2024 Full Year Results and Presentation Transcript

ITV Full Year 2024 Results

Thursday, 6th March 2025

Financial & Operating Review

Chris Kennedy

CFO, COO, ITV

ITV Studios

Record profits despite challenging market conditions

Thank you, Carolyn. Good morning, everyone. Starting with Studios.

ITV Studios delivered record profits in 2024. Total revenue was down 6%, in line with our expectations due to a number of reasons, including:

• The anticipated £80 million impact of the 2023 US actors and writers strikes;
• Softer demand from European free-to-air broadcasters; and
• The phasing of deliveries year-on-year.

Revenue was lower in the UK, International and US scripted businesses. In contrast, US unscripted saw good revenue growth from the delivery of key formats such as Hell's Kitchen, Love Island Games and Queer Eye. As a result, US revenue was up 2% year-on-year at constant currency.

Global Partnerships also delivered impressive revenue growth, up 8%, driven by our strong catalogue sales. Our catalogue provides broadcasters and platforms a way to fill their schedules and strengthen their content offering in a cost-effective way.

Extensive ownership of IP is one of Studios' competitive advantages and offers a high margin opportunity, which should grow as distribution becomes increasingly digital.

Studios also delivered £25 million of savings in the year, which funded investments in creative talent and development, offset inflation and improve the margin.

With an industry-leading margin of 14.7%, Studios' adjusted EBITDA grew 5%. The margin is within our target range, but greater than normal, reflecting the greater proportion of higher- margin catalogue sales.

Studios' results include an unfavourable FX impact of £30 million in total revenue and £5 million in adjusted EBITDA.

ITV Studios

ITV Studios short term outlook

We expect ITV Studios to deliver good revenue growth in 2025 with both revenue and profit growth weighted to the second half of the year.

As the scripted market recovers and original commissions increase, we expect the margin to return to more normal levels compared to 2024, but still within our 13% to 15% range. With cost savings and high margin deliveries weighted to H2, the margin will be higher in H2 than in H1.

I want to emphasise that for TV production businesses, quarterly results are not reflective of the underlying performance, and we manage the business to provide consistent annual growth, not quarterly numbers.

Key Balance Sheet Metrics

Robust Balance Sheet & Strong Cash Generation

Moving on to the balance sheet and cash flow. We maintained a robust balance sheet and good cash generation in the year. Following the resolution of the 2023 US writers' strike and the resumption of production activities, cash conversion returned to a more typical level of 83%.

Over the three years from 2023 to 2025, we expect cash conversion to average around 80%. Our net debt at the end of the year was £431 million, and our net debt to adjusted EBITDA leverage was 0.7 times.

During the year, we also took steps to extend the maturity of our debt. We issued a £500 million bond to June 2032, with the proceeds used to repay a term loan and reprofile our existing bond maturity. Our accounting surplus on the pension scheme is £182 million. And having concluded the latest triennial valuation, there are no pension contributions expected for 2025, except a minimal payment relating to a long-standing asset-backed scheme and a one-off cash payment of around £25 million to resolve a long-running historical pensions dispute.

Disciplined capital allocation framework

We are committed to our capital allocation strategy:

• Investing in organic growth to maximise returns;
• Preserving a solid balance sheet;
• Providing a regular dividend; and
• Finally, any remaining capital is then deployed either for acquisitions provided they meet our strict criteria or return to shareholders.

I want to show you at a high level how we put that framework into practice since 2018.

We remain a highly cash-generative business. Since 2018, we have generated over £2.8 billion of free cash flow. In that time, we significantly improved the balance sheet. The pension fund is now in surplus, removing a historic drag on free cash flow. We have deleveraged from 1.1 times to 0.7 times today and sustained an investment-grade rating throughout a difficult economic cycle.

At the same time, we have balanced investment in the growth areas of the business with cash returns to shareholders.

We have invested around £700 million in the business in areas such as ITVX, data and tech and creative talent and development, much of which is already reflected in the free cash flow.

Studios' acquisitions totalled just over £800 million, offset by around £300 million in asset sales, resulting in a net investment of £500 million, with all deals subject to our strict financial and strategic criteria. We have returned over £1.2 billion as an ordinary dividend. And in March 2024, we announced a £235 million share buyback, which was substantially complete at the year-end.

A learner and more agile company - continuous business transformation and efficiency savings

I am really pleased with the progress we have made on our cost-saving programmes. In 2024, we delivered £60 million of savings, £10 million higher than expected. £20 million came from our initial £150 million savings plan, which we completed one year early, with the remainder coming from our ongoing transformation and efficiency programme, which is designed to give material further savings over a multiyear period.

Savings in the year were achieved through reductions in transmission costs, technology and operational efficiencies, organisational redesign, simplifying ways of working and permanent reductions in discretionary spend.

One-off costs to deliver our strategic efficiency plan were £24 million, which is lower than the £50 million originally guided.

We are targeting an additional £30 million of savings in 2025 from new initiatives and the annualization of savings made in 2024. These savings will be used to fund investment and offset inflation.

2025 outlook and planning assumptions

Turning to the outlook and key planning assumptions. Those I have not already covered are that:

• The adjusted effective tax rate is expected to be slightly higher at around 27% over the medium term;
• Finance costs are expected to be around £40 million with higher interest payable on the new bond;
• Exceptional items are expected to be around £45 million, down £15 million year-on-year; and
• The cash impact of exceptionals is expected to be a similar amount.

Now back to Carolyn.

Strategic Update

Carolyn McCall

CEO, ITV

Phase Two of the More Than TV Strategy

Thank you, Chris. In March 2022, we announced phase two of the More Than TV strategy to deliver our vision of being a leader in UK advertiser-funded streaming and an expanding force in content.

It is based on three pillars, which you are now very familiar with:

• Expanding Studios;
• Supercharging streaming; and
• Optimising broadcast.

Three years on, we have made significant progress against each, transforming ITV into a much leaner, digital, more diversified and adaptable business fit for the future with good opportunities for profitable growth and strong cash generation.

Taking each pillar in turn.

expand Studios

Built a scaled global, diversified and resilient business

First, ITV Studios. We have built a scaled, global and diversified business, which were key to enabling ITV Studios to deliver record profits in a challenging market in 2024.

ITV Studios has now got over 60 labels across 13 countries. We are the number one commercial producer in the UK. We are one of the world's largest independent producers, and we are one of the top three producers in the majority of global markets in which we operate.

We are diversified by geography, genre and customer. 59% of revenues generated outside the UK, 35% of revenues from the strong scripted market and around 30% of revenues from the growing streamers.

I think it is just worth for a minute, taking a step back to look at what makes ITV Studios such a great business.

• One is its ability to attract and retain talent;
• Its scale and creativity and content;
• Thirdly, its strong relationships with all the major streamers and networks and very diversified customer base;
• Fourth, a deep catalogue;
• Fifth, great cost control, financial discipline and cash conversion.

expand Studios

ITV Studios' creative output is in the strongest shape ever

The quality of ITV Studios is also demonstrated by us creative output, which is in the strongest shape it has ever been in, producing brilliant programmes across the key genres to a broad range of customers and driving really big audiences.

Just a few examples now. The Voice was the number one franchise of the year. Ludwig was the BBC's biggest new drama in 2024. Fool Me Once is one of Netflix's most watched shows of all time. This was produced by Quay Street, which is one of our recent talent deals. Season 6 of Love Island produced for Peacock was the number one reality series in America. Rivals for Disney+ was the breakout hit of the autumn and already commissioned for a second series. And this was produced by Happy Prince, which is another one of our recent talent deals.

Expand Studios

Zoo 55 - ITV's digital Studios label

Now in addition to that, we have over 95,000 hours of catalogue, some of the most successful unscripted IP in the world and one of the biggest and best drama catalogues. Having a scaled quality catalogue gives us exciting new revenue opportunities as distribution is becoming increasingly digital with continuous technological change.

The best example of this is the launch of Zoo 55. We digitally publish a significant volume of ITV and third-party content globally direct to the consumer. We are rapidly scaling our digital Studios label by expanding our presence in social video, free ad-supported channels and through games, as you can see on this slide.

The value of our premium content drives engagement and monetisation, which has already resulted in 25 billion views. That content is made for the platforms. We have recruited an experienced senior leader, Martin Trickey, ex-Head of Digital at Warner Bros, as our MD.

Through innovative distribution, data-driven audience insights and new interactive experiences, we aim to position our Studios as a leader in the evolving and growing digital entertainment landscape. Zoo 55 delivered £60 million of high margin digital revenue in 2024. That was up 30% year-on-year, and we expect it to double by the end of 2027 as we launch more channels and games in more territories.

expand Studios

On track to deliver 2026 Key Financial Targets

You are familiar with our key financial targets for ITV Studios, and that is to grow Studios' organic revenue on average by 5% to 2026, ahead of the market at a margin of 13% to 15%, and we are absolutely on track to achieve these.

We are confident in delivering good growth in ITV Studios and taking market share, maximising our significant competitive advantages. We continue to successfully and consistently attract and retain talent, as I have said, and actively manage our portfolio.

Most recently, we acquired the scripted independent Studios Hartswood Films in the UK. They produced Sherlock and one of the UK's fastest-growing drama labels, Eagle Eye, that is Professor T produced by them, that is on ITV.

We also sold our minority shareholding in the Blumhouse television business in the US.

expand Studios

ITV Studios: focused on delivering good growth and taking market share

The global market is large and attractive with hundreds of platforms and broadcasters, all of who need a range of quality content to succeed. We expect growth in the key segments in which we operate, including premium scripted content and unscripted formats due to the strong demand from streamers in these areas and catalogue sales, particularly with strong growth in digital distribution, as I have just outlined.

We also have a really exciting pipeline of new programmes across scripted and unscripted for a broad range of customers, such as ONE PIECE for Netflix and Destination X for the BBC and NBC.

Media & Entertainment

Significant progress in supercharging Streaming and optimising Broadcast

Now turning to M&E. We have totally transformed our streaming offering, as you all know, with ITVX. Planet V is the second-largest programmatic video advertising platform in the UK after Google, and we have maintained our strength in delivering mass audiences, which are so valuable to advertisers.

In a rapidly changing market for viewers and advertisers in UK

Much as I did with Studios, just for a moment, I want to step back just to show why M&E is such a strong asset.

Number one, ITV delivers mass reach and appeal, which is a unique position in the UK, which advertisers really value. We have a digitally led strategy with compelling content. We are the leading advertising platform, as I said, and we have excellent cost and financial discipline, and the business is highly cash generative.

This has all ensured that the growth in our digital revenue has largely offset the decline in linear. Whilst we cannot control the external environment, we are very focused and effective at controlling what we can.

Now the market, you all know has changed profoundly for viewers and advertisers. You know this with your own viewing habits. Choice has increased exponentially, more platforms, more content available, and we have seen significant growth in social media.

And with streamers introducing ad tiers, the ad market has also become competitive more so than it was since we set our targets. Our M&E strategy is focused on those rapid changes and has been laser-focused on our key priorities to ensure that we capitalise on the opportunities that we see emerging and also on managing and mitigating the risks. And this is why despite the increase in competition, we have built a really very strong position in the UK ad-funded streaming market with ITVX and Planet V.

supercharge Streaming

I just want to use two minutes to demonstrate how we have achieved that and how we will continue to build on that success.

During 2019 and 2020, we acquired an ad stack, launched BritBox and Planet V, and we have invested in digital and data capabilities, which we did not have, hiring over 1,000 digital and data experts. Planet V is wholly owned by ITV, so we keep 100% of the revenue.

In early 2022, we announced our plans for ITVX and launched in Q4 2022 as the first scaled ad-funded streamer in the UK. We grew content rapidly from 1,000 hours in 2019 to 11,000 hours at launch and now 22,000 hours of free content on ITVX.

In 2022, we launched Planet V 2.0, and it now has over 2,000 self-service users and 20,000 addressable targeting options. That is amazing. We have rolled out many innovative digital ad solutions working with advertisers and responding to their needs. This has enabled us to attract over 1,000 new advertisers since launch, and we delivered double-digit growth in digital CPMs.

In Q3 2023, we introduced a recommendation engine to ITVX, which has driven millions of incremental streaming hours. We have driven a step change in our marketing strategy too, reaching more live viewers more consistently and more effectively. For example, we have used generative AI tools to scale our content production and data targeting for social channels. We have increased the number of programmes featured in social by over 800% as a result, and that has led to a 70% reduction in our cost per acquisition in these channels.