ITV plc interim results for the half year ended 30th June 2011 Solid progress in 1st year of five-year Transformation Plan
- Total external revenues up 4% to £1,027m (2010: £987m).
- EBITA before exceptional items increased 45% to £240m (2010: £165m) with the conversion of higher revenues into profit and the absence of Football World Cup costs.
- Adjusted EPS increased 86% to 4.1p (2010: 2.2p).
- Net debt improved to £52m from £188m at year end.
- Cost saving programme is on track to deliver £15m of savings in 2011.
- ITV Family NAR up 2% in line with expectations versus a TV advertising market up 3%.
- Solid on screen performance with ITV Family SOV up 2% with ITV1 flat (2010: down 5%) and ITV digital channels up 11%.
- ITV Player now launched on Android phones, Apple devices and Freesat. Long form video views increased 64% to 180m (2010: 110m).
- ITV Studios external revenues increased 11% to £140m (2010: £126m) driven by strong international revenues, however, EBITA fell slightly as we invested in creative talent, and in developing and piloting new programmes.
- The Board has declared an interim dividend of 0.4p.
- We are encouraged by our progress to date and the prospects for ITV in the medium to long term but we remain cautious about the advertising market and the economy.
Adam Crozier, ITV plc Chief Executive, said:
“We’re now one year into our five year Transformation Plan and making good progress on delivering our strategy of creating great content and exploiting it across multiple platforms and selling it internationally.
“As today’s results show, our focus on costs, cash generation and improving the efficiency of our balance sheet gives us an increasingly strong financial base from which to drive our strategy forward.
“Despite the difficult economic backdrop and the absence of the Football World Cup, our advertising revenues increased by 2% and, while we continue to plan prudently, we expect to outperform the TV advertising market across the whole of the year.
“Improving our audience share is a key part of our strategy and we had a good start to the year on-screen right across the ITV Family with our share of viewing up 2%. So far this year ITV1 has launched 8 out of the 10 top new dramas, including Vera, Marchlands, Monroe, and Scott & Bailey, while ITV2 and ITV3 are the two most popular - and amongst the fastest growing - digital channels. We also performed strongly online with 64% growth in long form video views across all of our platforms.
“We’re investing in the quality and reach of our online offering. We’re making ITV Player more widely available, most recently on Android and Apple devices and Freesat. We plan to have a pay mechanism in place around the turn of the year so that we can test what viewers are willing to pay for, and we continue to work with our partners on YouView, which is on track for launch early next year.
“Our plan to renew and refresh our content business is beginning to gain momentum under the new top team in ITV Studios as we invest in reenergising the creative pipeline and in developing and piloting new programmes. While there’s still a long way to go, we’re starting to see potential in the level of new work coming through ITV Studios with 68 new commissions so far this year, of which 29 are international. Prime Suspect is being co-produced in the US for NBC while Julian Fellowes’ Titanic, also a co-production, is fully-funded and already pre-sold to 15 broadcasters around the world including ITV1. Other new entertainment programmes being produced for ITV1 include Holding out for a Hero, Born to Shine and Red or Black. These are early indications of the potential for ITV Studios’ creative output as we renew our commitment to the producer/broadcaster model.
“There are clear signs of momentum building in the delivery of our five-year Transformation Plan but we know there is still much to be done to rebalance the business as we adapt to the digital future. We’re encouraged by our progress to date and the prospects for ITV in the medium to long term, although we remain cautious about both the TV advertising market and the economy.
|Group external revenue||1,027||987||40|
|Broadcasting and online||887||861||26|
|EBITA before exceptional items||240||165||75|
|Adjusted profit before tax*||204||118||86|
|Adjusted earnings per share (EPS)*||4.1p||2.2p||1.9p|
*Adjusted profit before tax and adjusted EPS remove the effect of exceptional items, impairment of acquired intangible assets, amortisation of intangible assets acquired through business combinations, financing cost adjustments, and prior period and other tax adjustments from the statutory numbers.
Improved profits and strong cash conversion have reduced net debt to £52 million (31 December 2010: £188 million). Profit to cash conversion is 113%, well ahead of our target of 90% on a rolling three year basis. We have also bought back debt to the value of £184 million, in line with our focus on improving the efficiency of the balance sheet, and now have no major debt repayment until 2014. Cash and cost management has remained a focus in 2011, and we are on track to deliver £15 million of cost savings on top of the £40 million delivered in 2010.
As previously stated, capital expenditure in the year will increase to approximately £80 million (2010: £28 million), focused on fixing our core business technology and the Manchester site move to MediaCity. Profit to cash conversion will be lower in the second half due to the increased level of capital expenditure and an increase in working capital, not least production stock as we produce more of our own content.
Broadcasting and Online
Broadcasting and Online revenues rose to £887 million in the first half (2010: £861 million), driven by 2% growth in ITV Family NAR.
ITV Family NAR was up 12% in Q1 and down 6% in Q2. EBITA before exceptional items increased to £202 million in H1 (2010: £122 million) driven by all of the revenue upside falling to profit, tight control on costs and the dropping out of the 2010 Football World Cup costs.
ITV saw a good on-screen performance in the first half with SOV for the Family up 2% and ITV1 flat in spite of the tough 2010 Q2 comparatives. For the year to the end of May (ie: before the impact of the World Cup comparative), the performance was better still, with ITV Family SOV up 4% and ITV1 up 3%. Our digital channels saw strong progress, increasing their SOV by 11% overall. Our decision to launch ITV1+1 is also bearing fruit with the channel doubling its SOV since its introduction in January, in line with our expectations. ITV Family Share of Commercial Impacts (SOCI) was up 1% at 40.0% while ITV1 Adult SOCI was down 1%.
We are investing in fixing our online technology and we are building scale in our Online business. Our new Online team is investing in both quality of technology and ease of use, and in driving up commercial performance. We are widening the distribution of ITV player, which is now available on Android and Apple devices and Freesat. Online usage grew strongly with average monthly unique users up 19% to 10.8 million (2010: 9.1 million) and long form video views up 64% to 180 million across all of our platforms. Online revenues increased by 33% to £16 million (2010: £12 million). We plan to have a pay mechanism in place around the turn of the year so that we can test what people will pay for, and we continue to work with our partners in YouView which is on track for launch early in 2012.
ITV Studios revenues have increased year-on-year to £264 million (2010: £254 million) driven largely by international production. EBITA before exceptional items has fallen to £38 million (2010: £43 million) as we invest in developing and piloting new ideas and in improving the depth of the creative pipeline.
The new ITV Studios’ management team is beginning to build momentum in the new creative process with 68 new commissions so far this year, including 29 internationally. ITV Studios America is co-producing Prime Suspect for NBC in the US with ITV retaining distribution rights outside the US. Other international drama includes Julian Fellowes’ Titanic, an ITV-led co-production which has already been presold to 15 broadcasters around the world including ITV1. Other commissions this year include drama such as Vera, Marchlands and Monroe and big new entertainment shows including Holding Out for a Hero, Born to Shine, High Stakes and Red or Black. These are all early signs of the potential for ITV Studios’ creative output as we renew our commitment to the producer/broadcaster model.
Adjusted earnings per share
Adjusted EPS has increased to 4.1p (2010: 2.2p) reflecting the solid trading performance.
Adjusted financing costs are £28 million, (2010: £36 million) helped by the impact of last year’s buybacks and the higher level of cash. The adjusted effective tax rate of 23% is significantly lower than the statutory rate of UK corporation tax and is, as previously stated, expected to be maintained around this level for the next two years. This is primarily due to the utilisation of tax losses from earlier periods.
The aggregate IAS 19 deficit on defined benefit schemes at 30th June 2011 was £312 million (31st December 2010: £313 million). The £48 million of deficit funding has been offset by a £48 million increase in net liabilities.
On 8th July we extended the SDN pension partnership which was originally agreed between the Group and the pension Trustees last year to reduce the funding deficit. As a result of the extension, the value of the partnership’s interest held by the Scheme has been increased by £50 million to give £200 million in total.
On 27th April ITV and ITV Network agreed a wide ranging settlement with STV Group plc over the various ongoing legal actions. All legal actions ceased with immediate effect and the terms of the settlement included an £18 million payment by STV to ITV to settle the court claims.
The Board has declared an interim dividend of 0.4p. The interim dividend will be payable on 1st December to shareholders on the register as at 4th November. The ex-dividend date will be 2nd November. The level of the final dividend will be considered in light of second half trading and the economic outlook. In considering the proposed dividend the Board were mindful of the volatile history of the advertising market and the need to maintain a conservative level of cover. It is our intention to adopt a progressive dividend policy taking into account the outlook for earnings per share.
OUTLOOK FOR 2011
We expect ITV Family NAR to be down 2% in July, down 4% in August and, given our earlier than usual reporting date, we currently expect ITV Family NAR in September to be broadly flat. We expect ITV Family NAR to be slightly down in Q3 but ahead of the market.
- While comparatives remain tough for the rest of the year, and we remain cautious on the economic outlook and its effect on the TV advertising market, we expect to outperform the market for the year as a whole.
- The ITV1 Network Programme Budget is confirmed at around £800 million for the full year, as previously stated.
- As previously identified we expect to invest £25 million in online, content and digital channels in 2011, of which £12 million has been spent in H1.
- We are on track to deliver £15 million reduction in costs during the year.
NOTES TO EDITORS
1. Operational summary
|ITV Family SOV||23.2%||22.7%|
|ITV Family SOCI||40.0%||39.8%|
|ITV1 adult impacts||118bn||114bn|
|itv.com average monthly unique users||10.8m||9.1m|
|Total cumulative video views (all platforms)||228m||156m|
|Total long form video views (all platforms)||180m||110m|
Share of viewing and share of commercial impact data is for the six months to 30th June 2011, compared to equivalent period in 2010, based on BARB / AdvanetEdge data. Share of viewing data is for individuals and SOCI data is for adults. ITV Family includes: ITV1, ITV2, ITV3, ITV4, CITV, CITV Breakfast, Men&Motors and associated ‘HD’ and ‘+1’ channels.
Average monthly unique users are based on Omniture and Nedstat data. Video views are based on internal Company and Nedstat data for itv.com.
2. Transformation Plan
Last August, ITV Chief Executive Adam Crozier unveiled a five-year Transformation Plan with three phases – fix, strengthen and grow, and accelerate. The objective is to become a lean ITV that can create world class content, executed across multiple platforms and sold around the world.
The plan is focused on four priorities:
- 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
3. ITV Family NAR was up 6% in April, down 9% in May, and down 14% in June which was marginally ahead of our expectations of a 15-20% decline. Overall, Q2 was down 6%. Figures for ITV plc and market NAR are based on ITV estimates and current forecasts.
4. This announcement contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of ITV plc. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to (i) adverse changes to the current outlook for the UK television advertising market, (ii) adverse changes in tax laws and regulations, (iii) the risks associated with the introduction of new products and services, (iv) pricing, product and programme initiatives of competitors, including increased competition for programmes, (v) changes in technology or consumer demand, (vi) the termination or delay of key contracts, (vii) fluctuations in exchange rates and (viii) volatility in financial markets.
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