ITV 2010 Interim Results

Tue 3 Aug 2010

Sector

PLC

Improved financial performance underpins five year plan to transform ITV

Highlights

  • Net advertising revenue up 18% versus a market up 15%
  • EBITA before exceptional items increased to £165 million (2009: £46 million)
  • Decisive action on cash and costs reduced net debt significantly to £437 million from £612 million at year end
  • Adjusted earnings per share increased to 2.2p (2009: loss of 0.2p)
  • ITV NAR forecast to be up around 15% in Q3 2010
  • Increasingly tough comparatives and economic uncertainty give us a cautious outlook for Q4 and 2011
  • Recovery in financial performance but underlying structural challenges remain
  • ITV today announces its five year Transformation Plan
  • Move into pay television with agreement to make ITV2 HD, ITV3 HD and ITV4 HD channels on Sky
  • Announced launch of ITV1+1 in Q1 2011

Adam Crozier, Chief Executive of ITV plc, said:

“The good financial performance we have reported today has enabled us to reduce our debt significantly but does not disguise the underlying challenges we face. We are under no illusion that ITV needs to change substantially.

“For the past decade ITV has not faced up to the challenges presented by the rise of internet-based platforms, the continuing growth of pay TV and subscription services and the globalisation of content.

“Re-shaping the economics of ITV will require changes not only to the strategy but also to ITV’s management, culture and organisation and to deliver this we are today announcing a five year Transformation Plan.

“Our priority for the next 18 months is to make ITV a creatively dynamic and fit for purpose organisation while maintaining strict financial controls. We have made swift progress in putting together a very strong management team fully focussed on delivering a lean ITV that can create world class content, executed across multiple platforms and sold around the world. Over time we expect to move to a position whereby half of ITV’s revenue base will be derived from non-television advertising sources and today we are announcing our move into pay television with the agreement to make HD versions of ITV 2, 3 and 4 pay channels on Sky.”

Archie Norman, Chairman of ITV plc, said: “Under Adam Crozier’s leadership ITV has already established a totally realistic understanding of the challenges, a far reaching plan for transformation and a very strong top team that can deliver.”

Transformation Plan

ITV ‘s Performance

Over the past decade ITV has seen its core proposition of free-to-air broadcasting steadily eroded by changes in technology and through the creation of new content and distribution channels. These market dynamics will continue to evolve and will only gather pace. Addressing them requires significant change, as well as a relentless focus on delivery.

The Transformation Plan will focus on four priorities to:

  • Create a new lean, creatively dynamic and fit for purpose organisation
  • Maximise audience and revenue share from existing free-to-air broadcast business
  • Drive new revenue streams by exploiting our content across multiple platforms, free and pay
  • Build a strong international content business

As an integrated producer broadcaster, ITV is well positioned to deliver this strategy.

New Management Team

ITV ‘s new executive team combines extensive media experience with technology expertise and the ability to drive forward a complex transformation process. Recently announced appointments include:

  • Kevin Lygo - Managing Director, ITV Studios
  • Fru Hazlitt - Managing Director, ITV Commercial & Online
  • Paul Dale - Chief Technology Officer
  • Maria Kyriacou - Managing Director, ITV Studios Global Entertainment

A search for a new Marketing Director, Chief Operating Officer of ITV Studios and Managing Director of itv.com is underway.

Progress to date

Over the last three months we have made considerable progress in the development and delivery of the Transformation Plan. Progress to date includes:

  • New top team in place
  • New operational boards and structures in place
  • Announced agreement to make ITV2 HD, ITV3 HD and ITV4 HD pay channels on Sky
  • Announced launch of ITV1 +1 in Q1 2011
  • Integration of GMTV complete and to re-launch as Daybreak in September 2010
  • New talent signings of Adrian Chiles, Christine Bleakley and Jonathan Ross
  • Secured the rights to the Rugby World Cup for 2011 and 2015
  • Integration of our marketing and research teams into the commissioning teams
  • Secured two new SDN contracts
  • Staff development programme for the top 150 employees launched
  • Delivered cost efficiencies of £31 million

Investment

Delivery of the Transformation Plan will require targeted investment and strong financial discipline. We will hold the ITV1 network programme budget (NPB) below £800 million in 2011 and 2012.

An investment fund of £75 million, excluding the ITV1 NPB, has been allocated for operating investments online, in content and in our digital channels over the next three years. The strengthened balance sheet may provide some scope for capital investments.

Dividend

Given ITV’s current level of debt, in the context of a highly geared operational model and an uncertain economic outlook the Board has determined that it will not declare a dividend. This will be kept under review in light of the trading performance, net debt, pension deficit and investments needed to deliver the Transformation Plan.

Outlook

ITV television advertising revenue is currently forecast to be up around 15% in the third quarter with ITV expected to outperform the market for the full year. However, the outlook for the fourth quarter when comparatives become much tougher and into 2011 remains uncertain and we are planning accordingly.

INTERIM RESULTS

Broadcast

ITV television advertising revenues were up 18% in H1 at £728 million (2009: £615 million), ahead of the total market which was up 15%. The sales team outperformed the market every quarter, but on-screen, ITV1’s share of commercial impacts was down 4% in H1 (2009: down 7%) and viewing share declined on ITV1 and across the ITV family of channels as a whole.

Excluding Friends Reunited, ITV’s online revenues were up 20% to £12 million (2009: £10 million). However, the online business remains subscale given the size of the online video market. Average unique users were up 4% over the first half at 9.1 million and cumulative video views were down by 14% at 100 million.

ITV Studios

ITV Studios EBITA was up 8% at £43 million (2009: £40 million). The benefit of cost savings and closure of low margin activities offset the 25% decline in external revenues to £126 million (2009: £168 million). Last year international sales of I’m A Celebrity Get Me Out of Here made a significant contribution to revenue. These have not been recommissioned in 2010 but may well return in some countries in 2011.

Financial Position

Net debt at 30 June 2010 is significantly lower than prior year at £437 million (at 31 December 2009: £612 million) and profit to cash conversion on a rolling 12 month basis is 134%, well ahead of our target of 90% profit to cash conversion over three years.

Pension

The pension deficit on an IAS19 basis stands at £449 million (31 December 2009: £436 million). This excludes the benefits from the proposed enhanced transfer initiatives which ITV is currently consulting on. ITV has also agreed with the Trustees the level of cash contributions to the Scheme through to 2014, as announced in March.

ENDS

For further enquiries please contact:

Investor Relations Pippa Foulds: 020 7157 6555 or 07778 031097

Media Relations Louise Evans: 020 7157 3710 or 07825 680994

Tulchan Communications Susanna Voyle: 020 7353 4200