ITV revenues plummet in challenging times

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UK commercial broadcaster ITV has published its Interim results for the period ending June 30th 2020. Revenues slumped by 17 per cent to £1.21 billion (€1.02bn) largely caused by a lack of demand for advertising bought about by the pandemic.

Carolyn McCall, ITV Chief Executive, said: “This has been one of the most challenging times in the history of ITV. I am really proud of the way that our colleagues have responded to the Covid-19 pandemic and helped demonstrate the enduring value of ITV as a Public Service Broadcaster. ITV continues to inform and entertain the nation throughout this crisis, across our six channels including 10 hours of live broadcast every weekday as well as increased content on ITV Hub and BritBox.”

“While our two main sources of revenue – production and advertising – were down significantly in the first half of the year and the outlook remains uncertain, today we are seeing an upward trajectory with productions restarting and advertisers returning to take advantage of our highly effective mass reach and addressable advertising platform, in a brand safe environment.”

“We have made good progress in our digital transformation. The majority of our colleagues are working seamlessly at home thanks to the investment we have made in technology and systems and this has helped us continue to deliver on our strategic objectives. The success of the Hub investment plan contributed to driving online viewing up 13 per cent and monthly active users up 15 per cent in H1. We continue to successfully roll out Planet V with around 35 per cent of our VoD inventory now delivered through this platform, which is on track to be live with most of the major agencies by the end of the year. BritBox is ahead of target on subscribers in the UK and we have announced plans to roll out BritBox internationally.”

“The future is still uncertain due to the pandemic but the action we have taken to manage and mitigate the impact of Covid-19 puts us in a good position to continue to invest in our strategy of transforming ITV into a digitally led media and entertainment company.”

ITV says it has taken swift and decisive action to manage and mitigate the impact of Covid-19:

Cost savings:

  • ITV has implemented measures to reduce overhead costs by £60 million in total in 2020 as previously announced which are largely temporary savings
  • ITV has delivered £51 million of these overhead cost savings in H1
    ITV continues to look at ways to permanently reduce cost base, and as previously guided, in addition it is targeting a further £25 million to £30 million of permanent overhead cost savings by 2022
  • ITV expects the programme budget to be around £960 million in 2020

Cash management:

  • ITV has taken action to tightly manage our cashflow, for example with agreements to defer £90 million of pension contributions and tax payments out of H1
  • Due to successful cost and working capital management ITV was able to resume its essential capex broadly in line with original guidance of around £85 million to £95 million in 2020

Operational and financial performance impacted by Covid-19

  • In mid-March ITV Studios paused the majority of its productions globally as a result of the restrictions on working practises, driving a 17 per cent decline in total ITV Studios revenues in H1 to £630 million (2019: £758 million)
  • ITV Total viewing was up 4 per cent and ITV Family light viewing was up 8 per cent in spite of the strong growth in streaming, with online viewing up 13 per cent and dwell time up 11 per cent
  • ITV Family SOV was down 4 per cent in H1 to 22.6% impacted by the volume of BBC’s news output
  • Significant decline in the demand for advertising across most advertising categories with total advertising revenue down 43 per cent in Q2 and down 21 per cent in H1, despite good momentum in Q1 with TAR up 2 per cent
  • 17 per cent decline in total Broadcast revenue to £824 million (2019 £991 million)
  • 17 per cent decline in total external revenue to £1,218 million (2019: £1,476 million)
  • 50 per cent decline in adjusted EBITA to £165 million (2019: £327 million) and 53 per cent decline in adjusted EPS to 2.9p (2019: 6.2p)
  • 49 per cent decline in statutory EBITA to £159 million (2019: £310 million) and 90% decline in statutory EPS to 0.5p (2019: 4.8p)

Operational update

  • ITV restarted production in June with Coronation Street and Emmerdale and a small number of productions internationally
  • Of the 230 productions that were impacted or paused by the lockdown, around 70 per cent have been delivered or are back in production as of today. The impact on the rest of the year and 2021 will depend on how quickly Covid restrictions are reduced. ITV expects some increased costs of production as a result of Covid measures
  • ITV is seeing good demand for library content
  • ITV Commercial continues to work very closely with advertisers and agencies to create effective marketing solutions and saw advertising trends improve in July and August with ITV TAR down 23 per cent in July, with some FMCG and retail, publishing and broadcasting, cars and interior furnishing categories beginning to spend more
  • The Direct to Consumer business is performing well with 390,000 Hub+ subscribers, good growth in BritBox subscriptions in both the UK and the US, and increased demand for ITV’s competitions

Continuing to execute its strategy in spite of the pandemic

  • Delivering the Hub acceleration plan, by strengthening its content and user experience, with the extended catch-up window and Hub redesign, which has driven a strong viewing performance
  • Successfully rolling out Planet V with 100 per cent of VoD inventory expected to be executed via Planet V by the end of the year
  • ITV has extended the distribution of BritBox UK which is now available to 60 per cent of streaming households and further strengthened its content offering. The first original, Spitting Image, will be available in the autumn and ITV has recently announced four other originals
  • The international roll out of BritBox is on track with Australia due to launch in Q4 and we intend to expand the service in up to 25 countries worldwide

Financial position remains robust

  • Reported net debt of £783 million at June 30th 2020 (December 31st 2019: £893 million, June 30th 2019: £1,195 million)
  • Reported net debt to adjusted EBITDA leverage of 1.3x on a rolling 12 month basis (December 31st 2019: 1.1x,  June 30th 2019: 1.5x)
  • Total liquidity at June 30th 2020 was £1,214 million (December 31st 2019: £1,101 million, June 30th 2019 £825 million) comprising:
  • £385 million of unrestricted cash
  • £630 million undrawn Revolving Credit Facility (RCF) expiring on December 15th 2023. As at June 30th 2020 ITV’s financial position was well within its banking covenants, but as a precautionary measure we have agreed with our banking group to replace the leverage and interest cover covenants in the RCF with a cap on covenant net debt at £1.8 billion and a minimum covenant liquidity requirement of £250 million until December 30th 2021
  • £300 million bilateral facility expiring in June 2026 of which £199 million is available
  • No bond repayments due until September 2022
  • The Board has decided not to pay an interim dividend in light of continued economic uncertainty. The Board recognises the importance of the dividend to our shareholders and intends to restore future dividend payments as soon as circumstances permit

Outlook

  • Productions are now restarting and with the efforts of the Commercial sales team; ITV are having more positive conversations with advertisers and seeing some signs of improvement in advertising
  • Given the level of uncertainty for both ITV Studios and Broadcast it is not possible to provide financial guidance for Q3 or the remainder of the year
  • The Board continues to monitor performance against a wide range of scenarios as well as internal and external analysis to inform its planning and decision making and will continue to manage costs and cash appropriately.

Commenting on the results, analyst Paolo Pescatore of PP Foresight, commented: “Unfortunately, a tough period for ITV given the pandemic. The slump in revenue was expected. Hopefully the company has weathered the brunt of the storm. Challenging times still lie ahead. There are encouraging signs with a return of production and the growth of direct-to-consumer services. The BritBox launch in other markets will provide much needed revenue. The pandemic has underlined the importance of streaming and connecting with audiences with new ways. This is something that ITV and other broadcasters need to accelerate.”


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