On the face of it, ITV, Britain’s major commercial free to air TV network is battening down the hatches ahead of any adverse impact from Brexit after its core TV broadcasting business saw a sharp slow down in ad revenue growth in the six months to June 30.
But is it, because there were a couple of other things from the interim profit report overnight which shows a company confident about the outlook, such as a whacking great boost in dividend payout to shareholders.
Investors took the latter view, boosting the shares by close to 10% as they noted that ITV’s ad revenues had steadied and were not sliding, as feared. The shares closed just over 6% higher.
But the broadcaster seems to be having a bit of an each way bet with the cost cuts: The network said in its interim profit report that it proposes to cut costs by 25 million pounds (around $A40 million) in 2017 “right across the board” of the company and may involve job losses.”
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. As part of this we are targeting a £25 million reduction in overheads for 2017, CEO, Adam Crozier said in a statement.
But the cut talk is a bit of half-hearted nonsense because the board still boosted interim dividend by 26%, from 1.9 pence a share to 2.4 pence. Companies really worried about the future would not boost their dividend payouts until they saw how the feared event (in this case the impact of Brexit) was affecting their businesses.
Perhaps the board is trying to keep shareholders happy amid suggestions that the steep fall in the value of the pound since the June 23 vote had exposed it to possible takeover. But the only possible bidder will be John Malone’s Liberty Global which owns 9.9% of ITV.
Crozier said the cuts wouldn’t affect program making in its ITV Studios production operation and that’s no wonder – its strong performance saved he and the group from reporting a flat profit for the half year.
Revenue from external sources, rose 11% on the year to 1.5 billion pounds. ITV Studios, the company’s production arm, posted a revenue increase of 31% to 651 million pounds, while the broadcast and online business could only manage flat growth in net ad revenues to 838 million pounds, against the solid 6% rise in 2015.
And while net profit fell to 243 million pounds from 257 million pounds a year earlier, pre-tax profit climbed 9% year-over-year to 425 million pounds – the latter a more favoured metric UK business and investment and one that will help ITV sell its rebound story.
But looking at the contributions, the Broadcast and Online business reported 1% rise in pre tax profit to 317 million pounds (a whole 2 million pounds), while ITV Studios lifted its pre-tax contribution by 36 million pounds to 121 million.
So it is clear that without that higher contribution, the company would have reported a very weak result, which would have put pressure on the CEO and the board.
Mr. Crozier said advertisers started to pull back from business around February, when the June 23 vote date was announced, amid concerns of a hit in consumer spending.
That saw first quarter ad revenues fall 13%. Since then, he said, there has been no change for the worse after the vote result.”I don’t think the vote really changed anything so far," he said on the impact of Brexit on advertising sentiment.
If anything he said there had been a pick up in ad spending since June 23 (as the Daily Mail has revealed in its half year report last week).
The company said it sees advertising sales falling in the near term against the stronger performance in 2015. ITV said net advertising revenue would slip by about 1% in the first nine months of the year.
Last year, ITV’s viewing was boosted by the Rugby World Cup, and June quarter revenue was boosted by the European Football competition (which was shared with the BBC, but ITV had the UK matches). But this quarter sporting viewing will be focused on the Rio Olympic Games on the BBC. For that reason advertising spending on ITV will be weak this quarter.
