ITV delivers strong operational performance in an uncertain economic environment 2017 Full Year Results 28 February 2018 The Voice UK
Agenda 1. Key Messages & Initial Impressions Carolyn McCall 2. Operating & Financial Review Ian Griffiths 3. Outlook for 2018 Carolyn McCall 4. Q&A Coronation Street 2
Key Messages & Initial Impressions Carolyn McCall I m A Celebrity Get Me Out Of Here!
Key Messages Financial performance delivers as expected ITV delivered a strong operating performance in a challenging environment in 2017 Linear viewing share up for second consecutive year Significant growth in online viewing and revenue ITV Studios delivered strong revenue growth Good performance has created a solid foundation Rapidly changing industry creates opportunities and challenges Strategy refresh for what ITV needs to be in 3 and 5 years Emmerdale Soap of the year 4
Places visited so far: Getting to know ITV Offices: London, Manchester, Leeds, people and places New York Meeting key stakeholders Newsrooms: Meridian, Granada, Yorkshire Strategic refresh well underway Coronation Street and Emmerdale Production Companies: Mammoth, Shiver, Twofour, ITV America and Talpa 5
Great culture talented and creative people Strong consumer brand ITV s unique proposition of mass audiences the power of TV Direct to Consumer relationships through the ITV Hub Studios is a scaled international business with a healthy pipeline of new and returning programmes Integrated producer broadcaster Strong balance sheet 6
Data Strategy Operating Model 7
Operating & Financial Review Ian Griffiths ITV Horse Racing
Dancing on Ice 9
ITV NAR 1,591 1,672 (5) Online, Pay & Interactive 248 231 7 SDN (external) 70 67 4 Other commercial income 166 162 2 Non-NAR revenue 484 460 5 Total revenue 2,075 2,132 (3) Schedule costs (1,025) (1,050) (2) Other costs (451) (440) 3 Broadcast & Online EBITA 599 642 (7) EBITA margin 29% 30% Good growth in Non-NAR partly offsetting decline in NAR ITV NAR down 5% as guided Double-digit growth in high margin VOD Schedule costs lower in non-sport year maintained investment in original commissions Cost savings offset by investment in the ITV Hub and Pay/SVOD platforms Margins down 1% to 29% 10
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21m registered users Market leader in live simulcast 75% of UK s 16-24s registered Requests and simulcast growing faster than C4 and BBC catch-up Available on 29 platforms Only commercial PSB broadcaster to launch SVOD service, Hub+ 27m app downloads Over 250k subscribers for BritBox US and Canada 12
Category FY 2017 ( m) NAR down 5% as guided FY YOY % change Retail 324 (3) Entertainment and Leisure 158 (4) Finance 154 - Cosmetics and Toiletries 112 (5) Food 101 (23) Cars and Car Dealers 100 2 Telecommunications 86 23 Airlines, Travel and Holidays 80 (3) Publishing and Broadcasting 69 (10) Household Stores 53 (12) Others 354 (8) Total 1,591 (5) 5% 0% -5% -10% -15% 1% (4)% (7)% (9)% Q1 Q2 Q3 Q4 Quarterly YOY Moving Annual Total Total advertising down 3% including sponsorship and VOD Retail down 3% - high street weak, supermarkets increased spending FMCG advertisers have been reducing their spend but allocating more back to TV Cars and Telecommunications up year on year driven by new product launches Digital businesses continue to build brands on TV, including Netflix, Amazon, Twitter and Facebook Q1 2018 continues the growth seen in Q4 H1 expected to be up, helped by the football 13
Studios UK 692 626 11 ITV America 313 235 33 Studios RoW 390 355 10 Global Entertainment 187 179 4 Total Studios revenue 1,582 1,395 13 Total Studios costs (1,339) (1,152) 16 ITV Studios EBITA 243 243 - EBITA margin 15% 17% Internal ITVS to ITV Network 523 463 13 External revenue 1,059 932 14 Total revenue 1,582 1,395 13 Total revenue up 13% Good growth across all parts of the business Organic revenue, excluding currency, grew 7% Studios UK - healthy revenue growth driven by entertainment ITV America - strong growth from entertainment and scripted Studios RoW - benefitted from growth in UK and Talpa formats in Australia, France and the Nordics Global Entertainment - good slate of programmes, especially scripted Margin impacted by genre mix on new shows 43m revenue and 7m EBITA benefit from FX 14
2017 ITV Studios Total Revenue ( m) 293 135 48 43 4 1,395 (336) 1,582 FY 2016 Non-returning New shows (potential to return) Recommissions Acquisitions FX Other FY 2017 Managing the portfolio of new and returning shows is key to Studios growth New shows include Bancroft, The Voice Kids UK, 5 Gold Rings, Love Island Germany, Big Star s Little Star US, Snowpiercer Recommissions include The Voice UK, I m A Celebrity, Love Island UK, Hell s Kitchen US, Aber Bergen 15
*Organic excludes all acquisitions since 2012; ROI is based on EBITA and expected consideration 16
300 250 200 150 100 50 0 120 100 80 60 40 20 - Scripted Hours UK US & RoW 2015 2016 2017 Returning Scripted Hours +277% 2015 2016 2017 Entertainment Hours 3,000 2,000 1,000 0 2015 2016 2017 2,500 2,000 1,500 1,000 500 - Returning Entertainment Hours +84% 2015 2016 2017 Good growth in scripted content in UK and US with new and returning series Victoria, Cold Feet, Unforgotten, Snowpiercer, Good Witch Acquisition of Tetra and Cattleya in 2017 strengthens international scripted business More entertainment formats lead to growth across the business Love Island, The Voice, The Voice Kids, I m A Celebrity Get Me Out Of Here!, Hell s Kitchen, The Chase, Come Dine with Me Revenue mix impacts margins New shows, especially scripted, have lower margins in the early years *Data incudes acquisitions 17
2017 Adjusted EBITA ( m) 885 (81) 25 8 22 (37) 29 6 (15) 842 FY 2016 NAR Network Schedule Online, Pay & Interactive ITV Studios Underlying The Voice Of China FX & Other Cost Savings Investments FY 2017 NAR biggest impact on 2017 profit Offset by delivering cost savings and lower schedule costs Continued to invest in the Hub, ITV Box Office and Studios creative/scripted Good underlying profit growth in Studios, but The Voice of China included in 2016 comparatives 18
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P&L Cash Schedule Costs Around 1,055-60m increase of around 30m and weighted to H1 due to the Football World Cup Capex Around 100m with 60m of regular capex and 40m relating to the London property move in 2018 Investments Total of around 15-20m new property, online and initial data investments Profit to cash Around 85% continued strong cash flow generation Adjusted Interest Around 35m broadly unchanged from 2017 Pension 80m deficit funding contribution no change, subject to agreeing triennial valuation Tax Adjusted effective tax rate around 19%, unchanged and expected to be sustainable over the medium term Exceptional Items Cash cost of exceptionals will be around 85m Foreign Exchange Translation impact of FX, assuming rates remain at current levels, will negatively impact revenue by 35m and profit by 5m Exceptional Items Around 85m, mainly due to acquisition accounting and London office and Studios moves 20
Outlook for 2018 Carolyn McCall Good Morning Britain
Coming up On ITV Coming up Off ITV Coming up internationally 22
Significant advertising and sponsorship opportunities Produced by ITV Studios Premiering on Amazon Prime in US 7 episodes 31 matches on ITV 2018 FIFA World Cup UK broadcast expected in H2 Extended run on ITV2 Multiple commercial partnerships secured Enhanced digital offerings including daily podcasts Format sold to 6 countries Vanity Fair 23
Strategic refresh in progress In the meantime we remain very focused on the business Strong culture - talented and creative people Strong balance sheet and healthy cash flow Committed to our ordinary dividend policy Solid foundation for the future 24
Q&A
Appendix Full Year Results 2017 26
12 months to 31 December 2017 ( m) 2016 ( m) Change Commissions (563) (564) 0% Sport (82) (111) 26% Acquired (38) (37) (3)% ITN News and Weather (48) (48) - Total ITV main channel (731) (760) 4% Regional news and non-news (72) (70) (3)% ITV Breakfast (42) (44) 5% Total ITV incl. regional & Breakfast (845) (874) 3% ITV2, ITV3, ITV4, ITV Encore, ITVBe, CITV (180) (176) (2)% Total schedule costs (1,025) (1,050) 2% 27
12 months to 31 December 2017 ( m) 2016 ( m) Change Organic change* Studios UK 692 626 11% 9% Studios US 313 235 33% 28% Studios RoW 390 355 10% (8)% Global Entertainment 187 179 4% 1% Total revenue 1,582 1,395 13% 7% *At constant currencies, and excluding revenue from 2017 acquisitions 28
12 months to 31 December 2017 ( m) 2016 ( m) Change Adjusted EBITA 842 885 (5)% Internally generated amortisation (5) (12) 58% Financing costs (33) (26) (27)% Share of losses on JVs and associates (4) - 100% Profit before tax 800 847 (6)% Tax (154) (160) 4% Profit after tax 646 687 (6)% Non-controlling interests (4) (4) 0% Earnings 642 683 (6)% EPS (p) 16.0p 17.0p (6)% Diluted EPS (p) 16.0p 17.0p (6)% 29
12 months to 31 December 2017 ( m) 2016 ( m) Change EBITA 810 857 (5)% Exceptional items (operating) (153) (164) (7)% Amortisation and impairment (102) (89) (15)% Operating profit 555 604 (8)% Net financing costs (50) (51) 2% Share of losses on JVs and associates (4) - 100% Gain on sale of non-current assets and subsidiaries (non-operating exceptional items) (1) - 100% Profit before tax 500 553 (10)% Tax (87) (100) 13% Profit after tax 413 453 (9)% Loss after tax for the period from discontinuing operations - (1) 100% Non-controlling interests (4) (4) 0% Earnings 409 448 (9)% EPS (p) 10.2p 11.2p (9)% Diluted EPS (p) 10.2p 11.1p (8)% 30
12 months to 31 December Reported ( m) Adjustments ( m) Adjusted ( m) EBITA* 810 32 842 Exceptional items (operating) (153) 153 - Amortisation and impairment (102) 97 (5) Operating profit 555 282 837 Net financing costs (50) 17 (33) Share of losses on JVs and Associates (4) - (4) Gain on sale of non-current assets and subsidiaries (non-operating exceptional items) (1) 1 - Profit before tax 500 300 800 Tax (87) (67) (154) Profit after tax 413 233 646 Non-controlling interests (4) - (4) Earnings 409 233 642 Number of shares (weighted average)** 4,006-4,006 Earnings per share 10.2p 16.0p *Adjusted EBITA includes the benefit of production tax credits; **Diluted number of shares is 4,017m 31
12 months to 31 December 2017 ( m) 2016 ( m) Acquisition-related expenses (96) (131) Restructuring and property-related cost (30) (14) Insured trade receivables provision (27) - Pension curtailment - (19) Total operating exceptional items (153) (164) Non-operating exceptional items (1) - Total exceptional items (154) (164) 32
12 months to 31 December 2017 ( m) 2016 ( m) 161m Eurobond at 6.125% coupon Jan 17 - (7) 600m Eurobond at 2.125% coupon Sept 22 (11) (10) 500m Eurobond at 2% coupon Dec 23* (15) (1) 630m Revolving Credit Facility (4) (2) 150m and 100m Bilateral loans - (2) Financing costs directly attributable to loans and bonds (30) (22) Cash-related net financing costs (2) (3) Amortisation of bonds (1) (1) Adjusted financing costs (33) (26) Mark-to-market on swaps and foreign exchange - (3) Imputed pension interest (9) (5) Unrealised foreign exchange and other net financial losses (8) (17) Net financing costs (50) (51) * effective swapped coupon of 3.5% 33
12 months to 31 December 2017 ( m) 2016 ( m) Profit before tax 500 553 Production tax credits 32 28 Exceptional items 154 164 Amortisation and impairment* 97 77 Adjustments to net financing costs 17 25 Adjusted profit before tax 800 847 Tax charge (87) (100) Production tax credits (32) (28) Charge for exceptional items (12) (15) Charge in respect of amortisation and impairment* (19) (11) Charge in respect of adjustments to net financing costs (4) (6) Adjusted tax charge (154) (160) Effective tax rate on adjusted profits 19% 19% Total cash tax paid (including receipt of production tax credits) 95 90 Total adjusted cash tax paid (excluding the receipt of production tax credits) 118 126 *In respect of intangible assets arising from business combinations and investments. Also reflects the cash tax benefit of tax deductions for US goodwill. 34
Company Initial consideration ( m) Additional consideration paid in 2017 ( m) Expected future payments* ( m) Total expected consideration** ( m) Expected payment dates Total maximum consideration** ( m) 2017 Various 81-44 125 2020-2024 418 Total for 2017 81-44 125 418 Total for 2012-2016 860 91 248 1,199 2018-2021 1,923 Total 941 91 292 1,324 2,341 Of 292m expected future payments, 161m recorded on the balance sheet to date * Undiscounted and adjusted for foreign exchange. All future payments are performance related. ** Undiscounted and adjusted for foreign exchange, including initial consideration and excluding working capital adjustments. 35
2017 ( m) 2016 ( m) Adjusted EBITA 842 885 Working capital movement (58) (28) Adjustment for high end production tax credits (9) 8 Share-based compensation and pension service cost 13 10 Acquisition of property, plant and equipment, and intangible assets* (71) (44) Adjustment to capex relating to redevelopment of London HQ 16 - Depreciation 30 31 Adjusted cash flow 763 862 Profit to cash ratio 91% 97% Adjusted cash flow 763 862 Net cash interest paid (38) (20) Adjusted Cash tax paid (118) (126) Pension funding (80) (80) Free cash flow 527 636 *Except where disclosed, management views the acquisition of operating property, plant and equipment and intangibles as business as usual capex, necessary to the ongoing investment in the business. 36
31 December 2017 ( m) 2016 ( m) 630m RCF (60) - 161m Jan 17 - (161) 100m bilateral loan - (100) 600m Eurobond (529) (508) 500m Eurobond* (424) (425) Finance Leases - (4) Other debt (25) - Cash and cash equivalents 126 561 Net debt (912) (637) 31 December 2017 ( m) 2016 ( m) Cash and cash equivalents 126 561 Debt (1,038) (1,198) Net debt (912) (637) *Net of 20m cross currency swap (2016: 2m) 37
m 150 (50) 527 (250) (637) (450) (912) (650) (494) (126) (850) (95) (36) (20) (16) (15) (1,050) Dec-16 Net Debt Free cash flow Dividends Exceptional items Acquisitions and investments Purchase of shares for EBT FX on retranslation of debt London property capex Other Dec-17 Net Debt 38
Type of Facility Facility Amount Amount drawn at 31/12/2017 Maturity Revolving credit facility (RCF) 630m 60m 2022, option to extend to 2023 Bilateral financing facility 300m 0m 2021 Total 930m 60m 39
m 0 20 53 (83) (100) (328) 145 (59) 6 (39) (200) 80 (300) (400) Dec 16 Deficit funding Update in scheme membership data Change in assets Change in inflation assumptions Change in bond yields Other Dec-2017 Net pension deficit 40
Revenue by currency 12 months to 31 December 2017 ( m) 2016 ( m) GBP 2,313 2,357 US Dollar 435 397 Euro 274 224 Other Currencies 110 86 External revenue 3,132 3,064 Foreign Exchange Sensitivity impact of a 10% appreciation/depreciation in Sterling* Currency Revenue ( m) Adjusted EBITA ( m) USD ($) ±50-60 ±6-8 EUR ( ) ±40-50 ±4-5 *An appreciation in Sterling has a negative effect on revenue and adjusted EBITA, a depreciation has a positive effect 41