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Interim 2024 Highlights

• Significant improvement in group adjusted EBITA in H1, up 40%, despite Group external revenue down 2%
• Impacted by phasing of productions and US writers’ and actors’ strikes in 2023, ITV Studios H1 revenue was down 13%, as expected, and adjusted EBITA grew 5% driven by a strong contribution from higher margin catalogue sales and cost savings 
• M&E EBITA grew 230% with total advertising revenue growth ahead of expectations, up 10%
• ITVX continued to perform strongly with streaming hours up 15%, monthly active users up 17% and digital advertising revenues up 17%

H1 Group Financial highlights - strong profitability and shareholder returns

• Total revenue was down 3% at £1,903 million (2023: £1,964 million), with growth in total advertising revenue (TAR) offset by the expected decline in ITV Studios revenue
• Total external revenue was down 2% at £1,599 million (2023: £1,639 million)
• Group adjusted EBITA was up 40% at £213 million (2023: £152 million), reflecting the operational gearing of Media & Entertainment, the higher margin in ITV Studios and delivery of £23 million of cost savings. Adjusted EPS was up 43% at 3.3p (2023: 2.3p)
• EBITA was £200 million (2023: £133 million). Statutory profit before tax was £330 million (2023: £45 million) and statutory EPS was 6.6p (2023: 1.0p). The main adjustments between adjusted and statutory results are exceptional items and the profit on disposal of BritBox International
• Profit to cash conversion of 73% on a rolling 12-month basis. Profit to cash conversion in H1 was unusually low at 17% reflecting a significant increase in working capital as a result of the resumption of production in the US following the strikes in 2023
• Robust balance sheet, with net debt of £515 million (31 Dec 2023: £553 million, 30 June 2023: £724 million) and net debt to adjusted EBITDA leverage of 0.9x (31 Dec 2023: 1.0x, 30 June 2023: 1.2x)
• In line with ITV’s dividend policy, the Board has declared an interim dividend of 1.7p (2023: 1.7p)
• £53 million of buybacks completed by 30 June 2024, as part of the overall £235 million programme to return the entire net proceeds from the sale of BritBox International
• Following the agreement of the latest triennial valuation, we expect no future pension deficit contributions while the Scheme is in surplus, other than a small payment relating to a legacy asset-backed scheme and a one-off contribution in relation to a long running pension dispute (refer to  note 8). This removes a significant historical drag on free cash

ITV Studios performance impacted by previously guided factors

• As expected, total ITV Studios revenue was down 13% at £869 million (2023: £1,000 million) due to the phasing of deliveries, which are heavily weighted to H2 and particularly Q4, and the impact of the 2023 US writers and actors strikes. Excluding the impact of the transfer of ITV Sport from Media & Entertainment to ITV Studios, total Studios revenue was down 16%
• Adjusted EBITA was up 5% to £136 million (2023: £130 million), with an adjusted EBITA margin of 15.7% reflecting an increase in higher margin catalogue sales, and £9 million of cost savings. Excluding AVEC, adjusted EBITA was up 2% to £133 million with an adjusted EBITA margin of 15.3%
• ITV Studios delivered a wide range of new and returning programmes and formats in the UK and internationally to a diversified portfolio of customers during the period, including:

○  Missing You and Inganno (in Italy) for Netflix, A Cruel Love: The Ruth Ellis Story for ITV, The Gathering for Channel 4, Showtrial for the BBC, Love Island USA for Peacock, and My Kitchen Rules for Seven Network in Australia

• We continuously manage our portfolio of labels to strengthen our creativity. In July we acquired 51% of the scripted independent production company Hartswood Films in the UK, producer of Sherlock, and sold our minority shareholding in Blumhouse Television in the US

Media & Entertainment (M&E): strong advertising growth and significant improvement in profitability

• M&E revenue was up 7% at £1,034 million (2023: £964 million), with total advertising revenue (TAR) up 10%, ahead of previous guidance

○  Within this digital advertising revenue (a component of digital revenue) was up 17%

○  Total M&E non-advertising revenue was down 5%, driven by the expected decline in subscription and partnership revenues, as we improve the viewer proposition and monetisation of ITVX 

• M&E adjusted EBITA was up 230% at £76 million (2023: £23 million), reflecting the growth in TAR and £14 million of cost savings delivered
• ITVX's strong performance has continued in H1 with total streaming hours up 15% and monthly active users up 17%
• Digital revenues grew 12%
• As previously guided we have taken action to simplify the paid streaming proposition, including migrating BritBox UK onto ITVX Premium, which has a short term impact on subscriptions and subscription revenue
• We have maintained our unique position in linear television through the quality and breadth of our schedule, as we continue to deliver mass simultaneous reach and innovative commercial and creative partnerships

Restructuring and efficiency programme

• The cost saving programme is progressing well, and is on track to deliver the £40 million of incremental in year savings in 2024 that were previously guided:

○  £30 million in year savings from new restructuring and efficiency programme

■  savings from technology and operational efficiencies, organisational redesign across Group functions, M&E and Studios, and permanent reductions in discretionary spend

■  cost of change will be around £30 million in 2024, rather than £50 million as previously guided

■  an ongoing programme that is designed to deliver further incremental material savings over a number of years

    ○  £10 million from our existing £150 million cost saving programme

Outlook: on track to deliver 2026 KPI targets

ITV Studios:

• Over the full year, ITV Studios is expected to deliver record profits driven by an increase in higher margin catalogue sales, and continued action to drive efficiencies. The full year margin will be lower than H1 reflecting the relatively lower mix of catalogue sales in the second half, but will be within our 13 to 15% guidance range
• ITV Studios revenue will, as guided, be impacted by the 2023 US writers’ and actors’ strikes, which will delay around £80 million of revenue from 2024 to 2025, and lower demand from free-to-air broadcasters in Europe in the short term. H2 deliveries will be weighted to Q4, with Q3 revenue expected to be down by a similar percentage to H1
• Previous guidance was for ITV Studios total revenue to be broadly flat. Our view of the market has not changed but we now expect revenue to be down low single digits, due to a small number of key productions being contracted as executive productions rather than co-productions. The change in contractual arrangement has no impact on profit but does mean we recognise less revenue this year. There remain a small number of contracts under negotiation, which may have a similar outturn of lower recognised revenue, but the same profit if they are contracted as executive productions. In the revenue guidance for 2024, we have assumed that we will be the main or co-producer
• ITV Studios remains on track to deliver total organic revenue growth of 5% on average per annum from 2021 to 2026 - ahead of the market, and at a margin of 13 to 15% 

Media & Entertainment (M&E):

• We expect ITVX to continue to perform strongly in H2 with further improvements in content, product, distribution, marketing and monetisation
• Compared to the same period in 2023 which included the Rugby World Cup, TAR is expected to be broadly flat in Q3, with continued strong growth in digital advertising revenues 
• We remain on track to deliver at least £750 million of digital revenues in 2026
  
  

Planning assumptions for the full year 2024

The following planning assumptions for 2024 are based on our current best view but may change depending on how events unfold over the rest of the year. They are largely unchanged from the guidance given at the full year results.

Profit and Loss impact:

• Total content costs are expected to be around £1,275 million as we further optimise linear, evolve our windowing strategy and improve personalisation. We will invest an additional £15 million in marketing
• We will deliver £40 million of incremental in year savings - comprising of £10 million from our existing £150 million cost saving target and £30 million of additional savings as part of the new strategic restructuring and efficiency programme
• Adjusted financing costs are expected to be around £35 million
• The adjusted effective tax rate is expected to be around 26% over the medium term which is slightly above the UK statutory tax rate of 25% and above previous guidance of 25%
• Exceptional items are expected to be around £65 million mainly due to costs associated with the ongoing strategic restructuring and efficiency programme and digital transformation costs. This is down from previous guidance of £90 million predominantly due to lower cost of change. The cash cost will be the same as the P&L impact

Cash impact:

• Total capex is expected to be around £75 million as we further invest in our digital capabilities
• Profit to cash conversion is expected to be around 80% out to 2026. In 2024 profit to cash conversion will be lower reflecting an increase in working capital. Across 2023 and 2024 we expect cash conversion to be around 80%
• There are no pension deficit funding contributions for 2024 following the completion of the triennial valuation other than an annual payment of c.£3 million under the London Television Centre Pension Funding Partnership
• The Board has proposed an interim dividend of 1.7p, which will be paid in November 2024. Going forward, the Board intends to pay a full year ordinary dividend of at least 5.0p, which it expects to grow over the medium term