Earnings Transcript for ITVPF - Q2 Fiscal Year 2019

Dame Carolyn McCall: Good morning, everyone. Thank you so much for joining us for ITV’s 2019 Interim Results. In a moment, Chris will present our operational and financial performance for the first-half of the year. I’m going to then take you through our strategic priorities, our progress, of course, in- half and our focus for the rest of the year. We will then have time for plenty of questions. And Chris and I are joined here today by some of our management team, who all of you should have met by now. The quality of our content, as you know, is absolutely critical to our success, but that’s what we broadcast on our channels and platforms in the UK or what we sell internationally through our global Studios business. So in the usual ITV style, and I can see you’re already smiling, here is a video of the last six months and also what you can look forward to on ITV in the coming months in the UK and internationally. So that showcase of content is why our viewing performance remained good in H1 against tough comparators. Our online revenue grew strongly, up 18%, and ITV Studios has developed a solid pipeline of new and returning shows. We are, therefore, firmly on track to deliver our full-year guidance double-digit growth in online revenue and at least 5% growth in ITV Studios, total revenues at a margin of 14% to 16%. We also continue to implement well on cost savings. Given the macro uncertainty, we are now targeting a further £20 million of savings. We will deliver an additional £5 million this year and £15 million over 2020 to 2022. This brings our total target to £55 million to £60 million of cost savings, which is equivalent to around 13% of our addressable cost base. We will report today on progress in each area of our strategy as we continue to implement our investment plans. In the second-half of the year, we will launch BritBox, having recently formalized our agreement with the BBC and received positive feedback from Ofcom. We will also deliver our new programmatic addressable advertising platform. Our financial results, as you know, are slightly ahead of expectations with advertising in June better than we expected, particularly driven by strong growth in VOD around Love Island. Total external revenues were down 7% driven by a 5% decline in total advertising and a 6% decline in total ITV Studios revenue because of the phasing of deliveries weighted to the second-half, as we have previously guided. Year-on-year profits were also impacted by our essential investments and we are seeing good progress from these, which I will talk you through shortly. Cash generation remained strong, and reflecting this and the Board’s confidence in the business, we will pay an interim 2.6p dividend. Now I’m going to hand over to Chris, who will go through our financial and operating performance over the first-half.

Chris Kennedy: Thanks, Carolyn. Good morning, everybody. You’ve seen the financial headline, so now I’ll take you through the results for the six months ended 30th of June 2019 in more detail, starting with Broadcast & Online. As Carolyn has said, total advertising was down 5%, modestly ahead of the 6% we guided at Q1. Within this, the decline in spot revenues more than offset the strong growth in video on demand, which was up 18%. June performed more strongly than we had expected, with total advertising revenue down 11% against a tough comparator of last year. TAR in June last year grew 22% off the back of the World Cup. In July 2018, it was up by 10% versus 2017. So if you compare this year to 2017, we’re actually up 9% in June and expect July to be up 4%. Now you’ll hear both of us mention the World Cup a few times, so I wanted to give you some context as to why. While we can’t be precise about its impact on the viewing and revenue, we estimate that about half of the TAR decline in H1 is due to the World Cup, and ITV’s total viewing is broadly flat on 2017. So clearly, it creates a tough comparative. Direct to Consumer revenues were slightly down due to less pay-per-view boxing revenue and our competition is being impacted by the absence of Saturday Night Takeaway. However, over the full-year, we’re on track to deliver revenue growth. SDN revenue was down £2 million, driven by phasing of deal renewals in the period and other revenue was down 13% due to the closure of Encore at the end of April 2018 and lower commission from SDP – STV, which corresponds with the decline in spot advertising revenue. In total, Broadcast & Online revenues were down 5%. So moving on to costs. Our program spend is weighted to the second-half, driven by the Rugby World Cup in September. In the first-half, we increased spend on drama, as well as broadcasting two qualifiers for the Euros, which helped our viewing performance. Our guidance for the full-year scheduled spend remains unchanged at about £1.1 billion. While we continue to manage costs tightly, our non-program costs were higher due to our essential investments in marketing, data, the Hub and Hub+, increases in property costs for our new land and buildings, as we’ve previously highlighted, and increased bandwidth and rights cost as a result of our significant growth online. We’ve shown BritBox UK separately, so that you can clearly see the net investment we’re making. As the majority of the BritBox costs relate to content and marketing, they’ll largely come through in the second-half on launch. In total, broadcast, excluding BritBox, has delivered £214 million of profit, a 22% margin, which is down 17% year-on-year, due to the decline in advertising, our essential investment, which have been partly offset by the cost saving program. The operational highlights for the first-half has been our viewing, both onscreen and online. Our objective is to deliver the audiences demanded by advertisers, both in terms of scale and targeted demographics. We continue to be the home of scaled mass audiences. And just as importantly, we are delivering a targeted demographic, which Carolyn will talk about later. We’ve maintained our family share of viewing after three years of growth even against tough football World Cup comparators and this strong performance comes across the schedule. Our daytime shows continue to grow their share of viewing from Good Morning Britain to The Chase. We successfully added a new range of dramas, including Manhunt, Cheat, Cleaning Up and The Bay, which were the four most-watched new dramas this year with audiences of over 7 million; and Rugby Six Nations and horseracing continue to drive key audiences. The continuing dramas are down year-on-year following very strong storylines last year, but they continue to be the two largest soaps on TV. And it’s this great content, which has also driven our strong online viewing on the ITV Hub, which is up 13%. Most of this viewing is catch up, but younger viewers particularly are also watching via simulcast, which is up 17%. And today, 81% of all 16 to 34-year-olds are now registered on the UK – on the Hub. We’ve got a strong schedule for the rest of the year with dramas, including Sanditon and Sticks and Stones, as well as I’m A Celebrity, the autumn series of Britain’s Got Talent and X Factor and, of course, the Rugby World Cup. Our viewing remained strong, but the advertising market continues to be tough. The shape of the second quarter has been very much as we expected with a strong April around Easter and a tough June against the Football World Cup last year. There’s no question that the makeup of TV advertisers is changing, as new categories and markets are being disrupted by insurgent brands. Some categories are growing rapidly. Publishers, airlines, airlines and travel and government are all spending more. The well-publicized issues with high street retailers and FMCG companies have put their budgets under pressure and they have reduced spend across all media. We’re also seeing a decline in entertainment and leisure compared to the significant spend by the betting companies around the Football World Cup last year. The key standout are the non-gaming online brands within each category, which grew their spend by 7%. These brands can see both the immediate impact of TV advertising, as well as its ability to build a brand. Carolyn will take you through how we’re adapting our approach to advertisers and agencies to reflect these trends and the benefits that we’re already seeing. Now on to Studios. We’re confident that we will deliver at least 5% revenue growth of 14% to 16% margin over the full-year, plus we said in February, the phasing of deliveries is weighted to the second-half. In the first-half, total revenue was down 6% at £658 million [sic] [£758 million]. Organic revenues were also down 6%, and total EBITA was £116 million, down 2% at a 15% margin and firmly within our target range. Looking at revenue in a little more detail, the UK was 1% in total up with sales to ITV up 7%, including shows such as The Bay, Wild Bill and A Confession. Our off-ITV revenues in the UK were down with growth of deliveries from Gold Digger and Shetland offset by the absence of last year’s Bodyguard and Age Before Beauty. As expected, ITV America revenues were down significantly, 47% year-on-year at constant currency. That’s driven entirely by the absence of The Four. In the second-half, ITV America will deliver growth year-on-year with a strong delivery slate, including the return of Hell’s Kitchen, Love Island US, Snowpiercer and Cowboy Bebop. So for the full-year, we’re expecting ITV America revenues to be broadly flat with profits up following the reorganization and consolidation of the U.S. business. ITV Studios Rest of the World delivered 5% revenue growth, 6% growth at constant currency. We’re getting better at monetizing our formats across our global network and we’re growing our European drama capabilities. We agreed to a number of multi-year deals for The Voice, as well as production of our other formats across key territories, including I’m a Celebrity and Saturday Night Takeaway in Australia and Dancing on Ice in Germany. Global Entertainment revenues were broadly flat with the timing of some big deliveries weighted to H2. In line with our strategy, scripted has strongly grown in the first-half. And with demand from OTT platforms, it’s likely to be an area of higher growth in the medium term. Now the Studios business does not fit neatly into quarterly reporting. But we do have good visibility of our revenue for the year and our secured pipeline for this year is £130 million more than it was last year, which underpins our confidence in the full-year outlook. In July last year, we announced £40 million of essential investments for 2019 in technology, data, digital hub and Hub+ to ensure that ITV has a strong and sustainable future and to drive our digital transformation. The program is on track, and Carolyn will take you through the detail of how we are allocating the investment and the progress we’re making. The investments we’re making will be partly offset by cost savings. The original cost program is on track, and today, we’ve announced that we will deliver an additional £5 million this year and a further £15 million over 2020 to 2022. To give you a sense of the ambition of this target, I thought it’d be helpful to break down our cost base, the principal components and network program budget, transmission and industry costs and at ITV Studios, the actual costs of making productions, which are only partly addressable. Only 15% of our cost base is fully addressable. Now once we’ll go for efficiencies in all areas for context that £55 million to £60 million of cost saving is equivalent to about 13% of our fully addressable cost base. In the first-half, we delivered £10 million of savings, so we’re well on track to deliver the £20 million this year. The savings are coming from organizational redesign, production efficiencies, contract renewals, overheads and U.S. property moves. In total, we generated £248 million of adjusted earnings, down 13%, and 6.2p of adjusted EPS, also down 13%. First-half adjusted financing costs have increased by £5 million as a result of our slightly higher debt levels, some foreign exchange in the introduction of IFRS 16. Whilst IFRS 16 has no net impact on the profit before tax, it increases our EBITA and our interest charge by £2 million in the half, and it increases our gross liabilities at 30th of June 2019 by £113 million with net assets remaining largely unchanged. The tax rate has come down to 18%, which we expect to maintain over the full-year. And over the medium-term, we now expect the rate to be between 17% and 18%. Statutory EPS is 4.8p, which is down 9%. Exceptional cost primarily comprise acquisition-related earn-outs and the one-off costs of delivering our cost-saving program. We’ve got a solid balance sheet and our cash generation continues to be strong with profit to cash conversion at 89% despite our continued investments in the scripted business. We continue to manage the balance sheet in a way that’s consistent with our commitment to investment-grade metrics. And our net debt at 30th of June 2019 was £1.1 billion, with net debt-to-adjusted EBITA of 1.3 times and adjusted net debt-to-adjusted EBITA, which better reflects how credit agencies look at us of 1.9 times. We’ve got good access to liquidity with £740 million of undrawn facilities. And finally, our pension schemes are reporting a deficit of £113 million, which is up from the full-year. There’s an increase in liabilities as a result of lower discount rates, which is partly offset by asset growth and our funding contributions in the half. So overall, the balance sheet is in good shape. We’ve got the flexibility to continue to invest in the business and deliver returns to shareholders. We maintain our commitment to a dividend of at least 8p per share this year and it remains our intention to grow dividends broadly in line with earnings over the medium-term. Finally, I just wanted to touch on planning assumptions for the full-year. The majority haven’t changed. But, as I’ve said, cost savings target has increased by £5 million to £20 million, adjusted financing costs will increase from £35 million to £40 million, the tax rate has reduced from 19% to 18% and the CapEx guidance has increased from £65 million to £80 million to £85 million as a result of our investment in addressable advertising platform. I’ll now hand you back to Carolyn.

Dame Carolyn McCall: Thanks, Chris. So as you all know, we launched a new strategy a year ago in response to the changes we’re seeing within the media market. There’s no doubt that the pace of change is rapid and our strategy will continue to evolve. We’ve now created a much stronger foundation

Operator:

Q - Laurie Davidson: Hi there. It’s Laurie here from Deutsche. The first question is with the BBC and iPlayer now able to offer 30-day catch up, have you downgraded your expectations for BritBox revenues and/or subscribers? Second question. This year should be really good for Studios. As you’ve got Hell’s Kitchen deliveries back, you’ve got the easy comps from last year. You’ve got the Love Island sale, all of the new program sales you highlighted like Snowpiercer. Last year, you were behind your medium-term 5% guidance. Can you quantify the better than 5% for this year? And what does that include for external sales?

Dame Carolyn McCall: Okay. If I were to take BBC and Chris will comment on the Studios. So we have been discussing, as you know, how we do BritBox in the UK with the BBC for many, many, many months. And we have known for quite sometime that because of the license fee and the value for the license fee that they had been wanting to extend what they do on iPlayer. So we’ve been aware of that for quite a long time. So it doesn’t really change our projections. What is good, I think, is that it becomes very, very clear that BritBox is the second window. So it’s live, it’s iPlayer, it’s BritBox. It doesn’t go anywhere else. It’s Hub, it’s BritBox. And that was not the case previously. Previously, a load of programs would go dark. No one would know when they come back. No one would know where they would appear. I think every British consumer now knows that once it’s appeared on catch up, it’s gone live, it’s on catch up, it’s BritBox. And that is a huge plus from a consumer point of view. And consumers would rather know that there’s one place to go to get all of that content rather than be very confused by where that content is going to appear at any given time over the – whatever period it is. I think the way people view streaming is very, very different to the way they look at catch up and live and that’s what we’ve learned a lot in our research. There’s no time pressure on people watching streaming. So they’re quite happy to have library content that would just sit there, because they’re paying for every month and watch it whenever they want when they’ve got time, when they’re feeling that it’s a rainy day, whatever it might be. It’s a very different kind of way of viewing to having to watch something live, otherwise it goes out of date or having to watch catch up in a certain window. So we kind of been – this is not a surprise to us, put it that way.

Chris Kennedy: And then as to Studios, I don’t think David would ever say he has an easy comp to lap. But we have got a really good delivery slate. We’ve got – we’re £130 million and more committed revenues for the year than we had previously, which is why we’ve reiterated the, at least, 5% guidance. But we’re not going to go further at this point in the year.

Laurie Davidson: And sorry, just on the external sales? Are external sales going to grow within that? Are they consistent with the above 5%?

Chris Kennedy: Yes. External sales will be in line. Yes.

Laurie Davidson: So above 5%?

Chris Kennedy: We’re seeing at least 5% at least.

Laurie Davidson: Okay. Thanks.

Lisa Yang: Good morning. It’s Lisa Yang from Goldman Sachs. My first question is on your advertising outlook. I’m just wondering like what underpins your confidence in this Q3 outlook? Because it looks like it’s better than obviously what most people expect here and what media buyers have indicated. So just wondering, is it based on your conversation with advertisers on the bookings? Has visibility improved? That’s the first question. The second one is on BritBox. Just wondering how do you think about the overall envelope for programming spend on the – in your run rate here supposedly next year? And how much of that will be, for instance, original commissions from ITV Studios? And how should we think about the internal transfer of revenue and costs?

Dame Carolyn McCall: Could you just repeat a bit of that question, because I missed that, the first piece of the BritBox question?

Lisa Yang: Sure. Yes, I was just wondering, can you give us more color on the overall envelope for – on program spend on BritBox? And how…

Dame Carolyn McCall: Program spend on?

Lisa Yang: On BritBox?

Dame Carolyn McCall: On BritBox program spend?

Lisa Yang: Program spend.

Dame Carolyn McCall: Yes.

Lisa Yang: And how much of that do you think will be coming from ITV Studios? And the last question is on ITV online advertising. So we continue to see your advertising growth outperform your online viewing growth. So just wondering how sustainable that is. And is it just reflective of broader CPM inflation?

Dame Carolyn McCall: Okay. So on – I think on the first question on advertising. I think, we are – it has been – the – it has been very hard to read this year on the quarters. With March being the deadline for a deal and then it not happening had a knock-on to Q2 and then Love Island comes in and then VOD grows. So it’s hard to read. And I think what underpins what our outlook has been through today is kind of what we’re seeing in our numbers and also what we’re hearing from our advertisers. So that’s why we’ve put that into the outlook.

Chris Kennedy: And we’ve got a good view on July, which, as I said, is probably going to be around minus 5% this year versus plus 10% last year. I don’t know…

Dame Carolyn McCall: It doesn’t mean Kelly can go on holiday. It still means he’s got to work very, very hard for September. So yes…

Chris Kennedy: Yes. And I would say, so August, we’ve got a pretty good view. September, it’s still early days, which is why we’ve got quite a wide range on the September outcome. But I mean, overall, we’re comfortable with the minus 1% to plus 1% for the quarter.

Dame Carolyn McCall: So on BritBox, we haven’t really disclosed our program spend. We think that’s slightly – we just – we haven’t really talked about a number. And I think what we really have to do on BritBox is it can’t – you can’t look at it on a quarter, right? I mean, obviously, if you try to do that, it will just be pointless. It will be meaningless, because it has to build and it has to build slowly. And so commissions take quite a lot – so you commission, it takes quite a long time. Dramas can take anything from 18 months to two years to put on air. So we’re looking at this in as agile way as we possibly can and we have lots of commissions already in the pipeline in terms of concepts and thoughts. And as I said, we will be announcing our first commission shortly. But what is, I think, quite good is, we can do this with lots of different lenses. We can do it for the channels. We can do it for BritBox. We can – so we can be very flexible, I think, about what’s coming in. So Reemah, can – do you want to talk a little bit about that?

Reemah Sakaan: I think, overall, we’re looking at program spend and value as a content [indiscernible]. In the last 60 years, we’ve seen ITV have spent billions on programming, which we’ll be moving into BritBox. Each year collectively, the network spends about £3 billion in content, which will be flowing network, and then there’s tens of millions of pounds related to commissions. So collectively, all of that is landing, both at the library of things that are flowing straight off the networks and then new commissions we’ll be making. The shape and size of those will be different, different programming creative opportunities. And to answer your question about Studios, BritBox is opened for business for all who feel creative. We obviously really enjoy working with our own studios companies and it makes sense for us to do that as they’re our first pitch call. But really broadly, we’re speaking to everyone at the moment.

Dame Carolyn McCall: Yes. I mean, clearly, we want to get the most creative original content for BritBox. If we can do that via our ITV Studios, of course, we will do that, but we will also be open about where those ideas come from. I think that’s really important. Reemah, just since then, I’m sure many of have seen our – the Capital Markets Day, but she is the lead Launch Director for BritBox. So that’s why she answered that question so well. Online advertising. So your question there is you’re saying the online advertising is growing strongly and your…

Lisa Yang: …growing faster than the online viewing growth.

Dame Carolyn McCall: Yes. But I think that’s just a catch up effect. So I think it does demonstrate that advertisers are doing a lot of testing and learning in the kind of online environment and therefore, they are using it. They are using it and they are learning all the time, because it’s such kind of an immediate feedback loop. But that will soon – there’s a gap that will soon plateau out, I think.

Joseph Barnet-Lamb: Thanks. Joe Barnet-Lamb from Credit Suisse. A couple from me, please. Firstly, on CapEx. We’ve got a fairly substantial step-up in CapEx this year with regards investment in your addressable advertising platform. Can you help us understand beyond this year if you expect significantly elevated CapEx levels? Secondly, Direct to Consumer, you’re obviously guiding to an improvement in H2. The margin on pay-per-view is substantially different to some of your other D2C revenues. So can you help us understand if the material improvement in H2 is the pay-per-view just comes back?

Dame Carolyn McCall: You take.

Chris Kennedy: Yes. So – yes, on the CapEx, we’ve increased the guidance. The – how I would characterize it is there will be elevated spend next year as well and, to a much lesser extent, the following year. But this would be, certainly, from the – as it relates to addressable, this is peak year for addressable advertising. So you can expect it to come down in 2020 and then further in 2021, but it would still be above the sort of the £55 million long run kind of spend that we’ve had. And on D2C, no, the – we’ve obviously got the great performance from both – well, from Hub+. Then the real downside in the first-half was just not having Saturday Night Takeaway in the first-half and the competition spend associated with that. We’ve got a very strong schedule in the second-half, so we’d expect that to come back. So we’re not reliant on further pay-per – low-margin pay-per-view in the second-half. It’s a catch up.

Dame Carolyn McCall: And it’s worth just saying on PPV that it’s still a trial and a test for us. This is not a kind of established feature of D2C. We are still working through whether the margin is worth the effort.

Joseph Barnet-Lamb: And therefore, that’s not central to your long-term guidance in D2C?

Dame Carolyn McCall: Definitely not.

Joseph Barnet-Lamb: Perfect. Thank you.

Chris Kennedy: And then maybe go through Julien…

Dame Carolyn McCall: Julien and Patrick.

Chris Kennedy: Patrick.

Julien Roch: Julien Roch of Barclays. On the timing of the BBC going back – going to 25%, can you give us any indication? Is it next year, in three years, in five years? And when they go to 25%, will they pay you in kind or in cash? That’s the first question. You say there is quite a high likelihood of another broadcaster joining. So are we talking again at joining with a 10%, 25% stake, or would you be happy to lose majority ownership as a second question? And then the third one is on addressable advertising on TV set, because you talked about there was a slide about your progress on programmatic, but it was all linked to the Hub. When can you replace spot on your linear program? And is the fact that advertising is sold on a share deal basis, is that an impediment to targeted advertising on linear? Thank you.

Dame Carolyn McCall: Okay. Do you want to take that? So the – we have a contract with the BBC in which over the next three years, they have the option to increase their stake. It would be a cash – it would be about cash, not in kind. And the – your second question is about other partners. We don’t want too many partners, because we want this to be as simple and as fast moving as is possible. It’s an entrepreneurial business and it needs to move quickly. But we would welcome other – a couple of other partners. We will always have the majority shareholding at BritBox. The third thing was about – I think your question really, Julien, is that about linear addressable effectively?

Julien Roch: Yes.

Dame Carolyn McCall: Linear addressable.

Julien Roch: Okay. Can you do it? When? And…

Dame Carolyn McCall: So it has nothing to do with share deals. We’d love to blame share deals for that, but it’s not true, it’s technology. And the novelty, yes. Now you gave me an example about Spain. But actually, in Spain, they do it in – with hybrid TVs and it’s still early days and they’re still testing it. Penetration of hybrid TVs in this country is very, very low. And therefore, it’s just not taken off. So linear addressable is technologically there’s no solution and we have looked. We have looked. There’s – another thing I would say about linear addressable, which is on main channel at peak time, people are buying ITV, because they want big audiences. They are – it is a mass audience quality buy. And actually, by complementing that, by doing linear addressable on Hub is a fantastic offer for advertisers. So I think, actually, we’ll be in a strong position regardless of not having the technology to be really able to do linear addressable.

Julien Roch: Thank you.

Patrick Wellington: Hi. It’s Patrick Wellington, Morgan Stanley. Carolyn, you’re very careful, when you talk about advertising to cite political and economic uncertainty. And yet strangely, when I look at the forecasts of advertising agencies for UK advertising growth this year or the IPA numbers, they all seem to suggest that UK advertising has grown 4%, 5%, 6%, I mean, really quite strong numbers. So what’s the disconnect there between what’s going on and what’s going on in ITV? And do you think it’s more, as you say, a problem about your very big cash reserve for FMCG and retail and stuff like that?

Dame Carolyn McCall: So I think there are advertisers that aren’t certainly pausing and not spending across the board. They tend to disproportionately affect ITV, because they have a very – they are the retailers and the FMCG advertisers who have always been very big spenders on TV. So there’s a disproportionate effect on ITV of them spending less money overall. I think that’s the first thing. I think the second thing is, when you have got a prolonged uncertainty, some advertising will go to mediums that are just quick, immediate and easy with low production costs who don’t have to make a TV ad to put on air and then run it for quite a long time to get a return on that investment or run it for a certain period of time. So I think you’ll see outdoor has benefited from that. I think certainly, Facebook and Google have benefited from that. But I – so I think that’s really – and radio has actually benefited from that. So very tactical. So when things get tough, people become much more tactical. It’s not that you can’t do tactical on TV. You can be tactical on TV. But you do have to create engaging advertising to do that, which means you’ll have production costs, because you can run a radio ad. You can record it very quickly in a recording studio. It’s on air in a day. So I think there is – that effect is definitely going on. Now there’s also – there’s no question, we’ve talked about this before, Patrick. View – there are viewer trends, there are advertising trends. We are definitely competing with Facebook and Google and that’s why the programmatic advertising platform on VOD inventory is so important for us, because it will allow us to take – to start competing for hopefully other budgets. Because at the moment, our VOD advertising comes out of a TV budget, not out of the growth in online media. So your 4%, 5% growth is all online and outdoor and radio and all the other stuff put together. And we need to become in a position where we can compete for other pots of money, not just the TV pot of money.

Patrick Wellington: If I listen to that nice Arthur Sadoun at Publicis, he says that his problem is US consumer, traditional advertising, big FMCG companies. They don’t have Brexit to worry about there, but they a similar problem. So – and to what extent do you think you might have a structural issue as opposed to just a Brexit issue? And then to ask that more positively, you’ve talked about the – your initiatives in programmatic advertising and so on. Do you think we’ll see an uplift as we go through 2020 in VOD advertising? Will we see a noticeable difference? Will it come through in 2021? What’s the sort of timing of the revenue of those initiatives?

Dame Carolyn McCall: So on the structural, I think, FMCG companies and retailers are having massive structural challenges and that is making them rethink how they operate and how they protect margin. So I think we have definitely seen that effect on our advertising. As I said, I think there are viewer trends where we’re trying to capture total viewing, because viewers are viewing differently, and that’s why Hub is so important. That’s why BritBox is so important. But Hub, particularly, because it’s an advertising platform, as well as AVOD. So it’s very hard to disentangle, I think, the economic, the Brexit effect from the viewer and advertising trends. And advertising is really all about the viewers and where you can deliver the audiences and what you can deliver and prove that you – that it works, the effectiveness. And TV advertising is very effective. We’ve talked about the pendulum swinging towards Facebook and Google, which is very measurable, it’s all about clicks. I mean, we will be able to be more evidence-based in what we deliver on Hub much more measurable. We can do that on TV, but it just takes a longer time, because campaigns take time to build on reach and frequency. So I think it’s just different. I definitely think there is an economic effect on our advertising and you can see that, because NAR went down in 2016 and has gone down every year since. And before 2016, when there were still streaming services, there were still Facebook and Google that would – everything that exists today existed then. We had six years of NAR growth from 2010 onwards. So I think there’s definitely a Brexit effect. But that’s part of the strategy, is to address the way we can compete with Facebook and Google has to be.

Patrick Wellington: And timing of – at VOD, revenue upturn, financial…?

Chris Kennedy: I think you’ve got two sort of countering trends. So programmatic will definitely help VOD in 2020 and 2021, so that will raise growth rates. But obviously, you’ve got the law of big numbers coming to play as well. So that as VOD becomes bigger as a percentage of ad revenue, then the percentage growth in it will slow, so you’ve got those two trends.

Richard Eary: Hi. It’s Richard Eary from UBS. Just a follow-up on the sort of the online side. I think historically, you gave some stats about how much online viewing was a percentage of total hours. So then on whether you can give us a number for the first-half. And within that online viewing numbers, how much of that is targeted today? And given, obviously, the launch of Amobee and programmatic going forward, how much do you think will be targeted as we step through the next 12, 18 months?

Dame Carolyn McCall: So do you want to – Kelly, do you want to talk about how much is targeted today and the manual nature of what we’ve done and how it’s going to be automated?

Kelly Williams: So there’s two…

Dame Carolyn McCall: Just wait, Kelly is our Managing Director of Commercial.

Kelly Williams: I think just in terms of the amount of inventory that’s targeted, it’s about 75% of our inventory is targeted today. There’s a slight difference – Amobee is a bit more than targeting. Amobee – we’ve had targeted for a little while and that’s growing. What Amobee is going to do is automate that targeting. So we would expect over the next kind of 18 months for that 75% to start moving towards 100%. Our ambition is to get every agency onboard with Amobee during 2020. And once we’ve done that, the vast majority of our inventory will be addressable and automated.

Dame Carolyn McCall: Because currently, it’s all manual. So it’s extremely difficult to do.

Richard Eary: Can I just ask, Kelly, what – in terms of the yields between targeted and non-targeting….

Kelly Williams: Yes.

Richard Eary: …what was the differential?

Kelly Williams: We – well, we – for non-targeted, we kind of have a flat CPM, which is broadly about £28. And then for targeting, it depends on what you’re targeting. But for – so we have premiums above that depending on how sophisticated the target becomes. So – and the minimum yield would be another 10% above that and then it could be more depending on the sophistication of the targeting.

Richard Eary: Thanks.

Dame Carolyn McCall: Any other questions? Laurie? Second time.

Laurie Davidson: Yes.

Dame Carolyn McCall: Second round.

Laurie Davidson: It’s a quiet crowd. On SDN…

Dame Carolyn McCall: SDN, yes.

Laurie Davidson: The license for the Freeview multiplexes expires in either 2021 or…

Dame Carolyn McCall: 2022.

Laurie Davidson: 2022.

Dame Carolyn McCall: That’s ‘22.

Laurie Davidson: Correct. After that, are you going to have to pay to renew the SDN license? Would you potentially sell it if that license were revoked? And how does that fit into your contract renewal with Ofcom and your license costs?

Dame Carolyn McCall: So we are in conversations. We will continue to be in conversations. We’ve run that license for 15 years extremely successfully. So it’s too early really to give you any information about that. But we’re honest and we’re talking to Ofcom, we’re talking to everyone relevant on SDN, so…

Laurie Davidson: Is there a potential cost item though, that comes in from that when you have to renew that contract and pay for that?

Dame Carolyn McCall: Not at the moment.

Chris Kennedy: I can see we have two. As Carolyn said, I think that the testament is we’ve run it very, very successfully for 15 years, so it puts us in a good position to renew or extend. Any more questions?

Dame Carolyn McCall: Any more questions?

Chris Kennedy: No.

Dame Carolyn McCall: If there are no more questions, thank you all very much indeed. Thanks for coming.