ITV profits stumble as broadcaster bets on Britbox for future
ITV’s share price rose this morning despite seeing profits fall 16 per cent in the first half of 2019, as the broadcaster beat downbeat expectations in an “uncertain” political and economic backdrop.
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The figures
ITV’s profit before tax dropped 16 per cent year on year to £222m, down from £265m in 2018.
Revenue also fell, with external revenue down seven per cent to £1.47bn and advertising revenue falling five per cent – better than the broadcaster had guided to.
ITV notched up savings of £5m so far this year on top of the £35m-£40m full-year target it is seeking to hit, and hopes to save another £15m by 2022.
Net debt rose by £48m year on year to £1.08bn for the six months ending 30 June while cashflow fell from £184m in 2018 to £137m this year.
Basic earnings per share slipped 13 per cent to 6.2p while ITV kept its interim dividend flat at 2.6p per share.
Why it’s interesting
ITV’s share price ticked up 6.4 per cent in early morning trading as investors reacted to figures that beat somewhat dire market expectations.
Stronger advertising figures during last year’s World Cup contrasted sharply this year as advertisers wound down their budgets amid economic uncertainty ahead as Brexit drags on.
But the broadcaster took heart as online revenues spiked sharply, growing 18 per cent year on year amid a wider push towards digital.
ITV has invested £25m in its joint streaming venture with the BBC, called Britbox, as the channels try to compete with online giants Netflix and Amazon Prime.
“This scale of investment, in both time and money, had a hit on short-term profits,” Begbies Traynor partner Julie Palmer said.
“However, if successful, this could prove to be invaluable in securing the future of ITV as the next generation completely changes the way it watches TV.”
While Love Island is set to boost ITV’s sales, with the broadcaster announcing it will run two series each year, Palmer argued it must diversify its revenue.
“It is this shift in advertising spend and the rising quality of streaming services that the broadcaster needs to battle in order to remain at the forefront of the industry,” she added.
“The value of creative programming to bring in viewers and sell advertising cannot be underestimated.”
But with ITV’s 113p share price at its lowest level since 2012, it must hope its gamble on Britbox, and the popularity of its own ITV Hub, pay off.
“The company is suffering from the changing ways people consume media, namely competition for viewers’ time from subscription video on demand services such as Netflix,” Brewin Dolphin’s Alasdair Ronald said.
“The hope is that streaming via ITV Hub should open up new revenue streams from subscriptions and original content.
“Nevertheless, there’s a lot of grafting ahead for ITV and much of its future profitability will depend on how it cracks on with streaming on demand, particularly Britbox.”
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What ITV said
Chief executive Carolyn McCall said:
“ITV delivered another good viewing performance in the first half of the year. Online revenues grew strongly up 18% despite tough comparatives, with Love Island providing a strong finish to the half. This was reflected in better than expected total advertising revenue.
“The economic and political environment remains uncertain but we are very focused on delivering our strategy and creating a stronger, more diversified and structurally sound business to enable ITV to take advantage of evolving viewing and advertising opportunities.
“We are making good progress in each area of our strategy as we become an increasingly digital entertainment company. BritBox is set to launch in Q4, as is our new programmatic addressable advertising platform, and we are accelerating our digital and data capabilities.
“We have a solid balance sheet which enables us to make the right decisions to build a robust and growing business and deliver returns to shareholders in line with our guidance.”