ITF

REPORT OF THE HONORARY TREASURER Despite challenging conditions in 2012, I am pleased to report that the ITF once again delivered an operating surplus. Operating income decreased by 1% to $52.7m in 2012; nevertheless, through continued close control over expenditure, an operating surplus of $0.7m was achieved. The ITF's investment portfolio increased in value by $2.8m or 8% in 2012, to $36.4m, as global markets recovered strongly towards the end of the year, having been very volatile. The overall surplus after tax for 2012 is $3.3m. Operating income The reduction in total operating income of $0.5m in 2012 resulted primarily from a reduction of $3.2m in Sponsorship, Competition and Television income, an increase of $2.2m in Olympic income and a new income line in respect of Olympic Solidarity grants of $0.4m. 2012 proved to be a mixed year for Sponsorship, with certain properties remaining unfilled due to the challenging climate while, pleasingly, others were renewed on long term agreements. The outcome for the year was a reduction in sponsorship income of $2.7m; in 2012 sponsorship income represented 40% of total operating income, down from 45% in 2011. Television income was also affected by the global economic situation in 2012, although the diversification of our activity, with 76 broadcasters in 161 territories, lessened the impact somewhat, with total Television income reducing by 8% to $7.2m. Despite the difficult climate, income from live streaming of Davis Cup and Fed Cup coverage grew by 38% to $0.2m, with further growth anticipated. Receipts from events, which are included within Sponsorship, Competition and Television income, grew by $0.2m to $4.8m in 2012, as strong audiences in Davis Cup continued to increase income from gate receipts. The income from the 2012 Olympic Games exceeded expectations, delivering total net income of $21.5m, to be recognised in the Consolidated Income Statement over the four year period of the Olympiad. This represents an increase of 67% on the net income from the 2008 Olympic Games. Further detail is provided in note 31 to the financial statements. Income of $0.4m from Olympic Solidarity is reflected in a new line in the Consolidated Income Statement in 2012. This income is generated through grant applications for Development projects, and has grown in recent years to the extent that it now warrants separate disclosure in the financial statements. The equal expenditure figure is reflected within Tennis Development. Operating expenses Total operating expenses increased by 4% to $52.1m. Professional Tennis costs rose by $1.0m to $26.4m; $0.3m of this increase related to prize money increases in Davis Cup and Fed Cup. The expansion of electronic line calling in both Davis Cup and Fed Cup continued in 2012, with Hawk-Eye being used at all World Group ties and at the Fed Cup World Group play-offs. The additional investment in Hawk-Eye was largely offset by lower costs of servicing ties, due to their location and other operational efficiencies. Costs related to Hopman Cup increased by $0.4m, as increased investment was made in the event. The remainder of the increase related to staff costs, as two senior positions, including an Executive Director position which had been vacant for much of 2011, were filled. Tennis Development expenditure increased 5.5% to $8.1m in 2012. The expenditure of the ITF Development programme grew by $0.6m, of which $0.4m was funded by Olympic Solidarity. The expenditure from the Grand Slam Development Fund reduced by $0.2m and the costs associated with the Seniors circuit increased slightly as a result of an initiative to further support the adoption of the Individual Player Identification Number (IPIN) by the Seniors circuit players. The activities of the Development department reached over 150 countries in 2012. Commercial costs decreased by $0.4m in 2012, while the Commercial team maintained its level of activity in seeking new sponsors and supporting and renewing existing agreements. Savings of $0.2m were achieved in Television through more cost effective technical arrangements for distribution and costs associated with engaging new sponsors reduced as certain properties remained unfilled. Presidential and Communications costs saw a marginal increase in 2012. Continued investment was made in social media and websites, while the focus on print media reduced from 2011 and investment was made instead in a wide ranging stakeholder survey relating to Davis Cup and Fed Cup. The costs relating to the Science & Technical department are disclosed separately in the Consolidated Income Statement for the first time in 2012; these costs were previously included within Tennis Development. The increase of $0.15m in 2012 related to Anti-Doping testing costs, particularly out-ofcompetition testing and an increased focus on blood testing. Finance and Administration costs rose by $0.6m in 2012, primarily as result of increased legal costs on various regulatory and commercial matters and increased Information Technology costs, as the use of Speedserve was expanded in Davis Cup and Fed Cup and the Tournament Planner system was developed for the Seniors and Wheelchair circuits. We have once again maintained a cautious approach to provision for doubtful debts, given the continued volatility in the economic climate, which resulted in an increase in the provision in 2012 of $0.15m, and the resolution of a historic employment tax matter impacted staff costs by $0.1m. Foreign exchange operating gains of $0.1m were recognised in 2012, largely due to the revaluation of short term investments in the year. Taxation expense was $0.4m, the reduction of $0.1m being due to the lower level of profit in Hopman Cup. Withholding tax arising on Television receipts is offset against any UK tax liability to the fullest extent possible. The increase in depreciation expense in the year was driven by the increases in fixed assets described overleaf under Consolidated Statement of Financial Position. (continued overleaf) ITF FINANCIAL STATEMENTS 39

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