2018 ITF Trust Annual Report and Financial Statements

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The financial statements of the ITF Trust ("ITF") make a dis nc on between Opera ng Ac vi es, Strategic Ini a ve expenditure and Inves ng Ac vi es. Opera ng Ac vi es represent the ongoing ac vi es of the ITF as dis nct from Strategic Ini a ve expenditure on ac vi es and projects aimed specifically at delivering the objec ves of ITF2024. Inves ng Ac vi es reports the performance of the investment por olios which underpin the ITF reserves. Combining these three areas, the financial statements of the ITF Trust record a consolidated deficit of $5.5m a er tax (2017: surplus $5.3m), comprised of $0.1m surplus from Opera ng Ac vi es (2017: $1.4m surplus), $3.7m expenditure on Strategic Ini a ves (2017: $1.1m) and $1.9m deficit from Inves ng Ac vi es (2017: $5.0m surplus). ITF2024 is the ITF's long-term plan for sustainable growth. With eight key strategic priori es, ITF2024 provides the framework for strategic and sustainable growth over the period to 2024, allowing for greater opportunity to develop, grow and promote tennis around the world. In June 2017 the ITF Board agreed that Strategic Ini a ve projects which are in direct support of the objec ves of ITF2024 may be funded from reserves to the extent that they are not able to be funded from Opera ng and Inves ng surpluses. This addi onal expenditure amounts to $3.7m in 2018 (2017: $1.1m). The consolidated result also takes account of the performance of the ITF's long-term investment por olios (excluding the Olympic deposits). Investment market falls in the final quarter of the year resulted in a net investment loss of $2.1m or nega ve 4.2% return in 2018 (2017: net investment gain of $4.7m, or 11.0%) to $47.3m. In total, inves ng ac vi es generated a net deficit of $1.9m in 2018 (2017: surplus $5.0m). As well as the overall Opera ng, Strategic and Inves ng results of a $5.5m deficit, total comprehensive losses have been compounded by a net loss in the fair value of the cash flow hedges of $2.8m (2017: net gain $2.9m) resul ng in a total reduc on of equity of $8.4m to $49.5m as at 31 December 2018 (2017: total comprehensive gain of $8.2m, equity $57.8m). This level of equity is roughly equal to the level brought forward in 2017 of $49.6m, the year Strategic Ini a ve expenditure of up to $10.5m was approved by the Board. In 2017 and 2018 combined a total of $4.9m has been spent with a further $3.9m budgeted for 2019. Excluding any es mated impact of the Opera ng and Inves ng ac vi es in 2019 this would see reserves further reducing to $45.6m which remains well above the appropriate level of reserves stated in the ITF Reserves Policy. operating activities Opera ng income for 2018 was $72.8m (2017: $68.9m), an increase of $3.9m including upli s in commercial revenues ($2.0m), Grand Slam Development Fund funding ($0.5m), and an -doping income ($0.7m). Opera ng expenditure on ongoing ac vi es for 2018 was $72.6m (2017: $67.3m), an increase of $5.3m in the year (7.6%) resul ng in a net Opera ng surplus before tax of $0.2m (2017: $1.6m). Commercial revenues increased by $2.0m (5.1%) in 2018 to $41.1m (2017: $39.2m), due to increases in the media rights partnership agreement ($0.9m), sponsorship rights ($0.6m) and receipts from events ($0.5m). Total sponsorship for the year amounted to $19.5m, an increase of $0.6m or 2.9% (2017: $18.9m) from our key partnerships with BNP Paribas, Adecco, REPORT OF THE CHAIRMAN OF THE ITF FINANCE COMMITTEE Rolex, UNIQLO and NEC, which gave rise to a marginal increase in costs to $6.1m in 2018 (2017: $5.9m). Receipts from events increased by $0.5m to $6.8m in 2018 (2017: $6.3m) represen ng the ITF's share of cket sales from the Davis Cup compe on, ITF tour event sanc on fees and player IPIN revenues. Data rights income amounted to $12.7m (2017: $12.5m). 80% of the net income, a er deduc on of integrity costs, is paid to member na ons in support of ITF World Tennis Tour and our mission of developing and promo ng tennis around the world. These payments increased by $0.5m within Professional Tennis costs. Professional Tennis costs increased in total by $1.3m to $37.1m (2017: $35.8m) including the data rights payment discussed above. Davis Cup and Fed Cup prize money increased by $0.5m (3%). For 2019 Davis Cup prize money will increase significantly as a result of the reforma ed Davis Cup with a season-ending Davis Cup Madrid Finals event in November, and Fed Cup prize money will be doubled as approved at the ITF AGM in Orlando. Included within professional tennis costs is the Independent Review Panel expense. The panel published their report during 2018 and the ITF Board of Directors is pleased, but not surprised, that no evidence was found of ins tu onal or systemic corrup on in tennis. The independent review endorsed the ITF's reforms which led to the launch of the World Tennis Tour: the engine room of professional tennis where the champions of tomorrow are created. Five of ITF's revenue streams contribute directly towards the ITF's Development programme: Grand Slam Development Fund income, Wheelchair Tennis Development Fund income, Olympics income, Olympic Solidarity and other development income. The Grand Slam Development Fund ("GSDF") is fully funded by equal contribu ons from the Grand Slam na ons. Income and expenditure both increased by $0.5m to $2.6m as income is recognised as expenditure is incurred, as per the accoun ng policy. Receipts from the Grand Slam na ons into the fund increased by 10% for 2018 allowing the con nued increase in GSDF development projects for 2018 and beyond. Income from the Olympic Games is recognised in the Consolidated Income Statement evenly over the four-year period of the Olympiad. Total income was recognised of $6.0m in 2018 which included a further $0.2m from the Youth Olympic Games. Further detail is provided in note 33 to the financial statements. Other development income increased by $0.2m to $1.0m. As in the previous year, $0.7m comprises funding for regional 12-and-under team compe ons in all con nents. The increase includes new income streams of grant funding to con nue to strive for gender equality and to further the World Tennis Ra ng project as described in the Strategic Ini a ve sec on of this report. Tennis Development expenditure increased by $3.3m, or 39%, to $11.7m in 2018 (2017: $8.4m). GSDF expenditure increased by $0.5m as discussed above, while $0.8m reflects a realloca on of the regional administra on grants from the Presiden al department into the Development department, more accurately reflec ng the department that co-ordinates and controls the funding. The remaining $2.0m increase represents a key ITF2024 objec ve of increasing development spending worldwide. ITF ANNUAL REPORT AND FINANCIAL STATEMENTS / 01

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