company Share capital 29 401 423 Share premium 30 120 98 Merger and other reserves 30 2,690 2,666 Translation reserve 30 (3) (1) Available for sale reserve 30 17 33 Retained earnings 30 (69) 74 Total attributable to equity shareholders of the parent company 30 3,156 3,293 Minority interest 30 7 12 Total equity 30 3,163 3,305 The accounts were approved and authorised for issue by the Board of Directors on 7 March 2007 and were signed on its behalf by:

Michael Grade

John Cresswell WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 53_ ITV plc Report and Accounts 2006 Consolidated cash flow statement

2006 2005 For the year ended 31 December: £m £m £m £m Cash flows from operating activities Operating profit before exceptional items 299 358 Depreciation of property, plant and equipment 32 34 Amortisation and impairment of intangible assets 76 102 Increase in programme rights and other inventory, and distribution rights (10) (30) (Increase)/decrease in receivables (33) 23 Increase/(decrease) in payables 7 (3) Movement in working capital (36) (10) Cash generated from operations before exceptional items 371 484 Cash flow relating to operating exceptional items: Operating loss (35) (29) Increase in payables and provisions* 6 1 Cash outflow from exceptional items (29) (28) Cash generated from operations 342 456 Defined benefit pension deficit funding (207) (118) Interest received 22 20 Interest paid on bank and other loans (66) (42) Interest paid on finance leases (3) (4) Investment income 3 5 Taxation paid (50) (120) (301) (259) Net cash from operating activities 41 197 Cash flows from investing activities Acquisition of subsidiary undertakings, net of cash and cash equivalents acquired and debt repaid on acquisition (3) (208) Proceeds from sale of assets held for sale 40 3 Proceeds from sale of property, plant and equipment – 29 Acquisition of property, plant and equipment (79) (46) Acquisition of intangibles (4) – Acquisition of associates and investments (1) (30) Loans repaid by joint ventures 2 – Proceeds from sale of subsidiaries – 2 Proceeds from sale of investments and associates 157 – Net cash from/(used in) investing activities 112 (250) Cash flows from financing activities Proceeds from issue of ordinary share capital – 50 Purchase of US held shares – (42) Bank and other loans – amounts repaid (13) (88) Bank and other loans – amounts raised 581 322 Capital element of finance lease payments (3) (3) Dividends paid to minority interest (8) – Redemption of preference shares – (8) Share buy-backs (251) – Purchase of own shares via employee benefit trust (31) – Equity dividends paid (128) (98) Net cash from financing activities 147 133 Net increase in cash and cash equivalents 300 80 Cash and cash equivalents at 1 January 663 582 Effects of exchange rate changes and fair value movements on cash and cash equivalents (2) 1 Cash and cash equivalents at 31 December 961 663

* Includes £6 million (2005: £4 million) relating to expenditure against provisions held in respect of activities which have been previously discontinued. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 54_ ITV plc Report and Accounts 2006 Financial Statements Consolidated statement of recognised income and expense

2006 2005 For the year ended 31 December: Note £m £m Exchange differences on translation of foreign operations 30 (2) 1 Revaluation of available for sale investments 4 20 Disposal and impairment transferred from available for sale reserve to income statement (20) – Movements in respect of cash flow hedges – (1) Actuarial gains and losses on defined benefit pension schemes 6 29 35 Taxation on items taken directly to equity 9 (4) (8) Net income recognised directly in equity 7 47 Profit for the year 222 226 Total recognised income and expense for the year 229 273

Attributable to: Equity shareholders of the parent company 30 226 269 Minority interests 30 3 4 Total recognised income and expense for the year 229 273

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 55_ ITV plc Report and Accounts 2006 Notes to the accounts

1 Accounting policies a) Basis of preparation The Group accounts consolidate those of ITV plc, (“the Company”), a company domiciled in the United Kingdom and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates and jointly controlled entities. As required by EU law (IAS Regulation EC 1606/2002) the Group’s accounts have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”). The accounts are principally prepared on the historical cost basis. Areas where other bases are applied are identified in the accounting policies below. The Company has elected to prepare its parent company financial statements in accordance with UK GAAP. The accounting policies set out below, except as noted above, have been applied consistently in presenting the consolidated financial information. b) Revenue recognition Revenue is stated exclusive of VAT and consists of sales of goods and services to third parties. Revenue from the sale of goods is recognised when the Group has transferred the significant risks and rewards of ownership and control of the goods sold and the amount of revenue can be measured reliably. Key classes of revenue are recognised on the following basis: Advertising and sponsorship on transmission Programme production on delivery Programme rights when contracted and available for exploitation Participation revenues as the service is provided Revenue on barter transactions is recognised only when the goods or services being exchanged are of a dissimilar nature. During the period, the Group has reviewed its revenue recognition policy for premium rate telephony services recognising the increasing significance of this revenue stream. The Group’s policy has consequently been revised to reflect revenue as the amount billed net of operator costs. Previously revenue was shown net of other costs, such as production costs, in addition to operator costs. 2005 revenue and operating costs have therefore been restated, reflecting an increase in both of £19 million. The impact of this change in accounting policy in 2006 was that revenue and operating costs are both £16 million higher than under the previous accounting policy. 2006 was the first full year of operation of ITV Play which also earns revenues from premium rate telephony services. ITV Play’s revenue and operating costs in 2006 would have been £34 million lower if the new accounting policy had not been adopted. There is no effect on profit or the balance sheet. c) Subsidiaries, associates and joint ventures 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 so as 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. 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 the financial and operating decisions of an entity but is not control or joint control over those policies. These investments are accounted for using the equity method. d) 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 consumption 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. e) Property, plant and equipment Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Certain items of property, plant and equipment that had been revalued to fair value prior to 1 January 2004, the date of transition to IFRS, are measured on the basis of deemed cost, being the revalued amount less depreciation up to the date of transition. Leases Finance leases are those which transfer substantially all the risks and rewards of ownership to the lessee. Assets held under such leases are capitalised within property, plant and equipment and depreciation is provided as appropriate. Outstanding finance lease obligations, which comprise the principal plus accrued interest, are included within borrowings. The finance element of the agreements is charged to the income statement over the term of the lease on a systematic basis. All other leases are operating leases, the rentals on which are charged to the income statement on a straight line basis over the lease term. Depreciation Depreciation is provided to write off the cost of property, plant and equipment less estimated residual value on a straight line basis over their estimated useful lives. The major categories of property, plant and equipment are depreciated as follows: Vehicles, equipment and fittings 3 to 13 years Plant and machinery 10 to 20 years Properties: television studios 40 to 60 years leaseholds shorter of residual lease term or 70 years Freehold land not depreciated Freehold buildings up to 60 years WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 56_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

1 Accounting policies (continued) f) Intangible assets Business combinations and goodwill All business combinations that have occurred since 1 January 2004 are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the identifiable net assets acquired. Subsequent adjustments to the fair values of net assets acquired made within 12 months of the acquisition date are accounted for from the date of acquisition. For business combinations prior to this date, but after 30 September 1998, goodwill is included at its deemed cost, which represents the amount recorded under UK GAAP at that time less amortisation up to 31 December 2003. The classification and accounting treatment of business combinations occurring prior to 1 January 2004, the date of transition to IFRS, has not been reconsidered as permitted under IFRS 1. Goodwill is stated at cost less any accumulated impairment losses and is allocated to cash generating units. Goodwill arising on acquisitions prior to 30 September 1998 was recognised as a deduction from equity. Other intangible assets Other intangible assets acquired by the Group are stated at cost less accumulated amortisation except those identifiable intangible assets acquired as part of a business combination which are shown at fair value at the date of acquisition (in accordance with IFRS 3 (Business combinations)) less accumulated amortisation. Identifiable intangible assets are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. Amortisation Amortisation is charged to the income statement over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill is not amortised but is tested for impairment at each balance sheet date. The useful lives and amortisation methods for each major class of intangible asset are as follows: Film libraries Sum of digits 20 years Licences Straight line 11 to 17 years Brands Straight line up to 11 years Customer contracts Straight line up to 6 years Customer relationships Straight line 5 to 10 years Software development costs Straight line 3 to 5 years g) Distribution rights Programme rights acquired primarily for the purposes of distribution are classified within the balance sheet as non-current assets. They are recognised initially at cost and charged through the income statement over either a three or five year period depending on genre. h) Equity investments Equity investments comprise equity securities which do not meet the definition of subsidiaries, joint ventures and associates, and are stated at fair value, with any resultant gain or loss recognised directly in the available for sale reserve in equity, unless the loss is a permanent impairment when it is recorded in the income statement. i) Impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the income statement for the amount by which the asset’s carrying amount exceeds its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Where an asset such as goodwill relates to more than one cash-generating unit, impairment is tested against the cash flows of the group of cash-generating units related to that asset. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. Impairment losses in respect of goodwill are not reversed. j) Foreign currencies Foreign currency transactions Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Foreign currency monetary assets and liabilities at the balance sheet date are translated into sterling at the rate of exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities measured at historical cost are translated into sterling at the rate of exchange on the date of the transaction. Financial statements of foreign operations The assets and liabilities of foreign operations are translated into sterling at the rate of exchange ruling at the balance sheet date. The revenues and expenses of foreign operations are translated into sterling at the average rate of exchange ruling during the financial period. Exchange differences arising on translation are recognised directly in the translation reserve in equity. Net investment in foreign operations Exchange differences arising on the translation of the net investment in foreign operations are taken directly to the translation reserve within equity. In respect of all foreign operations only those translation differences arising since 1 January 2004, the date of transition to IFRS, are presented as a separate component of equity as permitted under IFRS 1. On disposal of an investment in a foreign operation the associated translation reserve balance is released to the income statement. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 57_ ITV plc Report and Accounts 2006

1 Accounting policies (continued) k) Exceptional items Exceptional items, as disclosed on the face of the income statement, are items which due to their material and non-recurring nature have been classified separately in order to draw them to the attention of the reader of the accounts and to show more accurately the underlying profits of the Group. l) Programme rights Where programming, sports rights and film rights are acquired for the primary purpose of broadcasting, these are recognised within current assets. An asset is recognised when the Group controls, in substance, the respective assets and the risks and rewards associated with them. For acquired programme rights an asset is recognised as payments are made and is recognised in full when the acquired programming is available for transmission. Programming produced internally either for the purpose of broadcasting or to be sold in the normal course of the Group’s operating cycle is recognised within current assets at production cost. Programme costs and rights, including those acquired under sale and leaseback arrangements, are written off to operating costs in full on first transmission except certain film rights which are written off over a number of transmissions. Programme costs and rights not yet written off at the balance sheet date are included on the balance sheet at the lower of cost and net realisable value. Outstanding sale and leaseback obligations, which comprise the principal and accrued interest are included within borrowings. The finance element of the agreement is charged to the income statement over the term of the lease on a systematic basis. Sale and leaseback obligations are secured against an equivalent cash balance held within cash and cash equivalents. m) Cash and cash equivalents Cash and cash equivalents comprises cash balances, call deposits with maturity of less than or equal to three months from the date of acquisition and cash held to meet certain finance lease commitments. n) Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation arising from past events, it is probable that an outflow of economic benefits will be required to settle the obligation and that the amount can be measured reliably. Provisions are determined by discounting the expected future cash flows by a rate which reflects current market assessments of the time value of money and the risks specific to the liability based on an appropriate gilt rate. o) Borrowings Borrowings are recognised initially at fair value, and in subsequent periods at amortised cost. The difference between cost and redemption value is recorded in the income statement over the period of the liability on an effective interest basis. Where the Group has identified that any such liabilities result in a mismatch between the accounting liability and the related derivative, the Group has adopted the fair value option provision of IAS 39 (revised). Management consider that this fair value treatment is more appropriate than amortised cost as the movements in these financial instruments largely offset each other and, as a result, they are managed on an aggregated basis. The effect of this is that the Group recognises any such financial liabilities at fair value in all periods subsequent to initial recognition, with resultant gains or losses recorded in the income statement. At 31 December 2005, the Company had outstanding an unsecured €356 million Exchangeable Bond which matured in January 2007. The Exchangeable Bond was able to be exchanged at any time at the option of investors for shares in Thomson SA at an exchange rate of €41.2 per share. At 31 December 2005 the Thomson share price was €17.7, having traded below €24 since August 2002. Independent market estimates were that the Thomson share price would not recover to the conversion price by January 2007. The Company therefore took the view that the possibility of exchange before January 2007 was remote and classified the Exchangeable Bonds as a loan repayable between one and two years in the December 2005 balance sheet. IAS 1.60(d) states that – “a liability shall be classified as current when the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date”. Although, as explained above, it is very unlikely that any bondholder would have exercised its option before January 2007, bondholders could technically exercise that right at any time. Therefore the Company did not have an unconditional right to defer settlement. Accordingly the Company has reclassified the liability as current in its 2005 balance sheet (£245 million). p) Non-current assets held for sale and discontinued operations Non-current assets or disposal groups are classified as held for sale if their carrying amount will be recovered principally through sale rather than continuing use, they are available for immediate sale and sale is highly probable. On initial classification as held for sale, non-current assets or disposal groups are measured at the lower of their previous carrying amount and fair value less costs to sell. No amortisation or depreciation is charged on non-current assets (including those in disposal groups) classified as held for sale. Assets classified as held for sale are disclosed separately on the face of the balance sheet and classified as current assets or liabilities with disposal groups being separated between assets held for sale and liabilities held for sale.

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 58_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

1 Accounting policies (continued) q) Taxation The tax charge for the period comprises both current and deferred tax. Taxation is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method on any temporary differences between the carrying amounts 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. 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. r) Employee benefits Defined contribution schemes Obligations under the Group’s defined contribution schemes are recognised as an expense in the income statement as incurred. Defined benefit schemes The Group’s obligation in respect of defined benefit pension schemes is calculated separately for each scheme by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value and the fair value of scheme assets is deducted. The discount rate used is the yield at the valuation date on high quality corporate bonds. The calculation is performed by a qualified actuary using the projected unit credit method. Actuarial gains and losses are recognised in full in the period in which they arise through the statement of recognised income and expense. Share based compensation The Group operates a number of share based compensation schemes. The fair value of the equity instrument is measured at grant date and spread over the vesting period through the income statement with a corresponding increase in equity. The fair value of the share options and awards is measured using either a Monte Carlo or Black-Scholes model as appropriate taking into account the terms and conditions of the individual scheme. The amount recognised as an expense is adjusted to reflect the actual vesting except where forfeiture is due only to market based criteria not being achieved. s) ITV shares held by Employee Benefit Trusts (EBTs) Transactions of the Group-sponsored EBTs are included in the Group’s accounts. In particular, the EBTs’ purchases of shares in ITV plc are debited directly to equity. t) Derivatives and other financial instruments The Group uses a limited number of derivative financial instruments to hedge its exposure to fluctuations in interest and other foreign exchange rates. The Group does not hold or issue derivative instruments for speculative purposes. Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at fair value with the movement recorded in the income statement. The fair value of foreign currency forward contracts is determined by using forward exchange market rates at the balance sheet date. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of swap counterparties. u) Dividends Dividends are recognised through equity in the period in which they are declared. v) Investment income Investment income comprises dividends received from the Group’s investments. Dividend income is recognised in the income statement on the date the Group’s right to receive payments is established. w) Net financing costs Net financing costs principally comprise interest payable, finance charges on finance leases, interest receivable on funds invested, gains and losses on hedging instruments that are recognised in the income statement and the expected return on pension scheme assets net of the interest cost on liabilities. x) Accounting estimates and judgements Details of significant accounting estimates and judgements have been disclosed under the relevant note or accounting policy for each area where disclosure is required. Principally these are pensions, valuation of acquired intangible assets, goodwill impairment testing, fair value of derivatives and provisions. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 59_ ITV plc Report and Accounts 2006

1 Accounting policies (continued) y) Application of new EU endorsed accounting standards, amendments to existing EU endorsed standards and interpretations New standards, amendments and interpretations effective in 2006 Relevant to the Group’s results IFRIC 4 Determining whether an Arrangement Provides guidance as to when arrangements comprising a transaction, or a contains a Lease series of transactions, that do not take the legal form of a lease but convey a right to use an asset in return for a payment or series of payments should be accounted for as leases under IAS 17 IFRIC 6 Liabilities arising from Participating Provides guidance on the recognition of liabilities for waste management in a Specific Market – Waste Electrical under the EU Directive on WE&EE in respect of historical household equipment and Electronic Equipment (WE&EE) Neither of these new interpretations has had a material effect on the Group’s results in 2006

Not relevant to the Group’s results IAS 21 Net investment in a foreign operation Provides guidance on accounting for monetary items forming part of an (Amendment) entity’s investment in foreign operations IAS 39 Cash flow hedge accounting of forecast Permits under certain circumstances, the foreign currency risk of a highly (Amendment) intra-group transactions probable intragroup forecast transaction to qualify as the hedged item in a cash flow hedge in consolidated financial statements IAS 39 and IFRS 4 Financial guarantee contracts Provides guidance on the accounting for financial guarantee contracts (Amendment) by the issuer IFRS 1 First-time Adoption of International Clarifies that entities who adopt IFRS’s for the first time on 1 January 2006 (Amendment) Financial Reporting Standards and IFRS and apply IFRS 6 before that date are exempt from providing comparative 6 (Amendment), Exploration for and information in the prior period and also from applying the recognition and evaluation of mineral resources measurement requirements of IFRS 6 in the prior comparative period IFRS 6 Exploration for and evaluation Provides guidance on developing accounting policies, impairment policies of mineral resources and and disclosures for exploration and evaluation assets IFRIC 5 Rights to interests arising from Provides guidance on accounting for interests in and additional contributions decommissioning, restoration and to funds environmental rehabilitation funds

New standards, amendments and interpretations not yet effective Relevant to the Group’s results IFRS 7 Financial instruments: Disclosures Requires extensive disclosures about the significance of financial instruments and the Amendment to IAS 1 for an entity’s financial position and performance, and qualitative and Presentation of Financial Statements: quantitative disclosures on the nature and the extent of risks. IFRS 7 and Capital Disclosures amended IAS 1, which will become mandatory for the Group’s 2007 accounts, will require additional disclosures with respect to financial instruments and share capital

Not expected to have any material impact on the Group’s results IFRIC 7 Applying the Restatement Approach Addresses the application of IAS 29 when an economy first becomes under IAS 29 Financial Reporting in hyperinflationary and in particular the accounting for deferred tax Hyperinflationary Economies IFRIC 8 Scope of IFRS 2 Share-based Payment Addresses the accounting for share-based payment transactions in which some or all of goods and services received cannot be specifically identified IFRIC 9 Reassessment of Embedded Derivatives Requires that a reassessment of whether embedded derivatives should be separated from the underlying host contract should be made only when there are changes to the contract

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 60_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

2 Segmental reporting The Group’s primary segmental reporting is by business segment with secondary segmental reporting being by geographical segment. Primary segmental reporting The Group has one main producer/broadcaster reportable business segment due to the level of vertical integration. This segment includes all activities related to the production and broadcasting of television programmes and channels, including the exploitation of related rights and assets. Any activities falling outside this main segment are grouped together as other operations.

Producer/broadcaster Other operations Consolidated 2005 2005 2005 2006 Restated 2006 Restated 2006 Restated £m £m £m £m £m £m Total revenue (all external) 2,085 2,104 96 92 2,181 2,196 Operating profit/(loss) before exceptional items 322 356 (23) 2 299 358 Operating costs – exceptional items (35) (25) – (4) (35) (29) Operating profit/(loss) 287 331 (23) (2) 264 329 Share of profits of associates and joint ventures 5 6 3 5 8 11 Investment income 3 5 – – 3 5 Gain on sale of properties 4 11 – – 4 11 Gain/(loss) on sale of subsidiaries and investments 69 – (12) – 57 – Impairment of investments and revaluation of disposal groups held for sale (22) – – (10) (22) (10) Net financing costs (26) (35) Taxation (66) (85) Profit for the year 222 226

Segment assets 5,006 4,945 92 152 5,098 5,097 Unallocated assets 1,009 929 Total Group assets 6,107 6,026 Segment liabilities (607) (643) (12) (16) (619) (659) Unallocated liabilities (2,325) (2,062) Total Group liabilities (2,944) (2,721)

Additions to property, plant, equipment and intangible assets 74 201 4 139 78 340

Investment in joint ventures and associated undertakings 7 33 59 60 66 93

Cash flows from/(used in): Operating activities 317 451 28 (1) 345 450 Unallocated (304) (253) Total Group operating activities 41 197 Investing activities (48) (11) 5 (1) (43) (12) Unallocated 155 (238) Total Group investing activities 112 (250) Total Group financing activities (unallocated) 147 133 Total cash flows 269 440 33 (2) 302 438 Unallocated (2) (358) Total Group cash flows 300 80

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 61_ ITV plc Report and Accounts 2006

2 Segmental reporting (continued) Secondary segmental reporting The secondary segmental reporting given below is for geographical segments. The main segment is the United Kingdom with all other locations being grouped together as other. The Group’s revenue is analysed by geographical market as follows:

Revenue by geographical market 2005 2006 Restated £m £m United Kingdom 2,012 2,059 Other 169 137 Total 2,181 2,196

The following shows the carrying amount of segment assets and additions to property, plant, equipment and intangible assets by the geographical area in which the assets are located:

Additions to property, plant, equipment, Segment assets and intangible assets 2006 2005 2006 2005 £m £m £m £m United Kingdom 6,013 5,855 78 339 Other 94 171 – 1 Total 6,107 6,026 78 340

3 Staff costs

2006 2005 £m £m Wages and salaries 168 174 Social security and other costs 23 23 Share-based payment (see note 7) 15 17 Pension costs (see note 6) 27 26 Total 233 240 In addition, staff costs within exceptional items were £17 million (2005: £25 million) principally relating to redundancy payments and reorganisation costs. Total staff costs including exceptional items for the year ended 31 December 2006 are £250 million (2005: £265 million). In addition to the pension operating cost shown above is a net credit to net financing income of £18 million (2005: charge of £13 million) and a net credit to retained earnings in respect of actuarial gains and losses of £29 million (2005: credit of £35 million). The average number of employees employed by the Group during the year was: 2006 2005 Producer/broadcaster 5,709 5,660 Other operations 248 413 Total 5,957 6,073 Details of the directors’ emoluments, share options, pension entitlements and long term incentive scheme interests are set out in the remuneration report. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 62_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

4 Total operating costs

2005 2006 Restated £m £m Staff costs Before exceptional items 233 240 Exceptional items 17 25 250 265 Depreciation and amortisation Amortisation and impairment 76 102 Depreciation 32 34 108 136 Other operating costs Broadcasting schedule costs 1,070 1,051 Broadcasting transmission costs 81 87 Broadcasting industry costs 33 33 Licence fees 51 75 Production non-staff costs 151 109 Consumer non-staff costs 97 59 Operating lease costs 19 17 Other operating exceptional items 18 4 Audit and non-audit fees paid to KPMG (see below) 2 2 Other 163 175 1,685 1,612

Less: Staff costs and depreciation charged to broadcasting schedule costs (126) (146) Total 1,917 1,867 Production non-staff costs are net of the recharge for programmes supplied to ITV Broadcast channels (which is eliminated on consolidation as internal turnover). 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 corporate governance report on page 91. Fees paid to KPMG during the year are set out below:

2006 2005 £m £m Fees payable to KPMG for the audit of the Group’s annual accounts 0.7 0.7 Fees payable to KPMG and its associates for other services: The audit of the Group’s subsidiaries pursuant to legislation 0.3 0.2 Other services supplied pursuant to legislation 0.1 0.1 Other services relating to taxation 0.4 0.4 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 0.5 0.1 All other services 0.1 0.3 Total 2.1 1.8 KPMG received £12,000 in respect of their audit of two of the Group’s associated pension funds in 2006 (2005: £10,000). 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. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 63_ ITV plc Report and Accounts 2006

5 Exceptional items

2006 2005 £m £m Operating exceptional items: Reorganisation and integration costs (23) (40) Receipt from liquidators 2 11 Fees in relation to takeover approaches (14) – (35) (29) Non-operating exceptional items: Gain on sale of subsidiaries and investments 57 – Impairment of investments and revaluation of disposal groups held for sale (22) (10) 35 (10) Total exceptional items before tax – (39) In 2006 a charge of £23 million, including £17 million staff costs, was incurred in respect of reorganisation and restructuring costs including the closure of the Bristol and children’s programme production centres, the continuation of the regional news consolidation programme and redundancy and share costs arising from the restructuring of the senior management team. A liquidation settlement of £2 million was received from the liquidators of the Shop! Channel. Fees of £14 million were incurred in respect of the two takeover approaches received in 2006. A £35 million net gain has been recognised from the sale of subsidiaries and the sale and impairment of investments. This includes the profit on disposal of the stakes in Seven Network (£29 million) and TV3 (£40 million), the loss on sale of the education business (£12 million) and an impairment of the holding in SMG, which is held within the producer/broadcaster segment, (£22 million) following a significant decline in its share price. 2005 exceptional items included a charge of £40 million incurred in respect of reorganisation and integration costs including the consolidation of regional news production centres and technical facilities and redundancy and share costs arising from the restructuring of the senior management team. The largest element of this (£25 million) was staff related. Also included in 2005 was an £11 million receipt from the liquidators of ONdigital. A £10 million loss was recognised in relation to the education business after its classification as a disposal group held for sale.

6 Pension schemes The Group operates a number of defined benefit and defined contribution pension schemes. The pension scheme assets are held in a separate trustee-administered fund to meet long-term pension liabilities to past and present employees. The trustees of the fund are required to act in the best interest of the fund’s beneficiaries. The appointment of trustees to the fund is determined by the scheme’s trust documentation. Defined contribution schemes Total contributions recognised as an expense in relation to defined contribution schemes during 2006 were £2 million (2005: £2 million). Defined benefit schemes The Group provides retirement benefits to some of its former and approximately 31% of current employees through defined benefit schemes. The Group’s main scheme was formed from a merger of a number of schemes on 31 January 2006. The level of retirement benefit is principally based on basic salary at retirement. The liabilities of the defined benefit scheme are measured by discounting the best estimate of future cash flows to be paid out by the scheme using the projected unit method. This amount is reflected in the deficit in the balance sheet. The projected unit method is an accrued benefits valuation method in which the scheme liabilities make allowance for projected earnings. The accumulated benefit obligation is an actuarial measure of the present value of benefits for service already rendered but differs from the projected unit method in that it includes an allowance for early leaver statutory revaluations rather than projected earning increases. At the balance sheet date the accumulated benefit obligation was £2,580 million. The statutory funding objective is that the scheme has sufficient and appropriate assets to pay its benefits as they fall due. This is a long-term target. Future contributions will always be set at least at the level required to satisfy the statutory funding objective. The general principles adopted by the trustees are that the assumptions used, taken as a whole, will be sufficiently prudent for pensions and benefits already in payment to continue to be paid, and to reflect the commitments which will arise from members’ accrued pension rights. The most recently completed triennial actuarial valuations in respect of the schemes forming the largest section of the Group’s main retirement benefits fund was performed by an independent actuary for the trustees of the scheme and was carried out as at 1 January 2005. As part of the merger exercise, the Group paid £325 million into the scheme towards the current deficit. The first triennial valuation of the merged scheme is due to be completed as at 1 January 2008 in respect of the largest section and 31 December 2006 in respect of other sections. In the interim the Group will monitor funding levels annually. The levels of contributions are based on the current service costs and the expected future cash flows of the defined benefit scheme. The Group estimates the duration of UK scheme liabilities will on average fall due over 18 years. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 64_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

6 Pension schemes (continued) The movement in the present value of the defined benefit obligation for these schemes is analysed below:

2006 2005 £m £m Defined benefit obligation at 1 January 2,604 2,357 Current service cost 23 26 Curtailment loss/(gain) 2 (2) Interest cost 126 125 Net actuarial loss 3 184 Contributions by scheme participants 4 5 Benefits paid (105) (91) Defined benefit obligation at 31 December 2,657 2,604 The present value of the defined benefit obligation is analysed between wholly unfunded and funded defined benefit schemes in the table below:

2006 2005 £m £m Defined benefit obligation in respect of funded schemes 2,619 2,573 Defined benefit obligation in respect of wholly unfunded schemes 38 31 Total defined benefit obligation 2,657 2,604 The movement in the fair value of the defined benefit scheme assets is analysed below:

2006 2005 £m £m Fair value of assets at 1 January 2,072 1,685 Expected return on assets 144 112 Net actuarial gain 32 219 Employer contributions 225 142 Contributions by scheme participants 4 5 Benefits paid (105) (91) Fair value of assets at 31 December 2,372 2,072 The assets and liabilities of the scheme are recognised in the balance sheet and shown within non-current liabilities. The total recognised is:

2006 2005 2004 £m £m £m Total defined benefit scheme assets 2,372 2,072 1,685 Total defined benefit scheme obligations (2,657) (2,604) (2,357) Net amount recognised within the balance sheet (285) (532) (672) Amounts recognised through the income statement are as follows:

2006 2005 £m £m Amount (charged)/credited to operating costs: Current service cost (23) (26) Curtailment (loss)/gain (2) 2 (25) (24) Amount credited/(charged) to net financing costs: Expected return on pension scheme assets 144 112 Interest cost (126) (125) 18 (13) Total charge in the income statement (7) (37)

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 65_ ITV plc Report and Accounts 2006

6 Pension schemes (continued) The amounts recognised through the statement of recognised income and expense are:

2006 2005 £m £m Actuarial gains and (losses): Arising on scheme assets 32 219 Arising on scheme liabilities (3) (184) 29 35 The cumulative amount of actuarial gains and losses recognised through the statement of recognised income and expense since 1 January 2004 is an actuarial loss of £59 million (2005: £88 million). Included within actuarial gains and losses are experience adjustments as follows:

2006 2005 2004 £m £m £m Experience adjustments on scheme assets 32 219 56 Experience adjustments on scheme liabilities (12) 9 (70) At 31 December 2006 the scheme assets were invested in a diversified portfolio that consisted primarily of equity and debt securities. The scheme assets are shown below by major category along with the associated expected rates of return.

Expected long Expected long term rate Market term rate Market of return value of return value 2006 2006 2005 2005 % £m % £m Market value of assets – equities and property 7.6 1,436 7.5 1,421 Market value of assets – bonds 4.5 – 5.2 898 4.1 – 5.6 618 Market value of assets – other 5.0 38 4.5 – 4.9 33 Total scheme assets 2,372 2,072 The expected return on plan assets is based on market expectations at the beginning of the financial period for returns over the life of the related obligation. The expected yield on bond investments with fixed interest rates can be derived exactly from their market value. Some of these bond investments are issued by the UK Government. The risk of default on these is very small. The trustees also hold bonds issued by public companies. There is a more significant risk of default on these which is assessed by various rating agencies. The trustees also have a substantial holding of equity investments. The investment return related to these is variable and they are generally considered much “riskier” investments. It is generally accepted that the yield on equity investments will contain a premium (“the equity risk premium”) to compensate investors for the additional risk of holding this type of investment. There is significant uncertainty about the likely size of the risk premium. The expected return for each asset class is weighted based on the asset allocation for 2007 to develop the expected long term rate of return on assets assumption for the portfolio. The fair value of the scheme assets as a percentage of total scheme assets as at 31 December 2006 and 31 December 2005 and target allocations for 2007 are set out below: The benchmark for 2007 is to hold broadly 60% equities and 40% bonds. The majority of the equities held by the scheme are in international blue chip entities. The aim is to hold a globally diversified portfolio of equities, with a target of 40% of equities being held in UK and 60% of equities held overseas. Within the bond portfolio the aim is to hold 50% of the portfolio in government bonds (gilts) and 50% of the portfolio in corporate bonds. The actual return on plan assets in the year ended 31 December 2006 was £176 million (2005: £331 million).

Planned 2007 2006 2005 (as a percentage of total scheme assets) Equities and property 60% 61% 69% Bonds 40% 38% 30% Other 0% 1% 1% The principal assumptions used in the scheme valuations at the balance sheet date were: 2006 2005 Rate of general increase in salaries 4.25% 4.00% Rate of increase in pension payment (LPI 5% pension increases) 2.90% 2.75% Rate of increase to deferred pensions 3.00% 2.75% Discount rate for scheme liabilities 5.12% 4.90% Inflation assumption 3.00% 2.75%

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 66_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

6 Pension schemes (continued) IAS 19 requires that the discount rate used be determined by reference to market yields at the balance sheet date on high quality fixed income investments. The currency and term of these should be consistent with the currency and estimated term of the post-employment obligations. The discount rate has been based on the yield available on AA rated corporate bonds of a term similar to the liabilities. The expected rate of inflation is an important building block for salary growth and pension increase assumption. A rate of inflation is “implied” by the difference between the yields on fixed and index-linked Government bonds. However, differences in demand for these can distort this implied figure. The Bank of England target inflation rate has also been considered in setting this assumption. The Group has used PA92 tables with mortality projected to 2015/2020 for pensioner members and to 2030/2035 for non-pensioner members. Using these tables, the assumed life expectations on retirement at age 60 are: 2006 2005 Retiring today Males 24.4 24.0 Females 27.4 27.0 Retiring in 20 years Males 25.5 25.2 Females 28.4 28.1 The Group reflected this recognition that mortality rates have reduced in its 2004 valuation. The tables above reflect published mortality investigation data in conjunction with the results of investigations into the mortality experience of scheme members. The allowance for future mortality improvement has been increased from that incorporated for 2005 when mortality was projected to 2015 for pensioner members and to 2030 for non-pensioner members. The sensitivities regarding the principal assumptions used to measure the schemes liabilities are set out below. The illustrations consider the single change shown with the other assumptions assumed to be unchanged. In practice, changes in one assumption may be accompanied by offsetting changes in another assumption (although this is not always the case). The company liability is the difference between the scheme liabilities and the scheme assets. Changes in the assumptions may occur at the same time as changes in the market value of scheme assets. These may or may not offset the change in assumptions. For example, a fall in interest rates will increase the scheme liability, but may also trigger an offsetting increase in the market value so there is no net effect on the company liability.

Assumption Change in Assumption Impact on scheme liabilities Discount rate Increase/decrease by 0.5% Decrease/increase by 8% Rate of inflation Increase/decrease by 0.5% Increase/decrease by 7% Rate of salary growth Increase/decrease by 0.5% Increase/decrease by 1% Rate of mortality Increase by 1 year Increase by 3% Normal contributions into the schemes in 2007 are expected to be in the region of £20 million assuming current contribution rates continuing as agreed with the scheme trustees. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 67_ ITV plc Report and Accounts 2006

7 Share-based payment 2006 2005 Weighted Weighted Number of average Number of average options exercise price options exercise price (’000) (pence) (’000) (pence) Outstanding at 1 January 195,704 90.07 217,703 106.15 Granted during the year – nil priced 19,195 – 18,271 – Granted during the year – other 16,059 107.92 12,856 120.64 Forfeited during the year (19,580) 89.10 (8,508) 79.44 Exercised during the year (33,497) 53.63 (21,907) 83.07 Expired during the year (12,696) 118.24 (22,711) 199.87 Outstanding at 31 December 165,185 86.67 195,704 90.07 Exercisable at 31 December 52,350 169.13 66,471 157.40 The average share price during 2006 was 108.09 pence (2005: 116.38 pence). 2006 2005 Weighted Weighted average average Weighted remaining Weighted remaining average Number of contractual average Number of contractual exercise price options life exercise price options life Range of exercise prices (pence) (pence) (’000) (years) (pence) (’000) (years) Nil – 60,524 5.54 – 55,469 6.22 50.00–69.99 66.45 12,844 4.46 65.90 34,971 5.23 70.00–99.99 86.21 8,276 4.31 77.97 7,130 6.79 100.00–109.99 101.69 20,456 3.59 101.81 22,791 4.55 110.00–119.99 114.44 27,744 7.20 114.21 34,158 7.22 120.00–149.99 132.14 14,033 6.36 131.86 17,509 7.52 150.00–199.99 160.26 3 – 160.26 275 0.50 200.00–249.99 218.32 1,965 3.78 220.09 2,318 4.54 250.00–299.99 268.91 19,249 3.31 268.88 20,978 4.30 300.00–385.99 385.31 91 3.40 384.56 105 4.40 Share schemes Full details of the ITV Commitment Scheme, Performance Share Plan and Deferred Share Award Plan can be found in the remuneration report on pages 93 and 94. The Granada Media and Granada Commitment schemes mirror the ITV scheme summarised in the remuneration report on page 94. The main differences are as follows: 25% of the Matching Awards will vest for median ranking, and maximum vesting will occur only for first or second position out of a comparator group of 16 companies (set out in the remuneration report on page 100). The performance condition is tested in respect of 50% of the Matching Award on the second anniversary of the date of grant. Any portion of the Matching Award which does not vest at that time may vest when the condition is again tested on the fourth anniversary of the date of grant. Performance conditions were adjusted to take account of the merger. The Granada Media, Granada, Carlton and ITV Sharesave schemes are Inland Revenue Approved SAYE schemes. The Granada Media, Granada and Carlton Executive Option schemes are Inland Revenue Approved and Unapproved schemes with three year performance periods. For all options granted before December 2002 the performance conditions were deemed to be satisfied on the merger of Carlton and Granada. The performance conditions for options granted from December 2002 measure TSR against a comparator group of companies permitting exercise only if ITV is ranked above the median of this group. The comparator group for Granada is set out in the remuneration report on page 99. The comparator group for Carlton is the FTSE 100 at date of grant. Performance conditions were adjusted to take account of the merger. The Carlton Equity Participation Plan operated under similar terms to the ITV Commitment Scheme summarised in the remuneration report on page 94. For all awards made before December 2002 the performance conditions were deemed to be satisfied on the merger of Carlton and Granada. For awards made from December 2002, 33% of the Matching Award vests at median with maximum vesting occurring when ITV ranks in the upper quartile against a comparator group of UK media companies. The performance condition is tested on 1 April following the third anniversary of the date of grant. Any proportion that does not vest at this time may vest when the condition is tested on 1 April following the fourth anniversary of the date of grant. Performance conditions were adjusted to take account of the merger. The Carlton Deferred Annual Bonus Plan operated as a share award scheme. Shares were purchased from bonus entitlements and held in trust for a three year period. Matching shares were awarded and released after four years. Exercises can be satisfied by market purchase or by new issue shares. No new shares may be issued to satisfy exercises under the terms of the Deferred Share Award Plan or nil-cost options under the Commitment Scheme. However it is now Company practice to satisfy all option exercises where possible by using shares purchased in the market and held in the Granada, Carlton and ITV Employees’ Benefit Trusts rather than by issuing new shares. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 68_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

7 Share-based payment (continued) Assumptions relating to grants of share options during 2006 and 2005:

Share price Exercise Expected Gross dividend Risk free Date of at grant price volatility Expected life yield rate Fair value Schedule name grant (pence) (pence) % (years) % % (pence) Commitment Schemes ITV – shares 19-Apr-05 126.00 – 32.00% 3 1.90% 4.51% 70.00 ITV – shares 19-Apr-05 126.00 – 31.50% 4 1.90% 4.50% 74.00 ITV – options 19-Apr-05 126.00 125.75 30.50% 6 1.90% 4.51% 31.00 ITV – options 19-Apr-05 126.00 125.75 30.00% 7 1.90% 4.52% 33.00 ITV – shares 17-May-05 116.50 – 32.00% 3 1.90% 4.51% 65.00 ITV – shares 17-May-05 116.50 – 31.50% 4 1.90% 4.50% 68.00 ITV – options 17-May-05 116.50 116.00 30.50% 6 1.90% 4.51% 28.00 ITV – options 17-May-05 116.50 116.00 30.00% 7 1.90% 4.52% 31.00 ITV – shares 20-Mar-06 115.55 – 30.00% 3 2.70% 4.34% 60.00 ITV – shares 20-Mar-06 115.55 – 30.00% 4 2.70% 4.34% 61.00 ITV – options 20-Mar-06 115.55 115.75 30.00% 6 2.70% 4.33% 24.00 ITV – options 20-Mar-06 115.55 115.75 30.00% 7 2.70% 4.32% 27.00 Performance Share Plan ITV 18-Apr-05 125.75 – 32.00% 3 1.90% 4.51% 74.00 ITV 10-May-05 114.50 – 32.00% 3 1.90% 4.51% 67.00 ITV 27-Sep-05 112.25 – 32.00% 3 2.33% 4.18% 56.00 ITV 18-Apr-06 114.50 – 32.00% 3 2.72% 4.48% 61.00 ITV 13-Sept-06 99.00 – 32.00% 3 3.18% 4.78% 46.00 Sharesave ITV – three year 08-Apr-05 126.50 101.60 32.00% 3.25 1.90% 4.57% 33.00 ITV – five year 08-Apr-05 126.50 101.60 31.00% 5.25 1.90% 4.59% 39.00 ITV – three year 06-Apr-06 117.75 92.00 32.00% 3.25 2.65% 4.39% 38.00 ITV – five year 06-Apr-06 117.75 92.00 32.00% 5.25 2.65% 4.40% 42.00 The expected volatility is based on the historic volatility of ITV plc. ITV plc was formed on the merger of Granada plc and Carlton Communications Plc on 2 February 2004. The Executive Option Schemes, Commitment Schemes and Performance Share Plans all have market based performance conditions which are taken into account in the fair value calculation using a Monte Carlo pricing model. The Black-Scholes model is used to value the Sharesave Schemes as these do not have any market performance conditions. Share-based payment charges totalled £22 million in 2006 (2005: £21 million). Of these £7 million have been shown within exceptional items (2005: £4 million). WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 69_ ITV plc Report and Accounts 2006

8 Net financing costs

2006 2005 £m £m Financing income: Interest income 23 21 Expected return on pension scheme assets 144 112 Net gain on remeasurement of interest rate swaps to fair value – 11 167 144 Financing costs: Interest expense (66) (54) Net loss on remeasurement of interest rate swaps to fair value (1) – Interest cost on pension scheme liabilities (126) (125) (193) (179) Net financing costs (26) (35)

9 Taxation Recognised in the income statement:

2006 2005 £m £m Current tax expense: Current tax before exceptional items (37) (129) Current tax (expense)/credit on exceptional items (2) 4 (39) (125) Adjustment for prior periods 48 9 9 (116) Deferred tax: Origination and reversal of temporary differences (63) 33 Adjustment for prior periods (12) (2) (75) 31 Total taxation expense in the income statement (66) (85) Reconciliation of taxation expense:

2006 2005 £m £m Profit before tax 288 311 Taxation expense at UK corporation tax rate of 30% (2005: 30%) (86) (93) Non-taxable/non-deductible exceptional items (2) (8) Non-taxable income/non-deductible expenses (7) (5) Effect of tax losses utilised 4 18 Over provision in prior periods 36 7 Other (11) (4) (66) (85) In the year ended 31 December 2006 the effective tax rate on profits is lower (2005: lower) than the standard rate of UK corporation tax primarily as a result of adjustments in respect of prior periods due to progress in the agreement with revenue authorities of prior period’s tax liabilities (2005: utilisation of tax losses in respect of which deferred tax assets were not previously recognised). The underlying tax rate on profits, after adjusting for the irregular tax effects caused by issues such as exceptional items, impairments, joint ventures and associates and adjustments in respect of prior periods, is 30% (2005: 28%). The current tax expense for the year is reduced primarily as a result of the reversal of temporary differences on which deferred tax assets previously were recognised relating to pension scheme deficits and funding payments. A tax expense totalling £4 million (2005: expense of £8 million) has been recognised directly in equity representing a current tax credit of £2 million (2005: credit of £2 million) and a deferred tax expense of £6 million (2005: expense of £10 million). WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 70_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

9 Taxation (continued) Deferred tax assets and liabilities recognised and their movements are:

At Recognised At 1 January Business in the income Recognised Business 31 December 2006 combinations statement in equity sales 2006 £m £m £m £m £m £m Property, plant and equipment (3) – (2) – 1 (4) Intangible assets (155) (1) 17 – – (139) Programme rights 5 – 2 – – 7 Pension scheme deficits 160 – (65) (9) – 86 Pensions funding payments 29 – (8) – – 21 Interest-bearing loans and borrowings, and derivatives 3 – (7) – – (4) Share-based payments 32 – (9) 3 – 26 Unremitted earnings of subsidiaries, associates and joint ventures – – (3) – – (3) Other 3 – – – – 3 74 (1) (75) (6) 1 (7)

At Recognised At 1 January Business in the income Recognised Transfer to 31 December 2005 combinations statement in equity held for sale 2005 £m £m £m £m £m £m Property, plant and equipment (3) – (2) – 2 (3) Intangible assets (151) (35) 31 – – (155) Programme rights 7 – (2) – – 5 Pension scheme deficits 202 – (31) (11) – 160 Pensions funding payments 2 – 27 – – 29 Interest-bearing loans and borrowings, and derivatives (6) – 10 (1) – 3 Share-based payments 8 18 4 2 – 32 Tax losses 5 – (5) – – – Other 4 – (1) – – 3 68 (17) 31 (10) 2 74 At 31 December 2006 total deferred tax assets are £143 million (2005: £232 million) and total deferred tax liabilities are £150 million (2005: £158 million). Deferred tax assets estimated at £600 million and £100 million (2005: £600 million and £100 million) in respect of capital losses and loan relationship deficits respectively, have not been recognised due to uncertainties as to amount and whether gain or income will arise in the appropriate form and relevant territory against which such losses could be utilised. For the same reasons, deferred tax assets in respect of overseas losses of £10 million (2005: £10 million) which time expire between 2017 and 2026 have not been recognised.

10 Dividends Dividends declared and recognised through equity in the year were:

2006 2005 £m £m Equity shares: Final 2004 dividend of 1.3 pence per share – 53 Interim 2005 dividend of 1.32 pence per share – 54 Final 2005 dividend of 1.8 pence per share 74 – Interim 2006 dividend of 1.35 pence per share 53 – 127 107 A final dividend of 1.8 pence per share, totalling £70 million, has been proposed after the balance sheet date in respect of the year ended 31 December 2006 (2005: 1.8 pence per share, totalling £74 million). As is required by IAS 10 (Events after the balance sheet date) this amount has not been provided for at the balance sheet date.

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 71_ ITV plc Report and Accounts 2006

11 Earnings per share

2006 2005 Basic Diluted Basic Diluted £m £m £m £m Profit for the year attributable to equity shareholders of the parent company 219 219 222 222 Exceptional items (including related tax effect of an expense of £2 million, 2005: credit of £4 million) 2 2 35 35 Profit for the year before exceptional items 221 221 257 257 Amortisation and impairment of intangible assets (including related tax of £17 million, 2005: £31 million) 59 59 71 71 Prior period tax adjustments (36) (36) (7) (7) Other tax adjustments 12 12 4 4 Profit for the year before exceptional items, amortisation and impairment of intangible assets and prior period tax adjustments 256 256 325 325

Weighted average number of ordinary shares in issue – million 4,017 4,017 4,082 4,082 Dilution impact of share options – million – 34 – 46 4,017 4,051 4,082 4,128

Earnings per ordinary share 5.5p 5.4p 5.4p 5.3p Adjusted earnings per ordinary share Basic earnings per ordinary share 5.5p 5.4p 5.4p 5.3p Add: Loss per ordinary share on exceptional items 0.0p 0.0p 0.9p 0.9p Earnings per ordinary share before exceptional items 5.5p 5.4p 6.3p 6.2p Add: Loss per ordinary share on amortisation and impairment of intangible assets 1.5p 1.5p 1.7p 1.7p Subtract: Profit per ordinary share on prior period tax adjustments (0.9)p (0.9)p (0.1)p (0.1)p Add: Loss per ordinary share on other tax adjustments 0.3p 0.3p 0.1p 0.1p Earnings per ordinary share for the year before exceptional items, amortisation and impairment of intangible assets and prior period tax adjustments 6.4p 6.3p 8.0p 7.9p An adjusted earnings per share has been disclosed because in the view of the directors this gives a fairer reflection of the results of the underlying business. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 72_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

12 Property, plant and equipment

Freehold land Improvements to leasehold Vehicles, and buildings land and buildings equipment and fittings Total Long Short Owned Leased £m £m £m £m £m £m Cost At 1 January 2005 81 69 13 406 49 618 Additions – 1 2 43 – 46 Reclassifications as assets held for sale (11) (3) – (11) – (25) Disposals (15) – (1) (34) (8) (58) At 31 December 2005 55 67 14 404 41 581 Additions 23 4 3 24 – 54 Reclassification as assets held for sale (55) (13) – (11) – (79) Disposals and retirements – – (2) (167) (37) (206) At 31 December 2006 23 58 15 250 4 350 Depreciation At 1 January 2005 7 8 6 293 46 360 Charge for the year 2 2 1 29 – 34 Reclassification as assets held for sale (5) (1) – (6) – (12) Disposals (3) – – (25) (8) (36) At 31 December 2005 1 9 7 291 38 346 Charge for the year 1 2 1 28 – 32 Reclassification as assets held for sale (2) (4) – (10) – (16) Disposals and retirements – – (2) (167) (36) (205) At 31 December 2006 – 7 6 142 2 157 Net book value At 31 December 2006 23 51 9 108 2 193 At 31 December 2005 54 58 7 113 3 235 Included within the book values above is expenditure of £23 million (2005: £26 million) on property, plant and equipment which are in the course of construction. Rental assets, separately disclosed in 2005 have been included within owned vehicles, equipment and fittings due to their decreasing significance to the business. The amount of contractual commitments for the acquisition of property, plant and equipment is disclosed in note 33.

13 Intangible assets

Customer contracts and Film libraries Goodwill Brands relationships Licences and other Total £m £m £m £m £m £m Cost At 1 January 2005 3,296 173 319 48 82 3,918 Additions 174 26 17 73 4 294 Reclassification as assets held for sale (45) – – – (7) (52) Disposals – – – – (1) (1) At 31 December 2005 3,425 199 336 121 78 4,159 Additions 18 – 2 – 4 24 At 31 December 2006 3,443 199 338 121 82 4,183 Amortisation and impairment At 1 January 2005 5 15 86 4 11 121 Charge for the year – 17 72 7 6 102 Reclassification as assets held for sale (5) – – – (5) (10) Disposals – – – – (1) (1) At 31 December 2005 – 32 158 11 11 212 Charge for the year – 18 24 9 5 56 Impairment charge 20 – – – – 20 At 31 December 2006 20 50 182 20 16 288 Net book value At 31 December 2006 3,423 149 156 101 66 3,895 At 31 December 2005 3,425 167 178 110 67 3,947

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 73_ ITV plc Report and Accounts 2006

13 Intangible assets (continued) Amortisation of intangible assets is shown within operating costs in the income statement. The £20 million impairment charge in 2006 related to Carlton Screen Advertising cash-generating unit as a result of structural changes in the cinema advertising market. In calculating this impairment, growth rates and discount rates consistent with those noted below have been used, and calculations have been made on a value in use basis, using cash flow projections over the next four years. Carlton Screen Advertising is part of the Other operations segment. Impairment tests for cash-generating units containing goodwill The following units have significant carrying amounts of goodwill:

2006 2005 £m £m Broadcasting 2,963 2,963 Multiple units without individually significant goodwill 460 462 3,423 3,425 The recoverable amount of the Broadcasting cash-generating units is based on value in use calculations. Those calculations use cash flow projections based on actual operating results and the five year business plan. Cash flows in perpetuity are extrapolated using a 2.5% growth rate and are appropriate because broadcasting is a long-term business. The growth rate used is consistent with the long-term average growth rate for the industry. A pre-tax discount rate of 12.5% has been used in discounting the projected cash flows. The key assumptions and the approach to determining their value are: Assumption How determined Total advertising market Long term trends, industry forecasts and macro-economic outlook Television share of advertising market Long term trends, industry forecasts and in-house estimates Digital penetration Industry forecasts and government stated objectives ITV1 share of commercial impacts Impact of digital penetration and historic viewing shares by platform

14 Investments in joint ventures and associated undertakings

Joint Associated ventures undertakings Total £m £m £m At 1 January 2005 55 28 83 Share of attributable profits 5 6 11 Other – (1) (1) At 31 December 2005 60 33 93 Additions – 1 1 Share of attributable profits 5 3 8 Disposals – (29) (29) Repayment of loans (1) – (1) Reclassification as assets held for sale (3) – (3) Exchange movement and other (2) (1) (3) At 31 December 2006 59 7 66 The aggregated summary financial information in respect of associates in which the Group has an interest is as follows:

2006 2005 £m £m Assets 54 143 Liabilities (56) (108) Revenue 118 142 Profit 4 13 The aggregated summary financial information in respect of the Group’s share of interests in joint ventures is as follows:

2006 2005 £m £m Non-current assets 54 66 Current assets 43 49 Current liabilities (26) (27) Non-current liabilities (25) (29) Revenue 62 66 Expense (59) (61) The Group’s interests in significant joint ventures and associated undertakings are listed in note viii in the ITV plc company financial statements section of this report. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 74_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

15 Equity investments £m At 1 January 2005 153 Additions at fair value 13 Disposals (3) Revaluation to fair value 18 At 31 December 2005 181 Disposals (90) Revaluation to fair value (6) Reclassification as assets held for sale (48) At 31 December 2006 37 The Group’s interests in significant equity investments are listed in note viii in the ITV plc company financial statements section of this report.

16 Distribution rights £m Cost At 1 January 2005 35 Additions 11 At 31 December 2005 46 Additions 11 At 31 December 2006 57 Charged to income statement At 1 January 2005 23 Expense for the year 10 At 31 December 2005 33 Expense for the year 13 At 31 December 2006 46 Net book value At 31 December 2006 11 At 31 December 2005 13 The expense for the year is accounted for within operating costs in the income statement.

17 Programme rights and other inventory

2006 2005 £m £m Commissions 106 99 Sports rights 20 25 Acquired films 184 104 Production 48 74 Prepayments 41 85 Other 1 1 400 388 Net programme rights and other inventory written off in the year, included within operating costs analysed in note 4, was £12 million (2005: £28 million).

18 Current assets – trade and other receivables due within one year

2006 2005 £m £m Trade receivables 302 276 Other receivables 26 16 Prepayments and accrued income 77 70 405 362

19 Current assets – trade and other receivables due after more than one year

2006 2005 £m £m Trade receivables 5 7 Prepayments and accrued income 2 – 7 7 WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 75_ ITV plc Report and Accounts 2006

19 Current assets – trade and other receivables due after more than one year (continued) There is no difference between the book and fair values of receivables and the Group does not have any significant impairment risk associated with its receivables.

20 Current liabilities – trade and other payables due within one year

2006 2005 £m £m Trade payables 184 159 Social security 10 10 Other payables 137 152 Accruals and deferred income 322 359 Dividends 53 54 706 734

21 Current liabilities – trade and other payables due after more than one year

2006 2005 £m £m Trade payables 9 4

22 Non-current liabilities – other payables

2006 2005 £m £m Other payables 56 29

23 Analysis of net debt

1 January Net Currency and 2006 cash flow and non-cash 31 December Restated acquisitions movements 2006 £m £m £m £m Cash 522 303 (1) 824 Cash equivalents 141 (3) (1) 137 Cash and cash equivalents 663 300 (2) 961 Loans and loan notes due within one year (285) 13 (196) (468) Finance leases due within one year (3) 3 (3) (3) Loans and loan notes due after one year (781) (581) 210 (1,152) Finance leases due after one year (75) – 3 (72) (1,144) (565) 14 (1,695) Net debt (481) (265) 12 (734) Included within non-cash movements is the movement of the £200 million Eurobond into amounts payable in less than one year based on its payment due date.

1 January Net Currency and 31 December 2005 cash flow and non-cash 2005 Restated acquisitions movements Restated £m £m £m £m Cash 441 81 – 522 Cash equivalents 141 (1) 1 141 Cash and cash equivalents 582 80 1 663 Loans and loan notes due within one year (252) (22) (11) (285) Finance leases due within one year (3) 3 (3) (3) Loans and loan notes due after one year (568) (234) 21 (781) Finance leases due after one year (78) – 3 (75) Preference shares (8) 8 – – (909) (245) 10 (1,144) Net debt (327) (165) 11 (481) Included within cash equivalents is £75 million (2005: £78 million) the use of which is restricted to meeting finance lease commitments under programme sale and leaseback commitments and Gilts of £31 million (2005: £29 million) over which the unfunded pension promises have a charge. The restatements above are due to the reclassification of the unsecured €356 million Exchangeable Bond as falling due within one year. This is described further in note 1(o).

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 76_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

24 Analysis of borrowings

2006 2005 Loans and Loans and Finance loan notes Finance Total loan notes leases Total Restated leases Restated £m £m £m £m £m £m Current In one year or less, or on demand 468 3 471 285 3 288 Non-current In more than one year but not more than two years – 4 4 207 3 210 In more than two years but not more than five years 582 16 598 253 14 267 In more than five years 570 52 622 321 58 379 1,152 72 1,224 781 75 856 Total 1,620 75 1,695 1,066 78 1,144 Loans repayable within one year Loans repayable within one year as at 31 December 2006 include an unsecured €356 million Exchangeable bond which had a coupon of 2.25% and matured in January 2007. The Exchangeable bond could have been exchanged at any time in 2006 at the option of investors for 8.6 million shares in Thomson S.A. at an exchange rate of €41.2 per share. The Company had the right to redeem the bonds at par on or after 4 July 2003 if the underlying shares in Thomson had traded at a 30% premium to the exchange price of €41.2 on 20 consecutive trading days in any period of 30 trading days. At 31 December 2006 the Thomson S.A. share price was €14.8 and so the bond was redeemed at par when it matured on 4 January 2007. Other loans repayable within one year as at 31 December 2006 also include an unsecured £200 million Eurobond which has a coupon of 7.625% and matures in June 2007, £21 million of loan notes issued in connection with the purchase of Friends Reunited and £5 million of loan notes issued in connection with the purchase of Carlton Communications Limited Preference Shares, with a coupon of LIBOR minus 0.525% and LIBOR minus 0.5% respectively. Loans repayable between two and five years Loans repayable between two and five years as at 31 December 2006 include an unsecured £250 million Eurobond which has a coupon of 5.625% and matures in March 2009 and an unsecured €500 million Eurobond which has a coupon of 4.75% and matures in October 2011. The coupon on this bond steps up to 6.0% under certain conditions if ITV’s credit rating with either Standard & Poors or Moody’s Investors Service falls below BBB- or Baa3 respectively. Loan repayable after five years Loans repayable after five years include an unsecured £325 million Eurobond which has a coupon of 5.375% and matures in October 2015 and an unsecured £250 million Eurobond which has a coupon of 6.125% and matures in January 2017. The coupon on this bond steps up to 7.375% under certain conditions if ITV’s credit rating with either Standard & Poors or Moody’s Investors Service falls below BBB- or Baa3 respectively. Available facilities At 31 December 2006, the Group has available £450 million (2005: £450 million) undrawn committed facilities. These expire in June 2011. Finance leases Finance lease liabilities are payable as follows:

2006 2005 Minimum Minimum lease lease payments Interest Principal payments Interest Principal £m £m £m £m £m £m Not later than one year 7 4 3 7 4 3 Later than one year and not later than five years 33 13 20 31 14 17 Later than five years 59 7 52 68 10 58 99 24 75 106 28 78 Finance leases principally comprise the lease of programme titles under sale and leaseback arrangements. The net book value of assets held under finance leases at 31 December 2006 was £nil (2005: £nil) WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 77_ ITV plc Report and Accounts 2006

25 Financial instruments a) Treasury operation and policy The most significant treasury exposures faced by the Group are raising finance, managing interest rate and currency positions and investing surplus cash in high quality assets. Treasury policies have been approved by the Board for managing each of these exposures including levels of authority on the type and use of financial instruments. Transactions are only undertaken if they relate to underlying exposures. The treasury department reports regularly to the Audit Committee of the Board and treasury operations are subject to periodic independent reviews and internal audit. Financing The Group’s financing policy for long term funding is to use debt instruments with a range of maturities. It is substantially funded from the UK and European capital markets and has bank facilities from the UK syndicated market. Interest rate management The Group’s interest rate policy is to be between 30% and 70% fixed on its forecast net indebtedness over the medium term in order to provide a balance between certainty of cost and benefit from low floating rates. The Group uses interest rate swaps and options in order to achieve the desired mix between fixed and floating rates. Currency management The Group’s foreign exchange policy is to hedge foreign currency denominated costs at the time of commitment and to hedge a proportion of foreign currency denominated revenues on a rolling 12 month basis. It is also the Group’s policy to hedge major balance sheet exposures. The policies significantly reduce the Group’s income statement and balance sheet exposures to changes in exchange rates. Investment in cash The Group operates strict investment guidelines with respect to surplus cash and the emphasis is on preservation of capital. Counterparty limits for cash deposits are largely based upon long term ratings published by the major credit rating agencies. Deposits longer than three months require the approval of the Management Committee of the Board. b) Measurement Equity investments Equity investments are detailed in note 15. The fair value is based on year end quoted prices for listed investments and estimates of likely sales proceeds for other investments. Cash equivalents The carrying value approximates to fair value because of the short maturity of the instruments. Loans Book value Fair value 2006 2005 2006 2005 Maturity Basis of measurement £m £m £m £m Yen 2 billion loan note Sept 06 Amortised cost – s11 – 10 €356 million Exchangeable Bond Jan 07 Amortised cost 240 245 240 243 £200 million Eurobond June 07 Fair value 201 207 201 207 £250 million Eurobond Mar 09 Fair value 248 253 248 253 €500 million Eurobond Oct 11 Amortised cost 334 – 338 – £325 million Eurobond Oct 15 Amortised cost 322 321 308 327 £250 million Eurobond Jan 17 Amortised cost 248 – 248 – Other loans Amortised cost 27 29 27 29 1,620 1,066 1,610 1,069 Bonds accounted for on an amortised cost basis use the effective interest method. Bonds accounted for using the fair value approach are valued at fair value based on ask price with the resultant gains or losses recorded in the income statement in accordance with our accounting policy which prevents an accounting mismatch. Interest rate swaps and options All interest rate swaps and options are accounted for at their fair value based upon termination prices. The fair value of these instruments at 31 December 2006 was £25 million (31 December 2005: £19 million). Other current assets and liabilities No disclosure of fair value has been made as the carrying value is a reasonable approximation of fair value. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 78_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

25 Financial instruments (continued) c) Interest rate profile The effective interest rates of loans and their maturity periods as at 31 December 2006 were as follows:

Effective interest Total 0–1 year 1–2 years 2–5 years >5 years rate £m £m £m £m £m Cash and cash equivalents 5.0% 961 889 4 16 52 Borrowings: €356 million Exchangeable bond 2.3% (240) (240) – – – Effective rate after swaps 4.9% £200 million Eurobond 7.6% (201) (201) – – – Effective rate after swaps 7.0% £250 million Eurobond 5.6% (248) – – (248) – Effective rate after swaps 7.4% €500 million Eurobond 4.8% (334) – – (334) – Effective rate after swaps 6.2% £250 million Eurobond 6.1% (248) – – – (248) Effective rate after swaps 6.1% £325 million Eurobond 5.4% (322) – – – (322) Finance lease liabilities 5.3% (75) (3) (4) (16) (52) Other debt 4.9% (27) (27) – – – (1,695) (471) (4) (598) (622) The effective interest rates of loans and their maturity periods as at 31 December 2005 (restated) were as follows:

Effective interest Total 0–1 year 1–2 years 2–5 years >5 years rate £m £m £m £m £m Cash and cash equivalents 4.6% 663 588 3 14 58 Borrowings: Yen 2 billion loan note 0.4% (11) (11) – – – Effective rate after swaps 5.1% €356 million Exchangeable bond 2.3% (245) (245) – – – Effective rate after swaps 4.4% £200 million Eurobond 7.6% (207) – (207) – – Effective rate after swaps 7.0% £250 million Eurobond 5.6% (253) – – (253) – Effective rate after swaps 6.1% £325 million Eurobond 5.4% (321) – – – (321) Finance lease liabilities 5.3% (78) (3) (3) (14) (58) Other debt 4.4% (29) (29) – – – (1,144) (288) (210) (267) (379)

26 Provisions

Other Boxclever Property provisions Total £m £m £m £m At 1 January 2006 29 12 11 52 Utilised in the year (11) (6) (5) (22) Released in the year (2) – (1) (3) At 31 December 2006 16 6 5 27 Of the provisions £9 million (2005: £23 million) are shown within current liabilities. Property provisions are in place in respect of various vacant properties. Utilisation will be over the life of these leases. The Boxclever provision relates to potential liabilities that may arise as a result of Boxclever having been placed into administration, most of which relates to pension arrangements. Other provisions include provisions for warranties given at the time of corporate disposals. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 79_ ITV plc Report and Accounts 2006

27 Non-current assets and disposal groups held for sale The Group is in the process of selling its interest in certain equity investments, joint ventures and associates and as such has classified these as assets held for sale. The investments are being sold as they are not core to the Group’s main activities. Additionally six freehold properties and certain assets connected to an outsourcing arrangement completed in January 2007 are also classified as held for sale, for which a £1 million loss has been recognised on reclassification. Four of the properties were reclassified from property, plant and equipment, with the remaining two having previously been held under operating leases and purchased in 2006. The properties are being sold as they are deemed to be surplus to future operating requirements and disposal is anticipated to be completed within one year. All items reclassified in 2006 are from within the producer/broadcaster segment.

2006 £m Property, plant and equipment 81 Investment in joint ventures and associates 3 Equity investments 48 Net assets held for sale 132

28 Acquisitions and disposals of businesses Acquisitions and disposals in 2006 Enable Media On 23 November 2006, the Group acquired the entire share capital of Enable Media Ltd, for a total consideration of £2 million. Enable Media operates online business directories trading under the name Scoot. As part of the acquisition, loan amounts due by Enable Media totalling £1 million were repaid, bringing the total cash outflow of the Group to £3 million. Had the acquisition occurred on 1 January 2006, the estimated revenue for the Group would have been £2 million higher at £2,183 million and operating profit before amortisation and exceptional items would have been £1 million higher at £376 million. The acquired net assets of Enable Media are set out in the table below:

Book value before Fair value Fair value acquisition adjustments to ITV plc £m £m £m Intangible assets 11 (9) 2 Trade and other payables (11) 10 (1) Borrowings (1) – (1) Deferred tax liability – (1) (1) Net assets and liabilities (1) – (1) Goodwill on acquisition 3 Consideration paid 2 Borrowings settled at date of acquisition 1 Total cash outflow 3 The intangible assets recognised at fair value represent customer relationships in respect of which a deferred tax liability of £1 million has been recognised. The goodwill recognised represents the wider benefits of this acquisition to the ITV Consumer division, and of those intangible assets not requiring valuation under IFRS 3 (Business Combinations). Valuation of acquired intangible assets methodology Valuation of acquired intangible assets has been performed in accordance with industry standard practice. Methods applied are designed to isolate the value of each intangible asset separately from the other assets of the business. The value of brands are assessed by applying a royalty rate to the expected future revenues over the life of the brand. Licences are valued on a start-up basis. Customer relationships and controls are valued based on expected future cash flows from those existing at the date of acquisition. Contributory charges from other assets are taken as appropriate with post tax cash flows then being discounted back to their present value. Typical discount rates applied in the valuation of intangible assets acquired in the period are 8% – 13%. Friends Reunited contingent consideration During the year, the Group has re-estimated the amount of contingent consideration payable following the acquisition of Friends Reunited in 2005. Due to the strong performance of the business, the Group now expects to pay the full £55 million of deferred consideration which has resulted in an increase in the goodwill associated with the acquisition of £15 million (less related deferred tax of £5 million recognised through equity) and a £10 million increase in operating costs which will be spread over the three year performance period which commenced in 2006. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 80_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

28 Acquisitions and disposals of businesses (continued) Disposals During the period, as part of the ongoing process to dispose of non-core businesses and investments, the Group sold 021 and Granada Learning and its investments in Seven Network and TV3. The disposal of the 021 business for £4 million resulted in a nil gain or loss being booked. The sale of Granada Learning took place for a potential maximum consideration of £53 million. This comprises £17.5 million in cash, £17.5 million in loan notes and a further £18 million which is contingent on the future performance of the business. The fair value of expected proceeds has been taken as £31 million for accounting purposes resulting in a £12 million loss on disposal. The interest in Seven Network was sold for total consideration of £87 million resulting in a profit of £29 million booked through the income statement. The interest in TV3 was sold for a total consideration of £70 million resulting in a profit of £40 million booked through the income statement. Acquisitions and disposals in 2005 SDN On 27 April 2005, the Group acquired 50.1% of the shares in SDN Ltd and 100% of the shares in United Media & Information Ltd (which held the remaining shares in SDN Ltd) for a total consideration of £83 million in cash. As part of the acquisition, loan amounts due by these companies, totalling £53 million, were repaid bringing the total cash outflow of the Group to £136 million. SDN holds the licence to operate Multiplex A on digital terrestrial television. In the period to 31 December 2005 SDN contributed £8 million to the consolidated operating profit of the Group (before additional amortisation of £4 million). Had the acquisition occurred on 1 January 2005, the estimated revenue for the Group would have been £7 million higher at £2,203 million and operating profit before amortisation and exceptional items £2 million higher at £462 million (additional amortisation is £2 million) for the year ended 31 December 2005. The acquired net assets of SDN are set out in the table below.

Book value before Fair value Fair value acquisition adjustments to ITV plc £m £m £m Intangible assets – 82 82 Trade and other receivables 6 – 6 Borrowings (53) – (53) Trade and other payables (7) 3 (4) Deferred tax liability – (25) (25) Net assets and liabilities (54) 60 6 Goodwill on acquisition 77 Consideration paid 83 Borrowings settled at date of acquisition 53 Total cash outflow 136 The intangible assets recognised at a fair value of £82 million included the Multiplex licence and customer contracts. A deferred tax liability of £25 million was recognised in respect of these intangible assets. The goodwill recognised represents the wider strategic benefits of the acquisition to ITV plc and the value of those assets not requiring valuation under IFRS3 (Business combinations). The strategic benefits are principally the enhanced ability to promote Freeview as a platform, business relationships with the channels which are on Multiplex A and the additional capacity available from 2010. These, in combination with existing Group assets including the ITV brand and programming, generated the goodwill on acquisition. Friends Reunited On 6 December 2005, the Group agreed to acquire 100% of the shares in Friends Reunited Holdings Limited for a total initial consideration of £120 million and contingent consideration of up to £55 million payable in 2009 contingent upon the future performance of the acquired business. The initial consideration consisted of £75 million cash, £21 million loan notes and £24 million ITV plc shares. Of the initial consideration £94 million was paid in 2005 with the balance of £26 million paid in 2006 (being the 21 million (£24 million) ITV plc shares and £2 million loan notes). The fair value of the consideration was £145 million. This took into account the initial consideration, the present value of the expected deferred consideration and other costs associated with the acquisition. Had the acquisition occurred on 1 January 2005, the estimated revenue for the Group would have been £12 million higher at £2,208 million and operating profit before amortisation and exceptional items £6 million higher at £466 million (additional amortisation would have been £4 million) for the year ended 31 December 2005. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 81_ ITV plc Report and Accounts 2006

28 Acquisitions and disposals of businesses (continued) The acquired net assets of Friends Reunited are set out in the table below.

Book value before Fair value Fair value acquisition adjustments to ITV plc £m £m £m Intangible assets 4 34 38 Cash and cash equivalents 3 – 3 Trade and other receivables 1 – 1 Borrowings (2) – (2) Trade and other payables (5) – (5) Current tax (liability)/asset (1) 3 2 Net deferred tax asset – 8 8 Net assets and liabilities – 45 45 Goodwill on acquisition 100 Fair value of consideration 145 The intangible assets recognised at fair value included the brands and customer relationships. A deferred tax liability of £10 million was recognised in respect of these intangible assets. A current tax asset of £3 million and a deferred tax asset of £18 million was recognised in respect of the exercise of share options. The goodwill recognised represents the benefits of the acquisition across the Group when combined with existing Group assets and businesses and the value of those assets not requiring valuation under IFRS 3 (Business combinations). Disposal During 2005 the Group disposed of Superhire Ltd for gross consideration of £2 million.

29 Called up share capital The Group’s share capital is the same as that of ITV plc. Details of this are given in note iv in the ITV plc company financial statements section of this report. Employee benefit trusts The Group has investments in its own shares as a result of shares purchased by certain employee benefit trusts. As at 31 December 2006 the holdings were as follows: 2006 2005 Number Market value Number Market value of shares £m of shares £m ITV Employees’ Benefit Trust 15,662,147 17 6,164,183 7 Granada Employees’ Benefit Trust – – 8,734,904 10 Carlton Communications Employee Share Ownership Plan 6,276,984 7 1,567,706 2 The nominal value of own shares held is £2.2 million (2005: £1.6 million). The shares will be held in trust until such time as they may be transferred to participants of the various Group share schemes. Rights to dividends have been waived by the ITV Employees’ Benefit Trust in respect of shares held which do not relate to the Deferred Share Award Plan. The total number of shares held by the trusts at 31 December 2006 is 21,939,131 (2005: 16,466,793) ordinary shares representing 0.56% (2005: 0.4%) of ITV’s issued share capital. On 13 December 2006, the Trustees of the Granada Employees’ Benefit Trust sold 7,690,570 ordinary shares to the ITV Employees’ Benefit Trust at a market value of £8,440,401. The Granada Employees’ Benefit Trust will now be wound up. During 2006 all three trusts purchased ITV plc shares in the open market. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 82_ ITV plc Report and Accounts 2006 Financial Statements

Notes to the accounts

29 Called up share capital (continued) During the year the following ordinary shares were released from the above trusts to satisfy awards vesting under the Group’s share schemes as follows:

Number of shares Nominal value Shares released from: released £ Scheme ITV Employees’ Benefit Trust 3,180,844 318,084 Deferred Share Award Plan 10,538 1,054 ITV Performance Share Plan 53,788 5,379 ITV Sharesave Plan 2,679,651 267,965 Carlton Sharesave Plan 24,011 2,401 Granada Sharesave Plan Carlton Executive Share 2,530,437 253,044 Option Scheme Granada Executive Share 2,511,600 251,160 Option Scheme Carlton Equity Participation 10,832,152 1,083,215 Plan 130,910 13,091 ITV Bonus Plan Granada Executive Share Granada Employees’ Benefit Trust 953,680 95,368 Option Scheme Granada Commitment 321,798 32,180 Scheme 3,482,101 348,210 Granada Sharesave Scheme 19,889 1,989 ITV Sharesave Scheme Carlton Equity Participation Carlton Communications Employee Share Ownership Plan 2,340,285 234,029 Plan Carlton Communications Executive Share Option 6,188,054 618,805 Scheme

30 Capital and reserves

Attributable to equity shareholders of the parent company Share Share Merger and Translation Available for Retained Minority Total capital premium other reserves reserve sale reserve earnings Total interest equity £m £m £m £m £m £m £m £m £m At 1 January 2005 422 91 2,666 (2) 13 (85) 3,105 8 3,113 Cancellation of shares (3) (39) – – – – (42) – (42) Shares issued in the year 4 46 – – – – 50 – 50 Total recognised income and expense – – – 1 20 248 269 4 273 Movements due to share-based compensation – – – – – 18 18 – 18 Equity dividends – – – – – (107) (107) – (107) At 31 December 2005 423 98 2,666 (1) 33 74 3,293 12 3,305 Share buy-backs (24) – 24 – – (251) (251) – (251) Shares issued in the year 2 22 – – – – 24 – 24 Cancellation of convertible shares (12) – – – – – (12) – (12) Issue of deferred shares 12 – – – – – 12 – 12 Total recognised income and expense – – – (2) (16) 244 226 3 229 Movements due to share-based compensation – – – – – (9) (9) – (9) Dividends paid to minority interests – – – – – – – (8) (8) Equity dividends – – – – – (127) (127) – (127) At 31 December 2006 401 120 2,690 (3) 17 (69) 3,156 7 3,163 Included within retained earnings is a £25 million (2005: £26 million) deduction for investments held in ITV plc shares by the Group- sponsored employee benefit trusts. Merger and other reserves Merger and other reserves at 31 December 2006 include merger reserves of £2,548 million (2005: £2,548 million), capital reserves of £112 million (2005: £112 million), capital redemption reserves of £24 million (2005: £nil) and revaluation reserves of £6 million (2005: £6 million). Translation reserve The translation reserve comprises all foreign exchange differences arising on the translation of the accounts of, and investments in, foreign operations. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 83_ ITV plc Report and Accounts 2006

30 Capital and reserves (continued) Available for sale reserve The available for sale reserve comprises all movements arising on the revaluation and disposal of assets accounted for as available for sale.

31 Contingent liabilities There are contingent liabilities in respect of certain litigation and guarantees and in respect of warranties given in connection with certain disposals of businesses. In the opinion of the directors, adequate allowance has been made in respect of these matters.

32 Operating Leases The total future minimum lease payments under non-cancellable operating leases are payable as follows:

2006 2005 £m £m Not later than one year 13 16 Later than one year and not later than five years 52 55 Later than five years 163 130 228 201 The Group leases a number of properties principally comprising offices and studios under operating leases. Leases typically run for a period of 15 years with an option to renew the lease after that date. Lease payments are typically increased every five years to reflect market rentals. None of the leases include contingent rentals. The total future minimum sublease payments expected to be received under non-cancellable subleases at the balance sheet date is £20 million (2005: £22 million). The total operating lease expenditure recognised during the year was £19 million (2005: £17 million) and total sublease payments received totalled £4 million (2005: £3 million).

33 Capital and other commitments There are £7 million capital commitments at 31 December 2006 (31 December 2005: none). There are commitments in respect of forward foreign exchange contracts entered into the ordinary course of business.

34 Post balance sheet events On 1 January 2007, the Group outsourced its transmission operations to Thomson’s Technicolor Network Services business. Assets, primarily the Northern and Southern transmission centres and approximately 100 staff were transferred at this date. On 4 January 2007, the Group repaid the €356 million Exchangeable bond at par. The Group agreed terms to dispose of its investment in The Liverpool Football Club and Athletic Grounds plc (“Liverpool”) on 5 February 2007 for a total consideration of £17 million. The sale is still dependent upon Liverpool shareholder approval.

35 Related party transactions Transactions with associated undertakings and joint ventures:

2006 2005 £m £m Sales to joint ventures 2 1 Sales to associated undertakings 2 5 Purchases from associated undertakings 51 54

2006 2005 £m £m Amounts owed by joint ventures 30 33 Amounts owed by associated undertakings 8 10 Amounts owed to associated undertakings 2 4 All transactions with associated undertakings and joint ventures arise in the normal course of business. Transactions with key management personnel Key management personnel compensation is as follows:

2006 2005 £m £m Short term employee benefits 6 5 Post-employment benefits 1 2 Termination benefits 3 2 Share-based payment 6 6 16 15

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 84_ ITV Report and Accounts 2006 Financial Statements ITV plc Company Financial Statements

Company balance sheet

2005 2005 2006 2006 Restated Restated At 31 December: Note £m £m £m £m Fixed assets: Investments in subsidiary undertakings ii 1,816 1,791

Current assets: Amounts owed by subsidiary undertakings 11 17 Prepayments and accrued income 3 1 Cash at bank and in hand and short term deposits 764 632 778 650 Creditors – amounts falling due within one year: Borrowings iii (466) (311) Amounts owed to subsidiary undertakings (12) – Accruals and deferred income (35) (58) Other creditors (66) (33) Dividends (53) (54) (632) (456) Net current assets 146 194 Total assets less current liabilities 1,962 1,985 Creditors – amounts falling due after more than one year: Borrowings iii (1,154) (770) Net assets 808 1,215 Capital and reserves: Called up share capital iv 401 423 Share premium v 120 98 Other reserves v 24 – Profit and loss account v 263 694 Shareholders’ funds – equity 808 1,215 The accounts were approved by the Board of Directors on 7 March 2007 and were signed on its behalf by:

Michael Grade

John Cresswell WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 85_ ITV Report and Accounts 2006 Notes to the ITV plc Company Financial Statements

i Accounting policies Basis of preparation As permitted by section 230(4) of the Companies Act 1985, a separate profit and loss account, dealing with the results of the parent company, has not been presented. The Company has not adopted FRS 29 Financial Instruments : Disclosures. This new standard becomes mandatory for 2007 and introduces extensive new disclosure requirements about the significance of financial instruments for an entity’s financial position and performance, and qualititative and quantitative disclosures on the nature and the extent of risks. The Company is currently assessing the impact this new standard will have on next year’s financial statements. Subsidiaries Subsidiaries are entities that are directly or indirectly controlled by the Company. Control exists where the Company has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The investment in the Company’s subsidiaries is recorded at cost. Foreign currency transactions Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Foreign currency monetary assets and liabilities at the balance sheet date are translated into sterling at the rate of exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the profit and loss account. Non-monetary assets and liabilities measured at historical cost are translated into sterling at the rate of exchange on the date of the transaction. Borrowings Borrowings are recognised initially at fair value, and in subsequent periods at amortised cost. The difference between cost and redemption value is recorded in the profit and loss account over the period of the liability on an effective interest basis. Derivatives and other financial instruments The Company uses a limited number of derivative financial instruments to hedge its exposure to fluctuations in interest rates. The Company does not hold or issue derivative instruments for speculative purposes. Derivative financial instruments are initially recognised at cost and are subsequently remeasured at fair value with movement recorded in the profit and loss account. The fair value of foreign currency forward contracts is determined by using forward exchange market rates at the balance sheet date. The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of swap counterparties. Dividends Dividends are recognised in the period in which they are declared. ii Investments in subsidiary undertakings The principal subsidiary undertakings are listed in note viii. The movements in the investments in subsidiary undertakings of the Company during the year are analysed below: £m At 1 January 2006 1,791 Addition 25 At 31 December 2006 1,816 The addition is in respect of the contingent consideration payable for Friends Reunited. iii Borrowings Borrowings repayable within one year Loans repayable within one year as at 31 December 2006 includes an unsecured €356 million Exchangeable bond which had a coupon of 2.25% and matured in January 2007. The Exchangeable bond was able to be exchanged at any time during 2006 at the option of investors for 8.6 million shares in Thomson S.A. at an exchange rate of €41.2 per share. The Company had the right to redeem the bonds at par on or after 4 July 2003 if the underlying shares in Thomson had traded at a 30% premium to the exchange price of €41.2 on 20 consecutive trading days in any period of 30 trading days. At 31 December 2006 the Thomson S.A. share price was €14.8 and so the bond was redeemed at par when it matured on 4 January 2007. Other loans repayable within one year as at 31 December 2006 also include an unsecured £200 million Eurobond which has a coupon of 7.625% and matures in June 2007, £21 million of loan notes issued in connection with the purchase of Friends Reunited and a £5 million of loan notes issued in connection with the purchase of Carlton Communications Limited Preference Shares, with a coupon of LIBOR minus 0.525% and LIBOR minus 0.5% respectively. Borrowings repayable after more than one year Loans repayable after more than one year as at 31 December 2006 include an unsecured £250 million Eurobond which has a coupon of 5.625% and matures in March 2009, an unsecured €500 million Eurobond which has a coupon of 4.75% and matures in October 2011, an unsecured £325 million Eurobond which has a coupon of 5.375% and matures in October 2015 and an unsecured £250 million Eurobond which has a coupon of 6.125% and matures in January 2017. All bonds are recognised initially at fair value and in subsequent periods at amortised cost. In 2005, two of the bonds were accounted for using the fair value option approach and therefore these balances have been restated to reflect the change in treatment to amortised cost. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 86_ ITV Report and Accounts 2006 Financial Statements

Notes to the ITV plc Company Financial Statements

iv Called up share capital

Authorised Allotted, issued and fully paid 2006 2005 2006 2005 £m £m £m £m Ordinary shares of 10 pence each Authorised: 5,826,377,627 (2005: 5,826,377,627) 583 583 Allotted, issued and fully paid: 3,889,129,751 (2005: 4,108,483,836) 389 411 Convertible shares of 10 pence each Authorised: Nil (2005: 144,516,388) – 14 Allotted, issued and fully paid: Nil (2005: 123,772,488) – 12 Deferred shares of 10 pence each Authorised; 144,516,388 (2005: Nil) 14 – Allotted, issued and fully paid 123,772,488 (2005: Nil) 12 – Total 597 597 401 423 On 1 January 2006 the convertible shares were, pursuant to Article 4.A.4(F) of the Company’s Articles of Association, automatically converted into non-voting deferred shares. Pursuant to this Article, the Company used its right to execute a transfer on behalf of each holder of deferred shares of such holder’s entire holding of deferred shares to a custodian without obtaining the sanction of any such holder and for no consideration. The UK Listing Authority and the London Stock Exchange have confirmed cancellation of the listing from the Official List of the deferred shares and the cancellation of trading of the deferred shares on the London Stock Exchange. The issued deferred shares were cancelled on 15 January 2007 and a resolution to cancel the authorised deferred share capital will be proposed at the Annual General Meeting (“AGM”) in May 2007. The Company’s ordinary shares give the shareholder equal rights to vote, receive dividends and to the repayment of capital. The deferred shares are non-voting and have no rights to receipt of a dividend or to any repayment of capital. Issued share capital movements during the period can be summarised as follows:

Ordinary Convertible Non-voting deferred 10 pence shares 10 pence shares 10 pence shares At 1 January 2005 4,093,111,161 124,250,119 – 11 March 2005 Cancellation of Scheme of Arrangement shares (28,122,373) (483,612) – 16 March 2005 Placing of shares following the Scheme of 30,000,000 – – Arrangement 28 June 2005 Conversion of Carlton preference shares 63,327 5,981 – Various Issued in connection with share option schemes 13,431,721 – – At 31 December 2005 4,108,483,836 123,772,488 – 1 January 2006 Conversion of ITV convertible shares into non- – (123,772,488) 123,772,488 voting deferred shares 12 January 2006 Issue of shares re Friends Reunited 20,946,061 – – Various Share buy-backs (240,800,000) – – Various Issued in connection with share option schemes 499,854 – – At 31 December 2006 3,889,129,751 – 123,772,488 As a part of the consideration for the acquisition of Friends Reunited Holdings Limited in December 2005, the Company issued 20,946,061 ITV ordinary shares to certain vendors. During the year, the Company undertook a programme to buy back shares as approved by the shareholders by special resolution at the AGM in May 2006.

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 87_ ITV Report and Accounts 2006

v Reconciliation of movements in shareholders’ funds

Share Share Other Profit and Total capital premium reserves loss account 2006 £m £m £m £m £m At 1 January 2006 423 98 – 694 1,215 Share buy-backs (24) – 24 (251) (251) Issue of shares in year 2 22 – – 24 Conversion of convertible shares (12) – – – (12) Issue of deferred shares 12 – – – 12 Retained loss for year for equity shareholders – – – (180) (180) At 31 December 2006 401 120 24 263 808 The loss after tax for the year dealt with in the accounts of ITV plc is £53 million (period ended 31 December 2005: profit of £459 million) before dividends of £127 million (2005: £107 million). vi Contingent liabilities Under a group registration, the Company is jointly and severally liable for VAT at 31 December 2006 of £29 million (31 December 2005: £37 million). The Company has guaranteed certain finance and operating lease obligations of subsidiary undertakings. There are contingent liabilities in respect of certain litigation and guarantees and in respect of warranties given in connection with certain disposals of businesses and in respect of certain trading and other obligations of certain subsidiaries. In the opinion of the directors, adequate allowance has been made in respect of these matters. Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. vii Capital and other commitments There are no capital commitments at 31 December 2006 (31 December 2005: none). There are commitments in respect of forward foreign exchange contracts entered into the ordinary course of business. viii Principal subsidiary undertakings and investments Principal subsidiary undertakings The principal subsidiary undertakings of the Company at 31 December 2006, all of which are wholly owned (directly or indirectly) and incorporated and registered in England and Wales except where stated, are:

Name Principal activity 3sixtymedia Limited + Supplier of facilities for television productions Carlton Broadcasting Limited Production and broadcast of television programmes Carlton Communications Limited Holding company Carlton Film Distributors Limited Rights ownership and distribution Carlton Screen Advertising Limited Sale of advertising space in cinemas Friends Reunited Limited Operation of community based websites GMTV Limited ++ Production and broadcast of breakfast time television under national Channel 3 licence Granada Limited Holding company Granada International Media Limited Rights ownership and distribution of television programmes and films Granada International Media, Inc ** Distribution of television programmes Granada Productions Pty Limited * Production of television programmes Granada Television Limited Production and broadcast of television programmes Granada Ventures Limited Production and distribution of video and DVD products WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 88_ ITV Report and Accounts 2006 Financial Statements

Notes to the ITV plc Company Financial Statements

viii Principal subsidiary undertakings and investments (continued) Principal subsidiary undertakings (continued)

Name Principal activity Hamdon Entertainment*** Television rights and productions Independent Television Facilities Centre Limited ++++ Subtitling, audio-description and signing services ITC Distribution LLC** Film rights ownership and distribution ITC Entertainment Group Limited Film rights ownership and distribution ITV Border Limited (formerly Border Television Limited) Production and broadcast of television programmes ITV Broadcasting Limited (formerly Anglia Television Limited) Production and broadcast of television programmes ITV Central Limited (formerly Central Independent Television Limited) Production and broadcast of television programmes ITV Consumer Limited (formerly Carlton Television Limited) Sale of television airtime ITV Digital Channels Limited Operation of digital TV channels ITV Meridian Limited (formerly Meridian Broadcasting Limited) Production and broadcast of television programmes ITV Network Limited +++ Scheduling and commissioning television programmes ITV Productions Limited (formerly Granada Media Group Limited) Holding company ITV Sales Limited Sale of television airtime ITV Wales & West Group Limited (formerly HTV Group Limited) Holding company ITV Wales & West Limited (formerly HTV Limited) Production and broadcast of television programmes ITV2 Limited Operation of digital TV channels London Weekend Television Limited Production and broadcast of television programmes LWT (Holdings) Limited Holding company SDN Limited Operation of Freeview Multiplex A Tyne Tees Television Limited Production and broadcast of television programmes Westcountry Television Limited Production and broadcast of television programmes Yorkshire Television Limited Production and broadcast of television programmes

* Incorporated and registered in Australia + 80% owned ** Incorporated and registered in USA ++ 75% owned *** Registered in USA +++ Interest in company limited by guarantee ++++ 91.5% owned A list of all subsidiary undertakings will be included in the Company’s annual return to Companies House. Principal joint ventures, associated undertakings and investments The Company indirectly held at 31 December 2006 the following holdings in significant joint ventures, associated undertakings and investments:

Interest in Interest in ordinary ordinary share capital share capital 2006 2005 Name Note % % Principal activity Arsenal Broadband Limited b 50.00 50.00 Exploitation of new media and other commercial opportunities Arsenal Holdings plc c 9.99 10.05 Management of the football and related interests of Arsenal football club Education Digital Limited a 20.00 20.00 Production and Broadcast of Teachers TV Independent Television News Limited a 40.00 40.00 Supply of news services to broadcasters in the UK and elsewhere Liverpool FC.tv Limited b 50.00 50.00 Exploitation of new media and other commercial opportunities MUTV Limited a 33.00 33.00 Operation of the MUTV television channel dedicated to Manchester United Football Club and its activities Screenvision Holdings (Europe) Limited b 50.00 50.00 European cinema advertising SMG plc * c 16.78 16.86 Management activities for holding companies and television broadcasting in central and north Scotland Technicolor Cinema Advertising LLC** b 50.00 50.00 US cinema advertising The Liverpool Football Club and Athletic c 9.99 9.99 Management of the football and related interests Grounds Plc of Liverpool football club

* Incorporated and registered in Scotland a Associated undertaking ** Incorporated and registered in USA b Joint venture c Trade investment

WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da

89_ITV plc Report and accounts 2006 Governance Corporate governance

The Board of ITV plc is committed to business integrity and high Election and re-election: All directors are required by the Company’s ethical values across the Group’s operations. As an essential part of Articles of Association to be elected by shareholders at the first this commitment, the Board supports high standards of corporate Annual General Meeting after their appointment by the Board. governance and has a policy of seeking to comply with the Subsequently, all directors are subject to re-election by shareholders recommendations of the Combined Code and voting guidelines at least every three years. Directors who reach the age of 70 will retire of our major institutional investors. annually. The directors who will be seeking re-election at the Annual General Meeting on 17 May 2007 are set out in the Directors’ report on Compliance page 47. The reasons why the Board believes they should be re-elected As required by the Listing Rules issued by the Financial Services are set out in the explanatory notes to the notice of the Annual General Authority, this report describes how the Company has applied the Meeting sent with this document. principles set out in Section 1 of the Combined Code on Corporate External directorships: With the specific approval of the Board in Governance. It also discloses the extent to which the Company has each case, executive directors may accept external appointments complied with the Code’s provisions. as non-executive directors of other companies (but only one FTSE 100 The Board considers that, throughout the year, the Company company) and retain any related fees paid to them. complied with the provisions of the Combined Code. On 8 January 2007 Michael Grade became Executive Chairman of the Company. Non-executive directors Whilst the Company does not therefore now comply with code The non-executive directors constructively challenge and help provision A.2.1, the Board considers that the appointment of develop proposals on strategy. They bring strong, independent Michael Grade as Executive Chairman provides the Company with judgment, knowledge and experience to the Board’s deliberations. a strong and creative leadership which is important at this time of The independent directors are of sufficient calibre and number that rapid change in the television industry. their views carry significant weight in the Board’s decision making. John Cresswell was appointed as Chief Operating Officer as well as Finance Director, and the executive team report directly to him. Independence: The Combined Code recommends that at least half of The resultant balance of creative leadership and media management the Board, excluding the Chairman, should comprise “independent” skills will promote an acceleration in the improvement of the non-executive directors. The ITV Board considers each of its current Company’s business. The appointment of Sir James Crosby as non-executive directors to be independent. the senior independent director and Chairman of the Nomination Meetings: The non-executive directors meet regularly as a group. Committee provides an appropriate level of governance control. It is expected that in due course Michael Grade may step down Terms of appointment: Subject to the Company’s Articles of from his executive role and remain as non-executive Chairman. Association, the Companies Act and satisfactory performance evaluation, non-executive directors are appointed for an initial period The Board of three years from commencement of appointment. At the third and Composition: The Board currently comprises nine members, sixth anniversary of the non-executive director’s first appointment, the the Executive Chairman, the Chief Operating Officer and Finance director will discuss with the Board whether it is appropriate Director and seven non-executive directors. Biographical details for a further three year term to be served. The re-appointment of for each of the directors are set out on pages 44 and 45. directors who have served for more than nine years will be subject The composition of the Board during 2006 is set out in the to annual review. Directors’ report on page 47. Sir James Crosby, John McGrath, Sir Brian Pitman and Sir George Russell Sir Peter Burt was non-executive Chairman and resigned from completed three years as non-executive directors of ITV plc during the Board on 8 January 2007. Charles Allen was Chief Executive and the year. Under the terms of their appointment it has been agreed resigned from the Board on 1 October 2006. Henry Staunton was that they should commence further three year terms as non-executive Finance Director and resigned on 29 March 2006, being replaced as directors. Finance Director by John Cresswell who was appointed to the Board on 16 January 2006. Also during 2006 David Chance resigned as a Time commitment: The Board is satisfied that each of the non-executive director on 13 February 2006 and Mike Clasper was non-executive directors commits sufficient time to the business appointed as a non-executive director on 3 January 2006. of the Company. Executive Chairman: Michael Grade is Executive Chairman and is Company Secretary responsible for leadership of the Board, ensuring its effectiveness The Company Secretary, James Tibbitts, is responsible for advising and setting its agenda. the Board on all governance matters. The directors have access to the Deputy Chairman: Sir George Russell is Deputy Chairman of advice and services of the Company Secretary. The Company’s Articles the Company. of Association and the schedule of matters reserved to the Board for decision, provide that the appointment and removal of the Company Chief Operating Officer and Finance Director: John Cresswell is Secretary is a matter for the full Board. Chief Operating Officer and Finance Director and has responsibility to the Board for leadership and management of the day-to-day How the Board operates operations of the Company. Board meetings: The Board is scheduled to meet ten times in 2007 Senior independent director: Sir James Crosby is the senior (including two meetings devoted to discussion of strategic matters) independent non-executive director. He acts as a conduit to the and may meet at other times as and when required. Board for communication of shareholder concerns when other Programme: The Board approves annually a schedule of matters to channels of communication are inappropriate and ensures that the be considered at each meeting and at each meeting of the Audit, performance evaluation of the Chairman is conducted effectively. Nomination and Remuneration Committees. Details of his professional commitments are included in his biography on page 45. The Board is satisfied that these are not such as to interfere with the performance of his duties for the Company. The job descriptions of the Executive Chairman, the Chief Operating Officer and the senior independent director are set out in writing and have been agreed by the Board. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 90_ITV plc Report and accounts 2006 Governance

Corporate governance

Attendance: Attendance of directors at Board and Strategy meetings Sir George Russell, Deputy Chairman. The evaluation process required during 2006 is set out below. each director to complete a detailed questionnaire designed to provide the Deputy Chairman with a means of making year-on-year Board and Strategy meeting attendance comparisons. The questions covered a range of issues such as board 1 2 3 4 5 6 7 8 9 10 11 1 2 processes, board roles and responsibilities, board agendas, committee Sir Peter Burt processes, individual effectiveness, training and continuing professional Sir George Russell development. Charles Allen(1) The results were collated and the consolidated results were David Chance(2) presented to the Deputy Chairman. Individual director assessments were discussed by the Deputy Chairman together with goals for Mike Clasper(3) (4) the following year. The results of the evaluation together with John Cresswell recommendations for the year were discussed at Board level. Sir James Crosby The performance review of the Chief Operating Officer and Finance John McGrath Director was conducted by the Deputy Chairman taking into account Sir Robert Phillis the views of other directors. Sir Brian Pitman Induction and continuing professional development: The Company Baroness Usha Prashar has a policy and programme for induction and continuing professional Henry Staunton(5) development, which is reviewed annually. Strategy meeting On appointment, each director takes part in an induction (1) Charles Allen resigned on 1 October 2006 programme when he or she receives information about the Group (2) David Chance resigned on 13 February 2006 (3) Mike Clasper appointed to the Board on 3 January 2006 in the form of presentations by executives from the business and (4) John Cresswell appointed to the Board on 16 January 2006 (5) Henry Staunton resigned on 29 March 2006 on the regulatory environment. They also meet representatives of the Company’s key advisers. In addition they receive information Responsibility and delegation: The specific responsibilities are set about the role of the Board and the matters reserved for its decision, out in a schedule of matters reserved to the Board. These include: the terms of reference and membership of Board Committees, and the powers delegated to those Committees, the Company’s • setting long-term objectives and corporate strategy and corporate governance practices and procedures and the latest financial approving an annual budget; information about the Group. This is supplemented by visits to key • approving major acquisitions; locations and meetings with key senior executives and meetings with major shareholders. Throughout their period in office, the directors are • divestments and capital expenditure; continually updated on the Group’s businesses, the competitive and • approving Board appointments; regulatory environments in which they operate, corporate responsibility matters and other changes affecting the Group and the markets in • reviewing systems of financial control and risk management; and which it operates. This is provided by written briefings and meetings • approving policies relating to directors’ remuneration. with senior executives across the Group and from meetings with key The Board has delegated certain responsibilities to Board Committees, advisers. Directors are also advised on appointment of their legal and the key Committees being the Audit Committee, the Nomination other duties and obligations as a director of a listed company, both Committee and the Remuneration Committee. Further information in writing and in face-to-face meetings with the Company Secretary. is provided below. They are briefed regularly on changes to the legal and governance requirements of the Group and in relation to their own position Information flow: Regular reports and papers are circulated to the as directors. directors in a timely manner in preparation for Board and Committee meetings. These papers are supplemented by other relevant Board Committees information when applicable or if requested. The Company Secretary acts as secretary to all of the Board The non-executive directors receive monthly management accounts Committees and minutes of meetings are circulated to all and regular management reports which enable them to scrutinise the Board members. The terms of reference for each Committee Group’s and management’s performance against agreed objectives. are reviewed annually. The Company has developed a website for the use of its directors. The website is regularly updated with performance data, information Audit Committee about the Company and other corporate governance matters. Composition: During 2006 the Audit Committee comprised the Independent professional advice: Directors are given access to following members: independent professional advice at the Company’s expense, when – John McGrath (Chairman of the Committee) the directors deem it necessary in order for them to carry out – Mike Clasper their responsibilities. – Sir James Crosby Insurance: The Company maintains liability insurance for its directors – Baroness Usha Prashar and officers with a cover limit of £75 million. Sir James Crosby ceased to be a member of the Committee Indemnities: The Company has entered into deeds of indemnity with on 19 February 2007. its directors. Attendance during 2006:

Board effectiveness Audit Committee meeting attendance Performance evaluation: The Board has established a formal process for 1234 5 the annual evaluation of the performance of the Board, its Committees, Mike Clasper(1) and individual directors with particular attention given to those who are Sir James Crosby due for re-election. The directors are made aware, on appointment, that John McGrath their performance will be subject to an annual evaluation. Some of the actions taken during 2006 resulting from the 2005 Baroness Usha Prashar evaluation included reviewing board structure, independence issues (1) Mike Clasper appointed to Audit Committee on 16 January 2006 and ensuring appropriate mix of experience and expertise; more detailed reviews on succession planning and more regular site visits for non-executive directors. The evaluation for 2006 was led by WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 91_ITV plc Report and accounts 2006

The Combined Code requires the Board to be satisfied that at least • considering internal audit reports, the actions taken to implement the one member of the Audit Committee has recent and relevant financial recommendations made in those reports and the status of progress experience. The Board has considered this requirement, and has against previously agreed actions; concluded that the wide range of business and financial experience of the Committee members as a whole, gained at the highest level of • reviewing the results of the annual Group risk assessment UK FTSE 100 companies and other blue-chip organisations, is sufficient process, including consideration of a rolling programme of risk and to enable the Committee to fulfil its terms of reference in a robust internal control presentations made by each operating team and and independent manner. Biographical details of the members of the central service functions; Committee are set out on pages 44 and 45. • reviewing an annual report on the effectiveness of the Group’s At the invitation of the Chairman of the Committee, the Chief system of internal control and reporting to the Board on the results Operating Officer and Finance Director, the Director of Internal Audit of that review; and representatives of the external auditors regularly attend Audit Committee meetings. The Committee as a whole has the opportunity • meeting privately with both the external and internal auditors, to meet privately with the internal and external auditors at any time without management being present, to discuss the remit of their they consider appropriate. In 2006 one private meeting was held with work and any issues arising from its performance; each of the internal and external auditors. • considering proposed policies in respect of interest rate Terms of reference: In accordance with the Committee’s terms of management and tax risk management prior to presentation reference the Committee’s main role and responsibilities include: to the Board for approval; • monitoring the integrity of the financial statements of the Company; • considering the Group’s expenditure approval framework prior to Board review and approval; • reviewing the effectiveness of the Company’s internal control and risk management systems; • considering regulatory and professional developments in respect • reviewing the Company’s arrangements for its employees to raise of financial accounting and reporting. In 2006, this included concerns, in confidence, about possible wrongdoing in financial consideration of a statement issued by the ABI Investment reporting or other matters; Committee on the subject of auditor engagement, recent consultations of the Professional Oversight Board and the revised • monitoring and reviewing the effectiveness of the Company’s internal requirements of the Companies Act in respect of disclosure of audit function; and information to auditors; and • considering and making recommendations to the Board in relation to • considering an outline Business Review for inclusion in the 2006 report the appointment, re-appointment, replacement and remuneration of and accounts. the Company’s external auditor. The Committee is authorised by the Board to seek any information Auditor’s independence and objectivity that it requires from any employee and to obtain, at the Company’s The Audit Committee regularly monitors the other services expense, independent legal or professional advice on any matter within being provided to the Group by its external auditors, and has its terms of reference and to call any employee to be questioned at a developed a formal policy to ensure this does not impair their meeting of the Committee as and when required. independence or objectivity, and that the Group maintains a The Committee works to a structured programme of activities sufficient choice of appropriately qualified audit firms. The policy with agenda items focused to coincide with key events of the annual sets out four key principles which underpin the provision of other financial reporting cycle, together with standing items that the services by the external auditors: the auditor should not audit its Committee is required to consider regularly. own firm’s work, make management decisions for the Group, Activities in 2006: The Audit Committee met five times and discharged have a mutuality of financial interest with the Group, or be put in its responsibilities by: the role of advocate for the Group. The policy sets a maximum 1:1 ratio for the annual split between audit and other fees charged • reviewing the Group’s draft financial statements (including detailed by the external auditor. The Audit Committee has pre-approved the disclosures) prior to Board approval; categories of other services that may be performed by the external • reviewing the appropriateness of the Group’s accounting policies auditors and explicitly set out the categories of work that they may and considering related accounting treatments in specific areas not perform. For this purpose auditing the accounts of subsidiaries and such as revenue recognition; associates pursuant to legislation and other services provided pursuant to legislation are regarded as audit services. The Audit Committee • performing a specific review of the Group’s goodwill accounting, believes that these policies accord with governance best practice. including the methodology and assumptions made in relation to Audit Committee approval is required for any engagement of the goodwill impairment testing; external auditors where the fee is likely to be in excess of £0.1 million. • reviewing and approving the annual external audit plan; The Audit Committee reviews all services being provided by the external auditors to review the independence and objectivity • reviewing the external auditors’ reports on their work, considering the of the external auditors, taking into consideration relevant professional findings of that work and confirming that all significant matters had and regulatory requirements, so that these are not impaired by the been satisfactorily resolved; provision of permissible other services. The Audit Committee also • reviewing the management letter arising from the 2005 year-end performs a specific evaluation of the performance of the external external audit; auditors annually, through assessment of the results of questionnaires completed by relevant executive management in addition to Committee • considering a review of the effectiveness of the external auditors; members’ own views of auditor performance. The Company will carry • monitoring regularly the non-audit services being provided to the out market testing or a form of audit tender every five years from Group by its external auditors. The Committee has approved a formal appointment of external auditors. policy governing the independence of the Company’s external auditors and defining those non-audit services that may be provided Internal control to the Group, including those which require the prior approval of the The Combined Code requires that companies review, at least annually, Committee. Details of the related audit and other services are set out all material internal controls including financial, operational, compliance in note 4 of the financial statements; controls and risk management systems. In October 2005 the Financial • reviewing and approving the internal audit plan and resources for Reporting Council issued revised guidance to directors in respect of the internal audit function. The internal audit plan is constructed compliance with the internal control requirements of the Combined taking a risk based approach with the review cycle designed such Code. In the opinion of the Board the Company has complied with this that financially material operations are reviewed annually and all guidance throughout the year, maintaining an ongoing process for activities reviewed at least once every three years; identifying, evaluating and minimising risk. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 92_ITV plc Report and accounts 2006 Governance

Corporate governance

The Board has overall responsibility for the Group’s systems of internal Attendance during 2006: control and for regularly reviewing the effectiveness of those systems. The primary responsibility for the operation of these systems is Nomination Committee meeting attendance delegated to line management. Such systems can only provide 123 4 5 67 8 reasonable and not absolute assurance against material misstatement Sir Peter Burt or loss. Key control procedures are designed to manage rather than Sir George Russell eliminate risk and can be summarised as follows: Mike Clasper • Strategy and financial reporting: The Group performs a Sir James Crosby comprehensive annual strategy review and budgeting process. John McGrath The executive directors review budgets and strategies and the Sir Brian Pitman Board approves the overall Group budget as part of its normal Sir Robert Phillis responsibilities. The results of operating units are reported monthly, Baroness Usha Prashar compared with their individual budgets and forecast figures and are reviewed on a month-by-month basis. Terms of reference: The principal responsibilities of the Committee include: • Organisational structure and authorisation procedures: The Group has an established organisational structure with clearly stated lines • reviewing the structure, size and composition of the Board; of responsibility and reporting. Authorisation procedures in respect • identifying and nominating for Board approval, candidates to fill of matters such as purchase commitments, capital expenditure, Board vacancies; investment limits and treasury transactions are clearly defined. • evaluating the balance of skills, knowledge and experience on the Control environment: Financial controls and procedures are • Board; and considered as part of the Group’s ongoing risk assessment process and are reviewed as part of the Group’s internal audit • considering succession planning for directors and other work programme. senior executives. • Risk assessment: Management has responsibility for the Activities in 2006: The Committee initiated the search for a new identification of risks facing each of the Group’s businesses and for Chief Executive using a professional search firm. After consideration putting in place controls and procedures to mitigate and monitor of a number of candidates Michael Grade was appointed as Executive those risks. A formal annual risk assessment process has been Chairman on 8 January 2007 and John Cresswell became Chief established, the results of which are reported to the executive Operating Officer and Finance Director. directors and Board. Key risks, mitigating controls and required actions The Committee considers the composition of the Board on an are identified and monitored by the executive directors and Audit annual basis to ensure the appropriate balance of skills and experience. Committee. Risks are also reviewed at least annually by the executive directors, who meet with the senior management of each business Management Committee team and with the heads of significant central service functions The Management Committee comprises the executive directors specifically to discuss the risks facing their areas. In addition, a rolling provided that should there at any time be only one executive director programme of risk assessment presentations are made to the Audit then the Committee shall comprise that executive director and any Committee to enable it to review the risks in these areas at least once one or more non-executive directors. The Committee meets as required a year. to conduct the Company’s business within the clearly defined limits delegated by the Board and subject to those matters reserved to • Reviewing and monitoring the effectiveness of internal controls: the Board. Controls are monitored by management review, Internal Audit, the executive directors and the Audit Committee. Directors of Relations with shareholders each business team are required annually to confirm compliance The Board attaches a high priority to communications with with internal financial control in their area. Serious control shareholders. In addition to the preliminary and interim results weaknesses (if any) are reported to the Board as appropriate. presentations and the Annual General Meeting, a series of meetings The Board has conducted a review of the effectiveness of the between institutional shareholders, the Chairman, the senior Group’s systems of internal controls for the period ended independent director and the Chief Operating Officer and Finance 31 December 2006. Director are held throughout the year. In fulfilment of the Chairman’s obligations under the Combined Code, the Chairman gives feedback to Remuneration Committee the Board on issues raised with him by major shareholders. The Remuneration report can be found on pages 93 to 101. The Company maintains a corporate website containing a wide Attendance during 2006: range of information of interest to institutional and private investors. The Company has frequent discussions with institutional shareholders Remuneration Committee meeting attendance on a range of issues affecting its performance. These include meetings 1 2 3 4 586 7 following the announcement of the annual results with the Company’s Sir George Russell largest institutional shareholders. In addition, the Company responds Sir Brian Pitman to individual ad hoc requests for discussions from institutional shareholders. Sir Robert Phillis Save in exceptional circumstances, all members of the Board will attend the Annual General Meeting and shareholders are invited to ask Nomination Committee questions during the meeting and to meet with directors prior to and Composition: During 2006 the Nomination Committee comprised all after the formal proceedings. All directors, except for Sir Robert Phillis the independent non-executive directors. who was unwell, attended the Annual General Meeting held in May On 5 March 2007 the Board agreed that the Nomination 2006. At the meeting the Chairman reviews the Group’s current trading. Committee should comprise Sir James Crosby (Chairman), Mike Clasper, Notice of the Annual General Meeting, together with any related Sir Robert Phillis and Sir George Russell. documents, is mailed to shareholders about seven weeks before the The Nomination Committee meets at least twice a year. Additional meeting and separate resolutions are proposed on each substantially meetings were held in 2006 due to the search for a new Chief Executive. separate issue. At the meeting all resolutions are taken on a poll. The level of votes lodged on a resolution is announced to the meeting following voting and is made available on a regulatory news service the following day and on the Company website at www.itvplc.com within 48 hours following the meeting. See page 103 for contacts and documents available on our website. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 93_ITV plc Report and accounts 2006 Remuneration report

The Remuneration Committee is comprised entirely of independent non-executive directors. The Committee is governed by formal terms of reference (available at www.itvplc.com), and meets as required (and at least twice) during the year. The Committee is responsible for reviewing the remuneration policy for the Executive Chairman, executive directors and senior executives of the Company. The Committee also has responsibility for the Company’s performance related pay schemes and share incentive plans, and the levels of awards made under them as they apply to the senior executives. During 2006, the Remuneration Committee comprised the following members: – Sir George Russell (Chairman until 15 January 2007) – Sir Robert Phillis (appointed Chairman on 15 January 2007) – Sir Brian Pitman Sir James Crosby was appointed as a member of the Remuneration Committee on 19 February 2007. During 2006, certain executives were invited to attend meetings of the Committee to provide support or to advise on policy for executive remuneration, except when matters relating to their own remuneration were discussed. The Executive Chairman and Chief Operating Officer and Finance Director may attend by invitation. External advisers to the Committee may be invited to attend where appropriate. No individual is involved in decisions relating to their own remuneration. The Committee has appointed Deloitte and Touche LLP (“Deloitte”) as external independent advisers. In addition, Deloitte provided the Group with tax and corporate finance advice under separate engagement terms. Advice on legal matters is provided by Lovells. The Committee’s internal advisers are the Group Human Resources Director and the Company Secretary.

Remuneration policy The Board is committed to building the most appropriate remuneration policy for the Company. In doing this the Remuneration Committee has designed a remuneration policy which is intended to address the Company’s operational requirements while taking into account prevailing best practice. The remuneration policy is based on the following key principles: – To provide competitive total remuneration opportunities which will attract, retain and reward the best executive talent necessary to drive the Company’s future in the highly competitive media market. This must respond to the pressures that the Company faces from other commercial and publicly owned broadcasters and producers. – The majority of total long term remuneration for all senior executives should be tied to the achievement of specific stretching performance conditions and objectives which align executive remuneration with shareholders’ interests. The share incentive schemes encourage executives to adopt the attitude of owners and true entrepreneurs and build up meaningful and substantial shareholdings in the Company. – Performance should be measured over clearly specified, varying time horizons (i.e. short, medium and long term). – Individuals should be rewarded for success, and steps should be taken, within contractual obligations, to minimise rewards for failure. Payments to directors on termination will only reflect contractual obligations. – The Committee should take its decisions being fully aware of the wider context in the Group as a whole, and as part of this process, the Group Human Resources Director, as the Committee’s main internal adviser, provides updates on wider remuneration, employee relations and human resource issues in ITV. Updates on the external remuneration environment are provided by Deloitte. – A remuneration policy needs to evolve over time to adapt to commercial demands, changing market practice and shareholder expectations. Investors will be consulted about any key issues that arise and be provided with the opportunity to endorse the Company’s remuneration policies on a regular basis through the vote on the Remuneration report.

Components of reward The reward package for senior members of staff consists of a combination of incentive schemes intended to provide motivation and reward for short, medium and long term performance and to retain the necessary talent over the longer term. Each component is intended to fulfil a different function within the remuneration framework.

Salary and approach to competitive positioning Market positioning of salary and other elements of reward is approached on an individual by individual basis. The aim is to identify the most appropriate competitive positioning for each role and for the individuals best capable of filling it.

Short term and deferral incentives Annual incentives are provided for the most senior executives and other key management talent through the Deferred Share Award Plan (“DSA”). 50% of any pre-tax bonus entitlement will automatically be deferred into shares under the DSA and deferred awards to executive directors will vest after 12 and 24 months from the end of the financial year to which the bonus relates. Participants may elect to take the balance of the bonus in cash or awards under the DSA. Awards made under the DSA, as well as any cash bonus payments, will be based on the achievement of a combination of corporate, specific business and individual targets which are all measures closely related to shareholder value creation. For 2007 the corporate element includes demanding targets based on profit, revenues and share of commercial impacts. For the executive directors, the targets will be weighted towards corporate performance. The total annual bonus opportunity (including awards made under the DSA) for executive directors will not normally exceed 150% of a participant’s annual salary.

Long term incentive plans The Committee keeps the Company’s long term incentive plans under regular review to ensure they remain appropriate, are fulfilling their objectives and the performance conditions continue to represent the best way to drive the creation of value in line with shareholders’ interests.

Long term incentive arrangements for 2006 The Performance Share Plan (“PSP”) has been used as the main long term incentive. The Total Shareholder Return (TSR) performance conditions applying to PSP awards are described below. The maximum award that can be made under the PSP is 150% of salary in respect of any financial year. Vesting of awards made during the year will be dependent on the TSR performance of the Company, against the customised FTSE 100 comparator group (described below) over a three-year period. There is no vesting for performance below median. 35% of the award vests at median and 100% at upper quartile. Vesting will occur on a straight line basis between these points. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 94_ITV plc Report and accounts 2006 Governance

Remuneration report

Long term scheme requiring capital commitment The Commitment Scheme requires invitees to commit and retain a significant amount of capital in the form of ITV plc shares – in essence, participants are encouraged to adopt the attitudes of owners and “commit” their own funds. Under the Commitment Scheme, participants must commit and retain shares of up to a maximum value of 100% of salary at the date of commitment (although an exceptional limit may apply in some circumstances). A matching award will be granted, composed of an award of a nil cost option and a market value option to acquire an equal number of shares. The maximum matching award can be over no more than three times the number of committed shares for each component part of the matching award. For awards made in 2006 vesting of the matching award will be dependent on TSR performance of the Company, against the customised FTSE 100 comparator group (described below). There is no vesting for performance below median. 25% of the award vests at median and 100% at upper quartile. Awards will vest on a sliding scale between these points. Up to 50% of the matching awards will vest at the third anniversary of the date of grant (subject to performance) and the remainder at the fourth anniversary. Any portion of the award that has not vested at the end of the relevant performance period will lapse. In the event of a change of control, awards may vest based on the extent to which the performance condition has been met in the period since the awards were made, unless it is determined that exceptional financial circumstances have occurred. The level of (performance related) payout in the event of a change of control is capped at a multiple of the original financial amount a participant invests (twice investment if a change of control occurs in the first year, three times if it occurs during the second year and four times if change of control occurs in the third or fourth year).

Turnaround Incentive Award for the Executive Chairman In order to facilitate the appointment of the Executive Chairman a one-off “turnaround” incentive award will be made to provide a long term incentive opportunity. The award will operate over a five-year time horizon. The award will be made over free shares with vesting conditional on meeting performance criteria. Shares with a face value equal to £6 million will be awarded (equivalent to an award of 150% of initial salary per annum over the five-year performance period). The Executive Chairman will be required to commit and hold shares in ITV plc with a value of 100% of his salary as at the date of appointment. Shares will vest subject to performance, 50% of awards being subject to relative TSR and 50% related to specific turnaround objectives and the creation of shareholder value during the transitional digital switch over period to 2012. 25% of the maximum award will vest for threshold performance and 100% for achieving the maximum target in each case. The specific turnaround measures that will apply are as follows: – ITV family SOCI target of 38.5% will trigger full vesting (threshold vesting level at 36.6%). – Revenue Growth target of 5% per annum will trigger full vesting (threshold vesting level at 2% per annum). – EPS target of 12p will trigger full vesting (threshold vesting level at 8p). – Share Price target of £2.25 will trigger full vesting (threshold vesting level at £1.35). The TSR condition that will apply is consistent with that described below for other ITV schemes. In respect of all these measures, vesting will operate on a sliding scale basis between threshold and maximum performance. Up to 25% of the total award (i.e. 50% of the TSR part) may vest following the third anniversary of award if the TSR condition is satisfied at this time.

Turnaround Plan for other executives Following the appointment of the Executive Chairman, the Committee consider it is appropriate that other executive directors and a few key senior executives should be incentivised on a consistent basis aligned with the key indicators of shareholder value creation over the period to 2012 (digital switchover). A new long term incentive plan has therefore been proposed, consistent with the principles and performance measures to be established by the award made to the Executive Chairman. Awards will be made under this plan in the 2007 financial year subject to shareholder approval of the plan at the Annual General Meeting on 17 May 2007. Further details in relation to the plan are provided in the Notice of the 2007 Annual General Meeting. Awards under the PSP and Commitment Scheme will not be made to an individual within two years of an award under the plan following shareholder approval.

TSR performance conditions for long term incentive plans All current long term incentive awards, i.e. those made under the PSP or under the Commitment Scheme are subject to a performance condition that measures the Company’s relative TSR performance against a comparator group, which the Committee has considered to be the most appropriate measure of the creation and maintenance of shareholder value. The effectiveness of this measure depends on the appropriateness of the comparator group. The Committee has identified the following criteria for the selection of comparator companies: – the performance of the companies should be driven by similar macro-economic factors as the Company and, particularly given the widespread participation in plans dependent on TSR within the Company, any comparator group must be meaningful, for both investors and participants; – the group should be of a sufficient size to accommodate de-listings and mergers that may occur within the comparator group and to ensure that the vesting schedule does not result in large increases in vesting for small changes in rank; and – it should be easy to identify the appropriate comparators at any point in time on an objective basis. Given these criteria, the comparator group for the Company’s TSR based plans is a customised FTSE 100 group, excluding those sectors which do not provide a benchmark of performance that would be relevant to the Company. For awards made in 2004 and 2005 the companies in the comparator group consist of the FTSE 100 constituents at the date of award from the following sectors: Media and Entertainment, Telecom Services, Support Services, General Retailers, Transport, Beverages and Leisure and Hotels. Following the FTSE reclassification of the sector lists (effective 1 January 2006) the Committee had to revise the sectors from which the comparator group is comprised. Following the same principles, the comparator companies for awards made in 2006 are selected from the FTSE 100 constituents of the following sectors: Media, Fixed Line Telecommunications, Mobile Telecommunications, Support Services, General Industry, General Retailers, Travel and Leisure and Beverages. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 95_ITV plc Report and accounts 2006

Details of the comparator companies for individual awards can be found on page 98. Both the PSP and the Commitment Scheme provide for a reduction of the vesting result produced from the TSR calculation if the Committee consider that exceptional circumstances have prevailed, including failure to achieve real earnings per share growth over the performance period. The performance condition applicable to awards made under the Granada Commitment Scheme is TSR relative to Granada’s international media comparator group companies (as set out on page 99 in relation to share option schemes). 25% of awards vest at median; full vesting occurs at upper decile. Up to 50% of these awards were capable of vesting after two years, with the remainder subject to performance over a four-year period

Performance graph The graphs below show the TSR performance of the Company against the FTSE 100 index. The FTSE 100 has been selected for comparison as it represents a broad equity market index of which the Company was a member during the full financial year. ITV plc ITV plc Financial Listing Year End 250

– FTSE 100 ITV ) 2 0 e

/ 200 g 0 a 1 r / e 6 v 1 a t g a

n 150 i l 0 l 0 o r 1 h o t t n d

o 100 e s m a e b n e r o (

R 50 S T Source: Datastream 0 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05Jan-06 Apr-06 Jul-06 Oct-06 Jan-07

This graph shows TSR performance from 16 October 2002 (the date of the announcement of the merger) as this is considered to be the most appropriate basis on which to assess the Company’s performance. Prior to the listing of ITV plc the graph tracks the performance of a synthetic stock which shows the combined TSR performance of Granada and Carlton, weighted on the basis of their respective market capitalisation at 16 October 2002. The Company’s TSR performance over the financial year 2006 ranked the Company 32nd against the 35 companies in the peer group. This is significantly below the median position required for any vesting under the long term incentive plans. ITV plc ITV plc Financial Listing Year End 250

– FTSE 100 Granada )

g Carlton ITV n i t s e i

l 200 g a f r o e e v t a a g d

n 150 t i l l a o 0 r 0 h 1 t n o t o 100 d m e e s a n b o e r

( 50 R S T Source: Datastream 0 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

This additional graph is provided to mirror as closely as possible the normal basis for TSR performance graphs. The graph therefore shows TSR performance over a five-year period to present, with the performance of Granada and Carlton shown separately prior to the listing of ITV plc. The TSR holdings have been rebased to 100 at the date of listing to reflect the requirement to show performance from this date onwards. In both graphs one-month averaging has been applied throughout, with the exception of the month following the merger. To ensure that the portion of the graph from the date of listing reflects solely the performance of the Company, the data for the Company in this period has been averaged from 2 February 2004 to each date, with the effect that the averaging period lengthens until it reaches one month.

Service contracts The executive directors of ITV plc have service contracts which provide for 12 months’ notice on either side. Michael Grade was appointed as Executive Chairman with effect from 8 January 2007. As with other executive directors, his contract provides for 12 months’ notice on either side. However, as a condition agreed on appointment, notice may not be served during the first 12 months of employment. In the event that his employment is terminated during the first 24 months of employment, he would be entitled to receive payment in lieu of notice (basic salary and pension) and a guaranteed annual bonus of 75% of salary in respect of the balance of the period. Unless the Remuneration Committee decides otherwise, any payment made in lieu of notice (other than on a change of control) will be phased over the balance of the applicable notice period that would otherwise have applied. During the year John Cresswell was appointed acting Chief Executive from 1 October 2006, in addition to his role as Finance Director. Following the appointment of the Executive Chairman, from 8 January 2007 John Cresswell has held the role of Chief Operating Officer and Finance Director. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 96_ITV plc Report and accounts 2006 Governance

Remuneration report

Payments to out-going executives Henry Staunton Henry Staunton stepped down from the Board of the Company on 29 March 2006. Based on his service contract, he received upon his departure on 31 March 2006 the following: one year’s basic salary including payment in lieu of accrued holiday (£595,400) and benefits in kind (£37,800) and an award under the DSA with a value at that time of 75% of basic salary, 50% of which was paid in cash (£215,015) and 50% in the form of a nil cost option over 172,012 ITV plc shares. For the period of 2006 during which he was in post, he had a maximum bonus opportunity of 50% of salary, subject to performance, of which he was awarded £286,687 in cash. The Company also made contractual contributions towards his pension arrangements for the period from April to October 2006 in an aggregate amount of £270,000. All of the above reflect the terms of Henry Staunton’s service contract which was signed in December 2003 at which time the notice period was reduced from 24 months to 12 months. Subsisting awards of options under the PSP did not vest based on performance. Charles Allen Charles Allen stepped down from the Board of the Company on 1 October 2006. Based on his service contract, he received upon his departure on 4 January 2007 the following: one year’s basic salary (£1,070,730), payment in lieu of benefits in kind (£9,313) and an award under the DSA with a value of 75% of basic salary, 50% of which was paid in cash (£401,523) and 50% in the form of a nil cost option over 377,017 ITV plc shares. He also received a payment equivalent to 75% of salary in respect of his bonus opportunity for 2006. The Company has also made an additional contractual provision, following his leaving employment, towards his pension arrangements for the period from January 2007 to January 2009 in an aggregate amount of £1,500,000. All of the above reflect the terms of Charles Allen’s service contract which was signed in December 2003 at which time the notice period was reduced from 24 months to 12 months. Subsisting awards of options under the PSP did not vest based on performance.

Non-executive directors The non-executive directors have contracts of service with the Company. Sir Peter Burt received an annual fee as non-executive Chairman of £200,000 and stepped down from the Board on 8 January 2007. From 1 January 2007 Sir George Russell receives an annual fee as non-executive Deputy Chairman of £165,000. All other non-executive directors receive an annual fee of £45,000 plus £5,000 for membership of the Audit Committee and/or Remuneration Committee or in the case of the Chairman of either committee an annual fee of £15,000.

Retirement and other benefits In relation to the introduction of the tax simplification regime for pensions introduced on 6 April 2006: – no additional remuneration will be paid to executive directors; and – alternative pension arrangements will be utilised to put the Company and affected individuals in a similar position to that existing prior to the introduction of the tax simplification regime. No other changes to executive directors’ pension arrangements are currently contemplated.

External appointments During the year the following directors retained fees for external non-executive directorships for the period they were directors of ITV plc as set out below:

2006 2005 £000 £000 Charles Allen Tesco plc 46 58 Henry Staunton Legal & General Group Plc 10 73 Standard Bank plc 15 4 Michael Grade has the following external appointments: Pinewood Shepperton plc (2006), Ocado Limited (2006) and Charlton Athletic plc (1997). He will be entitled to retain fees received under these appointments and such fees will be disclosed in subsequent years. The Board is satisfied that these external appointments will not interfere with the performance of his duties for the Company.

Audited information Aggregate directors’ remuneration The total amounts for directors’ remuneration for the period from 1 January 2006 to 31 December 2006 were as follows:

2006 2005 £000 £000 Emoluments 3,854 3,459 Gains on exercise of share options 256 – Amounts receivable under long term incentive plans – – 4,110 3,459 WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 97_ITV plc Report and accounts 2006

Directors’ emoluments The directors’ remuneration for the year ended 31 December 2006 was as follows:

Total for the Total for the year ended year ended Fees/Basic Benefits in Short term 31 December 31 December salary kind incentives(e) 2006 2005 Name of director £000 £000 £000 £000 £000 Executive Charles Allen (a) 803 28 401 1,232 1,852 John Cresswell (b) 448 20 238 706 – Henry Staunton (c) 737 47 502 1,286 1,011 Non-executive Sir Peter Burt 200 – – 200 200 David Chance (d) 5––544 Mike Clasper 50 – – 50 – Sir James Crosby 50 – – 50 50 John McGrath 60 – – 60 60 Sir Robert Phillis 50 – – 50 46 Sir Brian Pitman 50 – – 50 50 Baroness Usha Prashar 50 – – 50 46 Sir George Russell 115 – – 115 100 Aggregate emoluments 2,618 95 1,141 3,854 3,459

(a) up to his resignation on 1 October 2006. (b) from his appointment on 16 January 2006. (c) up to his resignation on 29 March 2006 including cash payments as detailed in payments to out-going executives above. (d) up to his resignation on 13 February 2006. (e) the figures shown are the value of short term incentives earned in respect of performance for the period ended 31 December 2006 as set out below.

Incentive and performance related awards Information given in the tables below is for the period from 1 January 2006 (or date of appointment if later) to 31 December 2006. Deferred Share Award Plan

At 31 December 2006 Share price Market price or date of at date of at date 1 January Awarded in Released in resignation award Date of of exercise Name of director Award date 2006 the year the year if earlier (pence) exercise (pence) Vesting date Charles Allen 18 June 2004 113,071 – 113,071 – 111.25 – – June 2006 17 March 2005* 465,552 – 232,776 232,776 127.50 12 May 2006 110.00 January 2007 17 March 2006* – 666,282 – 666,282 116.75 – – January 2007 578,623 666,282 345,847 899,058 John Cresswell 18 June 2004 17,010 – 17,010 – 111.25 – – June 2006 17 March 2005 69,879 – 34,939 34,940 127.50 – – March 2007 17 March 2006* – 134,595 – 134,595 116.75 – – 50% March 2007 – – 50% March 2008 86,889 134,595 51,949 169,535 Henry Staunton 18 June 2004 60,550 – – 60,550 111.25 – – March 2006 17 March 2005* 274,232 – – 274,232 127.50 – – March 2006 17 March 2006* – 356,793 – 356,793 116.75 – – March 2006 334,782 356,793 – 691,575

*Awarded in the form of nil cost options. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 98_ITV plc Report and accounts 2006 Governance

Remuneration report

At least 50% of bonuses must be taken in the form of ITV plc ordinary shares or nil cost options awarded under the DSA and subject to its vesting rules. Participants can choose to take the balance either in cash or as further shares or nil cost options awarded under the DSA. In respect of performance for the 12-month period ended 31 December 2006: Henry Staunton was awarded 50% of salary which was paid in cash in March 2006 and is included in the emoluments table above and described in the payments to out-going executives section of this report. As described in the payments to out-going executives section, Charles Allen was awarded 75% of salary on 4 January 2007. This award was made (i) 50% in nil cost options under the DSA, and (ii) the balance paid in cash (£401,523) which is included in the emoluments table above. John Cresswell was awarded 103% of salary in March 2007, to be awarded (i) 50% in nil cost options under the DSA in March/April 2007; and (ii) the balance paid in cash (£238,182) in March 2007 and included in the emoluments table above.

Performance Share Plan

At 31 December 2006 Market value or at date of at date of 1 January Awarded in Lapsed in resignation award Name of director Award date 2006 period period if earlier (pence) Exercise period Charles Allen 16 September 2004(1) 1,378,541 – – 1,378,541 109.50 September 2007 – September 2008 27 September 2005(2) 1,386,059 – – 1,386,059 112.50 September 2008 – September 2009 2,764,600 – – 2,764,600(4) John Cresswell 16 September 2004(1) 126,027 – – 126,027 109.50 September 2007 – September 2008 27 September 2005(2) 158,393 – – 158,393 112.50 September 2008 – September 2009 13 September 2006(3) – 607,595 – 607,595 98.75 September 2009 – September 2010 284,420 607,595 – 892,015 Henry Staunton 16 September 2004(1) 738,207 – – 738,207(5) 109.50 September 2007 – September 2008

(1) The comparator group consists of the following companies: Allied Domecq, BAA, Alliance Boots, British Airways, British Sky Broadcasting Group, BT Group, Bunzl, Cable & Wireless, Capita Group, Carnival, Compass Group, Daily Mail and General Trust, Diageo, DSG International, EMAP, Enterprise Inns, Exel, GUS, Hays, InterContinental Hotels Group, Kingfisher, Ladbrokes,

Marks & Spencer Group, Next, O2, Pearson, Reed Elsevier, Rentokil Initial, Reuters Group, Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Whitbread, William Hill, WPP and Yell Group.

(2) The comparator group consists of the following companies: BAA, Alliance Boots, British Airways, British Sky Broadcasting Group, BT Group, Cable & Wireless, Capita Group, Carnival, Compass

Group, Daily Mail and General Trust, Diageo, DSG International, Enterprise Inns, Exel, GUS, InterContinental Hotels Group, Kingfisher, Ladbrokes, Marks & Spencer Group, Next, O2, Partygaming, Pearson, Reed Elsevier, Rentokil Initial, Reuters Group, Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Whitbread, William Hill, WPP and Yell Group.

(3) The comparator group consists of the following companies: British Airways, British Sky Broadcasting Group, BT Group, Capita Group, Carnival, Compass Group, Diageo, DSG International, Enterprise Inns, GUS, InterContinental Hotels Group, Kingfisher, Marks & Spencer Group, Next, Pearson, Reed Elsevier, Reuters Group, SABMiller, Scottish & Newcastle, Vodafone Group, WPP and Yell Group.

(4) Lapsed on leaving employment on 4 January 2007.

(5) Lapsed on leaving employment on 31 March 2006. The performance condition applicable to these awards is as set out in the remuneration policy above. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 99_ITV plc Report and accounts 2006

Granada Share Option Schemes Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in ITV plc granted to or held by the directors. Options outstanding over ordinary shares in ITV plc under the terms of the Granada Media and Granada Inland Revenue Approved and Unapproved Executive Share Option Schemes (ESOS) and Savings-Related Share Option Schemes (SAYE) are as follows:

At 31 December 2006 or date of Exercise Date of 1 January Lapsed in Exercised in resignation price Date of Name of director Scheme grant 2006 the year the year if earlier (pence) exercise Charles Allen Granada Media ESOS 11 July 2000 438,689 – – 438,689 268.32 July 2003 – January 2008 Granada ESOS 6 July 2001 1,405,642 – – 1,405,642 137.02 July 2004 – January 2008 Granada ESOS 7 January 2003 2,503,800 – – 2,503,800 76.92 January 2006 – January 2008 Granada ESOS 18 December 2003 1,719,241 1,719,241 – – 117.07

Granada SAYE 9 January 2002 14,837 – – 14,837 111.53 March 2007 – September 2007 6,082,209 1,719,241 – 4,362,968 John Cresswell Granada Media ESOS 22 December 2000 959 – – 959 217.78 December 2003 – December 2010 Granada ESOS 6 July 2001 36,399 – – 36,399 137.02 July 2004 – July 2011 Granada ESOS 28 September 2001 113,851 – – 113,851 91.35 September 2004 – September 2011 Granada ESOS 9 January 2002 1,040 – – 1,040 143.27 January 2005 – January 2012 Granada ESOS 10 July 2002 19,240 – – 19,240 106.25 July 2005 – July 2012 Granada ESOS 7 January 2003 18,200 – – 18,200 76.92 January 2006 – January 2013 Granada ESOS 18 December 2003 36,400 36,400 – – 117.07 Granada SAYE 9 January 2003 25,120 – – 25,120 65.38 March 2008 – September 2008 251,209 36,400 – 214,809 Henry Staunton Granada Media ESOS 11 July 2000 234,919 – – 234,919 268.32 July 2003 – March 2007 Granada ESOS 6 July 2001 752,718 – – 752,718 137.02 July 2004 – March 2007 Granada ESOS 7 January 2003 1,340,780 ––1,340,780 76.92 January 2006 – March 2007 Granada ESOS 18 December 2003 920,651 – – 920,651 117.07 March 2006 – March 2007 Granada SAYE 9 January 2003 14,452 – – 14,452 65.38 March 2006 – September 2006 3,263,520 – – 3,263,520 The performance condition applicable to options granted under the Granada ESOS since 1 January 2003 is TSR relative to Granada’s international media comparator group. This comprises the following companies: British Sky Broadcasting Group, Canwest Global Communications, Capital Radio, Carlton, EMAP, Fox Entertainment, GWR Group, M6 – Metropole TV, Mediaset, Modern Times Group, RTL Group, SBS Broadcasting, SMG, Telewest Communications, TF1. Options only vest for achieving at least median ranking. There have been no variations to the terms and conditions or performance criteria for share options during the financial year. The performance conditions for options granted prior to 1 January 2003 fell away on merger. There were no performance conditions applicable to options granted under the Granada SAYE scheme. The options granted in December 2003 lapsed based on performance. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 100_ITV plc Report and accounts 2006 Governance

Remuneration report

Commitment Schemes Awards and market price options outstanding over ordinary shares in ITV plc under the terms of the Granada Media, Granada and ITV Commitment Schemes are as follows:

Vested at Unvested at 1 January 1 January 31 December 31 December 2006 2006 Market 2006 2006 (or appointment (or appointment Granted price Vested Lapsed Exercised or date of or date of Exercise Date date if later) date if later) during the at grant during the during the during the resignation resignation price Vesting Exercise Name of director of Grant vested unvested year (pence) year year year if earlier if earlier (pence) date period Charles Allen Scheme Granada 11 July 2000 1,648,888 – – – – – – 1,648,888 – 268.32 July 2004 July 2004 – Media July 2010 ITV 19 May 2004(1) – 2,630,940 – – – – – – 2,630,940 Nil 50% May 2007 May 2007 – 50% May 2008 May 2014 ITV 19 May 2004(1) – 2,630,940 – – – – – – 2,630,940 114.75 50% May 2007 May 2007 – 50% May 2008 May 2014 ITV 19 April 2005(1) – 2,480,026 – – – – – – 2,480,026 Nil 50% April 2008 April 2008 – 50% April 2009 April 2015 ITV 19 April 2005(1) – 2,480,026 – – – – – – 2,480,026 125.75 50% April 2008 April 2008 – 50% April 2009 April 2015 ITV 20 March 2006(2) – – 2,775,108 115.75 – – – – 2,775,108 Nil 50% March 2009 March 2009 – 50% March 2010 March 2016 ITV 20 March 2006(2) – – 2,775,108 115.75 – – – – 2,775,108 115.75 50% March 2009 March 2009 – 50% March 2010 March 2016 1,648,888 10,221,932 5,550,216 – – – 1,648,888 15,772,148 John Cresswell Scheme Granada 22 August 2003 – 459,828 – –––– – 459,828 Nil 22 August 2007 August 2005 – August 2010 Granada 22 August 2003 170,159 459,828 – – – – – 170,159 459,828 100.72 22 August 2007 August 2005 – August 2010 ITV 19 April 2005(1) – 566,814 – – – – – – 566,814 Nil 50% April 2008 April 2008 – 50% April 2009 April 2015 ITV 19 April 2005(1) – 566,814 – – – – – – 566,814 125.75 50% April 2008 April 2008 – 50% April 2009 April 2015 ITV 20 March 2006(2) – – 1,036,716 115.75 – 518,358 – – 518,358 Nil 50% March 2009 March 2009 – 50% March 2010 March 2016 ITV 20 March 2006(2) – – 1,036,716 115.75 – 518,358 – – 518,358 115.75 50% March 2009 March 2009 – 50% March 2010 March 2016 170,159 2,053,284 2,073,432 – 1,036,716 – 170,159 3,090,000 Henry Staunton Scheme Granada 11 July 2000 882,978 – – – – – – 882,978 – 268.32 July 2004 July 2004 – Media July 2010 ITV 19 May 2004(1) – 1,408,863 – – – – – – 1,408,863 Nil 50% May 2007 May 2007 – 50% May 2008 May 2014 ITV 19 May 2004(1) – 1,408,863 – – – – – – 1,408,863 114.75 50% May 2007 May 2007 – 50% May 2008 May 2014 ITV 19 April 2005(1) – 1,328,050 – – – – – – 1,328,050 Nil 50% April 2008 April 2008 – 50% April 2009 April 2015 ITV 19 April 2005(1) – 1,328,050 – – – – – – 1,328,050 125.75 50% April 2008 April 2008 – 50% April 2009 April 2015 882,978 5,473,826 – – – – 882,978 5,473,826

(1) The comparator group consists of the following companies: Allied Domecq, BAA, Alliance Boots, British Airways, British Sky Broadcasting Group, BT Group, Bunzl, Cable & Wireless, Capita Group, Carnival, Compass Group, Daily Mail and General Trust, Diageo, DSG International, EMAP, Enterprise Inns, Exel, GUS, Hays, InterContinental Hotels Group, Kingfisher, Ladbrokes,

Marks & Spencer Group, Next, O2, Pearson, Reed Elsevier, Rentokil Initial, Reuters Group, Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Whitbread, William Hill, WPP and Yell Group.

(2) The comparator group consists of the following companies: BAA, Alliance Boots, Brambles, British Airways, British Sky Broadcasting Group, BT Group, Cable & Wireless, Capita Group, Carnival, Compass Group, Daily Mail and General Trust, Diageo, DSG International, Enterprise Inns, GUS, InterContinental Hotels Group, Kingfisher, Ladbrokes, Marks & Spencer Group, Next, Partygaming, Pearson, Reed Elsevier, Rentokil Initial, Reuters Group, Rexam, SABMiller, Scottish & Newcastle, Vodafone Group, Wolseley, WPP and Yell Group. The performance condition applicable to awards made under the ITV and Granada Commitment Schemes are as set out in the remuneration policy above. Based upon performance up until 31 December 2006 only, there would be no vesting under the ITV Commitment Scheme. The numbers in the tables above are in ITV plc shares and have been adjusted following the merger of Granada with Carlton. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 101_ITV plc Report and accounts 2006

Share price information The market price of the ITV plc ordinary shares at 31 December 2006 was 106.5 pence and the range during the year was 94.25 pence to 128.5 pence.

Directors’ pension entitlements Three directors were members of the Company’s defined benefit pension scheme during the year. The following directors had accrued entitlements under the schemes as follows:

Accrued Increase in Accrued pension accrued pension 1 January pension in 31 December 2006 the year 2006 Name of director £000 £000 £000 Charles Allen 488 60 548(1) John Cresswell 49(2) 958 Henry Staunton 356 29 385(3) The following table sets out the transfer value of the directors’ accrued benefits under the scheme calculated in a manner consistent with “Retirement Benefit Schemes – Transfer Values (GN 11)” published by the Institute of Actuaries and the Faculty of Actuaries. The pension benefits of all three individuals are provided on a defined benefit basis. The accrued pension shown is that which would be paid annually based on service to the end of that year (service to 31 March 2006 for Mr Staunton who retired at that date). The increase in accrued pension during the year reflects an increase in the pension entitlement as a result of additional accruals and increases in pensionable earnings.

Increase in transfer Transfer value in Transfer value Contributions the year value 1 January made by net of 31 December 2006 the director contributions 2006 Name of director £000 £000 £000 £000 Charles Allen 8,489 16 885 9,390 John Cresswell 519 12 62 593 Henry Staunton 7,404 – 152 7,556 The following additional information is given to comply with the requirements of the Listing Rules which differ in some respects from the equivalent statutory requirements.

Increase Transfer in accrued value of pension in increase in the year the year in excess less directors’ of inflation contributions Name of director ££ Charles Allen 39 652 John Cresswell 759 Henry Staunton 13 255 The transfer values disclosed above do not represent a sum paid or payable to the individual director. Instead they represent a potential liability of the pension scheme. No directors were members of money purchase schemes operated by the Group.

Notes

(1) Charles Allen resigned as a director on 1 October 2006, although he was an active member of the pension scheme throughout the year. The accrued pension shown includes pensionable service to 31 December 2006. Charles Allen ceased employment on 4 January 2007 and was contractually entitled to a two-year enhancement to his pensionable service at that date. This enhancement is not included in the table for 2006.

(2) John Cresswell became a director on 16 January 2006 and therefore the opening accrued pension is shown at this date rather than at 1 January 2006.

(3) Henry Staunton resigned as a director on 29 March 2006 although he was an active member of the pension scheme up to 31 March 2006, therefore the pension shown at 31 December 2006 is the pension in payment.

(4) Each executive director has a normal retirement age of 60.

(5) In the event of the death of an executive director, a pension equal to one half of the director’s pension will become payable to a surviving spouse. A pension may become payable to any surviving dependant children.

(6) In common with other members of the Defined Benefit Scheme, each of the directors may, with the consent of the Company, receive and draw a pension at any time after reaching the age of 50.

Approval This report was approved by the Board of Directors on 7 March 2007 and signed on its behalf by:

Sir Robert Phillis Chairman, Remuneration Committee WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 102_ITV plc Report and accounts 2006 Governance Shareholder information

Shareholder analysis

Holders Shares held Number % Millions % Type of holder: Insurance companies 23 0.03 0.07 0.01 Banks and nominee companies 4,325 5.73 3,545.91 91.17 Individuals 70,490 93.38 173.03 4.45 Others 649 0.86 170.12 4.37 100.00 100.00 Size of holding: 1 – 100 9,818 13.00 0.37 0.01 101 – 200 10,574 14.01 1.57 0.04 201 – 500 18,633 24.68 6.10 0.16 501 – 1,000 13,505 17.89 9.81 0.25 1,001 – 2,000 10,123 13.41 14.60 0.37 2,001 – 5,000 7,691 10.19 24.21 0.62 5,001 – 10,000 2,578 3.42 18.38 0.47 10,001 – 50,000 1,528 2.02 29.57 0.76 50,001 – 100,000 217 0.29 15.97 0.41 100,001 – 500,000 367 0.49 90.65 2.33 500,001 – 1,000,000 150 0.20 106.05 2.73 1,000,001 – 5,000,000 181 0.24 418.72 10.77 5,000,001 – 10,000,000 54 0.07 398.87 10.26 10,000,001 – 50,000,000 58 0.08 1,139.91 29.31 50,000,001 and above 10 0.01 1,614.35 41.51 100.00 100.00

Information as at 31 December 2006

Registrars and transfer office Share dealing services All administrative enquiries relating to shareholdings and requests to Capita Registrars offer a telephone and online share dealing service for receive corporate documents by email should, in the first instance, be UK resident shareholders. To use this service shareholders should contact directed to Capita Registrars, Northern House, Woodsome Park, Fenay Capita Registrars on 0870 458 4577 or visit www.capitadeal.com. Bridge, Huddersfield, West Yorkshire HD8 0LA. Telephone 0870 1623100 from the UK and +44 20 8639 2157 from outside the UK. ShareGift Alternatively you could email them at: [email protected]. ShareGift is a charity share donation scheme for shareholders who may Shareholders who receive duplicate sets of company mailings wish to dispose of a small quantity of shares where the market value because they have multiple accounts should write to the registrar makes it uneconomic to sell on a commission basis. The scheme to have the accounts amalgamated. is administered by the Orr Mackintosh Foundation and further By logging on to www.capitaregistrars.com and selecting information can be obtained by calling 020 7337 0501 or from Shareholder Portal you can benefit from a number of online services www.sharegift.org. as follows: • View share price and current value of shareholding. Share price information The current price of ITV plc ordinary shares is available on Ceefax, • View shareholding details. Teletext and on the Company website. • View share transaction history. Dividend Reinvestment Plan • View details of dividends paid. The Company operates a Dividend Reinvestment Plan to provide • Apply/change dividend mandate instruction. UK shareholders with a facility to invest cash dividends by purchasing further ITV plc shares. Further details are available from the registrar. • Apply/change dividend reinvestment plan mandate. • Change registered postal address. • Proxy voting. • Register an email address to receive future shareholder communications and reports via the Internet rather than by post. You will need your investor code (IVC) which can be found on your share certificate(s) to register to use the Shareholder Portal. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 103_ITV plc Report and accounts 2006

Shareholder information

Individual Savings Accounts (ISAs) Financial calendar The Company has corporate sponsored Maxi and Mini ISAs. The ISAs Annual General Meeting Thursday 17 May 2007 offer UK resident shareholders a simple low-cost and tax efficient way Half year results announcement August 2007 to invest in ITV plc ordinary shares. Full details together with a form of application are available from HSBC Trust Company (UK) Limited, Dividends Corporate PEPs & ISAs, 1st Floor, Courtwood House, Silver Street Head, Final Dividend 2006 Sheffield, S1 2BH. Telephone 0845 745 6123 (Textphone 08457 660391). Ex-dividend date Wednesday 18 April 2007 The Unclaimed Assets Register Record date Friday 20 April 2007 The Company participates in The Unclaimed Assets Register, which Final date for return of DRIP mandate forms Wednesday 6 June 2007 provides a search facility for financial assets, which may have been lost Payment date and DRIP purchase Monday 2 July 2007 or forgotten and which donates 10% of its public search fees to a wide range of UK charities. Certificates posted and Crest accounts credited Friday 13 July 2007 For further information and to obtain a search request form contact: The Company has introduced consolidated tax vouchers. Shareholders will receive a single tax voucher each year, in time for the tax year end, The Unclaimed Assets Register containing details of dividends paid in that tax year. If you would prefer Cardinal Place to receive a tax voucher for each dividend payment please contact 80 Victoria Street the registrar. London SW1E 5JL Telephone 0870 241 1713 Unauthorised brokers (Boiler Room Scams) Email [email protected] Over the last year many companies have become aware that their www.uar.co.uk shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas Unsolicited mail based “brokers” who target UK shareholders offering to sell them The Company is legally obliged to make its register of members what often turn out to be worthless or high risk shares in US or UK available to the public. investments. They can be very persistent and extremely persuasive As a consequence of this some shareholders might receive and a 2006 survey by the Financial Services Authority (FSA) has unsolicited mail. Shareholders wishing to limit the amount of such reported that the average amount lost by investors is around £20,000. mail should write to the Mailing Preference Service (“MPS”), Freepost 29, Shareholders are advised to be very wary of any unsolicited advice, LON20771, London W1E 0ZT. Alternatively you can register online offers to buy shares at a discount or offers of free company reports. at www.mpsonline.org.uk or request an application form by calling More detailed information can be found on the FSA website 0845 703 4599. MPS will then notify the bodies that support its service www.moneymadeclear.fsa.gov.uk. that you do not wish to receive unsolicited mail. If you receive any unsolicited investment advice: Registered office • Make sure you get the correct name of the person and organisation. ITV plc 200 Gray’s Inn Road • Check that they are properly authorised by the FSA before getting London WC1X 8HF involved. You can check at www.fsa.gov.uk/register. Telephone 020 7843 8000 • The FSA also maintains a list of unauthorised overseas firms who Company registration number 4967001 are targeting, or have targeted, UK investors. The list can be found at www.fsa.gov.uk/pages/doing/regulated/law/alerts/overseas.shtml. Company website Any approach from such organisations should be reported to the FSA Investor and shareholder related information can be found on the using the online form so that this list can be kept up to date and any Company website at www.itvplc.com. other appropriate action can be considered. Contacts for corporate governance • Inform Capita Registrars (contact details given above). Executive Chairman Michael Grade If you deal with an unauthorised firm, you would not be eligible to Senior Independent Director Sir James Crosby receive payment under the Financial Services Compensation Scheme. Chief Operating Officer and Finance Director John Cresswell Company Secretary James Tibbitts Details of any sharedealing facilities that the Company endorses will only be included in company mailings. Telephone: 020 7843 8000 Identity theft Tips for protecting your ITV shares: The following documents are available on the website: • Ensure all your certificates are kept in a safe place or hold your shares • Job descriptions for Executive Chairman, Chief Operating electronically in CREST via a nominee. Officer and senior independent director • Keep all correspondence from the registrar in a safe place, or destroy • Terms of engagement for non-executive directors correspondence by shredding. • Schedule of Matters Reserved for the Board • If you change address inform the registrar in writing or via the • Terms of Reference for Audit, Remuneration, Nomination Shareholder Portal. If you receive a letter from the registrar and Management Committees regarding a change of address but have not recently moved please contact them immediately. • Guidelines for seeking independent advice • Consider having your dividend paid directly into your bank. This will • Board performance programme reduce the risk of the cheque being intercepted or lost in the post. • Directors’ Indemnity If you change your bank account, inform the registrar of the details of your new account. You can do this via post or online using the • Terms of reference for remuneration consultants Shareholder Portal. Respond to any letters the registrar sends you about this. • If you are buying or selling shares only deal with brokers registered in your country of residence or the UK. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da 104_ITV plc Report and accounts 2006 Governance Financial record

2005 2006 Restated 2004 £m £m £m Balance sheet Share capital 401 423 422 Reserves 2,755 2,870 2,671 Shareholder’s funds 3,156 3,293 3,093 Minority interests 7 12 16 Net assets 3,163 3,305 3,109 Represented by: Property, plant and equipment and intangible assets 4,088 4,182 4,055 Investments 103 274 223 Distribution rights 11 13 12 Inventory 400 388 368 Trade and other receivables (including assets held for sale) 544 432 357 Deferred tax asset – 74 66 Net funds – –– Total assets 5,146 5,363 5,081 Net debt (734) (481) (280) Deferred tax liability (7) – – Other liabilities (1,215) (1,525) (1,617) Provisions (27) (52) (75) 3,163 3,305 3,109

Results Turnover 2,181 2,196 2,053 Operating profit before exceptional items 299 358 213 Share of profits/(losses) of associates and joint ventures 8 11 13 Investment income and gain on the sale of property 7 16 14 Exceptional items – (39) (53) Profit/(loss) before interest and tax 314 346 187 Net interest (26) (35) (19) Profit/(loss) before tax 288 311 168 Taxation (66) (85) (25) Profit/(loss) after tax 222 226 143 Minority interests (3) (4) (6) Profit/(loss) for the financial period 219 222 137 This financial record sets out the balance sheet and results of the Group since its formation following the merger of Granada plc and Carlton Communications Plc. 2005 information has been restated to reflect the change in accounting policy in respect of the premium rate telephony service and reclassification of Eurobond maturity as discussed in the accounting policies section of the Group financial statements. Cash and cash equivalents are included within net debt. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da Contents Financial highlights Message from the Executive Chairman 01 Revenue ITV at a glance 14

Business Review Our market environment 17 Our strategy 21 £2,181m Resources and relationships 24 Key performance indicators 29 05 £2,196m (restated) Risks and uncertainties 30 Operating review 31 Operating Profit Financial review 37 Forward look 42 Glossary of terms 43

Governance £264m Board of directors 44 Directors’ report 46 05 £329m Statement of directors’ responsibilities 49 Independent auditor’s report to 50 Profit before tax the members of ITV plc Corporate governance 89 Remuneration report 93 Shareholder information 102 Financial record 104 £288m Financial Statements 05 £311m Consolidated income statement 51 Consolidated balance sheet 52 Cash generated from operations Consolidated cash flow statement 53 Consolidated statement of recognised 54 income and expense Notes to the accounts 55 ITV plc Company Financial Statements 84 £342m ITV’s Business Review 05 £456m The Business Review explains in detail how we have performed this year and sets out a fair review of the business, balanced and comprehensive analysis of our performance, the use of Earnings per share financial and non-financial key performance indicators to explain how much progress we have made, a description of the principal risks and uncertainties facing the Company, and an indication of likely future developments. The Business Review is prepared in line with the relevant provisions of the Companies Act 1985 and in accordance with the guidance issued by the Accounting Standards Board in its 5.5 pence Reporting Statement on narrative reporting. It is intended that the Business Review will provide shareholders with a greater 05 5.4 pence understanding of the Company, of its position in the markets within which it operates, and of its prospects. Dividend per share In setting out the Company’s main risks and uncertainties, an indication of likely future developments, and in other content, this Annual Report contains statements which, by their nature, cannot be considered indications of likelihood or certainty. The statements are based on the knowledge and information available at the date of preparation of this Business Review, and what are believed to be reasonable judgments. A wide range of factors may cause the actual outcomes and results 3.15 pence to differ materially from those contained within, or implied by, these various forward-looking statements. Nor should any of 05 3.12 pence these statements be construed as a profit forecast.

Cover image Helen Mirren in the Oscar winning ITV Production, Design and production Radley Yeldar The Queen, go to page 32 for more details. Print St Ives Westerham Press, environmentally accredited printers ISO 14001, using vegetable based inks. Paper Hello silk, made from virgin wood fibre from sawmill residues, forest thinnings and sustainable forests in Europe. It is fully biodegradable and recyclable and produced in mills which hold ISO 9002 and ISO 14001 accreditation. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da

ITV plc Report and accounts 2006 I T ITV plc V p l 200 Gray’s Inn Road c R e

London WC1X 8HF p o r www.itv.com t a n d a

Investors: www.itvplc.com c Stories for c o u n t s 2 0 0 6 our time. WorldReginfo - 5364f83b-8f81-4880-8c8d-55f6146b26da