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ITV reports drop in 2017 ad revenue but expects boost from FIFA World Cup in first half

Last updated: 14:55 28 Feb 2018 GMT, First published: 07:51 28 Feb 2018 GMT

ITV
ITV raised its full year dividend by 8%

ITV PLC (LON:ITV) disappointed shareholders again after revealing an uncertain economic environment hurt advertising revenues last year although it expects a boost from the FIFA World Cup in the first half of 2018.

The broadcaster reported a 5% decline in net advertising revenue (NAR) to £1.6bn at ITV Family – the division that includes its television channels – in the year ended December 31.

ITV took action to reduce overhead costs but the economic and political uncertainty caused by Brexit had an impact on demand for TV advertising. 

In late afternoon trading, ITV shares topped the FTSE 100 fallers board, down 7.6% to 160p.

READ: ITV slumps as third quarter ad revenue remains under pressure amid Brexit uncertainty

While the economic outlook remains uncertain, the company expects NAR to be positive in the first half with first quarter growth of 1%. The second quarter will include the benefit of ITV's coverage of the FIFA World Cup, which begins in mid-June. 

“We expect ITV Family NAR to be positive in the first half, with Q1 up 1% and growth in Q2 around the football,” said chief executive Carolyn McCall.

ITV Studios and online lift revenues 

The group’s production and distribution business, ITV Studios, delivered a 13% increase in revenue to £1.6bn last year with 7% organic revenue growth, excluding currency fluctuations.

ITV’s Online, Pay & Interactive unit achieved a 7% increase in revenue to £248mln with double-digit growth in online.

Total revenue rose 2% to £3.13bn but underlying pre-tax profit dropped 6% to £800mln as margins fell to 27% from 29%. 

"There is no doubt that ITV's operational performance in 2017 in a challenging environment was strong,” said McCall.

“ITV delivered a great viewing performance on-screen and online and double-digit revenue growth in video on demand advertising and ITV Studios. This gives us a solid foundation to build on for the next phase of ITV's development.”

ITV takes on rivals Netflix and Amazon

McCall said the company will focus on its “strategic refresh”, which aims to address the challenges it faces in an increasingly competitive sector that includes online streaming rivals Netflix and Amazon.

She added that ITV Studios - which has produced such TV shows as Victoria and Come Dine with Me and Downton Abbey – is seeing increasing demand for its formats and dramas, particularly in the US and the UK. The business has more than 60% of this year's expected revenue already booked.

With a positive outlook for 2018, ITV proposed a final dividend of 5.28p, bringing the total payout for the year to 7.8p, up 8% on the previous year. 

The company expects total schedule costs for 2018 of between £1.05mln and £1.06mln. In 2019, ITV sees costs rising to £1.1bn due to higher spend on creating its own content.

The decision to spend more on original programmes comes as Netflix and Amazon plough money into their own content to lure in more viewers amid rising competition.

Several negatives weigh on ITV, says analyst

"Despite management suggesting a great start to 2018, with a World Cup benefit looming in Q2, this hasn’t cut the mustard, with several negatives weighing," said Mike van Dulken, head of research at Accendo Markets. 

Van Dulken said an increase in revenue but a decline in earnings means "unsightly margin contraction" while the guidance on 2019 schedule costs is much higher than consensus. He added that the political uncertainty weighing on NAR is unlikely to ease anytime soon. 

George Salmon, equity analyst at Hargreaves Lansdown, agreed that there was no getting away from the uncertainty facing ITV. 

"There’s not much ITV can do about its customers tightening the purse-strings, since this is more a function of uncertainty through the wider economy," he said.

"The group is already investing to expand its online division, and the growth of the Studios business has helped diversify away from the potentially volatile world of advertising. Continuing this shift seems sensible to us."

 -- Updates share price --

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