ITV plc (LON:ITV) has warned uncertainty around Britain’s looming departure from the European Union and no World Cup football boost will hold back profits in the first half of 2019.
Shares fell 4.2% to 125.9p on Wednesday morning.
The broadcaster expects advertising revenues to fall by 3-4% year-on-year in the first four months of the new year, with companies reluctant to commit huge sums of money to ad campaigns so close to Brexit.
READ: ITV downgraded by Societe Generale amid 'renewed Brexit uncertainty'
Unsurprisingly, March, at the end of which the UK is set to leave the EU, will be the worst-hit month, with advertising revenues forecast to dive 17% compared with 2018.
“Economic and political uncertainty continues to impact the demand for advertising as we expected, with total advertising forecast to be down 3% to 4% for the first four months,” read a statement.
“First half revenues and profits will also be impacted by tough comparatives against the revenues of the football World Cup, the investments we are making, and ITV Studios deliveries being weighted to H2.”
Demand for ads slipped slightly in the final few months of last year, although total advertising in 2018 was still 1% higher than it was a year earlier, driven by a strong online performance.
World Cup costs eat into profits
Total revenue for the 12 months ended 31 December rose 3% to £3.21mln (2017: £3.13mln), in line with what analysts had pencilled in.
ITV Studios – the FTSE 100 group’s production arm – enjoyed another solid year, with revenues climbing 6% on the back of successful runs for hit shows such as Lovel Island and The Bodyguard.
In total, non-advertising revenues rose 5% to £1.97bn (2017: £1.87bn) and now account for more than half of the top line.
Adjusted underlying earnings (EBITA) fell 4% to £810mln (2017: £842mln) as ITV forked out an extra £30mln on snazzy studios and big-name pundits during the World Cup.
ITV upped its full-year dividend to 8p - keeping its promise to return at least that amount to shareholders this year and next.
Guarded outlook
“ITV's operational performance across 2018 was strong despite the uncertain economic and political environment,” said chief executive Carolyn McCall.
“We delivered great viewing figures on air and online with ITV setting a host of new records and achieving an impressive 3% growth in total viewing.”
She added: “We have started 2019 with strong onscreen and online viewing. However, the economic and political headwinds for the UK will have an effect on the advertising market and while ITV is increasingly diversified, we remain sensitive to this.”
ITV and BBC to launch Netflix rival
In a bid to wean itself from its historic reliance on cyclical advertising income and to head off the growing threat posed by Netflix and Amazon, ITV confirmed today it is joining forces with the BBC.
The two broadcasters are in the final phases of launching BritBox – a paid-for UK streaming service that will feature archive TV shows as well as some new commissions made especially for the service.
Other UK networks, including Channel 4, are reportedly interested in signing up as well.
There are no details on pricing, but BBC director general Tony Hall said it would be “competitive”. There are rumours that it will cost £5 per month.
ITV said it will spend £65mln on launching the service – which already has 500,000 US subscribers – over the next two years.
Trying to stay relevant
“Not only is the way we watch TV changing, the rise of Google and Facebook means the way advertisers promote their products is too,” said Hargreaves Lansdown equity analyst George Salmon.
“All the while, a tighter economic background brings more pressure. These factors explain why ITV is seeking to modernise, and evolve away from its traditional model.”
“ITV continues to grow its pay-per-view offering and its studios business, which sells content to other channels, while a new partnership with the BBC should help it adapt to the brave new world of on-demand streaming led by Netflix and Amazon. The BritBox service has been successful in the US, and ITV is hopeful it can replicate this success at home.
“While the strategy makes sense, and ITV is impressively growing its share of viewing, there’s no getting away from the fact the world is changing fast and the group’s core business is facing a battle to stay relevant. That’s a significant challenge.”
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