ITV plc 2015 Interim Results

Tue 28 Jul 2015

Sector

PLC

ITV on track for another strong year

Interim results for the six months to 30 June 2015

 

Revenue growth across all parts of the business

  • Total external revenue up 11% to £1,356m (2014: £1,225m)
  • 5% growth in Net Advertising Revenue to £838m (2014: £795m)
  • Online, Pay & Interactive revenue up 27% to £85m (2014: £67m)
  • ITV Studios revenue up 23% to £496m (2014: £402m), with organic growth of 8%
  • Double digit growth in Non-NAR revenue, up 18% to £693m (2014: £588m)

Continuing to deliver double digit profit growth

  • Adjusted EBITA up 24% to £400m (2014: £322m)
  • Broadcast & Online adjusted EBITA up 26% to £315m (2014: £250m)
  • ITV Studios adjusted EBITA up 18% to £85m (2014: £72m)
  • Adjusted PBT up 25% to £391m (2014: £312m)
  • Adjusted EPS up 26% to 7.7p (2014: 6.1p)

Strong cash flows funding investment and increased shareholder returns

  • International content business strengthened by further acquisitions including Talpa Media, Twofour Group and Mammoth Screen
  • The Board has declared an interim dividend of 1.9p, up 36%

Positive outlook for the full year unchanged

  • On track for another strong performance with revenue growth across the business
  • ITV Family NAR expected to be up 6% for the 9 months to the end of September, around 8% in Q3 and we expect to outperform the market again in 2015
  • Confident in delivering continued strong growth in Online, Pay & Interactive
  • ITV Studios on track to deliver strong revenue growth over the full year, with good organic growth and acquisitions coming through as planned

 

Adam Crozier, ITV plc Chief Executive, said:

“ITV made further strong progress in the first half of the year as we continued to grow and rebalance the company creatively and commercially. All parts of the business performed well with external revenue up 11% to £1.36bn and we delivered another period of double digit profit growth up 24% to £400m.

We continue to grow non advertising revenue with Online, Pay & Interactive revenue up 27% and ITV Studios revenue up 23%, driven by organic growth and through our acquired businesses.

More than half of ITV Studios revenue now comes from outside the UK and we further reinforced our position as a leading international producer with the acquisition of Talpa Media. We have also continued to strengthen our UK studios business with the acquisitions of Mammoth Screen and Twofour Group.

Our Broadcast & Online business remains strong with profit up 26% to £315m and revenue up 6% to £1.04bn, helped by 5% growth in advertising revenue and the launch of our pay channel ITV Encore.

ITV Family share of viewing was down 4% in H1 and improving SOV remains a key focus for the year. As previously stated we expect to see improvements in H2 when we have exclusive rights to the Rugby World Cup as well as a strong slate of high quality drama including Jekyll & Hyde, Unforgotten and The Trials of Jimmy Rose.

Looking ahead to 2016 we have now secured the joint rights to Six Nations Rugby to add to our strong schedule of sport, drama and entertainment including the European Football Championships, Beowulf, Britain’s Got Talent and Seth MacFarlane’s Family Guy and American Dad.

Our outlook for the remainder of this year is unchanged and we expect to deliver another strong performance in 2015.”

 

Half year results

Six months to 30 June – on an adjusted basis

2015

£m

2014

£m

Change

£m

Change

%

Broadcast & Online revenue

1,035

981

54

6

ITV Studios revenue

496

402

94

23

Total revenue

1,531

1,383

148

11

Internal supply

(175)

(158)

17

11

Group external revenue

1,356

1,225

131

11

 

 

 

 

 

Broadcast & Online EBITA

315

250

65

26

ITV Studios EBITA

85

72

13

18

EBITA

400

322

78

24

 

 

 

 

 

Group EBITA margin

29%

26%

 

3

Profit before tax

391

312

79

25

EPS

7.7p

6.1p

1.6p

26

Dividend per share

1.9p

1.4p

0.5p

36

 

Management look at adjusted results as they reflect the way the business is managed and measured on a day-to-day basis. Adjusted EBITA is before exceptional items and includes the benefit of production tax credits (‘adjusted EBITA’). Adjusted profit before tax and EPS primarily remove the effect of amortisation of intangible assets acquired through business combinations and acquisition related costs. A full reconciliation between the adjusted and statutory results is provided in the financial review.   

The statutory profit before tax and EPS from the Consolidated Income Statement are as follows:

Six months to 30 June

2015

£m

2014

£m

Change

£m

Change

%

Profit before tax

327

250

77

31

EPS

6.4p

4.9p

1.5p

31

Diluted EPS

6.4p

4.8p

1.6p

33

 

Financial performance

We delivered another strong performance in the first half of the year, with good revenue growth across all parts of ITV as we continue to strengthen the business creatively, commercially and financially. Group external revenue increased 11% to £1,356 million (2014: £1,225 million) reflecting 6% growth in Broadcast & Online revenue to £1,035 million (2014: £981 million) and 23% growth in ITV Studios revenue to £496 million (2014: £402 million). Together with our continued focus on cash and costs we delivered another period of double digit profit growth with total adjusted EBITA up 24% to £400 million (2014: £322 million). Adjusted EPS in the period increased 26% to 7.7p (2014: 6.1p) and statutory EPS increased 31% to 6.4p (2014: 4.9p).

The business remains highly cash generative and profit to cash conversion was 97% over the first half, even after we increased our investment in scripted drama. After the acquisitions of Talpa Media, Mammoth Screen, Twofour Group and Cats on the Roof Media as well as payments of the 2014 final and special dividend, we ended the period with net debt of £540 million (31 December 2014: net cash of £41 million). This is in line with our objective of gradually increasing our balance sheet leverage over time.

Reflecting our confidence in the ongoing growth and cash generation of the business, and in line with our dividend policy, the Board has declared an interim dividend for 2015 of 1.9p, up 36%.

 

Broadcast & Online

Broadcast & Online delivered a strong first half performance, with total revenue up 6% to £1,035 million (2014: £981 million) and total adjusted EBITA up 26% to £315 million (2014: £250 million), corresponding to a 5% increase in the adjusted EBITA margin to 30% (2014: 25%). This reflects 5% growth in highly geared NAR as well as growth in high margin Online, Pay & Interactive revenue, which was up 27% to £85 million (2014: £67 million).

As expected, quarterly advertising growth has fluctuated year on year reflecting the timing of major events. The first quarter saw 12% growth helped by an earlier Easter, while the second quarter was flat against a strong Q2 2014, which had the benefit of the Football World Cup. Growth continues to be broad based across the major advertising categories, with spend in the Retail sector remaining strong reflecting competition between the supermarkets, while advertising within the Finance, Food and Car sectors was also up year on year. Entertainment & Leisure was down against a strong prior year when the gaming companies increased spend around the Football World Cup, while Cosmetics and Toiletries also remained down.

The total television market is becoming increasingly difficult to measure, particularly in the short term, as all broadcasters have different definitions and include sources of revenue other than pure spot advertising. Therefore we no longer report ITV's Share of Broadcast (SOB) at the half year. Based on our current estimate, we believe ITV is slightly behind the market at the half year, but as a result of the deals we have done we expect to be ahead of the market over the full year.

ITV Family share of viewing was down 4% in the first half, with the decline in the main channel partly offset by a 2% improvement across our digital family of channels. While there were many successful programmes in the first half, our viewing performance was impacted by strong competition from the BBC, no major sporting event and some of our shows not performing as well as we had expected. ITV Family SOCI was down 4%. We remain focused on improving share of viewing in the second half of the year to ensure that we continue to deliver standout content that drives mass audiences for our advertisers.

Online, Pay & Interactive revenue again showed strong growth, up 27% to £85 million (2014: £67 million) reflecting further growth in online advertising as well as the benefit of ITV Encore. Audience demand for VOD continues to grow and there remains strong demand for online advertising which, supported by further improvements in the quality and reach of ITV Player, helped drive a 29% increase in long form video requests and significant growth in Online revenue. We continue to develop our pay services with Pay revenue benefitting from a full six months of revenue from ITV Encore, which launched in June 2014, and strong demand for ITV on demand services. Interactive revenue was broadly flat in the period impacted by lower telephone voting for our entertainment programmes, although voting on our programme apps is growing strongly.

 

ITV Studios

ITV Studios revenue grew strongly in the first half, up 23% to £496 million (2014: £402 million) as we continue to strengthen our international portfolio of programmes that return and travel. Total organic revenue, which excludes our current and prior year acquisitions as well as foreign exchange movements, was up 8%, driven primarily by Studios US and Global Entertainment. Our acquisitions continue to come through as expected, with first half revenue benefitting from a full six months of Leftfield Entertainment as well as Talpa Media from 30 April 2015.

Reflecting the strong revenue growth across ITV Studios, adjusted EBITA increased 18% to £85 million (2014: £72 million). As a result of increased drama deliveries in the first half, which are lower margin, the adjusted EBITA margin decreased 1% to 17%.

Studios UK revenue was up 1% in the first six months to £208 million (2014: £205 million) reflecting 11% growth in internal revenue, partly offset by a decline in off-ITV commissions due to the loss of some commissions and phasing of programme deliveries which will reverse over the full year. Studios US grew strongly in the first half, with revenue up 69% to £145 million (2014: £86 million) as we benefitted from good organic growth, up 21%, as well as a full six months of Leftfield Entertainment, acquired in May 2014. Studios Rest of World (RoW) also showed strong growth, up 41% to £72 million (2014: £51 million), with organic revenue up 4%. Our distribution business, Global Entertainment, increased revenue by 18% in the period to £71 million (2014: £60 million) supported by our strong drama slate including new titles Poldark and Schitt’s Creek, as well as US drama Aquarius and the benefit of Thunderbirds Are Go. Thunderbirds Are Go has now been sold to 35 countries with key territories such as the US still to come.

As well as strengthening our position as the UK’s largest commercial production company, ITV Studios is becoming increasingly international. Reflecting our growth and increasing scale in key production markets in Europe and the US, 53% of ITV Studios total revenue in the first half was generated outside the UK. As our Studios business grows internationally, foreign currency movements have an increasing impact on our results. On a constant currency basis, which assumes exchange rates remained consistent with 2014, ITV Studios revenue for the first six months of 2015 would have been £5 million lower and adjusted EBITA would have been £2 million lower with the stronger US dollar partially offset by the weakening Euro.

We made four acquisitions in the first half of 2015. In April we completed the acquisition of Talpa Media, the Dutch creator of worldwide entertainment formats, including The Voice, The Voice Kids, Utopia, I Love My Country and Dating In The Dark. We paid an initial cash consideration of €500 million (£362 million) for 100% of Talpa's fully diluted share capital with further payments dependent on Talpa's future performance as well as John de Mol's continued commitment to the business during this time. The total maximum consideration, including the initial payment, is €1.1 billion which is contingent on Talpa continuing to deliver significant profit growth to 2022.

In May we acquired the remaining 75% of Mammoth Screen, one of the UK’s leading scripted production companies, having held a 25% investment in the producer since 2007. Its successful slate of high end drama includes Poldark and Endeavour.

In June we completed the acquisition of Boom Supervisory Limited, the holding company of UK based Twofour Group which produces factual entertainment and drama programmes. We paid an initial cash consideration of £55 million for 75% of the Group. There is a put and call option for the remaining 25% that can be exercised over the next three to five years. Additionally, Twofour has a put and call option to acquire the remaining 49% of its subsidiary Mainstreet Pictures that can be exercised between 2018 and 2023. The total maximum consideration for Twofour and the remaining 49% of Mainstreet Pictures is £280 million with contingent payments dependent on both businesses delivering exceptional profit growth to £60 million in aggregate over the payment period and key individuals remaining with the group.

Also in June we established a new label, Cats on the Roof Media, with Andrew O’Connor, co-creator of Peep Show and Adam Adler, who created The Cube. Cats on the Roof Media owns a number of creative labels focused on developing entertainment and scripted comedy programmes.

 

EPS

Adjusted profit before tax was up 25% to £391 million (2014: £312 million). The total adjusted tax charge for the period was £81 million (2014: £64 million), corresponding to an effective tax rate on adjusted profit before tax of 21% (2014: 21%), which is broadly in line with the standard corporation tax rate of 20.25% (2014: 21.5%).

Adjusted profit after tax, was up 25% at £310 million (2014: £248 million). After non-controlling interests of £2 million (2014: £2 million), adjusted basic earnings per share was 7.7p (2014: 6.1p), up 26%.

Statutory EPS is adjusted to reflect the underlying performance of the business providing a more meaningful comparison of how the business is managed and measured on a day-to-day basis. Adjustments include: acquisition-related costs such as professional fees, primarily due diligence, employment linked consideration and performance-based employment linked contingent payments; impairment of intangible assets; amortisation of intangible assets acquired through business combinations including customer contracts and relationships; net financing cost adjustments; and other tax adjustments. Amortisation of intangible assets that are required to run our business, including software licences, is not adjusted for. In the period, statutory EPS increased 31% to 6.4p (2014: 4.9p).

 

Balance sheet and cash flow

ITV remains highly cash generative reflecting our continued tight management of working capital balances. In the period we generated £388 million (2014: £319 million) of operational cash from £400 million (2014: £322 million) of adjusted EBITA which equates to a strong profit to cash ratio of 97%. The ratio has declined slightly from 99% in the prior period as a result of increased investment in scripted content.

After payments for interest, cash tax and pension funding, our free cash flow also remained strong in the period, up 34% to £246 million (2014: £183 million). Overall, after £383 million of dividends and £407 million of acquisitions as well as pension deficit contributions of £66 million, we ended the first half with net debt of £540 million, compared to net cash of £41 million at 31 December 2014 and net debt of £201 million at 30 June 2014.  

In 2014 we obtained a committed £525 million Revolving Credit Facility provided by a number of core relationship banks. We also entered into a £175 million bilateral financing facility and agreed a new £75m invoice discounting facility, both of which are free of financial covenants. At 30 June 2015 £130 million was drawn on the Revolving Credit Facility.

In 2015, to fund the acquisition of Talpa Media, we entered into a 12 month €500 million bridge loan facility provided by five of our relationship banks. As at 30 June 2015 this facility was fully drawn.

As we enter the next phase of our strategy this financial flexibility and our continued strong free cash flow will enable us to invest in further opportunities to grow the business and enhance shareholder value.

Going forward our objective is to run an efficient balance sheet, and to balance investment for further growth with attractive returns to shareholders. Therefore we will, over time, look to increase our balance sheet leverage. We believe that maintaining leverage below 1.5x reported net debt to adjusted EBITDA will optimise our cost of capital, allow us to sustain our progressive dividend policy and enable us to retain flexibility to continue to invest for further growth.

 

Dividend per share

Reflecting our confidence in the ongoing growth and cash generation of the business, last year the Board committed to growing the full year ordinary dividend by at least 20% per annum for three years to 2016, by when we will achieve a dividend cover of between 2.0 and 2.5 times adjusted earnings per share. In line with this policy, the Board has declared an interim dividend for 2015 of 1.9p, up 36%. The interim dividend is expected to be roughly a third of the full year dividend.

 

Pension

The aggregate IAS 19 deficit of the defined benefit schemes at 30 June 2015 was £285 million (31 December 2014: £346 million). The reduction reflects lower pension liabilities as a result of rising bond yields and deficit funding contributions of £66 million, partly offset by investment losses on pension scheme assets and higher inflation expectations increasing pension liabilities. Pensions continue to be paid from the Scheme based on actual requirements.

 

2015 full year planning assumptions

  • Total network programme budget is expected to be around £1,040 million reflecting a full year of our new channels
  • Interest is expected to be £15 million, increasing to reflect the Talpa Media acquisition
  • The effective tax rate is expected to be 21%, with full year cash tax more in line with the income statement charge
  • Capex is expected to remain between £40 - £45 million annually
  • Profit to cash conversion is expected to be 85% due to continued investment in scripted content
  • Pension deficit funding will not exceed contributions made in 2014
  • If foreign exchange rates stay broadly similar, we expect ITV Studios revenue to be £5m lower and profit £3m lower, as a stronger US dollar is offset by our greater exposure to a weakening Euro following the Talpa Media acquisition. Our definition of constant currency assumes exchange rates stay consistent with 2014

 

Outlook

Our outlook for the remainder of the year is unchanged and we expect to deliver another strong performance in 2015.

ITV Family NAR is expected to be up 6% in the nine months to the end of September, around 8% in the third quarter, and we expect to outperform the market again over the full year. We remain focused on improving SOV and we expect to see improvements in the second half when we have exclusive rights to the Rugby World Cup as well as a strong slate of high quality drama. Online, Pay & Interactive will deliver continued strong growth, helped by the first full year of ITV Encore.

ITV Studios is on track to deliver strong revenue growth over the full year, with good organic growth and acquisitions coming through as planned.

 

Notes to editors

1.   Unless otherwise stated, all financial figures refer to the six month period ended 30 June 2015, with growth compared to the same period in 2014.

Six months to 30 June

2015

£m

2014

£m

Change

£m

Change

%

ITV Family NAR

838

795

43

5

Non-NAR revenue

693

588

105

18

Internal Supply

(175)

(158)

17

11

Group external revenue

1,356

1,225

131

11

 

2.   ITV Family NAR was up 12% in Q1 and flat in Q2 during which April was up 5%, May down 5% and June down 2%. We expect ITV Family NAR to be down 1% in July, up 7% in August and up around 15% in September, with Q3 up around 8%. Overall we expect ITV Family NAR for the nine months to the end of September to be up around 6%. This revenue is pure NAR, excluding the benefit of sponsorship and online revenue.


3.   Broadcast & Online performance indicators

Six months to 30 June

2015

2014

Change

%

ITV Family SOV

21.1%

22.1%

(4)

ITV SOV

14.8%

15.8%

(7)

ITV Family SOCI

35.0%

36.6%

(4)

ITV SOCI

24.0%

25.6%

(6)

ITV adult impacts

104bn

111bn

(6)

Total long form video requests (all platforms)

422m

328m

29

SOV data based on BARB/AdvantEdge data and Share of Commercial Impacts (SOCI) data based on BARB/DDS data. SOV data is for individuals and SOCI data is for adults. ITV Family includes: ITV, ITV2, ITV3, ITV4, ITV Encore, ITVBe, CITV, ITV Breakfast, CITV Breakfast and associated “HD” and “+1” channels.

% change is calculated on unrounded SOV and SOCI figures. Total long form video requests across all platforms are based on data from ComScore Digital Analytix, Virgin, BT, iTunes, Amazon Prime Instant Video, Netflix, Sky, 3UK and Hospedia and include simulcast.

4.   The 2015 Interim dividend will be paid on 30 November 2015. The ex dividend date is 29 October 2015 and the record date is 30 October 2015.

5.   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. 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) a major deterioration in the current outlook for UK advertising and consumer demand, (ii) significant change in regulation or legislation, (iii) failure to identify and obtain, or significant loss of, optimal programme rights, and (iv) the loss or failure of transmission facilities or core systems and (v) a significant change in demand for global content.

Undue reliance should not be placed on forward looking statements which speak only as of the date of this document. The Group accepts no obligation to revise publicly or update these forward looking statements or adjust them to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

 

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