ITV plc (ITV) Earnings Call Transcript & Summary

Good morning, and welcome to ITV's 2025 interim results. I'm here with Chris Kennedy, who you all know, our CFO and COO. I will hand over to Chris shortly to talk you through our financial and operating performance. First, I just want to start with a very quick overview. ITV has transformed into a leaner, more digital and diversified business as we continue to successfully execute the second phase of the more than TV strategy. We are confident we are creating value both now and in the long term. This confidence comes from 5 key drivers. First, we're seeing attractive growth in ITV Studios. Second, our investments in ITVX and Planet V are driving rapid growth in digital advertising revenues. Third, our ability to deliver mass commercial audiences is highly valuable to advertisers. Fourth, disciplined cost management supports healthy operating margins across the business, and that's being implemented right across our business. And fifth, with our strong cash generation, we are funding investment in our key strategic priorities. Together, all of these drives profitable growth, strong cash generation and really attractive returns to shareholders. We've delivered a better-than-expected performance in the first half of this year. While the economic environment, as you all know, remains uncertain, we now expect a better outturn for the full year, driven by our increased cost efficiencies. In line with our dividend policy, the Board has declared an interim dividend of 1.7p, giving a total payment of around GBP 60 million. I'm now going to hand it over to Chris to go through the numbers in more detail.

Thank you, Carolyn. Good morning, everyone. We're really pleased with the first half performances of both businesses. And today, we're announcing a further GBP 15 million of permanent noncontent savings underpinning our confidence for the full year. The year-on-year first half comparators in both divisions are worth some explanation. Studios margin in the first half of last year was unusually high as our customers bought high-margin back catalog to compensate for the lower levels of original commissioning. This year, H1 margin has returned to a more normal level. And in Media & Entertainment the year-on-year decline in total advertising revenue is entirely due to the tremendous success of the Men's Euros last year. TAR in H1 2025 is 2% higher than in 2023, and we expect M&E to outperform the TV advertising market year-on-year in the second half of '25. ITV Studios remains on track for good growth in total revenue over the full year at a margin of 13% to 15%. Revenue grew by 3% in the first half of the year. External revenue was up 11%, reflecting strong demand from, and the timing of deliveries to, global streaming platforms. And this more than offset the decline in internal revenue, which was due to the phasing of productions and the absence of Saturday Night Takeaway. Studios UK was up 7%, boosted by deliveries from labels acquired last year, and international was up 2%. The U.S. revenue grew 37%, driven predominantly by a high volume of unscripted deliveries. Global partnerships, our distribution and formats business saw revenues down as expected compared to the exceptionally strong H1 last year. EBITA margin decreased 3.7 percentage points to 12%, with adjusted EBITA down 21% following the exceptionally high H1 2024 margin. Sales and margin will both be higher in H2, driven by deliveries, including Rivals S2 for Disney+. Love Island USA Beyond the Villa for Peacock, After the Flood S2 for ITV and The Guest for the BBC. High-margin catalog sales are also weighted to the second half. Studios delivered GBP 11 million of savings in the first half, which helped to offset inflation and funded investments in creative talent and development. The results included a foreign exchange impact of GBP 12 million in total revenue and GBP 3 million in adjusted EBITA, driven by the fall in the U.S. dollar and the euro. If rates remain at current levels for the rest of the year, there'll be a further impact of around GBP 8 million in revenue and GBP 2 million in EBITA. Moving on to Media & Entertainment. Total advertising revenue was down 7%, which was better than guidance. ITVX continues to deliver good growth in audiences with total streaming hours up 15%, and now it's up 9%. And Planet V successfully monetizes these audiences with digital advertising revenue up 12%. Overall, digital revenues were up 9% to GBP 271 million. Other revenue streams decreased in the year as expected and total revenue was down 8%. Content costs were 2% lower than prior year due to the absence of a major sporting event. And over the full year, we now expect content costs to be around GBP 1.23 billion, GBP 20 million below the GBP 1.25 billion originally guided. This decrease reflects the timing of The Voice, which moves to H1 2026, and channel rationalization as we close ITVBe, launched ITV Quiz and invested in ITV2. The effective use of our extensive viewer data has helped to strengthen our commissioning and windowing decisions. As a result, we can make our content budget work harder, delivering the audiences our advertisers want whilst maintaining overall content spend at around current levels. Our ongoing cost program delivered GBP 12 million of noncontent savings in H1, and this enabled us to invest in our commercial outcomes program at the same time as reducing noncontent spend 9% year-on-year. Adjusted EBITA decreased by 54%, reflecting M&E's high operational gearing. And finally, on advertising outlook. We expect total advertising revenue to be marginally down in Q3. This reflects the tough comparative from the final knockout matches of the Men's Euros in July 2024. Although the macro environment remains uncertain, we're pleased with the initial view of Q3 advertising. A new regulation to restrict less healthy food advertising will come into effect in January '26. ITV, along with other advertisers and media owners have agreed to voluntarily implement the restrictions early from 1st of October this year. We're pleased with the outcome of the government review, which has confirmed that these restrictions only apply to products and not to the underlying brand. And we've been working hard with advertisers over a number of months to mitigate the impact and the revenue this year should remain largely unaffected by the restrictions. Turning to the balance sheet and cash flow. We maintained a robust balance sheet and cash flow was strong. Cash conversion was 109% on a rolling 12-month basis, and we expect cash conversion to be around 80% on average over the medium term. Our net debt at the end of the period was GBP 586 million, and our net debt to adjusted EBITDA leverage of 1.1x. As a reminder, net debt at the end of June last year included GBP 182 million of cash held for the buyback. During the first half, we secured a GBP 300 million term loan facility, which will be used to refinance our EUR 300 million bond when it matures in 2026. And our accounting surplus on the pension scheme is GBP 212 million. We remain committed to our capital allocation framework. We continue to invest in profitable organic growth. Our investment in ITVX and Planet V has already been fully recouped. Ongoing investments include Zoo 55 and our outcomes and SME initiatives. We're preserving our investment-grade balance sheet. And as Carolyn mentioned, the Board has declared an interim dividend of 1.7p per share. In total, over GBP 1.4 billion has been returned to shareholders since 2018. In April, we made another small bolt-on acquisition, a U.K. scripted producer called Moonage Pictures, producer of The Gentlemen for Netflix. And just this week, we've acquired a Spanish scripted producer, Plano a Plano Studios. And finally, in line with our commitment to return surplus capital, we completed the GBP 235 million share buyback program in April. We've made great progress on transforming ITV into a leaner, more agile company. Through our strategic cost program, we're optimizing our cost base to enhance profitability and to invest in the growth drivers. In the first half of 2025, we delivered GBP 23 million of noncontent cost savings. And today, we've announced an additional GBP 15 million of savings for this year. The savings are coming from operational and technology efficiencies, permanent reductions in discretionary spend and organizational redesign. We're also increasingly using AI across the business to drive further efficiencies. In total this year, we'll deliver GBP 45 million of permanent incremental noncontent cost savings, up from the previous guidance of GBP 30 million. We expect that the total one-off cost to deliver these savings will be GBP 40 million, up from GBP 25 million originally guided. Looking at the full year outlook and key planning assumptions, those I have not already covered and which are changing are: We're increasing our guidance for exceptional items for the full year to around GBP 100 million, up from GBP 45 million. This is due to one-off costs associated with our increased savings target and structural changes and earn-out accruals for our recent acquisitions, all of which are noncash. Exceptional costs this year are unusually high, and we expect them to reduce considerably next year in the absence of further acquisitions. The cash impact of exceptionals this year is expected to be around GBP 60 million. Adjusted financing costs will be slightly higher than we originally anticipated of GBP 45 million. And the adjusted effective tax rate is expected to be slightly higher at around 27% over the medium term. And now back to Carolyn.

Thank you, Chris. As you all know, our strategic vision is to be a leader in U.K. advertiser-funded streaming and an expanding global force in content. Our strategy is based on 3 key pillars, which you are now very familiar with: expanding Studios, supercharging streaming and optimizing broadcast. Our successful execution of strategy to date has transformed business, as we've said. It puts us in a really strong position actually to compete and succeed in a competitive market. Taking each pillar in turn, I'm going to demonstrate this. So let's look at ITV Studios first. As you know, the global content market is really big. In 2025, it is estimated to be over GBP 230 billion -- $230 billion actually, excluding the Hollywood film studios. And this is a CAGR of around 3% over the last 4 years. ITV Studios holds an enviable position within this market and remains incredibly well placed to gain continued market share. The business has significant competitive advantages, underpinning its clear right to win in the market. These form the bedrock of Studios growth, it ensures resilience and contributes directly to its margins. Now this growth is driven by its ability to attract and retain leading talent, which has been enhanced through talent deals and strategic acquisitions, which also deliver cost and revenue synergies. We also operate in the key growth segments of the market, giving us real advantage. It helps us build a strong creative pipeline of programs and it allows us to leverage our deep catalog of highly monetizable IP. The business is very resilient. That's enabled by scale and diversification, its deep relationships with all the major streamers and networks and importantly, a culture of cost discipline which is embedded within ITV Studios, and that provides flexibility to navigate market shifts and it underpins its ability to achieve those industry-leading margins. At the full year, I talked about the launch of Zoo 55, our new Studios label. We set that up to drive high-margin growth from the monetization of our extensive IP through digital distribution direct to consumers using data-driven audience insights and leveraging AI to deliver content more effectively and efficiently, for example, using dubbing tools and subtitling tools. Now we're expanding significantly our presence in social video, FAST channels or Free Ad-supported channels and through gaming. The business has made really good progress. We're pleased with the progress so far this year. We've scaled a number of global social video channels for our content, particularly across YouTube, Facebook and TikTok. We've seen a really strong increase in viewing with viewing hours up over 30%. For example, on TikTok, Love Island content alone has generated over 7 billion views globally. Across FAST and AVOD, we operate over 160 channel streams on platforms globally, up from around 100 at the year-end and have entered into new partnerships with Tubi and Xumo. Our games portfolio continues, as I said, to go from strength to strength. For example, the Love Island app was one of the top 10 games downloaded in the U.S. in June. So we are very confident, we will double our Zoo 55 revenue from 2024 to 2027 to around GBP 120 million. The quality of ITV Studios creative output, I think you all know, is world-class and it's got a really strong track record. And this slide really demonstrates that. We have an incredibly exciting pipeline across scripted, unscripted for a broad range of customers globally. There are many recommissions on here, as you can see, and that's really a testament to the team, and I think the proven track record I just mentioned. Studios also has a growing slate of streamers with whom we have, as I said earlier, really solidified our relationships. We've delivered high-quality content that consistently attracts strong audiences. For example, Better Sister for Amazon and Love Island USA for Peacock, breakout hits both featured in the top 5 biggest streaming shows in the U.S. in June. Our key financial targets for ITV Studios are to grow Studios organic revenue on average by 5% in 2026 ahead of the market at a margin of 13% to 15%, and we will achieve that. We're on track to achieve that. Now let's turn to M&E, which includes our pillars of supercharging streaming and optimizing broadcast. It, of course, remains a strong and unique asset M&E, and we now have the agility, the capability and the platform to make the most of new revenue opportunities. M&E has an unparalleled commercial proposition in the U.K. We deliver mass reach. We deliver targeted advertising. And alongside that, we have creative and commercial partnerships second to none in a brand safe and measured environment. Now that's our superpower. It's really reinforced by our deep relationships going back many, many years with advertisers and partners. We've also recently renewed our carriage deal with Sky, reflecting our long-standing and mutually beneficial relationship. I think you all know that ITV is the commercial leader in scale and reach. I think it's worth reiterating because actually ITV's share of commercial big screen viewing is of the same scale as Netflix, Amazon and Disney+ all put together. ITVX and Planet V are very well established now and ensure M&E continues to adapt to changing viewer habits and to advertiser needs. And you also know, M&E has excellent cost and financial discipline, and the business is highly cash generative. So our supercharge streaming pillar now, which I'm going to talk about, aims to drive, of course, digital viewing through ITVX and maximize fast-growing digital advertising revenues through Planet V, both continue to demonstrate really strong momentum, viewing and advertising. And we are building on this by focusing on the drivers of content, marketing, distribution and product. We are continually enhancing our offering and leveraging viewing data to power every decision we make. Planet V enables us to deliver high-demand targetable audiences at scale, which significantly improves the monetization of our digital ad inventory. The platform is underpinned by over 40 million ITV registered users. So that's a really massive scale, giving ITV one of the U.K.'s largest first-party data sets. This data is augmented then with third-party data to achieve very granular targeting of which we have over 20,000 options. Through this increasingly sophisticated and valuable ad inventory, we're able to deliver higher value cost per thousand or CPMs, driving growth in our digital ad revenues. The linear ad market is expected to be worth around GBP 4 billion in 2025. And of course, our position here has always been very strong. The online video ad market is estimated to be worth around GBP 9 billion and has grown very rapidly over the last few years. Our investment in ITVX and Planet V allows us now to effectively compete for a much wider pool of this GBP 9 billion online video advertising market. We are attracting advertisers who are new to TV and new to ITV, those that are scaled enough to benefit from TV advertising, but until now have not really been able to consider it because of the cost. A key initiative is our SME strategy. We've established a direct sales team for SMEs only who aren't represented by agencies, and we will launch a single advertising market platform in collaboration with Sky, Channel 4 and Comcast’s Universal Ads platform. So a very good example of collaboration becoming reality. We've also created an outcome planning tool at ITV, enabling brands to effectively measure and optimize their advertising performance, and we're really using Generative AI to facilitate the creation of cost-effective advertising content to those SMEs that really, really can't afford to do TV production ads. And to further expand our addressable market, ITV Commercial continues to develop, as you would expect, a range of innovations. So ITVX is really now a very strong platform. It broke even 2 years earlier than expected, and it has already recouped its entire investment. We are now looking at new partners to further grow our reach and inventory. And a great example of that is our partnership with YouTube, and it has started really well. ITV has made hundreds more hours of ITV content available to viewers on YouTube and ITV Commercial sells the advertising around this content. And as a result of that, early days still, but we've seen 2 to 4 percentage points of incremental reach for different audience groups. So far, ITV Commercial has partnered with over 250 brands on this, successfully securing budgets that would not have come to ITV. We've also entered and you might have read about this, into a first of its kind strategic relationship with Disney+ in the U.K., and that went live last week. And it's a great promotional opportunity, cross promotion. It's a sampling opportunity. It allows the selection of ITVX programs to be carried on Disney+ and selection of Disney+ programs available to viewers for free for the first time on ITVX. And in addition, we are expanding our inventory even further by rolling out digital ad insertion for live viewing on ITVX and we can deliver linear addressable advertising now on YouView, Virgin, Freely and EE TV with more to come, all opportunities that we haven't had before. So all of these initiatives are helping to drive us to achieve at least GBP 750 million of digital revenues in 2026. Now that's underpinned by our focus on developing also non-advertising digital revenue partnerships. And good examples of that are Kerching and ITV Win, and there will be more to come. Our third strategic pillar, as you know, is optimized broadcast. So a few words on that, too. ITV's linear TV channels continue to deliver those large commercial audiences, the largest you will get in the U.K., and they are so valuable to advertisers with our focus on live sport, drama and entertainment, particularly script entertainment. And recent research by Ebiquity demonstrated that TV advertising remains the most effective advertising channel for brands. Because of the significant data we have, our measurement and innovation team internally has developed research and measurement tools to prove the effective outcomes of TV advertising spend. That's a first in our industry, and it's key to maximizing our linear advertising revenue. In the last 12 months alone, we've worked with around 100 clients. And I know that many of them really, really find this work valuable. It's very reassuring to know that, that return on investment in TV is the highest of all media. So that's a really important piece of work for us. Now on to separate subjects altogether, you will all know that being a commercial PSB is at the heart of ITV. And that's why we welcome the publication just this week of Ofcom's review of our sector. And it's very clear recommendations. We've been discussing this with them over time and it's a really good review. In summary, we are confident in creating value through attractive growth in Studios, fast-growing digital revenues in M&E, and that is all underpinned by our strategic cost management. Together, these drive profitable growth, strong cash generation and attractive returns to shareholders. Now I have to say that over the last couple of years, actually, we've done a huge amount of heavy lifting to get to this stage of the transformation. And we've said, we have transformed already ITV. So we're in a very strong position to build on that transformation. None of that would have been achieved without the support and commitment of every single person across ITV. We've had to make restructuring decisions. We've had to, as you know, make strategic cost decisions, and they've affected people. But every single person at ITV turns up to work in a completely professional way. And I just want to say they really embody our unique combination of creativity and commercialism that is absolutely unique to ITV. And even as we celebrate our 70th birthday this September, I know that all of our people right across ITV are focused on the future. And I just want to thank them for every single thing they've done to make our strategy a success. We're now, of course, very happy to take your questions.

[Operator Instructions] Our first question comes from Adrien de Saint Hilaire of Bank of America.

I've got a few, if you don't mind. If I kick off with ITV Studios to begin with, can I just clarify something. When you said you're on track to deliver good growth for 2025. Does that include the contribution from acquisitions that you've completed in '24 and 2025? And how much does these acquisitions bring in terms of revenue for the full year? Because I think the impact in the first half was certainly bigger than I expected. Sticking to Studios, again on the margin of 13% to 15%, so it implies quite a step-up into the second half. I know margins can be volatile depending on the revenue mix. So is it fair to assume that you expect a strong distribution revenue contribution into the second half to get to that level? And then lastly, on your digital advertising -- I'm sorry, digital revenue target for '26 of GBP 750 million. I think in order to get there, you probably need to accelerate revenue growth next year to something like above 20%. Could you just explain to us how you would get there, please?

You'll take the first two?

Yes. So thanks, Adrien. On acquisitions, you're right, we've made quite a number of acquisitions over the last 6 months. We've got Hartswood, Moonage, Eagle Eye, and just yesterday, Plano a Plano. In the first half, they did make quite a big contribution. I mean, The Gentlemen being on its own quite an important delivery for us. So those numbers will be -- the acquisition numbers will be in the full year number, but we're expecting organic growth as well. And we don't give guidance on how much will be in the full year. But I think the thing to say is we're really pleased with the acquisitions we've made and there's some great shows. We've got Devil's Hour in the second half coming as well. So some really important shows for streamers coming from those new acquisitions. And yes, distribution will be a really important part of the second half margin progression. So we've got a great schedule of deliveries, which drives the revenue growth and then the -- in a normal year, last year, if you remember, was not normal because we had the knock-on effects of the writers strike in the first half. In a normal year, catalog is weighted to the second half, and that's exactly what will happen this year, and that is a very high-margin business.

So on the digital advertising target, I mean it's a great goal. And we are -- firstly, I think if you look at the digital advertising market, we're growing ahead of the digital advertising market. We expect that market to continue to grow. So we're up 12% in the first half. You should expect that to continue for us. So that's one thing. We've got some other things that we are doing, like YouTube, which we're very pleased about, and you heard me talk about that in the presentation where that is all incremental money that will go into digital advertising. We're now selling the Disney rail. We don't expect that to be material, but all adds up, all of the things we're selling, the digital inventory on ITVX for the Disney+ content, for example. So these are all kind of new initiatives and innovative things that we're doing, that will all add to the digital advertising revenue. I think the SME strategy, which is just -- I mean, we've been working on this for some time, but it's really kicked off in terms of the collaboration with Channel 4 and Sky, using Comcast's Universal Ad platform to attract SMEs to our digital platforms. And the reason that's really important is they've never really been able to use TV because of the production cost and to the TV advertising market -- the linear TV advertising market. So this gives us the opportunity to get that kind of quite long tail of SMEs who are scaling up but are unable to use TV, but really want to come into ITVX, for example. So I think that's an important strategy. We've got the collaboration, as I said. We've also got our own strategy where we're doing -- we have our own sales team now to be recruited, an SME sales team who will go after that business, and it will be new to TV. So that's also incremental advertising, that's all digital advertising. There are other initiatives like being able to do digital ad insertion in live viewing on ITVX, for example. There's being able to do linear addressable advertising. So all of those things are part of the digital advertising part. The second bit of what we're doing, I think, is we now have such a strong platform in ITVX. Many other partners know that. And what we are really working on now is getting more partnerships in because we're using our brand, we're using our IP, we're using our kind of scale, if you like. So we've got the 40 million registered users. We do all sorts of marketing and promotion with that data. And so Kerching is an example of that. That may work, that may not work. But this is all about nonadvertising revenue. It's digital revenue, but it's made in a different way. ITV Win is a very good example and we're optimistic about Kerching, by the way. But I mean really, it's just we're having to test and learn in that area. ITV Win now is a destination platform for competitions and games, and we will increase that as we go forward. And I think at the full year, we'll be able to announce a couple of other quite key partnerships in that area. So that will help us bridge to where you were talking about. So that whole area of non-advertising, the digital revenue is a new area for us that we're pursuing quite vigorously.

The next question comes from Lisa Yang of Goldman Sachs.

The first one is just on the overall advertising environment. It sounds like your Q2 TAR was actually better than what you guided to initially. So I'm just wondering what sort of drove that? Is it maybe ITV regaining some share? Or is it just overall, like better macro? So any color by categories as well would be helpful. And as a follow-up, just in terms of the guidance for Q3 of margin is down. Do you mean anywhere between 0 minus 1 or it's more like low single digit to be more specific. The second question just on your overall content cost where you managed to reduce it by sort of [1 million]. What basically enabled you to reduce the sort of cost? Is that because all your competitors are also reducing cost, allows you to basically extract sort of savings without impacting your viewership? And do you see this as a sort of more normal run rate for your content budget going forward as well? Or is there any sort of one-off phasing? And the last question is just curious to hear your thoughts on the impact you think Generative AI may have, I think, on your TV revenue in general? Because I guess on one hand, it could be a risk because digital advertising is so efficient and you could basically -- you got more budget basically towards digital. But obviously, at the same time, you did mention there's an opportunity for ITV to also tap directly into the SME budget. So I'm just wondering how do you weigh the risk or the opportunity from Gen AI and the impact it may have in your business?

Lisa, could you -- I'm so sorry, could you just repeat your fourth question? Neither of us kind of caught all of this.

Yes. Sorry, the last question is more about the impact of Generative AI in general on basically the TV advertising budget. Do you see risk that you see potentially accelerated share shift away from TV to digital because digital advertising is expected to be made a lot more efficient? Or at the same time, do you see potential actually, an opportunity for ITV such as, for example, as you mentioned, tapping into SMEs because you can lower the cost of content creation and that could enable you to attract more customers? How do you weigh the risks versus opportunities, I think, of the Gen AI on your business?

Okay. All right. Well, look, let me talk about the ad environment. And maybe I'll take the Gen AI question at the same time as the ad environment. They're slightly -- they're related, not linked. I think that it is -- we are ahead of our expectations and the market expectations on the ad environment. I think if I give you some color around the categories, I think it's quite revealing. I mean retail is our biggest category, and it's held up actually very well. It's broadly flat. Now supermarkets within that is down, as you'd expect. But I mean, retail, excluding supermarkets is flat. And I think that's very encouraging because they've all been very affected by NICs. It's been a huge hit on retail and yet retailers are still using TV as a medium because they know it's extremely effective at driving traffic, driving product, sales, driving impacts for them and actually driving growth. So I think that's a really important thing. We've also seen growth in pharmaceuticals, travel and tourism, entertainment and leisure and telecoms, and that's helped us kind of exceed expectations because I think what that shows is when I tell you the category is down, the categories that are down really is FMCG, Cars, Alcohol and Gambling. And those are the categories that really shifted a lot of money last year into the first half because of the euros and also into July because the euros spanned June, July. And so you can really see the euro's impact on advertising. So I would never say that the advertising market currently is easy because there are a lot of -- it's not -- it's less -- it's a bit macro. It's not so much macro. I think it's more about the U.K. economy, and it's not perhaps performing as well as the government expected. But certainly, I think that's -- it's not an easy environment. But actually, within that, we're actually -- we have actually done better because if you think about our H1 advertising revenue against 2023, which was a more normalized year, we're up 2% because we didn't have the euros. So last year, the euros for us was a big skew. We expected it. We forecast it. It's in our budgets. And so we -- but we actually did a bit better than we'd actually set. So that's really the story about. And there's a lot of self-help in there, as you would expect. All the innovations I've talked about, all the initiatives I've talked about in the presentation, those are all things that are giving the commercial team a huge amount of opportunity to go and get other things. Some of them are digital advertising opportunities. Some of them are nondigital partnerships. The momentum is huge, and there's a lot of self-help in there. That's the first thing. I think if I take the Gen AI point, look, I think it's -- AI has been around for quite a long time. And Gen AI is just really, really -- it's not really, I don't think, affecting any kind of shift from digital. I think that shift has happened years ago when a lot of media departments thought, if I don't use digital, I'm going to get facts, right? I mean because it was a new, new thing years ago. I think actually, the pendulum has probably swung back a bit. And so that's one thing I would say in the broad. I think Gen AI is being used internally on a whole load of things in terms of how we kind of improve content, et cetera, that is obviously going to augment the advertising. But it's all things that we would do anyway. I think ITVX, obviously, from a digital point of view, gives us a huge opportunity because we weren't able to play in that market at all before, and it's really only in the last 3 years that we've been able to go after that GBP 9 billion digital advertising revenue part that I mentioned rather than stick in the GBP 4 billion broadcast revenue part for TV. Do you see what I mean? So actually, we see it now. I mean I don't think there are any -- I don't think it's about a shift from TV to digital. I think that's already happened. And I think that we can now offer advertisers a huge kind of proposition in terms of mass reach and targetable advertising and creative partnerships and merchandising and product placement and a whole gamut of other things. So we have a very unique proposition and that really maintains our kind of commercial leadership, I think.

And the thing I'd add is, Lisa, that -- and that's one of the reasons for doing the outcomes work. As Carolyn said, we've been competing for advertising budgets for a very, very long time. So that's not new. What is new is our ability to really demonstrate the return on investment of TV for advertisers. We've done so many studies now working with advertisers to demonstrate that being on TV not only in itself is a higher returning investment, but it multiplies the benefit and the ROI of all of their other advertising spend. And the team have done some great work. And so demonstrated, as Carolyn said that the pendulum, if anything, is swinging the other way because we can now prove the power of TV through advertisers. On Q3, we're really pleased with the first look, but it is a first look. So I'm not going to get drawn on getting any more granular marginally down other than to say the only reason it's down is because we have the knockout stages of the Men's Euros in the first half of July and England went all the way. So that's why the third -- we've got a tough comps in the beginning of the quarter, but it gets better throughout the quarter.

Let me take content costs, come in whenever. I think I want to separate that minus GBP 20 million in 2 things. One is the timing of The Voice, which has moved to H1 2026. That was a deliberate scheduling decision, which we're very happy about. And then I think you've got a second bucket, which is about us just being very -- using data much, much more effectively on viewers and what they like, what they're coming to, how they're coming to it, how they're viewing. So we're just much, much more sophisticated about the use of data with content and viewers. And so one of the reasons we were able to close ITVBe, launch something called ITV Quiz and actually invest a bit more in ITV2 is because we understood that we wouldn't actually lose viewers, we would lose no revenue by doing that. And actually, what has transpired is that we've doubled our share and actually audience by doing ITV Quiz instead of ITVBe, and all the viewers from ITVBe, as we expected, went to ITV2. So that is an efficiency, but it's also a much better proposition for viewers, much better. So that's another example. And then I think the third bucket really is that we're just very, very effective on our windowing strategy. And so we have shifted from doing only exclusive original content on ITVX by doing original content, which we clearly do, but we launch on both ITVX and ITV. We then drop the box set on ITVX with confidence, knowing because of the data and because of our experience now that they will -- all our viewers will not binge that. They still come in weekly. And so therefore, the consolidated audience of the 2 things is higher than if we were to do it in 2 separate windows. So we are optimizing and really making the most of our content by doing it that way. So it's a much better return on investment. So those are the 3 ways we've done it today.

And all driven by the fact that we have one content budget. And so we can move our investment in content, as Carolyn said, across all of the channels that we've got across ITVX and across different demographics. I mean it's interesting that ITV Quiz we've attracted a new audience there. It skews more male and that's a very valuable audience for advertisers.

Yes. And I think your other question on this was, is it a one-off? Well, I don't think you should -- one, I would say that we are also reinvesting money in content. So some of the savings that we make, we will put into content so that we can invest more in live sport, that we can do a more drama, for instance, which get more expensive, we can offset inflation. So it's a reinvestment as well as actually looking at where we can be more efficient. So it's not a one-off. We will continue with that mindset going forward.

The next question comes from Julien Roch of Barclays.

Thank you for doing your results when there are no other results so we can leisurely ask questions, which hasn't been the case for a while now. My first question is on 2026. I know it's very early. But on content cost, as you mentioned, The Voice, there's also the World Cup, you mentioned continuing efficiency. So can we have some parameters about content costs next year? And similarly on exceptional because Chris, you said there'll be far less. That's my first question. The second question is on cash conversion. You said 80% on average, but what about this year? Can we get some pointers and also cash tax because there's the production tax credit. And then the third and last question on M&A. So at the joy and privilege of covering your wonderful company since May 2024, the first M&A rumors was October 2004. We had about 2 years this year, it's [Pangea and Redbird]. So 42 rumors later. More seriously, any comment on potential deals as well as your view on maintaining your integrated model?

So '26 content costs, you're right. We've got the World Cup next year, which will be a great driver of advertising revenue. And typically, in those years, you see content costs in a big sporting year that they go up slightly. Going back to what we said about the content spend, where I think all of the optimization we can do now based on the data we have and managing it as one content budget means so that we can hold it broadly at the current levels and we can drive the viewing we want and the growth we want from that spend. But you should probably expect the content spend next year is a little bit more because of that FIFA World Cup impact. Exceptionals, I mean if you look back over the last few years, this year's exceptionals are very much driven by the earnouts or the contingent consideration that's based on employment, and you know the accounting around that, Julien. And we don't anticipate any major acquisitions, but we never know and that's why the exceptionals can go up or down. But with those small bolt-ons, there might be a little bit of that, but if there is none of that, then you'll just have a few tens of millions of the restructuring costs as we continue the cost-saving program driving that. Cash tax this year, you're probably looking, I think, from memory at around GBP 60 million. But you're right, it's varying now with the different [HGTV] regime. And cash conversion this year, probably slightly better than where we thought it would be. So I think there's probably a net sort of cash improvements in the forecast. It will be below 80, but I think it will be a small improvement from where we thought.

Great. And since you've been covering us since 2004, you wouldn't expect me to comment at all on the speculation that you have heard about. Over those many years, I mean, there's been speculation about ITV for years. So we won't comment on any of that. Suffice it to say that in our industry at the moment, everyone is talking to everyone. I mean everybody will say that they're just talking because whether that's about partnerships, that's about content partnerships, commercial partnerships, everyone is talking to everyone. So there's nothing further really to be said on that.

Well, on the integrated model, how integral is it to your strategic view about ITV?

Yes. Look, we've always said, the integrated model works very well for us. And you can see that, I think, in our progress, in our development of the strategy. It is definitely beneficial. And you know why. You know that Studios can break shows in ITV1. ITV1 is the biggest marketing platform in the entire country. And therefore, if the show breaks and does well, it sells right around the world. It doesn't have much trouble doing that. So there are ups and you know what the benefits are. I mean there's offset on inflation. There's all sorts of benefits. But what we've also said is we're not dogmatic. We're not wedded to any one particular thing. We would always be open to reviewing depending on what the market is doing. I mean, I think that our market has shifted so dramatically in the last 5 to 10 years. I mean even just if you look at the last 5 years, there's been just huge shifts in viewing and advertising in the business models. So I think we just always have to, as an ExCo and therefore, as a Board, be very open to anything. And that's what we are. We discuss it, we're strategic, and we will always keep things strategically under review.

The next question comes from Ed Young of Morgan Stanley.

My first question is on non-content savings. It's sort of barely an upgrade that goes by without something additional. And I appreciate that's a combination of some long-term programs which take a long time to play out and some of it is a reduction in discretionary spend. So could you give a bit of a picture for where you sort of sit in this long-term process on noncontent cost reductions? The second is on Studios. One of your KPIs trend quite well in the half, it was around streaming hours -- sorry, total hours on streaming platforms, which was up, I think, 5 points year-on-year. I appreciate some of that's probably U.S. bounce back where your scripted penetration is very high already. But can you talk a bit about the broader trends there to get to your 30% and particularly your traction with unscripted in the U.S. as it stands now? And then third, I just wonder if you could give any quick comment on the performance of the women's euros versus your expectations.

What was the third question?

Women's euros our performance versus expectations. Shall I kick off on this.

You kick off, yes.

Yes. So at the cost program, as you know, it's a multiyear program. We only include in those savings that we disclosed, savings that are permanent. So it wouldn't include any phasing or timing or temporary reduction in spend. It has to be a permanent reduction. And it's a multiyear program, as you say, we're getting benefit of some of the actions we took last year and this year, we'll get some of the benefit of the actions we take this year and next year. We're constantly rebuilding that program. There are tens of different initiatives that all ladder up to that one number. And it's right across the business and everyone is involved. And the reason we've upgraded this time is the process we go through is anyone can give us an idea for where we might be able to make things more efficient. It goes into what we call a hopper. And then we work out, is it a good idea? Or is it a bad idea? What are the risks and so on? And then we put a plan around it. And then only then when we've got that plan do we say, right, we'll bake that saving in. So this upgrade is just more of the ideas coming out of the hopper. We've developed a really good plan for them. We know we can deliver them this year, and so we've included them in the guidance. So that's the kind of way we run the program.

On Studios, let me just -- I'll give you a broad -- I mean I think the visibility is good. And I think our pipeline is good overall for Studios and our booked revenue is a similar level to last year. So that also gives us good confidence in the full year. I'd say on the whole market that we are cautiously optimistic. I think we're definitely seeing recovery following the strikes, which kind of paralyzed America for a very long time. I think you're right about unscripted, there's strong demand for unscripted in the states. So it's the benefit, I think, for us of having quite a diversified portfolio there because I think scripted recommissions and decisions around shows on scripted are taking longer. And I do think that's the effect of both the strike but also the L.A. fires actually. And so we're seeing kind of just a longer -- there's just more of a lag than we're used to unscripted. But unscripted is absolutely compensating, I would say, for that. We're having -- I think streamers is a particular standout. We're having really positive conversations with streamers. And I think actually, they're still commissioning premium scripted, but they are doing a lot of unscripted shows with us now. And so that's a big change from where we started with streamers. And that's why our target of 30% coming from streamers, which is a huge diversification because I think 5 years ago, it was something like 5% or 6% or even less. So that's a very big thing. So that's where we are on that. I mean our pipeline in H2 is -- if you look at the unscripted shows, they're really good. I mean, Love Island USA has been absolutely break out success. It's been unbelievable over there. I mean people you'd never think we're watching it, are watching it and are e-mailing and texting saying, this is amazing. And actually, what that allows them to do in unscripted is due to spin-off shows. So they've got Love Island games going on with Peacock, and they've also got another program that they've got in the pipeline, which will break soon. So that's coming up. So there's another spin-off show of Love Island in the States. And I think that's what happens when you have a very successful format, which everyone is talking about. The euros. Yes. So this is good news actually. So our director of sports, very fortunately, picked the semifinal statement. And so we got a massive game on Tuesday night. I would say that actually, the early games probably were below our expectations because we did a huge amount of promotion with the BBC. Both of our separately and jointly did a huge amount of promotions to build this tournament and get huge amount of awareness for us to get really behind the women's game. And that, I think, has worked for the early games probably below what we expected, and the semi finals has been fantastic. So we got 10.2 million at peak. It was very exciting. It was really important to us to get semifinals because all our advertisers want that. So we sold it really, really well on that. I would just say, and we will continue obviously to continue to build and help the women's game in any way we can. It is still nowhere near the men's game in terms of rating, right? So if you think about the euros last year in the first half and in July, we would be -- we did 22 million, I think, roughly on the Netherlands game. And all the matches. So even if it's a Spain, Portugal game or a Netherlands, Spain game or whatever, you will get higher audiences than the women's game would get for quite big games. So I think you can't compare the women's euros to the men's yet. And maybe 1 day, we will be able to do that. So we're very pleased with it.

The next question comes from Adam Berlin of UBS.

Three questions, if I can, very interested, Carolyn, to hear about the strategy around SME advertising. Can you tell us how much of the H1 digital ad revenue was from SMEs already if anything at all? That's the first question. The second question, I know it's early, but any thoughts on Q4 at this stage? I mean, you talked today a little bit about the fact that there's no regulatory impact from the change in junk food advertising, there won't be The Voice. Just thinking about where the comps are. Any thoughts on how we should be modeling Q4 given what we know today? And then maybe a third question on digital advertising trends. I mean, 12% is a good number, but it is lower than it was last year. Is that, just as it gets bigger, it's hard to sustain the growth rate. So the growth rate will just naturally slow? Or is that something to do with sports, not having the euros, did that impact digital ad revenue in H1? Just any comments on why you think that growth rate is slowing would be helpful.

Okay. I mean I don't think there's any -- as far as I know, there won't be any -- there's no specific SME revenue in H1, I would say.

Yes. it's small. I mean maybe one stat that would help you is we've got 500 VOD only advertisers. So people who have -- don't advertise on linear with us. Now a lot of those will be larger brands and premium brands who don't need mass reach, but want highly targeted audiences, but there will be some SMEs in there. But the opportunity, I think, is in front of us.

Yes, I agree. I think it's mainly -- when we start the collaboration with Sky and Channel 4, that will give us a big boost. And then we formed the sales team in the half. So they're just getting -- they're up and running. But as Chris says, I think more is to come. Do you want to talk about Q4?

It's too early to talk about Q4. I mean the comparators in Q4 last year, year-on-year, it was quite a weak quarter, but we don't have a view in Q4, as you know, and it's too early to talk about it.

I think on digital advertising trends, it's hard. I think we would be confident that we would see growth in digital advertising. And we would be disappointed if it wasn't double-digit growth, right? Because I think it is still a growth market. It's less sensitive to the U.K. economy but it's not completely insensitive to the U.K. economy, okay? So if advertisers are profit protecting because they don't know what's coming in the second half in terms of budget or whatever, tax, whatever, then I think they go across the line and they will take money off everything, not just advertising, but the money off everything and it will include digital. It will include linear. Do you see what I mean? It will include production costs. That will include manufacturing costs. They will look everywhere. So I do think you're right that the digital appetite -- look, we've outperformed markets in the first half. So that's key indicators for us. As commercial leader, we should be outperforming wherever we can because then, we're controlling what we can control. I don't know. I mean, I just feel -- I would say it's just continuing. It will continue to be a growth market for some times to come.

Yes. I mean I would say, Adam, we always say Planet V, which is, as you know, evolving all the time, we're introducing more ad products. But we said we would do it first on, on-demand viewing on our ITVX, and that's what's driven all of the growth up to this year. And as Carolyn said in her presentation, we're now sort of on the next leg of driving demand and opening up inventory. So we've got to drive demand. We've got the SME initiative to drive inventory. We're on YouTube now, which has been really successful. It gives us extra reach. We've got, I think, 250 advertisers on YouTube that wouldn't have come to ITV if we haven't been on YouTube. And it is a different audience and it's not cannibalizing to any great extent. We're now conserve targeted advertising into live viewing on ITVX, so that's a whole new set of inventory, and we can serve it into live viewing on other platforms like Freely like Virgin, There'll be others added by the end of this year, around 12% of households watching live in the U.K., we'll be able to serve a targeted ad into the live stream. So we're opening up the inventory. We're driving demand. And I think that's how we will maintain the momentum we've delivered today. And if you think about where we've come from, from the launch of ITVX, it's been phenomenal growth. And as Carolyn said, I mean we've outperformed the digital market in general in terms of our view. And I won't bore you with the stats, but you look at where we were in broadcast VOD. I'll share broadcaster VOD when we are on ITV Hub was less than Channel 4. Now we are more than -- we're over-indexing compared to our share of the linear market now. That's a very long way to come in a very short space of time.

The final question comes from Nizla Naizer of Deutsche Bank.

I have 2 small follow-ups on the SME opportunity. I'd like to know, have you quantified the market size of the SME opportunity out there that you could potentially go after with the new initiative? And secondly, you mentioned that you have invested in the sales force, But eventually, is the SME revenue stream more profitable than the larger sort of national level advertisers? How should we think about the profitability aspect of that stream going forward? Some incremental color would be great.

Is it more profitable? We're selling it at the same -- we will be selling it at the same price as we are selling targeted advertising generally, which, as you know, for now is a fixed fee, and then you can pay to add extra targeting opportunities like mixing your customer data with Boots’ or Tesco’s to do a really targeted campaign.

It's granular. You get the more you pay.

Yes, exactly. So it's the same level of profit. And in terms of the opportunity, maybe I'll start. I mean, as Carolyn said, there's a GBP 9 billion audiovisual market now. There's an awful lot of small advertisers there, but there's a -- we call it the fat end of the long tail. It's brands who are big enough where TV and targeted TV will make a massive difference to them, but they've never thought about doing it before. So it's about removing the barriers to entry like the cost of the creative but also then -- and we can do that ourselves for brands who would buy through an agency. I think the SME initiative is really exciting because it's for those brands who want to self-serve. They've grown up just self-serving with digital advertisers and then how far we can go.

Yes. And I don't know if we made that clear that sales force is only doing direct clients, and they're only doing direct to SME client sales. So those are the clients that don't use an agency all. So there's an opportunity there. And also, we will use Gen AI there actually to help them create ads because the quality of the ads does not have to be like a TV ad. So there's opportunity there. So we have our increased Studio in commercial, which does make advertising of all sorts, but they will be very focused on how we get -- to be able to make the advertising cost effectively, to be able to get them on ITVX quickly.

We have no further questions. I would like to hand back to Carolyn for any final or closing remarks.

Just want to say from both of us, that we know it's a hugely busy day out there. So thank you very much for joining us and for your questions. See you all soon. Bye.