ITV plc (ITV) Ordinary 10p

Group revenue fell 16% to £3.3bn, reflecting declines in Studios and advertising. Operating profit fell 33.5% to £356m. Excluding Covid related costs, the reduction in value of sports assets because of the pandemic, and money put aside to settle an onerous contract, operating profit would have been £554m.

About 90% of programmes are back in production, but some continued disruption and higher costs are expected. Total advertising revenue has been weak in the first quarter, but is starting to show signs of improvement.

No dividend will be paid while the group prioritises its strategic turnaround.

The shares fell 6.6% following the announcement.

Our view

It's tough out there for companies that rely on traditional advertising revenue. Digital insurgents have made this space much harder in recent years, and in times of economic crisis, marketing budgets are the first to get cut.

Coupled with the global shutdown of productions, that made 2020 very tough for ITV. A swipe to revenues and high fixed costs is not a happy formula for profits.

The Studios' business in particular is an important part of ITV's strategy, which involves diversifying away from traditional TV, and being at the forefront of content production. The rise of our boxset-binge culture means this area offers huge potential. But the longer this division's held back, the longer that strategic pivot will take.

Then there's the bread-and butter advertising business. The cancellation of big hitters like Love Island, a reduced Soap schedule and lack of any major sporting events, means there was little reason for advertisers to pay the big bucks needed to air aids last year. Trends are starting to look more positive - but the long-term pressures on this source of revenue remain.

ITV has been able to offset some of the lost income with its back catalogue of existing content. The group's own streaming efforts, Britbox and ITV Hub, are also playing an increasing but still relatively insignificant role too. The likes of Netflix and Amazon have significantly deeper pockets, and we suspect ITV's going to struggle to pick up a really meaningful chunk of streaming market share.

All-in-all there are a lot of spinning plates at ITV, and most of them aren't in the best shape. That means the group's financial resilience is important. ITV has access to significant liquidity and for now net debt is under control. But with earnings taking a hit, this is something we're keeping a close eye on. Not just because interest payments can quickly become onerous but also that ITV's ability to borrow depends on it.

ITV continues to live with a lot of uncertainties and that's reflected in its current valuation. This is likely to remain the case so long as advertising revenues remain the biggest money maker, so it's important we see other revenue streams like Studios, become a bigger part of the story. This strategic shift will take some time. The current lack of dividend means investors aren't being paid for their patience. For now prosperity in the medium term, rests on an advertising recovery.

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Full year results

Broadcast revenue fell 8% to £1.9bn. That reflects an 11% decline in Total Advertising Revenue (TAR) to £1.6bn, despite improvements in the final quarter. TAR declines offset a 6% increase in non-advertising revenue. TAR is expected to rise 5-7% in the four months to the end of April.

ITV recognised a non-cash charge of £23m, as it lowered the value of its sports assets. It expects an unfavourable change in audience type and revenues for sporting events. Excluding this charge and other one-off costs, EBITA (profits before interest payments, tax and the reduction in value of non-physical assets, fell 9% to £421m.

Studio revenue fell 25% to £1.4bn, reflecting production disruptions. EBITA margins also fell to 11% from 15%, as costs didn't fall as fast as revenue. As a result Underlying EBITA fell 43% to £152m. The division continues to be impacted by higher costs relating to social distancing and safety measures. 56% of revenues are now generated outside the UK.

Total Online viewing fell 5% because of the lack of popular shows like Love Island, fewer Soaps and no major sporting events. ITV Hub saw the number of registered accounts rise to 32.6m from 30.8m. However, the number of people that pay for the ad-free version remained flat at around 410,000. There are now 1.7m BritBox subscriptions internationally.

Overall share of viewing fell 4% in the year, the group said this was because of the increased volume of BBC news content.

The deferment of some tax and pension payments meant adjusted free cash flow rose to £605m from £359m. Net debt, including leases was £545m (2019: £893m). ITV has access to £829m of undrawn credit and unrestricted cash of £618m.

For the current financial year, ITV expects to spend £25m on essential investments. This includes £10m already announced, plus the phasing of some 2020 payments and an additional £13m to "accelerate" ITV's strategy. Cost savings are expected to be £30m in 2021, with £100m of annualised savings by the end of 2022. That's up from previous guidance of £55m - £60m.

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