ITV Plc Full Year Results for the Year Ended 31 Dec 2020
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ITV plc Full year results for the year ended 31 Dec 2020 Carolyn McCall, Chief Executive, said: “Throughout this last year, we have all been dealing with the effects of the pandemic. As the UK’s largest commercial network, we’ve worked hard to fulfil our responsibility as a source of reliable and trusted news and to deliver some of the best entertainment into the country’s homes. “I’m proud of the work of all our colleagues and thank them for their dedication, creativity and hard work to successfully manage our way through the crisis while continuing to invest in our strategy. Our production teams were very innovative in restarting productions quickly and safely in the UK and internationally, while our commercial colleagues inspired advertisers to restart their marketing campaigns. “Good progress has been made in delivering our strategic priorities with the rollout of our programmatic addressable advertising platform, Planet V, to agencies to a very positive response; the acceleration of the transformation of the ITV Hub; BritBox UK is ahead of plan hitting half a million subscriptions in January 2021; and BritBox US increased its subscriptions by 50% over the year - we now have over 2.6m subscriptions globally across all our SVOD services. “While total revenues and profits were down our financial performance was ahead of expectations driven by a strong end to Q4 and our firm control over costs. “We are encouraged by the roadmap out of lockdown. We are seeing more positive trends in the advertising market in March and April and the majority of our programmes are now back in production. However, there remains uncertainty in all markets around the world with the potential risk of lockdowns, which if they materialise will affect revenues. We are committed to taking further cost out of the business while further investing to accelerate the delivery of our strategy and digital transformation. We have restructured the Broadcast business to create the Media and Entertainment Division to better respond to changing viewing habits. ITV Studios is well positioned to take advantage of the continued strong growth in the demand for quality content internationally.” 2020 Financial performance has been materially impacted by COVID-19 • Total external revenue was down 16% at £2,781m – ITV Studios total revenues were down 25%, impacted by the disruption to the majority of our productions from March – Total Broadcast revenues were down 8%, with total advertising down 11% despite VOD advertising up 17% • Adjusted Group EBITA was down 21% at £573m which is better than external expectations, driven by the strong end to Q4 and tight cost control delivering £116m of overhead savings of which £21m are permanent – ITV Studios adjusted EBITA was down 43% to £152m, impacted by the decline in revenue and the costs associated with COVID-19 safety measures – Broadcast adjusted EBITA was down 9% to £421m, with the decline in advertising partly offset by the reduction in the programme budget • Adjusted EPS was 10.9p, down 22% • Statutory EPS was 7.1p, down 40% Operational update: ITV Studios • 2020: – With the determination and innovation of the team, ITV’s productions started to resume from the summer under our strict safety protocols – We have invested in our creative development and creative talent as we have further strengthened our UK and international business and continue to diversify our customer base • SnowPiercer for TNT and Netflix has been recommissioned for a third series and Love Island is now in 20 countries • 2021: – Our key strategic focus is to internationalise our formats, grow our scripted business and increase our commissions for OTT platforms – In spite of the restrictions in place, as of today we have about 90% of programmes back in production – We are monitoring and evaluating the situation but with the prevalence of the virus we do expect that there may be some continued disruption and delay with increased costs due to safety protocols 1 Total advertising revenue (TAR): • 2020: – TAR finished the year well, with Q4 up 3% against the same period in 2019, as ITV continues to work closely with advertisers to develop innovative and effective marketing campaigns • 2021: – As expected the advertising environment in Q1 is challenging – We forecast TAR to be down around 6% in Q1, with strong growth in VOD up around 14%, assuming there is no change in the current planned restrictions – We are now seeing more positive trends, with March expected to be up around 8% and April expected to be up between 60% and 75%, with the four months to the end of April up between 5% and 7% Viewing: • 2020 – Total ITV viewing was up 1% – Due to the lack of VOD volume drivers, such as Love Island, fewer soaps and no major sporting events, online viewing was down 5% – ITV Family share of viewing (SOV) was down 4% partly impacted by the volume of the BBC’s news output during the year, fewer episodes of the soaps and less new content due to the pause in productions – ITV main channel had its third biggest SOV in a decade, with a 16.7% SOV • 2021 – Our strong schedule is delivering mass audiences and key demographics including The Pembrokeshire Murders, Finding Alice, The Bay, Dancing On Ice and The Masked Singer – The programme budget will increase to £1.1bn in line with historic levels – We are assessing the appropriate allocation of the NPB between linear and advertiser funded video on demand (AVOD) to balance our ability to deliver mass audiences and increase on-demand viewing – We expect our focused investment in the user experience and content of the Hub to drive good viewing on the Hub over the full year, assuming the schedule is not further disrupted Direct to Consumer • 2020 – Good performance from BritBox UK which is ahead of our business plan hitting 500,000 subscriptions in January 2021 – We have increased BritBox US subscriptions by 50% over the year and we now have over 2.6m subscriptions across all our SVOD products globally – Interactive revenues were strong with good demand for ITV’s competitions and the further development of ITV Win • 2021 – Continue to roll out new original content on BritBox UK including The Beast Must Die, The Secrets of the Krays and Spitting Image series 2 and BritBox will launch on Amazon Cost savings • 2020 – We have taken tough action on our costs and delivered £116m of cost savings, ahead of the guidance of £60m. Of this £21m are permanent savings, ahead of the guidance of £10m. • 2021 – We will now deliver around £100m of annualised permanent overhead cost savings by 2022 (from 2019), compared to our previous guidance of £55 to £60m. Around £30m of these savings will be delivered in 2021. Further amplifying ITV’s social purpose, raising awareness and inspiring positive change • Multiple campaigns to help improve physical and mental health, including Eat Them To Defeat Them, The Daily Mile and Britain Get Talking • ITV has committed to become a Net Zero carbon business by 2030 and we are a signatory to TCFD 2 • ITV’s Diversity Acceleration Plan is making progress including running external diversity campaigns, such as Black Voices and Black History Month, as well as internal campaigns such as Step Up 60 and additional apprenticeship positions Delivering our strategic priorities and accelerating our More Than TV Strategy • ITV Studios is one of the largest independent producers globally. We continue to strengthen our pipeline of new and returning scripted and unscripted shows and increasingly diversify our customer base • We have restructured the broadcast business to create the Media and Entertainment division with two business units – Broadcast and On- demand - to better reflect and serve changes in viewer habits and to streamline ways of working • We have further strengthened the ITV Hub which has 33m registered users, up 6%; expanded its content by extending the catch up window and adding short form content; and improved the user experience with increased personalisation and the continuous Hub redesign • We have successfully rolled out Planet V to the majority of the large agencies; Samsung TV Plus is confirmed as Planet V’s first third party publisher partner • International rollout of BritBox is progressing well with the successful launch of BritBox in Australia in Q4 2020. South Africa is due to launch in 2021 and further roll out will follow • We have made good progress in our digital transformation to improve our agility and efficiency and to better support our increasingly digital business ITV has good access to liquidity and its financial position remains robust • Reported net debt of £545m at 31 December 2020 (31 December 2019: £893m), which is unusually low, benefitting from a favourable working capital position, deferred VAT payments and is before earnout payments which we anticipate paying in 2021 • Reported net debt to adjusted EBITDA leverage of 0.9x (31 December 2019: 1.2x) • Strong cash conversion of 138% reflecting a favourable working capital position from the reduction in stock and the deferral of VAT payments. This will unwind in 2021 and so taking 2020 and 2021 together, profit to cash conversion is expected to be 80% to 85% over the two years • Total liquidity of £1,497m comprising cash of £668m and committed undrawn facilities of £829m • The Board recognises the importance of the dividend to our shareholders and intends to restore dividend payments as soon as circumstances permit. The Board will balance shareholder returns with our commitment to maintain investment grade metrics over the