Love Island and World Cup draw in more viewers for ITV in first half

ITV said it confident of delivering "good organic growth” for the year, having secured 90% of target revenues.

Love was in the air for ITV

Love Island and the World Cup pulled in more viewers for ITV plc (LON:ITV) in the first half but the broadcaster warned that advertisers have been spending less amid economic uncertainty.

Total external revenue in the six months to the end of June rose 8% to £1.6bn from £1.5bn a year ago, driven by growth in non-advertising revenues.  

However, adjusted earnings (EBITA) fell 7% to £375mln from £403mln last year as higher schedule costs for the World Cup led to a 12% decline in the online and broadcast division, offsetting a 7% rise in earnings in the TV production arm ITV Studios.

Love Island and World Cup boost

ITV Studios delivered a 16% rise in revenue to £803mln from £692mln, buoyed by the success of reality TV show Love Island. Love Island helped ITV’s share of audience rise 9% in the period and has secured international deals with the likes of Netflix, RTL2 and the Nine Network in Australia.

The World Cup also drew in viewers thanks to England's success up to the semi-finals. 

READ: ITV jumps on England World Cup and Love Island viewing figures

Total broadcast and online revenue increased 3% to £1.1bn from £1.0bn. Advertising revenue edged up 2% to £890mln from £871mln a year ago with a 48% increase in its online channel.

ITV said advertisers in retail, finance, fast-moving consumer goods, airlines, travel and holidays reduced spending to maintain margins due to an unclear economic outlook as Brexit looms.

High street retailers and supermarkets spend less on advertising

Within the struggling retail market, advertising spend from the high street and supermarkets slumped. Bricks and mortar retailers have been hit by weaker consumer confidence and online competition while supermarkets have been losing market share to smaller discounters.

The World Cup boosted advertising in the entertainment and leisure sector while clients in the telecommunications and computing industry increased spending on product launches and digital brands.

ITV said total advertising in the third quarter is expected to broadly flat “against a backdrop of wider market uncertainty”, though it sees online delivering “double-digit” revenue growth.

However, non-advertising revenue now accounts for 52% of total revenue and rose 14% to £958mln in the first half from £827mln the prior year.

Full year guidance unchanged

ITV left its guidance for the year unchanged, saying it is “confident we can deliver good organic growth” on the back of a strong pipeline of shows including Alone, Queer Eye, Suburra, The Hunt, Milk & Honey and House of Talent. It estimates “strong double-digit” online revenue growth and “good organic revenue growth” in ITV Studios for the year.

The group said it has already secured almost 90% of its target revenues, representing an increase of £100mln compared to last year.

The interim dividend was raised by 3% to 2.6p and the company has committed to a full year dividend of at least 8p in 2018 and 2019.

Targets for next three years 

The company said over the three years to the end of 2021 it expects to achieve “double-digit” revenue growth per year and ITV Studios revenues of at an average compound annual growth rate of at least 5%  at a margin of 14% to 16%.  The goal for direct to consumer revenues is at least £100mln.

ITV is targeting cost savings of £35mln to £40mln over the three-year period and will invest £60mln. In 2019, it plans to invest £40mln and expects to deliver cost savings of £15mln.

Strategic refresh

Chief executive Carolyn McCall said the company will focus on growing its content business and direct-to-consumer offerings under a new strategy.

She also said talks were underway with a number of potential partners for a new subscription streaming service in the UK.

The move comes as an increasing number of viewers shun commercial television for video streaming – a market that is dominated by Netflix and Amazon.

Russ Mould, investment director at AJ Bell, said ITV’s new strategy to go beyond TV gives the business two choices – it can invest in expanding its content business or become part of a larger company.

He said a shortcut to expanding its content business could be to have another go at buying Peppa Pig majority brand owner Entertainment One, which already has a rich library of content in TV, film and music.

“Or it can admit defeat and accept that it is better placed as part of a larger company,” he said, adding the “obvious solution would be to accept a takeover bid from Virgin Media owner Liberty Global”.

But Mould thinks McCall is unlikely to go down the second route given that she is still relatively new as chief executive, having joined in January.

Quick facts: ITV PLC

Price: 98.2687 GBX

Market: LSE
Market Cap: £3.96 billion

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