ITV Posts Higher First-Half Earnings, Plans Cost Cuts Amid "Economic Uncertainty" After Brexit Vote
The U.K. TV giant sees growth driven by its production arm as CEO Adam Crozier discusses how the Brexit-driven drop in the British pound affects acquisition strategies.
U.K. TV giant ITV on Tuesday reported higher financials for the first half of the year as its ITV Studios production arm continued to grow, but advertising revenue was roughly flat.
The company also said it would look for $32.8 million in cost cuts next year after the recent vote in favor of a U.K. exit from the European Union, or Brexit, and the "wider economic uncertainty" it brings.
ITV, led by CEO Adam Crozier, reported a 9 percent increase in adjusted profit before taxes to £425 million ($558.2 million) for the first six months of 2016, while adjusted earnings per share were up 10 percent. Adjusted earnings before interest, taxes and amortization (EBITA) before exceptional items and pre-tax profit improved 10 percent, with ITV Studios posting a 42 percent improvement to £121 million ($158.9 million).
First-half revenue rose 11 percent to £1.5 billion ($2.0 billion), with ITV Studios revenue up 31 percent to £651 million ($854.7 million) and advertising revenue flat as expected. The company had said in May that it anticipated first-half net ad revenue to be "broadly flat and ahead of the market." After a 13 percent April drop, it had said May was expected to be flat, and June was projected to be up 15 percent.
Production arm ITV Studios saw first-half results grow stronger than the overall company. The company said it was on track "to deliver double-digit total revenue and adjusted EBITA growth over the full year, primarily driven by acquisitions we have made."
ITV has been expanding its ITV Studios unit to become less reliant on advertising revenue. In recent years it has acquired such U.S. companies as Gurney Productions, the company behind Duck Dynasty; Real Housewives of New Jersey producer Leftfield; Cake Boss maker High Noon Entertainment; Hatfields & McCoys producer Thinkfactory Media; Teen Wolf's DiGa Vision; The Voice creator Talpa Media; U.K. producer Mammoth Screen; and U.K. producer Twofour.
"Demand for high-quality drama is higher than ever," Crozier said on the call, highlighting that more than half of first-half revenue at ITV Studios came from outside the U.K.
ITV also commented on the recent EU exit referendum. "Against a backdrop of wider economic uncertainty following the EU referendum, we have put in place a robust plan to allow us to meet the opportunities and challenges ahead," it said. "As part of this we are targeting a £25 million reduction in overheads for 2017." The CEO called this "a robust plan."
Crozier didn't detail specifics of the planned cost cuts, but said “they’ll come right across the board, but not affect programming costs." Asked if job cuts will be involved, he said that the measures "may involve some people as well,” adding that "you have to be prepared."
Crozier said the unchanged ad results for the first half were driven by uncertainty ahead of the EU referendum in late June. Post-September, the impact of the Brexit vote is unclear, he said, explaining that the vote result itself doesn't seem to have provided another hit to ad trends, which have been affected since early in the year.
Asked about the impact of the drop in the British pound due to the Brexit vote, Crozier said ITV expects a roughly £74.0 million ($97.0 million) boost to revenue in 2016 due to currency exchange rates that mean higher pound results flowing in from the company's U.S. business.
Crozier also reiterated that ITV will continue to look at acquiring production companies, as well as investing in talent, joint ventures, digital businesses and "SVOD propositions" that the company plans to develop over the next 12-18 months.
The CEO also was asked if the lower pound affects ITV's thinking about acquisitions abroad or could lead U.S. companies to look at buying ITV, an idea that has come up repeatedly in market chatter since Liberty Global bought a small stake in the company. Crozier has in the past said ITV was a consolidator, not a seller. "I suppose the exchange rate makes things more affordable, but it doesn't make people do things they wouldn't have otherwise done," he said on Tuesday. "I haven't heard any rumors about anyone looking to buy anyone. I would never speculate on ourselves, but frankly I have never heard anyone speculate on us either, at the moment."
When ITV looks at acquisitions, Crozier added that "exchange rates can be helpful from time to time, but we look at the core issues," such as the management team and strength of a company. "If there is a way to do that at slightly greater value, great. But it wouldn't make us buy a company we didn't want to buy, and I always assume that most people the other way round will act equally as rationally."
Crozier on Tuesday's call also mentioned somewhat of a "recalibration" away from digital ad spending to TV spending as marketers realize what online ads can and cannot do. He said that trend could be seen in the U.S., U.K. and also Germany.
Asked about his six years at the U.K. TV giant and his future there, Crozier said, "I am committed to ITV," and he asserted that the company was in great shape.