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U.K. TV giant ITV on Wednesday reported its financials for the full year 2017, saying advertising revenue dropped 5 percent and the profit at its TV production unit stayed unchanged, with overall earnings down.
ITV’s full-year earnings before interest, taxes and amortization fell 5 percent to 842 million pounds ($1.2 billion), and adjusted earnings per share fell 6 percent, even though revenue rose 4 percent to 3.7 billion pounds ($5.1 billion), led by its ITV Studios arm, which grew 13 percent to 1.6 billion pounds ($2.2 billion). ITV America grew revenue 33 percent to 313 million pounds ($435 million).
But the firm’s production arm saw earnings before interest, taxes and amortization stay unchanged at 243 million pounds ($338 million). ITV has acquired production firms in the U.K. and U.S. to boost its production business in recent years.
ITV also disclosed a 13 million pound write-down ($18 million) of its non-controlling stake in Duck Dynasty producer Gurney Productions amid litigation between the companies “as a result of the treatment of the subsidiary as if it would have been wound down.” The company also explained that this includes a 3 million pound ($4.2 million) write-off of goodwill, and “the net effect of these provisions and the derecognition of non-controlling interest is less than £1 million,” or $1.4 million.
The morning’s earnings call marked the first public appearance of new ITV CEO Carolyn McCall, who ran easyJet in recent years, and an opportunity for her to outline her early thinking and plans.
“There is no doubt that ITV’s operational performance in 2017 in a challenging environment was strong,” she said in the earnings update early Wednesday morning London time. “ITV delivered a great viewing performance onscreen and online and double-digit revenue growth in video on demand advertising and ITV Studios. This gives us a solid foundation to build on for the next phase of ITV’s development.”
She continued: “We are very focused on our strategic refresh. This will enable us to define a clear strategy and priorities that will highlight the opportunities and address the challenges that we face in an increasingly competitive media landscape. This project is well underway.”
On the earnings call, she said the process was in the early stages as she has been at the company for only eight weeks. She highlighted increased competition as more content is available to watch on more platforms, and new competitors that are also “our customers.” She lauded the talent of ITV’s commissioners and highlighted the need to get appropriate pay for content.
She explained that ITV has called the strategy review a refresh because “generally we are not trying to uproot everything, because we don’t need to.” But she said that “the world has changed” since the company’s strategy was last set out, meaning ITV has to identify possible gaps and address new opportunities and challenges.
Management on Wednesday also cited the direct-to-consumer business as a key area of possible growth. McCall said that she was surprised that ITV had 100 million interactions with consumers last year.
McCall also said that the integrated producer-broadcaster model works well for ITV as the company can make shows “famous” on its networks and sell them abroad, citing Snowpiercer as an example. “Content is one of the key areas that we have to look at” in the strategy refresh, she said. “We are having to be much more nimble and agile in that world to make sure we remain competitive.
“We are in the middle of a really vigorous strategy refresh. Studios is going very well. It has done exactly what it set out to do.… Studios was about diversifying ITV away from ad revenue, and it is definitely doing that, and we will need to continue to do that. Rather than specifically talking about acquisitions, because I don’t know currently, because we need to go through the strategy refresh, but what we have been doing in studios is absolutely the right thing strategically and that has involved acquiring the right genre in the right geography at the right time.”
Asked about Comcast’s planned $31 billion bid for U.K. and European pay TV giant Sky, McCall called it “quite unexpected, but very interesting.” She said: “It just shows how much money there is around and how valuable content businesses and broadcast-type businesses are.”
Asked about how ITV has been rumored to have considered more acquisitions and has been eyed by others in the past, she said: “I think everybody has had to look at everybody, don’t you think?”
“We do not expect a major change in ITV’s strategy though there may be some variations,” Liberum Capital analyst Ian Whittaker had said in a report ahead of the earnings call. “We also expect her to be reasonably upbeat on ITV’s advertising prospects, especially in the context of the difficulties of 2016/2017.”
He predicted potential divergence from predecessor Adam Crozier “in a few areas.” Firstly, McCall “could be less forceful on ITV1 retransmission revenues than her predecessor,” he wrote. “Secondly, on cash returns, the focus in previous years has been on special dividends. Given the performance of the share price over the past 12-plus months, one possibility is that ITV switches to a share buyback program to boost earnings growth/sentiment.”
There could also be “selective write-downs” of some of ITV’s content assets, Whittaker said. “However, we do not think these will be major.”
McCall in the earnings report said “we have had a great start to 2018,” explaining: “Onscreen we have grown our viewing share and volume and online we have continued to deliver double digit growth in viewing.”
The company expects ITV net advertising revenue to be positive in the first half, helped by the soccer World Cup. “ITV Studios is seeing increasing demand for its formats and dramas, particularly in the U.K. and U.S., and we have over 60 percent of this year’s expected revenue already booked,” McCall said.
BritBox, the subscription video-on-demand streaming service from BBC Worldwide, the commercial arm of the BBC, and ITV, on Wednesday said it has reached 250,000 subscribers, just less than a year after launching BritBox in the U.S. and days following its expansion into Canada.
Soumya Sriraman, president, BritBox, North America, said: “It’s been an incredible year. We have listened to our users, been responsive to their suggestions, and opened up a whole new world of British content for U.S. and Canadian viewers to enjoy. Building on this positive start, next year we plan to invest even more in both original and acquired British programming and make a step change in our marketing investment to spread the BritBox word. I can’t wait to see what year two brings.”
On the earnings call, McCall highlighted that 2017 advertising was hit by “ongoing economic and political uncertainty,” a reference to Brexit.
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