ITV launches its new strategy from a position of strength: Interim results for the six months to 30 June 2018

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 £1,593 million (2017: £1,469 million) with non-advertising revenues up 14% at £958m (2017: £837 million)

• Total ITV Studios revenue up 16% at £803 million (2017: £692 million), including £12 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 £118 million (2017: £110 million)

• Broadcast & Online EBITA down 12% to £257 million (2017: £293 million) reflecting the timing of the Football World Cup as previously guided

• Adjusted EBITA down 7% at £375 million (2017: £403 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 £60 million of investments over the period to 2021, with no change in 2018 guidance and £40 million of investment in 2019

• Targeting £35 to £40 million cost savings from 2019 to 2021, with £15 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 £100m

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 £40 million across the business in the new strategy and over the course of the three years we will invest a total of £60million. This will be offset by £35 to £40 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 £20 to £25 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 £100 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.