ITV's share price jumped this morning after posting better than expected drops in revenues.
The broadcaster's share price was up 4.2 per cent in early trading as chairman Peter Bazalgette said he was "confident in the underlying strength of the business".
Group external revenue slid three per cent to £1.46bn in the six months to 30 June, with broadcast and online revenues falling six per cent to £1bn, although its in house production business ITV Studios grew seven per cent to £697m. Internal supply costs rose 14 per cent to £239m.
Total EBITA was down eight per cent to £403m, with ITV Studios adjusted EBITA was down nine per cent to £110m, as a result of investment into new business.
Profit before tax dropped 10 per cent to £381m.
However, ITV said this performance was "very much as we anticipated", and has upped its interim dividend five per cent to 2.52p per share. Full year guidance is unchanged.
Why it's interesting
ITV is in the midst of a major transition of the business, kick-started by outgoing chief executive Adam Crozier, to make it less reliant on one-off revenues delivered by advertising and more on long-tail income from retaining the IP to its own productions.
This is a long-term process, however the increase in revenues delivered by ITV Studios demonstrates the success the business is having in moving away from being a pure broadcaster.
In fact, ITV Studios has already secured 85 per cent of expected full year revenues, over £100m more than this time last year and "is firmly on track to deliver good organic revenue growth". Full year, the division's adjusted EBITA will be broadly flat on 2016.
Crozier is leaving and EasyJet boss Carolyn McCall will be joining on 8 January. She will still have plenty of work to get her teeth into when she arrives.
What they said
ITV's executive chairman Peter Bazalgette said growth in non-advertising revenues was "a clear indication that our strategy of rebalancing the business is working".
"We are confident in the underlying strength of the business as we continue to invest both organically and through acquisitions," he added, noting ITV Studios' EBITA had been affected by "our ongoing investment in our US scripted business and the fact that the prior year includes the full benefit of the four year license deal for The Voice of China".
Bazalgette added: "We have a very strong pipeline of new and returning drama and formats and we are building momentum in our US scripted business. We continue to grow our global family of production companies and in H1 we further strengthened our international drama and format business with the acquisition of Line of Duty producer World Productions in the UK, Tetra Media Studio in France and Elk Production in Sweden.
"On-screen we are performing well. To the end of May our ITV Family share of viewing grew although we ended the first half flat as June last year included the benefit of the Euros. ITV continues to deliver the mass audiences demanded by advertisers as well as delivering the key target demographics.
"ITV is the only channel to deliver a commercial audience over five million and Love Island demonstrates that young viewers engage in great TV content.
"We see opportunities to continue to invest in growing an even stronger and more resilient business. The strength of our balance sheet and healthy cashflows allow us to do so while delivering sustainable returns to our shareholders.
What analysts said
Panmure Gordon analyst Jonathan Helliwell said the guidance should "reassure investors that ITV is now moving past the worst point for cyclical headwinds and that structural pressures remain manageable".
"With scope for full year numbers to nudge up, Love Island providing reassurance on structural issues, and a new chief executive due to arrive in January 2018, we see scope for a relief bounce in the shares from current levels," he added.
Liberum's Ian Whittacker added: "One factor to note is that, despite the eight per cent drop in ITV NAR, the adjusted EPS only fell nine per cent, demonstrating how ITV has become a far less operationally geared business as it has grown its non-TV advertising revenues, which we think now make up c. 45 per cent of ITV’s revenues."
Roddy Davidson at Shore Capital said: "We are encouraged by this relatively robust performance against the very challenging advertising backdrop described in this morning’s release. More broadly, we believe ITV’s valuation multiples already more than reflect weakness in advertising markets following a period of disappointing share price performance and, importantly, fail to reflect its medium-term attractions."
ITV is investing now to produce a stronger business for the future. All eyes will be on McCall to see how she builds on Crozier's work.