ITV posts 10% profit growth

ITV has announced its interim results for the half year ending 30 June:

• External revenues up 10% to £1,130 million (2011: £1,027 million), with growth in all areas of the business
• Total non-NAR revenues up £106 million, 26%, to £514 million (2011: £408 million) driven by ITV Studios
• ITV Studios revenues up £91 million, 34%, with double digit growth from UK and international businesses, reflecting in part the front loaded delivery of a number of shows
• ITV Family NAR up 3%, outperforming the TV advertising market up 2%
• ITV Family SOV down 1%, with digital channels performing strongly up 5%
• EBITA before exceptional items up 10% to £265 million (2011: £240 million)
• Adjusted PBT up 15% to £235 million (2011: £204 million)
• Adjusted EPS up 15% to 4.7p (2011: 4.1p)
• Positive net cash position of £92 million
• Continued improvement in efficiency of balance sheet with £275 million bond buyback in June
• Board has declared an interim dividend of 0.8p (2011: 0.4p)
• We expect ITV Family NAR to be broadly flat over the nine months to the end of September

Adam Crozier, ITV plc chief executive, said: “The Transformation Plan continues to gain momentum. External revenues are up 10% with all areas of the business delivering growth. The £106 million increase in non-advertising revenues – from content, pay and online – was particularly significant and is further evidence that our strategy of rebalancing the business and growing new revenue streams is working.

“Our relentless focus on cash and costs remains key. We’re on track to deliver cost savings of £20 million this year and our cash conversion is over 100%. We’ve also further increased the efficiency of the balance sheet with a £275 million bond buyback in June, bringing total debt buybacks to £937 million since October 2009. We now have positive net cash of £92 million compared with £612 million of net debt at the end of 2009.

“ITV Studios is performing strongly both in the UK and internationally with double digit revenue growth across all divisions and an increasing share of ITVS programmes aired on ITV1. Our investment in the creative pipeline is now clearly coming through in the financial results.

“While ITV Family Share of Viewing was down 1%, our strong Autumn and Winter schedule gives us confidence for the full year. Online we performed well with long form video requests up 20% and further improvements in the reliability and distribution of ITV Player. Our pay and online strategy has made good progress with the launch of our archive pay deals and YouView, and is soon to take another step forward with the roll out of ITV Pay Player.

“As we anticipated, ITV Family NAR was up 3% in H1, outperforming the television advertising market. The underlying TV advertising market continues to be relatively flat and while we remain cautious about the outlook for the TV advertising market for the rest of 2012, we expect to outperform it for the year as a whole. Over the full year we expect ITV Studios revenues to grow at a similar rate to 2011 and to grow the ITV Studios share of ITV1 output.”

Financial position

ITV delivered double digit revenue and profit growth in the first half of the year. Much of the revenue growth came from non-NAR revenues as the broadcaster continues to grow and rebalance the business. ITV said it remains focused on cash and costs and is on track to deliver £20 million of cost savings over the full year. The broadcaster will use the savings to fund £25 million of investment aligned to its strategic priorities.

ITV’s 10% EBITA growth and good profit to cash conversion, over 100%, saw it end the half year with positive net cash of £92 million, having paid the pension contribution and the 2011 full year dividend and having completed the bond buyback.

Broadcasting & Online

Broadcasting & Online saw 4% revenue growth and a 6% improvement in EBITA before exceptional items. The high operational gearing of advertising revenues has helped profitability but schedule costs were higher as a result of the phasing of sports costs.

ITV Family NAR grew 3%, outperforming the market, which was up 2%. ITV Family SOV was down 1%, with ITV1 down 3% and the digital channels continuing to perform well, up 5%. ITV Family SOCI was down 3%, with ITV1 down 5% and the digital channels up 3%. ITV said it will work to improve its on-screen performance over the full year and into 2013.

Online, pay and interactive revenues continue to grow as ITV makes it content available on more platforms and improves the quality of ITV Player. Long form video requests were up 20% driven by mobile. ITV has launched its redeveloped news and sport online sites and has completed consumer trials of the new ITV Pay Player.

ITV Studios

ITV is delivering double digit revenue growth across all the Studios businesses. The £91 million of additional revenue has led to a £12 million increase in EBITA. Revenue growth has partly been helped by the front loaded delivery of a number of shows in H1, as well as the inclusion of ITV Breakfast production now that Daybreak is produced by ITV Studios. Over the full year ITV expects ITV Studios revenues to grow at a similar rate to 2011.

In the first half ITV had 61 new commissions and 61 recommissions. In the UK, the commercial broadcaster has grown revenues both on and off ITV and over the full year expect to grow content globally. It now has eight ITV Studios programmes that are produced in three or more countries, compared to four in 2011 and is building scale in its distribution business with ITV and third party content.

ITV has recently signed an agreement to acquire Mediacircus in the Nordics and signed a joint development agreement with Reshet, the Israeli broadcaster, which should increase its production capability and distribution network in key genres and territories.

Outlook for 2012

ITV expects ITV NAR to be broadly flat for the nine months to the end of September, with July down 10%, August down 11% and September between flat and down 5%.

ITV remains cautious about the outlook for the TV advertising market for the remainder of 2012, although it expects to outperform for the year as a whole.

Over the full year the commercial broadcaster expects ITV Studios revenues to grow at a similar rate to 2011 and to grow ITV Studios’ share of ITV1 output.

Reaction

Investec Bank plc (UK) released a ‘sell’ rating following ITV’s results announcement today, on the basis that the first half figures are just above its forecast but the Q3 outlook looks “as gloomy as we expected”.

“A lot still depends on final figures for September and trends into Q4, which remain unclear currently. Our fundamental view is unchanged – good management activity/actions, but we are negative on broadcast long term,” the Investec statement said.

On Wednesday, ahead of the announcement, Raymond Snoddy said: “Adam Crozier, the chief executive of ITV, is heading towards the half-way mark in his five year “transformational” plan; so it will soon be time to provide some initial marks on his performance.

“It’s starting to look like a B plus so far. Costs have been cut, profits increased, debt reduced drastically and as a result the share price has been lifted away from embarrassing previous levels.”

Read the full results announcment here.