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ITV operational and financial performance materially impacted by COVID-19 in H1

ITV plc (LON:ITV) has announced its interim results for the period ending 30 June 2020.

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% and monthly active users up 15% in H1.  We continue to successfully roll out Planet V with around 35% 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 has taken swift and decisive action to manage and mitigate the impact of COVID-19

o  Focused on our colleagues and their safety

o  Cost savings:

o  We have implemented measures to reduce overhead costs by £60 million in total in 2020 as previously announced which are largely temporary savings

o  We have delivered £51 million of these overhead cost savings in H1

o  We continue to look at ways to permanently reduce our cost base, and as previously guided, in addition we are targeting a further £25 million to £30 million of permanent overhead cost savings by 2022

o  We expect the programme budget to be around £960 million in 2020

o  Cash management:

o  We have taken action to tightly manage our cashflow, for example with agreements to defer £90 million of pension contributions and tax payments out of H1

o  Due to successful cost and working capital management we are able to resume our essential capex broadly in line with our original guidance of around £85 million to £95 million in 2020

o  We have continued to amplify ITV’s social purpose, raising awareness and inspiring positive change such as Britain Get Talking, Eat Them to Defeat Them and the Black Voices campaign

Operational and financial performance has been materially impacted by COVID-19 in H1

o  In mid-March ITV Studios paused the majority of its productions globally as a result of the restrictions on working practises, driving a 17% decline in total ITV Studios revenues in H1 to £630 million (2019: £758 million)

o  ITV Total viewing was up 4% and ITV Family light viewing was up 8% in spite of the strong growth in streaming, with online viewing up 13% and dwell time up 11%

o  ITV Family SOV was down 4% in H1 to 22.6% impacted by the volume of BBC’s news output

o  Significant decline in the demand for advertising across most advertising categories with total advertising revenue down 43% in Q2 and down 21% in H1, despite good momentum in Q1 with TAR up 2%

o  17% decline in total Broadcast revenue to £824 million (2019 £991 million)

o  17% decline in total external revenue to £1,218 million (2019: £1,476 million)

o  50% decline in adjusted EBITA to £165 million (2019: £327 million) and 53% decline in adjusted EPS to 2.9p (2019: 6.2p)

o  49% decline in statutory EBITA to £159 million (2019: £310 million) and 90% decline in statutory EPS to 0.5p (2019: 4.8p)

Operational update

o   Our production teams have been innovative and as a result ITV restarted production in June with Coronation Street and Emmerdale and a small number of productions internationally

o   Of the 230 productions that were impacted or paused by the lockdown, around 70% 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. We do expect some increased costs of production as a result of COVID measures

o   We are seeing good demand for library content

o   ITV Commercial continues to work very closely with advertisers and agencies to create effective marketing solutions and we saw advertising trends improve in July and August with ITV TAR down 23% July, with some FMCG and retail, publishing and broadcasting, cars and interior furnishing categories beginning to spend more

o   The Direct to Consumer business is performing well with 390k Hub+ subscribers, good growth in BritBox subscriptions in both the UK and the US, and increased demand for ITV’s competitions

o   The majority of ITV’s colleagues continue to work seamlessly from home although we are bringing staff back from furlough as we restart productions and now have fewer than 300 colleagues on furlough

o   We have planned a phased approach to re-entering the office safely which we will implement as appropriate in-line with government guidelines

Continuing to execute our strategy in spite of the COVID-19 disruption   

o   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

o   Successfully rolling out Planet V with 100% of VOD inventory expected to be executed via Planet V by the end of the year

o   We have extended the distribution of BritBox UK which is now available to 60% of streaming households and further strengthened its content offering. The first original, Spitting Image, will be available in the autumn and we have recently announced four other originals

o   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

ITV has good access to liquidity and its financial position remains robust

o   Reported net debt of £783 million at 30 June 2020 (31 December 2019: £893 million, 30 June 2019: £1,195 million)

o   Reported net debt to adjusted EBITDA leverage of 1.3x on a rolling 12 month basis (31 December 2019: 1.1x, 30 June 2019: 1.5x)

o   Total liquidity at 30 June 2020 was £1,214 million (31 December 2019: £1,101 million, 30 June 2019 £825 million) comprising:

  • £385 million of unrestricted cash
  • £630 million undrawn Revolving Credit Facility (RCF) expiring on 15 December 2023. As at 30 June 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 £1.8bn and a minimum covenant liquidity requirement of £250 million until 30 December 2021
  • £300 million bilateral facility expiring in June 2026 of which £199 million is available
  • No bond repayments due until September 2022

o   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

o   Productions are now restarting and with the efforts of our Commercial sales team, we are having more positive conversations with advertisers and seeing some signs of improvement in advertising

o   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

o   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 our costs and cash appropriately.

Notes to editors

1.     Unless otherwise stated, all financial figures refer to the 6 months ended 30 June 2020 and 30 June 2019, with the change compared to the same period in 2019.

2.     Group financial performance

* including IFRS 16 liabilities

3.     Total advertising was down 21% in H1, with Q1 up 2%, April down 42%, May down 46% and June down 42%. July was down 23%. Advertising from April onwards has been severely impacted by COVID-19 and as the situation remains uncertain, we are not in a position today to give guidance for August and September. These revenues include spot advertising, online, sponsorship and other advertising revenues and excludes self-promotion.

4.     Broadcast key performance indicators

Six months to 30 June20202019Change
%
ITV Total viewing (hrs)8.5bn8.2bn4
ITV Family Share of Viewing (SOV)22.6%23.6% (4)
Long form online viewing (hrs)266m236m13
ITV Hub registered user accounts32.2m29.6m9

•           ITV Total viewing is the total number of hours spent watching ITV channels live, recorded broadcast channels within 28 days, third party VOD platforms, ITV Hub on owned and operated ad funded platforms and ITV Hub+.

•           SOV data based on BARB/AdvantEdge. SOV data is for individuals and is based on 7 days (C7). ITV Family includes: ITV, ITV2, ITV3, ITV4, ITV Encore, ITVBe, CITV, ITV Breakfast, CITV Breakfast and associated “HD” and “+1” channels. All viewing on TV set, therefore includes catch up and Hub on television.

•           Long form online viewing is the total number of hours ITV VOD content is viewed on owned and operated ad funded platforms, and Hub+ viewing on owned and operated platforms, based on data from Crocus.

•           A registered user account is an individual viewer who has signed up to the ITV Hub using one email address. The individual has to have been active within the last 3 years to remain a registered user.

•           % change for performance indicators is calculated on unrounded numbers.

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, (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.

6.     The financial information set out above does not constitute ITV’s statutory accounts for the year ended 30 June 2020 but is derived from those accounts.  Statutory accounts for 2019 have been delivered to the registrar of companies, and those for 2020 will be delivered in due course.  The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. 

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