ITV plc : Full Year Results 2013

26th February 2014

ITV delivers another year of strong growth - full year results for the year ended 31 December 2013

Strong revenue growth driven by Non-NAR

• Total external revenues up 9% to £2,389m (2012: £2,196m)
• Non-NAR revenues up £175m to £1,211m as we continue to rebalance
• Broadcast & Online revenues up 3% driven by 16% growth in Online, Pay & Interactive and 2% growth in NAR
• ITV Studios revenues up 20% with good organic growth and acquisitions coming through as planned

Double digit profit growth for the 4th year in a row

• EBITA before exceptional items up £107m or 21% to £620m
• Broadcast & Online EBITA up 20% at £487m
• ITV Studios EBITA up 24% at £133m
• Adjusted PBT up 27% at £581m
• Adjusted EPS up 23% at 11.2p
• Basic EPS up 26% at 8.3p

Investing in content is driving progress across ITV

• Best year on year on-screen performance for 10 years with ITV main channel up 3% and ITV Family SOV up 4%
• Long form video requests up 16% driven by mobile and tablets
• ITV Studios completed four acquisitions in UK and the US

Focus remains on cash and costs

• Delivered £28m of cost savings in 2013 and targeting a further £10m in 2014
• Profit to cash conversion remains strong at 97%
• Net cash of £164m
• Continued to improve efficiency of the balance sheet through debt buybacks and redemption of the convertible bond

Delivering increased shareholder returns

• The Board has proposed an ordinary dividend of 2.4p to give a full year dividend of 3.5p up 35% and a special dividend of 4.0p in line with last year

Strong 2013 creates a solid platform for 2014

• ITV Family NAR expected to be up 5% to 6% in the 4 months to end April 2014
• Online, Pay & Interactive should again deliver double digit growth in 2014 helped by the launch of ITV Encore
• Expect good growth in ITV Studios and we will continue to look at potential acquisitions

Adam Crozier, ITV plc Chief Executive, said:

ITV has taken another significant step forward with 9% revenue growth and for the fourth year in a row we delivered double digit profit growth.  All parts of the business are progressing well as we continue to rebalance ITV.  Total non-advertising revenues again grew strongly up £175m driven by good performances in ITV Studios and Online, Pay & Interactive.

The investment we have made in content has driven significant revenue and profit growth in ITV Studios - up 20% and 24% respectively - both organically and through the selective acquisitions we have made in the UK and the US.

Broadcast & Online performed well.  We delivered further strong growth in Online, Pay & Interactive up 16% as we again improved the quality and availability of ITV Player and ITV Family NAR was up 2% as the TV advertising market returned to growth.

Onscreen we've had our best year on year performance for ten years with share of viewing for ITV Family up 4% driven by our continued investment in our high quality schedules.

We remain focused on cash and costs. We delivered £28m of cost savings, our group margin has increased by three percentage points and our profit to cash conversion remains high. The strength of our underlying cash flow means that, even after significant investment across the business and increasing returns to our shareholders, we ended the year with £164m of net cash, a similar level to 2012.

The Board is proposing a final dividend of 2.4p to give a full year dividend of 3.5p, up 35% and a special dividend of 4.0p (£161m) in line with last year.  This reflects the board's confidence in the ongoing growth and cash generation of the business and balances the need to invest in the business for future growth with increasing returns to shareholders.

ITV is now demonstrably a much stronger company both operationally and financially. Over the last four years we've grown our revenues and delivered double digit profit growth every year, our adjusted earnings per share has increased six fold to 11.2p and our cash conversion has been consistently strong. While we've made good progress to date there is still much to do. We remain committed to our strategy for rebalancing the business, with growth increasingly coming from Online, Pay & Interactive and from ITV Studios internationally. 

In 2014 we again expect all parts of the business to see further growth. In ITV Studios we anticipate good growth, primarily driven by the acquisitions we have made in the UK and internationally. In Broadcast we have started the year with the announcement of two new channels - ITV Encore and ITVBe - and we expect to see double digit growth from Online, Pay & Interactive. The television advertising market continues to show signs of improvement, with ITV Family NAR expected to be up 5% to 6% over the four months to the end of April, and we expect to outperform our estimate of the television advertising market over the full year.

Full year results                 

* Following revisions to IAS 19, we have restated our prior period results which have resulted in a £7 million decrease in EBITA before exceptional items, a £7million decrease in adjusted profit before tax and a 0.1p decrease in adjusted EPS for 2012.

Adjusted profit before tax and adjusted EPS remove the effect of exceptional items which include acquisition related costs (professional fees, primarily due diligence, and performance based employment linked contingent payments), impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments and other tax adjustments.

The profit before tax and EPS from the Consolidated Income Statement are as follows:

* Following revisions to IAS 19, we have restated our prior period results which have resulted in a £14 million decrease in profit before tax and a 0.3p decrease in EPS for 2012.

Financial performance

We have again delivered a strong set of results with revenue growth and double digit adjusted EPS growth. There was good growth from all parts of the business, our acquisitions are making a material contribution and the relentless focus on costs and cash is evident in our financial results.

External revenues were up 9%. Total non-NAR revenues grew £175m (17%) and ITV Family NAR returned to growth up 2%. This combined with our £28m cost savings and our higher margin new revenue streams, saw us deliver 21% growth in EBITA to £620m and 23% in adjusted EPS to 11.2p. Group margins improved three percentage points to 26%.

We again maintained our tight focus on working capital management and delivered 97% profit to cash conversion. We finished the year with net cash of £164m even after significant investment across the business and increasing returns to shareholders.

Broadcast & Online

Broadcast & Online delivered a strong performance with 3% increase in revenues driven by 16% growth in Online, Pay & Interactive and 2% growth in ITV Family NAR as the television advertising market returned to growth. This combined with our tight control of costs saw us deliver a 20% increase in EBITA. Schedule costs were down year on year as a result of the savings we secured on our FA Cup and Champions League rights and lower sports costs due to absence of a large one-off sporting event.

On-screen we delivered our best year on year viewing performance for 10 years, with ITV Family SOV up 4% and looking ahead we will launch our new free to air lifestyle and reality channel, ITVBe, in 2014.

The television advertising market again showed significant fluctuations across the year, often driven by the timing of sports events and programmes delivering large audiences. ITV Family NAR was down 3% in the first half of the year due to the absence of a large one-off sporting event but this recovered over the second half. Over the full year ITV Family NAR was just behind our estimate of the television advertising market up 3% but it is getting increasingly difficult to measure the market as all broadcasters have differing definitions and therefore include sources of revenue other than pure spot advertising. Over the full year in 2014 we expect to outperform the television advertising market. Our robust on-screen performance in 2013, the strong schedule for 2014 including the FIFA World Cup, and the advertising deals we have done to date, puts us in a good position to achieve this.

Online, Pay & Interactive continued to grow strongly as we improved the quality and distribution of our content. This has driven long form video requests up 16% and our content is now available on 19 platforms. We have further developed our pay services with the renegotiation of our deals with Virgin, BT and Sky and in 2014 we will be launching our first pay drama channel, ITV Encore, on Sky.

ITV Studios

In 2013 we again delivered strong revenue growth up 20%. Through this revenue growth and our continued focus on costs, we have delivered 24% growth in EBITA.

All parts of the business performed well, with significant growth coming from International Productions both organically and through the acquisitions we have made. Total organic growth across the business was 7% and acquisitions contributed £97m of growth as we expected.

In 2013 we have completed four acquisitions in the UK and US against strict strategic and financial criteria, as we build an increasingly global production business.  In the UK we acquired The Garden and Big Talk, to enhance our capability in creating factual entertainment and comedy formats and to increase our strength in delivering commissions off-ITV.  In the US we acquired Thinkfactory Media and High Noon Entertainment to continue to build our strength and scale.

The initial consideration for the four acquisitions we have completed was £66m, with future consideration payable depending on the performance of the companies. The current expected total consideration for these acquisitions is £130m (undiscounted and including the initial cash consideration) and is payable only on the delivery of continued strong growth.

On 19 February 2014 we agreed to acquire a 51% controlling interest in DiGa Vision, the US independent producer of reality and scripted programming. There is a put and call option to buy the remainder of the company over 3 to 6 years, with the total amount payable linked to the performance of the company over that period.

The good growth in our UK and international production businesses is starting to feed our global distribution business but this is a process that does take time.

Adjusted EPS

Adjusted EPS was up 23% at 11.2p (2012: 9.1p). Adjusted financing costs were down £19m at £25m as a result of the debt bought back in 2012 and 2013.  Diluted adjusted EPS was up 24% to 10.8p.

The adjusted effective tax rate of 23% is largely in line with the statutory rate of UK corporation tax.

Basic EPS

EPS is 8.3p (2012: 6.6p) up 26%. The main differences between EPS and adjusted EPS are exceptional items including acquisition related costs, impairment of intangible assets, amortisation of intangible assets acquired through business combinations, net financing cost adjustments and other tax adjustments.

Balance sheet and net cash/debt

Net cash at the end of December 2013 was £164m compared to net debt at the end of June 2013 of £52m and net cash at the end of December 2012 of £206m.  We also look at an adjusted net debt figure which was £792m at the end of the year (31 Dec 2012: £899m) which includes our other financial commitments  - expected contingent payments on acquisitions, IAS19 pension deficit and operating leases.

One of the key strengths of our business is our strong cash generation but it is weighted to the second half of the year as we make a number of significant payments both regular and one-off in the first half of the year, including acquisitions, dividends, the pension deficit funding contribution, debt buybacks and the purchase of our London headquarters. Over the full year we increased our free cash flow by over £100m (32%) to £433m.

We have again improved the efficiency of our balance sheet having bought back £211m (nominal) of debt in the year. We bought back £138m (nominal) of the £200m 2019 loan and £73m (nominal) of the £135m convertible bond. In September we exercised our right to redeem the outstanding principle amount of the convertible bond. The redemption and conversion process was completed in October.

We improved our financial flexibility by extending the maturity of the committed £250m revolving credit facility (RCF) by a further year to July 2016. The facility remains undrawn.

Pension

The aggregate IAS 19 deficit of the defined benefit schemes at 31 December 2013 reduced to £445m (31 December 2012: £551m). This was partly as a result of the £80m annual deficit funding contribution. Total liabilities have also reduced as a result of an increase in the implied discount rate used to value liabilities. This was largely offset by an increase in the rate of market implied inflation. A review of the mortality assumption produced a further increase in liabilities, reflecting an increased allowance for longer life expectancy. A change in accounting standards has also resulted in a significant actuarial gain on the value of the longevity swap, as the new standard requires the swap to be valued based on market fair values, rather than best estimates.

The 10 to 15 year funding plan that we have agreed following the actuarial valuations as at 1 January 2011 remains in place. It is a mixture of fixed and performance related contributions. The next actuarial valuation will be undertaken as at 1 January 2014 with the outcome expected by 2015.

Post balance sheet events

On 16 January 2014 we agreed to repay the remaining £62m of the 2019 bilateral loan. The repayment will save around £44m in adjusted financing costs over the remainder of the loan - around £8m on an annualised basis, and will lead to an exceptional loss of £30m for 2014. The repayment was satisfied by a one-off cash payment of £95m.

2014 Planning assumptions

• Total NPB is expected to be around £1,010m excluding the two new channels
• Cost savings of £10m as we maintain our focus on cash and costs
• Investment of £15-£20m, including the launch of two new channels
• Adjusted interest is expected to be £10-£12m as a result of the impact of debt buybacks
• Effective tax rate is expected to be 22-24%
• Capex reduces to around £40-£45m after significant investment in MediaCity in previous years
• Pension deficit contribution of £89m to reflect 2013 profit

Outlook for 2014

We expect all parts of the business to see further growth.  In ITV Studios we anticipate good growth, primarily driven by the acquisitions we have made in the UK and internationally and we expect to see continued double digit growth from Online, Pay & Interactive. ITV Family NAR is expected to be up 2% in Q1 despite being adversely impacted by the timing of Easter and the unwind of 2013's benefit from the timing of other broadcasters agency deals. We expect ITV Family NAR to be up 15-20% in April and we expect to outperform our estimate of the television advertising market over the full year.

Notes to editors

1. Unless otherwise stated, all financial figures refer to the twelve month period ended 31 December 2013, with growth compared to the same period in 2012.

2.             

3. ITV Family NAR was up 5% in January and up 5% in February.  We expect it to be down 4% in March and up 15-20% in April.  We expect Q1 to be up 2% and the four months to end of April to be up 5% to 6%. These revenues are pure NAR, excluding the benefit of sponsorship revenue.

Figures for ITV plc and TV market NAR are based on ITV estimates and current forecasts. 

4.  Operational summary

Share of viewing data based on BARB/AdvantEdge data and share of commercial impact (SOCI) data based on BARB/DDS data. Share of viewing data is for individuals and SOCI data is for adults. ITV Family includes: ITV, ITV2, ITV3, ITV4, CITV, ITV Breakfast, CITV Breakfast and associated "HD" and "+1" channels.  Total long form video requests across all platforms are based on data from ComScore Digital Analytix, Virgin, BT, iTunes, Lovefilm, Netflix, Sky, 3UK and Hospedia and include simulcast. 

5. Dividend payment date is 30 May 2014, ex dividend date is 30 April 2014 and dividend record date is 2 May 2014.  

6. 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, and (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 publicly revise 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

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Media Relations

Mary Fagan              020 7157 3965 or 07736 786448
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Charlotte Partleton    020 7157 3056