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Fitch Upgrades ITV to 'BBB-'; Outlook Stable
April 9, 2013 / 6:02 AM / in 5 years

Fitch Upgrades ITV to 'BBB-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, April 09 (Fitch) Fitch Ratings has upgraded ITV plc's (ITV) Long-term Issuer Default Rating (IDR) to 'BBB-' from 'BB+'. The Outlook on the Long-term IDR is Stable. A full list of rating actions is at the end of this release. The upgrade is based on Fitch's opinion that ITV is now more able to weather the structural changes facing the media industry. The current and future impact of the internet and time-shifted viewing on European free-to-air TV broadcasters and ITV in particular is not as great as Fitch had anticipated 12-24 months ago. ITV has delivered a strong 2012 operating performance and management continues to take a conservative approach with regards to the company's financial profile. ITV is less dependent on cyclical advertising as it continues to grow Online, Pay & Interactive revenues and increase profits from ITV Studios, the company's content business. KEY DRIVERS - Free-to-air TV still important Even though the internet continues to take a growing share of overall UK advertising expenditure, the absolute amount spent on TV advertising has remained stable over the past few years. As the leading commercial free-to-air TV broadcaster in the UK, ITV remains one of the very few ways for advertisers to reach the UK mass market. Increased take-up of pay-TV or content distributed over the Internet is unlikely to significantly dent ITV's reach in the medium to long-term. - Less dependent on cyclical advertising In 2012, ITV's net TV advertising revenue was GBP1.51bn, unchanged versus 2011. However, group underlying operating profit increased by 12.6% to GBP520m, due to continued profit growth at ITV Studios and an increasing contribution from the company's online and interactive business. A more diversified revenue mix, better visibility of profits at ITV Studios and continued solid cost control in the broadcast business means that ITV is less susceptible to a significant downturn in TV advertising revenue. - Emphasis on quality content ITV knows how to make and commission quality entertainment for the UK market. They have reformed efforts in this area with clear results. However, other companies (e.g. Sky, Netflix, Amazon, etc) are raising the English language programming stakes even higher and Fitch does not believe this will abate in the years ahead. ITV must continue to invest in quality and stay relevant to UK audiences. - Conservatively-managed balance sheet Due to strong free cash-flow generation, ITV ended 2012 with a reported net cash position of GBP206m (GBP45m in 2011). Taking into account operating leases and GBP135m of restricted cash, funds from operations (FFO) adjusted net leverage fell to 0.1x at the end of 2012 (versus 0.6x at the end of 2011). ITV's management is taking a conservative approach to the company's balance sheet. Even though ITV is paying a special dividend to shareholders in 2013, it has so far this year acquired the freehold of its corporate headquarters for GBP56m and paid down GBP138m of its GBP200m 2019 bilateral loan. - Limited Acquisition Risk ITV has made some small acquisitions to bolster its content business. Fitch believes other similar transactions are likely. Such acquisitions could improve ITV's operating profile. Because of ITV's currently strong balance sheet, any acquisition of up to GBP300m in value would fit comfortably within the 'BBB-'/Stable rating. Any transactions larger in size would be treated by Fitch as event risk. WHAT COULD TRIGGER A RATING ACTION? Negative: Future developments that could lead to negative rating actions include: - Expectations of FFO adjusted net leverage sustained above 1.5x would be considered incompatible with a 'BBB-' rating level. - Erosion of the core TV advertising business, either from a sustained decline in ITV's audience share, or adverse effects from industry trends. Positive: Future developments that could lead to positive rating actions include: - Sustained improvement in the profitability of ITV's core advertising business and continued profitable growth of the content business, together with a conservative approach to leverage could lead to positive rating action. This is not anticipated in the near-term. LIQUIDITY AND DEBT STRUCTURE ITV's liquidity remains healthy. ITV had GBP690m of cash and cash equivalents on its balance sheet at the end of 2012, of which GBP135m is considered by Fitch to be restricted as use is limited by financial leases and unfunded pension commitments, or held overseas. ITV also has an undrawn working capital facility of GBP125m which expires in 2015, and an undrawn GBP250m revolving credit facility which expires in 2015. ITV's next significant debt repayments are for GBP15m in June 2014 and GBP78m in October 2015. The rating actions are as follows: Long-term IDR: upgraded to 'BBB-' from 'BB+'; Outlook Stable Senior unsecured rating: upgraded to 'BBB-' from 'BB+' Contact: Principal Analyst Brian O'Brien Analyst +44 20 3530 1127 Supervisory Analyst Damien Chew, CFA Senior Director +44 20 3530 1424 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Michael Dunning Managing Director +44 20 3530 1178 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Additional information is available at For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable criteria, 'Corporate Rating Methodology', dated 8 August 2012 is available at Applicable Criteria and Related Research Corporate Rating Methodology here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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