ITV rebuilds profits but warns of long road ahead
Thursday 03 March 2011
Profits at ITV almost tripled in 2010 as the advertising market rebounded, and chief executive Adam Crozier said yesterday that his plan to overhaul the group was "gathering momentum".
The broadcaster said the World Cup, as well as hit shows such as The X Factor and Downton Abbey, had helped it to outperform an advertising market that was in recovery mode last year.
Mr Crozier also gave a status report on the first 12 months of the five-year transformation plan he drew up with chairman Archie Norman, saying it had already delivered "a sound financial platform for the challenges ahead".
ITV's pre-tax profits beat analyst expectations, rising from £108m in 2009 to £321m last year, as revenues rose by a tenth to £2bn. Analysts were alsoimpressed that the group slashed net debt from £612m at the end of 2009 to £188m, with ITV announcing itsdividend will be restored at the interim results in July.
Nick Bell, an analyst at Jefferies, said ITV had benefited from the "tailwinds of a remarkably strong recovery in advertising as well as a number of regulatory initiatives". These include the introduction of product placement and the House of Lords recommendation that the "contract rights renewal" rules, which govern how ITV charges foradvertising, are lifted. A lower tax charge and cost-cutting also helped.
Mr Crozier said: "We're still in the first phase of our transformation and making good progress, with a realmomentum for change being built up within ITV. We have a new, talented top team in place and around a third of the wider leadership team has changed over the last few months."
ITV's chief executive said the company was in phase one of a three-stage transformation programme, but that it has met its targets so far. Mr Crozier cautioned that while the recovery in television advertising was helpful, "it also serves to remind us just how volatile this market can be".
ITV said that despite a strong first quarter for the advertising market this year, there were signs it was slowing down and may turn negative by June because of the World Cup effect. The plan is to make the broadcaster lessreliant on advertising, through investment in its technology and online business, pay-TV and the "creative renewal" of its production arm.
Mr Crozier decided against selling ITV Studios after his review of the business last year. But its profits fell £10m in 2010 to £81m, which the group said "emphasised the need for creative renewal already identified".
Mr Crozier added: "We remain committed to our strategy of creating great content, delivering and exploiting it across multiple platforms and selling it internationally." The studio confirmed its network programming budget was about £800m this year.
The company also admitted the performance remained "subscale" at its online operation despite unique users rising to 10.2 million from 8.7 million. "With the arrival of the new team we are focused on fixing itv.com, investing in both technology and ease of use, and on driving up our commercial performance online," Mr Crozier said.
Following the disposal of Friends Reunited, sold at a big loss in 2009, online revenues fell from £37m to £28m. "The company still has to map out its digital media strategy," Mr Bell said.
ITV has begun to adapt to the significant shifts in the media industry, Mr Crozier said, as the audience fragments with the proliferation of digital channels, the rise of pay-TV and viewing over the internet. "We have made some real progress in driving change throughout the organisation, but we are only at the start of the journey."
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