ITF

Conclusion and Outlook René Stammbach Chairman of the Finance Committee The ITF Reserves Policy provides for holding funds for long-term financial stability and for investment in Strategic Initiatives. The investment guidelines reflect the long-term objective and returns should therefore be viewed in this context. Olympic deposits are held in short-term investments and high quality bonds which will mature and be utilised evenly over the Olympic cycle to meet development expenditure commitments. Financial assets of $61.0m (2018: $60.3m) represent the ITF investment portfolios and Olympic deposits. Total trade and other receivables increased by $11.7m to $24.4m in the year (2018: $12.7m). The increase was split equally between trade receivables due to a large contractual invoice outstanding this year which was paid before the year-end in 2018; and prepayments and accrued income (contract assets) due to large prepaid costs for 2020 events such as the Olympics and the Fed Cup Finals in Budapest, both of which did not happen in 2019, as well as some accrued income arising from television rights for the year. Consolidated Statement of Financial Position Net assets of the ITF Group have increased from $49.5m at 31 December 2018 to $57.7m at 31 December 2019. Investment in information technology amounted to $2.7m in 2019 (2018: $2.1m) split between $2.5m intangible assets (software development) and $0.2m tangible assets (computer hardware). Capitalised software development includes work performed on the IPIN platform and ITF website, and software development under construction (and therefore not amortised) is for the online coaches academy due to be launched in 2020. Derivative financial instruments of a $0.7m asset (2018: $1.6m liability) represent currency forward contract cash flow hedges and have been treated in the accounts as described in note 5(o), with the fair value adjustment arising at 31 December 2019 being taken to reserves in line with hedge accounting requirements. Further detail is provided in notes 30, 33 and 36(e) to the financial statements. 2019 shows an improvement in the financial performance of the ITF when compared to the prior year with operating activities generating a surplus in the year and a significant increase in accumulated reserves despite a continuation of the substantial investment in ITF2024 Strategic Initiative projects. I would like to take this opportunity to thank the executive and staff for their hard work and commitment to the ITF. The ITF is in receipt of $25m in lieu of guarantees required by the licensing agreement with Kosmos. This cash is held as a security deposit against default or termination but in the absence of either is to be held separately and not for use within the business. It is therefore held as restricted cash and not included within the cash flow statement. Whilst this phase of Strategic Initiatives completed at the end of 2019 a further $1.4m (including amortisation/depreciation) is budgeted for 2020 to conclude existing projects which falls within the $10.5m agreed by the Board in 2017. Beyond that, a new phase of Strategic Initiative expenditure has been approved by the Board: continuation of the World Tennis Number project ($1.5m); and support for changes to the ITF World Tennis Tour ($1.4m) required by the implementation of the recommendations of the Independent Review into integrity in tennis. Cash and cash equivalents (excluding investment cash deposits) have decreased by $23.2m in the year to $5.5m (2018: $28.7m) as detailed in the Consolidated Cash Flow Statement. Net cash from operating activities was an outflow of $28.0m, almost exclusively due to the increase in trade receivables described above, and the decrease in deferred income described below. Without these working capital movements, cash remained relatively stable due to the operating breakeven position after strategic initiatives. Total trade and other payables decreased by $16.0m in the year to $37.6m (2018: $53.6m). Trade payables increased by $4.1m to $6.5m with a significant proportion of Davis Cup Finals participation payments in trade payables at the end of the year. This is offset by a decrease in accruals of $1.4m to $9.6m and a decrease in deferred income of $19.0m to $20.4m. The deferred income decrease includes $10m difference between an $18m advanced payment for the Davis Cup licensing agreement in 2018 and an $8m of advance payment for the Fed Cup licensing agreement this year. 3

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