ITV plc (ITV) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us for ITV's 2019 full year results. For obvious reasons, there are not as many people in the room today as they normally would be and a lot of people are dialing in today via our conference call. In a moment, Chris will present our operational and financial performance for the year. I will then update you on our strategy and our priorities for this year. We will then have plenty of time for questions from the room, on the call, and Chris and I are joined here today by some of our senior management team, who you all know well. ITV delivered a good performance in 2019, despite the economic and political uncertainty in the U.K. with the full year results ahead of expectations. Our strategy, as you know, is to build a stronger, more diversified and structurally sound business, and we are making really good progress on this. We've taken deliberate decisions to invest in the business in content, technology, data and analytics to enable us to deliver this, and this has, of course, impacted our profit this year. We will report today on each area of our strategy as we continue to implement our investment plans to build a digitally led media and entertainment company. We are growing our stable margin Studios business with revenues up 9% and a solid pipeline of new and returning shows. We're transforming our Broadcast business with continued strong growth online and the rollout of Planet V. We are growing the Direct to Consumer business. BritBox UK is on plan, following its successful launch in November. And we're seeing strong growth in subs on Hub+ and BritBox US. And we have continued to implement well on our cost savings, delivering GBP 25 million of savings this year, GBP 5 million ahead of target. We remain on track to deliver GBP 55 million to GBP 60 million by 2022. Total external revenues were up 3%, with 7% growth in non-advertising revenue as we continue to diversify the business. This was driven by the strong growth in Studios and continued double-digit growth in Online revenue. Advertising finished the year better than we expected, with the second half up 1.6%. Overall, TAR was down 1.5% over the full year. Year-on-year, profits were down 10% impacted by this decline, and as I said, the investments we are making. Cash generation remain strong in 2019, and the Board have proposed a full year dividend of 8p, in line with our guidance. As you know, we set our strategic and essential investments as part of our strategy to build a robust, more diversified business and drive profitable future growth and returns. As I said, they are obviously impacting our short-term profitability. The incremental investment of GBP 36 million in the schedule in sports and drama is to drive live audiences and light viewers, respectively. And the essential investments in the ITV Hub addressable advertising, data, technology, Studios and BritBox totaled GBP 53 million. Without this, profits would have been broadly flat year-on-year in spite of the decline in advertising. Now I'm going to hand over to Chris to go through our financial and operating performance for the year in a bit more detail.

Thank you, Carolyn. Good morning, everyone. You've seen our financial highlights, I'll now take you through the results for the year in more detail, starting with Studios. As we expected, ITV Studios had a very strong second half due to the phasing of deliveries. Over the full year, total revenue was up 9% with growth across each business. External revenue was up 12%, with significant growth in demand for our content globally. And EBITA was up 5% at a margin of 15%, which is firmly within our target range. Looking at revenue in a bit more detail. The U.K. was up 4% with sales to ITV also up 4%, including new dramas A Confession and Sticks and Stones. And off-ITV in the U.K. grew 13% with deliveries of Line of Duty, World on Fire and Noughts and Crosses. ITV Studios US performed strongly, as we expected, with revenue up significantly in H2. Revenue growth for the year was 11% and 7% at constant currency. Deliveries of Love Island US, which has been recommissioned, Crank Yankers, Queer Eye and Snowpiercer more than offset the absence of The Four. ITV International, previously called Rest of World, was up 22% or 24% at constant currency. This was driven by strong growth in European scripted with deliveries such as Profilage and Balthazar for Tetra, and Zero Zero Zero and Gomorrah for Cattleya. In addition, our portfolio of formats continued to sell well internationally. For instance, The Voice and Dancing on Ice in Germany, and I'm A Celebrity and Love Island in both Australia and Germany. Global Formats and Distribution, previously called GE, was up 2%. Looking now at the split, scripted grew very strongly, up 37% in 2019, and it now makes up almost 30% of Studios' revenues. Scripted remains a focus for us as it's likely to be an area of higher growth in the medium term. We're seeing significant scripted growth in the U.K. on and off ITV. In Europe, with strong demand from broadcasters and OTT platforms for local content with global appeal, such as Tre Metri Sopra for Netflix and Carlo & Malik to Rai. And in America, the delivery of Snowpiercer and the fifth series of Good Witch. 2019 has been a very strong year for ITV Studios. And over the medium term, we continue to expect to grow revenues by at least 5% compound at a margin of 14% to 16%. We're on track to deliver 10,000 production hours by 2021. But 2019 was impacted by the discontinuation of Jeremy Kyle, no Saturday Night Takeaway and the number of high-volume and lower-value daytime programs not returning, such as Eggheads in the U.K. and Think Tank in Australia. Now on to Broadcast. As Carolyn said, total advertising was down 1.5%, ahead of the 2% we guided in November. Within this, VOD grew 21%, and we saw good growth in sponsorship and partnership revenue as we've grown our strategic and creative partnership teams. However, this was more than offset by the decline in NAR against the tough 2018 comparator, which included the Football World Cup, which we estimate was worth around GBP 20 million. In addition, the introduction of the whistle-to-whistle gambling ban from August 2019 cost us around GBP 6 million. Direct to Consumer revenues recovered in the second half as we expected and were up 4% for the full year, driven by an increase in Hub+ subscriptions, which offset the impact of Saturday Night Takeaway on our competition revenues and less low-margin pay-per-view boxing. SDN revenues were down 5%, driven by the phasing of deal renewals in the period. And other revenue was down 3%, due to the closure of Encore at the end of April 2018 and lower commission from STV, which corresponds with the decline in spot advertising revenue. In total, Broadcast revenues were down 2%. Moving on to costs. Our program budget was up. We increased spend on sports, which drives live viewing with England football qualifiers and the Rugby World Cup, and on drama, which is important for attracting light viewers. While we continue to manage our nonprogram costs tightly and over-delivered on savings, costs were higher due to increased bandwidth and rights costs as a result of the significant online growth, essential investments in BritBox UK. We're disclosing BritBox UK as a separate line, and the number you see on the chart is the venture loss not the net investment, which is actually lower. And I'll come on to this later. In total, Broadcast, excluding BritBox, delivered GBP 483 million of EBITA at a 23% margin. Onscreen and online viewing has again been an operational highlight, and we maintained our share of viewing at the second highest level for a decade. This is being driven by good performance right across the schedule. Many daytime shows grew their audiences, such as Good Morning Britain and Tenable. We successfully add a range of new dramas with ITV broadcasting, 5 of the 6 most-watched new dramas, including Manhunt and The Bay. Sports attracted large live audiences, driven by Rugby World Cup and horse racing. And Coronation Street and Emmerdale remain the 2 largest soaps on TV. We continue to be the home of scaled mass audiences, delivering 98% of all commercial audiences over 5 million. And just as importantly, we're delivering on targeted demographics. For instance, share of viewing for 16 to 34s on ITV2 was up 6%. As Ebiquity said in a recent study, TV remains the best option for brands to build mass audiences at scale, and that TV continues to hold the crown as the primary driver of ROI. And it's our great content which has driven our strong viewing on the Hub, up 13%, with dwell time up 6%. We've already hit our target of 30 million registered users, and we have over 80% of all 16 to 34-year-olds registered on the ITV Hub. Monthly active users were up 28%. And our focus is now on keeping those users and driving incremental active users and dwell time, with have a strong schedule for 2020, and our program budget will increase to about GBP 1.11 billion, which will be weighted to H1 with the Euros. Over the medium term, we expect our schedule costs to remain broadly at this level, although they will fluctuate with large sporting events. The advertising market was tough in 2019, with continued economic and political uncertainty in the U.K. and changes in viewer and advertising behavior. Our strategy is focused on taking advantage of and addressing these changes. ITV's proposition is strong, giving immediate reach and scale to advertisers in a brand-safe environment, and the growth in viewing on ITV Hub offers even more targeted demographics and fully addressable advertising. In 2019, we outperformed the TV ad market again. There's no question that the makeup for TV advertisers is changing as new categories and markets are being disrupted by in certain brands. The continued challenges faced by the high street retailers and FMCG companies have put their budgets under pressure, and they've reduced spend across all media. We've also seen a decline in Entertainment & Leisure compared to the significant spend by the betting companies around the Football World Cup in 2018. However, we saw growth in motor, publishing and broadcasting, and airlines and travel. And the key standout is the nongambling Online brands, which grew their spend by 11%. These brands see both the immediate benefits of TV advertising as well as its ability to build their brand. We have clear measures of success, and we're on track to deliver our medium-term targets. As the media market is changing, we are increasingly competing with global SVOD platforms. Our brand consideration across all adults was down 6 percentage points in 2019, as these platforms have grown and are investing heavily in marketing. Brand consideration has also been impacted by the discontinuation of the The Jeremy Kyle Show. However, our performance was better than our closest 3 to our competitors. Critical to reaching our -- to our strategies reaching light viewers who are younger and more elusive. And we're pleased that our brand consideration for light viewers, which is the measure that we watch most closely, declined by just 1 percentage point. And in the future, we'll focus on brand consideration for light viewers rather than for all viewers. ITV total viewing was down 4% in 2019 against the Football World Cup in 2018, which is in line with the market. Over 2 years, total ITV viewing was down just 2%, and this is ahead of the broadcast market over the 2-year period, which was down 8%. We're making good progress in Direct to Consumer, too, with 4% growth over the full year, and we're on track to deliver our medium-term targets. Hub+ subscriptions continue to grow strongly. Paying relationships were down in the year, but this was due to less pay-per-view boxing, which we closed at the end of its trial period to focus on more profitable Direct to Consumer opportunities. Excluding boxing, paying relationships increased year-on-year. It's too early to publish data for BritBox, as we launched only 4 months ago. But as you'd expect, we're focused on subscriber numbers, conversion, subscriber acquisition costs and churn. Now this slide brings together all the investments we previously announced to support the strategy. Essential investments in 2019 were lower at GBP 32 million than the GBP 40 million we guided. This was principally due to the timing of payments in relation to the addressable advertising platform, which will now fall in 2020. As a result, additional essential investment will be GBP 18 million in 2020, the GBP 10 million we originally guided plus the GBP 8 million which has moved from 2019. In future, we will report and guide on the venture losses within BritBox rather than ITV's net investment. ITV's net investment is lower than the BritBox venture losses as it includes the benefit of ITV from the advertising by BritBox on ITV network and the sale of programs by ITV Studios to BritBox, offset by the opportunity cost of not selling to other platforms. The venture loss better reflects the stand-alone performance of BritBox. Originally, we guided GBP 25 million of net investment in BritBox for 2019. Actual net investment were GBP 6 million lower at GBP 19 million, due to the phasing of content costs. The equivalent venture losses for the period were GBP 21 million. And we've previously guided GBP 40 million of net investment in 2020. This, together with the GBP 6 million of costs that have been rephased from 2019, is in line with our new guidance for 2020 of between GBP 55 million and GBP 60 million of venture losses. And as a reminder, the vast majority of costs relate to subscriber acquisition and to content. We delivered GBP 25 million of recurring cost savings in 2019, GBP 5 million more than planned. We remain on track to deliver GBP 55 million to GBP 60 million of savings over the 4 years to 2022, which is equivalent to about 13% of our fully addressable cost base. And in 2020, we're targeting GBP 10 million of recurring savings. Adjusted earnings for the year were GBP 555 million, down 11%. And adjusted EPS was 13.9p, down 10%. Financing costs were higher, reflecting slightly higher levels of debt in the year, some FX and the impact of IFRS 16. The tax rate came down to 18%, and we expect it to remain around 18% to 19% over the medium term. Statutory EPS was up 1% to 11.8p, predominantly due to the gain on the sale of London Television Centre in the year. And exceptional costs primarily comprised of acquisition-related earn-outs and the one-off costs of delivering our cost-saving program, offset by the gain on the sale of the London Television Centre. Our cash conversion was again strong in 2019 at 87%, despite our continued investment in the scripted business, BritBox and addressable advertising. And it remains our objective to run an efficient balance sheet and manage our financial metrics with investment grade. Our net debt at the end of the year was GBP 804 million with net debt to adjusted EBITA of 1x and adjusted net debt to adjusted EBITA, which better reflects how the credit agencies look at us, of 1.5x. We have good access to liquidity with GBP 930 million of undrawn facilities. And finally, our pension schemes are reporting a net deficit of GBP 87 million, up on last year, principally due to the decrease in bond yields. Now this slide shows sources and uses of cash in 2019. We continue to balance investments with returns to shareholders and maintaining our balance sheet strength. In 2020, we have a number of one-off cash outflows, which included an unusually high level of earn-out payments and in common with other U.K. corporates, 6 quarters of tax. These could increase our leverage by around half a turn over the full year. I'll finish by running through the 2020 planning assumptions. I've talked about most of the P&L assumptions shown on the screen. In 2020, our best estimate of exceptional P&L items is GBP 25 million, down on last year due to lower acquisition-related expenses as we've reached the end of the Talpa earn-out period. And on the cash side, we expect profit to cash conversion of between 75% and 80%. As I mentioned, like all businesses, in 2020, we'll pay 6 quarters of tax rather than 4. CapEx will be higher in 2020 due to the costs associated with our addressable advertising platform and our U.S. property moves. And our best estimate is that exceptional cash items will be around GBP 210 million, which is higher than previous years as it includes the final element of the Talpa earn-out. Pension deficit funding is expected to be GBP 75 million, in line with 2019. And the Board is intending to pay another 8p full year dividend. I'll now hand back to Carolyn.

Thanks, Chris. So a strong operational performance in 2019. And while ITV has a solid market position, we recognize that we need to continue to develop at pace to deliver future success and to mitigate the risks of the changing viewing and advertising market. TV still reaches 90% of the population each week. TV advertising is critical in marketing campaigns, with 83% of all video advertising on live linear TV. There are 2 reasons for this. It generates the highest ROI, as you've heard, and TV provides a safe, trusted and transparent environment. However, SVOD is now established in the market and online viewing continues to grow rapidly and is likely to continue to with the launch of new services. Our strategic vision is to be a digitally led media and entertainment company that creates and brings our brilliant content to audiences wherever, whenever and however they choose. And of course, to monetize our content however we deliver it. We have evolved our strategy as the industry has developed to deliver our vision with 3 clear objectives: continue to grow U.K. and global production, transform our broadcast business and expand our Direct to Consumer activities. At the center of this is the production and commissioning of great content, which we are then able to monetize through our multiple touch points in 3 different business models, with advertising through linear broadcast, online and creative partnerships around brands; by selling our content to broadcasters and platform owners; and directly to consumers through SVOD, merchandise and events around our program brands. Being an integrated producer/broadcaster gives us real competitive advantage. It provides Studios with a bedrock of core commissions and a formidable promotional engine for its content, and ability to cross-promote across our business models. It enables 360-degree monetization of Studios' content across these business models, and it secures access to great content for ITV's channels, AVOD and SVOD businesses. As a commercial public sector broadcaster and a responsible business, our social purpose is extremely important to our people and to delivering our strategy. With the massive reach of our platforms, our much-loved shows and creative talent, we have a unique ability to drive meaningful change. In 2019, we launched our social purpose strategy, setting ambitious targets to shape culture for good. We have identified 4 priority areas, and we've made a great start. The first is encouraging better mental and physical health. In 2019, we launched Britain Get Talking, the first stage of a 5-year commitment from ITV to promote mental wellness. And that became the best known, most recalled mental health campaign of the year, even though it launched in November. ITV is also committed to sharing best practice and continuing to strengthen and evolve our duty of care processes, ensuring the physical and mental health of people at ITV and in our programs is the highest priority. The second is fostering creativity through diversity to ensure that ITV reflects society on and off screen. We published for the first time targets in 2019, and we're making really good progress against these. We set up the ITV Inclusion and Diversity Council to share and monitor progress in this area. The third is around reducing our environmental impact, creating programs with the biggest impact on the audience and the smallest impact on the environment. In 2019, we were carbon-neutral, and our increasing number of programs are now albert accredited for implementing sustainable production techniques. Our final priority is giving back to communities through causes we care about. For example, we helped raise about GBP 8 million for UNICEF with Soccer Aid in 2019. We also encourage all of our colleagues to take that volunteering days. While there is a great deal to do to deliver our strategic vision, as you can see, we are already making really good progress. The benefits of our strategic initiatives and investments are already evident. So starting with Studios. ITV Studios is now a scaled international business delivering good growth at a stable margin. In 2019, it delivered 37% of ITV's total profit as we continue to diversify the group. We are increasingly diversifying the Studios business itself as well, with strong growth in scripted revenues up 37%. We delivered good growth internationally, and now 58% of our revenue is generated outside the U.K. We've sold 62 formats with 14 sold in 3 or more countries as we continue to globalize our formats. And we are increasingly producing them locally, therefore, capturing the full margin, such as The Chase in the Nordics and I'm A Celebrity in Australia. We have strengthened our creative talent with Patrick Spence, the award-winning producer behind programs such as Fortitude and Silent Witness joining from Endemol; and Dominic Treadwell-Collins, the exec producer behind multi-award-winning A Very English Scandal. And we have also increased our stake in Monumental to take a controlling interest, renewed our agreement with Mammoth and have acquired Armoza, an Israeli format creator. In 2019, we started to see the returns on the investments we're making in Broadcast. We're repositioning ITV to drive more light viewers and increased reach. We evolved the ITV and ITV Hub brands, and have developed consistent off-air marketing across multiple media channels. We have maintained our ITV Family share of viewing, as Chris said, and grown our share of viewing of light viewers. We've seen strong growth in our Online metrics, driven by our improved user experience, with features such as recommendations and cross-platform resume. We strengthened the user interface, redesigning the home page, making it consistent across all platforms. And we have improved our marketing with performance marketing and cross-selling. Our significant progress across the business has been enabled and supported by our tech investments and delivery. We've evolved the digital video platform, which supports the Hub, Hub+ and BritBox. We've designed and built Planet V, and we are evolving the audience data platform to support and drive value in our Direct to Consumer business. We continue to invest, of course, in our data capabilities and consolidating our data right across the business. This enables us to drive viewing, scaling our recommendation model and optimizing our marketing spend. It allows us to drive consumer revenues with our SVOD subscriber acquisition and churn models and enables us to meet advertisers targeted advertising needs. We started running live programmatic addressable advertising campaigns now through -- delivered through Planet V, and this will ramp up in March. We are continuing to drive advertising through strengthening our client strategy team and our creative partnerships to grow sponsorship and partnership revenues and have done some really innovative deals with M&S, Delivery, Spotify and Heinz, just to name a few. So now on to Direct to Consumer. As you know, we successfully launched BritBox in November, which I will come on shortly. Hub+ and BritBox US are both performing very strongly. Hub+ subs increased over 50% year-on-year to over 400,000, driven by great content, increased marketing and EU portability. Of course, it is a high-margin business. BritBox US is also profitable and subs continue to grow steadily and are now over 1 million. We continue to develop our other Direct to Consumer activities. And in 1920 -- in 2019, we invested in and rebranded our online competition portal ITV Win. We grew our customer relationships and engagements around key brands, such as the Coronation Street Tour, and we further developed our gaming through programming apps and games with the Love Island game being downloaded 10 million times globally. A bit more detail on BritBox. We had a successful operational launch, as I said. It was issue free and on time, and early results showed good performance in line with the business plan. We're seeing strong subscriber appeal and the majority of customers convert to becoming paying subscribers after the 30-day trial. Here is a snapshot of real customers' thoughts and experiences from some very recent independent research with new subscribers. [Presentation]

Real customers. So our priorities for BritBox UK are clear: to grow distribution, to strengthen the content offering and to continue to deliver effective marketing. We have the largest collection of British boxsets, as you heard, and this is growing by the day, with significant additions to the catalog, such as 500-plus hours of Doctor Who Classic, which was a big hit at Christmas. Around 1,000 hours of Channel 4 content joins the service from the spring, making it the unrivaled destination of British streaming all in one place. Film 4 content will be available in Q3, and our first original commission, Spitting Image, will land in Q4. BritBox is now on 10 platforms, making it available on 15 million U.K. screens, our significant EE partnership is currently in the presale phase and launches fully on the 13th of March. YouView and Freeview Play will be joining in the next quarter, which will make it available on 20 million U.K. screens. Brand awareness is very high at 63%, following a successful advertising and brand launch with significant weight of ITV airtime, which we are seeing a great response from. Going forward, our marketing will obviously be very, very focused around planned content and distribution launches. While there is clearly increasing competition in the SVOD market, our research shows that there continues to be strong demand for uniquely British content and for multiple subscriptions. BARB data shows the annual growth in homes with any SVOD service is 16%, with over 50% of the population having at least one subscription; and the growth in homes with multiple services is 37%, with over 5 million homes now having more than 1 subscription. Our recent research shows that people's intent to buy BritBox is on par with Now TV and Apple TV+. So to deliver our strategic vision, we have very clear priorities across the business for the next 3 years. Demand for great content has never been stronger. Our strong performance, particularly in Studios in the U.S., in both scripted and unscripted, reinforces that ITV Studios continues to be a real growth opportunity. We will continue to grow our scripted business, where we are seeing strong demand and increasingly from the streaming platforms. We will globalize and maximize the value of our key formats and brands and the merged global formats business will drive this. And we will focus on organic growth with M&A when appropriate. For Broadcast, ITV remains the only place to get mass simultaneous reach at scale, which we will continue to deliver while focusing on light viewers and digital viewing. We will accelerate ITV Hub growth. We'll grow addressable VOD and, over time, look to bring other premium VOD inventory onto Planet V. And we will also continue to build more strategic and creative partnerships with advertisers. As we focus on building our relationships directly with consumers, we will grow SVOD subscribers and optimize retention on BritBox U.K., grow Hub+, continue to develop and expand BritBox US and roll BritBox out internationally. We will also drive DTC revenues through ITV Win and focused D2C merchandise and events. Now to deliver this strategy, we need to do 4 things extremely well. First, we need to digitally transform the business using data, analytics, tech and agile ways of working to drive revenue as well as to simplify and get efficiencies. Secondly, we need to ensure we have the right capabilities, skills, tools and culture. Thirdly, that we own and manage our rights effectively to drive the most valuable, that we -- to drive the most value from them. And fourthly, that we build really strong partnerships in the U.K. and internationally to improve the distribution, discoverability and prominence of all of our content. We have specific priorities for 2020 to ensure we successfully execute on this strategy. So growing U.K. and global production. We have 3 key priorities for ITV Studios. First, integrating Talpa into ITV studios and reorganizing the distribution and commercial division into our 3 centers of excellence: The Creative Network, Global Distribution and Global Entertainment. This will enable ITV to develop more hits, build international brands and formats much more effectively and maximize the value of them, such as The Voice, The Chase and Hell's Kitchen. We will further strengthen our creative talent. We announced in January that Lisa Perrin will join ITV from Endemol as Managing Director of ITV Studios International. Finally, we're very focused on continuing to build and monetize a strong pipeline of programs internationally, growing scripted, creating global formats that travel and return, and diversifying our customer base and increasingly creating programs for streaming platforms. This is in addition to continuing to sustain and develop the core content for ITV Broadcast and Direct to Consumer. This tape shows just some examples of the content we are creating, producing and distributing through studios. [Presentation]

So huge volume of shows there. Now on to Broadcast. Essential to the strategy is delivering ITV's digital transformation in Broadcast. We're doing this by accelerating growth of the ITV Hub through enhancing its content, its prominence and improving the user experience to capture further digital viewing and growing its reach and frequency. To strengthen our content offering, we will extend our windowing strategy, look at opportunities to put some content on the Hub in advance of live broadcast, introduce short-form content directly from our shows, integrate news into the Hub and give DTC initiatives presence on the Hub to help deepen viewer's relationships with the programs they already love. We will further improve the user experience in 2020, and we will be rolling out increased personalization, better home page navigation and features such as start again and simulcast viewing. Our marketing plans will be focused on driving light viewers and ITV Hub viewers with program prioritization and equal billing for ITV Hub as well as greater use of first-party data. We will continue to roll out an embed Planet V with the major agencies. We're currently taking bookings and road testing, as I said, engaging with agencies in feedback and continuously developing the platform. A strong schedule, which drives the audiences needed by advertisers and the engagement of our viewers, is absolutely critical. We are focused on our priorities to drive mass audiences, light viewers and digital viewers, and this tape now shows some of the great content which does just that. [Presentation]

And great viewing figures for virtually all -- obviously, only the ones that have run last year and not for the forward-looking ones, you saw both in that video. Now on to Direct to Consumer. We're continuing to develop Hub+, as I've said, BritBox US and in 2020, we'll be launching BritBox in Australia, as you will have seen this morning. The investment will be covered by BritBox US' profits. We are also working to identify other possible international markets, too. We're focusing on fewer, more valuable Direct to Consumer activities and products around our key successful brands. For example, an I'm A Celebrity live attraction in Manchester launches this year. We're scaling the Hell's Kitchen and Love Island games, and we're growing merchandising globally. In addition, we are driving our digital transformation in the following 3 areas. First, in developing our consumer-facing products, as I've just outlined. Second, in digitizing our content supply chain and core processes. We're embedding data-driven insights and automation into our processes, which will deliver efficiency gains, business agility, operational scale and revenue uplift. We have already started a project to provide our scheduling teams with modern digital planning tools and data-enabled real-time insights. We will shortly be launching our rights management project. Thirdly, we're looking in-depth at our core central functions. We recognize that to deliver new digital models and ways of working, we need to invest in systems in developing new capabilities right across ITV. This means ensuring teams have the right tools and skills, and that our culture is shifting to embrace new ways of working. We've already delivered Talent Pay, a new payment system; we are now working on FreeCon, which will enable efficient management of the entire freelance contracting process. We have also launched a workplace tech project to ensure our colleagues have the right tools to enable smart working, which we launched in November 2019 and has actually been welcomed by our colleagues. We have started 2020 well with good online viewing, up 89%, driven particularly by The Masked Singer and Love Island. ITV Family share of viewing is flat. We have a strong schedule for the year with dramas, including the second series of The Bay and Quiz, new entertainment show, the Epic Gameshow, and the return of Saturday Night Takeaway, and of course, the Euros to look forward to. Total advertising is expected to be up 2% in Q1. This is the third quarter of growth, and we are seeing double-digit growth in online and partnerships revenues. Early indications suggest that total ad revenue will be down 10% in April. In March and April, we have seen an impact from travel advertising deferments relating to the coronavirus. All deferments to date are included in our guidance. Despite the ongoing uncertainty around the outlook for the U.K. following its departure from the EU, we currently remain on track to deliver our medium-term targets. At this stage, it is too difficult to assess the further implications of the coronavirus, but we continue to monitor the situation closely, as you'd expect, and have contingency plans in place. Our priority is to ensure the safety of our people. Between September and November, the ITV management Board did 19 internal road shows in the U.K. and internationally. The feedback was that everybody is really very clear about what we need to do to deliver the strategy. It requires, as I've said, a relentless focus on delivery to build this stronger, more diversified and structurally sound business. We have strong foundations in place, and successfully executing the strategy will further position ITV to meet the challenges of evolving viewing and advertising trends as we become a digitally led media and entertainment company. Thank you all very much for listening, and we're now ready to take your questions. There will be some questions on the phone as well, but we'll take questions from the room first, if that's okay.

But you want to have a look around. I think there's a question right at the back over there.

It's Annick Maas from Exane BNP Paribas. My first question is on BritBox. So you suggested that the conversion rate of people signing up for free and then going into pay is quite high. Is it high like 60%, high like 80% or above...

So if we were going to give you those figures, we would have said them in the presentation. So the reason we didn't is that, actually, we are in very early stages of BritBox, as you know. I mean it's 3, 3.5 months old. We are in full kind of distribution rollout mode, and we are also still rolling out the content. So Channel 4 content is not on yet. And I think we're not in a steady state yet. So we are very pleased. It's on track. It's on plan. It's exactly where we wanted it to be at this stage. But until we get to a kind of steady state, when we've rolled out the distribution content, when -- the metrics are not going to be meaningful.

Good. My next question is just on -- can you give us the share of online businesses advertising in your advertising revenue mix? You gave the mix via industry, but not via online businesses. So if you take the online businesses, you exclude Amazon, how much do they make up in your advertising revenues?

Well, we haven't disclosed that. They're across all categories. What we have said is that it's growing at 11% this year because, as we said, those online brands, they see the clicks to their website as soon as the campaign runs. And then over the longer term, they see the benefit for the brand. But we don't break out...

So we don't segment it like that. We just see online per category. Yes.

Yes. Okay. And my last question is just can you give us an update on how much of the content that is on other platforms you've already repatriated. And can you give us an update on the latest time line on that, when you will have repatriated everything?

Yes, yes. No, I get the question. So for ITV, quite a lot of our content wasn't actually in that many other places, to be fair. So I would say, I mean -- Reemah, are you there? I think most of it is back...

Yes, yes.

For ITV. And I think the BBC on BritBox will have a little bit longer to run before they repatriate because they've had longer-term deals in place for a lot longer than ITV had. Patrick.

It's Patrick Wellington at Morgan Stanley. As we're a bit short of people in the room, I'm going to get wild and...

Just go mad. Go on. We expect no less.

It's an analyst's dream.

God forbid.

So let's ask the coronavirus question. Can you contextualize how much travel is in the context of your advertising? It flashed up on the screen. Is this a seasonally particularly big part of the year for travel? And when you look out across your other advertising categories, have you seen any vulnerability anywhere else? Or if you were to anticipate some vulnerability, where might it come? When do we stop?

Okay. I think January is actually the big -- January is quite a big month for travel traditionally. So people come out straight after Christmas and do huge amounts of trying to get people to book their summer holidays in January. It has -- at the moment, it is about travel and the travel sector. And it's actually -- it's a relatively -- it's a range of travel advertisers. As you would expect, most travel companies are -- either markets are being closed down, if you like, people are not traveling. So they're deferring their spend, Patrick, rather than anything else. So they're just asking to move their spend later into the year. We're not actually seeing it in other categories. The only other thing, of course, is the Bond film, which is highly publicized. It was about to premier imminently on March, I think the 12th or 17th, something like that. And they've moved that to November. So that's another movement. So we've seen that on Bond. But other than that, it has been the travel category. It's really hard. I don't think it's -- I don't think -- I think anyone who tries to guess what's going to happen next is going to be wrong. I don't think it's worth speculating on whether it's going to affect other categories or -- because I just don't know. And we just need to wait and see.

And travel is about 5% of the total. But as you say, you've had a big chunk of that in January.

It's 5% overall for the full year, and it is overweight in the sort of the January to April period. So as Carolyn said, January is quite a big one, but it's also overweight in Feb, March, April as well.

I mean you can say one thing about the travel companies, which is that they will -- as soon as they can get back to normal, they will get back to normal. They will do that with every proportion and safety requirements in place. But they will want to come out promoting to get people to start traveling again. So that's the one thing you can say, I think, with certainty, which is they will be back.

Okay. BritBox question that you might answer, which is that you were, at one point, going to give us targets for 2020 and beyond at this stage.

Were we? We never said that.

Well, that was my impression.

Well, impression. Did we ever said that, Christopher?

No.

And I also got the impression that 2020 was going to be the peak year of losses for BritBox.

Yes. So that GBP 55 million to GBP 60 million of venture losses will be. But we're going to be net investment phase for a few years yet. But as we've always said, we're running it for a return for ITV because this is, we think, the best way for us to be monetizing our content on an OTT platform.

You see, I've got a loss of GBP 108 million over the next 5 years or the first 5 years, which I think is looking pretty good on this basis, therefore. There's nodding around, for those who aren't on a video screen.

Yes, we heard you.

ITV Hub+ plus is doing very well. You've got 400,000 subscribers. A little bit of a surprise. Would you say that ITV Hub has got more or fewer subscribers than BritBox?

Trick question, hey? So we're not giving subscriber numbers for BritBox.

That's not giving -- ITV Hub+ doing very well. I'm a subscriber myself. Did I hear, Chris, you say that the GBP 1.1 billion is now the new average schedule cost as opposed to a few years ago, it was about GBP 1 billion. Is it now always going to be about GBP 1.1 billion?

Yes. So we said GBP 1.11 billion for 2020. But yes, that's right. And as we said, it will go up and down depending on sports rights.

Yes. It's sports that will make that uneven.

And you're expecting Euro 2020 to go ahead.

We are, at the moment, yes, very much so.

And do you have any contingency? Can you get your money back if it's behind closed doors?

Yes. So I mean, look, I think Kevin's team have spent, as you can imagine, the last 2 weeks kind of really, really focusing on contingency plans by program, actually. And sports being live is one of the most kind of important things to do as quickly as possible. So there are contingency plans on all our programs. Julian's doing the same in Studios. And at the moment, there are contingency plans and they will be used if necessary.

Steve Liechti from Numis. Can I just ask, on Olympics, can you just remind us what the traditional benefit or hit is on Olympics over that period?

Well, I think that will -- that's -- it's on the BBC for starters. And it's on at a very -- it's Japan, so it's on very early morning. So from that perspective, it's probably less -- it's less worse for us, if that makes sense, in terms of share of viewing. Kevin, do you want to say anything?

I'm glad it's in the East.

Well, for one, because of what I just said. It's on BBC.

Yes. So in terms of...

We wouldn't be that glad if it was in the East if it was on ITV.

Okay. So I guess, what you're trying to say, what -- or not trying to say, but what you could say is that it's probably less relevant to you if the Olympics didn't happen?

Yes, it's not relevant to us if the Olympics don't happen. No. It's not really relevant at all...

Unless... Yes. Second question...

I mean it'd be terrible for the Olympics, right? I mean that will be an awful thing. But no, for ITV specifically, it doesn't matter.

Great. And then in previous periods, you've given us sort of quite specific numbers on Love Island in terms of revenue generation. Would you like to give us a number for the current year in fiscal -- well, the previous year, fiscal '19? And also, could you comment on the performance of the over winter and what that means going forward?

Yes. So we didn't -- what we said a year before last is that last year, we said that we've made an incremental GBP 10 million of revenue out of sponsorship and partnership advertising. So we have never given a quantum for Love Island in terms of -- because we don't segment our programs by revenue and never have. So I think it would be completely right to say that we are very pleased with Winter Love Island. The consolidated audience was 4 million. It had a 55% share of 16 to 34s. So very, very high viewing by 16 to 34s. And it was the first time we've done a production in South Africa of that scale. And actually, touch wood, it was -- it all went very well. So we're pleased with -- now, it was up against a winter schedule, which is a much tougher schedule, as you probably all know, than a summer schedule would be. So when Love Island goes on in the summer, it's up against relatively weak schedule on other channels. Winter schedules are always very strong because that's -- a lot of people view a lot more in the winter. So we're actually pleased with its performance. There's one. Julien.

In Julien Roch of Barclays. Two questions on BritBox. One not hopeful. The second, very hopeful. You gave us the joint venture losses of GBP 21 million. Could we get the joint venture revenue? Or if there's no revenue? And then number two, you say it's early days. It's not finished. We'll give you numbers when it's steady state. When will we get numbers on BritBox? Is it going to be in the Q1? Or we'll get nothing into Q1, and we'll have to wait for the first half? Then on sponsorship, could you give us some color on what happened to sponsorship in 2019? I guess with the World Cup, should have declined. And last question is, could we get the percentage of Studio revenue, external, that is coming from digital/OTT? Are we around 10%, above 10%? Any color on that?

So quite a few questions there. So BritBox revenue in 2019, as you'd expect, it's very small because we launched at the back end of the year, and we've got the 30-day free trial start. So little revenue within that 2019 number. But also, obviously, you haven't got a full year of content costs in there, either. In terms of when we'll give figures, as Carolyn said, we'll give figures when the metrics are, we feel, are a meaningful predictor of sort of performance in the period and a future predictor for future performance. So...

It won't be Q1, Julien.

No, it won't be Q1. No.

Just to set expectations. Third question was about sponsorship. I didn't catch the -- were you saying how did sponsorship go last year?

Yes, in 2019. Yes.

Yes. No, I mean, so we -- well, I think we had a good year for sponsorship. All of our program brands had really strong partnerships on -- as sponsors. Very supportive sponsors. We've done very much more interesting sponsors rather than just end credit deals, i.e., bumper deals. We've had -- the stuff I mentioned with delivery, with M&S, have gone much deeper than what you just see on screen. We've done lots of things in-store with them. We've done things at check out with them, point-of-sale. A lot of the Love Island sponsorships are to do with merchandising and licensing, so the retail side of things. So I think one of the things the investment is really paying off on in terms of non-NAR revenue is it allows us to really get a very strong and close relationship with the clients and work with them over a number of years to achieve their objectives in terms of growth, and that's working well.

So despite the Rugby World Cup probably generating less sponsorship than the Football World Cup, sponsorship was up last year?

Yes.

Yes, it was.

And last question on Studio.

The last question was external Studios revenue, how much is the OTTS, basically.

Yes.

Yes.

I mean so it's around 25% of GE's revenue, and then a much smaller percentage of the overall sort of full production revenue. But it is, as we said, it's growing strongly. And you saw on the reel, the number of productions we're now doing for the OTT players.

So a question over there.

Matthew Bloxham with Bloomberg Intelligence. Question on the BBC. There's been a lot of comments just about future funding models for the corporation. I just wonder how you think about that and whether it has any implications for your strategy where you need to go fast from a direct-to-consumer or if it's just something that you are kind of passively observing?

So the -- obviously, BBC is a strong partner of ours in BritBox and a very committed partner. The government has made it absolutely clear that nothing is going to happen until 2027, which I know is not -- it might not seem like a really long time away, but it's actually quite a long time away. And I think our view would be that we focus very much on what we have to do. Our strategy is a 3- to 5-year strategy at the moment. We need to get that done. We've got a lot of delivery objectives. I think we are also very, very involved in the PSB review, which, of course, involves the BBC and Channel 4 as well. And we're contributing to that, and we will be participating with Ofcom and the DCMS in terms of what we need from that PSB review, which is effectively modernizing the legislation, which was -- it was created in 2003. Those are the areas of our focus at the moment.

Do you have any on the phone?

Have we got any questions on the phone?

First question from the phone line comes from Adrien de Saint Hilaire from Bank of America Merrill Lynch.

Yes. I hope you can hear me well.

Yes.

Perfect. Chris, I think in your presentation, you mentioned that gambling, the ban had a GBP 6 million impact on advertising in 2019. Can you give us a sort of number that you expect for 2020? That'd be the first question. And the second question is, I think you made the point that BritBox is advertising on ITV. So how much does that add in percentage terms or absolute million pounds to the overall ITV advertising revenues? And then lastly, on the dividend. There's a commentary in the release saying that the board will think about a medium-term outlook next year, but is the message there that we should brace ourselves for a downgrade versus the 8p level.

All yours.

Sorry, first one was -- gambling. Yes. I mean we won't give a figure for gambling this year at this point. But clearly, normally, we get quite a bump up from sporting events like the Euros. There will still be some gambling adverts around that, but that lift from the Euros will be slightly less than we otherwise would because of the whistle-to-whistle ban. But we haven't given a forward-looking number on that. On BritBox, the -- I mean, first of all, the revenue is eliminated, so you won't see it in our external TAR number. And in any event, it's a very, very small percentage of what ITV take in overall. But the difference between the venture losses, the combination of the Studios profit and the advertising on ITV by BritBox. And as we said, that's roughly around GBP 10 million in total.

I didn't hear the third question, except the word downgrade.

So -- no, so that was the -- so on the dividend, no, we're absolutely not saying that's a downgrade. What we are saying is that we think it's appropriate to hold the dividend at 8p for this year, given that we still got quite a lot of uncertainty around the U.K.'s exit at the end of this year, as we get out of the transitional arrangements. So the right time to fix a new medium-term dividend policy is when we've got greater clarity on exactly how that exit will happen and what the economic circumstances are at the time.

And if I could just squeeze in one follow-up, please. Chris, I'm not sure I understood the difference between the investments of BritBox of GBP 46 million and the venture losses of GBP 55 million to GBP 60 million. So where is that difference coming from? Sorry about this.

So the difference is the venture losses are higher than the net investment because that's the stand-alone view of BritBox. So that -- it includes the advertising by BritBox on the network and it includes the cost of content from ITV to BritBox. And then when we originally gave the -- I mean the reason we gave that original net investment guidance was, if you recall, we announced BritBox before we'd even agreed the final deal with the BBC. We had a business plan. So we -- and there was a very wide range of views on what BritBox might imply for ITV at the time. So we gave a shorthand view, which was we'll give you the net impact for analysts, so they could put one line in their models. What we're now doing is we're presenting it in the way that it's actually accounted for, which is within the broadcast P&L and the profit sitting in Studios. So that's the difference between the venture loss and the net investment is the Studios profit and the network profit.

We now have Lisa Yang from Goldman Sachs.

I have a few questions, please. On SDN, I think the revenue was down [ 5.5% ] . Obviously, this is a high-margin business. Could you maybe explain what happened there? What's the outlook for this business? Like, talk about maybe the timing of contract renewals. And I think you have the license up for renewal as well, I think, in a couple of years' time. Should we expect any changes? The second question is related to BritBox. I think you mentioned about launch -- something about launching originals. I didn't fully catch that. Could you maybe talk about how many originals you're planning to launch for BritBox this year and where you expect to be probably over time, like 2 to 3 years' time? So basically, what is incorporated within the GBP 46 million loss for 2020? Third question is on ITV Online. So the viewing was up 13%. The revenues were up 21%. Should we expect this outperformance of revenue over viewing to continue in 2020? And last question, could you give us the impact of the travel deferments you've seen in March, April? Given you're saying that this is probably going to come back in H2, I think it'll be quite important for us to know what the impact was in the first 4 months?

Okay. So on SDN, we've invested -- we've had the license for many years. We've invested a lot in the technology to increase the number of channels available. There are a very limited number of very old contracts, which are at market rates from quite a long time ago. As those come up for renewals, there is a slight step down in the revenue, which is why you're seeing a little bit of a decline this year. In terms of the license review in 2022. I mean DTT is the only platform that's growing for the delivery of TV. So we think there's a place for DTT going into the 2030s, actually. We're engaged with Ofcom around what's going to happen to the license. But we've run it really well for over 15 years. We've invested a lot, and those discussions will be ongoing.

On BritBox, on the originals, you would have seen yesterday that we announced Spitting Image. So that will run this year. And we have -- it's very hard, Lisa, to be precise because the way we spend our money, it could be that we do a few things that cost more or we do a number of things that cost less that we space out through the year. So it's -- we don't -- we can't be absolutely precise about the number and when they will run and how they will run because we are in commissioning mode at the moment. So we know what the plan is, the plan is to have originals in the plan. We've said that we will definitely be doing Spitting Image this year, there'll be series 2 next year and then there are other things in the pipeline that we haven't announced yet but we will announce soon. So it's not -- we cannot be precise about it because we're still commissioning and signing deals on things, and they all vary in terms of quantum.

On online, the sort of the money and the viewing. We're obviously really focused on driving viewing on the Hub, and we're really pleased with the progress we've made so far. And Carolyn talked about all the initiatives we've got in 2020 to keep growing that viewing. In terms of revenue, the team -- the commercial team are working really hard to attract more revenue into VOD, Planet V and the launch of that is firmly targeted at that. And as Carolyn said, we've already engaged with the agencies. The feedback is very -- from them is very encouraging. So in answer to your question, we're looking to drive both viewing and revenue in 2020.

Travel deferments and quantum because of the H1, H2 move?

Yes. We're not going to give guidance on exactly how much of an impact that's had on us. Going back to what Carolyn said earlier, we need to look at this on the full year basis. It is deferment for the moment. So we weren't anticipating any move in people's view of the full year advertising at this stage.

We now have Richard Eary from UBS.

Just 2 questions from myself. First one, just on the Euros. I don't know if you can just comment in terms of if we do get a situation and the Euros is canceled, can you talk us through what the legal issues are in terms of your negotiations [ would be ] for some of the rights? And obviously, what happens if it doesn't get canceled? I was thinking you can pull back the fees from that, but there might be some production costs around that. And additionally, I don't know if you could give -- I mean, you gave some commentary about the World Cup additional revenues at the start of the call about GBP 20 million. If you look back to the previous versions of the Euros, were the Euros actually profitable? So we can get a sense in terms of what the impact is if the Euros don't go ahead, i.e., we'll have a cost out, but we'll obviously have a revenue out as well. So therefore, we can understand what potentially is the net impact. That's the first question. The second is just, Chris, maybe just looking at the cost line for -- in the broadcast segment for 2020. You've obviously said there's GBP 10 million of costs coming out of that. But if we look at variable costs and [ broadcast ] and infrastructure overhead costs, can you give us an indication of what the underlying cost growth would be pre that GBP 10 million of savings? So if we look at the number last year, which was like GBP 510 million, is that number -- should we just assume that is GBP 500 million or basically underlying growth minus the GBP 10 million?

Okay.

Euros and -- I mean we've got contracts with the Euros. So there will be -- we've obviously looked at contract. There will be all sorts of conditions. I think if the tournament is canceled, they refund. So from that point of view, we will be covered.

Yes. And then maybe a limited -- there's a small amount of production costs in there. And frankly, it depends when or if the tournament is canceled, so we could avoid most of that depending on the timing of any decision. But as this is all very hypothetical, Euros are a long way away. And then just in terms of the way the business model operates. The advertising is on a share model. So the great thing about sport is it brings in live viewers. It brings in valuable viewers. It helps with advertising inflation because we've got the inventory to sell. But they come pre sponsored, so we're not impacted by that. And I guess, what I'm saying is there's a dislocation in the year between the viewing and the revenue you take. On the...

Broadcast cost line.

Yes, on the broadcast cost line. Probably too detailed a question to answer here. Lots of moving parts. You've got some of the essential investments is in variable costs. You've got inflation, and you've got the proportion of the GBP 10 million of saving that ends up in there. So probably better if we deal with that one-on-one or with the IR team later.

The last question from the phone lines today comes from Laurie Davison from Deutsche Bank.

It's Laurie here from Deutsche. Any progress on bringing on partners to Planet V. You announced that when you launch, that you'd be looking for partners. But it seems like most of [ Planet V ] ads, Channel 4, Channel 5 are all on AdSmart. So is there anyone else you can bring on there? Second question, just given there's so much focus from large DSPs on header bidding. Can you confirm that Planet V can offer this?

On partners, yes. No, I think what AdSmart offers is quite different to what planet V offers. So it's not mutually exclusive. You could be using AdSmart as well as Planet V. Because what Planet V will do is be premium VOD inventory that agencies could choose to access through Planet V. So yes, we are still talking to partners on Planet V.

And what we did say was we wanted to establish it with the agencies as a platform with ITV inventory and get that working first and then bring on partners later, which is what we intend.

Yes. And we've just announced, I don't know if you've seen, but we've just announced the appointment of a Director of Advanced Advertising. He's name is Rhys McLachlan, and he actually joins us from Amobee. So we would expect that quite a lot will happen this year on Planet V.

And in terms of the header bidding, to be honest, I'm not sure that the reason we chose the technology is that it is one of the most advanced technologies out there. I don't know, Mark, whether you know the detail there. But I'm sure that it will be in there.

Kelly is not in the room, Laurie, otherwise, he would be able to answer that. So if there are no more questions online. Is that right? No more questions on the phone?

Yes, that is correct.

Great. Thanks very much, indeed. Thank you all for coming.