TIDMITV
RNS Number : 6514V
ITV PLC
25 July 2018
Launching our new strategy from a position of strength
Interim results for the six months to 30 June 2018
Carolyn McCall, ITV Chief Executive, said:
"We have delivered a strong operating performance with fantastic
viewing figures both on-screen and online. Total advertising
revenue was up by 2% with 48% growth in online revenues. ITV Family
share of viewing was up 9% in the period with outstanding
contributions from Love Island and the World Cup.
"Our hugely talented and creative people in the UK and
internationally provided a popular and award winning slate of
programmes for ITV, other broadcasters and platform owners. This is
reflected in the rise in ITV Studios revenue of 16%, with growth in
all our production areas. I'm pleased to say that there is a really
healthy pipeline of new and returning programmes.
"There's never been a better time to be a creative entertainment
company with viewers' appetite higher than ever for quality content
and this is set to grow by around 5% globally over the medium term.
ITV is well placed to take advantage of this opportunity and our
strategy refresh which will enable us to drive profit from three
separate sources - advertisers, broadcasters/platforms and
consumers.
"ITV will be more than TV - it will be a structurally sound
integrated producer broadcaster where we aim to maintain total
viewing and increase total advertising revenue; it will be a
growing and profitable content business, which drives returns; and
it will create value by developing and nurturing strong direct
consumer relationships, where people want to spend money on a range
of content and experiences with a really trusted brand.
"We will deliver this strategy by building greater capability in
data, analytics and technology as well as developing the great
creative and commercial talent ITV already has. Executing the
strategy will enable us to continue to deliver sustainable returns
to our shareholders."
Strong operating performance in an uncertain economic
environment
-- Total external revenue up 8% at GBP1,593 million (2017:
GBP1,469 million) with non-advertising revenues up 14% at GBP958m
(2017: GBP837 million)
-- Total ITV Studios revenue up 16% at GBP803 million (2017:
GBP692 million), including GBP12 million of unfavourable currency
impact
-- ITV total advertising revenue up 2% as expected, with 48%
growth in Online
-- ITV Studios adjusted EBITA up 7% at GBP118 million (2017:
GBP110 million)
-- Broadcast & Online EBITA down 12% to GBP257 million
(2017: GBP293 million) reflecting the timing of the Football World
Cup as previously guided
-- Adjusted EBITA down 7% at GBP375 million (2017: GBP403
million)
-- Adjusted EPS down 8% at 7.1p (2017: 7.7p)
-- Statutory EPS up 4% at 5.3p (2017: 5.1p)
Exceptional viewing performance and strong creative pipeline
-- Strong on-screen and online viewing performance
- ITV Family SOV up 9%, ITV2 SOCI for 16 to 34's up 19% and
online viewing up 33%
-- ITV Studios has a healthy pipeline of new and returning
programmes
Refreshed strategy for the future
-- Building on strong foundations
-- Strategy to address the opportunities and challenges of the
competitive media landscape
-- Clear vision to deliver growth and make ITV more
resilient:
- Strengthen the integrated producer broadcaster
- Grow UK and Global Productions
- Create Direct to Consumer business
-- Focus on brand, data, creativity and capabilities
-- Highlighted GBP60 million of investments over the period to
2021, with no change in 2018 guidance and GBP40 million of
investment in 2019
-- Targeting GBP35 to GBP40 million cost savings from 2019 to
2021, with GBP15 million in 2019
-- Over the three years to the end of 2021 we will deliver:
- Double digit online revenue growth per annum
- Total ITV Studios revenues of at least 5% average CAGR at an
EBITA margin of 14% to 16%
- Growth in Direct to Consumer revenues to at least GBP100m
Strong balance sheet and healthy liquidity
-- Strong profit to cash conversion of 94%
-- Flexibility and capacity to continue to invest across the
business
-- Reflecting strong cash flows and the Board's confidence in
the business, it has declared a 2.6p interim dividend, up 3%
-- Committed to at least 8p full year dividend in 2018 and 2019,
through the period of investment
Outlook for 2018
-- Confident that ITV Studios will deliver good organic revenue
growth
-- Strong double digit online revenue growth
-- Total advertising forecast to be up 1% for the nine months to
the end of September, with Q3 broadly flat against a backdrop of
continued economic uncertainty
Strategy Update
We have been undertaking a strategic refresh over the last few
months to help us highlight the opportunities for ITV and also the
challenges we will need to address.
This is very much a refresh not a reboot as ITV is a strong
business, no longer solely reliant on UK advertising. However the
market is clearly changing and to reflect this we have developed a
clear vision and initiatives to drive growth to ensure ITV remains
a structurally sound business.
We have developed our new vision 'More than TV' to build upon
ITV's unique and winning combination of creativity and commercial
strength.
ITV will be more than TV - it will be a structurally sound
integrated producer broadcaster where our ambition is to maintain
total viewing and increase total advertising revenue; it will be a
growing and profitable content business, which drives returns; and
it will create value by developing and nurturing strong direct
consumer relationships, where people want to spend money on a range
of content and experiences with a really trusted brand. We will
continue to be a cash generative and growing business delivering
value for our shareholders.
In the future, we'll focus on three key areas - Strengthening
the integrated producer broadcaster (IPB); Growing UK and Global
production, and creating a scaled Direct to Consumer business.
In 2019 we will invest GBP40 million across the business in the
new strategy and over the course of the three years we will invest
a total of GBP60 million. This will be offset by GBP35 to GBP40
million of cost savings which we will achieve without impacting the
culture and creative and commercial strength of the business. In
2020 and 2021 the in year investments will be totally offset by
cost savings.
The net impact over the plan is GBP20 to GBP25 million, which
excludes any incremental revenue benefits. The revenue benefits we
will deliver over the course of the plan are reflected in the
targets we have set as follows: for Online to deliver double digit
revenue growth per year, average 5% CAGR in Total ITV Studios
revenues over the 3 years at a margin of 14 to 16%; and to grow
Direct to Consumer revenues to at least GBP100 million by 2021.
These revenue benefits will more than cover the net impact, but
will be back end loaded.
Operating and Financial Performance
We have delivered a strong operational performance in an
uncertain market environment. On-screen, our share of viewing has
again grown, increasing for the third consecutive year, up 9%, and
the ITV Hub continues to deliver strong viewing, up 33%. Total
advertising revenue grew 2% as expected which includes online
revenue up 48%, and total ITV Studios revenue increased 16%
including the unfavourable impact of currency. We have a strong
creative pipeline of high-quality programmes, particularly drama
and entertainment, and we continue to perform well across the key
genres that return and travel.
This provides the strong foundations on which to build and we
have today announced a new strategy with clear priorities and
initiatives which we believe will deliver growth and strengthen ITV
to ensure it is well positioned to address the opportunities and
challenges of a competitive media landscape.
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
============================ ======= ======= ====== ======
Broadcast & Online 1,045 1,016 29 3
ITV Studios 803 692 111 16
Total revenue* 1,848 1,708 140 8
Internal supply (255) (239) 16 7
Group external revenue 1,593 1,469 124 8
Group adjusted EBITA 375 403 (28) (7)
Group adjusted EBITA margin 24% 27%
Adjusted EPS 7.1p 7.7p (0.6p) (8)
Statutory EPS 5.3p 5.1p 0.2p 4
Dividend per share 2.60p 2.52p 0.08p 3
============================ ======= ======= ====== ======
Net debt (1,034) (1,074) 40 4
============================ ======= ======= ====== ======
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
======================= ===== ===== ====== ======
Broadcast & Online 890 871 19 2
ITV Studios 958 837 121 14
Total revenue* 1,848 1,708 140 8
Internal supply (255) (239) 16 7
Group external revenue 1,593 1,469 124 8
======================= ===== ===== ====== ======
* IFRS 15 'Revenue from Contracts with Customers' was effective
from 1 January 2018. Please see Section 1 of the Notes to the
accounts for further details.
Total ITV revenue increased 8% to GBP1,848 million, with
external revenue also up 8% at GBP1,593 million. Total
non-advertising revenue grew 14% to GBP958 million. Total
non-advertising now accounts for 52% of total revenue.
Adjusted EBITA declined 7% to GBP375 million (2017: GBP403
million) and adjusted EPS declined 8% to 7.1p (2017: 7.7p) with the
7% growth in ITV Studios EBITA offset by the 12% decline in
Broadcast & Online EBITA. Broadcast & Online EBITA was
impacted by higher schedule costs due to the World Cup.
Adjusted financing costs were broadly in line year on year and
our adjusted tax rate at 19% has also not changed. Adjusted EPS
declined by 8% to 7.1p. Statutory profit before tax grew by 2% to
GBP265 million (2017: GBP259 million) and statutory EPS was up 4%
to 5.3p as the decline in earnings was offset by a reduction in
exceptional items, and amortisation and impairments, which is
explained over the following pages.
We have a strong balance sheet and the business continues to be
highly cash generative. Our profit to cash conversion remains high
at 94% and we ended the period with net debt of GBP1,034 million
(31 December 2017: GBP912 million). 1.2x net debt to adjusted
EBITDA provides headroom against our investment grade rating.
This places us in a good position to continue to invest in
growing a stronger, more resilient business with the implementation
of our refreshed strategy, while also continuing to deliver
sustainable returns to our shareholders.
For the period of investment in 2018 and 2019 the Board intends
to pay at least an 8p dividend per year. This reflects the Board's
confidence in the business and in the new strategy as well as the
continued strong cash generation. The Board expects that over the
medium term the dividend will grow broadly in line with
earnings.
Consistent with this, the Board has declared an interim dividend
of 2.6p which is up 3% on 2017.
We measure performance through a range of metrics, particularly
through our alternative performance measures and KPIs, all of which
are set out in this report. These have been reviewed and aligned to
the refreshed strategy.
Broadcast & Online
Financial performance
Broadcast & Online total revenue was up 3% in the period at
GBP1,045 million (2017: GBP1,016 million).
We have changed the way we report our Broadcast & Online
revenues to focus on total advertising which includes ITV Family
NAR, VOD, sponsorship and other advertising revenues. We have also
split out our Direct to Consumer revenues to reflect our strategic
priorities going forward.
We delivered 2% growth in total advertising revenue at GBP890
million (2017: GBP871 million) with online revenue up 48%.
Advertising categories such as Retail, FMCG, Finance, and
Airlines, Travel and Holidays continued to see declines in
advertising due to the uncertain economic outlook, leading
advertisers to reduce spend to maintain margins. Within Retail, we
have seen spending decline on both the high street and the
supermarkets. Entertainment & Leisure was up, in particular
around the World Cup. Telecommunications and Computing increased
their spend around product launches and digital brands continue to
spend heavily on television to build brand awareness.
We have provided more detail on our costs to highlight the
variable areas of our cost base, especially as we grow new revenue
streams. Total costs were up GBP65 million, over half of this is
driven by higher schedule costs weighted towards H1 with the
phasing of the World Cup. Variable costs increased with significant
growth in online, and investment on the Hub, Hub+ and ITV Box
Office (our pay-per-view channel used to show boxing matches).
Broadcast infrastructure and overheads increased with foreign
exchange movements on our Euro denominated transmission contracts,
and property costs from our new London property buildings.
Overall Broadcast & Online adjusted EBITA declined 12% to
GBP257million (2017: GBP293 million) which has led to a four
percentage point reduction in the adjusted EBITA margin to 25%
(2017: 29%).
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
======================================== ===== ===== ====== ======
Total advertising revenue 890 871 19 2
Direct to consumer 41 29 12 41
SDN 36 35 1 3
Other revenue 78 81 (3) (4)
Non-Advertising revenue 155 145 10 7
Total Broadcast & Online revenue 1,045 1,016 29 3
======================================== ===== ===== ====== ======
Network schedule costs (567) (532) (35) (7)
Variable Costs (57) (43) (14) (33)
Broadcast infrastructure and overheads (164) (148) (16) (11)
Total Broadcast & Online adjusted EBITA 257 293 (36) (12)
Adjusted EBITA margin 25% 29%
======================================== ===== ===== ====== ======
* IFRS 15 'Revenue from Contracts with Customers' was effective
from 1 January 2018. Please see Section 1 of the Notes to the
accounts for further details.
Viewing
On-screen we performed strongly with viewing up for the third
consecutive year.
ITV Family SOV grew 9% with a strong performance across the
schedule. This level of growth is the biggest in ITV's recent
history and never before has ITV delivered three years of
consecutive growth. Our ITV Family SOV is now the highest it has
been for 10 years. Daytime shows including Good Morning Britain,
This Morning and The Chase grew their audiences, and Coronation
Street and Emmerdale continue to perform well and are now the UK's
two largest soaps. We launched the sixth weekly episode of
Coronation Street in September 2017, which has further strengthened
its performance. We successfully aired a range of new dramas
including Trauma, Innocent, and Girlfriends; entertainment shows,
including Dancing on Ice and Survival of the Fittest; and
successful factual, including The Queen's Green Planet. We
continued to drive significant audiences with our returning brands
such as Vera - which had it's most successful series to date -
Endeavour, The Durrells, Good Karma Hospital, Ant & Dec's
Saturday Night Takeaway, Britain's Got Talent and The Real Full
Monty. Our news programming continues to perform well, as does our
sporting schedule with the World Cup, the Six Nations Rugby
Championships and horse racing. ITV's coverage of England's
semi-final against Croatia hit a peak of 26.6 million viewers. The
match average of 24.3 million was bigger than the audiences for the
Olympic Opening and Closing Ceremonies in 2012. While overall our
schedule is performing very strongly, not all of our programmes
performed as we had hoped so some, for example Next of Kin, will
not return.
We continue to target the demographics most highly demanded by
advertisers - particularly young and male audiences - through our
digital channels and online, and have seen a significant increase
in our target demographics on ITV2 and ITV4. Our 16-34s share of
commercial impacts (SOCI) on ITV2 was up 19% helped by the
phenomenal success of Love Island, achieving the second highest
audience on a digital channel since records go back, as well as
Survival of the Fittest, Celebrity Juice, Family Guy and American
Dad. Male SOCI on ITV4 was up 8% helped by ITV's coverage of horse
racing, The French Open and Tour de France. ITV3's viewing
performance improved in the period due to the strong performance of
dramas such as Midsomer Murders, Vera, Lewis and Endeavour.
Following the closure of ITV Encore at the end of April 2018 the
content has moved back to ITV3, adding to the strength of the
schedule and improving viewing. ABC1 adults SOCI on ITV3 was up 6%
making it the most popular digital channel for this
demographic.
ITV Hub
The ITV Hub, the digital home for all our channels and content,
is growing rapidly. This is driven by our viewers appetite to watch
content any time, any where, be it catch up or increasingly,
simulcast, and the quality of our content. The ITV Hub is now
available on 28 platforms and is pre-installed on over 90% of all
connected televisions sold in the UK.
Long-form video requests were up 23% and online viewing
consumption, which measures how long viewers are spending online,
was up 33% driven by viewing on mobile and connected televisions.
The ITV Hub has now been the fastest-growing public service
broadcaster online service for over three years. This comes from an
improved user experience and great content. The ITV Hub now has 25
million registered users.
The ITV Hub helps ITV reach valuable younger audiences - 75% of
the UK's 16-24 year olds are registered. Younger viewers
increasingly use the ITV Hub for simulcast viewing, as well as
catch up, with programmes such as the World Cup delivering record
viewing with 0.9 million simulcast viewers for England's semi-final
against Croatia. Love Island has achieved an average audience of
0.3 million via simulcast per episode, which is more than the
linear audiences on most digital channels. In the first six months
of 2018 simulcast requests are up
41% year on year.
Direct to Consumer
Direct to Consumer generates revenue directly from the customer,
and includes competitions, voting, live events, SVOD and our pay
per view boxing trial. Total revenue is currently small but up year
on year. Growing a Direct to Consumer business will be a key focus
of our new strategy.
Our competitions have performed well across the schedule.
Interactive has further benefited from the continued growth of the
competition portal. Programme related app downloads have been
strong in the first half of the year, encouraging engagement
and
driving linear viewing. The Love Island app has seen exceptional
downloads at 2 million, and 10 million votes have been cast via the
app.
The trial of ITV Box Office launched in 2017 as a direct to
consumer pay per view offering which focused initially on boxing.
We also have a number of live events based around our key brands.
For example, we have the Emmerdale Studios Experience, which
showcases the process of creating an episode of the soap, and This
Morning Live, a shopping and lifestyle festival. These both build
relationships directly with our viewers.
As at 30 June 2018, ITV Hub+ subscribers, including subscribers
via Amazon, had increased to 286k subscribers. The total number of
subscribers is up over 500% year-on-year. The increase in
subscribers has been driven by increased marketing, great content
and EU portability. We expect subscribers to be seasonal, and the
number of subscribers to vary during the year. The growth in
subscribers increasingly gives us confidence that we have a role to
play in SVOD.
In March 2017, we launched our US joint venture with the BBC
Studios, BritBox, (with AMC Networks taking a minority share), an
ad-free SVOD service offering the most comprehensive collection of
British content in the US. A version of the service also launched
in Canada in February 2018. Having exceeded 250,000 subscribers in
less than a year from launch, the service is on track to double
that number in its second year. Revenues from Britbox are not
included in Direct to Consumer as it is accounted for as a joint
venture.
SDN
SDN generates revenue by licensing capacity to broadcast
channels, radio stations and data providers on digital terrestrial
television or Freeview. It holds a licence with capacity for 16
broadcast channels, including ITV services and third-party
channels. SDN external revenue grew 3% in the period.
Other revenue
Other revenue includes revenue from platforms, such as Sky and
Virgin, and third party commissions, e.g. for services we provide
to STV. This is down year on year due to the closure of Encore at
the end of April 2018.
ITV continues to license its channels and content across
multiple platforms, including our HD digital channels and catch-up
VOD on Sky and Virgin Media set top boxes and all our live channels
and catch up VOD across their connected platforms.
ITV Studios
Financial performance
ITV Studios total revenues grew 16% to GBP803 million (2017:
GBP692 million) including an unfavourable currency impact, with
growth across all our production businesses as we continue to build
our capability in key creative markets. Total organic revenue,
which excludes our 2017 acquisitions and currency, was up 11%.
Revenue growth was driven by a significant increase in hours
delivered, up 10% to over 4,000 hours.
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
=============================== ===== ===== ====== ======
Studios UK 328 306 22 7
ITV America 141 138 3 2
Studios RoW 247 159 88 55
Global Entertainment 87 89 (2) (2)
Total Studios revenue* 803 692 111 16
Total Studios costs (685) (582) (103) 18
Total Studios adjusted EBITA** 118 110 8 7
Studios adjusted EBITA margin 15% 16%
=============================== ===== ===== ====== ======
* IFRS 15 'Revenue from Contracts with Customers' was effective
from 1 January 2018. Please see Section 1 of the Notes to the
accounts for further details
** Includes the benefit of production tax credits.
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
====================================== ===== ===== ====== ======
Sales from ITV Studios to Broadcast &
Online 254 239 15 6
External revenue 549 453 96 21
Total Studios revenue 803 692 111 16
====================================== ===== ===== ====== ======
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
======================== ===== ===== ====== ======
Scripted 142 114 28 25
Unscripted 511 448 63 14
Heartland ITV and Other 150 130 20 15
Total Studios revenue 803 692 111 16
======================== ===== ===== ====== ======
Reflecting our growth in key production markets in Europe and
the US, 57% of Studios revenue was generated outside the UK (2017:
52%). ITV is the number one commercial producer in the UK and a
leading producer in Europe and the US. As our Studios business
grows internationally, foreign currency movements could have a
larger impact on our results.
Adjusted EBITA was up 7% year-on year at GBP118 million.
Adjusted EBITA margin declined by one percentage points to 15%,
impacted by revenue mix on new and returning shows.
In the first half of 2018, the unfavourable foreign currency
impact was GBP12 million on revenue and GBP1 million on adjusted
EBITA.
Building scale in key creative markets
ITV Studios has three production divisions - Studios UK, ITV
America and Studios Rest of World (RoW) all of which grew in the
first half.
The UK performed well with total revenue up 7% at GBP328 million
(2017: GBP306 million). We continue to grow our sales to ITV, which
were up 6% with deliveries including The Voice, Love Island,
Dancing on Ice and an extra episode of Coronation Street. ITV
Studios' UK share of original content on ITV main channel has
remained flat year on year at 66%. Our off-ITV revenues in the UK
grew 22% with deliveries including Poldark, Bodyguard and Age
Before Beauty for BBC, Friday Night Dinner for Channel 4, and Blind
Date for Channel 5.
ITV America total revenue grew 2% to GBP141 million (2017:
GBP138 million) including the unfavourable foreign exchange impact
and non-return of Duck Dynasty, and an absence of deliveries of
Pawn Stars, American Grit and Hell's Kitchen. The growth was driven
by two series of The Four, Four Weddings and Mama June deliveries.
At constant currency, ITV America was up 11%.
Studios RoW has production bases in Australia, Germany, France,
the Netherlands, the Nordics and Italy where we produce original
content as well as local versions of ITV Studios UK and Talpa
formats. Revenue grew 55% to GBP247 million (2017: GBP159 million)
including foreign exchange and acquisitions, driven particularly by
good growth in France due to The Voice of France and The Voice
Kids. Across the territories, our entertainment and format
deliveries included I'm A Celebrity ...Get Me Out of Here!, The
Voice and Love Island in Australia, I'm A Celebrity ...Get Me Out
of Here! , Quiz Dual and The Chase in Germany, and This TIme Next
Year in Finland. The business also benefited from the 2017
acquisitions of Tetra Media, Cattleya and Elk.
Demand for drama is growing strongly and we have made real
progress in building a European scripted business with the
acquisition of Cattleya and Tetra. These, along with our existing
European businesses, enable us to benefit from the increasing
demand for locally produced content with global appeal.
Talpa continues to develop its formats including The Voice
Senior, Dance Dance Dance, The Big Picture, 5 Gold Rings, The
Perfect Picture, Design Dream, and House of Talent. Our
international scale now enables ITV to make all these other
formats, and in particular The Voice, in all our international
production territories and therefore earn the production revenue as
well as the format fee.
Investing in content with international appeal
We are continuing to expand our portfolio of successful formats
and series that return and can be distributed internationally.
We continue to strengthen our global capability in entertainment
formats. Across the business, we have grown a strong portfolio of
high volume and high margin formats that travel internationally and
that we produce locally. For example, during 2018 we will produce
Love Island in all seven countries in which the format has been
sold, The Voice in six countries, and Four Weddings in four
countries.
Expanding our global distribution business
Global Entertainment, the distribution arm within ITV Studios,
reported revenue decline of 2% to GBP87 million (2017: GBP89
million), due to timing of deals including the delivery of Harlots
across H1 and H2. Excluding currency, revenue was flat year on
year. With a good drama deliveries slate in the second half, Global
Entertainment is expected to deliver growth over the full year.
Global Entertainment's pipeline of new deliveries is strengthening
with projects such as Vanity Fair and Snowpiercer expected for the
second half of 2018 and into 2019. As well as funding and creating
new content from ITV Studios, we also invest in third-party
producers and their content from all over the world.
Our content continues to sell well internationally to both
broadcasters and OTT platforms and in particular our scripted
programmes with titles including Somewhere Between, Good Witch,
Schitt's Creek, Poldark, Shetland, and Harlots. Over 15 of our
scripted programmes have been sold to more than 100 countries. Our
entertainment and factual entertainment formats are highly demanded
and include programmes such as The Voice, Love Island, The Chase,
Big Star's Little Star, This Time Next Year, Five Gold Rings, Come
Dine With Me and Four Weddings. In the six month period to 30 June
2018, we sold 34 different formats internationally, 9 of which are
being produced by ourselves or other producers in three or more
countries including Four Weddings, Come Dine with Me and The
Voice.
Full year results - adjusted and statutory
2018 2018 2018
Statutory Adjustments Adjusted
Six months to 30 June GBPm GBPm GBPm
==================================================== ========== ============ =========
EBITA 367 8 375
Exceptional items (operating) (41) 41 -
Amortisation and impairment (41) 38 (3)
Operating profit 285 87 372
Net financing costs (18) 3 (15)
Share of losses on JVs and Associates (3) - (3)
Gain on sale of non-current assets and subsidiaries
(non-operating exceptional items) 1 (1) -
Profit before tax 265 89 354
Tax (52) (16) (68)
Profit after tax 213 73 286
Non-controlling interests (1) - (1)
Earnings 212 73 285
==================================================== ========== ============ =========
Shares (million), weighted average 3,998 3,998
EPS (p) 5.3p 7.1p
==================================================== ========== ============ =========
Diluted EPS (p) 5.3p 7.1p
==================================================== ========== ============ =========
Exceptional items
Total exceptional items in the period were GBP40 million (2017:
GBP53 million). Operating exceptional items principally relate to
acquisition-related expenses, which are mainly performance based
employment-linked consideration. These costs are down year-on-year
following the EUR100m payment under the Talpa earnout in 2017. Our
expected payments on all future earnouts is explained in the
Operating and Financial Review. Property-related costs of GBP14
million primarily related to temporary rent, dual running costs and
relocation costs as a result of our London property move in 2018.
We will continue to incur exceptional rental costs over the next
four or five years until we return to our new offices at The London
Television Centre. Further details can be found in the Operating
and Financial Review.
The cash cost of exceptionals in the period was GBP47 million
(2017: GBP106 million).
EPS - adjusted and statutory
Overall, adjusted profit after tax was down 8% at GBP286 million
(2017: GBP310 million). After non-controlling interests of GBP1
million (2017: GBP3 million), adjusted basic earnings per share was
7.1p (2017: 7.7p), down 8%, which is broadly consistent with the
decrease in adjusted EBITA of 7%. The weighted average number of
shares declined to 3,998 million (2017: 4,010 million) because ITV
bought shares during 2017 on behalf of the Employee Benefit Trust
and, in line with accounting standards, shares held by the Trust
are not included in the EPS share count. Diluted adjusted EPS in
2018 was 7.1p (2017: 7.6p) reflecting a weighted average diluted
number of shares of 4,009 million (2017: 4,019 million). The
weighted average diluted number of shares was down year-on-year
because of a decrease in the number of shares expected to vest in
ITV's long term incentive plans in the future.
Statutory EPS grew by 4% to 5.3p (2017: 5.1p) with the decline
in earnings more than offset by a reduction in exceptional items,
amortisation and impairments, and net financing costs.
A full reconciliation between statutory and adjusted EPS is
included within the Alternative Performance Measures section.
Dividend per share
ITV continues to deliver a strong operational performance in an
uncertain market environment. In addition, we have announced a new
strategy which we believe will strengthen ITV to ensure it is well
positioned to address the opportunities and challenges of a
competitive media landscape.
For the period of investment in 2018 and 2019 the Board intends
to pay at least an 8p dividend per year. This reflects the Board's
confidence in the business and in the new strategy as well as the
continued strong cash generation. The Board expects that over the
medium term the dividend will grow broadly in line with
earnings.
Consistent with this the Board has declared an interim dividend
of 2.6p which is up 3% on 2017.
Balance Sheet and Cash flow
One of ITV's key strengths is its healthy cash flows reflecting
our ongoing tight management of working capital balances and our
disciplined approach to cash and costs. This is particularly
important when there is wider political and economic uncertainty.
Remaining focused on cash and costs means we are in a good position
to continue to invest across the business in line with our new
strategic priorities and continue to deliver sustainable returns to
our shareholders.
In the period, we generated GBP295 million (2017: GBP292
million) of operational cash from GBP375 million (2017: GBP403
million) of adjusted EBITA, which equates to a strong profit to
cash ratio of 94% after capex on a rolling 12-month basis (2017:
91%). In the period, we saw an increase in working capital. This
was due the decrease in stock and receivables more than offset by a
decrease in payables across the Group.
To facilitate our working capital management, we have a GBP100
million non-recourse receivables purchase agreement (free of
financial covenants), which gives us the flexibility to access
additional liquidity when required. At the 30 June, GBP70 million
of receivables were sold under the purchase agreement (31 December
2017: GBP90 million).
Our free cash flow after payments for interest, cash tax and
pension funding remained healthy in the period, up 22% to GBP184
million (2017: GBP151 million).
Overall, after dividends, acquisitions and acquisition-related
costs, pension and tax payments, we ended the period with net debt
of GBP1,034 million, compared with net debt of GBP912 million at 31
December 2017 and net debt of GBP1,074 million at 30 June 2017.
We have a number of facilities in place to preserve our
financial flexibility. We have a GBP630 million Revolving Credit
Facility (RCF) in place until 2022 (with the option to extend to
2023). We also have a bilateral financing facility of GBP300
million, which is free of financial covenants and matures in 2021.
This provides us with sufficient liquidity to meet the requirements
of the business in the short to medium term. The RCF has the usual
financial covenants for this type of financing. Of the total GBP930
million of facilities in place, GBP160 million was drawn down at 30
June 2018. Our policy is to maintain at least GBP250 million of
available liquidity at any point.
Our objective is to run an efficient balance sheet. We have
always believed that maintaining leverage at around 1.5x net debt
to adjusted EBITDA will optimise our cost of capital and maintain
our investment grade credit. At 30 June 2018 reported net debt to
adjusted EBITDA on a rolling 12 month basis was 1.2x (31 December
2017: 1.0x and 30 June 2017: 1.2x). Our priority remains to invest
to drive organic growth and we have made acquisitions where we have
found the right opportunities. We will continue to look at
opportunities under the new strategy. We will balance this
investment with attractive returns to shareholders. Our investment
decisions are based upon value creation and returns analysis. Our
returns analysis looks at the 360 degree value creation and the
long-term future value of our investments in both Broadcast and
Studios.
In light of changes from IFRS 16 'Leases' which will come into
effect in 2019, we may look to revisit the 1.5x net debt to
adjusted EBITDA guidance. We will work with the ratings agencies as
part of this process, but wherever we conclude on this our
commitment to investment grade will underpin the outcome.
Pensions
The net pension surplus for the defined benefit schemes at 30
June 2018 was GBP86 million (31 December 2017: GBP83 million
deficit). This is primarily as a result of a decrease in the gross
liabilities together with deficit funding payments of GBP47 million
made in the period.
The gross liabilities reduced principally due to an increase in
corporate yields. This was further improved by a decrease in the
market expectation of long-term inflation rates.
The net pension surplus includes GBP42 million of gilts, which
are held by the Group as security for future unfunded pension
payments of four former Granada executives, the liabilities of
which are included in our pension obligations.
A full reconciliation is included within note 3.2.
The 1 January 2017 actuarial valuation was agreed during the
period. On the basis agreed with the Trustee, the combined deficits
of the ITV Pension Scheme as at 1 January 2017 amounted to GBP470
million.
The Group continues to make deficit funding contributions in
line with the most recent actuarial valuation in order to eliminate
the deficits in each section. The accounting deficit does not drive
the deficit funding contribution.
The Group's deficit funding contributions in the first half of
2018 were GBP47 million. The total expected deficit funding
contribution for 2018 will be consistent with prior years. Further
details are included within Note 3.2.
In 2019, we expect deficit funding contributions of around GBP75
million.
Outlook
Looking ahead our guidance for the full year remains
unchanged.
We have today announced a new strategy with clear priorities and
initiatives which we believe will deliver growth and strengthen ITV
to ensure it is well positioned to address the opportunities and
challenges of a competitive media landscape. We are starting to
implement our strategy immediately and in 2018 will be investing in
technology and people to bring in the capabilities we need to
execute the plan. Our previous investment target of GBP15 to GBP20
million for 2018 gives us the capacity to do this within our
current guidance.
ITV Studios has a strong pipeline of new and returning drama and
entertainment shows, including Alone, Queer Eye, Suburra, The Hunt,
Milk & Honey and House of Talent. We are confident that we will
deliver good organic growth over the full year and we have already
secured almost 90% of our target revenues and that represents
nearly GBP100 million more revenue than we had this time last year.
Within that we have 263 new or recommissioned shows, which is 36
more than this time last year.
Total advertising is expected to be up 1% over the nine months
with Q3 broadly flat against a backdrop of wider market
uncertainty. Within that we expect to again deliver double digit
revenue growth in Online.
On screen we have a strong slate of new and returning programmes
for the remainder of the year including Vanity Fair, Strangers, X
Factor, I'm A Celebrity...Get Me Out of Here!, Jonathan Ross and
Don't Hate the Playaz.
In the first half of the year the Government announced the
Second Chapter in its Obesity strategy. As part of that there will
be a consultation on the possibility of introducing a 9pm watershed
on TV advertising of HFSS products and similar protection for
children viewing adverts online which will commence before the end
of the year. The government has committed to explore options to
ensure that any restrictions are proportionate. We are fully
engaged in this process and believe that there is a strong,
evidence based, case for alternatives to a pre-9pm ban.
2018 full year planning assumptions
Profit and Loss impact:
-- Total schedule costs are expected to be GBP1,055 million to
GBP1,060 million
-- Total investment of around GBP15-GBP20 million which includes
initial investment in line with the new strategy
-- Adjusted interest is expected to be around GBP35 million,
which is broadly unchanged from 2017
-- The adjusted effective tax rate is 19%, which is unchanged
and expected to be sustainable over the medium term
-- The translation impact of foreign exchange, assuming rates
remain at current levels, could have a GBP20 million negative
impact on revenue and GBPnil million impact on profit
-- Exceptional items are expected to be around GBP85 million,
mainly due to acquisition accounting and the London Property
redevelopment project.
Cash impact
-- Total capex is expected to be around GBP100 million,
comprising of GBP60 million of regular capex to support the
business and GBP40 million relating to the redevelopment of our
London site
-- The cash cost of exceptionals will be around GBP85 million,
largely relating to accrued earnouts
-- Profit to cash is expected to be around 85%, reflecting our
continued strong cash generation and investment in Studios working
capital
-- Total pension deficit funding contribution for 2018 will be
consistent with prior years.
2019 full year planning assumptions
-- Total schedule costs are expected to be GBP1.1 billion and
will be held for three years to 2021 at roughly this level
-- Total investment of around GBP40 million in line with new
strategy priorities
-- GBP15 million cost savings to fund strategic priorities
-- GBP15-20 million exceptional costs of change to deliver cost
savings in 2019. Total exceptional costs of change could be up to
GBP30 million over the three years
-- Total pension deficit funding is expected to be around GBP75
million
Notes to editors
1. Unless otherwise stated, all financial figures refer to the 6
month period ended 30 June 2018, with growth compared to the same
period in 2017.
2. Group external revenue
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
======================= ===== ===== ====== ======
Broadcast & Online 1,045 1,016 29 3
Studios 803 692 111 16
Internal Supply (255) (239) 16 7
Group external revenue 1,593 1,469 124 8
======================= ===== ===== ====== ======
3. Total advertising was up 2% in H1 as expected, with May up 1%
and June up 22%. Total advertising is forecast to be broadly flat
in Q3 with July up 9%, August down 7%, and September down 0 to 5%
and the 9 months to the end of September up around 1%. These
revenues include spot advertising, online, sponsorship and other
advertising revenues and excludes self-promotion. Figures for ITV
plc are based on ITV estimates and current forecasts.
4. Key performance indicators
Change
Six months to 30 June 2018 2017 %
=============================================== ===== ===== ======
ITV Family SOV - six months to 30 June 23.5% 21.6% 9
ITV Family SOCI - six months to 30 June 36.7% 34.5% 6
ITV adult impacts - six months to 30
June 110bn 106bn 5
Long form online viewing - six months
to 30 June (hrs) 209m 158m 33
Total long form video requests (all platforms)
- 6 months to 30 June 847m 690m 23
================================================ ===== ===== ======
SOV data based on BARB/Advantage 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. Total long form
video requests is measured across all platforms, based on data from
comScore Digital Analytix, Virgin, BT, iTunes, Amazon Video,
Netflix and Sky and include simulcast. Long form online viewing is
the total number of hours ITV VOD content is viewed on ad funded
platforms, based on data from ComScore Digital Analytix. % change
for performance indicators is calculated on unrounded figures.
At the full year we will report in line with our new KPI's
5. The 2018 interim dividend will be paid on 3 December 2018.
The ex-dividend date is 25 October 2018 and the record date is 26
October 2018.
6. Capital Markets Day will be held on 19th September 2018
7. 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.
For further enquiries please contact:
Investor Relations
Pippa Foulds +44 20 7157 6555 or +44 7778 031097
Charlotte Parker +44 20 7156 6476
Media Relations
Paul Moore +44 7860 794444
Tracey O'Connor +44 20 715 73709
Strategy Update
ITV's Vision is to be...More Than TV
We have undertaken a strategic refresh to help us highlight the
opportunities for ITV and also the challenges we will need to
address. This is a refresh as ITV is a strong business, no longer
solely reliant on UK advertising. The Broadcast business remains
robust despite the current market uncertainty and ITV Studios is a
strong and scaled international production business. The linkage
between the two - our integrated producer broadcaster (IPB), is a
significant competitive advantage. But the market is clearly
changing and to reflect this we have developed a clear vision and
initiatives to drive growth and make ITV a more resilient and a
structurally sound business.
We believe that with our refreshed strategy we will continue to
generate significant cash and deliver sustainable returns to
shareholders. This will come from a strengthened high margin IPB, a
growing and stable margin Studios business and by us creating a new
scaled and profitable Direct to Consumer business. We have
delivered a strong operating performance in the first half which
means we are executing the refreshed strategy from a position of
strength, with a solid balance sheet which underpins this.
Market context
Television remains resilient but there is of course no doubt
that the media market is changing and how people choose to view is
evolving. And the pace of change is rapid.
People watch 203 minutes of TV per day and while its down on the
previous year, its still a significant number. Live television
remains the preferred way of watching content, even for younger
audiences - in fact over 70% of all television is still watched
live. And while 16 to 34's are watching less TV - our performance
clearly demonstrates that if you deliver great content, programmes
such as Love Island, I'm A Celebrity and Survival of the Fittest,
young audiences watch it in their millions across linear and
online. It is our challenge to keep delivering the great content
that really engages this audience and all our audiences.
Advertising on the tech giants continues to grow, but brand
owners are challenging what some online advertising actually
delivers and we are now starting to see more questions being asked
about unacceptable content, measurability and trust. TV is and we
believe will continue to be a key part of all marketing campaigns.
ITV is also taking more than its share from the growth in online
advertising with the ITV Hub delivering a high quality, trusted and
measured environment.
Netflix and Amazon are global players and their budgets reflect
this. ITV broadcasts just in the UK and our GBP1.1bn programme
spend does a fantastic job at delivering mass quality audiences,
with a reach well in excess of what anyone else can achieve. And we
do not believe we need to increase this spend to support our
Broadcast business over the next three years. We are competing with
these OTT players but our integrated producer broadcaster model is
a strategic advantage backed by our strong creative pipeline of
content which we own and control.
In the UK the demand remains overwhelmingly for British content
as that is what continues to drive very significant audiences which
are so valued by advertisers - 92 out of the top 100 programme
titles broadcast in the UK all originated locally. And globally the
demand for great content has never been higher, both from
established broadcasters and increasingly from OTT platforms. We
expect this to continue with the global content market growing at
around 5% per year over the medium term.
We believe that ITV has the resources and foundations to succeed
and win in this changing environment.
ITV's vision - More than TV
We have developed our new vision 'More than TV' in response to
these changes and to build upon ITV's unique and winning
combination of creativity and commercial strength.
ITV will be more than TV
-- it will be a structurally sound integrated producer
broadcaster where our ambition is to maintain total viewing and
increase total advertising revenue;
-- it will be a growing and profitable content business, which
drives returns;
-- it will create value by developing and nurturing strong
direct consumer relationships, where people want to spend money on
a range of content and experiences with a really trusted brand,
and
-- we will continue to be a cash generative and growing business
delivering value for our shareholders.
This is the next exciting chapter in ITV's story. We will
compete where we can win - domestically where we intend to lead in
broadcasting and on demand, and globally as a world class Studios
business.
ITV's strategy
In the future, we'll focus on three key areas
-- Strengthening the integrated producer broadcaster
-- Growing UK and Global production, and
-- Creating a scaled Direct to consumer business
These are not independent silos. They work together -
reinforcing each other creating synergies and delivering value.
Great content is a core strength of ITV and driving viewers and
profit across ITV.
Strengthen the integrated producer broadcaster (IPB)
We'll strengthen our core UK IPB business to ensure that we can
address the opportunities and challenges of structural change and
provide a strong, branded and data rich relationship with our
viewers and advertisers. We will extend the benefits of the IPB and
expand our leadership as the best partner for brands.
There are five key component to our IPB strategy:
-- Investing in the Hub to make it a destination for viewers
rather than just a catch up service.
-- Investing in the ITV brand to broaden the appeal of ITV and
in particular to attract light viewers - those who watch limited
ITV content.
-- Investing in data, analytics, insight and technology so we
understand and serve our viewers better, driving further
engagement, viewing and monetisation.
-- Supporting our advertisers better, driving effectiveness and
expanding our portfolio of data driven marketing solutions.
-- Working more closely with Studios, maximising the value of
our investment in content.
ITV Hub
Going forward the Hub will be managed as a core part of our
offering. Historically the Hub was run as a stand alone separate
business and as a result we were not getting the full value from
it.
We are focused on improving the user experience, with more
personalisation, evolving the product and content offering and
making it consistent across all platforms. This will deliver more
engagement and viewing - particularly with younger demographics.
Over the next three years our goal is to increase registered users
from 25 million to 30 million. We will also aim to increase our
monthly active users to increase reach, engagement and
frequency.
Building the ITV brand and engaging light viewers
The second part of our strategy to strengthen the broadcast
business is to reposition the brand. Research shows we are not
credited for the amazing creativity and energy we have - we are
seen as cosy and traditional by many people. We need to ensure we
appeal across platforms and demographics.
There are many people who only watch a limited amount of ITV
content a week. They do not see us as a destination. Advertisers
want reach as well as mass audiences and therefore it is important
that we increase our engagement with these light viewers. Our
analysis indicates the opportunity of targeting 15 million people
who we believe we can win back more often. Through increased
marketing investment off-screen we can target them consistently,
drive brand reappraisal, increase viewing of our content across
platforms and build deeper relationships. We believe we can
increase total viewing amongst this segment which will help
underpin a more stable viewing performance and improve our reach -
a key competitive commercial advantage for ITV.
Commercial ambition
TV's overall proposition to advertisers remains strong and it is
about to get stronger as we aim to be able to offer advertisers the
best of both worlds. Television gives immediate scale, reach and
fame for advertisers that just cannot be achieved anywhere else in
the UK. It also provides a safe, trusted and transparent
environment in which to advertise and generates the highest return
on investment of any media. On the Hub our focus will be on
delivering a sophisticated addressable advertising proposition to
complement the mass scale of our robust linear viewing. Therefore
in terms of measuring performance going forward we will focus on
ITV total advertising which includes our spot advertising revenues,
VOD and sponsorship.
In addition, we will evolve our partnerships with agencies;
create a client team to strengthen our direct relationships with
advertisers; and expand our creative teams in commercial to fully
leverage our creative power from across ITV to deliver an
innovative portfolio of marketing solutions across all our
platforms. The effective use of data is a key part of the
strategy.
360 monetisation
Going forward we will implement a structured 360 approach to
monetisation opportunities on selected programme brands. The
success of Love Island shows the value this can create as we not
only deliver significant revenues through advertising and
sponsorship but also licensing and merchandising partnerships in
the UK. Through its great engagement and our relationships with
viewers we are also driving more value directly from the consumer
through games, voting and competitions. Its success in the UK has
also helped us sell it internationally and we now produce it in
seven countries and are actively selling it to many more.
Data analytics
Gathering and using data will be a key focus of the IPB and
Direct to Consumer businesses. We already have a technology
platform which we are developing but we have large amounts of data
sitting in many different parts of ITV. In order to be able to gain
insight and value from this, we need to bring it all together in a
Centre of Data Excellence. This will create a richer view of
consumers and viewers and enable us to segment and slice the data
to drive more value for advertisers with more targeted and
addressable advertising and also through Direct to Consumer.
To do this we need the right skills and capabilities. We are in
the process of appointing a Chief Technology Officer who will sit
on the management board and also close to appointing a Chief Data
Officer, who will lead a team of data scientists and analysts. We
are creating a Centre of Data Excellence, pulling together and
upskilling our disparate data resources across ITV and recruiting
some new capability. On the Hub, data will enable us to increase
personalisation of the content and experience, such as programme
recommendations and onward journey recommendations. It will also
enable more efficient re-engagement of inactive users and give
marketing laser focussed targeting to support the drive to increase
light viewers.
Data will enable improved ad monetisation - delivering
advertisers more tailored audiences. For example, creating audience
segments for advertisers around viewing behaviour on the Hub. The
capture and analysis of data will also help us build a scaled
Direct to Consumer business with cross promotion and direct
marketing, if we know someone watches The Chase on the Hub, we can
recommend they play the game through the app or potentially in the
future attend a live quiz event.
Investments and KPIs
We will invest an additional GBP40 million in our integrated
producer broadcaster across the next 3 years, across advertising,
marketing and the Hub as outlined earlier.
Overall our KPIs will be looking at total viewing and
advertising across all our platforms - Total advertising revenue
and Total ITV viewing. On viewing we have an ambitious aim to
maintain our total viewing across all our platforms and we will be
tracking this going forward. It is not possible to provide guidance
for advertising given its cyclical nature, however it is our
strategic intention that we will grow our total advertising revenue
when NAR is broadly flat.
We will also measure and manage the business with specific KPIs
for our viewing, growing the Hub and improving our brand health and
light viewer engagement. Our viewing metrics will evolve with the
completion of BARB's project Dovetail.
We have established a number of targets over the next three
years to ensure we deliver the value from the investments we are
making. We will deliver 30 million registered users on the Hub; we
will deliver double digit online revenue growth per annum, and we
will grow our brand consideration to 60%.
Grow UK and Global production
Our second strategic focus is Studios and our aim is to be a
leading creative force in global content production.
ITV has grown its Studios business very successfully over the
last seven years. It is now a scaled business delivering good
growth at a stable margin and needs only modest organic investment
over the next three years.
It is forecast to produce over 9,000 hours of content this year
across 11 countries. It produces scripted and non-scripted content
with over 200 hours of drama content produced in 2017 and 62
different formats.
Using our competitive advantage as an IPB we will work more
closely with the broadcast business. 360 commissioning has been
discussed a lot in the past - this time we are putting some
structure in place to support this - a 360 forum to facilitate
easier and quicker decisions - a joint entertainment pilot scheme
and a drama investment fund to invest in new ideas in which we own
all the rights.
The business has grown both organically and through acquisitions
and the portfolio of acquisitions continues to deliver a
double-digit return on invested capital.
Diversifying into Studios was the right strategy for ITV and we
will continue to do this. Demand for great content has never been
stronger - so this continues to be a real opportunity.
The core drivers of this business are creative talent, creating
hits, monetising them effectively and being disciplined and
efficient. We are very focused on developing more hits and to do
this we need to keep attracting and retaining great talent and we
will ensure we have the right creative and commercial environment
to do this. We will also consider selective value creating M&A
and talent deals in both scripted and unscripted to obtain creative
talent and IP. We have eliminated the option of doing any scaled US
scripted acquisitions for the foreseeable future.
Now that we have ownership of our US acquisitions, we are able
to integrate them and restructure our US unscripted business to be
more agile to respond to the challenges and opportunities in the US
market. We are also delivering efficiencies through relocating
teams and using shared service functions across all our portfolio
of labels.
Going forward, we will be increasingly commercial in the way we
monetise our formats and IP. We will also look at further
opportunities to licence our brands and library and drive value
through merchandising.
Investments and KPIs
We will invest GBP10 million in the Studios business over the
next three years building our creative talent, investing in our
creative pipeline and our monetisation capabilities.
Overall we expect our Studios business to deliver revenue growth
of over 5% average CAGR over the next three years, with our hours
increasing to at least 10,000 hours by 2021. The margin will be
between 14% and 16% depending on the genre mix.
We expect growth in both scripted and unscripted but that growth
is likely to be faster in scripted. We will measure the performance
of our scripted business by looking at the number of hours and
returning hours to measure quantity and quality of what we produce.
Similarly, in unscripted we will measure the number of unscripted
hours we produce, the number of formats we create and how well they
are selling internationally.
Create Direct to Consumer
Our third driver of future growth is all about the consumer and
we are creating a new Direct to Consumer business.
We see a real opportunity to tap further into consumer's
willingness to pay for great content and to engage with ITV as a
trusted brand. Today we have over 28 million consumer relationships
across our business. With around one in five of those actually
spending money with us. Mostly these are transactional
relationships, for example a viewer entering one of our 130
competitions a year, making purchases in one of our show apps or
attending live events. We do a limited amount of this at the moment
but it's well below its full potential. With the right focus and a
data driven approach we see bigger opportunities here to grow in
large underlying markets. We have a passionate fan base who love
what we do and want to engage with us beyond the screen.
Direct to Consumer opportunities
Opportunities to grow our consumer revenues will be strengthened
by the same investments we are making in our IPB - in marketing and
in data with the establishment of our Centre of Data Excellence.
The expanded reach, engagement and insight into viewers, allied to
new online functionality and enhanced data analytics will serve to
grow the number of consumer relationships we can monetise while
also enhancing the average revenue per relationship. For example in
Events we are creating a dedicated team to develop ideas. Looking
at opportunities to extend This Morning live to other day time
formats and to other regions. In our interactive business we have
established a competition portal and we are starting to use
data-driven segmentation to increase our annual spend per user; and
we are looking at opportunities to develop new content and
experiences - around gaming, pay per view and merchandising. We
believe that our investments in analytics will continue to drive
insight, innovation and growth in all of these areas.
SVOD
In addition, we see an opportunity to create an SVOD service in
the UK on the back of our brands, our content and significant cross
promotion capability. Our research has shown that around 25% of
people who already subscribe to a service are 'very likely' to
subscribe to more SVOD services in the next two years.
Additionally, it has shown that of those willing to take a service,
over half are very likely to subscribe because of quality British
content - and we are very well positioned to deliver this.
We already have a nascent SVOD business in the UK with ITV Hub+
and we are seeing subscriptions up significantly, up over 500% on
last year and going forward we will be investing in distribution,
functionality and the ability to segment pricing and propositions
to drive this further. UK consumers are willing to pay for high
quality British television that they can watch on their terms;
accessible anywhere, anytime and without ads. We are currently
reviewing what our SVOD proposition will be.
Investments and KPIs
Specific Direct to Consumer investment is approximately GBP10
million over the three years as a lot of the investment is already
covered in the investment in the Hub, data and the brand which will
drive Direct to Consumer revenues and profits. Our key target is to
drive revenues to at least GBP100 million over the 3 years and we
will also deliver 10 million paying product relationships. We will
also measure our performance through specific KPIs including total
relationships, our increase in monthly active users, our conversion
rate to paying relationships and our net promoter score. In time
when data systems allow we will measure our number of unique
customer relationships and our ARPU.
ITV Strategy - Enablers
Finally, to deliver our strategy we need to do three things
extremely well.
-- We need to communicate and market ourselves really
effectively to engage across our platforms and gain more light
viewers.
-- We need to be a lean and agile organisation with a culture
that can constantly adapt to change. We will redesign our
organisation to be more creative, more digital and more commercial.
We must also of course ensure that we continue to develop the
skills and capabilities we already have to deliver world class
content.
-- We need to ensure that we embed data, analytics and
technology right across our businesses.
Investments and cost savings
Bringing this together in 2019 we will invest GBP40 million and
over the course of the three years we will invest a total of GBP60
million. This will be offset by GBP35 to GBP40 million of cost
savings which we will achieve without impacting the culture and
creative and commercial strength of the business. In 2020 and 2021
the in year investments will be totally offset by cost savings.
The net impact over the plan is GBP20 to GBP25 million, which
excludes any incremental revenue benefits. The revenue benefits we
will deliver over the course of the plan are reflected in the
targets we have set for Online, the Hub, Studios and Direct to
Consumer and will more than cover the net impact, but will be back
end loaded.
There will be GBP15 million of exceptional costs of change in
2019 to deliver the cost savings.
Group financial KPIs
We also have group financial targets which are around cash and
costs. It is essential that we maintain our financial discipline
and so as well as our cost savings we will look to maintain our
profit to cash conversion at around 85%.
In addition we have a target which reflects our aim to
increasingly diversifying the business by growing our non
advertising revenues by at least 5% CAGR to ensure ITV remains
robust and resilient.
We are now driving profit from three different pools - from
advertisers, from broadcasters and platform owners and now from
consumers. Seven years ago ITV was predominantly funded just from
advertisers.
Capital allocation framework
As part of our refreshed strategy we are investing to drive
organic growth in the business. We may also look at selective value
creating M&A in line with our strategic priorities. This will
be disciplined, targeted M&A, focussed on value creation and
returns above our cost of capital.
The Board intends to pay at least an 8p dividend per year for
the period of investment in 2018 and 2019. This reflects the
Board's confidence in the business and in the refreshed strategy as
well as the continued strong cash generation. Consistent with this,
the Board has declared an interim dividend of 2.6p which is up 3%
on 2017. Over the medium term the Board intends that the dividend
will grow broadly in line with earnings.
Our objective as we allocate capital to invest in the business
and deliver returns to shareholders, is to maintain investment
grade credit which remains important to us.
Summary
Today we have announced a clear vision - More than TV - and
initiatives for how we can and will compete in a rapidly changing
environment. Implementing the strategy and creating value requires
relentless focus on delivery but we are clear about what we need to
do and how we will measure success. And we have already started
investing, especially in technology and bringing key data
capabilities into the business.
Through this strategy we will create a resilient and growing
business:
-- an integrated producer broadcaster where our ambition is to
maintain total viewing and increase total advertising revenue,
-- it will be a growing and profitable content business, which
drives returns,
-- it will create value by developing and nurturing strong
direct consumer relationships, and
-- a business which will deliver attractive sustainable returns
to shareholders.
Alternative Performance Measures
The Interim Report includes both statutory and adjusted
measures, the latter of which, in management's view, reflect the
underlying performance of the business and provide a more
meaningful comparison of how the business is managed and measured
on a day-to-day basis.
In light of the strategic refresh we have reviewed our APMs
which are unchanged. Our APMs are aligned to our strategy and
business segments and together are used to measure the performance
of our business and form the basis of the performance measures for
remuneration.
Adjusted results exclude certain items because, if included,
these items could distort the understanding of our performance for
the year and the comparability between periods.
Key adjustments for adjusted EBITA, profit before tax and EPS
Adjusted EBITA is calculated by adding back exceptional items and high-end
production tax credits to EBITA. Further adjustments, which include
amortisation and impairment of assets and net financing costs, are
made to remove their effect from adjusted profit before tax and EPS.
The tax effects of all these adjustments are reflected in the adjusted
tax charge. These adjustments are detailed below.
=========================================================================================
Production The ability to access tax credits, which are rebates based
tax credits on production spend, is fundamental to our Studios business
when assessing the viability of investment in green-lighting
decisions, especially with regards to high-end drama. ITV
reports tax credits generated in the US and other countries
(e.g. Italy, Norway and New Zealand) within cost of sales,
whereas in the UK tax credits for high-end drama must be
classified as a corporation tax item. However, in our view
all tax credits relate directly to the production of programmes.
Therefore, to align treatment, regardless of production
location, and to reflect the way the business is managed
and measured on a day-to-day basis, these are recognised
in adjusted EBITA. Our cash measures including profit to
cash conversion and free cash flow are also adjusted for
the impact of production tax credits. Further detail on
this is included below.
============= ==========================================================================
Exceptional These include acquisition-related costs, reorganisation
items and restructuring costs, property costs and non-routine
legal costs. These items are excluded to reflect performance
in a consistent manner and are in line with how the business
is managed and measured on a day-to-day basis. They are
typically gains or losses arising from events that are not
considered part of the core operations of the business or
are considered to be one-off in nature, though they may
cross several accounting periods. We also adjust for the
tax effect of these items. Note 2.2 includes further detail
on exceptional items.
============= ==========================================================================
Acquisition-related costs
We structure our acquisitions with earnouts or put and call
options, to allow part of the consideration to be based
on the future performance of the business as well as to
lock in and incentivise creative talent. Where consideration
paid or contingent consideration payable in the future is
employment-linked, it is treated as an expense (under accounting
rules) and therefore part of our statutory results. However,
we exclude all consideration of this type from adjusted
EBITA, adjusted profit after tax and adjusted EPS as, in
our view, these items are part of the capital transaction
and do not form part of the Group's core operations. The
Operating and Financial Review explains this further. Acquisition-related
costs, including legal and advisory fees on completed deals
or significant deals that do not complete, are also treated
as an expense (under accounting rules) and therefore on
a statutory basis form part of our reported results. In
our view, these items also form part of the capital transaction
and are excluded from our adjusted measures. After the earnout
period, new retention schemes are put in place which are
not excluded from adjusted EBITA, adjusted profit after
tax and adjusted EPS.
Restructuring and reorganisation costs
These arise from Group-wide initiatives to reduce the ongoing
cost base and improve efficiency in the business. We consider
each project individually to determine whether its size
and nature warrant separate disclosure. Where there has
been a material change in the organisational structure of
a business area or a material Group-wide initiative, these
costs are highlighted and are excluded from our adjusted
measures.
Property costs
In the first half of 2018, we relocated to various properties
on a temporary basis while our headquarters are redeveloped.
The fit-out costs were capitalised but the incremental one-off
property project costs, including move costs, rental payments
for these properties and accelerated depreciation for assets
made redundant due to the move, were ring-fenced as they
relate to a one-off property project and are therefore excluded
from our adjusted measures. As a ring-fenced cost, rental
payments will continue to be excluded from our adjusted
measures until we move back, which is expected in 2023.
============= ==========================================================================
Amortisation Amortisation and impairment of assets acquired through business
and combinations and investments are not included within adjusted
impairment earnings. As these costs are acquisition-related, and in
line with our treatment of other acquisition-related costs,
we consider them to be capital in nature and they do not
reflect the underlying trading performance of the Group.
Amortisation of software licences and development is included
within our adjusted results as management consider these
assets to be core to supporting the operations of the business.
============= ==========================================================================
Net financing Net financing costs are adjusted to reflect the underlying
costs cash cost of interest for the business, providing a more
meaningful comparison of how the business is managed and
funded on a day-to-day basis. The adjustments made remove
the impact of mark-to-market on swaps and foreign exchange,
imputed pension interest and other financial gains and losses,
which do not reflect the relevant interest cash cost to
the business and are not yet realised balances.
A full reconciliation between our adjusted and statutory
results is provided below.
============= ==========================================================================
Reconciliation between statutory and adjusted results
2018 2018 2018 2017 2017 2017
Statutory Adjustments Adjusted Statutory Adjustments Adjusted
Six months to 30 June GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ========== ============ ========= ========== ============ =========
EBITA1 367 8 375 395 8 403
Exceptional items (operating)2 (41) 41 - (53) 53 -
Amortisation and impairment3 (41) 38 (3) (58) 55 (3)
Operating profit 285 87 372 284 116 400
Net financing costs4 (18) 3 (15) (23) 6 (17)
Share of losses on JVs and
Associates (3) - (3) (2) - (2)
Gain on sale of non-current
assets and subsidiaries
(non-operating exceptional
items) 1 (1) - - - -
Profit before tax 265 89 354 259 122 381
Tax5 (52) (16) (68) (53) (18) (71)
Profit after tax 213 73 286 206 104 310
Non-controlling interests (1) - (1) (3) - (3)
Loss from discontinuing operations
(net of tax) - - - - - -
=================================== ========== ============ ========= ========== ============ =========
Earnings 212 73 285 203 104 307
=================================== ========== ============ ========= ========== ============ =========
Shares (million), weighted
average 3,998 3,998 4,010 4,010
EPS (p) 5.3p 7.1p 5.1p 7.7p
=================================== ========== ============ ========= ========== ============ =========
Diluted EPS (p) 5.3p 7.1p 5.1p 7.6p
=================================== ========== ============ ========= ========== ============ =========
1. GBP8 million adjustment relates to production tax credits
which we consider to be a contribution to production costs and
working capital in nature rather than a corporate tax item.
2. Exceptional items largely relate to acquisition costs,
primarily employment linked consideration, as well as property
costs. Further detail is included in the Operating and Financial
Review.
3. GBP38 million adjustment relates to amortisation and
impairment of assets acquired through business combinations and
investments. We include only amortisation on purchased intangibles
such as software within adjusted PBT.
4. GBP3 million adjustment is primarily for non-cash interest
cost. This provides a more meaningful comparison of how the
business is managed and funded on a day-to-day basis.
5. Tax adjustments are the tax effects of the adjustments made
to reconcile PBT and adjusted PBT. A full reconciliation is
included in the Operating and Financial Review.
Other Alternative Performance Measures
Total revenue
As an integrated producer broadcaster, we look at the total
revenue generated in the business which includes internal revenue,
which is the sale of ITV Studios programmes to Broadcast &
Online. Our broadcast channels are a significant customer for ITV
Studios and selling programmes to Broadcast & Online is an
important part of our strategy as it ensures we own all the rights
to the content.
A reconciliation between external revenue and total revenue is
provided below.
2018 2017
Six months to 30 June GBPm GBPm
============================= ===== =====
External revenue (statutory) 1,593 1,469
Internal supply 255 239
============================= ===== =====
Total revenue (Adjusted) 1,848 1,708
============================= ===== =====
Adjusted net debt
Net debt (as defined in note 4.1) is adjusted for all our
financial commitments. This better reflects how credit rating
agencies look at our balance sheet. A reconciliation between net
debt and adjusted net debt is provided below.
2018 2017
As at 30 June 2018 GBPm GBPm
============================================================ ======= =======
Net debt (1,034) (1,074)
Expected contingent payments on acquisitions - undiscounted (269) (257)
Net pension deficit*1 - (343)
Operating leases*2 (154) (404)
Adjusted net debt (1,457) (2,078)
============================================================ ======= =======
Adjusted net debt to adjusted EBITDA*3 1.7x 2.4x
============================================================ ======= =======
Reported net debt to adjusted EBITDA*3 1.2x 1.2x
============================================================ ======= =======
1. Net pension deficit for 2018 is excluded as the schemes are
in net surplus
2. 2018 excludes transponder costs, which are now treated as
service contracts. The comparator has not been re-presented.
3. On a 12-month rolling basis
Net pension deficit/surplus
This is our defined benefit pension deficit/surplus under IAS 19
adjusted for other pension assets, mainly gilts, which are held by
the Group as security for future unfunded pension payments for four
former Granada executives and over which that pension scheme holds
a charge. A full reconciliation is included within note 3.2.
Profit to cash conversion
This is our measure of our effectiveness of cash generation used
for working capital management. It is calculated as our adjusted
cash flow as a proportion of adjusted EBITA. Adjusted cash flow,
which reflects the cash generation of our underlying business, is
calculated on our statutory cash generated from operations before
exceptional items, net of capex on property, plant and equipment
(excluding capex relating to the redevelopment of our London
headquarters) and intangible assets, and including the cash impact
of high end production tax credits.
Free cash flow
This is our measure of free cash flow after we have met our
financial obligations. It takes our adjusted cash flow (see above)
and removes the impact of net interest, adjusted cash tax (which is
total tax paid adjusted to exclude the receipt of production tax
credits) and pension funding. A full reconciliation is included in
the Operating and Financial Review.
Key Performance Indicators
As part of the strategy refresh we have realigned our KPIs to
our new strategic priorities. Going forward we will report the
following KPIs which is how we manage and measure the business.
Further detail on our new KPIs can be found in the Strategy
section.
Strategy KPIs for measuring performance Targets - over 3 years
to 2021
1 Advertising
Strengthen * Total advertising revenue
Integrated
producer
broadcaster
----------- --------------------------------------------------- ----------------------------------------------------------
Marketing
* ITV Family SOV %
* ITV Family SOCI %
* Total ITV viewing
* Monthly total reach
* % of Commercial audiences over 5 million
----------- ---------------------------------------------------
Hub
* Registered users
* Online consumption * Grow ITV Hub registered users to 30 million
* Long form video requests * Double digit online revenue growth per annum
* % increase in monthly active users * Increase brand consideration to 60%
----------- --------------------------------------------------- ----------------------------------------------------------
2 Scripted
Grow UK and * Drama hours (excluding soaps)
Global
Production
* Returning drama hours
* Total scripted revenue
----------- --------------------------------------------------- ----------------------------------------------------------
Unscripted
* Number of unscripted hours
* Total number of formats * Grow total production hours to 10,000
* Number of formats sold in 3 or more countries * Total Studios revenue to grow at least 5% CAGR
* Total unscripted revenue * EBITA margin of 14% to 16%
----------- --------------------------------------------------- ----------------------------------------------------------
3
Create * Total Direct to Consumer relationships * Grow Direct to Consumer revenue to at least GBP100
Direct to million
Consumer
* % increase in monthly active users
* 10 million paying product relationships
* % conversion rate to paying relationships
* Net promoter score
* Unique customer relationships
* ARPU
----------- --------------------------------------------------- ----------------------------------------------------------
Group
Financial * Adjusted EBITA * Grow total non advertising revenues by at least 5%
KPIs CAGR
* Adjusted EPS
* Deliver GBP35 million to GBP40 million of cost
savings over 3 years
* Maintain profit to cash conversion at around 85%
---------------------------------------------------------------- ----------------------------------------------------------
Our existing KPIs aligning with our previous strategy are set
out below for the first six months of 2018.
Absolute
Six months to 30 June 2018 2017 change
============================================== ======= ======= ========
Adjusted EBITA GBP375m GBP403m GBP(28)m
Adjusted earnings per share 7.1p 7.7p (0.6)p
Profit to cash ratio 12 month rolling 94% 91% 3%
ITV Family Share of Viewing (SOV) 23.5% 21.6% 1.9%
ITV Family Share of Commercial Impacts (SOCI) 36.7% 34.5% 2.2%
Total long-form video requests 847m 690m 157m
============================================== ======= ======= ========
Operating and Financial Review
ITV has delivered a strong operational performance in the first
six months of 2018
We have delivered a strong operational performance in an
uncertain market environment. On-screen, our share of viewing has
again grown, increasing for the third consecutive year, up 9%, and
the ITV Hub continues to deliver strong viewing, up 33%. Total
advertising revenue grew 2% as expected which includes online
revenue up 48%, and total ITV Studios revenue increased 16%
including the unfavourable impact of currency. We have a strong
creative pipeline of high-quality programmes, particularly drama
and entertainment, and we continue to perform well across the key
genres that return and travel.
This provides the strong foundations on which to build and we
have today announced a new strategy with clear priorities and
initiatives which we believe will deliver growth and strengthen ITV
to ensure it is well positioned to address the opportunities and
challenges of a competitive media landscape.
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
============================ ======= ======= ====== ======
Broadcast & Online 1,045 1,016 29 3
ITV Studios 803 692 111 16
Total revenue* 1,848 1,708 140 8
Internal supply (255) (239) 16 7
Group external revenue 1,593 1,469 124 8
Group adjusted EBITA 375 403 (28) (7)
Group adjusted EBITA margin 24% 27%
Adjusted EPS 7.1p 7.7p (0.6p) (8)
Statutory EPS 5.3p 5.1p 0.2p 4
Dividend per share 2.60p 2.52p 0.08p 3
============================ ======= ======= ====== ======
Net debt (1,034) (1,074) 40 4
============================ ======= ======= ====== ======
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
============================== ===== ===== ====== ======
Total advertising revenue 890 871 19 2
Total non-advertising revenue 958 837 121 14
Total revenue* 1,848 1,708 140 8
Internal supply (255) (239) 16 7
Group external revenue 1,593 1,469 124 8
============================== ===== ===== ====== ======
* IFRS 15 'Revenue from Contracts with Customers' was effective
from 1 January 2018. Please see Section 1 of the Notes to the
accounts for further details.
Total ITV revenue increased 8% to GBP1,848 million, with
external revenue also up 8% at GBP1,593 million. Total
non-advertising revenue grew 14% to GBP958 million. Total
non-advertising now accounts for 52% of total revenue.
Adjusted EBITA declined 7% to GBP375 million (2017: GBP403
million) and adjusted EPS declined 8% to 7.1p (2017: 7.7p) with the
7% growth in ITV Studios EBITA offset by the 12% decline in
Broadcast & Online EBITA. Broadcast & Online EBITA was
impacted by higher schedule costs due to the World Cup.
Adjusted financing costs were broadly in line year on year and
our adjusted tax rate at 19% has also not changed. Adjusted EPS
declined by 8% to 7.1p. Statutory profit before tax grew by 2% to
GBP265 million (2017: GBP259 million) and statutory EPS was up 4%
to 5.3p as the decline in earnings was offset by a reduction in
exceptional items, and amortisation and impairments, which is
explained over the following pages.
We have a strong balance sheet and the business continues to be
highly cash generative. Our profit to cash conversion remains high
at 94% and we ended the period with net debt of GBP1,034 million
(31 December 2017: GBP912 million). 1.2x net debt to adjusted
EBITDA provides headroom against our investment grade rating.
This places us in a good position to continue to invest in
growing a stronger, more resilient business with the implementation
of our refreshed strategy, while also continuing to deliver
sustainable returns to our shareholders.
For the period of investment in 2018 and 2019 the Board intends
to pay at least an 8p dividend per year. This reflects the Board's
confidence in the business and in the new strategy as well as the
continued strong cash generation. The Board expects that over the
medium term the dividend will grow broadly in line with
earnings.
Consistent with this, the Board has declared an interim dividend
of 2.6p which is up 3% on 2017.
We measure performance through a range of metrics, particularly
through our alternative performance measures and KPIs, all of which
are set out in this report. These have been reviewed and aligned to
the refreshed strategy.
Broadcast & Online
Financial performance
Broadcast & Online total revenue was up 3% in the period at
GBP1,045 million (2017: GBP1,016 million).
We have changed the way we report our Broadcast & Online
revenues to focus on total advertising which includes ITV Family
NAR, VOD, sponsorship and other advertising revenues. We have also
split out our Direct to Consumer revenues to reflect our strategic
priorities going forward.
We delivered 2% growth in total advertising revenue at GBP890
million (2017: GBP871 million) with online revenue up 48%.
Advertising categories such as Retail, FMCG, Finance, and
Airlines, Travel and Holidays continued to see declines in
advertising due to the uncertain economic outlook, leading
advertisers to reduce spend to maintain margins. Within Retail, we
have seen spending decline on both the high street and the
supermarkets. Entertainment & Leisure was up, in particular
around the World Cup. Telecommunications and Computing increased
their spend around product launches and digital brands continue to
spend heavily on television to build brand awareness.
We have provided more detail on our costs to highlight the
variable areas of our cost base, especially as we grow new revenue
streams. Total costs were up GBP65 million, over half of this is
driven by higher schedule costs weighted towards H1 with the
phasing of the World Cup. Variable costs increased with significant
growth in online, and investment on the Hub, Hub+ and ITV Box
Office (our pay-per-view channel used to show boxing matches).
Broadcast infrastructure and overheads increased with foreign
exchange movements on our Euro denominated transmission contracts,
and property costs from our new London property buildings.
Overall Broadcast & Online adjusted EBITA declined 12% to
GBP257million (2017: GBP293 million) which has led to a four
percentage point reduction in the adjusted EBITA margin to 25%
(2017: 29%).
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
======================================== ===== ===== ====== ======
Total advertising revenue 890 871 19 2
Direct to consumer 41 29 12 41
SDN 36 35 1 3
Other revenue 78 81 (3) (4)
Non-Advertising revenue 155 145 10 7
Total Broadcast & Online revenue 1,045 1,016 29 3
======================================== ===== ===== ====== ======
Network schedule costs (567) (532) (35) (7)
Variable Costs (57) (43) (14) (33)
Broadcast infrastructure and overheads (164) (148) (16) (11)
Total Broadcast & Online adjusted EBITA 257 293 (36) (12)
Adjusted EBITA margin 25% 29%
======================================== ===== ===== ====== ======
* IFRS 15 'Revenue from Contracts with Customers' was effective
from 1 January 2018. Please see Section 1 of the Notes to the
accounts for further details.
Viewing
On-screen we performed strongly with viewing up for the third
consecutive year.
ITV Family SOV grew 9% with a strong performance across the
schedule. This level of growth is the biggest in ITV's recent
history and never before has ITV delivered three years of
consecutive growth. Our ITV Family SOV is now the highest it has
been for 10 years. Daytime shows including Good Morning Britain,
This Morning and The Chase grew their audiences, and Coronation
Street and Emmerdale continue to perform well and are now the UK's
two largest soaps. We launched the sixth weekly episode of
Coronation Street in September 2017, which has further strengthened
its performance. We successfully aired a range of new dramas
including Trauma, Innocent, and Girlfriends; entertainment shows,
including Dancing on Ice and Survival of the Fittest; and
successful factual, including The Queen's Green Planet. We
continued to drive significant audiences with our returning brands
such as Vera - which had it's most successful series to date -
Endeavour, The Durrells, Good Karma Hospital, Ant & Dec's
Saturday Night Takeaway, Britain's Got Talent and The Real Full
Monty. Our news programming continues to perform well, as does our
sporting schedule with the World Cup, the Six Nations Rugby
Championships and horse racing. ITV's coverage of England's
semi-final against Croatia hit a peak of 26.6 million viewers. The
match average of 24.3 million was bigger than the audiences for the
Olympic Opening and Closing Ceremonies in 2012. While overall our
schedule is performing very strongly, not all of our programmes
performed as we had hoped so some, for example Next of Kin, will
not return.
We continue to target the demographics most highly demanded by
advertisers - particularly young and male audiences - through our
digital channels and online, and have seen a significant increase
in our target demographics on ITV2 and ITV4. Our 16-34s share of
commercial impacts (SOCI) on ITV2 was up 19% helped by the
phenomenal success of Love Island, achieving the second highest
audience on a digital channel since records go back, as well as
Survival of the Fittest, Celebrity Juice, Family Guy and American
Dad. Male SOCI on ITV4 was up 8% helped by ITV's coverage of horse
racing, The French Open and Tour de France. ITV3's viewing
performance improved in the period due to the strong performance of
dramas such as Midsomer Murders, Vera, Lewis and Endeavour.
Following the closure of ITV Encore at the end of April 2018 the
content has moved back to ITV3, adding to the strength of the
schedule and improving viewing. ABC1 adults SOCI on ITV3 was up 6%
making it the most popular digital channel for this
demographic.
ITV Hub
The ITV Hub, the digital home for all our channels and content,
is growing rapidly. This is driven by our viewers appetite to watch
content any time, any where, be it catch up or increasingly,
simulcast, and the quality of our content. The ITV Hub is now
available on 28 platforms and is pre-installed on over 90% of all
connected televisions sold in the UK.
Long-form video requests were up 23% and online viewing
consumption, which measures how long viewers are spending online,
was up 33% driven by viewing on mobile and connected televisions.
The ITV Hub has now been the fastest-growing public service
broadcaster online service for over three years. This comes from an
improved user experience and great content. The ITV Hub now has 25
million registered users.
The ITV Hub helps ITV reach valuable younger audiences - 75% of
the UK's 16-24 year olds are registered. Younger viewers
increasingly use the ITV Hub for simulcast viewing, as well as
catch up, with programmes such as the World Cup delivering record
viewing with 0.9 million simulcast viewers for England's semi-final
against Croatia. Love Island has achieved an average audience of
0.3 million via simulcast per episode, which is more than the
linear audiences on most digital channels. In the first six months
of 2018 simulcast requests are up 41% year on year.
Direct to Consumer
Direct to Consumer generates revenue directly from the customer,
and includes competitions, voting, live events, SVOD and our pay
per view boxing trial. Total revenue is currently small but up year
on year. Growing a Direct to Consumer business will be a key focus
of our new strategy.
Our competitions have performed well across the schedule.
Interactive has further benefited from the continued growth of the
competition portal. Programme related app downloads have been
strong in the first half of the year, encouraging engagement and
driving linear viewing. The Love Island app has seen exceptional
downloads at 2 million, and 10 million votes have been cast via the
app.
The trial of ITV Box Office launched in 2017 as a direct to
consumer pay per view offering which focused initially on boxing.
We also have a number of live events based around our key brands.
For example, we have the Emmerdale Studios Experience, which
showcases the process of creating an episode of the soap, and This
Morning Live, a shopping and lifestyle festival. These both build
relationships directly with our viewers.
As at 30 June 2018, ITV Hub+ subscribers, including subscribers
via Amazon, had increased to 286k subscribers. The total number of
subscribers is up over 500% year-on-year. The increase in
subscribers has been driven by increased marketing, great content
and EU portability. We expect subscribers to be seasonal, and the
number of subscribers to vary during the year. The growth in
subscribers increasingly gives us confidence that we have a role to
play in SVOD.
In March 2017, we launched our US joint venture with the BBC
Studios, BritBox, (with AMC Networks taking a minority share), an
ad-free SVOD service offering the most comprehensive collection of
British content in the US. A version of the service also launched
in Canada in February 2018. Having exceeded 250,000 subscribers in
less than a year from launch, the service is on track to double
that number in its second year. Revenues from Britbox are not
included in Direct to Consumer as it is accounted for as a joint
venture.
SDN
SDN generates revenue by licensing capacity to broadcast
channels, radio stations and data providers on digital terrestrial
television or Freeview. It holds a licence with capacity for 16
broadcast channels, including ITV services and third-party
channels. SDN external revenue grew 3% in the period.
Other revenue
Other revenue includes revenue from platforms, such as Sky and
Virgin, and third party commissions, e.g. for services we provide
to STV. This is down year on year due to the closure of Encore at
the end of April 2018.
ITV continues to license its channels and content across
multiple platforms, including our HD digital channels and catch-up
VOD on Sky and Virgin Media set top boxes and all our live channels
and catch up VOD across their connected platforms.
ITV Studios
Financial performance
ITV Studios total revenues grew 16% to GBP803 million (2017:
GBP692 million) including an unfavourable currency impact, with
growth across all our production businesses as we continue to build
our capability in key creative markets. Total organic revenue,
which excludes our 2017 acquisitions and currency, was up 11%.
Revenue growth was driven by a significant increase in hours
delivered, up 10% to over 4,000 hours.
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
=============================== ===== ===== ====== ======
Studios UK 328 306 22 7
ITV America 141 138 3 2
Studios RoW 247 159 88 55
Global Entertainment 87 89 (2) (2)
Total Studios revenue* 803 692 111 16
=============================== ===== ===== ====== ======
Total Studios costs (685) (582) (103) 18
Total Studios adjusted EBITA** 118 110 8 7
=============================== ===== ===== ====== ======
Studios adjusted EBITA margin 15% 16%
=============================== ===== ===== ====== ======
* IFRS 15 'Revenue from Contracts with Customers' was effective
from 1 January 2018. Please see Section 1 of the Notes to the
accounts for further details.
** Includes the benefit of production tax credits.
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
============================================= ===== ===== ====== ======
Sales from ITV Studios to Broadcast & Online 254 239 15 6
External revenue 549 453 96 21
Total Studios revenue 803 692 111 16
============================================= ===== ===== ====== ======
2018 2017 Change Change
Six months to 30 June GBPm GBPm GBPm %
======================== ===== ===== ====== ======
Scripted 142 114 28 25
Unscripted 511 448 63 14
Heartland ITV and Other 150 130 20 15
Total Studios revenue 803 692 111 16
======================== ===== ===== ====== ======
Reflecting our growth in key production markets in Europe and
the US, 57% of Studios revenue was generated outside the UK (2017:
52%). ITV is the number one commercial producer in the UK and a
leading producer in Europe and the US. As our Studios business
grows internationally, foreign currency movements could have a
larger impact on our results.
Adjusted EBITA was up 7% year-on year at GBP118 million.
Adjusted EBITA margin declined by one percentage points to 15%,
impacted by revenue mix on new and returning shows.
In the first half of 2018, the unfavourable foreign currency
impact was GBP12 million on revenue and GBP1 million on adjusted
EBITA.
Building scale in key creative markets
ITV Studios has three production divisions - Studios UK, ITV
America and Studios Rest of World (RoW) all of which grew in the
first half.
The UK performed well with total revenue up 7% at GBP328 million
(2017: GBP306 million). We continue to grow our sales to ITV, which
were up 6% with deliveries including The Voice, Love Island,
Dancing on Ice and an extra episode of Coronation Street. ITV
Studios' UK share of original content on ITV main channel has
remained flat year on year at 66%. Our off-ITV revenues in the UK
grew 22% with deliveries including Poldark, Bodyguard and Age
Before Beauty for BBC, Friday Night Dinner for Channel 4, and Blind
Date for Channel 5.
ITV America total revenue grew 2% to GBP141 million (2017:
GBP138 million) including the unfavourable foreign exchange impact
and non-return of Duck Dynasty, and an absence of deliveries of
Pawn Stars, American Grit and Hell's Kitchen. The growth was driven
by two series of The Four, Four Weddings and Mama June deliveries.
At constant currency, ITV America was up 11%.
Studios RoW has production bases in Australia, Germany, France,
the Netherlands, the Nordics and Italy where we produce original
content as well as local versions of ITV Studios UK and Talpa
formats. Revenue grew 55% to GBP247 million (2017: GBP159 million)
including foreign exchange and acquisitions, driven particularly by
good growth in France due to The Voice of France and The Voice
Kids. Across the territories, our entertainment and format
deliveries included I'm A Celebrity ...Get Me Out of Here!, The
Voice and Love Island in Australia, I'm A Celebrity ...Get Me Out
of Here! , Quiz Dual and The Chase in Germany, and This TIme Next
Year in Finland. The business also benefited from the 2017
acquisitions of Tetra Media, Cattleya and Elk.
Demand for drama is growing strongly and we have made real
progress in building a European scripted business with the
acquisition of Cattleya and Tetra. These, along with our existing
European businesses, enable us to benefit from the increasing
demand for locally produced content with global appeal.
Talpa continues to develop its formats including The Voice
Senior, Dance Dance Dance, The Big Picture, 5 Gold Rings, The
Perfect Picture, Design Dream, and House of Talent. Our
international scale now enables ITV to make all these other
formats, and in particular The Voice, in all our international
production territories and therefore earn the production revenue as
well as the format fee.
Investing in content with international appeal
We are continuing to expand our portfolio of successful formats
and series that return and can be distributed internationally.
We continue to strengthen our global capability in entertainment
formats. Across the business, we have grown a strong portfolio of
high volume and high margin formats that travel internationally and
that we produce locally. For example, during 2018 we will produce
Love Island in all seven countries in which the format has been
sold, The Voice in six countries, and Four Weddings in four
countries.
Expanding our global distribution business
Global Entertainment, the distribution arm within ITV Studios,
reported revenue decline of 2% to GBP87 million (2017: GBP89
million), due to timing of deals including the delivery of Harlots
across H1 and H2. Excluding currency, revenue was flat year on
year. With a good drama deliveries slate in the second half, Global
Entertainment is expected to deliver growth over the full year.
Global Entertainment's pipeline of new deliveries is strengthening
with projects such as Vanity Fair and Snowpiercer expected for the
second half of 2018 and into 2019. As well as funding and creating
new content from ITV Studios, we also invest in third-party
producers and their content from all over the world.
Our content continues to sell well internationally to both
broadcasters and OTT platforms and in particular our scripted
programmes with titles including Somewhere Between, Good Witch,
Schitt's Creek, Poldark, Shetland, and Harlots. Over 15 of our
scripted programmes have been sold to more than 100 countries. Our
entertainment and factual entertainment formats are highly demanded
and include programmes such as The Voice, Love Island, The Chase,
Big Star's Little Star, This Time Next Year, Five Gold Rings, Come
Dine With Me and Four Weddings. In the six month period to 30 June
2018, we sold 34 different formats internationally, 9 of which are
being produced by ourselves or other producers in three or more
countries including Four Weddings, Come Dine with Me and The
Voice.
Exceptional items
2018 2017
Six months to 30 June GBPm GBPm
========================================= ===== =====
Acquisition-related expenses (27) (50)
Restructuring and property-related costs (14) (3)
Total operating exceptional items (41) (53)
Non-operating exceptional items 1 -
========================================= ===== =====
Total exceptional items (40) (53)
========================================= ===== =====
Total exceptional items in the period were GBP40 million (2017:
GBP53 million). Operating exceptional items principally relate to
acquisition-related expenses, which are mainly performance based
employment-linked consideration. These costs are down year-on-year
following the EUR100m payment under the Talpa earnout in 2017. Our
expected payments on all future earnouts is explained later.
Property-related costs of GBP14 million primarily related to
temporary rent, dual running costs and relocation costs as a result
of our London property move in 2018. We will continue to incur
exceptional rental costs over the next four or five years until we
return to our new offices at The London Television Centre. Further
details can be found later in the section.
The cash cost of exceptionals in the period was GBP47 million
(2017: GBP106 million).
Net financing costs
2018 2017
Six months to 30 June GBPm GBPm
=========================================================== ===== =====
Financing costs directly attributable to loans and bonds (14) (15)
Cash-related net financing costs (1) (2)
Adjusted financing costs (15) (17)
Imputed pension interest (1) (4)
Unrealised foreign exchange and other net financial losses (2) (2)
Net financing costs (18) (23)
=========================================================== ===== =====
Adjusted financing costs were broadly flat year on year at GBP15
million (2017: GBP17 million).
Net financing costs were GBP18 million over the period which was
down year-on-year by GBP5 million (2017: GBP23 million), due to a
small reduction in imputed pension interest.
JVs and associates
The share of losses from JVs and associates has increased to
GBP3 million (2017: GBP2 million) and is in relation to losses
arising on our investments in our new venture BritBox US, along
with Blumhouse Television and Circle of Confusion, both of which
are start up scripted talent investments within ITV Studios.
Profit before tax
Adjusted profit before tax, after amortisation and impairment of
assets and financing costs, was down 7% at GBP354 million (2017:
GBP381 million). Statutory profit before tax increased by 2% to
GBP265 million (2017: GBP259 million), primarily as a result of a
reduction in exceptional items, and amortisation and
impairments.
Profit before tax (PBT)
2018 2017
Six months to 30 June - on a continuing basis GBPm GBPm
============================================== ===== =====
Profit before tax 265 259
Production tax credits 8 8
Exceptional items 40 53
Amortisation and impairment* 38 55
Adjustments to net financing costs 3 6
Adjusted profit before tax 354 381
============================================== ===== =====
* In respect of assets arising from business combinations and
investments.
Tax
Adjusted tax charge
The total adjusted tax charge for the period was GBP68 million
(2017: GBP71 million), corresponding to an effective tax rate on
adjusted profit before tax (PBT) of 19% (2017: 19%), which is in
line with the standard UK corporation tax rate of 19% (2017:
19.25%). We expect this effective tax rate to be sustainable over
the medium term. On a reported basis, the tax charge of GBP52
million (2017: GBP53 million) corresponds to an effective tax rate
of 20% (2017: 20%). The adjustments made to reconcile the tax
charge with the adjusted tax charge are the tax effects of the
adjustments made to reconcile PBT and adjusted PBT, as discussed
earlier.
2018 2017
Six months to 30 June GBPm GBPm
======================================================== ===== =====
Tax charge (52) (53)
Production tax credits (8) (8)
Charge for exceptional items (3) (3)
Charge in respect of amortisation and impairment* (4) (7)
Charge in respect of adjustments to net financing costs (1) (1)
Other tax adjustments - 1
Adjusted tax charge (68) (71)
Effective tax rate on adjusted profits 19% 19%
======================================================== ===== =====
* In respect of intangible assets arising from business
combinations and investments. Also reflects the cash tax benefit of
tax deductions for US goodwill.
Cash tax
Cash tax paid in the period was GBP33 million (2017: GBP65
million) and is net of GBP18 million of production tax credits
received (2017: GBP9 million). The majority of the cash tax
payments were made in the UK. The cash tax paid is lower compared
to the previous year due to phasing of payments and prior year
repayments, and an increase in tax credits received.
Tax strategy
ITV is a responsible business, and we take a responsible
attitude to tax, recognising that it affects all of our
stakeholders. In order to allow those stakeholders to understand
our approach to tax, we have published our Global Tax Strategy,
which is available on our corporate website.
www.itvplc.com/investors/governance/policies
We have four key strategic tax objectives :
1. Engage with tax authorities in an open and transparent way in
order to minimise uncertainty
2. Proactively partner with the business to provide clear,
timely, relevant and business focused advice across all aspects of
tax
3. Take an appropriate and balanced approach when considering
how to structure tax sensitive transactions
4. Manage ITV's tax risk by operating effective tax governance
and understanding our tax control framework with a view to
continuously adjusting our approach to be compliant with our tax
obligations
Our tax strategy is aligned with that of the business and its
commercial activities, and establishes a clear Group-wide approach
based on openness and transparency in all aspects of tax reporting
and compliance, wherever the Company and its subsidiaries operate.
Within our overall governance structure, the governance of tax and
tax risk is given a high priority by the Board and Audit and Risk
Committee, including through the operation of the Tax &
Treasury Committee. The ITV Global Tax Strategy as published on the
ITV plc website is compliant with the UK tax strategy publication
requirement set out in Part 2 Schedule 19 of the Finance Act
2016.
EPS - adjusted and statutory
Overall, adjusted profit after tax was down 8% at GBP286 million
(2017: GBP310 million). After non-controlling interests of GBP1
million (2017: GBP3 million), adjusted basic earnings per share was
7.1p (2017: 7.7p), down 8%, which is broadly consistent with the
decrease in adjusted EBITA of 7%. The weighted average number of
shares declined to 3,998 million (2017: 4,010 million) because ITV
bought shares during 2017 on behalf of the Employee Benefit Trust
and, in line with accounting standards, shares held by the Trust
are not included in the EPS share count. Diluted adjusted EPS in
2018 was 7.1p (2017: 7.6p) reflecting a weighted average diluted
number of shares of 4,009 million (2017: 4,019 million). The
weighted average diluted number of shares was down year-on-year
because of a decrease in the number of shares expected to vest in
ITV's long term incentive plans in the future.
Statutory EPS grew by 4% to 5.3p (2017: 5.1p) with the decline
in earnings more than offset by a reduction in exceptional items,
amortisation and impairments, and net financing costs.
A full reconciliation between statutory and adjusted EPS is
included within the Alternative Performance Measures section.
Dividend per share
ITV continues to deliver a strong operational performance in an
uncertain market environment. In addition, we have announced a new
strategy which we believe will strengthen ITV to ensure it is well
positioned to address the opportunities and challenges of a
competitive media landscape.
For the period of investment in 2018 and 2019 the Board intends
to pay at least an 8p dividend per year. This reflects the Board's
confidence in the business and in the new strategy as well as the
continued strong cash generation. The Board expects that over the
medium term the dividend will grow broadly in line with
earnings.
Consistent with this the Board has declared an interim dividend
of 2.6p which is up 3% on 2017.
Acquisitions
Since 2012, we have acquired a number of content businesses in
the UK, US and creative locations across Europe, developing a
strong portfolio of programmes that return and travel. As we have
grown in size and expanded our network relationships and
distribution capability, this has helped to renew and strengthen
our creative talent and build our reputation as a leading European
producer and distributor and a leading unscripted independent
production company in the US.
Our business is performing well, we will also consider selective
value creating M&A and talent deals in both scripted and
unscripted to obtain creative talent and IP. However at this stage,
we will not be doing any scaled US scripted acquisitions.
We have strict criteria for evaluating potential acquisitions.
Financially, we assess ownership of intellectual property, earnings
growth and valuation based on return on capital employed and
discounted cash flow. Strategically, we ensure an acquisition
target has a strong creative track record and pipeline in content
genres that return and travel, namely drama, entertainment and
factual, as well as retention and succession planning for key
individuals in the business.
Acquisitions - 2012 to 2018 (undiscounted)
Additional Expected Total Total
Initial consideration future expected Expected maximum
consideration Paid payments* consideration** payment consideration**
Company Geography Genre GBPm GBPm GBPm GBPm period GBPm
========== ========== ========== ============= ============= ========= =============== ========= ===============
Content &
Total for Broadcast
2012-2017 Various TV 941 116 269 1,326 2018-2024 2,346
Total 941 116 269 1,326 2,346
================================== ============= ============= ========= =============== ========= ===============
* Undiscounted and adjusted for foreign exchange. All future
payments are performance related.
** Undiscounted and adjusted for foreign exchange, including the
initial cash consideration and excluding working capital
adjustments.
We generally structure our deals with earnouts or with put and
call options in place for the remainder of the equity, capping the
maximum consideration payable. By basing a significant part of the
consideration on future performance in this way, not only can we
lock in creative talent and ensure our incentives are aligned, but
we also reduce our risk by only paying for the actual, not
expected, performance delivered over time. We believe this is the
right way to structure our deals as we should not pay upfront for
future performance and should incentivise and reward delivery by
the business over time.
The majority of earnouts or put and call options are dependent
on the seller remaining within the business. Where future payments
are directly related to the seller remaining with the business,
these payments are treated as employment costs and therefore are
part of our statutory results. However, we exclude them from
adjusted profits and adjusted EPS as an exceptional item, as in our
view, for the reasons set out above, these items are part of
capital consideration reflecting how we structure our transactions
and do not form part of the core operations.
The table above sets out the initial consideration payable on
our acquisitions, our expected future payments based on our current
view of performance and the total maximum consideration payable,
which is only payable if exceptional compound earnings growth is
delivered.
We closely monitor the forecast performance of each acquisition
and, where there has been a change in expectations, we adjust our
view of potential future commitments.
Expected future payments of GBP269 million have decreased by
GBP23 million since 31 December 2017, due to payments made relating
to our 2014 and 2015 acquisitions. At 30 June 2018, GBP169 million
of expected future payments had been recorded on the balance sheet.
We have not made any acquisitions so far in 2018.
Cash generation
Profit to cash conversion
2018 2017
Six months to 30 June GBPm GBPm
============================================================ ===== =====
Adjusted EBITA 375 403
Working capital movement (86) (115)
Adjustment for high end production tax credits 10 1
Depreciation 13 17
Share-based compensation and pension service costs 4 9
Acquisition of property, plant and equipment and intangible
assets (45) (26)
Acquisition of capex relating to redevelopment of London
headquarters 24 3
Adjusted cash flow 295 292
Profit to cash ratio six months to 30 June 79% 72%
============================================================ ===== =====
Profit to cash ratio 12 months rolling 94% 91%
============================================================ ===== =====
Note: Except where disclosed, management views the acquisition
of operating property, plant and equipment and intangibles as
business as usual capex, necessary to the ongoing investment in the
business.
One of ITV's key strengths is its healthy cash flows reflecting
our ongoing tight management of working capital balances and our
disciplined approach to cash and costs. This is particularly
important when there is wider political and economic uncertainty.
Remaining focused on cash and costs means we are in a good position
to continue to invest across the business in line with our new
strategic priorities and continue to deliver sustainable returns to
our shareholders.
In the period, we generated GBP295 million (2017: GBP292
million) of operational cash from GBP375 million (2017: GBP403
million) of adjusted EBITA, which equates to a strong profit to
cash ratio of 94% after capex (2017: 91%). In the period, we saw an
increase in working capital. This was due the decrease in stock and
receivables more than offset by a decrease in payables across the
Group.
To facilitate our working capital management, we have a GBP100
million non-recourse receivables purchase agreement (free of
financial covenants), which gives us the flexibility to access
additional liquidity when required. At the 30 June, GBP70 million
of receivables were sold under the purchase agreement (31 December
2017: GBP90 million).
Free cash flow
2018 2017
Six months to 30 June GBPm GBPm
====================== ===== =====
Adjusted cash flow 295 292
Net interest paid (13) (20)
Adjusted cash tax* (51) (74)
Pension funding (47) (47)
Free cash flow 184 151
====================== ===== =====
* Adjusted cash tax of GBP51 million is total cash tax paid of
GBP33 million excluding receipt of production tax credits, which
are included within adjusted cash flow from operations, as these
production tax credits relate directly to the production of
programmes.
Our free cash flow after payments for interest, cash tax and
pension funding remained healthy in the period, up 22% to GBP184
million (2017: GBP151 million).
Overall, after dividends, acquisitions and acquisition-related
costs, pension and tax payments, we ended the period with net debt
of GBP1,034 million, compared with net debt of GBP912 million at 31
December 2017 and net debt of GBP1,074 million at 30 June 2017.
Funding and liquidity
Debt structure and liquidity
Our balance sheet strength, together with our healthy free cash
flow, will enable us to continue to invest in opportunities to grow
the business in line with our new strategic priorities and to make
sustainable returns to our shareholders. We have a number of
facilities in place to preserve our financial flexibility. We have
a GBP630 million Revolving Credit Facility (RCF) in place until
2022 (with the option to extend to 2023). We also have a bilateral
financing facility of GBP300 million, which is free of financial
covenants and matures in 2021. This provides us with sufficient
liquidity to meet the requirements of the business in the short to
medium term. The RCF has the usual financial covenants for this
type of financing. Of the total GBP930 million of facilities in
place, GBP160 million was drawn down at 30 June 2018. Our policy is
to maintain at least GBP250 million of available liquidity at any
point.
Net debt
2018 2017
At 30 June GBPm GBPm
=========== ======= =======
Gross cash 95 123
Gross debt (1,129) (1,197)
Net debt (1,034) (1,074)
=========== ======= =======
Financing - gross debt
We are financed using debt instruments and facilities with a
range of maturities. Borrowings at 30 June 2018 were repayable as
follows:
Amount repayable as at 30 June 2018 GBPm Maturity
========================================== ===== ========
GBP630 million Revolving Credit Facility* 160 Various
EUR600 million Eurobond 528 Sep 2022
EUR500 million Eurobond** 424 Dec 2023
Other loans 17 Various
Total debt repayable on maturity** 1,129
========================================== ===== ========
* Option to extend to 2023.
** Net of GBP18 million cross-currency swaps.
At 30 June 2018, GBP470 million of the GBP630 million RCF was
undrawn.
Capital allocation and leverage
Our objective is to run an efficient balance sheet. We have
always believed that maintaining leverage at around 1.5x net debt
to adjusted EBITDA will optimise our cost of capital and maintain
our investment grade credit. At 30 June 2018 reported net debt to
adjusted EBITDA on a rolling 12 month basis was 1.2x (31 December
2017: 1.0x and 30 June 2017: 1.2x). Our priority remains to invest
to drive organic growth and we have made acquisitions where we have
found the right opportunities. We will continue to look at
opportunities under the new strategy. We will balance this
investment with attractive returns to shareholders. Our investment
decisions are based upon value creation and returns analysis. Our
returns analysis looks at the 360 degree value creation and the
long-term future value of our investments in both Broadcast and
Studios.
In light of changes from IFRS 16 'Leases' which will come into
effect in 2019, we may look to revisit the 1.5x net debt to
adjusted EBITDA guidance. We will work with the ratings agencies as
part of this process, but wherever we conclude on this our
commitment to investment grade will underpin the outcome.
We also look at an adjusted measure of net debt, taking into
consideration all of our other debt-like commitments including the
expected, undiscounted contingent payments on acquisitions, the net
pension deficit and the undiscounted operating lease commitments,
which mainly relate to property. This adjusted leverage measure
better reflects how the credit rating agencies look at our balance
sheet. This is important to monitor as our investment grade rating
is the key criteria when considering our overall capital
allocation. At 30 June 2018, adjusted net debt was GBP1,457 million
(adjusted net debt of GBP1,430 million at 31 December 2017 and
adjusted net debt of GBP2,078 million at 30 June 2017) and adjusted
net debt to adjusted EBITDA on a 12 month rolling basis was 1.7x
(adjusted net debt to adjusted EBITDA was 1.6x at 31 December 2017
and adjusted net debt to adjusted EBITDA was 2.4x at 30 June 2017).
A reconciliation of net debt to adjusted net debt is provided in
the Alternative Performance Measures.
Credit ratings
We are rated investment grade by two ratings agencies: BBB-
(stable outlook) by Standard and Poor's and Baa3 (stable outlook)
by Moody's Investor Services. The factors that are taken into
account in assessing our credit rating include our degree of
operational gearing, exposure to the economic cycle, as well as
business and geographical diversity. Continuing to execute our
strategy will strengthen our position against all these
metrics.
Foreign exchange
As ITV continues to grow internationally, we are increasingly
exposed to foreign exchange on our overseas operations. We do not
hedge our exposure to revenues and profits generated overseas, as
this is seen as an inherent risk. We may elect to hedge our
overseas net assets, where material. To date, we have hedged a
significant portion of the euro net assets arising from the Talpa
Media acquisition.
ITV is also exposed to foreign exchange risk on transactions we
undertake in a foreign currency. Our policy is to hedge a portion
of any known or forecast transaction where there is an underlying
cash exposure for the full tenor of that exposure, to a maximum of
five years forward, where the portion hedged depends on the level
of certainty we have on the final size of the transaction.
Finally, ITV is exposed to foreign exchange risk on the
retranslation of foreign currency loans and deposits. Our policy is
to hedge such exposures where there is an expectation that any
changes in the value of these items will result in a realised cash
movement over the short to medium term.
The foreign exchange and interest rate hedging strategy is
discussed and approved by the ITV plc Board and implemented by our
internal Tax and Treasury Committee which oversees governance and
approval of tax and treasury related policies and procedures within
the business.
Foreign exchange sensitivity
The following table highlights ITV's sensitivity, on a full year
basis, to translation resulting from a 10%
appreciation/depreciation in sterling against the US dollar and
euro, assuming all other variables are held constant. An
appreciation in sterling has a negative effect on revenue and
adjusted EBITA; a depreciation has a positive effect.
Adjusted
Revenue EBITA
Currency GBPm GBPm
========== ======== ========
US dollar +/-40-50 +/-5-7
Euro +/-40-50 +/-4-5
========== ======== ========
Pensions
The net pension surplus for the defined benefit schemes at 30
June 2018 was GBP86 million (31 December 2017: GBP83 million
deficit). This is primarily as a result of a decrease in the gross
liabilities together with deficit funding payments of GBP47 million
made in the period.
The gross liabilities reduced principally due to an increase in
corporate yields. This was further improved by a decrease in the
market expectation of long-term inflation rates.
The net pension surplus includes GBP42 million of gilts, which
are held by the Group as security for future unfunded pension
payments of four former Granada executives, the liabilities of
which are included in our pension obligations.
A full reconciliation is included within note 3.2.
Actuarial valuation
The 1 January 2017 actuarial valuation was agreed during the
period. On the basis agreed with the Trustee, the combined deficits
of the ITV Pension Scheme as at 1 January 2017 amounted to GBP470
million.
Deficit funding contributions
The Group continues to make deficit funding contributions in
line with the most recent actuarial valuation in order to eliminate
the deficits in each section. The accounting deficit does not drive
the deficit funding contribution.
The Group's deficit funding contributions in the first half of
2018 were GBP47 million. The total expected deficit funding
contribution for 2018 will be consistent with prior years. Further
details are included within Note 3.2.
In 2019, we expect deficit funding contributions of around GBP75
million.
New accounting standards
IFRS 15 'Revenue from Contracts with Customers', was effective
from 1 January 2018. The new standard requires the Group to
reclassify various costs attributable to revenue in the income
statement. The prior year comparatives have been restated.
IFRS 16 'Leases', is effective from 1 January 2019. The detailed
assessment of the impact on the Group's performance is ongoing. The
adoption is likely to have a material impact on the presentation of
the Group's assets and liabilities, mainly due to property leases,
however we don't expect a material impact on the Group's
earnings.
Section 1 of the Notes on the accounts provides further detail
on these new accounting standards.
London property
In 2017, the Board made the decision to redevelop our
headquarters at The London Television Centre for which we own the
freehold. As a result the staff and Studios have recently been
relocated for a period of four to five years to alternative
accommodation before moving back into a new freehold building.
During the course of the project, ITV will ring-fence all
incremental costs in relation to the redevelopment. All move costs,
dual rates and rent will be treated as exceptional costs in the
P&L as they relate to this one-off property project that runs
over several years, and will no longer be incurred them once we
return to The London Television Centre. Capital items will be
capitalised as investment capex. Investment capex is excluded from
capex for our adjusted cash measurements.
In the period to 30 June 2018, ITV incurred GBP14 million of
costs in relation to move costs, dual rates and rent. These were
one-off as explained above. ITV also incurred GBP24 million of
costs for the fit out of the interim offices and studios and in
relation to planning for the redevelopment of The London Television
Centre which were capitalised.
Full planning permission has now been granted and we currently
expect to commence demolition in Q4 2018. All build costs will be
capitalised with the most significant investment capex to be
incurred in 2021 and 2022.
Following the step up in London property operating costs of
GBP10 million over the full year in 2018, we do not expect future
costs to be materially different from 2018 when we move back in
2023.
Outlook
Looking ahead our guidance for the full year remains
unchanged.
We have today announced a new strategy with clear priorities and
initiatives which we believe will deliver growth and strengthen ITV
to ensure it is well positioned to address the opportunities and
challenges of a competitive media landscape. We are starting to
implement our strategy immediately and in 2018 will be investing in
technology and people to bring in the capabilities we need to
execute the plan. Our previous investment target of GBP15 to
GBP20million for 2018 gives us the capacity to do this within our
current guidance.
ITV Studios has a strong pipeline of new and returning drama and
entertainment shows, including Alone, Queer Eye, Suburra, The Hunt,
Milk & Honey and House of Talent. We are confident that we will
deliver good organic growth over the full year and we have already
secured almost 90% of our target revenues and that represents
nearly GBP100m more revenue than we had this time last year. Within
that we have 263 new or recommissioned shows, which is 36 more than
this time last year.
Total advertising is expected to be up 1% over the nine months
with Q3 broadly flat against a backdrop of wider market
uncertainty. Within that we expect to again deliver double digit
revenue growth in Online.
On screen we have a strong slate of new and returning programmes
for the remainder of the year including Vanity Fair, Strangers, X
Factor, I'm A Celebrity...Get Me Out of Here!, Jonathan Ross and
Don't Hate the Playaz.
In the first half of the year the Government announced the
Second Chapter in its Obesity strategy. As part of that there will
be a consultation on the possibility of introducing a 9pm watershed
on TV advertising of HFSS products, and similar protection for
children viewing adverts online, which will commence before the end
of the year. The government has committed to explore options to
ensure that any restrictions are proportionate. We are fully
engaged in this process and believe that there is a strong,
evidence based, case for alternatives to a pre-9pm ban.
2018 full year planning assumptions
Profit and Loss impact:
-- Total schedule costs are expected to be GBP1,055 million to
GBP1,060 million
-- Total investment of around GBP15-GBP20 million which includes
initial investment in line with the new strategy
-- Adjusted interest is expected to be around GBP35 million,
which is broadly unchanged from 2017
-- The adjusted effective tax rate is 19%, which is unchanged
and expected to be sustainable over the medium term
-- The translation impact of foreign exchange, assuming rates
remain at current levels, could have a GBP20 million negative
impact on revenue and GBPnil million impact on profit
-- Exceptional items are expected to be around GBP85 million,
mainly due to acquisition accounting and the London Property
redevelopment project.
Cash impact
-- Total capex is expected to be around GBP100 million,
comprising of GBP60 million of regular capex to support the
business and GBP40 million relating to the redevelopment of our
London site
-- The cash cost of exceptionals will be around GBP85 million,
largely relating to accrued earnouts
-- Profit to cash is expected to be around 85%, reflecting our
continued strong cash generation and investment in Studios working
capital
-- Total pension deficit funding contribution for 2018 will be
consistent with prior years.
2019 full year planning assumptions
-- Total schedule costs are expected to be GBP1.1 billion and
will be held for three years to 2021 at roughly this level
-- Total investment of around GBP40 million in line with new
strategy priorities
-- GBP15 million cost savings to fund strategic priorities
-- GBP15-20 million exceptional cost of change to deliver cost
savings in 2019. Total exceptional costs of change over the three
years could be GBP30m.
-- Total pension deficit funding is expected to be around GBP75
million
Ian Griffiths
Chief Operating Officer and Group Finance Director
Risks and uncertainties
As a producer and broadcaster, ITV's business carries a number
of risks, which we manage through our risk management framework.
Our continuing success is dependent on how well we understand and
manage our risks.
In light of the strategic refresh we have reviewed the risks as
reported in the 2017 Annual Report and Accounts to ensure that they
remain appropriate, accurate and complete. As the strategy evolves,
the risks will remain under review in line with our ongoing risk
management process. We consider that the principal risks and
uncertainties have not changed significantly and remain relevant
for the second half of 2018. These principal risks cover:
-- Talent and succession
-- Advertising markets
-- Format development and programme rights
-- Technology
-- Scheduled broadcasting
-- Legal and regulatory changes
-- Liquidity
-- Reputation and trust
A detailed explanation of the risk management framework, and the
principle risks and uncertainties can be found on pages 50 to 57 of
the 2017 Annual Report.
Interim Condensed Financial Statements
In this section
Our objective is to make ITV's financial statements less
complex, more relevant to shareholders and provide readers with a
clearer understanding of what drives financial performance of the
Group. We have grouped notes under five key headings: 'Basis of
Preparation', 'Results for the Period', 'Operating Assets and
Liabilities', 'Capital Structure and Financing Costs' and 'Other
Notes'. The aim of the text in boxes is to provide commentary on
each section, or note, in plain English.
Contents
Primary Statements
Condensed Consolidated Income Statement
Condensed Consolidated Statement of Comprehensive Income
Condensed Consolidated Statement of Financial Position
Condensed Consolidated Statement of Changes in Equity
Condensed Consolidated Statement of Cash Flows
===========================================================
Section 1: Basis of Preparation
===========================================================
Section 2: Results for the Period
2.1 Profit before tax
2.2 Earnings per share
===========================================================
Section 3: Operating Assets and Liabilities
3.1 Provisions
3.2 Pensions
===========================================================
Section 4: Capital Structure and Financing Costs
4.1 Net debt
4.2 Borrowings
4.3 Managing market risks: derivative financial instruments
4.4 Fair value hierarchy
===========================================================
Section 5: Other Notes
5.1 Related party transactions
5.2 Contingent liabilities
===========================================================
Responsibility Statement of the Directors in Respect of the
Half-Yearly Financial Report
===========================================================
Independent Review Report
Condensed Consolidated Income Statement
Restated*
2018 2017
For the six month period to 30 June Note GBPm GBPm
================================================= ==== ======= =========
Revenue 2.1 1,593 1,469
Operating costs (1,308) (1,185)
================================================= ==== ======= =========
Operating profit 285 284
Presented as:
Earnings before interest, tax and amortisation
(EBITA) before exceptional items 2.1 367 395
Operating exceptional items (41) (53)
Amortisation and impairment (41) (58)
================================================= ==== ======= =========
Operating profit 285 284
================================================= ==== ======= =========
Financing income 2 2
Financing costs (20) (25)
================================================= ==== ======= =========
Net financing costs (18) (23)
Share of losses of joint ventures and associated
undertakings (3) (2)
Gain on sale of non-current assets (exceptional
items) 1 -
================================================= ==== ======= =========
Profit before tax 265 259
Taxation (52) (53)
================================================= ==== ======= =========
Profit for the period 213 206
================================================= ==== ======= =========
Profit attributable to:
Owners of the Company 212 203
Non-controlling interests 1 3
================================================= ==== ======= =========
Profit for the period 213 206
================================================= ==== ======= =========
Earnings per share
Basic earnings per share 2.2 5.3p 5.1p
Diluted earnings per share 2.2 5.3p 5.1p
================================================= ==== ======= =========
* The Group has applied IFRS 15 'Revenue from Contracts with
Customers' and IFRS 9 'Financial Instruments' at 1 January 2018.
Under the transition method chosen, the comparative information has
been restated. See Section 1.
Condensed Consolidated Statement of Comprehensive Income
2018 2017
For the six month period to 30 June GBPm GBPm
==================================================== ====== =====
Profit for the period 213 206
Other comprehensive income:
Items that are or may be reclassified to profit
or loss
Revaluation of available-for-sale financial assets (1) (1)
Share of losses of joint ventures and associated
undertakings (13) -
Net gain/(loss) on cash flow hedges 2 (6)
Exchange gain/(loss) on translation of foreign
operations (net of hedging) 5 (18)
Items that will never be reclassified to profit
or loss
Remeasurement gains/(losses) on defined benefit
pension schemes 117 (59)
Income tax (charge)/credit on items that will never
be reclassified (20) 8
===================================================== ====== =====
Other comprehensive income/(loss) for the period,
net of income tax 90 (76)
Total comprehensive income for the period 303 130
===================================================== ====== =====
Total comprehensive income attributable to:
Owners of the Company 302 127
Non-controlling interests 1 3
===================================================== ====== =====
Total comprehensive income for the period 303 130
===================================================== ====== =====
Condensed Consolidated Statement of Financial Position
Restated* Restated*
30 June 31 December 30 June
2018 2017 2017
Note GBPm GBPm GBPm
================================================= ==== ======= ============ =========
Non-current assets
Property, plant and equipment 271 256 241
Intangible assets 1,621 1,645 1,650
Investments in joint ventures, associates
and equity investments 61 74 74
Derivative financial instruments 4.3 15 10 3
Distribution rights 40 19 35
Defined benefit pension surplus 3.2 98 16 -
Other pension asset 3.2 42 38 39
Deferred tax asset 34 31 22
================================================= ==== ======= ============ =========
2,182 2,089 2,064
================================================= ==== ======= ============ =========
Current assets
Programme rights and other inventory 499 541 459
================================================= ==== ======= ============ =========
Trade and other receivables due within
one year 523 545 499
Trade and other receivables due after
more than one year 43 27 45
================================================= ==== ======= ============ =========
Trade and other receivables 566 572 544
Current tax receivable 7 19 10
Derivative financial instruments 4.3 3 6 6
Cash and cash equivalents 4.1 95 126 123
================================================= ==== ======= ============ =========
1,170 1,264 1,142
Current liabilities
Borrowings 4.1 (169) (76) (243)
Derivative financial instruments 4.3 (5) (2) (1)
================================================= ==== ======= ============ =========
Trade and other payables due within one
year 4.4 (904) (1,029) (862)
Trade payables due after more than one
year (71) (68) (48)
================================================= ==== ======= ============ =========
Trade and other payables (975) (1,097) (910)
Current tax liabilities (102) (86) (65)
Provisions 3.1 (16) (16) (19)
================================================= ==== ======= ============ =========
(1,267) (1,277) (1,238)
================================================= ==== ======= ============ =========
Net current liabilities (97) (13) (96)
================================================= ==== ======= ============ =========
Non-current liabilities
Borrowings 4.1 (978) (982) (969)
Derivative financial instruments 4.3 (2) (1) (1)
Defined benefit pension deficit 3.2 (54) (137) (382)
Deferred tax liabilities (113) (111) (67)
Other payables 4.4 (104) (106) (66)
Provisions 3.1 (7) (7) (4)
================================================= ==== ======= ============ =========
(1,258) (1,344) (1,489)
================================================= ==== ======= ============ =========
Net assets 827 732 479
================================================= ==== ======= ============ =========
Attributable to equity shareholders of
the parent company
Share capital 403 403 403
Share premium 174 174 174
Merger and other reserves 199 199 220
Translation reserve 48 41 55
Available-for-sale reserve 5 6 6
Retained earnings (44) (136) (416)
================================================= ==== ======= ============ =========
Total equity attributable to equity shareholders
of the parent company 785 687 442
Non-controlling interests 42 45 37
================================================= ==== ======= ============ =========
Total equity 827 732 479
================================================= ==== ======= ============ =========
* The Group has applied IFRS 15 'Revenue from Contracts with
Customers' and IFRS 9 'Financial Instruments' at 1 January 2018.
Under the transition method chosen, the comparative information has
been restated. See Section 1.
Ian Griffiths
Chief Operating Officer and Group Finance Director
Condensed Consolidated Statement of Changes in Equity
Attributable to equity shareholders
of the parent company
======================================================================
Merger
and Non-
Share Share other Translation Available-for-sale Retained controlling Total
capital premium reserves reserve reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Balance at 1 January
2018 (restated*) 403 174 199 41 6 (136) 687 45 732
Total comprehensive
income for
the period
Profit for the
period - - - - - 212 212 1 213
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Other comprehensive
income/(loss)
Revaluation of
available-for-sale
financial assets - - - - (1) - (1) - (1)
Share of losses of
joint ventures and
associated
undertakings - - - - - (13) (13) - (13)
Net gain on cash
flow
hedges - - - 2 - - 2 - 2
Exchange differences
on translation of
foreign
operations (net of
hedging) - - - 5 - - 5 - 5
Remeasurement gain
on defined benefit
pension schemes - - - - - 117 117 - 117
Income tax charge on
other comprehensive
income - - - - - (20) (20) - (20)
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Total other
comprehensive
income/(loss) - - - 7 (1) 84 90 - 90
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Total comprehensive
income/(loss)
for the period - - - 7 (1) 296 302 1 303
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Transactions with
owners,
recorded directly
in
equity
Contributions by
and
distributions
to owners
Equity dividends - - - - - (211) (211) (4) (215)
Movements due to
share-based
compensation - - - - - 4 4 - 4
Tax on items taken
directly to equity - - - - - 6 6 - 6
Purchase of own
shares
via employees'
benefit
trust - - - - - (3) (3) - (3)
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Total transactions
with owners - - - - - (204) (204) (4) (208)
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Changes in
non-controlling
interests - - - - - - - - -
=================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Balance at 30 June
2018 403 174 199 48 5 (44) 785 42 827
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
* The Group has applied IFRS 15 'Revenue from Contracts with
Customers' and IFRS 9 'Financial Instruments' at 1 January 2018.
Under the transition method chosen, the comparative information has
been restated. See Section 1.
Attributable to equity shareholders
of the parent company
======================================================================
Merger
and Non-
Share Share other Translation Available-for-sale Retained controlling Total
capital premium reserves reserve reserve earnings Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Balance at 1 January
2017 403 174 221 79 7 (162) 722 33 755
Total comprehensive
income for
the period
Profit for the
period - - - - - 203 203 3 206
Adjustment on
application
of IFRS 15* - - - - - 2 2 - 2
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Other comprehensive
income/(loss)
Revaluation of
available-for-sale
financial assets - - - - (1) - (1) - (1)
Net loss on cash
flow
hedges - - - (6) - - (6) - (6)
Exchange differences
on translation of
foreign
operations (net of
hedging) - - - (18) - - (18) - (18)
Disposal of
subsidiary - - 2 - - (2) - - -
Remeasurement loss
on defined benefit
pension schemes - - - - - (59) (59) - (59)
Income tax credit on
other comprehensive
income - - - - - 8 8 - 8
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Total other
comprehensive
income/(loss) - - 2 (24) (1) (53) (76) - (76)
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Total comprehensive
income/(loss)
for the period - - 2 (24) (1) 152 129 3 132
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Transactions with
owners,
recorded directly
in
equity
Contributions by
and
distributions
to owners
Equity dividends - - - - - (394) (394) (2) (396)
Movements due to
share-based
compensation - - - - - 6 6 - 6
Purchase of own
shares
via employees'
benefit
trust - - - - - (18) (18) - (18)
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Total transactions
with owners - - - - - (406) (406) (2) (408)
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Changes in
non-controlling
interests - - (3) - - - (3) 3 -
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
Balance at 30 June
2017 (restated*) 403 174 220 55 6 (416) 442 37 479
==================== ======= ======= ======== =========== ================== ========= ===== =========== ======
* The Group has applied IFRS 15 'Revenue from Contracts with
Customers' and IFRS 9 'Financial Instruments' at 1 January 2018.
Under the transition method chosen, the comparative information has
been restated. See Section 1.
Condensed Consolidated Statement of Cash Flows
2018 2017
For the six month period to 30 June Note GBPm GBPm GBPm GBPm
============================================ ==== ===== ===== ===== =====
Cash flows from operating activities
Profit before tax 2.1 265 259
Share of losses of joint ventures
and associated undertakings 3 2
Gain on sale of non-current assets
(exceptional items) (1) -
Net financing costs 18 23
Operating exceptional items 41 53
Depreciation of property, plant and
equipment 13 17
Amortisation and impairment 41 58
Share-based compensation and pension
service costs 4 9
Adjustments to profit 119 162
============================================ ==== ===== ===== ===== =====
Decrease/(increase) in programme
rights and other inventory,
and distribution rights 21 (80)
Decrease in receivables 6 33
Decrease in payables (113) (68)
============================================ ==== ===== ===== ===== =====
Movement in working capital (86) (115)
============================================ ==== ===== ===== ===== =====
Cash generated from operations before
exceptional items 298 306
Cash flow relating to operating exceptional
items:
============================================ ==== ===== ===== ===== =====
Operating exceptional items (41) (53)
Decrease in exceptional payables (7) (70)
Decrease in exceptional prepayments
and other receivables 1 20
============================================ ==== ===== ===== ===== =====
Cash outflow from exceptional items (47) (103)
============================================ ==== ===== ===== ===== =====
Cash generated from operations 203
Defined benefit pension deficit funding 3.2 (47) (47)
Interest received 1 21
Interest paid on bank and other loans (14) (41)
Net taxation paid (33) (65)
============================================ ==== ===== ===== ===== =====
(93) (132)
============================================ ==== ===== ===== ===== =====
Net cash inflow from operating activities 158 71
Cash flows from investing activities
Acquisition of subsidiary undertakings,
net of cash acquired - (24)
Acquisition of property, plant and
equipment (30) (14)
Acquisition of intangible assets (15) (12)
Acquisition of investments (10) (15)
Acquisition of financial instruments (4) -
Proceeds from sale of property, plant
and equipment 1 -
Loans granted to associates and joint
ventures (1) (2)
============================================ ==== ===== ===== ===== =====
Net cash outflow from investing activities (59) (67)
Cash flows from financing activities
Bank and other loans - amounts repaid 4.1 (148) (341)
Bank and other loans - amounts raised 4.1 240 320
Capital element of finance lease
payments - (4)
Equity dividends paid (211) (394)
Dividend paid to minority interest (4) (2)
Purchase of own shares via employees'
benefit trust (3) (18)
============================================ ==== ===== ===== ===== =====
Net cash outflow from financing activities (126) (439)
Net decrease in cash and cash equivalents (27) (435)
============================================ ==== ===== ===== ===== =====
Cash and cash equivalents at 1 January 4.1 126 561
Effects of exchange rate changes
and fair value movements (4) (3)
============================================ ==== ===== ===== ===== =====
Cash and cash equivalents at 30 June 4.1 95 123
============================================ ==== ===== ===== ===== =====
Notes to the Interim Condensed Financial Statements Section 1:
Basis of Preparation
In this section
This section lays out the accounting conventions and accounting
policies used in preparing these condensed consolidated interim
financial statements.
These condensed consolidated interim financial statements for
the six months ended 30 June 2018 have been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34 'Interim financial reporting' as adopted
by the European Union.
These condensed consolidated interim financial statements should
be read in conjunction with the annual financial statements for the
year ended 31 December 2017, which were prepared in accordance with
IFRS as adopted by the European Union. This is the first set of
interim financial statements where IFRS 15 and IFRS 9 have been
applied.
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amount of assets and liabilities, income and expenses. Actual
results may differ from these estimates.
Revenues are impacted by underlying economic conditions, the
cyclical demand for advertising, seasonality of programme sales,
significant licensing deals and the timing of delivery of ITV
Studios' programmes. Major events, including sporting events, will
impact the seasonality of schedule costs and the mix of programme
spend between sport and other genres, especially drama and
entertainment. Other than this, there is no significant seasonality
or cyclicality affecting the interim results of the operations.
For the purposes of interim reporting, the defined benefit
pension schemes' key assumptions and asset values have been
reviewed to assess whether material net actuarial gains and losses
have occurred during the period (see note 3.2).
During the six months ended 30 June 2018, management also
reassessed its estimates in respect of provisions and considered
the recoverable amount of goodwill and other intangible assets. No
impairment of goodwill or other intangible assets was
identified.
These interim financial statements and the comparative figures
are not statutory accounts. The statutory accounts for the year
ended 31 December 2017 have been reported on by the Company's
auditors and delivered to the Registrar of Companies. The auditors'
report was: (i) unqualified; (ii) did not include a reference to
any matters to which the auditors 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.
Going concern
At 30 June 2018, the Group was in a financial net debt position
with a positive cash balance. Even though the Group is in a net
current liability position, its strong balance sheet and continued
generation of significant free cash flows enables the Group to meet
its obligations.
As a part of the going concern test, the Group reviews forecasts
of the television advertising market to determine the impact on
ITV's liquidity position. The Group's forecasts and projections,
taking account of reasonably possible changes in trading
performance, show that the Group will be able to operate within the
level of its current available funding.
The Group also continues to focus on development of the
non-advertising business and evaluates the impact of further
investment against the strategy and cash headroom of the
business.
After making enquiries, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
operation for at least twelve months from the date of this report.
Accordingly, the Group continues to adopt the going concern basis
in preparing its consolidated financial statements.
Changes in significant accounting policies
The Group has adopted IFRS 15 'Revenue from Contracts with
Customers' and IFRS 9 'Financial Instruments' from 1 January 2018.
Neither standard has a material effect on the Group's financial
statements.
Except for the first time application of IFRS 15 and IFRS 9, the
significant judgements made by management in applying the Group
accounting policies and the key sources of estimation uncertainty
were the same as those applied to the consolidated financial
statements as at and for the year ended 31 December 2017.
The changes in accounting policies are also expected to be
reflected in the Group's consolidated financial statements as at
and for the year ending 31 December 2018.
Revenue recognition
IFRS 15 establishes a comprehensive framework for determining
whether, how much and when revenue is recognised. It replaced IAS
18 'Revenue', IAS 11 'Construction Contracts' and related
interpretations.
The Group has adopted IFRS 15 on a fully retrospective basis.
Accordingly, the information presented for 2017 has been restated
to include the effect of transition.
As reported Restated
2017 2017
For the six month period to 30 June Note GBPm Adjustments GBPm
==================================== ==== ============ =========== ========
Revenue 2.1 1,458 11 1,469
Operating costs (1,174) (11) (1,185)
==================================== ==== ============ =========== ========
Operating profit 284 - 284
==================================== ==== ============ =========== ========
On retrospective application of new accounting policies
compliant with IFRS 15 the following adjustments were made to
previously reported results for the six months to 30 June 2017:
-- Increase in Broadcast & Online revenue of GBP16
million;
-- Reduction in ITV Studios revenue of GBP5 million; and
-- Increase in operating costs of GBP11 million.
Various costs in the Broadcast & Online division which are
now deemed to be attributable to revenue have been reclassified,
increasing revenue by total of GBP16 million with a corresponding
increase in operating costs.
Certain contracts for production of programs in ITV Studios meet
over-time revenue recognition criteria under IFRS 15, compared to
point-in-time recognition under the previous standard. This change
has resulted in a reduction in revenue by GBP5 million with a
corresponding reduction in operating costs. The comparative balance
sheet was adjusted for the impact of this timing difference.
The vast majority of the Group's revenue was recognised at
point-in-time in the six months to 30 June 2018.
As the effect of the application of IFRS 15 is not material,
further details of the new significant accounting policies will be
set out in the Group's consolidated financial statements as at and
for the year ending 31 December 2018.
Financial instruments
IFRS 9 sets out requirements for recognising and measuring
financial assets, financial liabilities and some contracts to buy
or sell non-financial items. This standard replaces IAS 39
'Financial Instruments: Recognition and Measurement'.
Adoption of IFRS 9 resulted in no adjustments to previously
reported results.
As the effect of the application of IFRS 9 is not material, the
details of the new significant accounting policies will be set out
in the Group's consolidated financial statements as at and for the
year ending 31 December 2018.
New or amended EU endorsed accounting standards
Details of new or revised accounting standards, interpretations
or amendments which are effective for periods beginning on or after
1 January 2018 and which are considered to have an impact on the
Group can be found in the annual financial statements for the year
ended 31 December 2017.
IFRS 16 'Leases' is effective 1 January 2019. IFRS 16 will
change lease accounting for lessees under operating leases. Such
agreements will require recognition of an asset, representing the
right to use the leased item, and a liability, representing future
lease payments. Lease costs (such as property rent) will be
recognised in the form of depreciation and interest, rather than as
an operating cost.
The detailed assessment of impact on the Group's performance is
progressing, with the current focus on the modelling of impact
based on the lease database.
The adoption is likely to have a material impact on the
presentation of the Group's assets and liabilities, mainly due to
property leases. Due to the quantity of leases under review, the
Group has not substantially completed the assessment of lease
contracts under the new accounting standard. Therefore, a
quantification of the impact on the Group's results cannot yet be
reliably estimated.
Section 2: Results for the Period
In this section
This section focuses on the results and performance of the
Group. On the following pages you will find disclosures explaining
the Group's results for the period, segmental information and
earnings per share.
2.1 Profit before tax
Keeping it simple
Adjusted earnings before interest, tax and amortisation
(adjusted EBITA) is the Group's key profit indicator. This reflects
the way the business is managed and how the Directors assess the
performance of the Group.
The Group has two divisions, or operating segments, namely
'Broadcast & Online' and 'ITV Studios', the performance of
which are managed and assessed separately by management. This
section also shows each division's contribution to total revenue
and adjusted EBITA.
Segmental information
Operating segments, which have not been aggregated, are
determined in a manner that is consistent with how the business is
managed and reported to the Board of Directors. The Board is
regarded as the chief operating decision maker.
The Board considers the business primarily from an operating
activity perspective. The reportable segments for the periods ended
30 June 2018 and 30 June 2017 are therefore Broadcast & Online
and ITV Studios, the results of which are outlined in the following
tables:
Broadcast
& Online ITV Studios Consolidated
2018 2018 2018
For the six month period to 30 June GBPm GBPm GBPm
==================================== ========= =========== ============
Total segment revenue 1,045 803 1,848
Intersegment revenue (1) (254) (255)
==================================== ========= =========== ============
Revenue from external customers 1,044 549 1,593
==================================== ========= =========== ============
Adjusted EBITA* 257 118 375
==================================== ========= =========== ============
Broadcast
& Online ITV Studios Consolidated
2017 2017 2017
For the six month period to 30 June (restated**) GBPm GBPm GBPm
================================================= ========= =========== ============
Total segment revenue 1,016 692 1,708
Intersegment revenue - (239) (239)
================================================= ========= =========== ============
Revenue from external customers 1,016 453 1,469
================================================= ========= =========== ============
Adjusted EBITA* 293 110 403
================================================= ========= =========== ============
* Adjusted EBITA is before exceptional items and includes the
benefit of production tax credits. It is shown after the
elimination of intersegment revenue and costs.
** The Group has applied IFRS 15 'Revenue from Contracts with
Customers' at 1 January 2018. Under the transition method chosen,
the comparative information has been restated. See Section 1.
Disaggregation of revenue
In the following table, revenue is disaggregated by major
service lines and primary geographical market. The table also
includes a reconciliation of the disaggregated revenue with the
Group's reportable segments.
2018 2017
For the six month period to 30 June GBPm GBPm
==================================== ===== =====
Total Advertising revenue 890 871
Direct to Consumer 41 29
SDN 36 35
Other 78 81
==================================== ===== =====
Total Broadcast & Online revenue 1,045 1,016
==================================== ===== =====
2018 2017
For the six month period to 30 June GBPm GBPm
==================================== ===== =====
Studios UK 328 306
ITV America 141 138
Studios RoW 247 159
Global Entertainment 87 89
==================================== ===== =====
Total ITV Studios revenue 803 692
==================================== ===== =====
Adjusted EBITA
A reconciliation from adjusted EBITA to profit before tax is
provided as follows:
2018 2017
For the six month period to 30 June GBPm GBPm
============================================================== ===== =====
Adjusted EBITA 375 403
Production tax credits (8) (8)
============================================================== ===== =====
EBITA before exceptional items 367 395
Operating exceptional items (41) (53)
Amortisation and impairment (41) (58)
Net financing costs (18) (23)
Share of losses of joint ventures and associated undertakings (3) (2)
Gain on sale of non-current assets (exceptional items) 1 -
============================================================== ===== =====
Profit before tax 265 259
============================================================== ===== =====
A reconciliation of Profit before tax to Adjusted Profit before
tax is included in the Operating and Financial Review.
2.2 Earnings per share
Keeping it simple
Earnings per share ('EPS') is the amount of post-tax profit
attributable to each share.
Basic EPS is calculated on the Group profit for the period
attributable to equity shareholders of GBP212 million (2017: GBP203
million) divided by 3,998 million (2017: 4,010 million) being the
weighted average number of shares in issue during the period, which
excludes EBT shares held in trust.
Diluted EPS reflects any commitments made by the Group to issue
shares in the future and so it includes the impact of share
options.
Adjusted EPS is presented in order to show the business
performance of the Group in a consistent manner and reflect how the
business is managed and measured on a day-to-day basis. Adjusted
EPS reflects the impact of operating and non-operating exceptional
items on Basic EPS. Other items excluded from Adjusted EPS are
amortisation and impairment; net financing cost adjustments and the
tax adjustments relating to these items. Each of these adjustments
are explained in detail in the section below.
The calculation of Basic EPS and Adjusted EPS, together with the
diluted impact on each, is set out below:
Earnings per share
2018 2017
For the six month period to 30 June GBPm GBPm
========================================================== ===== =====
Profit for the period attributable to equity shareholders
of ITV plc 212 203
Weighted average number of ordinary shares in issue -
million 3,998 4,010
Earnings per ordinary share 5.3p 5.1p
========================================================== ===== =====
The weighted average number of ordinary shares has decreased in
the period due to a large number of shares purchased by the Group
on behalf of the Employee Benefit Trust in late 2017.
Diluted earnings per share
2018 2017
For the six month period to 30 June GBPm GBPm
========================================================== ===== =====
Profit for the period attributable to equity shareholders
of ITV plc 212 203
Weighted average number of ordinary shares in issue -
million 3,998 4,010
Dilution due to share options 11 9
========================================================== ===== =====
Total weighted average number of ordinary shares in issue
- million 4,009 4,019
========================================================== ===== =====
Diluted earnings per ordinary share 5.3p 5.1p
========================================================== ===== =====
Adjusted earnings per share
2018 2017
For the six month period to 30 June Ref. GBPm GBPm
========================================================== ===== ===== =====
Profit for the period attributable to equity shareholders
of ITV plc 212 203
Exceptional items (net of tax) A 37 50
========================================================== ===== ===== =====
Profit for the period before exceptional items 249 253
Amortisation and impairment B 34 48
Adjustments to net financing costs C 2 5
Other tax adjustments - 1
================================================================= ===== =====
Adjusted profit 285 307
Total weighted average number of ordinary shares
in issue - million 3,998 4,010
Adjusted earnings per ordinary share 7.1p 7.7p
================================================================= ===== =====
Diluted adjusted earnings per share
2018 2017
For the six month period to 30 June GBPm GBPm
========================================================== ===== =====
Adjusted profit 285 307
Weighted average number of ordinary shares in issue -
million 3,998 4,010
Dilution due to share options 11 9
========================================================== ===== =====
Total weighted average number of ordinary shares in issue
- million 4,009 4,019
========================================================== ===== =====
Diluted adjusted earnings per ordinary share 7.1p 7.6p
========================================================== ===== =====
The rationale for determining the adjustments to profit is
disclosed in the 31 December 2017 Annual Report and has not changed
during the period. Details of the adjustments to earnings are as
follows:
A. Exceptional items (net of tax) GBP37 million (2017: GBP50
million), calculated as total of:
-- operating and non-operating exceptional items of GBP40
million (2017: GBP53 million), relating to GBP27 million of
acquisition-related expenses, primarily performance-based,
employment linked consideration and other items including property
project costs of GBP14 million,
-- net of a tax credit of GBP3 million (2017: GBP3 million).
B. Amortisation and impairment of GBP34 million (2017: GBP48
million), calculated as total of:
-- amortisation and impairment of assets acquired through
business combinations and investments of GBP38 million (2017: GBP55
million), excluding amortisation and impairment of software
licenses and development of GBP3 million (2017: GBP3 million),
-- net of a related tax credit of GBP4 million (2017: GBP7
million).
C. Adjustments to net financing costs GBP2 million (2017: GBP5
million). Net financing costs are adjusted for:
-- mark-to-market movements on derivative instruments, foreign
exchange and imputed pension interest charges of GBP3 million
(2017: GBP6 million),
-- net of a related tax credit of GBP1 million (2017: GBP1
million).
Dividends
Equity dividends are derived from distributable reserves of the
ITV plc Company and not from the consolidated Group, and therefore
the consolidated retained loss presented on the condensed
consolidated balance sheet does not represent a block to our
dividend policy.
For the period of investment in 2018 and 2019 the Board intends
to pay at least an 8p dividend per year. This reflects the Board's
confidence in the business and in the new strategy as well as the
continued strong cash generation. The Board expects that over the
medium term the dividend will grow broadly in line with
earnings.
Consistent with this, the Board has declared an interim dividend
of 2.6p which is up 3% on 2017.
Section 3: Operating Assets and Liabilities
In this section
This section shows the assets used to generate the Group's
trading performance and the liabilities incurred as a result. On
the following pages there are notes covering provisions and
pensions.
Liabilities relating to the Group's financing activities are
addressed in section 4.
3.1 Provisions
Keeping it simple
A provision is recognised by the Group where an obligation
exists relating to events in the past and it is probable that cash
will be paid to settle it.
A provision is made where the Group is not certain how much cash
will be required to settle a liability, so an estimate is required.
The main estimates relate to the cost of holding properties that
are no longer in use by the Group, the likelihood of settling legal
claims and contracts the Group has entered into that are now
unprofitable.
Provisions
There have been no movements in provisions during the
period:
Legal
Contract Property and Other
provisions provisions provisions Total
GBPm GBPm GBPm GBPm
================== =========== =========== =========== =====
At 1 January 2018 3 4 16 23
================== =========== =========== =========== =====
At 30 June 2018 3 4 16 23
================== =========== =========== =========== =====
Provisions of GBP16 million are classified as current
liabilities (31 December 2017: GBP16 million). Unwind of the
discount is GBPnil in 2018 and 2017.
Contract provisions comprise onerous commitments on playout and
related services that are not expected to be utilised over the
remaining contract period.
Property provisions primarily relate to expected dilapidation
costs at temporary rental properties.
Legal and Other provisions totalling GBP16 million (31 December
2017: GBP16 million) primarily relate to potential liabilities that
may arise as a result of Boxclever having been placed into
administrative receivership, most of which relate to pension
arrangements. In 2011, the Determinations Panel of the Pensions
Regulator determined that Financial Support Directions should be
issued against certain Group companies, which would require the
Group to put in place financial support for the Boxclever Scheme.
The Group challenged this in the Upper Tribunal. In May 2018 the
Upper Tribunal reached a decision to allow the Pension Regulator to
issue Financial Support Directions. However, subsequently in June
2018 the Upper Tribunal allowed ITV to appeal its decision and such
appeal was made in July 2018.
The Directors, having taken advice, believe that they continue
to have a strong case. There are significant points of legal
principle at issue and consequently any potential liability may
take a significant period to resolve. The Directors continue to
believe that the provision held is appropriate.
3.2 Pensions
Keeping it simple
In this note we explain the accounting policies governing the
Group's pension scheme, followed by analysis of the components of
the net defined benefit pension deficit/surplus, including
assumptions made, and where the related movements have been
recognised in the financial statements.
What are the Group's pension schemes?
There are two types of pension schemes. A 'Defined Contribution'
scheme that is open to ITV employees, and a number of 'Defined
Benefit' schemes that have been closed to new members since 2006
and closed to future accrual in 2017. In 2016, on acquisition of
UTV Limited, the Group took over the UTV Defined Benefit Scheme,
which remains open to future accrual.
What is a Defined Contribution scheme?
The Defined Contribution scheme is where the Group makes fixed
payments into a separate fund on behalf of those employees
participating in saving for their retirement. ITV has no further
obligation to the participating employee and the risks and rewards
associated with this type of scheme are assumed by the members
rather than the Group. Although the Trustee of the scheme makes
available a range of investment options, it is the members'
responsibility to make investment decisions relating to their
retirement benefits.
What is a Defined Benefit scheme?
In a Defined Benefit scheme, members receive payments during
retirement, the value of which is dependent on factors such as
salary and length of service. The Group makes contributions to the
scheme, a separate trustee-administered fund that is not
consolidated in these financial statements, but is reflected on the
defined benefit pension surplus/deficit line on the consolidated
statement of financial position.
The Trustee, appointed according to the terms of the scheme's
documentation, is required to act in the best interest of the
members and is responsible for managing and investing the assets of
the scheme and its funding position.
The Group has a Pension Steering Committee, which liaises with
the Trustee and has oversight of the management of the pension
schemes and underlying risks.
In the event of poor returns, the Group may need to address this
through a combination of increased levels of contribution or by
making adjustments to the scheme. Schemes can be funded, where
regular cash contributions are made by the employer into a fund
which is invested, or unfunded, where no regular money or assets
are required to be put aside to cover future payments but in some
cases security is required.
The Group has determined that it has an unconditional right to a
refund of any surplus if the Schemes are run off until the last
member dies. On this basis the Group has recognised an accounting
surplus as at 30 June 2018.
The accounting defined benefit pension surplus/deficit (IAS 19)
is different from the actuarial valuation deficit as they are
calculated on the basis of different assumptions, such as discount
rate. The accounting defined benefit pension surplus/deficit (IAS
19) figure is calculated as at the balance sheet date, and the
actuarial deficit was calculated for the last triennial valuation
as of 1 January 2017.
The net pension surplus/deficit is presented consistently with
definitions presented in the Group's 2017 Annual Report.
The net pension surplus at 30 June 2018 was GBP86 million,
compared with a deficit of GBP83 million at 31 December 2017. The
reduction in deficit was primarily as a result of a decrease in the
gross liability together with deficit funding payments of GBP47
million made in the period, offset by a reduction in the value of
assets.
The gross liability reduced principally due to an increase in
the corporate bond yields. This was further improved by a decrease
in the market expectation of long-term inflation rates. The gross
assets' value declined as a result of gilt yield increase.
The 1 January 2017 actuarial valuation was agreed during the
period. On the basis agreed with the Trustee, the combined deficits
of the ITV Pension Scheme as at 1 January 2017 amounted to GBP470
million. The total expected deficit funding contribution for 2018
will be consistent with prior years. In 2019, we expect deficit
funding contributions of around GBP75 million.
30 June 31 December
2018 2017
GBPm GBPm
===================================================== ======= ===========
Total defined benefit scheme obligations (3,731) (3,987)
Total defined benefit scheme assets 3,775 3,866
===================================================== ======= ===========
Defined benefit pension surplus/(deficit) (IAS 19) 44 (121)
===================================================== ======= ===========
Presented as:
Defined benefit pension surplus 98 16
Defined benefit pension deficit (54) (137)
===================================================== ======= ===========
Defined benefit pension surplus/(deficit) (IAS 19) 44 (121)
===================================================== ======= ===========
Other pension asset 42 38
===================================================== ======= ===========
Net pension surplus/(deficit) 86 (83)
===================================================== ======= ===========
Section 4: Capital Structure and Financing Costs
In this section
This section outlines how the Group manages its capital
structure and related financing costs, including its balance sheet
liquidity and access to capital markets.
The Directors determine the appropriate capital structure of
ITV, specifically how much is raised from shareholders (equity) and
how much is borrowed from financial institutions (debt) in order to
finance the Group's activities both now and in the future.
The Directors have reviewed the Group's capital allocation in
light of the new strategy. Maintaining capital discipline and
balance sheet efficiency remains important to the Group. Any
investment decisions are based upon value creation and returns
analysis, taking into account returns to shareholders, the Group's
liquidity needs, pension deficit initiatives and impact on credit
ratings.
The Directors will continue to consider the Group's capital
structure and dividend policy at least twice a year ahead of
announcing results and do so in the context of its ability to
continue as a going concern, to execute the new strategy and to
invest in opportunities to grow the business and enhance
shareholder value.
A Tax and Treasury committee acting under delegated authority
from the Board, approves certain financial transactions and
monitors compliance with the Group's tax and treasury policies.
4.1 Net debt
Keeping it simple
Net debt is the Group's key measure used to evaluate total cash
resources net of the current outstanding debt.
Adjusted net debt is also monitored by the Group and more
closely reflects how credit agencies see the Group's gearing. To
arrive at the adjusted net debt amount, we add our total
undiscounted expected contingent payments on acquisitions, our net
pension deficit (if any) and our undiscounted operating lease
commitments. A full analysis and discussion of adjusted net debt is
included in the Operating and Financial Review.
The tables below analyse movements in the components of net debt
during the period:
Currency
and
1 January Net cash non-cash 30 June
2018 flow Acquisitions movements 2018
GBPm GBPm GBPm GBPm GBPm
====================================== ========= ======== ============ ========== =======
Cash 121 (32) - 1 90
Cash equivalents 5 - - - 5
====================================== ========= ======== ============ ========== =======
Total cash and cash equivalents 126 (32) - 1 95
====================================== ========= ======== ============ ========== =======
Loans and facilities due within one
year (76) (93) - - (169)
Loans and facilities due after one
year (982) 1 - 3 (978)
====================================== ========= ======== ============ ========== =======
Total debt (1,058) (92) - 3 (1,147)
====================================== ========= ======== ============ ========== =======
Currency component of swaps held
against euro denominated bonds 20 - - (2) 18
====================================== ========= ======== ============ ========== =======
Net debt (912) (124) - 2 (1,034)
====================================== ========= ======== ============ ========== =======
Loans and facilities due within one year
The Group has GBP630 million of available funding through a
Revolving Credit Facility ('RCF') with a group of relationship
banks. During the period the Group drew down on the RCF to meet
short-term funding requirements. At 30 June 2018 the Group had
drawings of GBP160 million (31 December 2017: GBP60 million). The
maximum draw down of the RCF during the period was GBP300 million
(2017: maximum draw down was GBP390 million).
Loans and loan notes due after one year
The Group has issued the following Eurobonds:
-- A seven-year EUR600 million Eurobond at a fixed coupon of
2.125% which matures in September 2022; and
-- A seven-year EUR500 million Eurobond at a fixed coupon of
2.0% which will mature in December 2023. The bond issued in
December 2016 has been swapped back to sterling using a cross
currency interest swap. The resulting fixed rate payable is c.
3.5%.
The Group has GBP100 million available under a non-recourse
receivables purchase agreement. As at 30 June 2018 GBP30 million
was available under the agreement (31 December 2017: GBP10
million).
4.2 Borrowings
Keeping it simple
The Group borrows money from financial institutions in the form
of bonds, bank facilities and other financial instruments.
The Group is required to disclose the fair value of its debt
instruments. The fair value is the amount the Group would pay a
third party to transfer the liability. It is calculated based on
the present value of future principal and interest cash flows,
discounted at the market rate of interest at the reporting
date.
Fair value versus book value
The tables below provide fair value information for the Group's
borrowings:
Book value Fair value
==================== ====================
30 June 31 December 30 June 31 December
2018 2017 2018 2017
Maturity GBPm GBPm GBPm GBPm
================================ ========== ======= =========== ======= ===========
Loans due within one year
Other short-term loans Various 9 16 9 16
Revolving Credit Facility Various 160 60 160 60
================================ ========== ======= =========== ======= ===========
Loans due in more than one year
Other long-term loans Various 8 9 8 9
EUR600 million Eurobond Sept 2022 528 529 558 560
EUR500 million Eurobond Dec 2023 442 444 459 461
================================ ========== ======= =========== ======= ===========
1,147 1,058 1,194 1,106
=========================================== ======= =========== ======= ===========
4.3 Managing market risks: derivative financial instruments
Keeping it simple
What is a derivative?
A derivative is a type of financial instrument typically used to
manage risk. A derivative's value changes over time in response to
underlying variables such as exchange rates or interest rates and
is entered into for a fixed period. A hedge is where a derivative
is used to manage exposure in such risks.
The Group is exposed to certain market risks. In accordance with
Board approved policies, which are set out in this note, the Group
manages these risks by using derivative financial instruments to
hedge the underlying exposures.
Why do we need them?
The key market risks facing the Group are:
-- Currency risk arising from:
i. translation risk, that is, the risk in the period of adverse
currency fluctuations in the translation of foreign currency
profits, assets and liabilities ('balance sheet risk') and
non-functional currency monetary assets and liabilities ('income
statement risk'); and
ii. transaction risk, that is, the risk that currency
fluctuations will have a negative effect on the value of the
Group's non-functional currency trading cash flows. A
non-functional currency transaction is a transaction in any
currency other than the reporting currency of the subsidiary.
-- Interest rate risk to the Group arises from significant
changes in interest rates on borrowings issued at or swapped to
floating rates.
How do we use them?
The Group mainly employs three types of derivative financial
instruments when managing its currency and interest rate risk:
-- Foreign exchange swap contracts are derivative instruments
used to hedge income statement translation risk arising from short
term intercompany loans denominated in a foreign currency;
-- Forward foreign exchange contracts are derivative instruments
used to hedge transaction risk so they enable the sale or purchase
of foreign currency at a known fixed rate on an agreed future date;
and
-- Cross-currency interest rate swaps are derivative instruments
used to exchange the principal and interest coupons in a debt
instrument from one currency to another.
The Group's policy on the various methods used to calculate
their respective fair values is detailed in the 31 December 2017
Annual Report and summarised below.
The Group held certain derivative instruments at 30 June
2018.
Assets Liabilities
At 30 June 2018 GBPm GBPm
========================================================== ====== ===========
Current
Foreign exchange forward contracts and swaps - cash flow
hedges 2 (2)
Foreign exchange forward contracts and swaps - fair value
through profit or loss 1 (3)
Non-current
Cross currency interest swaps - cash flow hedges 15 (2)
========================================================== ====== ===========
18 (7)
========================================================== ====== ===========
Assets Liabilities
At 31 December 2017 GBPm GBPm
========================================================== ====== ===========
Current
Foreign exchange forward contracts and swaps - cash flow
hedges 4 (1)
Foreign exchange forward contracts and swaps - fair value
through profit or loss 2 (1)
Non-current
Cross currency interest swaps - cash flow hedges 10 -
Foreign exchange forward contracts and swaps - cash flow
hedges - (1)
========================================================== ====== ===========
16 (3)
========================================================== ====== ===========
4.4 Fair value hierarchy
Keeping it simple
The financial instruments included on the ITV condensed
consolidated statement of financial position are measured at either
fair value or amortised cost. The measurement of this fair value
can in some cases be subjective, and can depend on the inputs used
in the calculations. ITV generally uses external valuations using
market inputs or market values (e.g. external share prices). The
different valuation methods are called 'hierarchies' and are
described below.
Level 1
Fair values are measured using quoted prices (unadjusted) in
active markets for identical assets or liabilities.
Level 2
Fair values are measured using inputs, other than quoted prices
included within Level 1, that are observable for the asset or
liability either directly or indirectly.
Level 3
Fair values are measured using inputs for the asset or liability
that are not based on observable market data
The tables below set out the financial instruments included in
the Group's condensed consolidated statement of financial position
at 'fair value'.
Level Level Level
Fair value 1 2 3
30 June 2018 GBPm GBPm GBPm GBPm
====================================================== ========== ===== ===== =====
Assets measured at fair value
Available-for-sale financial instruments
Other pension assets - gilts (see note 3.2) 42 42 - -
Available-for-sale investments 4 - - 4
Financial assets at fair value through profit
or loss
Foreign exchange forward contracts and swaps 1 - 1 -
Financial assets at fair value through reserves
Cash flow hedges 17 - 17 -
====================================================== ========== ===== ===== =====
64 42 18 4
====================================================== ========== ===== ===== =====
Liabilities measured at fair value
Financial liabilities at fair value through
profit or loss
Foreign exchange forward contracts and swaps (3) - (3) -
Acquisition-related liabilities - payable
to sellers under put options agreed on acquisition (76) - - (76)
Financial liabilities at fair value through
reserves
Cash flow hedges (4) - (4) -
====================================================== ========== ===== ===== =====
(83) - (7) (76)
====================================================== ========== ===== ===== =====
The accounting policies for how we value level 3 instruments are
disclosed in the December 2017 Annual Report.
Commitments on acquisitions
Other payables include GBP169 million (31 December 2017: GBP161
million) of acquisition-related liabilities, of which GBP93 million
(31 December 2017: GBP88 million) is employment linked contingent
consideration and GBP76 million (31 December 2017: GBP73 million)
is payable to sellers under put options agreed on acquisition.
Section 5: Other Notes
5.1 Related party transactions
Keeping it simple
The related parties identified by the Directors include joint
ventures, associated undertakings, available-for-sale investments
and key management personnel.
To enable users of our financial statements to form a view about
the effects of related party relationships on the Group, we
disclose the Group's transactions with those related parties during
the period and any associated period end trading balances.
Transactions with joint ventures and associated undertakings
Transactions with joint ventures and associated undertakings
during the period were:
2018 2017
GBPm GBPm
======================================= ===== =====
Sales to joint ventures 3 8
Sales to associated undertakings 8 6
Purchases from joint ventures 13 13
Purchases from associated undertakings 34 35
======================================= ===== =====
The transactions with joint ventures primarily relate to sales
and purchases of digital multiplex services with Digital 3&4
Limited.
Sales to associated undertakings largely relate to advertising
sold to DTV. Purchases from associated undertakings primarily
relate to the purchase of news services from ITN.
All transactions with associated undertakings and joint ventures
arise in the normal course of business on an arm's length basis.
None of the balances are secured.
The amounts owed by and to these related parties at the period
end were:
30 June 31 December
2018 2017
GBPm GBPm
======================================== ======== ============
Amounts owed by joint ventures 1 6
Amounts owed by associated undertakings 7 6
Amounts owed to joint ventures 2 -
Amounts owed to associated undertakings 4 4
======================================== ======== ============
Balances owed by associated undertakings largely relate to loan
notes.
Transactions with key management personnel
Key management consists of ITV plc Executive and Non-executive
Directors and the ITV Management Board. Key management personnel
compensation is as follows:
2018 2017
For the six month period to 30 June GBPm GBPm
==================================== ===== =====
Short-term employee benefits 6 4
Share-based compensation 3 1
==================================== ===== =====
9 5
==================================== ===== =====
5.2 Contingent liabilities
Keeping it simple
A contingent asset or liability is an item that is not
sufficiently certain to qualify for recognition as an asset or a
provision where uncertainty may exist regarding the outcome of
future events.
Contingent liabilities
In 2017 the Group initiated legal proceedings against the
minority owners of Gurney Productions LLC for alleged breaches of
contracts and their fiduciary duties, as well as self-dealing and
fraudulent concealment. The minority owners dispute the allegations
and they have counter-claimed for damages of at least $150 million.
The action is ongoing and, having taken legal advice, the Directors
believe this counter-claim is completely without merit.
There are contingent liabilities in respect of certain
litigation and guarantees, broadcasting issues, and in respect of
warranties given in connection with certain disposals of
businesses. None of these items are expected to have a material
effect on the Group's results or financial position.
Responsibility Statement of the Directors in Respect of the
Half-Yearly Financial Report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules
, being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules
, being related party transactions that have taken place in the
first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
For and on behalf of the Board:
Ian Griffiths
Chief Operating Officer and Group Finance Director
25 July 2018
Independent Review Report to ITV plc
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Comprehensive Income, Condensed Consolidated Statement of Financial
Position, Condensed Consolidated Statement of Changes in Equity,
Condensed Consolidated Statement of Cash Flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in Section 1, annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company for our
review work, for this report, or for the conclusions we have
reached.
Paul Sawdon
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
25 July 2018
This information is provided by RNS, the news service of the
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