2020 ITF Annual Report and Financial Statements

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REPORT OF THE CHAIRMAN OF THE FINANCE COMMITTEE The programme of Strategic Initiatives represents expenditure on discrete 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, the Board agreed that this expenditure could be funded from reserves and should be considered outside the normal operating activities. This additional expenditure amounts to $1.9m in 2020 after taxation (2019: $3.8m). Operating Income Operating income also includes GSDF funding of $0.7m (2019: $2.7m) and anti-doping income of $2.6m (2019: $4.6m), both of which support corresponding expenditure. The Billie Jean King Cup Finals were due to take place for the first time in 2020 with total hosting fees of $20m due to the ITF, of which $8m has been received and $5m has been recognised in acknowledgement of part of the competition having been played. Commercial revenues from sponsorship and media rights retained by the ITF amounted to $3.4m in 2020 (2019: $8.7m) generated from the Davis Cup zonal and Billie Jean King Cup competitions through our partnerships with BNP Paribas and Rosland Capital; 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 global FX partner, OFX. The impact of Covid-19 was profound on revenues from ITF circuits. ITF circuit sanction fees and player IPIN revenues reduced from $5.8m in 2019 to $2.2m in 2020 reflecting the curtailment of activities in tour events and the extension of IPIN memberships for no additional charge to players. Data rights income reduced to $6.3m (2019: $12.6m) due to the fall in the number of matches on the ITF World Tennis Tour. Hopman Cup revenue decreased by $1.8m to $0.2m (2019: $2.0m) as 2019 included the receipt of termination fees of the event licence. The ITF continues to strongly believe in the importance of a combined men and women's international event in the tennis calendar and is committed to the creation of a new Hopman Cup event. The overall deficit of $6.9m is partially offset by a positive revaluation of cash flow hedges of $1.4m but total reserves decrease to $52.3m as at 31 December 2020 (2019: $57.7m). This level of reserves is higher than the amount outlined in the policy agreed by the Board in 2018. The Board believes that, with this level of reserves, the ITF Trust is in a strong financial position to withstand future risks and uncertainties posed by the ongoing global pandemic. As was inevitable and unavoidable, the finances of the ITF have been negatively affected by the incidence of Covid-19, and its impact on tennis at all levels and throughout the world. As a direct consequence, the consolidated financial statements of the ITF Trust record a deficit of $6.9m after Strategic Initiative expenditure, investing activities and tax (2019: $5.9m surplus). This decrease is across the board as most, if not all, activities were subject to curtailment with some being postponed and others cancelled altogether. Where activities planned for 2020 were postponed beyond the end of the year, they have been excluded from these financial statements. The largest impact has been on international competitions with the Davis Cup, the Billie Jean King Cup and the 2020 Olympics and Paralympics all being postponed. Ordinarily the Davis Cup and the Billie Jean King Cup are annual competitions. The early rounds of the 2020 edition were played in the current year but the Finals were postponed until 2021 with the impact of spreading one year's income over two years. Whilst this is matched in terms of direct competition expenditure also being spread over the two years, overhead costs are annual and the surplus generated by the competition is having to support two years' overhead costs. Accordingly, the Davis Cup licence fee recognised in 2020 is $10.3m, a reduction of $30m (2019 $40.3m). This result is broken down into three components in the Consolidated Income Statement: a $9.2m deficit from operating activities after tax (2019: $1.7m surplus); $1.9m expenditure on Strategic Initiatives (2019: $3.8m); and a surplus of $4.1m from investing activities (2019: $8.1m). The consolidated result includes the performance of the ITF's long-term investment portfolio. The overall value of the portfolio was reduced by withdrawals made to support operational expenditure and cashflow, with a total of $8.6m having been withdrawn in the year. The remaining portfolio made gross gains of $4.3m, and a net gain of $4.1m which equates to a 7.6% return (2019: gross $8.0m, net $7.8m, 16.6% return). Overall, the value of the portfolio reduced by a net $4.4m to $49.4m (2019: increased $6.5m to $53.8m). 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 rising markets for less exposure to falling markets, reflected by a slight underperformance to benchmark. The gains in 2020 contribute to annualised growth in the value of the portfolios over the last five years of 5.2%. The ITF continues to take a prudent view of future growth and, whilst it budgets for 3% growth per annum, this revenue is not routinely relied upon to fund operating activities. The deficit from operating activities is directly attributable to the disruption to, and postponement of, activities including our flagship events: the Davis Cup, the Fed Cup, now renamed the Billie Jean King Cup, and the 2020 Olympics and Paralympics. Due to the unprecedented disruption to activities, operating income decreased by $53.1m to $35.6m (2019: $88.7m). 1

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