ITV's annual results make better viewing

In investment terms, ITV (LSE:ITV) has tended to be a tough watch, weighed down by the endlessly deep pockets of some of its competitors in the streaming space, as well as still feeling the after-effects of the previous writers’ and actors’ strike in Hollywood.

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Even so, there are signs that the business is making some visible progress. Historically the group had an equal weighting between TV advertising revenues and its Studios business and long since recognised that the gradual decline of terrestrial viewing would increasingly weigh on the former. ITV now reports that around two-thirds of its revenues are coming from its content production and digital lines, demonstrating that a lesser reliance on traditional advertising revenues is being achieved.

Group revenue for the year fell by 3% to £4.14 billion, comprising a decline of 6% to £2.04 billion in the ITV Studios business and an increase of 1% to £2.1 billion in its Media & Entertainment unit. However, a focus on costs which saw a reduction of £60 million, £10 million ahead of plan and with a further £30 million to follow this year, resulted in adjusted pre-tax profit rising by a healthy 19% to £472 million. Digital revenues meanwhile spiked by 12% to a meaningful £556 million.

Quite apart from the lingering effect of the Hollywood strike, softer free-to-air broadcaster demand and the strong comparative of the 2023 Rugby World Cup and the 2024 Euros provided reminders of the perennial challenges which ITV faces. However, overcoming these hurdles is something at which the group is becoming increasingly adept, and the alternative revenue streams of Studios and ITVX are showing signs of picking up the slack over the longer term.

The Studios business has had a stream of quality content which it has been able to distribute both within the UK and overseas, most recent examples being the likes of Rivals for Disney+ and Mr Bates, the biggest drama in the UK last year. 

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The group has delivered record profits for the year and an earnings margin which exceeded the previously guided 13% to 15% range. Given the relative strength of the numbers, the creative and commercial momentum which was expected in the final quarter duly arrived.

Another area of growth is the ITVX unit, where digital advertising revenue rose by 15% in the year and streaming hours by 12%, propelled by the popularity of the likes of Love Island and the Euros football tournament. Indeed, the group expects to recoup the cumulative investment in ITVX by the end of this year, which would be well ahead of plan, while also setting up the platform for further investment and growth.

Elsewhere, net debt reduced from £553 million last year to £431 million, while the £235 million share buyback programme, enabled by the previous sale of the BritBox stake, is ongoing. This has also enabled the continuation of a progressive dividend policy, where the current yield of 7.2% is punchy enough to attract the attention of income-seeking investors.

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Despite the progress which is being made within ITVX and Studios, investors remain skittish on prospects, although the initial share price reaction has been noticeably positive. ITV has flitted in and out of the premier index over recent times, and although the shares have risen by 16% over the last year, as compared to a gain of 3.4% for the wider FTSE250, over the last two years a decline of 20% has been more telling.

The market consensus of the shares as a hold reflects some caution on prospects given the apparently limitless spending power of some of the group’s competitors and the broader and more obvious concerns around general advertising revenues, despite ITV’s own strategic progress.