Earnings Call: H2 2019

Mar 5, 2020

Good morning, everyone. Thank you for joining us for ITV's 2019 full year results. For obvious reasons, there are not as many people in the room today as there normally would be, and a lot of people are dialing in today via a conference call. In a moment, Chris will present our operational and financial performance for the year. I will then update you on our strategy and our priorities for this year. We will then have plenty of time for questions from the room on the call. And Chris and I are joined here today by some of our senior management team, who you all know well. ITV delivered a good performance in 2019 despite the economic and political uncertainty in The U. K. With the full year results ahead of expectations. Our strategy, as you know, is to build a stronger, more diversified and structurally sound business, and we are making really good progress on this. We have taken deliberate decisions to invest in the business, in content, technology, data and analytics to enable us to deliver this, and this has, of course, impacted our profit this year. We will report today on each area of our strategy as we continue to implement our investment plans to build a digitally led media and entertainment company. We are growing our stable margin Studios business with revenues up 9% and a solid pipeline of new and returning shows. We're transforming our Broadcast business with continued strong growth online and the rollout of Planet V. We are growing the direct to consumer business. BritBox U. K. Is on plan following its successful launch in November, and we're seeing strong growth in subs on Hub plus and BritBox U. S. And we have continued to implement well on our cost savings, delivering £25,000,000 of savings this year, pounds 5,000,000 ahead of target. We remain on track to deliver £55,000,000 to £60,000,000 by 2022. Total external revenues were up 3% with 7% growth in non advertising revenue as we continue to diversify the business. This was driven by the strong growth in Studios and continued double digit growth in Online revenue. Advertising finished the year better than we expected with the second half up 1.6%. Overall, TAR was down 1.5% over the full year. Year on year, profits were down 10%, impacted by this decline and, as I said, the investments we are making. Cash generation remained strong in 2019, and the Board have proposed a full year dividend of 8p, in line with our guidance. As you know, we set our strategic and essential investments as part of our strategy to build a robust, more diversified business and drive profitable future growth and returns. As I said, they are obviously impacting our short term profitability. The incremental investment of £36,000,000 in the schedule in Sport and Drama is to drive live audiences and like viewers, respectively. And the essential investments in the ITV Hub addressable advertising, data, technology, studios and BritBox totaled £53,000,000 Without this, profits would have been broadly flat year on year in spite of the decline in advertising. Now I'm going to hand over to Chris to go through our financial and operating performance for the year in a bit more detail. Thank you, Carolyn. Good morning everyone. You've seen our financial highlights. I'll now take you through the results for the year in more detail, starting with Studios. As we expected, ITV Studios had a very strong second half due to the phasing of deliveries. Over the full year, revenue was up 9% with growth across each business. External revenue was up 12% with significant growth in demand for our content globally and EBITDA was up 5% at a margin of 15% which is firmly within our target range. Looking at revenue in a bit more detail, The UK was up 4% with sales to ITV also up 4%, including new dramas, A Confession and Sticks and Stones. And off ITV in The UK grew 13% with deliveries of Line of Duty, World on Fire and Noughts and Crosses. ITV Studios US performed strongly as we expected with revenue up significantly h in H two. Revenue growth for the year was 117% at the constant currency. Deliveries of Love Island US, which has been recommissioned, Crankyankers, Queer Eye and Snowpiercer more than offset the absence of the fall. ITV International, previously called rest of world, was up 22% or 24% at constant currency. This was driven by strong growth in European scripted with deliveries such as Profilage and Balthazar for Tetra and zero zero zero and Gamora for Catalea. In addition, our portfolio formats continued to sell well internationally. For instance, The Voice and Dancing on Ice in Germany and I'm a Celebrity and Love Island in both Australia and Germany. Global formats and distribution, previously called GE, was up 2%. Looking now at the split, scripted grew very strongly, up 37% in 2019 and it now makes up almost 30% of studios revenues. Scripted remains a focus for us as it's likely to be an area of higher growth in the medium term. We're seeing significant scripted growth in The UK on and off ITV, in Europe with strong demand from broadcasters and OTT platforms for local content with global appeal such as Tremetri Sopra for Netflix and Carlo and Malik for RAI. And in America, the delivery of Snowpiercer and the fifth series of Good Witch. 2019 has been a very strong year for ITV Studios. And over the medium term we continue to expect to grow revenues by at least 5% compound at a margin of 14% to 16%. We're on track to deliver 10,000 production hours by 2021, but 2019 was impacted by the discontinuation of Jeremy Kyle, no Saturday night takeaway and the number of high volume and lower value daytime programmes not returning such as Egg Heads in The UK and Think Tank in Australia. Now on to broadcast. As Carolyn said, total advertising was down 1.5% ahead of the 2% we guided in November. Within this, VOD grew 21% and we saw good growth in sponsorship and rep and partnership revenue as we've grown our strategic and creative partnership teams. However, this was more than offset by the decline in Gnar against the tough 2018 comparator, which included the Football World Cup, which we estimate was worth around £20,000,000. In addition, the introduction of the whistle to whistle gambling ban from August 2019 cost us around £6,000,000 Direct to consumer revenues recovered in the second half as we expected and were up 4% for the full year driven by an increase in Hub plus subscriptions which offset the impact of Saturday Night Takeaway on our competition revenues and less low margin pay per view boxing. SDN revenues were down 5% driven by the phasing of deal renewals in the period and other revenue was down 3% due to the closure of Encore at the April 2018 and lower commission from STV which corresponds with the decline in spot advertising revenue. In total, broadcast revenues were down 2%. Moving on to cost. Our program budget was up. We increased spend on sports, which drives live viewing with England football, qualifiers and the Rugby World Cup, and on drama, which is important for attracting light viewers. While we continue to manage our non program costs tightly and over delivered on savings, costs were higher due to increased bandwidth and rights costs as a result of the significant online growth, essential investments and BritBox UK. We're disclosing BritBox UK as a separate line and the number you see on the chart is the venture loss, not the net investment, which is actually lower and I'll come on to this later. In total, broadcast excluding BritBox delivered £483,000,000 of EBITA at a 23% margin. On screen and online viewing has again been an operational highlight and we maintained our share of viewing at the second highest level for a decade. This has been driven by good performance right across the schedule. Many daytime shows grew their audiences such as Good Morning Britain and Tenable. We successfully aired a range of new dramas with ITV broadcasting five of the six most watched new dramas including Manhunt and the Bay. Sport attracted large live audiences driven by Rugby World Cup and Horse Racing. And Coronation Street and Emmerdale remain the two largest soaps on TV. We continue to be the home of scaled mass audiences delivering 98% of all commercial audiences over 5,000,000. And just as importantly, we're delivering on targeted demographics. For instance, share of viewing for 16 to 30 on ITV two was up 6%. As Ubiquiti said in a recent study, TV remains the best option for brands to build mass audiences at scale and that TV continues to hold the crown as the primary driver of ROI. And it's our great content which has driven our strong viewing on the hub, up 13% with dwell time up 6%. We've already hit our target of 30,000,000 registered users and we have over 80% of all sixteen to thirty four year olds registered on ITV hub. Monthly active users were up 28% and our focus is now on keeping those users and driving incremental active users and dwell time. With a strong schedule for 2020 and our program budget will increase to about 1,110,000,000.00 which will be weighted to h one with the euros. Over the medium term, we expect our scheduled costs to remain broadly at this level although they will fluctuate with large sporting events. The advertising market was tough in 2019 with continued economic and political uncertainty in The UK and changes in viewer and advertising behavior. Our strategy is focused on taking advantage of and addressing these changes. ITV's proposition is strong, giving immediate reach and scale to advertisers in a brand safe environment. And the growth in viewing on ITV Hub offers even more targeted demographics and fully addressable advertising. In 2019, we outperformed the TV ad market again. There's no question that the makeup of TV advertisers is changing as new categories and markets are being disrupted by insurgent brands. The continued challenges faced by the high street retailers and FMTG companies have put their budgets under pressure and they've reduced spend across all media. We've also seen a decline in entertainment and leisure compared to the significant spend by the betting companies around the Football World Cup in 2018. However, we saw growth in motor, publishing and broadcasting, and airlines and travel. And the key standout is the non gambling online brands, which grew their spend by 11%. These brands see both the immediate benefits of TV advertising as well as its well as its ability to build their brand. We have clear measures of success and we're on track to deliver our medium term targets. As the media market is changing, we are increasingly competing with global SVOD platforms. Our brand consideration across all adults was down six percentage points in 2019 as these platforms have grown and are investing heavily in marketing. Brand consideration has also been impacted by the discontinuation of the Jeremy Kyle show. However, our performance was better than our closest free to air competitors. Critical to reaching us to to to our strategy is reaching like viewers who are younger and more elusive. And we're pleased that our brand consideration for like viewers which is the measure that we watch most closely declined by just one percentage point. And in the future we'll focus on brand consideration for light viewers rather than for all viewers. ITV total viewing was down 4% in 2019 against the football world cup in 2018, which is in line with the market. Over two years, total ITV viewing was down just 2% and this is ahead of the broadcast market over the two year period, which was down 8%. We're making good progress in direct to consumer too with 4% growth over the full year and we're on track to deliver on medium term targets. Hub plus subscriptions continue to grow strongly. Paying relationships were down in the year but this was due to less pay per view boxing which we closed at the end of its trial period to focus on more profitable direct to consumer opportunities previously announced to support the strategy. Essential investments in 2019 were lower at £32,000,000 than the £40,000,000 we guided. This was principally due to the timing of payments in relation to the addressable advertising platform which will now fall in 2020. As a result additional essential investment will be £18,000,000 in 2020 the £10,000,000 we originally guided plus the £8,000,000 which has moved from 2019. In future, we will report and guide on the venture losses within BritBox rather than ITV's net investment. ITV's net investment is lower than the BritBox venture losses as it includes the benefit to ITV from the advertising by BritBox on ITV Network and the sale of programs by ITV Studios to BritBox offset by the opportunity cost of not selling to other platforms. The venture loss better reflects the stand alone performance of BritBox. Originally, we guided £25,000,000 of net investment in BritBox for 2019. Actual net investment was £6,000,000 lower at £19,000,000 due to the phasing of content costs. The equivalent venture losses for the period were £21,000,000 And we previously guided £40,000,000 of net investment in 2020. This together with the £6,000,000 of costs that have been rephased from 2019 is in line with our new guidance for 2020 of between £55,000,000 and £60,000,000 of venture losses. And as a reminder, the vast majority of costs relate to subscriber acquisition and to content. We delivered £25,000,000 of recurring cost savings in 2019, 5,000,000 more than planned. We remain on track to deliver £55 to £60,000,000 of savings over the four years to 2022 which is equivalent to about 13% of our fully addressable cost base. And in 2020 we're targeting £10,000,000 of recurring savings. Adjusted earnings for the year were £555,000,000 down 11% and adjusted EPS was 13.9p down 10%. Financing costs were higher reflecting slightly higher levels of debt in the year, some FX and the impact of IFRS 16. The tax rate came down to 18% and we expect it to remain around 18% to 19% over the medium term. Statutory EPS was up 1% to 11.8p predominantly due to the gain on the sale of London Television Centre in the year. And exceptional costs primarily comprised of acquisition related earn outs and the one off costs of delivering our cost saving program offset by the gain on the sale of the London Television Centre. Our cash conversion was again strong in 2019 at 87% despite our continued investments in the scripted business, BritBox and addressable advertising. And it remains our objective to run an efficient balance sheet and manage our financial metrics with investment grade. Our net debt at the end of the year was $8.00 £4,000,000 with net debt to adjusted EBITDA of one times and adjusted net debt to adjusted EBITDA which better reflects how the credit agencies look at us of 1.5 times. We've good access to liquidity with £930,000,000 of undrawn facilities. And finally, our pension schemes are reporting a net deficit of £87,000,000 up on last year principally due to the decrease in bond yields. Now this slide shows sources and uses of cash in 2019. We continue to balance investments with returns to shareholders and maintaining our balance sheet strength. In 2020 we have a number of one off cash outflows which include an unusually high level of earn out payments and in common with other UK corporates six quarters of tax. These could increase our leverage by around half a turn over the full year. I'll finish by running through the 2020 planning assumptions. I've talked about most of the P and L assumptions shown on the screen. In 2020, our best estimate of exceptional P and L items is £25,000,000 down on last year due to lower acquisition related expenses as we've reached the end of the Talpereun out period. And on the cash side we expect profit to cash conversion of between 7580%. As I mentioned like all businesses in 2020 we'll pay six quarters of tax rather than four. CapEx will be higher in 2020 due to the costs associated with our addressable advertising platform and our US property moves. And our best estimate is that exceptional cash items will be around £210,000,000 which is higher than previous years as it includes the final element of the Talpa earn out. Pension deficit funding is expected to be £75,000,000 in line with 2019 And the Board is intending to pay another 8p full year dividend. I'll now hand back to Caroleen. Thanks, Chris. So a strong operational performance in 2019. And while ITV has a solid market position, we recognize that we need to continue to develop at pace to deliver future success and to mitigate the risks of the changing viewing and advertising market. TV still reaches 90% of the population each week. TV advertising is critical in marketing campaigns with 83% of all video advertising on live linear TV. There are two reasons for this: it generates the highest ROI, as you've heard, and TV provides a safe, trusted and transparent environment. However, SVOD is now established in the market, and online viewing continues to grow rapidly and is likely to continue to with the launch of new services. Our strategic vision is to be a digitally led media and entertainment company that creates and brings our brilliant content to audiences wherever, whenever and however they choose and of course, to monetize our content however we deliver it. We have evolved our strategy as the industry has developed to deliver our vision with three clear objectives: continue to grow U. Transform our Broadcast business and expand our direct to consumer activities. At the center of this is the production and commissioning of great content, which we are then able to monetize through our multiple touch points in three different business models: with advertising through linear broadcast, online and creative partnerships around brands by selling our content to broadcasters and platform owners and directly to consumers through SVOD, merchandise and events around our program brands. Being an integrated producer broadcaster gives us real competitive advantage. It provides studios with a bedrock of core commissions and a formidable promotional engine for its content and the ability to cross promote across our business models. It enables three sixty degree monetization of studios content across these business models, and it secures access to great content for ITV's channels, AVOD and SVOD businesses. As a commercial public sector broadcaster and a responsible business, our social purpose is extremely important to our people and to delivering our strategy. With the massive reach of our platforms, our much loved shows and creative talent, we have a unique ability to drive meaningful change. In 2019, we launched our social purpose strategy, setting ambitious targets to shape culture for good. We have identified four priority areas, and we've made a great start. The first is encouraging better mental and physical health. In 2019, we launched Britain Get Talking, the first stage of a five year commitment from ITB to promote mental wellness, and that became the best known, most recalled mental health campaign of the year even though it launched in November. ITV is also committed to sharing best practice and continuing to strengthen and evolve our duty of care processes, ensuring the physical and mental health of people at ITV and in our programs is the highest priority. The second is fostering creativity through diversity to ensure that ITV reflects society on and off screen. We published for the first time targets in 2019, and we're making really good progress against these. We set up the ITV Inclusion and Diversity Council to share and monitor progress in this area. The third is around reducing our environmental impact, creating programs with the biggest impact on the audience and the smallest impact on the environment. In 2019, we were carbon neutral, our increasing number of programs are now ALBA accredited for implementing sustainable production techniques. Our final priority is giving back to communities through causes we care about. For example, we helped raise about £8,000,000 for UNICEF with Socoraid in 2019. We also encourage all of our colleagues to take their volunteering days. While there is a great deal to do to deliver our strategic vision, as you can see, we are already making really good progress. The benefits of our strategic initiatives and investments are already evident. So starting with Studios. ITV Studios is now a scaled international business delivering good growth at a stable margin. In 2019, it delivered 37% of ITV's total profit as we continue to diversify the group. We are increasingly diversifying the Studios business itself as well, with strong growth in scripted revenues up 37%. We delivered good growth internationally, and now 58% of our revenue is generated outside The UK. We've sold 62 formats with 14 sold in three or more countries as we continue to globalize our formats. And we are increasingly producing them locally, therefore, capturing the full margin, such as the chase in The Nordics and I'm a Celebrity in Australia. We have strengthened our creative talent, Patrick Spence, the award winning producer behind programs such as Fortitude and Silent Witness, joining from Endymal and Dominic Treadwell Collins, the exec producer behind multi award winning A Very English Scandal. And we have also increased our stake in Monumental to take a controlling interest, renewed our agreement with Mammoth and have acquired Armosa, an Israeli format creator. In 2019, we started to see the returns on the investments we're making in Broadcast. We're repositioning ITV to drive more light viewers and increase reach. We evolved the ITV and ITV Hub brands and have developed consistent off air marketing across multiple media channels. We have maintained our ITV family share of viewing, as Chris said, and grown our share of viewing of light viewers. We've seen strong growth in our online metrics driven by our improved user experience with features such as recommendations and cross platform resume. We strengthened the user interface, redesigning the home page, making it consistent across all platforms. We have improved our marketing with performance marketing and cross selling. Our significant progress across the business has been enabled and supported by our tech investments and delivery. We've evolved the digital video platform, which supports the Hub, Hub plus and BritBox. We've designed and built Planet V, and we are evolving the audience data platform to support and drive value in our direct to consumer business. We continue to invest, of course, in our data capabilities and consolidating our data right across the business. This enables us to drive viewing, scaling our recommendation model and optimizing our marketing spend. It allows us to drive consumer revenues with our SVOD subscriber acquisition and churn models and enables us to meet advertisers' targeted advertising needs. We've started running live programmatic addressable advertising campaigns now through delivered through Planet V, and this will ramp up in March. We are continuing to drive advertising through strengthening our client strategy team and our creative partnerships to grow sponsorship and partnership revenues and have done some really innovative deals with M and S, Deliveroo, Spotify and Heinz, just to name a few. So now on to direct to consumer. As you know, we successfully launched BritBox in November, which I will come on to shortly. Hub plus and BritBox U. S. Are both performing very strongly. Hub plus subs increased over 50% year on year to over 400,000, driven by great content, increased marketing and EU portability. Of course, it is a high margin business. BritBox U. S. Is also profitable and subs continue to grow steadily and are now over 1,000,000. We continue to develop our other direct to consumer activities. And in 2019, we invested in and rebranded our online competition portal, ITV Win. We grew our customer relationships and engagement around key brands such as the Coronation Street Tour. And we further developed our gaming through programming apps and games with the Love Island game being downloaded 10,000,000 times globally. A bit more detail on BritBox. We had a successful operational launch, as I said. It was issue free and on time, and early results showed good performance in line with the business plan. We're seeing strong subscriber appeal, and the majority of customers convert to becoming paying subscribers after the thirty day trial. Here is a snapshot of real customers' thoughts and experiences from some very recent independent research with new subscribers. Now a new streaming service backed by the BBC, ITV, Channel four and Channel five launches today. We're talking about BritBox. BritBox. BritBox, the biggest collection of British television content ever assembled in one place. They're working on exclusives, and I think we are going to see some exciting stuff from them. Oh, yeah. Yeah. Yeah. I quite like that. I think it's been really well designed in terms of looks and feel. Very easy to use. Really, really simple. Entices you to watch things. It's a huge archive of of British films, box sets, dramas, documentaries all in one place, and this has got the best of it all, really. It's just nice to watch homegrown stuff. It's exactly what I wanna see. And you can watch them all in one go. I do love to sit there and have a binge. The recommendations are really good. Before I even knew me, I knew what I wanted. I'm just looking for something to add on to the experience. Netflix have got more to reel me and got new things on there. So I hope that the library gets bigger. To me, BritBox is all about the best business, really. Ping and Yang will yell. To have all of that in one place, boom, you've got me. Real customers. So our priorities for BritBox UK are clear, to grow distribution, to strengthen the content offering and to continue to deliver effective marketing. We have the largest collection of British box sets, as you heard, and this is growing by the day with significant additions to the catalog such as five hundred plus hours of Doctor Who Classic, which was a big hit at Christmas. Around one thousand hours of Channel four content joins the service from this spring, making it the unrivaled destination British streaming all in one place. Film four content will be available in Q3, and our first original commission, Spitting Image, will land in Q4. BritBox is now on 10 platforms, making it available on 15,000,000 U. K. Screens. Our significant EE partnership is currently in presale phase and launches fully on the March 13. UView and Freeview Play will be joining in the next quarter, which will make it available on 20,000,000 U. K. Screens. Brand awareness is very high at 63% following a successful advertising and brand launch with significant weight of ITV airtime, which we are seeing a great response from. Going forward, our marketing will obviously be very, very focused around planned content and distribution launches. While there is clearly increasing competition in the market, our research shows that there continues to be strong demand for uniquely British content and for multiple subscriptions. BARB data shows the annual growth in homes with any SVOD service is 16% with over 50% of the population having at least one subscription and the growth in homes with multiple services is 37% with over 5,000,000 homes now having more than one subscription. Our recent research shows that people's intent to buy BritBox is on a par with Now TV and Apple TV plus So to deliver our strategic vision, we have very clear priorities across the business for the next three years. Demand for great content has never been stronger. Our strong performance, particularly in studios in The U. S. In both scripted and unscripted, reinforces that ITV Studios continues to be a real growth opportunity. We will continue to grow our scripted business where we are seeing strong demand and increasingly from the streaming platforms. We will globalize and maximize the value of our key formats and brands and the merged global formats business will drive this. And we will focus on organic growth with M and A when appropriate. For Broadcast, ITV remains the only place to get mass simultaneous reach at scale, which we will continue to deliver while focusing on light viewers and digital viewing. We will accelerate ITV hub growth. We'll grow addressable VOD and over time, look to bring other premium VOD inventory onto Planet V. And we will also continue to build more strategic and creative partnerships with advertisers. As we focus on building our relationships directly with consumers, we will grow SVOD subscribers and optimize retention on BritBox UK, grow Hub plus continue to develop and expand BritBox U. S. And roll BritBox out internationally. We will also drive DTC revenues through ITV Win and focused DTC merchandise and events. Now to deliver this strategy, we need to do four things extremely well. First, we need to digitally transform the business using data analytics, tech and agile ways of working to drive revenue as well as to simplify and get efficiencies. Secondly, we need to ensure we have the right capabilities, skills, tools and culture. Thirdly, that we own and manage our rights effectively to drive the most valuable that we to drive the most value from them and fourthly, that we build really strong partnerships in The UK and internationally to improve the distribution, discoverability and prominence of all of our content. We have specific priorities for 2020 to ensure we successfully execute on this strategy. So growing U. K. And global production. We have three key priorities for ITV studios: first, integrating Talpa into ITV Studios and reorganizing the Distribution and Commercial division into our three centers of excellence: the Creative Network, Global Distribution and Global Entertainment. This will enable ITV to develop more hits, build international brands and formats much more effectively and maximize the value of them, such as The Voice, The Chase and Hell's Kitchen. We will further strengthen our creative talent. We announced in January that Lisa Perrin will join ITV from Endymol as Managing Director of ITV Studios International. Finally, we're very focused on continuing to build and monetize a strong pipeline of programs internationally, growing scripted, creating global formats that travel and return and diversifying our customer base and increasingly creating programs for streaming platforms. This is in addition to continuing to sustain and develop the core content for ITV broadcast and direct to consumer. This tape shows just some examples of the content we are creating, producing and distributing through studios. Did you have a relationship with Boris Johnson? I don't know what happened, but everything seems to be a bit different. Can you relate to that? Absolutely relate to it. Are there games still going on? I'll take my comforts where I can. It's not like me to do with a cup of tea. So huge volume of shows there. Now on to broadcast. Essential to the strategy is delivering ITV's digital transfer transformation in broadcast. We're doing this by accelerating growth of the ITV hub through enhancing its content, its prominence and improving the user experience to capture further digital viewing and growing its reach and frequency. To strengthen our content offering, we will extend our windowing strategy, look at opportunities to put some content on the hub in advance of live broadcast, introduce short form content directly from our shows, integrate news into the hub and give D2C initiatives presence on the hub to help deepen viewers' relationship with the programs they already love. We will further improve the user experience in 2020 and we will be rolling out increased personalization, better homepage navigation and features such as Start Again and in simulcast viewing. Our marketing plans will be focused on driving light viewers and ITV Hub viewers with program prioritization and equal billing for ITV Hub as well as greater use of first party data. We will continue to roll out and embed Planet V with the major agencies. We're currently taking bookings and road testing it, as I said, engaging with agencies in feedback and continuously developing the platform. A strong schedule, which drives the audiences needed by advertisers and the engagement of our viewers, is absolutely critical. We are focused on our priorities to drive mass audiences, light viewers and digital viewers, and this tape now shows some of the great content which does just that. Strike. Strike. Strike. Everyone knows the human. Everyone Nothing we don't already know then. Fantastic. Want You ready to play? What is happening? April fool. That's brilliant. That's genius. And great viewing figures for virtually all of the well, obviously, only the ones that have run last year, not for the forward looking ones. You saw both in that video. Now on to direct to consumer. We're continuing to develop Hub plus as I've said, BritBox U. S. And in twenty twenty twenty, we'll be launching BritBox in Australia, as you would have seen this morning. The investment will be covered by BritBox U. S. Profits. We are also working to identify other possible international markets too. We're focusing on fewer, more valuable direct to consumer activities and products around our key successful brands. For example, an I'm a Celebrity live attraction in Manchester launches this year. We're scaling the Hell's Kitchen and Love Island games, and we're growing merchandising globally. In addition, we are driving our digital transformation in the following three areas: first, in developing our consumer facing products, as I've just outlined second, in digitizing our content supply chain and core processes, we're embedding data driven insights and automation into our processes, which will deliver efficiency gains, business agility, operational scale and revenue uplift. We have already started a project to provide our scheduling teams with modern digital planning tools and data enabled real time insights. We will shortly be launching our rights management project. Thirdly, we're looking in-depth at our core central functions. We recognize that to deliver new digital models and ways of working, we need to invest in systems and developing new capabilities right across ITV. This means ensuring teams have the right tools and skills and that our culture is shifting to embrace new ways of working. We've already delivered Talent Pay, a new payment system. We are now working on FreeCon, which will enable efficient management of the entire freelance contracting process. We have also launched a workplace tech project to ensure our colleagues have the right tools to enable smart working, which we launched in November 2019 and has actually been welcomed by our colleagues. We have started 2020 well with good online viewing, up 89%, driven particularly by The Masked Singer in Love Island. ITV family share of viewing is flat. We have a strong schedule for the year with dramas, including the second series of The Bay and Quiz, new entertainment show, The Epic Game Show and the return of Saturday Night Takeaway and of course, the euros to look forward to. Total advertising is expected to be up 2% in Q1. This is the third quarter of growth, and we are seeing double digit growth in online and Partnerships revenues. Early indications suggest that total ad revenue will be down 10% in April. In March and April, we have seen an impact from travel advertising deferments relating to the coronavirus. All deferments to date are included in our guidance. Despite the ongoing uncertainty around the outlook for The UK following its departure from the EU, we currently remain on track to deliver our medium term targets. At this stage, it is too difficult to assess the further implications of the coronavirus, but we continue to monitor the situation closely as you'd expect and have contingency plans in place. Our priority is to ensure the safety of our people. Between September and November, the ITV Management Board did 19 internal road shows in The UK and internationally. The feedback was that everybody is really very clear about what we need to do to deliver the strategy. It requires, as I've said, a relentless focus on delivery to build this stronger, more diversified and structurally sound business. We have strong foundations in place and successfully executing the strategy will further position ITV to meet the challenges of evolving viewing and advertising trends as we become a digitally led media and entertainment company. Thank you all very much for listening, and we're now ready to take your questions. There will be some questions on the phone as well, but we'll take questions from the room first, if that's okay. Do you want to have a look around? And I think there's a question right at the back over there. It's Anik Maaz from Exane BNP Paribas. My first question is on BritBox. So you suggested that the conversion rate of people signing up for free and then going into pay is quite high. Is it high like 60%, high like 80% about So if we were going to give you those figures, we would have said them in the presentation. FABIENNE So the reason we didn't is that actually we are in very early stages of BritBox, as you know. I mean it's three, three point five months old. We are in full kind of distribution rollout mode, and we are also still rolling out the content. So Channel four content is not on yet. And I think we're not in a steady state yet. So we are very pleased. It's on track. It's on plan. It's exactly where we wanted it to be at this stage. But as until we get to a kind of steady state when we've rolled out the distribution content, when the metrics are not going to be meaningful. Good. Thank you. My next question is just on can you give us the share of online businesses advertising in your advertising revenue mix? You give the mix via industry but not via online businesses. So if you take the online businesses, you exclude Amazon, how much do they make up in your advertising revenues? Well, we haven't disclosed that. They're across all categories. What we have said is that it's growing at 11% this year because, as we said, those online brands, they see the clicks to their website as soon as the campaign runs. And then over the longer term, they see the benefit for the brand, But we don't break out So we don't segment it like that. We just see online per category Okay. Rather than my last question is just can you give us an update on how much of the content that is on other platforms you've already repatriated? And can you give us an update on the latest time line on that when you will have repatriated everything? Yes, yes, yes. No, I get the question. So for ITV, quite a lot of our content wasn't actually in that many other places, to be fair. So I would say, I mean, Remo, are you there? I think most of it is back for ITV. And I think the BBC on BritBox will have a little bit longer to run before they read, Patrick, because they've had longer term deals in place for a lot longer than ITV had. Okay. Thank you. Okay. Patrick? Hi. It's Patrick Wellington at Morgan Stanley. As we're a bit short, people in the room, I'm going go wild in my Just go nuts. Go on. We expect no laugh. It's an analyst's dream. Port forbid. So let's ask the coronavirus question. Can you contextualise how much travel is in the context of your advertising? It flashed up on the screen. Is this a seasonally particularly big part of the year for travel? And when you look out across your other advertising categories, have you seen any vulnerability anywhere else? Or if you were to anticipate some vulnerability, where might it come? Why don't we stop? Okay. I think January is actually a big January is quite a big month for travel traditionally. So people come out straight after Christmas and do huge amounts of trying to get people to book their summer holidays in January. It has at the moment, it is about travel and the travel sector. And it's actually relatively it's a range of travel advertisers, as you would expect. Most travel companies are either markets are being closed down, if you like, people are not traveling. So they're deferring their spend, Patrick, rather than anything else. So they're just asking to move their spend later into the year. We're not actually seeing it in other categories. The only other thing, of course, is the Bond film, which is highly publicized. It was about to premiere imminently on March, I think, the twelfth or something, seventeenth, something like that. And they've moved that to November. So that's another movement. So we've seen that on bond. But other than that, it has been the travel category. It's really hard. I don't think it's I don't think I think anyone who tries to guess what's going to happen next is going to be wrong. I don't think it's worth speculating on whether it's going to affect other categories or because I just don't know. And we just need to wait and see. And travel is about 5% of the total. But as you say, you've had a big chunk of that in January. Yes. It's 5% overall for the full year, and it is overweight in the sort of the January to April period. So as Karen said, January is quite a big one. But it's also overweight in Feb, March, April as well. Okay. I mean you can say one thing about the travel companies, which is that they will as soon as they can get back to normal, they will get back to normal. They will do that with every precaution and safety requirements in place. But they will want to come out promoting to get people to start traveling again. So that's the one thing you can say, I think, with certainty, which is they will be back. Okay. BritBox question that you might answer, which is that you were, at one point, going give us targets for 2020 and beyond at this stage. Will we? We never That said was my impression. Well, impression. We never said that, did we, Christopher? No. And I also got the impression that 2020 was going to be the peak year of losses for BritBox. Yes. So that fifty five million to 60,000,000 of venture losses will be, but we're going to be in net investment phase for a few years yet. But as we've always said, we're running it for a return for ITV because this is, we think, the best way for us to be monetizing our content on an ATT platform. You see, I've got a loss of 108,000,000 over the next five years or the first five years, which I think is looking pretty good this basis, therefore. There's nodding around for those who aren't on a video screen. Yes, we heard you. ITV Hub plus is doing very well. We've four got 100,000 subscribers. We've bit of a surprise. Would you say that ITV Hub has got more or fewer subscribers than BritBox? Trick question, hey. So we're not giving subscriber numbers here. That's not giving ITV plus doing very well. I'm a subscriber myself. Did I hear Chris, you say that the GBP 1,100,000,000.0 is now the new average schedule cost as opposed to a few years ago, it was about 1,000,000,000. Is it now always going be about GBP 1,100,000,000.0? Yes. So we said GBP 1,110,000,000.00 for 2020. But yes, that's right. And as we said, it'll go up and down depending on sports rights. Yes. Sport, that will make that uneven. And you're expecting Euro twenty twenty to go ahead? We are at the moment, yes. Very much. Do you have any contingency? Can you get your money back Yes. As it's going I mean, look, I think Kevin's team have spent, as you can imagine, the last two weeks kind of really, really focusing on contingency plans by program, actually. And sports being live is one of the most kind of important things to do as quickly as possible. So there are contingency plans on all our programs. Julian is doing the same in studios. And at the moment, they are contingency plans, and they will be used if necessary. Steve Lishtey from Numis. Can I just ask, on Olympics, can you just remind us what the traditional benefit or hit is on Olympics over that period? Well, I think that's well, that's it's on the BBC for a start. Yes, exactly. And it's on at a very it's Japan, so it's on very early morning. So from that perspective, it's probably less it's less worse for us, if that makes sense, in terms of share of viewing. Kevin, do want to say anything? I'm glad it's in the East. Well, for one, because of what I just said. It's on BBC. Yeah. In terms of We wouldn't be that glad if it was in the East if it was on ITV. Yeah. Okay. So I guess what you're trying to say what we're not not trying to say, but what you could say is that it's probably less relevant to you if the Olympics didn't happen. Yes. It's not relevant to us if the Olympics didn't happen. Exactly. No. It's not really relevant at all. Yes. Second question. I mean, it'd be terrible for the Olympics, right? I mean, that would be an awful thing. But no, for ITV specifically, it doesn't matter. Great. And then in previous periods, you've given us some quite specific numbers on Love Island in terms of revenue generation. Would you like to give us a number for the current year in fiscal well, the previous year, fiscal twenty nineteen? And also, you comment on the performance of the over winter and what that means going forward? Yes. So we didn't what we said year before last year is that last year, we said that we'd made an incremental £10,000,000 of revenue out of sponsorship and partnership advertising. So we have never given a quantum for Love Island in terms of because we don't segment our programs by revenue and never have. So I think it would be completely right to say that we are very pleased with going to Love Island. The consolidated audience was 4,000,000. It had a 55% share of sixteen-34s, so very, very high viewing by sixteen-34s. And it was the first time we've done a production in South Africa of that scale. And actually, touchwood, it was it all went very well. So we're pleased with the Orton. Now it was up against a winter schedule, which is a much tougher schedule, as you probably all know, than a summer schedule would be. So when Love Island goes on in the summer, it's up against a relatively weak schedule on other channels. Winter schedules are always very strong because that's, know, a lot of people view a lot more in the winter. So we're actually pleased with its performance. One. Julian. Morning. Julien Rochow, Barclays. Two questions on BritBox. One, not hopeful. The second, very hopeful. You gave us the joint venture losses of CHF21 million. Could we get the joint venture revenue or if there's no revenue? And then number two, say it's early days, it's not finished, we'll give you numbers when it's steady state. When will we get numbers on BritBox? Is it going to be in the Q1 or we'll get nothing in the Q1, we'll have to wait for the first half? Then on sponsorship, could you give us some color on what happened to sponsorship in 2019, I guess, with the World Cup should have declined? And last question is, could we get the percentage of studio revenue external that is coming from digital stroke OTT? Are we around 10%, above 10%? Any color on that? Thank you. So quite a few questions there. So Brickworks revenue in 2019, as you'd expect, it's very small because we're launched at the back end of the year and we've got the thirty day free trial start. Little revenue within that 2019 number. But also, obviously, you haven't got a full year of content costs in there either. In terms of when we'll give figures, as Caroline said, we'll give figures when the metrics are we feel are a meaningful predictor of sort of performance in the period and a future predictor for future performance. Won't be Q1, Julian. No, won't be Q1, no. Just to set expectations. Third question is about sponsorship. I didn't catch the were you saying how did sponsorship go last year? Yes, in 2019, yes. Yes. No, I mean, so we I think we had a good year for sponsorship. All of our program brands had really strong partnerships on our sponsors, very supportive sponsors. We've done very deep much more interesting sponsors rather than just end credit deals, I. E, bumper deals. We've had the stuff I mentioned with Deliveroo, with M and S have gone much deeper than what you just see on screen. We've done lots of things in store with them. We've done things at checkout with them, point of sale. A lot of the Love Island sponsorships are to do with merchandising and licensing, so the retail side of things. So I think one of the things the investment is really paying off on in terms of non NAR revenue is it allows us to really get a very strong and close relationship with the clients and work with them over a number of years to achieve their objectives in terms of growth, and that's working well. So despite the rugby worker probably generating less sponsorship than the football worker, sponsorship was up last year. Yes. It was. And last question on Studio? The last question was external studios revenue. How much is the OTTs, basically? Yes. I mean, it's around 25% of GE's revenue and then a much smaller percentage of the overall sort of full production revenue. But it is as we said, it's growing strongly. And you saw on the real the number of productions we're now doing for the OTT players. There's a question over there. Matthew Bloch from Bloomberg Intelligence. Question on the BBC. There did a lot of comment just about future funding models for the corporation. I just wonder how you think about that and whether it has any implications for your strategy where you think you need go fast on the direct to consumer or if it's just something that you are kind of passively observing? So the obviously, BBC is a strong partner of ours in BritBox and a very committed partner. The government has made it absolutely clear that nothing is going to happen until 2027, which I know is not might not seem like a really long time away, but is actually quite a long time away. And I think our view would be that we focus very much on what we have to do. Our strategy is a three to five year strategy at the moment. We need to get that done. We've got to a lot of delivery objectives. I think we are also very, very involved in the PSV review, which, of course, involves the BBC and Channel four as well. And we're contributing to that, and we will be participating with Ofcom and the DCMS in terms of what we need from that PSP review, which is effectively modernizing the legislation, which was thousand was created in 02/2003. Those are the areas of our focus at the moment. REPRESENTATIVE:] [SPEAKER Do we have any on the phone? First question from the phone line comes from Adrien de Saint Hilaire from Bank of America Merrill Lynch. So Adrian, your line is now open. Good morning. Yes. Good morning, everyone. Hello, Caroline. Hello, Chris. And hello, everyone in the room. I hope you can hear me well. Yes. Perfect. Chris, I think in your presentation, you mentioned that gambling, the ban had a GBP 6,000,000,000 impact on advertising in 2019. Can you give us a sort of number that you expect for 2020? That'd be the first question. And the second question is, I think you made the point that BritBox is advertising on ITV. So how much does that add in percentage terms or absolute million pounds to the overall ITV advertising revenues? And then lastly, on the dividend, there's a commentary in the release saying that the Board will think about a medium term outlook next year. But is the message there that we should brace ourselves for a downgrade versus the AP level? Thank you very much. All yours. Sorry, first one was Gambling. Yes. I mean we won't give a figure for gambling this year at this point. But clearly, normally, we get quite a bump up from sporting events like the euros. There will still be, some gambling adverts around that, but that lift from the euros will be slightly less than we otherwise would because of the whistle to whistle ban. But we haven't given a forward looking number on that. On BritBox, the I mean, first of all, the revenue is eliminated, so you won't see it in our external TAR number. And in any event, it's a very small percentage of what ITV take in overall. But the difference between the venture loss is the combination of the studio's profit and that and the advertising on ITV by BritBox. And as we've said, that's roughly around £10,000,000 in total. I didn't hear the third question except the word downgrade. So that was the so on the dividend, no, we're absolutely not saying there's the downgrade. What we are saying is that think it's appropriate to hold the dividend to 8p for this year, given that we've still got quite a lot of uncertainty around The UK's exit at the end of this year as we get out of the transitional arrangements. So the right time to fix a new medium term dividend policy is when we've got greater clarity on exactly how that exit will happen and what the economic circumstances are at the time. Thank you very much. And if I could just squeeze in one follow-up, please, Chris. I'm not sure I understood the difference between the investments of BritBox of £46,000,000 and the venture losses of GBP 55,000,000 to 60,000,000. So where is that difference coming from? Sorry about this. So the difference is the venture losses are higher than the net investment because that's the stand alone view of BritBox. So that it includes the advertising by BritBox on the network, and it includes the cost of content from ITV to BritBox. And then when we originally gave the I mean the reason we gave that original net investment guidance was, if you recall, we announced BritBox before we'd even agreed the final deal with the BBC. We had a business plan. So we and there was a very wide range of views on what BritBox might imply for ITV at the time. So we gave a shorthand view, which was we'll give you the net impact so for analysts, they could put one line in their models. What we're now doing is we're presenting it in the way that it's actually accounted for, which is within the Broadcast P and L and the profit sitting in Studios. Please go ahead, Lisa. Good morning. Have a few questions, please. On SDN, I think the revenue was down 5.5%. Obviously, this is a high margin business. Could you maybe explain what happened there? What's the outlook for this business? Like talk about maybe the timing of contract renewals? And I think you have the license for renewal as well, I think, in a couple of years' time. Should we expect any changes? The second question is related to Brickbox. I think you mentioned about launch something about launching originals. I didn't fully catch that. Could you maybe talk about how many originals you're planning to launch for BritBox this year and where you expect to be probably over time like in your two to three years' time? So basically, is incorporated within the €46,000,000 loss for 2020? Third question is on ITV Online. So the Vime was up 13%, the revenues were up 21%. Should we expect this outperformance of revenue overviewing to continue in 2020? And last question, could you give us the impact of the travel deferment you've seen in March, April, given you're saying that this is probably going to come back in H2? I think it'd be quite important for us to know what the impact it was in the first four months. Thank you. Okay. So on SDN, we've invested we've had the license for many years. We've invested a lot in the technology to increase the number of channels available. There are a very limited number of very old contracts, which are at market rates from quite a long time ago. As those come up for renewals, there is a slight step down in the revenue, which is why you're seeing a little bit of a decline this year. In terms of the license review in 2022, I mean DTT is the only platform that's growing for the delivery of TV. So we think there's a place for DTT going into the 2030s actually. We're engaged with Ofcom around what's going to happen to the license, but we've run it really well for over fifteen years. We've invested a lot, and those discussions will be ongoing. On BritBox, on the originals, you would have seen yesterday that we announced spitting image, so that will run this year. And we have it's very hard, Lisa, to be precise because the way we spend our money, it could be that we do a few things that cost more or we do a number of things that cost less that we space out through the year. So it's we don't we can't be absolutely precise about the number and when they will run and how they will run because we are in commissioning mode at the moment. So we know what the plan is. The plan is to have originals in the plan. We've said that we will definitely be doing splitting image this year. There'll be Series two next year. And then there are other things in the pipeline that we haven't announced yet that we will announce soon. So it's not we cannot be precise about it because we're still commissioning and signing deals on things, and they all vary in terms of quantum. Online. Online, the sort of the money and the viewing. We're obviously really focused on driving viewing on Hub, and we're really pleased And Carolyn talked about all the initiatives we've got in 2020 to keep growing that viewing. In terms of revenue, the team are the commercial team are working really hard to attract more revenue into VOD, Planet V and the launch of that is firmly targeted at that. And as Carolyn said, we've already engaged with the agencies. The feedback is very from them is very encouraging. So in answer to your question, we're looking to drive both viewing and revenue in 2020. Travel deferments in Quantum because of the H1, H2 move? Yes. We're not going to give guidance on exactly how much of an impact that's had on us. Going back to what Carolyn said earlier, we need to look at this on the full year basis. It is deferment for the moment. We weren't anticipating any move in people's view of the full year advertising at this stage. Okay. Thank you. Helpful. Okay. We now have Richard Ehry from UBS. So Richard, please go ahead. Yes. Thank you, Erna. Just two questions from myself. First one is just on the euros. I don't know if you could just comment in terms of if we do get a situation and the euros is canceled, can you talk us through what the legal issues are in terms of your negotiations with the rights? And obviously, what happens if it does get canceled? Obviously, you can pull back the feet from that, but there might be some production costs around that. And additionally, I don't know if you could give I mean, you gave some commentary about the World Cup additional revenues at the start of the call, about €20,000,000 If you look back to the previous versions of the euros, was the euros actually profitable? So we can get a sense in terms of what the impact is if the euro don't go ahead, I. E, we'll have a cost out, but we'll obviously have a revenue out as well so that we can understand what potentially is the net impact? That's the first question. The second is just, Chris, maybe just looking at the cost lines for in the Broadcast segment for 2020. You've obviously said there's $10,000,000 of costs coming out on that. But if we look at variable costs and Broadcast and Infrastructure and overhead costs, you give us an indication of what the underlying cost growth would be pre that £10,000,000,000 of savings? So if we look at the number last year, which was like £510,000,000,000 is that number should we just assume that is 500,000,000 Or basically underlying growth minus the 10,000,000,000 Okay. Euros and I mean we've got contracts with the euros. So there will be all we've obviously looked at the contract. There will be all sorts of conditions. I think if at all, it is canceled, they refund. So from that point of view, we will be covered. Yes. And there may be a limited there's a small amount production cost in there. And frankly, it depends when or if the tournament is canceled. So we could avoid most of that depending on the timing of any decision. But as this is all very hypothetical. Euros are a long way away. And then just in terms of the way the business model operates, the advertising is on a share model. So the great thing about Sport is it brings in live viewers, it brings in valuable viewers, it helps with advertising inflation because we've got the inventory to sell. But they come pre sponsored, so we're not impacted by that. And I guess what I'm saying is there's a dislocation in the year between the viewing and the revenue you take. The Broadcast cost line. Yes, the Broadcast cost line. Probably too detailed a question to answer here. Lots of moving parts. You've got some of the essential investment is in variable costs. You've got inflation, and you've got the proportion of the £10,000,000 of saving that ends up in there. So probably better if we deal with that one on one or with the IR team later. Okay. Thank you. The last question from the phone lines today comes from Laurie Davidson from Deutsche Bank. It's Laurie here from Deutsche. Any progress on bringing on partners for Planet B? You announced that when you launched this, you'd be looking for partners. But it seems like most of V Med's channel four, channel five are all on AdSmart. So is there anyone else you can bring on there? Second question, just given there's so much focus from large DSPs on header bidding, can you confirm that Planet B can offer this? On partners, yes. No, I think what AdSmart offers is quite different to what Planet B offers. So it's not mutually exclusive. You could be using Adsmart as well as Planet V because what Planet V will do is be premium VOD inventory that agencies could choose to access through Planet V. So yes, we are still talking to partners on Planet V. And what we did say was we wanted to establish it with the agencies as a platform with ITV inventory and get that working first and then bring our partners later, which is still interesting. And we've just announced, I don't know if you've seen, but we've just announced the appointment of a Director of Advanced Advertising. His name is Rhys McLaughlin, and he actually joins us from Amobee. So we would expect that quite a lot will happen this year on Planet V. And in terms of the Head of Bidding, to be honest, I'm not sure, but the reason we chose the technology is that it is one of the most advanced technologies out there. Don't know, Mark, whether you know the detail there, but I'm sure that will be in there. Kelly is not in the room, Laurie. Otherwise, he would be able to answer that. Yes. Understood. All right. Thanks. Thanks. So if there are no more questions online, is that right? No more questions on the phone? Yes. That is correct. Great. Thanks very much indeed. Thank you all for coming.