ITV's (ITVPF) CEO Adam Crozier on Q4 2015 Results - Earnings Call Transcript

| About: ITV Plc. (ITVPF)

ITV Plc. (OTCPK:ITVPF) Q4 2015 Results Earnings Conference Call March 2, 2016 4:00 AM ET

Executives

Archie Norman - Chairman

Adam Crozier - Chief Executive

Ian Griffiths - Group Finance Director

Analysts

Will Mairs - Nomura

Patrick Wellington - Morgan Stanley

Laurie Davison - Deutsche Bank

Ian Whittaker - Liberum

Sarah Simon - Berenberg

John Karidis - Haitong Securities

Julien Roch - Barclays

Alex DeGroote - Peel Hunt

Lisa Yang - Goldman Sachs

Archie Norman

Good morning, everybody. Adam is going to present the results, or rather Ian is going to present the results and Adam is going to introduce the results and I’m going to introduce Adam. But what I did want to say is this is the sixth successive year of double-digit earnings growth at ITV. And it’s the sixth year we’ve produced very strong cash flows, strong progress in all parts of the business. And every year we sit here and produce good results, and then we look at the April advertising market and think, oh dear, what’s happening there?

I think the big picture is that the outlook for television advertising, and ITV’s performance, is stronger now than it’s ever been. If you actually look at consumer spending in the UK, the outlook is better than it was a year ago, not worse. Every day or every week I meet people who, five years ago, would have said they’re moving their spend onto digital. And now that has happened and, if anything, they’re coming back on to television. You meet online companies who are increasingly spending on conventional television. So whatever the short-term wobbles may or may not be, the outlook for ITV is strong. And this is one cracking set of results. Adam?

Adam Crozier

Thanks, Archie. Well, morning, everyone. If we could just go back to the agenda, please, thanks for taking the time to join us, really appreciate it. And, as always, we’ve got a short presentation this morning; loads of time for questions. I will just introduce the highlights. Ian is going to take you through the results in some detail, as always. And then I just wanted to give you a bit more of a strategic picture of how we see the next two or three years, and where we’re going to have our focus going forwards. As always though, being ITV, we have to start by law by showing you a short video, which will just remind you of some of the programs that drove our very, very strong commercial performance last year, but also, maybe more importantly, give you a sense of what’s coming up this year. So if we could run the video quickly, that would be terrific. Thank you.

[Audio/Video Presentation]

So it’s been another strong year of growth. And I think we’ve made significant progress on our strategy to re-balance the business, drive new revenue streams and invest in our future growth. So if we have a look at the highlights, first of all, total revenue is up 15%, advertising revenue up 6%, ahead of the market again with growth across all the advertising sectors. We continue to re-balance the business through growth in non-NAR revenues, which were up 25% in 2015, driven by Online Pay & Interactive revenues up 23% and ITV Studios revenues up 33%. ITV Studios is now a global content business of scale, which has more than doubled in size in the last five years. 2015 revenue growth for ITV Studios at 33% with a mixture of organic which was up 8%, and acquisitions which, as Ian will show later, are performing very well across the board. Acquisitions in 2015 include Talpa Media, Mammoth Screen, Twofour Group and Cats on the Roof. Strong revenue growth and tight cost controls have led to double-digit earnings growth across every part of the business. Broadcast & Online up 16%, Studios’ profits up 27%, group adjusted EBITA up 18% and PBT up 18% and further group-margin improvement to 29%. And given our strong performance, the Board is proposing a final dividend of 4.1p, giving a full dividend of 6p per share, up 28% and ahead of our previous guidance. And given our strong cash generation and the Board’s confidence in the future performance of the business, we’re proposing a 10p special dividend which is equivalent, as to £400m. And finally just to say, very clearly, we’re confident that we have both the balance sheet to support our investment in our strategy and the future growth of the Company.

So I’d like to hand over to Ian who is going to go through those results in more detail. And then I’ll come back a little bit later and just talk about 2016 and beyond. Ian.

Ian Griffiths

Thanks, Adam, good morning everyone. It’s always great following such a fantastic tape. As you can see, these are strong results with growth across all key revenue streams and both businesses. As we grow, the balance of the business improves. We’re less reliant on UK spot advertising, even as this continues to grow strongly. And we’ve become increasingly international through the growth in Studios. Tight cost control meant a large part of our increased revenue turns to profit. And we’ve again delivered double-digit profit growth with EBITA up to 865 million, EPS up of 16.5p and margins up to 29%. We remain focused on working capital and as a result, we continue to turn our profit into cash. And our free cash flow remains a real strength. We generated free cash of over £560 million last year, up 18%. These strong results and cash flows underpin both the increase in the ordinary dividend, ahead of our previous guidance, and the £400 million special dividend. More on this later.

Looking at revenue, with external revenue of just under £3 billion up 15%, this is £382 million of new revenue. Our recent acquisitions Talpa, Leftfield and Twofour contributed to this growth, adding £235 million but all parts of the underlying business have been strong. Advertising has been robust all year and finished up 6%, worth £90 million. Online pay & interactive continued its fast growth, of £35 million and excluding our recent acquisitions, Studios revenues were up 8% or £70 million with growth in all parts led by the U.S. and distribution. Currency had no impact on these results, as the movements in the strong U.S. dollar were offset by a weaker euro. So in summary, we have good revenue growth right across the business. And as we’ve done before, a large part of this increased revenue converted to profit. EBITA of £865 million is up £135 million or 18%. As Archie said, the sixth year in a row, we’ve delivered double-digit profit growth. The broadcast business has driven two-thirds of this growth. Increased advertising revenue falls straight through to profit and our new revenue in online & pay at high margin. These new revenues reflect the increasing value we can deliver from content that is primarily funded by our linear broadcast business. Studios delivered 27% profit growth and now has EBITA of just over 200 million and we think this makes ITV Studios the most profitable production business outside of the U.S. media majors. And the outlook suggests our growth will continue into 2016. Group margins have increased another 1% to 29%. So, 2015 has been another strong profit performance right across the Group.

Broadcast delivered some very strong financial results. Viewing may not have been as good as we’d have liked, but we continue to be the only platform to deliver mass audiences. As a result our advertising growth was again ahead of the market up 6%. As Adam will discuss, after a disappointing first half, the actions to improve SOV on the main channel helped and our viewing share was close to flat across H2 and we’ve had a good start to 2016. The improvement came from rugby, helped by Wales beating England, so if there are any Welshmen in the room -- the SOVs and across the daytime schedule. However some of our entertainment, factual and new dramas didn’t quite work. Over the full year, main channel viewing was down 3% and family share of viewing was down 4%. We did increase our onscreen investment. And as previously guided, this was to support the first full year of ICB and Encore. We remain comfortable with the level of spend across our existing channels recognizing that the genre mix and phasing changes each year.

Online and pay revenues grew strongly. VOD advertising was up 20%, driven by increased viewing time or consumption in particular on mobile. Whilst pay revenues benefited from a first full year of Encore, but also increases from our core deals with Sky and Virgin. These revenues are high margin, as they’re utilizing content we’ve already paid for in broadcast. In the round, it’s a really strong financial result, a £91 million increase in profit to 659 million and margins up 3% to 31%.

Advertising has been robust all year. There are always ups and downs from month to month and big sporting events create real peaks. But we delivered 5% advertising in H1 and 6% in H2. As the chart shows, this was driven by good growth across all the key categories other than the bookmaking money where we over-indexed in 2014 around the Football World Cup.

Over the past couple of years, broadcast sales teams have evolved the way they trade, not least because of the growth in VOD and sponsorship. This has led to multiple definitions of TV advertising. We continue to track our relative performance to the market, but this is always based on our best estimate of pure-sport advertising. And we believe, in 2015, we’ve outperformed and grown share and based on the deals we have in place for 2016, we fully expect to do the same again. However, tracking performance externally will be difficult, as we’re now pricing spot sponsorship and for the first time, VOD altogether. This means the numbers used by media buyers will not be like-for-like. And there’s probably a 3% to 4% mismatch between our revenues and what media buyers may see. But, of course, in some months, depending on revenue mix, the gap may be much wider. Having said all of that, we’ll continue to update quarterly and report pure spot revenue, as we always have. And bringing you back to the results, our sales team had a really good year across all these revenue streams and that comes through in a strong broadcast performance.

Moving on to Studios, 33% revenue growth shows the recent acquisitions are coming through and within that there’s 8% organic growth, which excludes all the investments made in 2014 and 2015. All parts of the Studios business contributed. The UK delivered 5% organic growth from entertainment with Love Island and Ninja Warrior, both returning series and good growth from our dramas. And whilst some new shows didn’t quite work Home Fires and Unforgotten will both return. The U.S. had 15% organic growth from the delivery of its first re-scripted projects, a U.S. version of Takeaway called Best Time Ever. And we benefited from extra Hell’s Kitchens. Our other international production business grew nicely, largely on the back of export in UK formats. Australia in particular had a good year, with local versions of The Chase and I’m a Celebrity.

GE, our international distribution business, grew strongly, up 10% organic boosted by Thunderbirds and the investment we’ve made in scripted. We invested over £160 million in drama projects, around £60 million more than the prior year and this shows what’s needed to build scale and a portfolio series that return travel. All of the above is organic, but our recent acquisitions are also performing well. On a pro forma basis, assuming we own the businesses for two full years, both Leftfield up 9%, and Talpa up 13%, grew their revenues strongly.

The challenge for any content business is to have a healthy pipeline of new ideas because every year there are shows that do not return. In 2015 the revenue impact of non-returning shows was just over £160 million. Replacing that much revenue is similar to creating a decent-sized indie every year. Since 2009 our Studios business, ignoring all of the M&A has delivered a compound annual growth rate of 5%. However, because we need to constantly refresh the pipeline and fit these new shows into broadcast schedules that 5% is not a straight line every year. Some years have been strong, like 2015, others less so. But the growth over the medium term has been robust and our continued investment in creative talent gives us the best chance for that to continue.

As happens in 2016, not all of our recent projects will return. That’s especially true in the U.S. as there’s no return for Texas Rising or Best Time Ever, and we’ve less Hell’s Kitchen. But we fully expect Studios to again deliver both double-digit revenue and profit growth. As Adam will show, the business has a good pipeline even looking into 2017, and because we’ve secured more of our expected revenue than is normally the case, 2016 will be another good year for Studios. And back to the numbers, and with tax and interest as expected, we have strong growth all the way down the P&L, leading to 16.5p adjusted earnings per share, up 20%. On a statutory basis, EPS growth is lower at 7%. The main difference between the two is £109 million of exceptional items, primarily acquisition-related expenses, the biggest element being so-called employment-related earn-out cost, which have been a feature of all of our acquisitions. These totaled £78 million in 2015.

Because these future payments are linked to both performance and continued employment, the accounting rules regard these items as employment costs and therefore they’re charged to our statutory results. These costs are not included in our adjusted numbers, as we think they’re capital in nature and reflect how we do our acquisitions. We aim to protect shareholders’ capital and lock in and incentivize talent. The biggest item in here relates to Talpa and locking in John de Mol. And that will be a material adjustment between statutory and adjusted for a few years to come. Consistent with prior years, we also adjust for acquisition-deal costs and major restructuring, a large part of which relates to our U.S. business.

On the cash side of things, we’re in good shape. Profit to cash conversion is 91% even after a net increase of £60 million invested in drama. And free cash flow of £562 million after tax, pension and interest, is up 18%. This strong cash flow means that, even after paying for the dividends and our increased M&A activity, we’ve ended the year with net debt of 319 million, which is plenty of headroom to invest, but also to fund increased shareholder returns. Our strong underlying cash flows have enabled us to invest in the business, but also to return £1.1 billion to shareholders over the last four years, 1.7 billion with what we’re proposing today.

The priority for our cash remains to invest behind the strategy in both the organic business and further acquisitions. Our stated dividend policy will see us move to a more normal payout ratio of 2 to 2.5 times cover in 2016, which means there continues to be headroom for dividend growth to be nicely ahead of earnings. If there’s any surplus at the year end, then we’ll consider how best to deploy that, in line with our balance sheet policy. We’ve said we’re okay with more debt on the balance sheet. And the proposed increased special means our pro forma net debt to EBITDA would be 0.8 times, which gives us plenty of headroom to continue to support the strategy. Our balance sheet and credit is in good shape. We’ve issued a new seven-year Eurobond with a coupon of 2.125%. And we’ve a new pension funding agreement which will see us pay £80 million a year, which is £10 million less than 2015.

Increased bond yields plus our regular cash contributions have brought the pensions’ accounting deficit to 176 million. And finally, we’ve touched on most of the 2016 planning assumptions but they’re summarized here, including, where appropriate, the impact of UTV, though in the round we don’t think this will have a material effect. The month-to-month phasing in 2016 will be very different to last year, both revenues and costs. In broadcast, program spend will be higher in H1 due to the Euros and Six Nations. But over the full year, total spend will be similar to 2015. H1 spend is likely to be roughly 55% of our total NPB investment.

Advertising will be driven by the big sports. And in 2016 this is mainly Q2 which should be positive and see ITV gain share, even though April could be down around 5%. Our Q1 is likely to be flat, just behind the market, and is against a 12% comparative from last year. And as we’ve said, over the full year, we again expect to increase our advertising share. Online pay & interactive is expected to continue to deliver double-digit revenue growth. Likewise in Studios we expect another year of double-digit revenue and profit growth, primarily from our recent acquisitions. In summary, 2015 was another strong year for ITV. And we can look ahead with momentum across all parts of the business and a healthy balance sheet to continue investing behind the strategy.

Thank you and back to Adam.

Adam Crozier

Thanks Ian. Right. I’d just like to take a few minutes before moving to Q&A, just to take you through how we see the strategic outlook for ITV and to remind you of how we see the key opportunities for growth going forward. As you know, by focusing on delivering consistently against a very clear strategy, we’ve delivered strong growth and results over the last six years. And we continue to believe that the three core priorities we have remain right at the heart of our growth plan. They are, as you know, to maximize audience and revenue share from our free-to-air broadcast and video-on-demand business, as video-on-demand viewing will, in the medium term, become part of consolidated viewing. We want to grow our international content business to meet the increasing demand from multiple platforms, and to use our increasing scale of IP ownership and program assets to begin, now, to build a global pay and distribution business.

As always, it’s all about execution. And whilst I think we have made significant progress over the last few years, there does remain a great deal to do and a huge opportunity for us to continue to grow the business, so I just want to look at each of those in turn. First of all, the broadcast & online business continues to perform very strongly, as it has consistently done over the last six years. And there are considerable opportunities for further growth. Our strong advertising growth is driven by our unrivalled reach. And we are continuously focused on delivering the mass audiences that advertisers demand, and of course on strengthening our on screen performance more generally. Whilst there are many challenges in our industry that we do need to be alive to and adapt and evolve to meet, we believe that television remains the key communications tool for advertisers and that the UK broadcasting market is strong and indeed, in some ways unique and that ITV is extremely well positioned within that. ITV is without doubt, the biggest and most effective marketing platform for advertisers in the UK. And our unique ability to deliver those unrivalled mass audiences remains right at the heart of our commercial proposition, that ability to deliver 98% of all the commercial audiences over 5 million, 93% of all of those over 3 million. And as markets have continued to fragment, so we have increasingly become the antidote to that, enabling us to once again outperform the market, drive our share of broadcast to record levels. And, based on the commercial deals that we’ve already done, we again as Ian said, expect to outperform in 2016. TV advertising remains the most efficient and effective media for advertisers, helped by the fact that despite some inflation in the market last year, TV is in fact 30% cheaper in real terms than it was 10 years ago. And I think, just as importantly, TV delivers reach scale and fame for brands, with a trusted and evolving measurement system, whilst there are growing concerns amongst a number of big multinational advertisers about the impact of digital ads versus the fame that TV drives, and indeed the level and impact of malware leading to false impressions and ad fraud.

All of this, the effectiveness of TV, the cost of TV, and the way that TV reaches audience has led actually to a resurgence in TV advertising and in the UK, just under 900 new or returning brands to television. For example, online businesses invested over £500 million in television in 2015, up 14% year-on-year. The year’s biggest new advertiser on TV was in fact Facebook, who invested £11 million. And by way of another example, Google, Facebook and Netflix all spent more than 60% of their marketing budgets on TV. Effectively TV has become the high street window for digital businesses. Alongside the mass reach of TV, which of course is what we do that no one else can do, we’ve also been developing new and more targeted advertising and branded content opportunities such as AdSync and AdVentures to enable advertisers to connect in a more targeted way with consumers across multiple platforms simultaneously. And then, as Ian said just earlier this week we completed the acquisition of UTV which further strengthens the free to air business and, importantly enables us going forwards to run a much more efficient network. In order to strengthen our onscreen performance, we’ve put in place a new creative leadership team for the broadcast business. Kevin Lygo has moved across from a successful stint running ITV Studios. And there will be other leadership appointments in key genres to be announced shortly, all managed in a very seamless transition to ensure that we refresh our creative output. And Kevin and his new team will, of course continue to focus on delivering our mass audiences and key demographics. As Ian said, we’ve made a promising start to 2016, building on a better second half of last year, following a number of initiatives that we’ve talked about, to improve our overall viewing performance. This year we’ve got a strong program slate and indeed a revised schedule shape with 50 hours more drama than last year, major football and rugby tournaments, Seth MacFarlane family of shows and continued drive towards improvement in data and indeed in the all important SOVs.

And in 2017 we’re already planning for the arrival of The Voice, Voice Kids, Horse Racing and a further increase in drama hours, including series three of Broadchurch, all of which should further improve our viewing and commercial performance, all just to be clear within the existing program budget. And we continue to be very active in driving engagement with our programs and channels across social media through voting and competitions and significant digital engagement, with over 100 million votes cast on our entertainment shows last year and over 40 million paid for competition entries. And finally in this area, despite the many challenges that the UK broadcast market has, we believe the UK market is robust, resilient and actually adapting very successfully to a changing environment. And whilst, clearly viewing habits are changing, it is as I’m sure very gradual, just six minutes less viewing per day than in 2004 on the near TV. The vast majority of viewing is live 81% if you look at it as a whole, 87% if you just look at it on television sets. Catch up on PVRs actually is bottoming out, is relatively static after years of growth. And video on demand has increased to 7%. Video on demand is better for us than catch up for the obvious reason that people are watching the ads. If you break that 7% down, 3 percentage points of that are actually broadcast catch up, very simply, on connected sets and various other devices, and 4 percentage points is a mix of SVOD, things like Netflix, Amazon and Now, and transactional VOD and archives such as box-sets on ITV Hub and Sky Go very often our content.

I’m often also asked and in a number of meetings with many of you, about the read-across from the U.S. to the UK and other European markets. First of all, I think it’s important to say that structurally they are very, very different markets indeed. Clearly, the strength -- free-to-air is incredibly strong in the UK and Europe compared to the U.S., 50% penetration here, roughly, versus 84% in the U.S. It’s also a very expensive market in the U.S., about two to three times more expensive. And that is partly what is driving cord-cutting and cord-shortening as people realize they’re paying a lot of money for channels they’re not necessarily using or watching. It’s also a much more fragmented market out there. The top 12 channels in the U.S. account for around 35% share of viewing the top two channels here account for 40% share of viewing. And if you look at advertising as well, the top four networks account for 46% share of broadcast, roughly equivalent to our share here, so a very much more consolidated market. And I think the other bigger difference is that the U.S. has been very slow relative to UK and Europe to respond to over-the-top, because of their desire to protect affiliation fees from cable companies. Whereas, of course because we’re approaching it from the other angle, we see re-transmission fees purely as upside and have nothing to defend there. So a lot of differences between the two markets and whilst of course, we continue to focus every day and every month on rising to the challenges we face and evolving what we do and how we do it, we do believe that three attributes lie at the heart of our broadcast position; first-class distribution and reach across all platforms owning the rights to high-quality must-have content for all those key audiences, and providing advertisers with access to the biggest and most effective marketing platform in the UK.

Now, growing our international content business is our second key priority. And global demand for content continues to grow at around 5% per annum. And ITV Studios which has more than doubled in size over the last few years is now a fast-growing global business of scale over 7,000 hours produced through 58 labels supplying more than 90 channels and more than half the revenue generated outside of the UK and a strong track record of revenue and profit growth. And we continue to drive this growth both organically and through acquisitions, by focusing very clearly on two areas, one, building a global scripted business and, two, creating formats that can travel and we’ve got a very healthy pipeline of both new and returning commissions.

The top three export markets in the world for television programs are the U.S., the UK and Holland. And that offers a significant opportunity for ITV, as we are strong in each of those three key regions. As Ian has already said, this has led to healthy growth right across all three divisions of ITV Studios. UK up 19%, with, very importantly, 46% growth of ITV, in other words, programs we’re making for other UK broadcasters, and 60% share of ITV network spend, 36% up in the U.S. and 124% up in the rest of the world. And we want to continue to build our scale and capability in our content business. And we really do take a very neutral, mixed economy view of how best to do this and where to invest in order to drive the best rate of return for ITV. And I think, as Ian and I look at the pipeline right now, I think we have a stronger pipeline of potential investments than we have had for quite some time. And overall I think we have a very healthy picture in ITV Studios as our investments, both organically and in acquisitions are delivering well for us. As Ian said, our original, original, heritage business has grown by 5% CAGR since 2009, showing that there’s good underlying growth there; Talpa and Leftfield, on a pro forma basis, both growing by 13% and 9% respectively; and our other acquisitions are all giving us a return in excess of our cost of capital; so a very healthy picture.

To continue to grow our international content business, we must continue to expand our portfolio of successful dramas and formats that can return and be distributed globally. We’ve got a really good as you can see here strong pipeline and mix of titles importantly across the key genres, but also across their life cycle which helps to balance our risk and financial exposure and clearly we continue to invest in that pipeline as we add new programs to our catalog each year. Demand for drama remains particularly strong and standard original scripted content becomes more and more brand-defining for broadcasters and OTT players. And this remains a key area of investment for us going forwards. In drama we’ve got a good mix of returning UK and U.S. dramas, with high international sales, and exciting new dramas with international potential and clearly the acquisition of Mammoth and Twofour are helpful in this cause. We also continue to improve our own -- our performance internationally by developing and owning entertainment and factual entertainment and non-scripted formats that can travel. Constant demand there from networks that has not fallen away, they all want high-value, high-margin formats and shows that can return, so a good, strong position for us and, again, as further strengthened through the acquisition of Talpa. And going forward, we will continue to invest in building our scale and capability in both scripted and format development and then use that increased scale of IP ownership to build a stronger global pay and distribution business, which is, of course, our third objective. Now our online pay & interactive business is fast-growing and high-margin with revenues up 23% in 2015. And as digital media and consumer behavior continue to evolve, our ability to create, distribute and monetize high-value content in new and efficient ways is of increasing significance to us, as you can see by the fact that revenues have trebled over the last few years to £188 million. Changes in technology and the growing base of connected devices are driving growth in audience’s appetite for VOD. And consumption of ITV online is up 42% year on year. That is, in turn, filling demand from advertisers for video on demand ad inventory and we are well placed to exploit this demand and our VOD advertising revenue was up 20% last year.

The successful launch of the ITV Hub was a key step in meeting the demand from viewers and advertisers. It’s the digital home for all our channels and services. It’s live and on demand, available on 27 platforms and really is a massive step forward for us in terms of quality, innovation and ease of use. And finally, after all the time sorting out the online mess that we inherited, we have a proposition that works extremely well. It’s as good as anything in the market and it is easy to adapt and evolve from here. So we finally have a technological platform that really works for us both now and in the future. And I think that’s a very positive step for us. Our pay business, if you look at it in isolation, actually grew by 38% in 2015, driven by new deals with Virgin and Amazon and Sky. And the performance of ITV Encore pay channel has been encouraging. If you look at viewing this year, its viewing is actually up 34% year to date. Our scale in content and IT -- IP ownership though is now such that we can now really begin to turn our focus and attention on investing in and developing a pay offering in the UK and internationally. That, going forward, will be a combination of SVOD opportunities and pay channels. Again, as we’ve done in the content side of things a mixed economy of organic growth, partnerships and acquisitions. And we expect to make some good progress on this front over the next two to three years.

At the same time, we have been investing in new models for content creation and distribution. For example, we launched 22 multi-channel networks on YouTube in 2015 as ITV. And just one other example, over the last 18 months, Talpa, who have a very strong digital presence internationally, developed a series of successful -- 10 successful connected live formats for things like The Voice, Voice Kids, Dance Dance Dance, in 40 countries, 90 apps and sites, 100 YouTube channels and over 12 billion views. We continue to grow our distribution network, GE, which is benefiting from increased IP ownership as ITV Studios grows in scale. It has also helped us to develop bigger and stronger relationships and partnerships with networks and platforms generally. GE’s revenue last year increased by 9%, as we saw the benefit of having a strong and balanced portfolio, covering all the key genres. We have over 40,000 hours of TV and film, a lot of new and returning shows and we’re increasingly using our cash flows to invest in scripted and factual entertainment formats, as Ian said, a lot more money going into scripted, about £60 million more last year and we’re increasing the number of multi-year, multi-territory deals we do in the marketplace. Thunderbirds has been a really terrific success for us, a multi-series deal to now 90-plus countries plus Amazon in the U.S. India, UK and Germany. Drama doing particularly well, Poldark, Aquarius, Texas Rising, Endeavor, Jekyll and Hyde, Selfridge, good old Coronation Street, Vera, all over 100 countries, the Good Witch in 90 plus countries. A lot of good, strong drama performing and selling very well and again a leading global distributor of formats, things like obviously The Voice and The Voice Kids. But Hell’s Kitchen is now in 196 countries and The Chase is now distributed to 111 countries, Come Dine With Me, I’m a Celebrity. So really good, strong performance across the board as I hope you can see, our performance in 2015 builds on our consistent record of strong results since we launched our strategy six years ago. I think we have improved significantly in every part of the business. And we’ve adapted to meet the challenges of, over that period, pretty difficult economic conditions, a lot of increased competition, a changing technological environment and undoubtedly evolving consumer behavior.

But I think we’re a high-growth business now, with an increasing emphasis on international content creation and distribution. And as a result of this we’re a more balanced business, with now 49% of total revenue being non-advertising. And therefore I think we’re stronger, more robust, and we have the ability to fund the investment in our strategy and growth going forward. In conclusion, I just want to give you a clear steer on how we see things for this year and beyond in terms of direction of travel. Firstly, for 2016, just want to reiterate one or two things that Ian said earlier. One, we’re in really good shape. Two, we expect another good year of revenue growth across both businesses. Three, whilst the shape of the ad market may be very different this year, there’s no doubt that the feedback from agencies and clients remains positive in terms of their view of the year. We expect to see double-digit revenue growth from online pay and interactive, and we expect to see double-digit revenue and profit growth from studios. Importantly though, beyond our outlook for this year, we also see increased opportunities to invest behind our strategy, to drive significant future growth from a position of strength.

Of course, in the broadcast side and the video-on-demand side, that’s all about doing what we do in order to increase and grow our share of total TV and VOD advertising. On the content side, which we’re looking to keep growing at speed, it is about investing in those genres, particularly scripted, which will become more and more important for us, of course investing in creative talent and partnerships, and as I said earlier we have a very strong pipeline of opportunities in key creative markets that we may well invest in, and then given that scale that we now have in content, focusing also on building that international pay and distribution business. And that of course means enhancing and extending the hub online, building pay channels and SVOD services both here and internationally, using the cash flows to invest in distribution rights and, of course, investing in new digital models for content creation as well, and not forgetting securing retransmission fees in the medium term. So we’ve got a lot of things to do, a lot of opportunity there, and we’re very focused on delivering that going forward. That was all we wanted to say this morning. Thank you very, very much for your time. And as always, we’re happy to take any questions on anything at all. Thank you.

Archie Norman

Okay. Thank you, Adam. Let’s take some questions. Could you please wait for the microphone before you fire away? And we’d be very grateful if you introduce yourself because it’s just possible not everybody will know who you are. And one question at a time please that one question would be fine, but you may want to have a follow-up.

Who’s going to open the bowling? Yes, shall we come here?

Question-and-Answer Session

Q - Will Mairs

Thank you. It’s Will Mairs from Nomura. First question, you’ve invested in quite a few big shows recently, so things like Texas Rising you mentioned before, Beowulf, Jekyll and Hyde, etc., which haven’t quite turned out as well as we thought. So I’m just wondering how do you actually go about turning that around in terms of investing in new shows. Is it a case you need to invest more money or perhaps make better decisions? And if it is better decisions, what actually needs to be done? Thanks.

Adam Crozier

Yes. Well, look, as Ian one of the reasons Ian put a chart up, just to show you, if every show returned there would never be any room for new shows. So we’re in a business where not everything works and you’re constantly refreshing things, but if you look at some of those new shows, Texas Rising we sold to 192 countries. So I think that’s a pretty good performance there. The network didn’t that we sold it to didn’t want it to return for other reasons because for them it delivered actually a slightly older audience than they were looking for. But in terms of international sales, 192 countries, Aquarius, which you mentioned, is returning, and we’ve already sold that to 131 countries. Good Witch again returning. We’ve sold to 93 countries. Jekyll and Hyde, by the way, also sold to 111 countries. So there’s always two markets for every program. There’s how it actually works on any particular broadcast and then it’s how it plays internationally too and we have to try and meet both those markets. And they’re not always looking for the same things, by the way. So I think, overall in the round the business would not be performing as well as it is if we weren’t making pretty good choices on the whole. Does that mean we get them all right? Absolutely not. But it’s just not the kind of business where that’s going to happen. But I think we’re making really good progress. And I think the underlying levels of new commissions and re-commissions and the underlying performances of all the different bits of the studio business, is making progress in the right direction. Of course, the job every day is to increase the percentage number of wins you have. And we will always concentrate on that. But it’s never going to be 100%. And it’s very rarely to do with the money being spent by assuming you’re spending the right kind of money to make the right quality shows, which we are, it’s not about the pound notes. It’s about making sure not just that the idea is great and the scripts are great, depending on what it is, but actually the way it’s then produced falls into line with your expectations of that.

Will Mairs

Great. And then the second question just on Brexit and how much of an impact that could have on advertising and actually when you might start to see it. Would it just be June then? Or do you think you could see uncertainty start to creep in from May or perhaps earlier?

Adam Crozier

Well, look, it’s a good question. I imagine everyone’s being asked it in some shape or form. I think for us, we have in June the European Championships. And sporting tournaments tend to have a bit of a life of their own and a set of advertisers that go with them, gambling for example, which are already committed done laid down because there are only so many ad breaks in the football and people want to make sure they’re in the right place on that. So I think to some extent that will take care of itself. The more general comment, I don’t have a crystal ball to know how it will impact on behavior. But the underlying economy is reasonably strong. The view of agencies and advertisers is positive. And obviously what we look at is advertising across the year. And I know we say it every time, but we do try and encourage people not to look at any given month because advertisers tend to sit down, usually towards mid to end of the previous year, decide what they’re going to spend on marketing the following year and then lay that down in a way that works for them. Sometimes they move that money around a bit from month to month. But what matters is what they spend across the year and that we take an increasing share of that. And we’re confident that we can do that.

Will Mairs

Thanks. And then the last question, just returning back to studios, I think you’ve mentioned you’re looking for double digit revenue and profit growth. But perhaps on an organic basis, you’ve mentioned that revenues will be lumpy. So should we assume that organic growth within studios this year should be negative?

Adam Crozier

I think it’s about looking at it in, as Ian said in the round. You can draw a line and shows you there’s that underlying growth. And we believe that will continue. Does it perform in exactly the same way every year in a straight line? No, it doesn’t. But if you, for instance we don’t count Talpa and Leftfield as organic at the moment. And the underlying growth there, as Ian said is strong with 13% and 9% underlying growth. You’ve got the CAGR growth overtime of the original business and older acquisitions delivering well. So I think in the round we’re very positive about the studios business. It’s doing extremely well. The pipeline of new commissions is very good. Whether those shows that get delivered, things like a Hell’s Kitchen which counts as organic, whether that gets delivered at the end of one year or the beginning of the next in the long run makes absolutely no difference to us what so ever. But they can have an impact on the pure levels of growth. So I think the important thing for us is it’s performing extremely well and we do expect to see that growth. And over the short to medium term there will be organic growth there.

Archie Norman

Okay. So do you want to just pass the microphone to your right? Thank you.

Patrick Wellington

It’s Patrick Wellington at Morgan Stanley. On a similar trend, in online pay and interactive, you seem to have done about a mid single digit growth in the final quarter and yet you’re looking for double digit growth in 2016. So what’s the impact? And you’ve also studiously avoided talking about double digit profits growth in online pay and interactive. Is there any reason for that?

Adam Crozier

I’ll do the second question first, if that’s okay. But it’s partly because we don’t split out the profit there from the broadcast and online profit. But of course, if it’s double digit growth in revenue and we make very high margins, I think you can make some reasonable assumptions that it’s very good for us from a profit point of view. In terms of the flip, what you tend to find is that the online performance is actually very driven by the shows that you have on. And if you because the autumn is such a strong period for television and great television content and really big shows, that is often when you look back in time, the period of least growth for online because people are watching it live. And things like the Rugby World Cup obviously drive a lot of live viewing as well. So there are reasons for that. But overall, the level of growth of online viewing is very healthy for us. And as we say, we are pleased that catch-up is bottoming out the growth there and it’s flipping more as connected -- more TVs get connected it’s now flipping onto VOD and that’s better for us from an advertising point of view. So I think we’re fairly positive about that. And the pay side as I said earlier, up 38% last year I think again is growing well and I think there’s a real opportunity for us there.

Archie Norman

Okay. Keep going.

Laurie Davison

It’s Laurie, Laurie Davison from Deutsche Bank. If we strip out your internal sales from within studios, then that 5% CAGR that you’ve talked about for organic growth for external sales drops to something about 3%. Now if the market you’re saying is growing 5%, then why have you been underperforming the market would be the first question?

Adam Crozier

Well, I think stripping out the bit that is actually our entire strategy which is being an integrated producer, broadcaster and producing more of our own programs, I would suggest that’s certainly not the way we look at it. We want to produce more and more of our own shows. And one of the reasons we show, for example, that our off-ITV grew by -- in the UK by 46% last year is to make the point that we’re not growing in the UK just by producing more stuff for ourselves but for everybody in the marketplace. But in an ideal world, we’d like to produce more and more of our own shows. We have enough that are good enough, and I think we’re quite happy with the growth levels there. And that 5% is a worldwide growth level for content. It’s not particularly a UK one. And actually if you look at spend in the UK on original content, it’s actually gone down year on year. So you could actually argue we’ve outperformed the market.

Laurie Davison

Okay. And then just on your adult impacts -- sorry your family ITV impact, you state that was down 5% for the full year. Do you expect that to be down again?

Adam Crozier

4%.

Laurie Davison

4%. What was that in the second half? And do you expect that to be down again in 2016?

Adam Crozier

Well, as Ian said, we had a better second half last year. We were flattish. And I think at the half year we talked to you all about all the various things we were going to put in place to drive that improvement in performance because we didn’t have a good first half last year. That’s absolutely fair to say. Things got better in the second half and we’ve obviously carried that through into the beginning of this year. We thought it was worth giving you a year-to-date position on our share of viewing. Year to date our SOCI is also up, you wouldn’t be surprised to hear. And obviously the focus is on continuing to drive that as we go forward. We’ve got some great dramas coming up. The rugby’s doing very well for us at the moment. And clearly the European Championships should be very positive for us too. And we’ll have a slightly difficult time in the summer opposite the Olympics, I would think and then we’re into the autumn. So I think overall I think a lot of the work that we’ve done, daytime continues to go forward. And although that’s the less glamorous part of what we do, of course because it’s there every day, it does drive a lot of our underlying performance, and that’s been very positive recently. And that’s less about new shows and more about making sure we get the shows we already have into the best possible shape.

Laurie Davison

Sure. But SOCI’s one thing, but if the overall market is seeing decreasing levels of impacts, do you still expect you can stay flat in terms of impacts this year, or do you think it will still be down?

Adam Crozier

Do you mean volume of impacts rather than share?

Laurie Davison

Correct. Yes.

Adam Crozier

Yes. Well, so far this year actually our volume is up interestingly, not just our share. Obviously we’re only two months in, but that is certainly the case so far. And as I said earlier, you’ve got the position there where television advertising remains remarkably good value in terms of comparison with all the other media, despite the fact there was some inflation there last year. The truth is over the last 10 years as I said, TV advertising in real terms is 30% cheaper. And genuinely, I’m not trying to make a clever point about it, but there is concern amongst bigger advertisers about two things. One is this idea that somehow developed that you could compare a 3-second ad online, often without any audio to a 30-second TV ad in terms of impact is clearly, if you stop to think about it not right. And for a lot of brands they realized that whilst on paper they may look like they were being more efficient in their advertising, the reality is they weren’t being noticed and they weren’t generating fame for the brand. And I think that that allied to the cost effectiveness of TV is really what’s driven a lot of advertisers back onto television. So I think it remains positive. I would just draw your attention, because I’m always wary of making sure we don’t just say one thing when things are good and one thing when things are bad, we’ve said to you pretty consistently what we sell is our unique ability to generate these programs with large commercial audiences, 5 million plus, 3 million plus and that is what we sell. That’s our proposition. And share of viewing generally, you can’t buy share of viewing; it’s a general health check. And I would still say that this year as our share of viewing has gone up, it’s still about the bigger programs. We’re pleased that it’s gone up, and that’s a good thing, but that isn’t our proposition and that isn’t what we sell.

Archie Norman

Okay. Shall we keep going?

Ian Whittaker

Thanks. It’s Ian Whittaker from Liberum. First of three. Just in terms of audience measurement --

Adam Crozier

You just feel free to ignore Archie.

Ian Whittaker

I wouldn’t dream of ignoring Archie normally. Just on audience measurement, there’s been some interesting stats that have come from other countries. I think Discovery was talking about Norway, talking about when the new audience measurement system has come in, it turned a double-digit audience decline into high single-digit positive audience growth. ProSieben were talking at their Capital Markets Day, last year about potential positive effects as well. Can you just talk where -- give us an update where we are in the UK market and whether you’ve done any work in terms of when new measurement -- audience measurement systems roll out, i.e. what potential impact it could have?

Adam Crozier

So on that, I think most major countries would say that the belief is that television viewing is under-measured as a whole. And partly what we’re trying to show there with the fact that six minutes less per day since 2004 but what that doesn’t measure is all the minutes that are being viewed on all these other devices. And although of course some of that is increased competition from people like Netflix and Amazon and others, a lot of it is actually people watching our channels, our catch-up, our boxsets as with the BBC or Channel 4. So I think when you add those minutes back in, I think people will see that actually, if anything, there is more television viewing going on than before. And a bit like over the previous decade where that was split across more channels and we all launched digital channels, it’s maybe now split across a few more people. But generally people are watching a lot more TV. I think the plan, BARB are working on a thing called Project Dovetail. I always struggle with that one because I can’t understand why it’s called dovetail. But anyway, Project Dovetail, which is basically the bringing together in a more seamless way of measuring ratings and viewing across all the various platforms. They can do a lot of it just now but it’s not to be trusted just now because it’s not robust yet and they’ve not got it quite right. But I think within a couple of years I think is the general view, we should be just about there. And then I think -- because advertisers want it too, they want to be able to measure their impact across all these different platforms.

So I think generally speaking it will probably end up showing that people are watching more television than we think, but obviously the splits will be slightly different.

Ian Whittaker

Okay. Second question, just in terms of scripted, I think the point that’s been made in the past that essentially the real, as it were, uplift for scripted comes in when you get syndication revenues which are a couple of years down the line on there. And obviously you’ve made the point about you’re invested more in scripted. When you’re on that sort of journey, as it were, to get the real uplift coming through from scripted programming, would you say you’re just very much at the beginning at the moment or do you think you’re quite progressed on where you are?

Adam Crozier

I would say we’re about -- if I was putting a percentage on it, I’d say we’re about 30%, 40% of where we want to get to. So of course we have a lot of fantastic scripted coming out of the UK, much of which, as I said earlier, travels fantastically around the world. That’s why the UK is the second biggest export market. And we’re now developing a scripted business in the U.S. and we’re working on scripted projects in one or two other countries too. There’s a where we are and then there’s a where we’d like to get to, which is to have a much bigger portfolio of scripted projects, where you accept in that portfolio that some are at the throwing-off-revenue-and-profit stage, some are at that rolling out stage and some are at the investing stage, and clearly some don’t work. That’s just a function of what we do. But that is all much easier when your scale is a little bit greater and I would say we’re about 30% to 40% of where we would like to get to and that’s why we’re trying to give you a clear -- that investment in scripted will continue over the next two to three years and it’s partly why we take this neutral view. If you invest in a big scripted project, that might be £20 million that’s equivalent to a small M&A. So we look across the board and say where is the best place to invest our money. If there are great projects there, we’ll invest in those. If there aren’t, we might invest in buying another company. We really do look at it in a pretty neutral way and try to make sure that we’re really pushing the business forward at all times.

Ian Whittaker

And just a final question, just STV last week had some interesting comments both in terms of retransmission and on the EPG. Their view was it’s very likely the government will repeal I think it’s section 73 that at least covers Virgin Media, and that in terms of the EPG, their view is that the government’s minded to actually protect the position of the main channels on the EPG guide. I don’t know if you’ve got any views of what your comments would be, any views that you’ve got, any views also in terms of timing, both for the EPG and the retransmission issue.

Adam Crozier

Well, I think as with most things in life, we’ll hear not very much from the government on anything at all until after Brexit. I think they seem pretty one-tracked and focused on that issue. And I think that will delay things very slightly on a number of issues actually. BBC could get caught up in that as well. I would -- I actually just agree with what Rob and the team STV said. One, I think it’s likely that section 73 will be tackled because the EU have said it’s illegal, so in a way they have to do something there. The issue is that that regulation is UK regulation and the regulation that covers Sky is European regulation. So there are different routes to solving the two issues. And certainly all the indications we have had from everyone concerned is that they see protecting the EPG positions as a very important part of the UK broadcast ecology, for a number of different reasons, not least of which is it partly drives the very high level of investment in original content by all the PSBs. So I pretty much agree with what they said actually. I think the timing is only slightly up in the air because of the short-term issue. But other than that, hopefully it’s a reasonably clear direction.

Archie Norman

Okay. Shall we move on?

Sarah Simon

Sarah Simon from Berenberg. Two questions from Ian, who hasn’t had anything yet. First one was on the production tax credits. It’s obviously the first time these have come up in terms of the way we look at the divisional numbers. So can you give us a steer on how we should think about those in terms of next year and subsequent years? And then I think you made a comment about more talent retention payments going forward which I assume is also due to Talpa, but can you give us an idea of the magnitude of those? Thanks.

Ian Griffiths

Okay. For those who don’t know, there is an incentive now in place for it’s actually called high-end production, high-end tax credits for dramas in particular with a production budget of over £1 million, which allows the producer of that content to claim some tax relief. In the UK it goes through as corporation tax. In other territories, interestingly enough, and we’ve had these for many years in the U.S., it’s actually done as a rebate or an incentive. Now we see these tax credits very much as part of our net production cost in making a decision on whether to green light shows or not, which is why we see them as a cost of business rather than a tax item. This year they’re just over £20 million and £23 million. Last year they were around £7 million, if we continue investing in this type of drama in the UK that number will go up. So it will be a part of our numbers going forward on a regular basis.

On the talent retention side, this is really, it’s not really, it is talent retention. These are earn-outs. But as we tried to get across, the way we structure all of the businesses we’re investing in on the studio side is with some sort of earn-out. And the earn-out does two things. It rewards future performance but it locks in the talent. And because we’re explicitly linking this future payment to employment, we have some interesting debates with the auditors on this one, but technically they’re treated as employment costs. So in the statutory numbers, those costs, which are really an incentive to grow the business and work with the talent and, for us, a way of protecting the capital that we’re investing for shareholders, because the other alternative is to write a big check on day one and run the risk of a talent disappearing into the distance. We don’t think that’s the right thing to do.

So doing the deals where we’re doing them, with the earn-out, rewarding future performance we think is the right way of doing it. But it does mean our statutory results will take a hit going forward. It’s always been the case. It’s just this year it’s been a very big number because we’ve got Talpa in there. And Talpa have been doubly complicated by the fact that under the deal we did with John de Mol, which we went through in detail at the half year, we also said if John left he’d have to repay us €150m. So that also bizarrely gets treated as a cost going through our P&L until that period is out of the way. So very complicated, but it will be a feature of our results for, going forward actually. And next year, as the slide says, we expect the exceptional items relating to those earn-outs to be about £110 million around 90 of which will be Talpa in relation to a combination of that 150 million of potential refund if John leaves and our view of the future performance of the business, very complicated.

Archie Norman

Okay. We’re going to struggle, I think. Shall we just pass the microphone here and then we’ll come back over there?

John Karidis

Thank you. Good morning. It’s John Karidis here from Haitong Securities. I only have one question, which is how many programs in 2015 actually attracted more than 3m and more than 5m audiences? And how have these numbers changed in the last five years?

Adam Crozier

I actually think I have that written down somewhere. I do not have it to, unless you’ve got it on the top of your head, Ian.

Ian Griffiths

Yes. It’s about, over 5 million it’s just around 750 shows, which is roughly the same year on year. Over 3m it’s around double that, which is down a little bit year on year. I think it’s down about 5%, 6%, something like that. And actually the reason it’s down, we checked as we were going through, it’s mainly because the types of shows that hit that 3m audience are the factual shows where we’ve slightly underperformed. So it’s really our performance has driven the number of shows being down.

John Karidis

What do you think happened over five years rather than year on year, please?

Ian Griffiths

I haven’t got that number. Sorry.

John Karidis

Thanks.

Archie Norman

We can come back. Good question. Made us think. Shall we come back over here? Come on. Quick, quick, quick. Thank you.

Julien Roch

It’s Julien Roch at Barclays. The first question on studio, can we have an idea of how much of revenue is coming from free to air clients, i.e. advertising exposed, and how much of revenue is coming from subscription based clients, i.e. not advertising exposed.

Adam Crozier

I genuinely don’t have that to hand, Julien. As we say, we work for we’re producing shows now for 90 different broadcasters across the world. We do now produce shows for most of the big OTT players, like Amazon and Netflix and others. So we’re working with everyone. And clearly that’s a growing side of the business. Some of the stuff we have in the pipeline is for the new players as well. I couldn’t give you that breakdown this morning.

Ian Griffiths

It’s quite a hard one as well. Sorry, Adam but it’s quite a hard one because in the U.S. a large part of our customer base are the cable guys, who you’d put into the pay bracket normally, but their revenue’s driven by advertising and pay, but they’re more advertising than pay.

Adam Crozier

A lot of our shows as well go, because we work on a windows based system, not as in Microsoft but as in the way we sell this stuff, and we sell it to one broadcaster in the first window. It often goes to an over the top player on a second or a third window. So it’s virtually every piece of content there are multi level deals in place. And actually one of the more complicated things going forward is the order in which you do these is beginning to change. So we have a number of ones in the pipeline, where actually we’re going to over the top first rather than second. And I think increasingly the ability to make those choices about where you can maximize your revenue will change.

Julien Roch

Okay. Second question is coming back on page 12, the 5% organic ex M&A. Is there an FX impact in there? So can we get it ex FX or is it no FX?

Ian Griffiths

That’s constant currency.

Julien Roch

It is constant currency as well. Okay. And then last question following up on what Ian said about what STV said on retrans. They also said that they felt the government was minded to let commercial negotiation prevail, i.e. no statutory retrans. Any comment on that?

Adam Crozier

Yes. Again, I think I probably agree with that on balance. I think their view is that both sides should be allowed to get on with the conversation in a normal, business like way. And at the moment clearly that doesn’t happen because people are able to hide behind that’s not the way it works. And I think if things like section 73 disappear then I think that does change the nature of the conversation.

Julien Roch

Thank you.

Archie Norman

Okay. So, yes then we’ll go and take one question back there.

Alex DeGroote

Thank you. Morning, chaps. Alex DeGroote at Peel Hunt. Two quick questions from me. Perhaps one for Ian, one for Adam. For Ian, the 303 of expected future payments, could you just give us a steer on the likely phasing of that? How much this year? How much next?

Ian Griffiths

It will be none in 2016 because these are all future payments. And I think the 303 just give an idea roughly of when they’re going to be paid but they’ll start 2017, 2018, 2019, future years. There are none this year.

Alex DeGroote

Got it. Okay. And then for Adam, bit of the narrative here today is about some advertisers or agencies being displeased with ad tech and your ability and fraud. So from that narrative, can we begin to perhaps assert that some budget may shift back into TV from digital after the splurge on dodgy websites?

Adam Crozier

Your words, not mine. Well, I think it’s what is for certain is that television advertising is outgrowing advertising generally and therefore clearly that money is coming from somewhere. I think it’s hard to tell this early where it’s coming from, whether it’s from digital or from press, magazines, whatever. Genuinely we’re getting a lot of feedback, both here and we’re hearing the same in America, some concerns on the digital side. Not that it won’t keep growing, by the way, because it has been. But I think people recognizing that different media deliver different things for advertisers. And it’s all about the balance and how you use those things together. So I think all these brands either new to or coming back to TV is a sign that television advertising, as we know, it does work. There are plenty of studies that show it is more effective than anything else out there. And I know you could take both views that the fact that there’s been very little inflation, you could somebody might take the view that’s a bad thing actually. In some ways I think it’s been a very good thing for television because it means we really are delivering great value for advertisers and that’s what’s driving the growth that’s there. So I think it’s probably that natural thing of people were quite happy to invest in digital because it was the new thing. It was the sexy thing, as Martin Sorrell would say. And suddenly when it gets to a certain level, people start to think, well crikey we’re putting quite a lot of money in this now. Oughtn’t we maybe to check whether it’s really working and what we’re actually getting back for it? And that’s just a sign of maturity, I expect. It’s not a I don’t suddenly have a downer on digital advertising. I think they’ve just reached that point where people are starting to be a bit more questioning about what it does. And it will become part of what people do as opposed to a driving force. So I think we’ve probably reached an interesting moment in that. And I think the fact that so many TV sets are now becoming connected and mobile viewing is more important I think that’s also changing this too because people are able to reach these digital and online audiences using more traditional means, i.e. advertising in and around our programs, or Channel 4’s or Sky’s or anyone else’s.

Alex DeGroote

Great. Thanks.

Archie Norman

Okay. Look, I don’t want to short change, but I think we’ll take one more question and then my colleagues here are happy to stay around and discuss afterwards.

Lisa Yang

Good morning. It’s Lisa from Goldman Sachs. My first question is actually on what Sky is doing with the change to EPG, rolling out connected boxes and obviously now upselling Sky Q. Just wondering how do you expect that to impact ITV viewing, because clearly there are more choices for the viewers, which lure them to long linear viewing?

Adam Crozier

Well, I think it’s just more of what we’ve been living with for quite a few years now actually. Q’s different because I think that’s very much at the high end of what they’re trying to do. But there’s no doubt as TVs have become connected, as I said a moment ago, and all these devices being on play, there are a lot more places for people to go to watch television. We think generally that means actually to use the point earlier, watching more television, but they’ve got more choice. And therefore it comes back to making sure that we have on screen the programs that really drive those big audiences that people want to watch. And then of course we have another big advantage, which is our ability to cross-promote across all of those channels, which is a big advantage for us. And if we did pay for our air time which of course we don’t because we have lots of promotional air time around that we’d probably be the biggest advertiser in the UK. So we’re pretty big at positioning our content and driving people towards our different channels. And we schedule them in a way that means that we’re not competing with ourselves but trying to compete with everyone out there, so all the usual things apply. And just as they’re making themselves more available, so are we through things like the ITV Hub. So I think everyone -- I guess it’s the point I was making that I think actually generally, not just ITV, but generally I think UK broadcasters, including Sky, are adapting and evolving pretty sensibly to the new challenges. And I think there’s no reason why all of these companies, including Sky and us, can’t be quite successful in doing that.

Lisa Yang

So I also have a few quick questions for Ian. Is it possible to have the revenue profit contribution from UTV and also the FX and M&A impact for studios should the rates stay as they are?

Ian Griffiths

There is something in the slides actually on the FX. We’ve said that if the rates stay as they currently are because actually both the euro and the dollar have moved and strengthened in our favor, it’s roughly around 50 million of revenue and around £9 million profit, though of course that’s a pure translation movement so these things do go up and down across the year, so it’s not a gain that we’re banking at the moment.

On UTV, UTV, for those who know the business, we’ve essentially bought two TV businesses. We’ve bought a profitable Northern Irish business, which is really just an extension of the network we already run so it’s a business we know very, very well. And we’ve bought a business, which is a new business they launched, a new channel they launched, a Republic of Ireland channel, which has been heavily loss-making for them. And I think they guided the losses on that would be somewhere around £12 million to £15 million, which is more than the profits that the Northern Irish business were due to make. So for us, we think actually running the Northern Irish business more efficiently, helping grow the Southern Ireland, the Republic of Ireland business, it won’t have any material impact on our broadcast business this year in terms of absolute profit. But of course there will be some revenue coming in at various parts of our broadcast business around something -- on an annual basis around £45 million to £50 million in total across both of those businesses.

Lisa Yang

The M&A in studios.

Ian Griffiths

Sorry?

Lisa Yang

The M&A in studios.

Ian Griffiths

The M&A in studios?

Lisa Yang

The M&A part given all the acquisitions you’ve made for 2016.

Ian Griffiths

Sorry, I don’t understand the question.

Lisa Yang

The M&A contribution in studios given…

Ian Griffiths

Well, what we’ve said on 2016 for studios is that we will have another year of double-digit revenue and profit growth, which will be driven by our recent acquisitions. That’s what we’ve said.

Archie Norman

Thank you very much, everybody. Just I crave one moment of indulgence. This is my seventh and final results presentation with ITV before I hand over to somebody more competent. I just wanted to pay -- use this occasion to pay tribute to the executive team who’ve done such a fantastic job over the years. That’s Adam and Ian particularly, but also my colleagues here in the front row and my colleagues in the back row somewhere there as well and some who aren’t present. So it really has been an incredible management story more than anything at ITV.

I think the business is a business transformed, but it’s also a very strong business going forward now. And in businesses like this you make your own luck. And the more successful you are, the more talent you attract, the better people you have and you open up the possibilities that -- and we have possibilities now we could not have contemplated six years ago. So it really is a strong business going forward. And I’m very, very confident, more than I’ve ever been, about the prospects for ITV. And lastly, just to say thank you all for your interest and attention, both today and over the years. As we say at ITV, you’ve been a great audience. Thank you.

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