ITF

This is split into three components in the Consolidated Income Statement: a $1.7m surplus from operating activities after tax (2018: $0.1m); $3.8m expenditure on Strategic Initiatives (2018: $3.7m); and a surplus of $8.1m from investing activities (2018: $1.9m deficit). The consolidated result includes the performance of the ITF's long-term investment portfolio. The portfolio made a gross surplus of $8.0m, and a net surplus of $7.8m which equates to a 16.6% return (2018: gross deficit $1.8m, net deficit $2.1m, negative 4.2% return). The value of the portfolio increased by $6.5m to $53.8m (2018: decreased $2.1m to $47.3m). The final valuation takes into account the withdrawal of $1.5m, originally deposited in 2017 to aid the timing of the transition to the new portfolio structure. Under the new structure, the investment portfolios are invested for long-term growth but include strategies for mitigating short-term volatility. This diversified strategy foregoes an element of gains in a rising market for less exposure to falling markets, reflected by a slight underperformance to benchmark. The exceptional gains in 2019 more than compensate for the losses in 2018 and increases the average growth in the value of the portfolios over the last five years to 5.4% per annum. The ITF continues to take a prudent view of future growth and, whilst it budgets for 3% growth per annum, this revenue is not relied upon to fund operating activities. Operating income for 2019 increased by $15.9m to $88.7m (2018: $72.8m). In addition, $18m of contractual revenues, being Davis Cup Finals prize money, was paid directly to players by Kosmos. Data rights income amounted to $12.6m (2018: $12.7m) of which 80% of the net income, after deduction of integrity costs, is paid to member nations in support of ITF World Tennis Tour tournaments and the ITF's mission to develop and promote tennis around the world. Integrity costs include additional measures required by the Independent Review into integrity in tennis. REPORT OF THE CHAIRMAN OF THE FINANCE COMMITTEE The programme of Strategic Initiatives represents expenditure on projects in direct support of ITF2024, the ITF's long-term plan for sustainable growth, as approved by the Board in 2017. At that time, it was agreed that this expenditure could be funded from reserves and should therefore be considered outside the normal operating activities. This additional expenditure amounts to $3.8m in 2019 (2018: $3.7m). Other Development income mostly comprises funding for regional 12-and-under team competitions in all continents. Operating Income Operating income also reflects uplifts in GSDF funding ($0.1m) and anti-doping income ($0.3m) both of which directly support corresponding increases in expenditure. The increase in operating income is almost fully contained within the Sponsorship, Competition and Television income category reflecting a substantial change with a reduction in sponsorship and media sales income of $25.2m being replaced by Davis Cup licensing income of $40.3m, reflecting the first year of the Davis Cup licensing agreement with Kosmos. The commercial revenues that remain within sponsorship and media rights amounted to $8.7m in 2019 (2018: $33.9m) generated from the Davis Cup zonal and Fed Cup competitions through our key partnerships with BNP Paribas and Adecco; from the Wheelchair Tennis Tour, Wheelchair Masters events and World Team Cup through key partnerships with Uniqlo, NEC and BNP Paribas; and other sponsorship and television revenues including our new global FX partnership with OFX. Receipts from events decreased by $1.0m to $5.8m (2018: $6.8m) as the ticket revenues for the Davis Cup Finals now are reflected by Kosmos under the licensing agreement. ITF circuit sanction fees and player IPIN revenues remained in line with 2018 levels. Income from the Olympic Games, recognised in the Consolidated Income Statement over the four-year period of the Olympiad, returns to $5.8m of net income in 2019 whereas 2018 also included $0.2m net income from the Youth Olympic Games in that year. The consolidated financial statements of the ITF Trust ('ITF') record a surplus of $5.9m after Strategic Initiative expenditure, investing activities and tax (2018: $5.5m deficit). Hopman Cup revenue increased by $1.6m to $2.0m (2018: $0.4m). The final version of the Hopman Cup event in its current form was held in January 2019 in Australia, and the additional revenues represent an early termination of the event by the licensee, with further revenues to be paid and recognised in 2020 and 2021. The ITF strongly believe in the importance of combined men and women's events in the international tennis calendar and are committed to support the creation of a new Hopman Cup event. The overall surplus of $5.9m, along with the positive revaluation of cash flow hedges of $2.3m, increases total reserves to $57.7m as at 31 December 2019 (2018: $49.5m). This level of reserves compares favourably to the $49.6m at the time when the Board agreed that reserves could be reduced by $10.5m to fund strategic initiatives. 1

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