ITF

Presidential and Communications department expenditure rose by $1.1m to a total of $6.3m in 2019 (2018: $5.2m). This was due to strategic projects such as social media and international relations becoming operational expenditure in 2019 and increased costs, some to an outsourced PR agency, to improve the ITF's ability to proactively and positively communicate its mission and values. Operating Expenditure Operating expenditure for 2019 was $86.4m (2018: $72.6m), an increase of $13.8m in the year, which excludes the cost of Davis Cup player prize money as referenced in operating income above. Development Strategic Initiative expenditure is focused on the creation of the World Tennis Number project which will provide our member nations with the means to identify the level of participation in their nation, while also providing meaningful ratings to recreational and professional players alike. Professional Tennis costs increased by $13.0m to $50.1m (2018: $37.1m). Payments made to nations for competing in the Davis Cup and Fed Cup competitions are now referred to as 'participation payments' to distinguish them from prize money payments made to players. Participation payments have increased by $8.7m for Davis Cup and $3.4m for Fed Cup, the latter being doubled from 2018 levels as part of a commitment to continue to invest in both men's and women's tennis. Tennis Development expenditure increased by $1.5m to $13.1m in 2019 (2018: $11.6m). As part of the Davis Cup licensing agreement which provided $1.0m of additional revenues for Wheelchair Tennis, $0.7m was spent on wheelchair tennis development, shown as a new line within the Development department this year. A further $0.3m was spent on enhancing the World Team Cup and Wheelchair Tennis Masters events and assisting with nations' participation costs (recognised in other professional tennis department costs). The additional Development expenditure uplift of $0.8m represents a key ITF2024 objective of increasing development spending worldwide and it benefited over 150 countries in 2019. Commercial costs decreased by $2.9m in 2019 to $3.2m (2018: $6.1m). This reflects a reduction in commercial costs such as sponsorship activation and television revenue distribution arising from the changes to the commercial arrangements for the Davis Cup competition. Finance and Administration costs only increased by $0.3m to $5.2m (2018: $4.9m) despite a significant adverse movement in the GBP to USD exchange rate and increased premises costs with maintenance work carried out at the ITF head office. Foreign exchange gains of $0.6m were recognised in 2019 (2018: loss of $0.2m) with an increased requirement of sterling funds over and above the monthly hedged amount being purchased at more favourable FX rates than the annual hedged rate. Taxation arising from the profits of the Hopman Cup licensing agreement in Australia was $0.7m (2018: $0.1m) with the increase reflecting the charge relating to the agreement to terminate the Hopman Cup in 2019. Strategic Initiatives Strategic Initiatives represent project expenditure directly related to delivering the objectives of ITF2024, but that are not ongoing or normal activities. In June 2017, the ITF Board of Directors identified $10.5m of Strategic Initiative funding. Strategic Initiatives totalled $3.8m in 2019 (2018: $3.7m). Professional Tennis Strategic Initiatives arise from the due diligence and legal costs required to reform the Fed Cup, with the top tier of the event now being a 12-team Finals to be held in Budapest in April 2020. In addition, further costs were required to support the first year of the Davis Cup Finals. Expenditure on Integrity, Science and Technical rose by $1.1m to a total of $7.4m in 2019 (2018: $6.3m). Anti-doping costs increased by $0.4m and are offset against increased income as referred to above. The remaining increase represents the transfer of strategic projects such as gender equality, safeguarding and GDPR compliance from strategic expenditure to operating costs, and additional staff costs due to bringing commercial legal costs inhouse. Commercial and Presidential and Communications Strategic Initiatives see the delivery of two digital archives - a photo archive and a video archive. Both are vital tools providing important historical archives of past ITF footage and photographs that help support the ITF's social media and digital aims. The digital video archive has also begun to generate revenues which should grow in the future and the platform provides a service to our member nations. Finance and Administration Strategic Initiatives comprise the improvement of the IPIN system, as well as the design and implementation of the new ITF website, both of which successfully launched during the year. Much of the software development required for these two systems has been capitalised, resulting in a Strategic Initiative amortisation expense in the year. Investing Activities Investing income recorded in the Consolidated Income Statement shows a gross investment gain of $8.0m for the year (2018: loss of $1.8m) and a net gain of $7.8m after costs, giving a positive return of 16.6% (2018: net loss of $2.1m, negative 4.2%). The portfolio is overseen by Cambridge Associates on an advisory mandate and supervised by the ITF's Investment Advisory Panel which reports to the ITF Finance and Audit Committee and ITF Board of Directors on a regular basis. Short-term investment of Olympic funds made gains of $0.2m (2018: $0.2m). 2

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