REG - ITV PLC - ITV Preliminary Results 2017 <Origin Href="QuoteRef">ITV.L</Origin> - Part 2
28/02/2018 07:05
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objectives to grow our on-screen and online
viewing and deliver good growth in non-NAR. And ITV has delivered on these as
we have continued to rebalance and strengthen the business creatively and
commercially. On-screen, our share of viewing was up for the second year, up
2%, the ITV Hub continues to deliver strong viewing, up 39%, Online, Pay &
Interactive revenue grew 7% and total ITV Studios revenue grew 13% including
currency benefit. We have a strong creative pipeline of high-quality
programmes, particularly drama and entertainment, and we continue to perform
well across the key genres that return and travel.
We measure performance through a range of metrics, particularly through our
alternative performance measures and KPIs as well as our statutory results,
all of which are set out later in the report.
External revenue was up 2% to £3,132 million (2016: £3,064 million), with
11% growth in non-NAR more than offsetting the decline in NAR, a clear
indication that our strategy of rebalancing the business is working. 56% of
total revenues came from sources other than spot television advertising
(non-NAR).
Adjusted EBITA declined 5% to £842 million (2016: £885 million) and
adjusted EPS declined 6% to 16.0p (2016: 17.0p) impacted by a 5% decline in
NAR and the ongoing investment across the business and the fact that the prior
year includes the full £37 million revenue and profit benefit of the four
year licence deal for The Voice of China. We did however benefit from the
delivery of £29 million of overhead cost savings and £25 million lower
schedule costs. Broadcast & Online adjusted EBITA declined 7% and ITV
Studios adjusted EBITA was flat.
Statutory profit before tax declined by 10% to £500 million (2016: £553
million) and statutory EPS declined by 9% to 10.2p primarily due to the
decline in earnings and higher amortisation and impairment of acquired assets,
which is explained in more detail in the Finance Review.
We have a strong balance sheet and the business continues to be highly cash
generative. Our profit to cash conversion remains high at 91% and we ended the
year with net debt of £912 million (2016: £637 million) after the effect of
acquisitions and investments of £95 million, dividend payments of £494
million and pension contributions of £80 million.
The Board has proposed an ordinary dividend of 7.8p, an increase of 8%,
reflecting our confidence in the underlying strength of the business and the
outlook for 2018. This is in line with the Board's commitment to a long-term
sustainable dividend policy and for ordinary dividends to grow broadly in line
with earnings, targeting dividend cover of around 2x adjusted earnings per
share over the medium term.
We remain focused on being a creator, owner, distributor and broadcaster of
content and in 2017 we continued to deliver on our strategy to diversify the
business and grow new revenue streams, further reducing our reliance on UK
spot advertising and making ITV a stronger and more resilient business. We
continue to build our free-to-air, online and pay businesses through Broadcast
& Online and are further growing our international content and
distribution business, ITV Studios. We are currently undertaking a strategic
refresh to ensure we have a clear strategy and well-defined priorities which
reflect what ITV needs to be in three and five years' time.
Broadcast & Online
The media environment in which we operate is constantly changing. Our
Broadcast & Online business is robust and evolving to take advantage of
the significant opportunities for growth.
ITV through its free-to-air channels offers unique audience scale and reach as
well as the key demographics demanded by advertisers. The ITV Hub, the digital
home for all our channels and content, is growing rapidly, driven by viewers'
appetite for catch up and VOD and the quality of our content. We continue to
explore and trial new ways, both free and pay, to distribute content to
broadcasters and platform owners as well as directly to consumers.
Financial performance
Broadcast & Online total revenue was down 3% in the year at £2,075
million (2016: £2,132 million). We delivered 7% growth in Online, Pay &
Interactive, driven by double-digit growth in online advertising, but this was
offset by the 5% decline in NAR. Including sponsorship, VOD and
self-promotion, ITV total advertising was down 3%.
Advertising categories such as Retail, Finance and Food continued to see
declines due to the uncertain economic outlook, along with the weaker pound
causing inflationary pressures, leading advertisers to reduce spend in order
to maintain margins. Within Retail, spending has been mixed: the high street
was weak while supermarkets increased their spend and some of the FMCGs
returned to spend in the second half of 2017. Entertainment & Leisure was
down, impacted by tough comparatives from the European Football Championship
in 2016. Cars and Telecommunications increased their spend around product
launches and digital brands continue to spend heavily on television to build
brand awareness.
Total costs were down as the cost savings and lower schedule costs offset the
increased investment on the ITV Hub, ITV Hub+ and ITV Box Office (our
pay-per-view channel used to show boxing matches).
Overall Broadcast & Online adjusted EBITA declined 7% to £599 million
(2016: £642 million) which has led to a one percentage point reduction in the
adjusted EBITA margin to 29% (2016: 30%).
Twelve months to 31 December - on a continuing basis 2017 2016 Change Change
£m £m £m %
NAR 1,591 1,672 (81) (5)
Online, Pay & Interactive revenue 248 231 17 7
SDN external revenue 70 67 3 4
Other commercial income 166 162 4 2
Broadcast & Online non‑NAR revenue 484 460 24 5
Total Broadcast & Online revenue 2,075 2,132 (57) (3)
Total schedule costs (1,025) (1,050) 25 (2)
Other costs (451) (440) (11) 3
Total Broadcast & Online adjusted EBITA 599 642 (43) (7)
Adjusted EBITA margin 29% 30%
Viewing
On-screen we performed strongly with viewing up for the second consecutive
year. We increased our spend on entertainment but sports costs were lower as
a result of there being no major sports tournament in 2017.
ITV Family SOV grew 2% with a strong performance across the schedule. This
level of growth is the second biggest in ITV's recent history and never before
has ITV delivered two years of consecutive growth. Daytime shows including
Good Morning Britain, This Morning and The Chase grew their audiences and
Coronation Street and Emmerdale continue to perform well and are now the UK's
two largest soaps. We launched the sixth weekly episode of Coronation Street
in September, which has further strengthened its performance. We successfully
aired a range of new dramas including Liar, Good Karma Hospital, Fearless,
Bancroft and Little Boy Blue and new entertainment shows, The Voice, The Voice
Kids, The Keith and Paddy Picture Show and Five Gold Rings, as well as new
sitcom Bad Move. We continued to drive significant audiences with our
returning brands such as Broadchurch - which was the most watched drama in
the year - Vera, Unforgotten, Victoria, Cold Feet, Ant & Dec's Saturday
Night Takeaway, I'm A Celebrity…Get Me Out Of Here! and Britain's Got
Talent. Our news programming continues to perform well with highlights
including our General Election coverage, as does our sporting schedule with
the Six Nations Rugby Championships and the launch of horse racing on ITV.
Some of our schedule did not perform as well as we had hoped, for example The
Nightly Show, Fearless and Bigheads, so will not return in 2018.
We continue to target the hard to reach demographics demanded by advertisers -
particularly young and male audiences - through our digital channels and
online, and have seen a significant increase in our target demographics on
ITV2 and ITV4. Our 16-34s share of commercial impacts (SOCI) on ITV2 was up
17% helped by the phenomenal success of Love Island as well as Celebrity
Juice, Family Guy and American Dad. Male SOCI on ITV4 was up 12% helped by
ITV's horse racing coverage, The French Open and the Isle of Man TT Races.
ITV3's viewing performance improved in the year due to the strong performance
of dramas such as Midsomer Murders, Lewis and Endeavour. ABC1 adults SOCI on
ITV3 was up 1% making it the most popular digital channel for this
demographic.
ITV Hub
The ITV Hub, which is now available on 29 platforms, continues to grow
rapidly, driven by viewing on mobile and connected televisions. The ITV Hub is
now pre-installed on around 90% of all connected televisions sold in the UK
and launched on Apple TV, Apple's new TV app and Microsoft XBox in 2018.
Long-form video requests were up 34% and online viewing consumption, which
measures how long viewers are spending online, was up 39%. The ITV Hub has now
been the fastest-growing public service broadcaster online service for the
last three years driven by the good user experience and great content and now
has 21 million registered users.
The ITV Hub helps ITV reach valuable younger audiences - 75% of the UK's 16-24
year olds are registered together with 65% of the UK's 16-34 year olds.
Younger viewers increasingly use the ITV Hub for simulcast viewing, as well as
catch up, with programmes such as Love Island delivering record viewing with
1.3 million simulcast requests for the final.
We are using the insight we gain from our registered users to develop more
targeted advertising solutions and to increasingly drive viewing through
personalisation. In the year, we launched personalised ITV Hub home pages for
our audiences and have introduced data-driven recommendations and mobile
notifications to registered users.
Strong advertising proposition
While political and economic uncertainty has led advertisers to reduce their
current spend, television remains one of the most efficient and effective
mediums for advertisers to achieve mass simultaneous reach. As viewing and
advertising becomes more fragmented, the scale of advertising that
television, and particularly ITV, delivers becomes increasingly valuable.
ITV's unique ability to deliver mass audiences, as well as more targeted
demographics across the family of channels, has enabled us to again increase
our share of the television advertising market (SOB) to 47.6% from 47.4%. ITV
delivered 99% of all commercial audiences over five million and 96% of all
commercial audiences over three million. SOV provides an overall measure
of viewing performance, but because advertisers are buying scale and breadth
of audience, SOV is not necessarily a direct indicator of advertising
performance.
ITV aims to maximise further the value of its airtime and drive new revenue
streams through sponsorship, interactivity and branded extensions. ITV
utilises the core assets of its strong brand and reputation, unique commercial
relationships and quality production capability to deliver a wide variety of
marketing solutions.
As a result, ITV's 'Other commercial income' increased by 2%, with new
sponsorship around ITV horse racing and The Voice, offset by a reduction in
third-party airtime sales commission and revenue primarily from UTV following
ITV's acquisition in February 2016 and successful integration of the business.
Digital advertising is growing rapidly and we have seen double-digit growth in
our VOD advertising revenues on the ITV Hub, which delivers more targeted
demographics and a high-quality, trusted and measured environment for online
advertisers.
In 2017, ITV announced a trial for addressable advertising with Sorenson on
connected Smart televisions. We have also launched a trial of a self-service
portal so that any business, however small, can easily access advertising on
ITV.
Remain responsive to a changing media environment
Linear television viewing remains resilient despite significant changes in the
availability and delivery of content. On average viewers watched 203 minutes
of television a day in 2017. This is lower than 212 minutes in 2016 and partly
is due to there being no major sports tournament in 2017. The majority
of viewing remains live at over 75% as television continues to have the power
to bring audiences together. VOD viewing continues to grow rapidly while PVR
(recorded) viewing has remained relatively constant over the last few years at
around 13%. Younger viewers are watching less linear television than they used
to, but through delivering great content such as The Voice, Britain's Got
Talent, Saturday Night Takeaway and Love Island, television reaches 90% of
young people each week and remains their dominant choice of media.
Developing ITV's digital broadcast assets
We are further developing our social media assets across our international
portfolio of programmes as live television continues to demonstrate a growing
relevance as viewers increasingly connect and engage through social media. We
now have over 160 YouTube branded channels and had around 20 owned and
operated programme apps across the year which, together with our quality
content, is driving significant growth in viewer engagement. Our programmes
generated over 100 million interactions in 2017.
Building our pay offering in the UK and internationally
As a creator, owner and distributor of sought after content, ITV is well
positioned to take advantage of the opportunities that arise from the changes
we are seeing in digital media and consumer behaviour. We must ensure that
however our content is viewed and on whatever platform it is viewed on, we are
paid the appropriate value for it.
As we look to build our pay offerings, we are developing SVOD services to
target direct to consumer pay revenues. In March 2017, we launched our US
joint venture with the BBC, BritBox, (with AMC Networks taking a minority
share), an ad-free SVOD service offering the most comprehensive collection of
British content in the US. A version of the service also launched in Canada in
February 2018 and we now have over 250,000 subscribers in total. In 2018, we
will explore opportunities for BritBox on other platforms, include original
commissions, and look to roll it out further internationally.
We are continuing to develop the ITV Hub+, our ad-free subscription version of
the ITV Hub, which while relatively small, tripled its subscribers in the
year. We have extended the service across all platforms so subscribers can
now watch on mobile, PC and connected televisions and launched it on Amazon.
Over the last few years we have also established a number of smaller pay
propositions. We own a majority stake in Cirkus, a best of British SVOD
service in the Nordics and Germany. We also have a general entertainment
channel, ITV Choice, for emerging markets available in over 100 countries.
We are trialling ITV Box Office, a direct to consumer pay per view offering
which currently focuses on boxing and we have a number of live events based
around our key brands, which build relationships directly with our viewers.
For example, we have the Emmerdale Studios Experience, which showcases the
process of creating an episode of the soap, and This Morning Live, a shopping
and lifestyle festival.
ITV also continues to license its channels and content across multiple
platforms, including our HD digital channels and catch-up VOD on Sky and
Virgin Media set top boxes and all our live channels and catch up VOD across
their connected platforms. We announced that ITV Encore will close as an
exclusive Sky channel in 2018 which allows ITV to distribute box sets more
widely across multiple platforms. The closure of Encore will impact ITV's pay
revenues in 2018.
SDN
SDN generates revenue by licensing capacity to broadcast channels, radio
stations and data providers on digital terrestrial television or Freeview. It
holds a licence with capacity for 16 broadcast channels, including ITV
services and third-party channels. SDN external revenue grew 4% driven by the
full year impact of the 16th stream, which was launched in 2016.
ITV Studios
Growing an international content business has been central to ITV's strategy
as an integrated producer broadcaster. As ITV creates and owns more content,
our channels in the UK provide a platform to showcase our programmes before
distributing them across multiple platforms in the UK and internationally.
Growing demand for content
The strong global demand for content from broadcasters and platform owners
provides significant opportunity for ITV Studios. We estimate that the global
content market is growing at around 5% per annum, with some genres, such as
drama, growing more rapidly. To capitalise on this growth, we continue to
develop, own and manage rights in genres that return and travel
internationally, namely drama, entertainment and factual entertainment, and we
have built a healthy pipeline of new and returning programmes.
Financial performance
ITV Studios is now a global producer of scale and total revenues grew 13% to
£1,582 million (2016: £1,395 million) including currency benefit, with
growth across the business as we continue to build our capability in key
creative markets.
Twelve months to 31 December 2017 2016 Change Change
£m £m £m %
Studios UK 692 626 66 11
ITV America 313 235 78 33
Studios RoW 390 355 35 10
Global Entertainment 187 179 8 4
Total Studios revenue 1,582 1,395 187 13
Total Studios costs (1,339) (1,152) (187) 16
Total Studios adjusted EBITA* 243 243 - -
Studios adjusted EBITA margin 15% 17%
* Includes the benefit of production tax credits.
Twelve months to 31 December 2017 2016 Change Change
£m £m £m %
Sales from ITV Studios to Broadcast & Online 523 463 60 13
External revenue 1,059 932 127 14
Total Studios revenue 1,582 1,395 187 13
Total organic revenue, which excludes our current year acquisitions and
foreign exchange, was up 7% and acquisitions continue to deliver with a 13%
return on investment in 2017.
Reflecting our growth in key production markets in Europe and the US, 54% of
ITV total revenue was generated outside the UK (2016: 50%). ITV is the number
one commercial producer in the UK and a leading producer in Europe and the US.
As our Studios business grows internationally, foreign currency movements have
an increasing impact on our results.
In 2017, the foreign currency benefit was £43 million on revenue and £7
million on adjusted EBITA.
Adjusted EBITA was flat year-on year at £243 million. There was good
underlying profit growth but adjusted EBITA was impacted by our ongoing
investment in US drama and the fact that the prior year includes the full £37
million benefit of the four year licence deal for The Voice of China. Adjusted
EBITA margin declined by two percentage points to 15%, impacted by revenue mix
on new and returning shows.
Building scale in key creative markets
ITV Studios has three production divisions - Studios UK, ITV America and
Studios Rest of World (RoW). Across these divisions, ITV produced over 8,400
hours of programming, compared to 7,800 in 2016 and secured 240 recommissions
and 239 new commissions in the year.
The US and the UK are the dominant creative markets, with the US the largest
exporter of scripted content and the UK the world leader in exported formats.
Over the last few years we have built scale in these key markets, both
organically and through acquisitions, and we now have a significant portfolio
of successful series and formats that travel.
The UK performed well with total revenue up 11% at £692 million (2016: £626
million). We continue to grow our sales to ITV, which were up 13% with
deliveries including The Voice, The Voice Kids, Love Island, Next of Kin,
Bancroft, Fearless, Unforgotten, Little Boy Blue and an extra episode of
Coronation Street. We have again grown ITV Studios UK share of original
content on ITV main channel from 63% to 66%. Our off-ITV revenues grew 10%
with deliveries including The City And The City, Shetland, Moorside and
Motherland for BBC, Back for Channel 4, Blind Date for Channel 5 and Living
the Dream for Sky. We strengthened our UK drama business with the acquisition
in April of a majority stake in World Productions, the producer of Line of
Duty, and our entertainment business with an investment in start-up Koska in
October.
ITV America total revenue grew 33% to £313 million (2016: £235 million)
including foreign exchange. We delivered five drama commissions - the third
series of the Good Witch for Hallmark which has been commissioned for a
fourth series, Sun Records for CMT, Somewhere Between for ABC and two pilots
for TNT, Highland and Snowpiercer, which has been commissioned for a ten-part
series. We have also delivered a high volume of programmes from our
entertainment portfolio including two series of Hell's Kitchen, Pawn Stars,
Alone, Forged in Fire and First 48 and new commissions including Sideserf,
World Hip Hop Star and Big Star's Little Star.
Studios RoW has production bases in Australia, Germany, France, the
Netherlands, the Nordics and Italy where we produce original content as well
as local versions of ITV Studios UK and Talpa formats. Revenue grew 10% to
£390 million (2016: £355 million) including foreign exchange, driven
particularly by good growth in Australia, France and the Nordics. Across the
territories, our entertainment and format deliveries included The Voice in
Australia and Germany, The Chase in Australia and Germany, and Love Island in
Germany.
Talpa continues to develop its formats including The Voice Senior, A Year
To Remember, I Love My Country, A Whole New Beginning and Around The World
With 80 Year Olds. Our international scale now enables ITV to make The Voice
and these other formats in all our international production territories and
therefore earn the production revenue as well as the format fee.
Some of our content will not be recommissioned in 2018 as they have not
performed as expected, for example The Loch and Sun Records.
We are making real progress in building a European scripted business. In
February 2017, ITV acquired a majority stake in Tetra Media Studio, a French
scripted production company, and in October ITV acquired a majority stake in
Cattleya, the Italian scripted production company behind Gomorrah and Suburra.
We also took a stake in a Danish scripted producer Apple Tree Productions in
December. These, along with our existing European drama businesses,
will enable us to benefit from the increasing demand for locally produced
content with global appeal.
We have further strengthened our international business with a number of other
small investments. In April, we acquired a 45% stake in Blumhouse Television,
established by Jason Blum, the renowned film and television producer, which
finances and produces original scripted and unscripted 'dark' genre
programming for global audiences including The Jinx and Cold Case Files. In
May we entered into a joint venture with the US talent agent and production
company, Circle of Confusion, and in June we acquired Elk Production,
a Swedish entertainment production company.
Investing in content with international appeal
We have continued to expand our portfolio of successful formats and series
that return and can be distributed internationally.
With the acquisition of Talpa Media in 2015, we have significantly
strengthened our global capability in entertainment formats. Across the
business, we have grown a solid portfolio of high volume and high margin
formats that travel internationally and that we produce locally. For example,
during 2017 we produced The Voice in five countries and The Voice Kids and
Four Weddings in four countries.
Demand for drama is growing strongly as standout original content becomes
brand defining for both broadcasters and OTT players. To capitalise on this,
we are investing in our global scripted business, particularly in the US, to
build on the success of our UK drama business. We are strengthening
our development and creative capabilities internally and have invested in a
number of development relationships. In 2017, we increased our investment in
drama across the business, investing £243 million (2016: £160 million).
We finance our large-scale scripted projects through our strong underlying
cash flows or through co-productions and partnerships with broadcasters and
OTT platforms. The production costs are partly funded by the initial sale of
the series to a broadcaster, while the deficit (the difference between the
cost and what the broadcaster pays), is recovered through distribution
revenue from selling the finished product globally to other broadcasters and
platforms.
We balance our financial exposure through building a portfolio of programmes
across genres and across their content life cycle, with successful
international dramas offsetting the risk that we will not recover the full
deficit on every show.
We are seeing increasing demand from OTT platforms for original long-form
content and secondary rights. As well as distributing library content to OTT
platforms through Global Entertainment, we are also producing and jointly
commissioning a number of scripted and unscripted programmes with OTT
platforms including Vanity Fair with Amazon, Robozuna, Queer Eye for the
Straight Guy and Dark Web for Netflix, Harlots for Hulu and we are in
development with a number of shows for Facebook.
Expanding our global distribution business
Global Entertainment, the distribution arm within ITV Studios, delivered
revenue growth of 4% to £187 million (2016: £179 million) as we continue to
drive value from our investment in creating and owning the rights to quality
content with international appeal. As well as funding and creating new content
from ITV Studios, we also invest in third-party producers and their content
from all over the world. Global Entertainment's pipeline of new projects is
strengthening with projects such as Vanity Fair, The City And The City and
World On Fire expected for 2018.
Our content continues to sell well internationally to broadcasters and OTT
platforms and in particular, our scripted programmes with titles including
Victoria, Poldark, Vera, Good Witch, The Murdoch Mysteries, Schitts Creek, The
Loch, Fearless and Harlots. Over 15 of our scripted programmes have been sold
to more than 100 countries Our entertainment and factual entertainment formats
are highly demanded and include programmes such as The Voice, Love Island,
The Chase, Big Star's Little Star, This Time Next Year, Five Gold Rings, Come
Dine With Me and Four Weddings. In 2017, we sold 62 different formats
internationally, 17 of which are being produced by ourselves or other
producers in three or more countries including Love Island, Keeping the Nation
Alive and Hell's Kitchen. We currently have over 250 programme supply
agreements in place with online platforms including Netflix, Amazon and Hulu.
Productivity
We consistently seek to drive productivity across the Group by investing in
our people, new broadcast and production technology as well as up to date
office facilities.
By investing in these areas, we aim to transmit our content and
advertisements more efficiently, increase our production output and
the rights we own and improve our viewer experience.
People
During the year, we continued to invest in our people, rolling out a new
conversation based performance management process and continuing to provide
general and more specific training for staff across the business.
We use employee engagement scores as a key measure. We will undertake our next
engagement survey in 2018. Our 2016 survey showed that ITV continues to have
high levels of engagement (90%), (see the KPIs section for details on how this
is measured). We always seek to recruit and promote internally where possible
with 34% of vacancies in 2017 filled from within ITV.
Broadcast and content technology
One of the key initiatives in our Broadcast business is to improve our
processes around our content supply chain, which includes how we store our
content and how our content is managed and ultimately played out via our
transmission centres. We have sought to reduce the time taken from live
transmission to content being available for catch up on the ITV Hub. We are in
the process of upgrading our advertising sales system and during the year we
began investigating how robotic process automation may benefit ITV in the
future.
Production facilities
September 2017 saw the launch of a sixth weekly episode of Coronation Street,
which required a significant step up in productivity and investment in
expanding the production site with new streets, as well as new equipment,
sound stages and a state of the art production control room. We refresh our
regional news production facilities on a continuous rotation basis and this
year we built new facilities for our UTV licence in Northern Ireland. During
2018, we are relocating our Daytime studios to a new state of the art
facility as part of our London property move.
We also seek to use established and emerging technology to drive productivity,
where it makes commercial sense to do so. In our Studios business, we have
recently implemented a new process and technology for script editing and
management. We commenced roll-out of a bespoke artist payment system, which
has reduced duplication across the business and uses less paper. Our regional
news teams are taking advantage of new production technologies and
increasingly use mobile kits that enable reporters to shoot more efficiently
and transmit high-quality live reports.
Alternative Performance Measures
The Annual Report includes both statutory and adjusted measures, the latter of
which, in management's view, reflect the underlying performance of the
business and provide a more meaningful comparison of how the business is
managed and measured on a day-to-day basis.
Our APMs and KPIs are aligned to our strategy and business segments and
together are used to measure the performance of our business and form the
basis of the performance measures for remuneration.
Adjusted results exclude certain items because, if included, these items could
distort the understanding of our performance for the year and the
comparability between periods.
Key adjustments for adjusted EBITA, profit before tax and EPS
Adjusted EBITA is calculated by adding back exceptional items and high end
production tax credits to EBITA. Further adjustments, which include
amortisation and impairment of assets and net financing costs, are made to
remove their effect from adjusted profit before tax and EPS. The tax effects
of all these adjustments are reflected in the adjusted tax charge. These
adjustments are detailed below.
Production tax credits
The ability to access tax credits, which are rebates based on production
spend, is fundamental to our Studios business when assessing the viability of
investment in green-lighting decisions, especially with regards to high-end
drama. ITV reports tax credits generated in the US and other countries (e.g.
Ireland, Hungary, Canada and South Africa) within cost of sales, whereas in
the UK and Italy tax credits for high-end drama must be classified as a
corporation tax item. However, in our view all tax credits relate directly to
the production of programmes. Therefore, to align treatment, regardless of
production location, and to reflect the way the business is managed and
measured on a day-to-day basis, these are recognised in adjusted EBITA. Our
cash measures including profit to cash conversion and free cash flow are also
adjusted for the impact of production tax credits. Further detail on this is
included below.
Exceptional items
These include acquisition-related costs, reorganisation and restructuring
costs, property costs and non-routine legal costs. These items are excluded to
reflect performance in a consistent manner and are in line with how the
business is managed and measured on a day-to-day basis. They are typically
gains or losses arising from events that are not considered part of the
core operations of the business or are considered to be one-off in nature,
though they may cross several accounting periods. We also adjust for the tax
effect of these items. Note 2.2 includes further detail on exceptional items.
Acquisition-related costs
We structure our acquisitions with earnouts or put and call options, to allow
part of the consideration to be based on the future performance of the
business as well as to lock in and incentivise creative talent. Where
consideration paid or contingent consideration payable in the future is
employment-linked, it is treated as an expense (under accounting rules) and
therefore part of our statutory results. However, we exclude all
consideration of this type from adjusted EBITA, adjusted profit after tax and
adjusted EPS as, in our view, these items are part of the capital transaction
and do not form part of the Group's core operations. The Finance Review
explains this further. Acquisition-related costs, including legal and advisory
fees on completed deals or significant deals that do not complete, are also
treated as an expense (under accounting rules) and therefore on a statutory
basis form part of our reported results. In our view, these items also form
part of the capital transaction and are excluded from our adjusted measures.
Restructuring and reorganisation costs
These arise from Group-wide initiatives to reduce the ongoing cost base and
improve efficiency in the business. We consider each project individually to
determine whether its size and nature warrant separate disclosure. Where there
has been a material change in the organisational structure of a business area
or a material Group-wide initiative, these costs are highlighted and are
excluded from our adjusted measures.
Property costs
In 2018, ITV will relocate to various properties on a temporary basis while
its headquarters are redeveloped. The fit-out costs will be capitalised but
the incremental one-off property project costs, including move costs, rental
payments for these properties and accelerated depreciation for assets made
redundant due to the move, will be ring-fenced as they relate to a one-off
property project and are therefore excluded from our adjusted measures. As a
ring-fenced cost, rental payments will continue to be excluded from our
adjusted measures until we move back, which is expected in 2023.
Amortisation and impairment
Amortisation and impairment of assets acquired through business combinations
and investments are not included within adjusted earnings. As these costs are
acquisition-related, and in line with our treatment of other
acquisition-related costs, we consider them to be capital in nature and they
do not reflect the underlying trading performance of the Group. Amortisation
of software licences and development is included within our adjusted results
as management consider these assets to be core to supporting the operations of
the business.
Net financing costs
Net financing costs are adjusted to reflect the underlying cash cost of
interest for the business, providing a more meaningful comparison of how the
business is managed and funded on a day-to-day basis. The adjustments made
remove the impact of mark-to-market on swaps and foreign exchange, imputed
pension interest and other financial gains and losses, which do not reflect
the relevant interest cash cost to the business and are not yet realised
balances.
A full reconciliation between our adjusted and statutory results is provided
below.
Reconciliation between statutory and adjusted results
Twelve months to 31 December - on a continuing basis 2017 2017 2017 2016 2016 2016
Statutory Adjustments Adjusted Statutory Adjustments Adjusted
£m £m £m £m £m £m
EBITA(1) 810 32 842 857 28 885
Exceptional items (operating)(2) (153) 153 - (164) 164 -
Amortisation and impairment(3) (102) 97 (5) (89) 77 (12)
Operating profit 555 282 837 604 269 873
Net financing costs(4) (50) 17 (33) (51) 25 (26)
Share of losses on JVs and Associates (4) - (4) - - -
Gain on sale of non-current assets and subsidiaries (non-operating exceptional (1) 1 - - - -
items)
Profit before tax 500 300 800 553 294 847
Tax(5) (87) (67) (154) (100) (60) (160)
Profit after tax 413 233 646 453 234 687
Non-controlling interests (4) - (4) (4) - (4)
Loss from discontinuing operations (net of tax) - - - (1) 1 -
Earnings 409 233 642 448 235 683
Shares (million), weighted average 4,006 - 4,006 4,010 - 4,010
EPS (p) 10.2p 16.0p 11.2p 17.0p
Diluted EPS (p) 10.2p 16.0p 11.1p 17.0p
1. £32 million adjustment relates to production tax credits which we
consider to be a contribution to production costs and working capital in
nature rather than a corporate tax item.
2. Exceptional items largely relate to acquisition costs, primarily
employment linked consideration, as well as restructuring and property costs
and an insured trade receivable provision in relation to The Voice of China.
Further detail is included in the Finance Review.
3. £97 million adjustment relates to amortisation and impairment of
assets acquired through business combinations and investments. We include only
amortisation on purchased intangibles such as software within adjusted PBT.
4. £17 million adjustment is primarily for non-cash interest cost. This
provides a more meaningful comparison of how the business is managed and
funded on a day-to-day basis.
5. Tax adjustments are the tax effects of the adjustments made to
reconcile PBT and adjusted PBT. A full reconciliation is included in the
Finance Review.
Other Alternative Performance Measures
Total revenue
As an integrated producer broadcaster, we look at the total revenue generated
in the business which includes internal revenue, which is the sale of ITV
Studios programmes to Broadcast & Online. Our broadcast channels are a
significant customer for ITV Studios and selling programmes to Broadcast &
Online is an important part of our strategy as it ensures we own all the
rights to the content.
A reconciliation between external revenue and total revenue is provided below.
Twelve months to 31 December 2017 2016
£m £m
External revenue (Reported) 3,132 3,064
Internal supply 525 463
Total revenue (Adjusted) 3,657 3,527
Adjusted net debt
Net debt (as defined in note 4.1) is adjusted for all our financial
commitments. This better reflects how credit rating agencies look at our
balance sheet. A reconciliation between net debt and adjusted net debt is
provided below.
Twelve months to 31 December 2017 2016
£m £m
Net debt (912) (637)
Expected contingent payments on acquisitions (292) (328)
Net pension deficit (83) (328)
Operating leases* (143) (344)
Adjusted net debt (1,430) (1,637)
Adjusted net debt to adjusted EBITDA 1.6x 1.8x
Reported net debt to adjusted EBITDA 1.0x 0.7x
* 2017 excludes transponder costs, which are now treated as service contracts.
See note 2.1 for further detail. The comparator has not been re-presented.
Net pension deficit
This is our defined benefit pension deficit under IAS 19 adjusted for other
pension assets, mainly gilts, over which the pension scheme holds a charge,
which are held by the Group as security for future unfunded pension payments
of four former Granada executives. A full reconciliation is included within
note 3.7.
Profit to cash conversion
This is our measure of our effectiveness of cash generation used for working
capital management. It is calculated as our adjusted cash flow as a proportion
of adjusted EBITA. Adjusted cash flow, which reflects the cash generation of
our underlying business, is calculated on our statutory cash generated from
operations before exceptional items, net of capex on property, plant and
equipment (excluding capex relating to the redevelopment of our London
headquarters) and intangible assets, and including the cash impact of high end
production tax credits.
Free cash flow
This is our measure of free cash flow after we have met our financial
obligations. It takes our adjusted cash flow (see above) and removes the
impact of net interest, adjusted cash tax (which is total tax paid adjusted to
exclude the receipt of production tax credits) and pension funding. A full
reconciliation is included in the Finance Review.
Key Performance Indicators
We have defined our KPIs to align our performance and accountability to our
business segments and strategy.
Broadcast & Online - building our free-to-air, online and pay business
ITV Studios - growing an international content and distribution business
Financial
Adjusted EBITA
Definition
This is the key profitability measure used across the whole business.
Adjusted earnings before interest, tax and amortisation (EBITA) is calculated
by adding back exceptional items and high end production tax credits. It
reflects the underlying performance of the business and provides a more
meaningful comparison of how the business is managed and measured on a
day-to-day basis.
Further detail on this measure is included within the Alternative Performance
Measures section.
Performance
In 2017, adjusted EBITA decreased by £43 million or 5%, predominantly due to
a £81 million or 5% decline in NAR. This was partially offset by growth from
high margin Online, Pay & Interactive, £25 million lower programming
budget due to the absence of a major sports tournament, delivery of £29
million of overhead savings, and foreign exchange benefit.
Group adjusted EBITA margin decreased by two percentage points to 27% driven
by the decline in NAR and revenue mix within ITV Studios.
Adjusted EPS
Definition
Adjusted EPS represents the adjusted profit for the year attributable to
equity shareholders. Adjusted profit is defined as profit for the year
attributable to equity shareholders after adding back exceptional items and
high end production tax credits. Further adjustments include amortisation and
impairment of assets, net financing costs and the tax effects relating to
these items. It reflects the business performance of the Group in a
consistent manner and in line with how the business is managed and measured
on a day-to-day basis.
Further detail on this measure is included within the Alternative Performance
Measures section.
Performance
Adjusted EPS decreased by 6% from 17.0p to 16.0p. This is higher than the
corresponding decrease in adjusted EBITA of 5% due to higher adjusted
financing costs in the year of £33 million (2016: £26 million).
Profit to cash conversion
Definition
Profit to cash conversion represents the proportion of adjusted EBITA
converted into a measure of adjusted cash flow, after capex on property, plant
and machinery (excluding capex relating to the redevelopment of our London
headquarters).
Further detail on this measure is included within the Alternative Performance
Measures section.
This measures the effectiveness of our working capital management and capital
expenditure control.
Performance
Profit to cash remains high at 91% (2016: 97%). In the year we saw an
increase in working capital. This was due to the payment schedule for sports
rights for future years, and the timing difference between the production and
final delivery and payment of scripted and entertainment titles such as
Snowpiercer, Good Witch, Vanity Fair, Poldark, Dancing on Ice and Survival of
the Fittest.
Non-NAR revenue
Definition
Non-NAR reflects all ITV revenue, both internal and external, except NAR
(spot advertising revenues). Online, Pay, Interactive, Sponsorship, SDN and
ITV Studios revenues are all included within Non-NAR, with the key drivers of
growth being Online and ITV Studios.
Growing non-NAR is key to the strategy as we aim to rebalance the business
away from our reliance on television advertising revenue.
Performance
Non-NAR revenue increased by 11% in 2017 as we continue to rebalance the
business away from a reliance on NAR. We delivered strong growth in ITV
Studios total revenue and double-digit growth in Online. Non-NAR revenues
were 56% of total revenue which has increased from 53% in 2016.
Non-financial
Employee engagement
Definition
Continuing to develop a creative, commercial and global organisation requires
high-quality employees who are engaged in and motivated by the work that they
do.
Employee engagement measures pride in the work we do, pride in working for ITV
and also what we say about our programmes and services.
Performance
There was no employee engagement survey in 2017. Employee engagement for the
last survey performed in 2016 was 90% with an 80% participation rate.
A full employee engagement survey is expected in 2018.
Broadcast & Online
ITV Family share of viewing
Definition
Keeping our free-to-air proposition strong and our audiences healthy is vital
for the Broadcast & Online business, and ITV Family SOV helps measure
this. ITV Family SOV is the total viewing audience over the year achieved by
ITV's family of channels as a proportion of total television viewing,
including the BBC Family.
Performance
ITV Family SOV grew 2% in 2017 to 21.7%. Within this, the ITV main channel was
up 1% with strong performances from daytime, the soaps, drama and
entertainment. The digital channels were up 3% in the year mainly across ITV2
and ITV4. ITV2 viewing amongst 16-34s continues to grow, with 16-34s SOV up
18% in the year. It remains the most popular digital channel in the UK based
on SOV and is the largest digital channel for 16-34s.
ITV also continues to deliver mass audiences and in 2017 delivered 99% of all
commercial audiences over five million and 96% over three million, which is
unchanged from 2016.
ITV Family share of commercial impacts
Definition
To maintain our position as a leading commercial broadcaster, we need to have
strong ITV Family SOCI. SOCI is the trading currency in the television
advertising market, and since it only covers commercial television it does not
include the BBC. This is the share of total UK television commercial impacts
which is delivered by ITV's family of channels. An impact is one viewer
watching one 30-second commercial. SOCI provides an overall measure of viewing
performance. However, because advertisers are buying scale and breadth of
audience, SOCI is not necessarily a direct indicator of advertising
performance.
Performance
ITV Family SOCI was broadly flat year-on-year, with ITV main channel flat and
the digital channels up 1%. ITV2 is now more targeted towards younger viewers
with SOCI amongst 16-34s up 17% in the year. ITV4 is more targeted towards
male viewers with Men SOCI up 12% in the year. ITV3 is targeted to ABC1
adults with SOCI up 1% in the year for this demographic. The move of The
Great British Bake Off from BBC1 to C4 affected ITV main channel's SOCI
performance in the year.
ITV Family share of broadcast
Definition
ITV's share of UK television spot advertising revenue is known as its share of
broadcast (SOB).
Our SOB has always been based on our estimate of the pure spot advertising
market, excluding sponsorship, VOD and all broadcasters' self-promotion
revenues on their own channels, which this year has seen a significant
increase and therefore further distorts the external spot market.
It is increasingly difficult to measure the total television advertising
market as all broadcasters have different definitions and include other
sources of revenue, such as sponsorship and VOD, in their estimates of
television advertising.
Performance
We again gained share in 2017 as a result of our unique ability to deliver
mass audiences across the key demographics to our advertisers and more
targeted demographics on our digital channels. This was helped by ITV's
coverage of the horse racing, which targets the male demographic and is highly
demanded by advertisers. Our SOB increased to 47.6% in the year.
Total long-form video requests
Definition
We remain focused on growing our audience share from our free-to-air broadcast
and increasingly from our VOD business as well.
Long-form video requests is a measure of the total number of our videos
requested across all platforms on which the ITV Hub is available and
therefore provides a key measure of how much of our content is being viewed
online. A long-form video is a programme that has been broadcast on television
and is available to watch online and on demand in its entirety.
Performance
Long-form video requests were up 34% in 2017 to 1,426 million views supported
by our continued investment and focus on the ITV Hub, mobile apps and
simulcast offering. Online consumption, which is the measure of how long
viewers are spending online, is an important indicator of online performance
and this increased by 39% in 2017.
ITV Studios
Number of new commissions for ITV Studios
Definition
As we grow our international content business, tracking the performance of the
creative renewal pipeline and the number of new commissions won is a key
indicator. This figure includes programmes shown both on ITV and on other
broadcasters, and both in the UK and internationally.
Performance
There was strong growth in the number of new commissions for ITV Studios in
2017, up 5% to 239. Eighty three of these new commissions came from the UK
business, with the remaining 156 coming from our international businesses. In
addition, there were 240 recommissions in the year (2016: 188) with 106 from
ITV Studios UK and 134 from the international businesses.
We continue to invest in our creative pipeline, building on our existing
portfolio of programmes and formats. We are particularly focused on the genres
that can return and travel, namely drama, entertainment and factual
entertainment.
Percentage of ITV* output from ITV Studios
* ITV main channel only.
Definition
As an integrated producer broadcaster, part of our strategy is to use our
broadcast channels as a platform for ITV Studios content where we aim to
make them famous and then sell them around the world.
The proportion of the total spend on original commissions on ITV transmitted
in the year, delivered by ITV Studios, demonstrates this and our current aim
is to increase ITV Studios supply of programmes to ITV.
Performance
The percentage of ITV output from ITV Studios increased to 66% in 2017 driven
by new entertainment programmes in the year such as The Voice, The Voice Kids
and Cannonball as well as an extra episode of Coronation Street during 2017.
Many of the ITV Studios programmes broadcast in 2017 have now been distributed
around the world including Victoria, Cold Feet, The Chase, The Voice and I'm A
Celebrity… Get Me Out Of Here!
Finance Review
ITV's strong operational performance in a challenging year reflects
the continued benefit of rebalancing the business.
ITV delivered a strong operational performance in a challenging year
with ongoing economic and political uncertainty in the UK. ITV took action
early to reduce overhead costs but the continued uncertainty has undoubtedly
had an impact on the demand for television advertising and therefore as
expected, on ITV's financial performance.
We set ourselves challenging objectives to grow our on-screen and online
viewing and deliver good growth in non-NAR, and we have delivered on these.
On-screen, our share of viewing grew for the second consecutive year, up 2%,
online viewing was up 39%, Online, Pay & Interactive revenues grew 7% and
ITV Studios total revenues grew 13%, including currency. In total, ITV
delivered 2% external revenue growth to £3,132 million, with the 11% increase
in non-NAR to £2,066 million more than offsetting the 5% decline in spot
advertising revenue.
Twelve months to 31 December - on a continuing basis 2017 2016 Change Change
£m £m £m %
NAR 1,591 1,672 (81) (5)
Total non-NAR 2,066 1,855 211 11
Total revenue 3,657 3,527 130 4
Internal supply (525) (463) (62) 13
Group external revenue 3,132 3,064 68 2
Group adjusted EBITA 842 885 (43) (5)
Group adjusted EBITA margin 27% 29%
Adjusted EPS 16.0p 17.0p (1.0)p (6)
Statutory EPS 10.2p 11.2p (1.0)p (9)
Dividend per share 7.8p 7.2p 0.6p 8
Net debt as at 31 December (912) (637) (275)
Adjusted EBITA declined 5% to £842 million, with the £81 million decline in
NAR partly offset by £29 million overhead savings, £25 million lower
programme budget due to no major sports tournament, growth from high margin
Online, Pay & Interactive and foreign exchange benefit. ITV Studios
showed good underlying profit growth but the comparator included £37 million
benefit of the four year licence deal for The Voice of China which was
recognised in full in accordance with accounting standards. ITV Studios
adjusted EBITA was flat at £243 million. Group adjusted EBITA was also
impacted by £15 million of investment including in the ITV Hub, ITV Box
Office and ITV Studios creative capability, particularly in America.
Adjusted financing costs were higher year-on-year due to the bond issue. We
made a number of investments in associates, including Blumhouse Television and
Circle of Confusion and our joint venture BritBox US, and our adjusted tax
rate was the same year-on-year. The net of these movements and the decline in
NAR resulted in a 6% decline in adjusted EPS to 16.0p. Statutory EPS was
down 9% to 10.2p due to the decline in EBITA and higher amortisation and
impairment, which is explained below.
Our key strengths include our high margins and healthy cash flows, which,
together with our ongoing focus on costs, places us in a good position to
continue to invest in growing an even stronger and more resilient business
going forward, while delivering sustainable returns to our shareholders.
This Finance Review focuses on the more technical aspects of our financial
results while the operating and financial performance has been discussed
within the Operating and Performance Review.
Our Alternative Performance Measures, explain the adjustments we make to our
statutory results and focus on the key measures that we report on internally
and use as KPIs across the business.
Exceptional items
Twelve months to 31 December 2017 2016
£m £m
Operating exceptional items:
Acquisition-related expenses (96) (131)
Restructuring and property-related costs (30) (14)
Insured trade receivable provision (27) -
Pension curtailment - (19)
Total operating exceptional items (153) (164)
Non-operating exceptional items (1) -
Total exceptional items (154) (164)
Total exceptional items in the year were £154 million (2016: £164 million).
Operating exceptional items principally relate to acquisition-related
expenses, which are mainly performance based employment-linked consideration.
Restructuring and property-related costs of £30 million include £24 million
of incremental one-off property project costs associated with our planned
London property move in 2018, primarily related to temporary rent and
accelerated depreciation on fixtures and fittings. We will continue to incur
exceptional rental costs over the next four or five years until we return to
our headquarters at The London Television Centre. Further details can be found
later in the section. Restructuring and property-related costs also include
£6 million of redundancy costs in relation to the closure of The London
Studios business.
The insured trade receivable provision of £27 million relates to the unpaid
portion of revenue from the four year licence deal for The Voice of China with
Talent Television and Film Co. Ltd (Talent), the revenue for which was fully
recognised in 2016 in accordance with accounting standards as ITV had no
further obligations under the terms of the agreement. Following a breach of
the agreement by Talent as they had not fulfilled their payment obligations,
we have taken back the licence for The Voice of China. ITV is pursuing Talent
vigorously for the £30 million still due under the agreement. Further, ITV
has credit insurance in place and a claim has been submitted. ITV will
continue to pursue the amounts due and believes there will ultimately be no
material impact. Whilst ITV is confident that it will recover the amount due,
accounting standards set very
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brands such as Broadchurch - which was the most watched drama in the year - Vera, Unforgotten, Victoria, Cold Feet, Ant &
Dec's Saturday Night Takeaway, I'm A Celebrity…Get Me Out Of Here! and Britain's Got Talent. Our news programming continues
to perform well with highlights including our General Election coverage, as does our sporting schedule with the Six Nations
Rugby Championships and the launch of horse racing on ITV. Some of our schedule did not perform as well as we had hoped,
for example The Nightly Show, Fearless and Bigheads, so will not return in 2018.
We continue to target the hard to reach demographics demanded by advertisers - particularly young and male audiences -
through our digital channels and online, and have seen a significant increase in our target demographics on ITV2 and ITV4.
Our 16-34s share of commercial impacts (SOCI) on ITV2 was up 17% helped by the phenomenal success of Love Island as well as
Celebrity Juice, Family Guy and American Dad. Male SOCI on ITV4 was up 12% helped by ITV's horse racing coverage, The
French Open and the Isle of Man TT Races. ITV3's viewing performance improved in the year due to the strong performance of
dramas such as Midsomer Murders, Lewis and Endeavour. ABC1 adults SOCI on ITV3 was up 1% making it the most popular digital
channel for this demographic.
ITV Hub
The ITV Hub, which is now available on 29 platforms, continues to grow rapidly, driven by viewing on mobile and connected
televisions. The ITV Hub is now pre-installed on around 90% of all connected televisions sold in the UK and launched on
Apple TV, Apple's new TV app and Microsoft XBox in 2018.
Long-form video requests were up 34% and online viewing consumption, which measures how long viewers are spending online,
was up 39%. The ITV Hub has now been the fastest-growing public service broadcaster online service for the last three years
driven by the good user experience and great content and now has 21 million registered users.
The ITV Hub helps ITV reach valuable younger audiences - 75% of the UK's 16-24 year olds are registered together with 65%
of the UK's 16-34 year olds. Younger viewers increasingly use the ITV Hub for simulcast viewing, as well as catch up, with
programmes such as Love Island delivering record viewing with 1.3 million simulcast requests for the final.
We are using the insight we gain from our registered users to develop more targeted advertising solutions and to
increasingly drive viewing through personalisation. In the year, we launched personalised ITV Hub home pages for our
audiences and have introduced data-driven recommendations and mobile notifications to registered users.
Strong advertising proposition
While political and economic uncertainty has led advertisers to reduce their current spend, television remains one of the
most efficient and effective mediums for advertisers to achieve mass simultaneous reach. As viewing and advertising becomes
more fragmented, the scale of advertising that television, and particularly ITV, delivers becomes increasingly valuable.
ITV's unique ability to deliver mass audiences, as well as more targeted demographics across the family of channels, has
enabled us to again increase our share of the television advertising market (SOB) to 47.6% from 47.4%. ITV delivered 99% of
all commercial audiences over five million and 96% of all commercial audiences over three million. SOV provides an overall
measure of viewing performance, but because advertisers are buying scale and breadth of audience, SOV is not necessarily a
direct indicator of advertising performance.
ITV aims to maximise further the value of its airtime and drive new revenue streams through sponsorship, interactivity and
branded extensions. ITV utilises the core assets of its strong brand and reputation, unique commercial relationships and
quality production capability to deliver a wide variety of marketing solutions.
As a result, ITV's 'Other commercial income' increased by 2%, with new sponsorship around ITV horse racing and The Voice,
offset by a reduction in third-party airtime sales commission and revenue primarily from UTV following ITV's acquisition in
February 2016 and successful integration of the business.
Digital advertising is growing rapidly and we have seen double-digit growth in our VOD advertising revenues on the ITV Hub,
which delivers more targeted demographics and a high-quality, trusted and measured environment for online advertisers.
In 2017, ITV announced a trial for addressable advertising with Sorenson on connected Smart televisions. We have also
launched a trial of a self-service portal so that any business, however small, can easily access advertising on ITV.
Remain responsive to a changing media environment
Linear television viewing remains resilient despite significant changes in the availability and delivery of content. On
average viewers watched 203 minutes of television a day in 2017. This is lower than 212 minutes in 2016 and partly is due
to there being no major sports tournament in 2017. The majority of viewing remains live at over 75% as television continues
to have the power to bring audiences together. VOD viewing continues to grow rapidly while PVR (recorded) viewing has
remained relatively constant over the last few years at around 13%. Younger viewers are watching less linear television
than they used to, but through delivering great content such as The Voice, Britain's Got Talent, Saturday Night Takeaway
and Love Island, television reaches 90% of young people each week and remains their dominant choice of media.
Developing ITV's digital broadcast assets
We are further developing our social media assets across our international portfolio of programmes as live television
continues to demonstrate a growing relevance as viewers increasingly connect and engage through social media. We now have
over 160 YouTube branded channels and had around 20 owned and operated programme apps across the year which, together with
our quality content, is driving significant growth in viewer engagement. Our programmes generated over 100 million
interactions in 2017.
Building our pay offering in the UK and internationally
As a creator, owner and distributor of sought after content, ITV is well positioned to take advantage of the opportunities
that arise from the changes we are seeing in digital media and consumer behaviour. We must ensure that however our content
is viewed and on whatever platform it is viewed on, we are paid the appropriate value for it.
As we look to build our pay offerings, we are developing SVOD services to target direct to consumer pay revenues. In March
2017, we launched our US joint venture with the BBC, BritBox, (with AMC Networks taking a minority share), an ad-free SVOD
service offering the most comprehensive collection of British content in the US. A version of the service also launched in
Canada in February 2018 and we now have over 250,000 subscribers in total. In 2018, we will explore opportunities for
BritBox on other platforms, include original commissions, and look to roll it out further internationally.
We are continuing to develop the ITV Hub+, our ad-free subscription version of the ITV Hub, which while relatively small,
tripled its subscribers in the year. We have extended the service across all platforms so subscribers can now watch on
mobile, PC and connected televisions and launched it on Amazon.
Over the last few years we have also established a number of smaller pay propositions. We own a majority stake in Cirkus, a
best of British SVOD service in the Nordics and Germany. We also have a general entertainment channel, ITV Choice, for
emerging markets available in over 100 countries.
We are trialling ITV Box Office, a direct to consumer pay per view offering which currently focuses on boxing and we have a
number of live events based around our key brands, which build relationships directly with our viewers. For example, we
have the Emmerdale Studios Experience, which showcases the process of creating an episode of the soap, and This Morning
Live, a shopping and lifestyle festival.
ITV also continues to license its channels and content across multiple platforms, including our HD digital channels and
catch-up VOD on Sky and Virgin Media set top boxes and all our live channels and catch up VOD across their connected
platforms. We announced that ITV Encore will close as an exclusive Sky channel in 2018 which allows ITV to distribute box
sets more widely across multiple platforms. The closure of Encore will impact ITV's pay revenues in 2018.
SDN
SDN generates revenue by licensing capacity to broadcast channels, radio stations and data providers on digital terrestrial
television or Freeview. It holds a licence with capacity for 16 broadcast channels, including ITV services and third-party
channels. SDN external revenue grew 4% driven by the full year impact of the 16th stream, which was launched in 2016.
ITV Studios
Growing an international content business has been central to ITV's strategy as an integrated producer broadcaster. As ITV
creates and owns more content, our channels in the UK provide a platform to showcase our programmes before distributing
them across multiple platforms in the UK and internationally.
Growing demand for content
The strong global demand for content from broadcasters and platform owners provides significant opportunity for ITV
Studios. We estimate that the global content market is growing at around 5% per annum, with some genres, such as drama,
growing more rapidly. To capitalise on this growth, we continue to develop, own and manage rights in genres that return and
travel internationally, namely drama, entertainment and factual entertainment, and we have built a healthy pipeline of new
and returning programmes.
Financial performance
ITV Studios is now a global producer of scale and total revenues grew 13% to £1,582 million (2016: £1,395 million)
including currency benefit, with growth across the business as we continue to build our capability in key creative
markets.
Twelve months to 31 December 2017£m 2016£m Change£m Change%
Studios UK 692 626 66 11
ITV America 313 235 78 33
Studios RoW 390 355 35 10
Global Entertainment 187 179 8 4
Total Studios revenue 1,582 1,395 187 13
Total Studios costs (1,339) (1,152) (187) 16
Total Studios adjusted EBITA* 243 243 - -
Studios adjusted EBITA margin 15% 17%
* Includes the benefit of production tax credits.
Twelve months to 31 December 2017£m 2016£m Change£m Change%
Sales from ITV Studios to Broadcast & Online 523 463 60 13
External revenue 1,059 932 127 14
Total Studios revenue 1,582 1,395 187 13
Total organic revenue, which excludes our current year acquisitions and foreign exchange, was up 7% and acquisitions
continue to deliver with a 13% return on investment in 2017.
Reflecting our growth in key production markets in Europe and the US, 54% of ITV total revenue was generated outside the UK
(2016: 50%). ITV is the number one commercial producer in the UK and a leading producer in Europe and the US. As our
Studios business grows internationally, foreign currency movements have an increasing impact on our results.
In 2017, the foreign currency benefit was £43 million on revenue and £7 million on adjusted EBITA.
Adjusted EBITA was flat year-on year at £243 million. There was good underlying profit growth but adjusted EBITA was
impacted by our ongoing investment in US drama and the fact that the prior year includes the full £37 million benefit of
the four year licence deal for The Voice of China. Adjusted EBITA margin declined by two percentage points to 15%, impacted
by revenue mix on new and returning shows.
Building scale in key creative markets
ITV Studios has three production divisions - Studios UK, ITV America and Studios Rest of World (RoW). Across these
divisions, ITV produced over 8,400 hours of programming, compared to 7,800 in 2016 and secured 240 recommissions and 239
new commissions in the year.
The US and the UK are the dominant creative markets, with the US the largest exporter of scripted content and the UK the
world leader in exported formats. Over the last few years we have built scale in these key markets, both organically and
through acquisitions, and we now have a significant portfolio of successful series and formats that travel.
The UK performed well with total revenue up 11% at £692 million (2016: £626 million). We continue to grow our sales to ITV,
which were up 13% with deliveries including The Voice, The Voice Kids, Love Island, Next of Kin, Bancroft, Fearless,
Unforgotten, Little Boy Blue and an extra episode of Coronation Street. We have again grown ITV Studios UK share of
original content on ITV main channel from 63% to 66%. Our off-ITV revenues grew 10% with deliveries including The City And
The City, Shetland, Moorside and Motherland for BBC, Back for Channel 4, Blind Date for Channel 5 and Living the Dream for
Sky. We strengthened our UK drama business with the acquisition in April of a majority stake in World Productions, the
producer of Line of Duty, and our entertainment business with an investment in start-up Koska in October.
ITV America total revenue grew 33% to £313 million (2016: £235 million) including foreign exchange. We delivered five drama
commissions - the third series of the Good Witch for Hallmark which has been commissioned for a fourth series, Sun Records
for CMT, Somewhere Between for ABC and two pilots for TNT, Highland and Snowpiercer, which has been commissioned for a
ten-part series. We have also delivered a high volume of programmes from our entertainment portfolio including two series
of Hell's Kitchen, Pawn Stars, Alone, Forged in Fire and First 48 and new commissions including Sideserf, World Hip Hop
Star and Big Star's Little Star.
Studios RoW has production bases in Australia, Germany, France, the Netherlands, the Nordics and Italy where we produce
original content as well as local versions of ITV Studios UK and Talpa formats. Revenue grew 10% to £390 million (2016:
£355 million) including foreign exchange, driven particularly by good growth in Australia, France and the Nordics. Across
the territories, our entertainment and format deliveries included The Voice in Australia and Germany, The Chase in
Australia and Germany, and Love Island in Germany.
Talpa continues to develop its formats including The Voice Senior, A Year To Remember, I Love My Country, A Whole New
Beginning and Around The World With 80 Year Olds. Our international scale now enables ITV to make The Voice and these other
formats in all our international production territories and therefore earn the production revenue as well as the format
fee.
Some of our content will not be recommissioned in 2018 as they have not performed as expected, for example The Loch and
Sun Records.
We are making real progress in building a European scripted business. In February 2017, ITV acquired a majority stake in
Tetra Media Studio, a French scripted production company, and in October ITV acquired a majority stake in Cattleya, the
Italian scripted production company behind Gomorrah and Suburra. We also took a stake in a Danish scripted producer Apple
Tree Productions in December. These, along with our existing European drama businesses, will enable us to benefit from the
increasing demand for locally produced content with global appeal.
We have further strengthened our international business with a number of other small investments. In April, we acquired a
45% stake in Blumhouse Television, established by Jason Blum, the renowned film and television producer, which finances and
produces original scripted and unscripted 'dark' genre programming for global audiences including The Jinx and Cold Case
Files. In May we entered into a joint venture with the US talent agent and production company, Circle of Confusion, and in
June we acquired Elk Production, a Swedish entertainment production company.
Investing in content with international appeal
We have continued to expand our portfolio of successful formats and series that return and can be distributed
internationally.
With the acquisition of Talpa Media in 2015, we have significantly strengthened our global capability in entertainment
formats. Across the business, we have grown a solid portfolio of high volume and high margin formats that travel
internationally and that we produce locally. For example, during 2017 we produced The Voice in five countries and The Voice
Kids and Four Weddings in four countries.
Demand for drama is growing strongly as standout original content becomes brand defining for both broadcasters and OTT
players. To capitalise on this, we are investing in our global scripted business, particularly in the US, to build on the
success of our UK drama business. We are strengthening our development and creative capabilities internally and have
invested in a number of development relationships. In 2017, we increased our investment in drama across the business,
investing £243 million (2016: £160 million).
We finance our large-scale scripted projects through our strong underlying cash flows or through co-productions and
partnerships with broadcasters and OTT platforms. The production costs are partly funded by the initial sale of the series
to a broadcaster, while the deficit (the difference between the cost and what the broadcaster pays), is recovered through
distribution revenue from selling the finished product globally to other broadcasters and platforms.
We balance our financial exposure through building a portfolio of programmes across genres and across their content life
cycle, with successful international dramas offsetting the risk that we will not recover the full deficit on every show.
We are seeing increasing demand from OTT platforms for original long-form content and secondary rights. As well as
distributing library content to OTT platforms through Global Entertainment, we are also producing and jointly commissioning
a number of scripted and unscripted programmes with OTT platforms including Vanity Fair with Amazon, Robozuna, Queer Eye
for the Straight Guy and Dark Web for Netflix, Harlots for Hulu and we are in development with a number of shows for
Facebook.
Expanding our global distribution business
Global Entertainment, the distribution arm within ITV Studios, delivered revenue growth of 4% to £187 million (2016: £179
million) as we continue to drive value from our investment in creating and owning the rights to quality content with
international appeal. As well as funding and creating new content from ITV Studios, we also invest in third-party producers
and their content from all over the world. Global Entertainment's pipeline of new projects is strengthening with projects
such as Vanity Fair, The City And The City and World On Fire expected for 2018.
Our content continues to sell well internationally to broadcasters and OTT platforms and in particular, our scripted
programmes with titles including Victoria, Poldark, Vera, Good Witch, The Murdoch Mysteries, Schitts Creek, The Loch,
Fearless and Harlots. Over 15 of our scripted programmes have been sold to more than 100 countries Our entertainment and
factual entertainment formats are highly demanded and include programmes such as The Voice, Love Island, The Chase, Big
Star's Little Star, This Time Next Year, Five Gold Rings, Come Dine With Me and Four Weddings. In 2017, we sold 62
different formats internationally, 17 of which are being produced by ourselves or other producers in three or more
countries including Love Island, Keeping the Nation Alive and Hell's Kitchen. We currently have over 250 programme supply
agreements in place with online platforms including Netflix, Amazon and Hulu.
Productivity
We consistently seek to drive productivity across the Group by investing in our people, new broadcast and production
technology as well as up to date office facilities.
By investing in these areas, we aim to transmit our content and advertisements more efficiently, increase our production
output and the rights we own and improve our viewer experience.
People
During the year, we continued to invest in our people, rolling out a new conversation based performance management process
and continuing to provide general and more specific training for staff across the business.
We use employee engagement scores as a key measure. We will undertake our next engagement survey in 2018. Our 2016 survey
showed that ITV continues to have high levels of engagement (90%), (see the KPIs section for details on how this is
measured). We always seek to recruit and promote internally where possible with 34% of vacancies in 2017 filled from within
ITV.
Broadcast and content technology
One of the key initiatives in our Broadcast business is to improve our processes around our content supply chain, which
includes how we store our content and how our content is managed and ultimately played out via our transmission centres. We
have sought to reduce the time taken from live transmission to content being available for catch up on the ITV Hub. We are
in the process of upgrading our advertising sales system and during the year we began investigating how robotic process
automation may benefit ITV in the future.
Production facilities
September 2017 saw the launch of a sixth weekly episode of Coronation Street, which required a significant step up in
productivity and investment in expanding the production site with new streets, as well as new equipment, sound stages and a
state of the art production control room. We refresh our regional news production facilities on a continuous rotation basis
and this year we built new facilities for our UTV licence in Northern Ireland. During 2018, we are relocating our Daytime
studios to a new state of the art facility as part of our London property move.
We also seek to use established and emerging technology to drive productivity, where it makes commercial sense to do so. In
our Studios business, we have recently implemented a new process and technology for script editing and management. We
commenced roll-out of a bespoke artist payment system, which has reduced duplication across the business and uses less
paper. Our regional news teams are taking advantage of new production technologies and increasingly use mobile kits that
enable reporters to shoot more efficiently and transmit high-quality live reports.
Alternative Performance Measures
The Annual Report includes both statutory and adjusted measures, the latter of which, in management's view, reflect the
underlying performance of the business and provide a more meaningful comparison of how the business is managed and measured
on a day-to-day basis.
Our APMs and KPIs are aligned to our strategy and business segments and together are used to measure the performance of our
business and form the basis of the performance measures for remuneration.
Adjusted results exclude certain items because, if included, these items could distort the understanding of our performance
for the year and the comparability between periods.
Key adjustments for adjusted EBITA, profit before tax and EPS
Adjusted EBITA is calculated by adding back exceptional items and high end production tax credits to EBITA. Further
adjustments, which include amortisation and impairment of assets and net financing costs, are made to remove their effect
from adjusted profit before tax and EPS. The tax effects of all these adjustments are reflected in the adjusted tax charge.
These adjustments are detailed below.
Production tax credits
The ability to access tax credits, which are rebates based on production spend, is fundamental to our Studios business when
assessing the viability of investment in green-lighting decisions, especially with regards to high-end drama. ITV reports
tax credits generated in the US and other countries (e.g. Ireland, Hungary, Canada and South Africa) within cost of sales,
whereas in the UK and Italy tax credits for high-end drama must be classified as a corporation tax item. However, in our
view all tax credits relate directly to the production of programmes. Therefore, to align treatment, regardless of
production location, and to reflect the way the business is managed and measured on a day-to-day basis, these are
recognised in adjusted EBITA. Our cash measures including profit to cash conversion and free cash flow are also adjusted
for the impact of production tax credits. Further detail on this is included below.
Exceptional items
These include acquisition-related costs, reorganisation and restructuring costs, property costs and non-routine legal
costs. These items are excluded to reflect performance in a consistent manner and are in line with how the business is
managed and measured on a day-to-day basis. They are typically gains or losses arising from events that are not considered
part of the core operations of the business or are considered to be one-off in nature, though they may cross several
accounting periods. We also adjust for the tax effect of these items. Note 2.2 includes further detail on exceptional
items.
Acquisition-related costs
We structure our acquisitions with earnouts or put and call options, to allow part of the consideration to be based on the
future performance of the business as well as to lock in and incentivise creative talent. Where consideration paid or
contingent consideration payable in the future is employment-linked, it is treated as an expense (under accounting rules)
and therefore part of our statutory results. However, we exclude all consideration of this type from adjusted EBITA,
adjusted profit after tax and adjusted EPS as, in our view, these items are part of the capital transaction and do not form
part of the Group's core operations. The Finance Review explains this further. Acquisition-related costs, including legal
and advisory fees on completed deals or significant deals that do not complete, are also treated as an expense (under
accounting rules) and therefore on a statutory basis form part of our reported results. In our view, these items also form
part of the capital transaction and are excluded from our adjusted measures.
Restructuring and reorganisation costs
These arise from Group-wide initiatives to reduce the ongoing cost base and improve efficiency in the business. We consider
each project individually to determine whether its size and nature warrant separate disclosure. Where there has been a
material change in the organisational structure of a business area or a material Group-wide initiative, these costs are
highlighted and are excluded from our adjusted measures.
Property costs
In 2018, ITV will relocate to various properties on a temporary basis while its headquarters are redeveloped. The fit-out
costs will be capitalised but the incremental one-off property project costs, including move costs, rental payments for
these properties and accelerated depreciation for assets made redundant due to the move, will be ring-fenced as they relate
to a one-off property project and are therefore excluded from our adjusted measures. As a ring-fenced cost, rental payments
will continue to be excluded from our adjusted measures until we move back, which is expected in 2023.
Amortisation and impairment
Amortisation and impairment of assets acquired through business combinations and investments are not included within
adjusted earnings. As these costs are acquisition-related, and in line with our treatment of other acquisition-related
costs, we consider them to be capital in nature and they do not reflect the underlying trading performance of the Group.
Amortisation of software licences and development is included within our adjusted results as management consider these
assets to be core to supporting the operations of the business.
Net financing costs
Net financing costs are adjusted to reflect the underlying cash cost of interest for the business, providing a more
meaningful comparison of how the business is managed and funded on a day-to-day basis. The adjustments made remove the
impact of mark-to-market on swaps and foreign exchange, imputed pension interest and other financial gains and losses,
which do not reflect the relevant interest cash cost to the business and are not yet realised balances.
A full reconciliation between our adjusted and statutory results is provided below.
Reconciliation between statutory and adjusted results
Twelve months to 2017Statutory£m 2017 Adjustments£m 2017Adjusted£m 2016Statutory£m 2016Adjustments£m 2016Adjusted£m
31 December - on a continuing basis
EBITA1 810 32 842 857 28 885
Exceptional items (operating)2 (153) 153 - (164) 164 -
Amortisation and impairment3 (102) 97 (5) (89) 77 (12)
Operating profit 555 282 837 604 269 873
Net financing costs4 (50) 17 (33) (51) 25 (26)
Share of losses on JVs and Associates (4) - (4) - - -
Gain on sale of non-current assets and subsidiaries (1) 1 - - - -
(non-operating exceptional items)
Profit before tax 500 300 800 553 294 847
Tax5 (87) (67) (154) (100) (60) (160)
Profit after tax 413 233 646 453 234 687
Non-controlling interests (4) - (4) (4) - (4)
Loss from discontinuing operations (net of tax) - - - (1) 1 -
Earnings 409 233 642 448 235 683
Shares (million), weighted average 4,006 - 4,006 4,010 - 4,010
EPS (p) 10.2p 16.0p 11.2p 17.0p
Diluted EPS (p) 10.2p 16.0p 11.1p 17.0p
1. £32 million adjustment relates to production tax credits which we consider to be a contribution to production costs
and working capital in nature rather than a corporate tax item.
2. Exceptional items largely relate to acquisition costs, primarily employment linked consideration, as well as
restructuring and property costs and an insured trade receivable provision in relation to The Voice of China. Further
detail is included in the Finance Review.
3. £97 million adjustment relates to amortisation and impairment of assets acquired through business combinations and
investments. We include only amortisation on purchased intangibles such as software within adjusted PBT.
4. £17 million adjustment is primarily for non-cash interest cost. This provides a more meaningful comparison of how the
business is managed and funded on a day-to-day basis.
5. Tax adjustments are the tax effects of the adjustments made to reconcile PBT and adjusted PBT. A full reconciliation
is included in the Finance Review.
Other Alternative Performance Measures
Total revenue
As an integrated producer broadcaster, we look at the total revenue generated in the business which includes internal
revenue, which is the sale of ITV Studios programmes to Broadcast & Online. Our broadcast channels are a significant
customer for ITV Studios and selling programmes to Broadcast & Online is an important part of our strategy as it ensures we
own all the rights to the content.
A reconciliation between external revenue and total revenue is provided below.
Twelve months to 31 December 2017£m 2016£m
External revenue (Reported) 3,132 3,064
Internal supply 525 463
Total revenue (Adjusted) 3,657 3,527
Adjusted net debt
Net debt (as defined in note 4.1) is adjusted for all our financial commitments. This better reflects how credit rating
agencies look at our balance sheet. A reconciliation between net debt and adjusted net debt is provided below.
Twelve months to 31 December 2017£m 2016£m
Net debt (912) (637)
Expected contingent payments on acquisitions (292) (328)
Net pension deficit (83) (328)
Operating leases* (143) (344)
Adjusted net debt (1,430) (1,637)
Adjusted net debt to adjusted EBITDA 1.6x 1.8x
Reported net debt to adjusted EBITDA 1.0x 0.7x
* 2017 excludes transponder costs, which are now treated as service contracts. See note 2.1 for further detail. The
comparator has not been re-presented.
Net pension deficit
This is our defined benefit pension deficit under IAS 19 adjusted for other pension assets, mainly gilts, over which the
pension scheme holds a charge, which are held by the Group as security for future unfunded pension payments of four former
Granada executives. A full reconciliation is included within note 3.7.
Profit to cash conversion
This is our measure of our effectiveness of cash generation used for working capital management. It is calculated as our
adjusted cash flow as a proportion of adjusted EBITA. Adjusted cash flow, which reflects the cash generation of our
underlying business, is calculated on our statutory cash generated from operations before exceptional items, net of capex
on property, plant and equipment (excluding capex relating to the redevelopment of our London headquarters) and intangible
assets, and including the cash impact of high end production tax credits.
Free cash flow
This is our measure of free cash flow after we have met our financial obligations. It takes our adjusted cash flow (see
above) and removes the impact of net interest, adjusted cash tax (which is total tax paid adjusted to exclude the receipt
of production tax credits) and pension funding. A full reconciliation is included in the Finance Review.
Key Performance Indicators
We have defined our KPIs to align our performance and accountability to our business segments and strategy.
Broadcast & Online - building our free-to-air, online and pay business
ITV Studios - growing an international content and distribution business
Financial
Adjusted EBITA
Definition
This is the key profitability measure used across the whole business. Adjusted earnings before interest, tax and
amortisation (EBITA) is calculated by adding back exceptional items and high end production tax credits. It reflects the
underlying performance of the business and provides a more meaningful comparison of how the business is managed and
measured on a day-to-day basis.
Further detail on this measure is included within the Alternative Performance Measures section.
Performance
In 2017, adjusted EBITA decreased by £43 million or 5%, predominantly due to a £81 million or 5% decline in NAR. This was
partially offset by growth from high margin Online, Pay & Interactive, £25 million lower programming budget due to the
absence of a major sports tournament, delivery of £29 million of overhead savings, and foreign exchange benefit.
Group adjusted EBITA margin decreased by two percentage points to 27% driven by the decline in NAR and revenue mix within
ITV Studios.
Adjusted EPS
Definition
Adjusted EPS represents the adjusted profit for the year attributable to equity shareholders. Adjusted profit is defined as
profit for the year attributable to equity shareholders after adding back exceptional items and high end production tax
credits. Further adjustments include amortisation and impairment of assets, net financing costs and the tax effects relating
to these items. It reflects the business performance of the Group in a consistent manner and in line with how the business
is managed and measured on a day-to-day basis.
Further detail on this measure is included within the Alternative Performance Measures section.
Performance
Adjusted EPS decreased by 6% from 17.0p to 16.0p. This is higher than the corresponding decrease in adjusted EBITA of 5%
due to higher adjusted financing costs in the year of £33 million (2016: £26 million).
Profit to cash conversion
Definition
Profit to cash conversion represents the proportion of adjusted EBITA converted into a measure of adjusted cash flow, after
capex on property, plant and machinery (excluding capex relating to the redevelopment of our London headquarters).
Further detail on this measure is included within the Alternative Performance Measures section.
This measures the effectiveness of our working capital management and capital expenditure control.
Performance
Profit to cash remains high at 91% (2016: 97%). In the year we saw an increase in working capital. This was due to the
payment schedule for sports rights for future years, and the timing difference between the production and final delivery
and payment of scripted and entertainment titles such as Snowpiercer, Good Witch, Vanity Fair, Poldark, Dancing on Ice and
Survival of the Fittest.
Non-NAR revenue
Definition
Non-NAR reflects all ITV revenue, both internal and external, except NAR (spot advertising revenues). Online, Pay,
Interactive, Sponsorship, SDN and ITV Studios revenues are all included within Non-NAR, with the key drivers of growth
being Online and ITV Studios.
Growing non-NAR is key to the strategy as we aim to rebalance the business away from our reliance on television advertising
revenue.
Performance
Non-NAR revenue increased by 11% in 2017 as we continue to rebalance the business away from a reliance on NAR. We delivered
strong growth in ITV Studios total revenue and double-digit growth in Online. Non-NAR revenues were 56% of total revenue
which has increased from 53% in 2016.
Non-financial
Employee engagement
Definition
Continuing to develop a creative, commercial and global organisation requires high-quality employees who are engaged in and
motivated by the work that they do.
Employee engagement measures pride in the work we do, pride in working for ITV and also what we say about our programmes
and services.
Performance
There was no employee engagement survey in 2017. Employee engagement for the last survey performed in 2016 was 90% with an
80% participation rate.
A full employee engagement survey is expected in 2018.
Broadcast & Online
ITV Family share of viewing
Definition
Keeping our free-to-air proposition strong and our audiences healthy is vital for the Broadcast & Online business, and ITV
Family SOV helps measure this. ITV Family SOV is the total viewing audience over the year achieved by ITV's family of
channels as a proportion of total television viewing, including the BBC Family.
Performance
ITV Family SOV grew 2% in 2017 to 21.7%. Within this, the ITV main channel was up 1% with strong performances from daytime,
the soaps, drama and entertainment. The digital channels were up 3% in the year mainly across ITV2 and ITV4. ITV2 viewing
amongst 16-34s continues to grow, with 16-34s SOV up 18% in the year. It remains the most popular digital channel in the UK
based on SOV and is the largest digital channel for 16-34s.
ITV also continues to deliver mass audiences and in 2017 delivered 99% of all commercial audiences over five million and
96% over three million, which is unchanged from 2016.
ITV Family share of commercial impacts
Definition
To maintain our position as a leading commercial broadcaster, we need to have strong ITV Family SOCI. SOCI is the trading
currency in the television advertising market, and since it only covers commercial television it does not include the BBC.
This is the share of total UK television commercial impacts which is delivered by ITV's family of channels. An impact is
one viewer watching one 30-second commercial. SOCI provides an overall measure of viewing performance. However, because
advertisers are buying scale and breadth of audience, SOCI is not necessarily a direct indicator of advertising
performance.
Performance
ITV Family SOCI was broadly flat year-on-year, with ITV main channel flat and the digital channels up 1%. ITV2 is now more
targeted towards younger viewers with SOCI amongst 16-34s up 17% in the year. ITV4 is more targeted towards male viewers
with Men SOCI up 12% in the year. ITV3 is targeted to ABC1 adults with SOCI up 1% in the year for this demographic. The
move of The Great British Bake Off from BBC1 to C4 affected ITV main channel's SOCI performance in the year.
ITV Family share of broadcast
Definition
ITV's share of UK television spot advertising revenue is known as its share of broadcast (SOB).
Our SOB has always been based on our estimate of the pure spot advertising market, excluding sponsorship, VOD and all
broadcasters' self-promotion revenues on their own channels, which this year has seen a significant increase and therefore
further distorts the external spot market.
It is increasingly difficult to measure the total television advertising market as all broadcasters have different
definitions and include other sources of revenue, such as sponsorship and VOD, in their estimates of television
advertising.
Performance
We again gained share in 2017 as a result of our unique ability to deliver mass audiences across the key demographics to
our advertisers and more targeted demographics on our digital channels. This was helped by ITV's coverage of the horse
racing, which targets the male demographic and is highly demanded by advertisers. Our SOB increased to 47.6% in the year.
Total long-form video requests
Definition
We remain focused on growing our audience share from our free-to-air broadcast and increasingly from our VOD business as
well.
Long-form video requests is a measure of the total number of our videos requested across all platforms on which the ITV Hub
is available and therefore provides a key measure of how much of our content is being viewed online. A long-form video is a
programme that has been broadcast on television and is available to watch online and on demand in its entirety.
Performance
Long-form video requests were up 34% in 2017 to 1,426 million views supported by our continued investment and focus on the
ITV Hub, mobile apps and simulcast offering. Online consumption, which is the measure of how long viewers are spending
online, is an important indicator of online performance and this increased by 39% in 2017.
ITV Studios
Number of new commissions for ITV Studios
Definition
As we grow our international content business, tracking the performance of the creative renewal pipeline and the number of
new commissions won is a key indicator. This figure includes programmes shown both on ITV and on other broadcasters, and
both in the UK and internationally.
Performance
There was strong growth in the number of new commissions for ITV Studios in 2017, up 5% to 239. Eighty three of these new
commissions came from the UK business, with the remaining 156 coming from our international businesses. In addition, there
were 240 recommissions in the year (2016: 188) with 106 from ITV Studios UK and 134 from the international businesses.
We continue to invest in our creative pipeline, building on our existing portfolio of programmes and formats. We are
particularly focused on the genres that can return and travel, namely drama, entertainment and factual entertainment.
Percentage of ITV* output from ITV Studios
* ITV main channel only.
Definition
As an integrated producer broadcaster, part of our strategy is to use our broadcast channels as a platform for ITV Studios
content where we aim to make them famous and then sell them around the world.
The proportion of the total spend on original commissions on ITV transmitted in the year, delivered by ITV Studios,
demonstrates this and our current aim is to increase ITV Studios supply of programmes to ITV.
Performance
The percentage of ITV output from ITV Studios increased to 66% in 2017 driven by new entertainment programmes in the year
such as The Voice, The Voice Kids and Cannonball as well as an extra episode of Coronation Street during 2017. Many of the
ITV Studios programmes broadcast in 2017 have now been distributed around the world including Victoria, Cold Feet, The
Chase, The Voice and I'm A Celebrity… Get Me Out Of Here!
Finance Review
ITV's strong operational performance in a challenging year reflects the continued benefit of rebalancing the business.
ITV delivered a strong operational performance in a challenging year with ongoing economic and political uncertainty in the
UK. ITV took action early to reduce overhead costs but the continued uncertainty has undoubtedly had an impact on the
demand for television advertising and therefore as expected, on ITV's financial performance.
We set ourselves challenging objectives to grow our on-screen and online viewing and deliver good growth in non-NAR, and we
have delivered on these. On-screen, our share of viewing grew for the second consecutive year, up 2%, online viewing was up
39%, Online, Pay & Interactive revenues grew 7% and ITV Studios total revenues grew 13%, including currency. In total, ITV
delivered 2% external revenue growth to £3,132 million, with the 11% increase in non-NAR to £2,066 million more than
offsetting the 5% decline in spot advertising revenue.
Twelve months to 31 December - on a continuing basis 2017£m 2016£m Change£m Change%
NAR 1,591 1,672 (81) (5)
Total non-NAR 2,066 1,855 211 11
Total revenue 3,657 3,527 130 4
Internal supply (525) (463) (62) 13
Group external revenue 3,132 3,064 68 2
Group adjusted EBITA 842 885 (43) (5)
Group adjusted EBITA margin 27% 29%
Adjusted EPS 16.0p 17.0p (1.0)p (6)
Statutory EPS 10.2p 11.2p (1.0)p (9)
Dividend per share 7.8p 7.2p 0.6p 8
Net debt as at 31 December (912) (637) (275)
Adjusted EBITA declined 5% to £842 million, with the £81 million decline in NAR partly offset by £29 million overhead
savings, £25 million lower programme budget due to no major sports tournament, growth from high margin Online, Pay &
Interactive and foreign exchange benefit. ITV Studios showed good underlying profit growth but the comparator included £37
million benefit of the four year licence deal for The Voice of China which was recognised in full in accordance with
accounting standards. ITV Studios adjusted EBITA was flat at £243 million. Group adjusted EBITA was also impacted by £15
million of investment including in the ITV Hub, ITV Box Office and ITV Studios creative capability, particularly in
America.
Adjusted financing costs were higher year-on-year due to the bond issue. We made a number of investments in associates,
including Blumhouse Television and Circle of Confusion and our joint venture BritBox US, and our adjusted tax rate was the
same year-on-year. The net of these movements and the decline in NAR resulted in a 6% decline in adjusted EPS to 16.0p.
Statutory EPS was down 9% to 10.2p due to the decline in EBITA and higher amortisation and impairment, which is explained
below.
Our key strengths include our high margins and healthy cash flows, which, together with our ongoing focus on costs, places
us in a good position to continue to invest in growing an even stronger and more resilient business going forward, while
delivering sustainable returns to our shareholders.
This Finance Review focuses on the more technical aspects of our financial results while the operating and financial
performance has been discussed within the Operating and Performance Review.
Our Alternative Performance Measures, explain the adjustments we make to our statutory results and focus on the key
measures that we report on internally and use as KPIs across the business.
Exceptional items
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