ITV plc (ITV) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to ITV's 2024 Full Year Results. I'm here with Chris Kennedy, who you all know, our CFO and COO, and I will hand over to Chris shortly to talk you through our financial and operating performance. Before we get into the presentation, there are three key messages that I want to land with you today. The first is that we continue to strengthen the financial, operational and creative performance of ITV. Second, that our business is becoming much more resilient as our income streams diversify. And thirdly, we're in a really strong position to deliver profitable growth, strong cash generation and attractive returns to shareholders. So on with the presentation. 3 years ago, we announced the second phase of our more than TV strategy and today's results show the significant progress we have made in transforming ITV. We've had another successful year driven by strong execution. We delivered double-digit earnings growth across the group with record profits in Studios and an increase in the profits and margin of M&E. ITV Studios performed really well despite the expected impact of U.S. strikes and slower FTA commissions as we have previously guided. This resilience reflects the scale, quality and diversification of the Studios business. ITVX continued to drive strong growth in digital viewing and revenue whilst delivering attractive returns. By the end of 2025, we will have recouped the cumulative incremental investment in ITVX much earlier than planned. We've delivered GBP 60 million of non-content savings in the year as we continue to transform ITV. We've reprioritized resource allocation to better align with our strategy, positioning us for future growth. This slide, as you can see, shows the group's financial performance. Total group revenue was down 3% with growth in advertising and digital revenues, offset by the decline in ITV Studios revenues. Adjusted EPS saw strong growth, up 23% to 9.6p. In line with our dividend policy, the Board has proposed a final dividend of 3.3p, giving an unchanged full year dividend of 5p, a total payment of around GBP 190 million. I'm going to now hand over to Chris to go through the financial results in more detail.

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 GBP 80 million impact of the 2023 U.S. 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 U.K., international and U.S. scripted businesses. In contrast, U.S. 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, U.S. revenue was up 2% year-on-year at constant currency. Global Partnerships also delivered impressive revenue growth, up 8%, driven by our strong catalog sales. Our catalog 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 GBP 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 catalog sales. Studios results include an unfavorable FX impact of GBP 30 million in total revenue and GBP 5 million in adjusted EBITDA. 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 emphasize 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. ITV Studios has a good base of returning formats and a large catalog, which gives steady, predictable growth. However, there is quarterly variability within the year and occasionally between years, driven principally by the timing of scripted deliveries, which can move by 1 or 2 months either way, and the long production cycles, particularly for scripted, which can be up to 2 years, making it difficult to forecast the precise month the production will finish. As you can see on the bottom chart, this quarterly variability does not translate into annual variability, where we've seen an attractive top line growth of 5% on average since 2021. Turning to Media & Entertainment. M&E continues to grow digital revenue in double digits and following peak net investment in 2023 is growing its EBITDA margin. Total advertising revenue was up 2%, in line with guidance. Within this, continued strong growth in digital viewing hours and monthly active users drove a 15% increase in digital advertising revenue. Digital advertising is now 26% of total ad revenue, up from 9% in 2018. Overall, digital revenues were up 12% to GBP 556 million. Other revenue streams decreased in the year as expected, giving a total revenue increase of 1%. We continue to focus on increasing M&E margins. EBITDA margin increased by 2.1 percentage points to 11.9%. Content costs were down GBP 25 million year-on-year as we use our extensive viewer data to strengthen our commissioning and windowing decisions. We expect content costs in 2025 to be around GBP 1.25 billion, down GBP 15 million year-on-year, largely as a result of lower sport with first half content costs broadly flat year-on-year. Our ongoing cost program delivered a further GBP 35 million of savings, and this enabled us to invest in our commercial outcomes program and increased marketing, offset inflation in the streaming and linear supply chains, fund the annual pay review and reduce overall non-content costs by 1%. Adjusted EBITDA increased by 22% to GBP 250 million. Similar to Studios, quarterly TAR performance does not reflect the underlying annual trend. Looking back over the several years and excluding the COVID period, annual ad revenue has been relatively consistent and broadly in the range of plus or minus 2% year-on-year despite a much more variable quarterly picture. Turning to the outlook for 2025. We expect digital advertising revenue to continue to grow strongly. TAR for the first 4 months of 2025 is expected to be broadly flat year-on-year. And in terms of the phasing of TAR over the year, bear in mind the tough comparatives in June and July compared to the Euros in 2024 and the anticipated implementation of advertising restrictions on less healthy food from October 2025. 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 U.S. writers' strike and the resumption of production activities, cash conversion returned to a more typical level of 83%. Over the 3 years from 2023 to 2025, we expect cash conversion to average around 80%. Our net debt at the end of the year was GBP 431 million, and our net debt to adjusted EBITDA leverage was 0.7x. During the year, we also took steps to extend the maturity of our debt. We issued a GBP 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 GBP 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 GBP 25 million to resolve a long-running historical pensions dispute. We're committed to our capital allocation strategy, investing in organic growth to maximize 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. And 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've generated over GBP 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've deleveraged from 1.1x to 0.7x today and sustained an investment-grade rating throughout a difficult economic cycle. At the same time, we've balanced investment in the growth areas of the business with cash returns to shareholders. We've invested around GBP 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 totaled just over GBP 800 million, offset by around GBP 300 million in asset sales, resulting in a net investment of GBP 500 million, with all deals subject to our strict financial and strategic criteria. We've returned over GBP 1.2 billion as an ordinary dividend. And in March 2024, we announced a GBP 235 million share buyback, which was substantially complete at the year-end. I'm really pleased with the progress we've made on our cost-saving programs. In 2024, we delivered GBP 60 million of savings, GBP 10 million higher than expected. GBP 20 million came from our initial GBP 150 million savings plan, which we completed 1 year early, with the remainder coming from our ongoing transformation and efficiency program, 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, organizational redesign, simplifying ways of working and permanent reductions in discretionary spend. One-off costs to deliver our strategic efficiency plan were GBP 24 million, which is lower than the GBP 50 million originally guided. And we're targeting an additional GBP 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. Turning to the outlook and key planning assumptions. Those I've 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 GBP 40 million with higher interest payable on the new bond. Exceptional items are expected to be around GBP 45 million, down GBP 15 million year-on-year. And the cash impact of exceptionals is expected to be a similar amount. And now back to Carolyn.

Thank you, Chris. In March '22, we announced Phase 2 of the more than TV strategy to deliver our vision of being a leader in U.K. advertiser-funded streaming and an expanding force in content. It's based on three pillars, which you're now very familiar with: expanding studios, supercharging streaming and optimizing broadcast. 3 years on, we've 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. So taking each pillar in turn. 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're the #1 commercial producer in the U.K. We're one of the world's largest independent producers, and we are one of the top 3 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 U.K., 35% of revenues from the strong scripted market and around 30% of revenues from the growing streamers. So I think it's just worth for a minute, taking a step back to look at what makes ITV Studios such a great business. I think number 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 catalog. Fifth, great cost control, financial discipline and cash conversion. The quality of ITV Studios is also demonstrated by us creative output, which is strong is in the strongest shape it has ever been in, producing brilliant programs across the key genres to a broad range of customers and driving really big audiences. Just a few examples now. The Voice was the #1 franchise of the year. Ludwig was the BBC's biggest new drama in 2024. Fool Me Once is one of Netflix's most watch 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 #1 reality series in America. and 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. Now in addition to that, we have over 95,000 hours of catalog, some of the most successful unscripted IP in the world and one of the biggest and best drama catalogs. Having a scaled quality catalog 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 monetization, which has already resulted in 25 billion views. And 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 GBP 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. You're 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, maximizing our significant competitive advantages. We continue to successfully and consistently attract and retain talent, as I've said, and actively manage our portfolio. Most recently, we acquired the scripted independent Studios Hartswood Films in the U.K. They produced Sherlock and one of the U.K.'s fastest-growing drama labels, Eagle Eye, that's Professor T produced by them, that's on ITV. We also sold our minority shareholding in the Blumhouse television business in the U.S. 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 catalog sales, particularly with strong growth in digital distribution, as I've just outlined. We also have a really exciting pipeline of new programs across scripted and unscripted for a broad range of customers, such as one piece for Netflix and Destination X for the BBC and NBC. 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 U.K. after Google, and we have maintained our strength in delivering mass audiences, which are so valuable to advertisers. And 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. So number one, ITV delivers mass reach and appeal, which is a unique position in the U.K., which advertisers really value. We have a digitally led strategy with compelling content. We're 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. And 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've 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 capitalize 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've built a really very strong position in the U.K. ad-funded streaming market with ITVX and Planet V. So I just want to use 2 minutes to demonstrate how we've 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've 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 '22, we announced our plans for ITVX and launched in Q4 '22 as the first scaled ad-funded streamer in the U.K. And 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 '22, we launched Planet V 2.0, and it now has over 2,000 self-service users and 20,000 addressable targeting options. That's amazing. We've 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 '23, we introduced a recommendation engine to ITVX, which has driven millions of incremental streaming hours. We've driven a step change in our marketing strategy to reaching more live viewers more consistently and more effectively. For example, we've used generative AI tools to scale our content production and data targeting for social channels. We have increased the number of programs 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. So the outcome of all of this is that we've delivered very strong growth to date Since '21, we have grown streaming hours by 61%, MAUs by 44% and digital revenue by 60%. And we have grown viewing faster than all the other major video-on-demand services since launch. Now to ITVX and returns. In '22, we set out the expected return profile for ITVX, which I think all of you will remember, which was for digital revenues to exceed incremental costs by 2026. We've actually reached that point in '24 with strong growth in revenues in line with our plan, but with lower costs. We will recoup the cumulative incremental investment in ITVX by the end of 2025, much earlier than expected, which is extremely good news. We've achieved this through optimizing our spend on content and efficiencies in tech, adapting to the market and taking advantage of opportunities to reduce spend. So we've used content more effectively in three ways. With one content budget and using our extensive data, we've tested and trialed windowing patterns across linear and streaming, and we've reduced the number of ITVX exclusives as we window more effectively to maximize the viewing we get. We've increased acquisitions and box sets, which deliver a high volume of hours at lower cost. And we've increased our investment in marketing, as I said, and that's improved the return on our content spend. In addition, I referenced the fact that we've gained efficiency benefits in technology and also in organization redesign, which has allowed us to steadily reduce the cost to serve viewers over time. Now we are confident that this will continue the strong momentum in ITVX through the key drivers of content, marketing, distribution, product and monetization. There is much more detail on all of this in the ITVX webinar we did in November last year, and I'd encourage you to watch that if you haven't already to get more detail on this. In addition to ITVX, we are actively developing new digital revenue opportunities to drive profitable growth. In December, we entered into a distribution and commercial partnership with YouTube to drive digital advertising revenue. We're making hundreds more hours of ITV content available to viewers on YouTube in the U.K., both long-form and short-form across a wide range of genres and channels, and that is all about driving digital revenue. ITV commercial are now selling the advertising around ITV's content on YouTube, and it's launched a dedicated YouTube sales team. For advertisers, it offers the opportunity to engage with ITV's unparalleled, premium brand safe content on YouTube. And for ITV, of course, this addresses our addressable market. So we're very pleased with progress so far. It's very early days, but actually already, we're extending our reach to key valuable demographics with younger and more male audiences. And we're attracting new TV advertisers such as Carmoola. And we've also secured advertising spend from digital-first brands such as e.l.f. Cosmetics that would otherwise really only have invested on YouTube. Separately, we're also developing opportunities for organic growth beyond advertising by reshaping our business unit called Interactive to drive revenue through high-value partnerships that leverage our scaled platform, our powerful brand and IP and our first-party data. By moving beyond advertising, we aim to create innovative collaborations, partnerships that deliver value, enhance customer experiences and unlock new digital revenue streams. And two examples today are the development of ITV Win as a premium destination for competitions and gaming and something called Kerching, which is a consumer-facing affiliate marketing brand in partnership with Kindred, which we launched last -- just last year, designed to save online shoppers money. There are more opportunities, of course, in the pipeline, and we'll be able to talk a little bit more about that at the half year. We now have the capability and culture to deliver a much more entrepreneurial approach in commercial. These revenues will be part of delivering one of our key financial M&E targets for 2026, the GBP 750 million at least of digital revenues. In M&E, you know our metrics well. The focus is on improving the margin through driving efficiencies and importantly, delivering profitable digital revenue growth, the profitable being very important to that statement. We will adapt our strategy to ensure we achieve this. A good example of that strategy shifting is ITVX premium. As the market has evolved, we've doubled down on the ad-funded model, and we prioritize that rather than unprofitably driving subscriptions. On to optimize broadcast as a pillar and our strength in commissioning big shows across genres, which are so valuable to advertisers. We delivered over 90% of the top 1,000 commercial programs in the U.K. For example, we had the biggest drama, which you all know about, Mr Bates, the biggest sports audience of '24 with an audience of almost 20 million for England's win against the Netherlands and the biggest entertainment show with I'm A Celebrity. We are viewer-led, focusing investment in the shows that attract both mass reach audiences on linear and targetable audiences on ITVX. In M&E, we are well placed to drive profitable growth with our significant competitive advantages and exciting opportunities. You all know we're the commercial leader in scale and reach on the TV set where the majority of viewing takes place and our share of commercial big screen viewing is 22% bigger than Netflix, Amazon Prime and Disney+ combined. We have a unique commercial proposition offering mass simultaneous reach, targeted advertising at scale and commercial and creative partnerships in a brand-safe and very measured environment. We have amazing first-party data and a really strong data team. Through ITVX, we have over 40 million registered users now. This data is so valuable for providing insights for commissioning and windowing and improves the effectiveness of our own marketing. And of course, it enables effective targeted advertising at scale, which we augment with other first-party data to make it even more effective for advertisers. So in summary, as we continue to grow ITV Studios and our digital revenues, we are a more resilient business with a proportion of our revenue, which comes from production and digital now accounting for close to 2/3 of our revenue. All of that is underpinned by the powerful reach and strong cash generation of broadcast. We are really pleased with the progress we've made. None of this positive change in how we're structured and how we work would have been possible without the tenacity and commitment of our own people. We have together transformed ITV from an analog business to a successful digital business where we can have -- where we really have built the capability and created an adaptable and agile culture while nurturing and growing our creative power, making the content that matters to our viewers and advertisers. And we are all really proud of this at ITV. We are also equity focused and 100% committed on delivering shareholder value. And I hope you can tell that Chris and I and our teams are hugely energized and executing at speed on the many opportunities for cash-generative growth that we've outlined today. We're in a strong position to continue to deliver profitable growth, strong cash generation and attractive returns to shareholders. Now we're really happy to take your questions.

[Operator Instructions] We have a question from Lisa Yang of Goldman Sachs.

The first question is on the advertising environment. Clearly, Q4 ended with, as expected, a bit of weakness in the market, but it sounds like the guidance for Q1 is minus 2% and flat for the first 4 months implies some improvement in April. So could you maybe just give us some details in terms of how conversations with advertisers have developed so far this year? And any color by category or sectors could be helpful. The second question is on Studios. Could you maybe help us understand the tailwind and headwinds you're currently seeing in the content market, including, for instance, pressure from the streamers and the other broadcasters budget, for instance, where do you see the market growing in '25? And by how much do you think IQ could outperform? And who do you think you're taking share from? That's the second question. And the third one is just on the multiyears of competition program that Chris you alluded to earlier. Are you in a position to help us quantify or understand the scale of that program? Like how much more savings we could be sort of expecting going forward? I know you guided to GBP 30 million for this year, but just want to understand if the market is weaker than expected this year, how much more cost save you can do in '25 and also in going forward as well?

Okay. Thanks for your question, multilayers. So we'll take it between us. I didn't hear all of the thing on the ad outlook, but I think you're asking about the environment and TAR and all of that. And I think I would just say to you, I mean, that chart Chris put up in his section, which showed that other than COVID, the variability is not that great. It's plus to minus 2%. And I think the way often TAR is described is much more kind of about much bigger ranges than that. And it actually factually for ITV is not that. We looked, I think, 7 or 8 years at the trend. So that's number one. I think the number two thing I just want to place in your mind, which I don't think we said in the presentation is that our linear -- we're making about the same money in advertising as we were doing, say, in 2019. However, linear advertising now is now about 30% of the overall, and it was well over 40% in 2018. Whereas our digital revenue has gone from, I think it was something like 8% in 2018, and it's now 26% of overall revenue. So the profile of our revenue has really shifted and it is a much more -- I suppose, a much more resilient and kind of robust business as a result of that. So I would say that. On the actual -- how our clients and agencies feeling, I would say that post the budget, which was quite shocked to quite a lot of businesses, things are kind of stabilizing and that people are thinking, okay, we know now what it is. We know what we have to plan for. We know how we can budget for this. So the conversations are about how they can now spend what they've got. I think that actually, cars are doing -- so the auto category is doing well. The whole regulation, the easing up on regulation on EV has been very helpful to that market. Actually, retail is doing well, although supermarkets are not, and that's obviously because of the NIC hit for them. So in terms of advertising, retail is still performing well. And actually, travel has come back. It's really quite a strong category for us. So there are differences for sure, across category. And I would just say that we are cautiously optimistic because I think there is so much evidence that even if our economy is tough, that actually not spending through a tough time actually means you end up spending disproportionately more when you emerge from a tough time than you would have done if you had been consistent in your TV spend. And also remember, we're still the most effective medium and Kelly and his team sell this all the time and actually present this all the time. The data says that the ROI on TV is 5.6%, which is the highest of all media. So those are kind of messages we'll be going out with this year as we do every year. But I mean...

Yes. No, I mean, flat first 4 months, I think, is encouraging.

Yes. I agree.

And on Studios, Lisa, just where that growth is coming from. We think we're really well placed, where we are really well placed. I would highlight sort of three places where we think we can really drive growth. The digital side of the business, which Carolyn talked about in her presentation, Zoo 55, we're really excited about that opportunity, and we're really well set up to capture on that. So more growth from that. Streamers, what's really interesting is streamers have discovered sort of lower-cost high-end producers. So 3 of the top 5 dramas on streaming globally this year were from the U.K. And one of those Fool Me Once was from ITV and was Netflix's biggest show. So they're finding they can make drama at much lower price points than Hollywood. So again, I think you can expect to see growth from that. And then the third one is around streamers also moving into taking more reality.

Entertainment and reality.

Yes.

So unscripted, I think that's really, really quite an important growth driver for us. And I'm not saying this is about the whole market, but certainly for us on unscripted because we're so strong on formats. in that area. I mean I think just to give you one figure that in 2019, unscripted was 1/3 of what global streamers were commissioning, and now it's half. So that's quite a big growth already, and we expect that to continue. So that's a definite lever for us. It's definite driver for us. And I think we're now at 30% of our revenue from Studios is going to be streamers driven. And I think Chris is right. A lot of people talk about streamers cutting back on their spend and looking at profit, and they are. But in the areas that we are very strong, so premium but not hugely exponentially expensive drama, we're in the sweet spot of really great drama, but actually at quite good price points. That's very important. And the unscripted element is very important. So they've got three key growth drivers, I think, in Studios as we've described, yes.

And in terms of -- I think one part of your question was who are we taking share from? I mean the content market is still highly fragmented. Even the biggest producers are very much less than 5% of the market. So we're taking it from everywhere.

Yes. And I'll make one point about free-to-air here because last year, obviously, with the ad market not being good in a Europe-wide content, I mean, as you saw, we were 2% up. But Europe-wide, the ad market was not hugely positive, I don't think, which obviously sometimes does affect commissioning. However, I would say that has definitely shifted. I think free-to-air is normalizing, I would say. So that's also helpful because instead of it being a headwind, it's now a normal situation. It's kind of business as usual. Channel 4 are commissioning again, for example, just in this country.

And then I think the final part of your question was around cost efficiencies and how much more. And really pleased with the progress we've made over the last 5, 6 years, actually. And last year, we reinvigorated that program, quite a tough year for us last year in terms of taking the cost out, but we're very well set up now for future years. And we said when we announced that program, it would be a multiyear program. It's set up like that. As you'd imagine, to deliver the levels of savings we have and to continue to do it, we need to do lots and lots of initiatives. The GBP 30 million for this year is absolutely locked in. There's something like 65 different initiatives within that. So -- and what I'm really pleased about is the whole organization has got behind it. So everyone is involved in working out how we drive more efficiency using technology, using AI, just taking a step back and saying, do we need to do this anymore? Or has the world moved on and we don't need to do it. So really pleased with that. We're building the '26 program as we speak and have been, well, really over the last 5 months. And then we'll start looking at '27 towards the end of this year. So it will be a rolling program. And what we've said is the aim is to deliver material savings every year.

The biggest shift culturally isn't it? One of the biggest shifts has been, I think, before you arrived as well is we didn't really have -- we would go -- we do one-off kind of the environment wasn't good for advertiser, everyone would go into cost. And we just don't do that anymore. We've just got a very structured, very planned continuous cost program, and we'll be doing this forever because, of course, it goes to margin and the thing that goes hand-in-hand with that is profitable revenue and really kind of targeted efficiency. And that helps you nurture and develop your content budget. It allows you to invest in your content budget, which is where all our money is made, whether it's studios, whether it's M&E, advertising, it's where all our money is made. So that investment and offsetting inflation and then continually making sure we're feeding profitable growth is what has -- has been a big shift here at ITV.

Our next question is from Nizla Naizer of Deutsche Bank.

I have three questions from my end. The first is on the very strong growth in digital revenue in 2024 of around 15%. Could you maybe give us some color as to how much of that was aided by CPM increases versus adding more advertisers and maybe attaining a better reach? And how should we think of that in 2025, some color would be great. Secondly, when you think of the M&E margin, nice improvement in 2024, the cost-cutting effects that you did mention would also help. But could you maybe give us some color as to how this could evolve in 2025? And how are the digital margins trending versus the traditional linear margins? Any color you can give us on that breakdown would be great. And lastly, I think some of the news that broke over the last couple of days was your recent auto match product where you're trying to do more targeted advertising aimed at the auto manufacturers. Just wanted to get some color as to how you think this would help drive the targeted ad business? How important is that for your digital growth going forward? And are you thinking of launching other sectors similar to this? Because I thought that was quite interesting. So some color there would be great.

Okay.

So I think the first one was around what was -- were there any sort of key drivers behind the 15% digital advertising growth last year. It's all about ITVX delivering the audiences and then the commercial team driving the demand for what is a really high-quality advertising medium. So if some of the stats around that, we've had another 173 new advertisers who were to VOD in 2024. We've got 624 advertisers doing VOD only. And that compares to around 1,200 linear advertisers. So it's grown really rapidly. And there's a whole mix of businesses in there. There's people who only use VOD. There are people who will use both linear and VOD, and the teams are spending their time demonstrating the power of that. And Carolyn mentioned earlier, the power of TV is still huge. You get a 5.6x return on your money on TV. So it's a really important part of the marketing mix.

Yes. I think I said percent, it's 5.6x, you're absolutely right. So no -- so let's talk about the target advertising, and we go back to M&E margin because everything we're doing is really in the M&E business really is -- we're very focused on the M&E margin. On target advertising, I mean, that was a really good partnership in a sector that we haven't really done data matching in yet. It's an extension of what we do currently. So we're currently working with Tesco, as you know, and Boots, so we do a lot of data matching in the retail space to make our targeting much more sophisticated, and that really works. The outcome of that, the measurement of that is very, very tangible for advertisers. So they really like it. So I think you're right. I think it is definitely an area where we're getting better and better. We also work with experience. So we're doing a lot of work with a lot of other very strong data. I mean we are probably one of the top 5 -- top 10 first-party data sets in the whole of the U.K. We've got this extensive capability now in data, but the data is really useful to us in a number of different ways. And of course, for advertising. So, I mean, yes, we will look at different sectors. I mean you can see it being applicable to travel as well as other sectors. So I think it's a real opportunity for us to really maximize the potential of our first-party data with those 40 million registered users.

And then on the M&E margin point, really pleased that we're growing those margins now after the peak net investment in '23. We'll continue to grow those. Obviously, I mean I'm going to sound a bit tight, but there are two elements to the margin. There's the cost base and the revenue. On the cost base, you can see that we've got the efficiency program in place. Also, content costs are going to be slightly lower in 2025 than they were in '24 because obviously, we had the Euros in '24, which was quite a big sporting event for us. And then on the top line, the margin, we are highly operationally geared. The more we can drive that advertising revenue, the better that will be for margins because that pretty much all falls through to the bottom line. And the whole trajectory is to drive those M&E margins higher now. You also asked about whether digital was more higher margin than the linear. We don't think of it that way. We think of -- we've got Media & Entertainment with a single content budget, and we serve advertisers all the way from the top of funnel, the mass reach campaigns all the way down to the highly targeted campaigns. I mean what I would say is that, obviously, the digital revenue has proved more -- less variable. We've shown double-digit growth every year over the last 6 years. So that's a real positive. And it's providing something that linear can't. And actually, the more we can go after audiovisual budgets in general, which we're starting to do with the YouTube partnership, the more we can drive that top line, which drives the margin.

[Operator Instructions] Our next question is from Julien Roch of Barclays.

My first question is on the press speculation about a potential deal with All3Media. Now I realize you're probably not going to comment on M&A speculation. But in terms of philosophy, is the integrated model broadcaster and studio sacrosanct, i.e., you would not do any deal that would break that integrated model? That's my first question. The second one is, have you seen any industry estimates of how much less healthy food are representing of either your revenue or TV revenue to assess the potential impact of the ban in October '25. And then lastly, a minor pension question for Chris. You said there was a GBP 25 million one-off dispute in '25, then that would be it. But then there will still be a small part of pension where you have to pay. So what's -- from '26 onwards, what should we put in the cash flow for pension?

We would just -- I just said to Chris, where's Julien? So thank you for not disappointing us. Thank you for being here, Julien. On your first question, as you said, I will not be speculating on the speculation. So I won't answer any questions on any speculation that you've read about. What I will say is there are obvious merits in the integrated producer broadcaster model, not least of which most of the labels talent, we attract and retain talent because they want to break on ITV1 or ITV2, their shows because it gives them a global kind of appeal after -- if they have a success on one of our channels. So you know well, I think, the merits of an integrated model. However, you used the word sacrosanct. And what I would say is in business today, I don't think anything should be sacrosanct. I think you have to review all your options. You have to turn over every stone and you've got to be open-minded. And so as you know, the Board will keep everything under review, and we'll look at all options on a regular basis. On -- I think you asked then about less healthy food, and we'll both just touch on that for a minute. At the moment, we do not know how the regulations are going to apply. So they are still discussing how that is going to apply to us and to online. And it's difficult, therefore, to quantify. But at the moment, they're doing a consultation. The ASA is doing a consultation. We will participate in that. And we have been talking and working with government as well, and we will continue to do that because it is in our interest for it to be as broad as possible, which is what it's supposed to be. And then positively, I would say, in a proactive way, we have been for the last 18 months talking to all the advertisers in that LHF category or potentially in that LHF category. to talk about what other options there are, how else we can work with them, et cetera, et cetera. So we're doing two things. We're being very proactive with advertisers and clients, but we're also being very proactive with governments and making our position quite clear. Anything to add?

No, I think, you covered it. Yes.

And then I think yours was the last question.

Pension, Yes. So the -- from '26 onwards, I think the question was, it will be around GBP 2.3 million a year. It grows very slightly with RPI. And that's provided the fund is in surplus, but we had GBP 180 million surplus this year. It's really well hedged for longevity, inflation, interest rate. It's cash matched. So touch wood, I can't see that it wouldn't stay in surplus and therefore, we'd have a minimal. And remember, that used to be between GBP 70 million and GBP 75 million a year. So it's a significant drag on the cash flow that's now gone.

We currently have no further questions. So I'll hand back to Carolyn for final remarks.

Just to say, I know we both know how busy a day it is today out there. So thank you very much for those of you who joined us, and we look forward to seeing you soon. Bye for now.