Final Results 2011

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STV Group plc – Final Results 2011
Scotland’s Digital Media Company
STV Financial Results in line with expectations with digital revenues up 69%
Financial Highlights
  STV (continuing) Group  
  2011 2010 2011 2010**  
Revenue £102.0m £104.8m £102.0m £111.7m  
EBITDA*   £17.4m   £16.9m   £17.4m   £16.9m   +3%
Operating profit*   £15.0m   £14.4m   £15.0m   £14.4m   +4%
Pre-tax profit*       £14.0m   £12.5m +12%
EPS*       38.0p   34.3p +11%
Net debt       £54.5m   £52.2m   +4%
**The disposal of non-core business Pearl & Dean was completed on 14 May 2010.  The performance of 
P&D is included within Group trading for the period until its disposal.  STV (continuing) refers to the core business.
  • Operating profit* up 4% year on year to £15.0m  (2010: £14.4m)
  • Pre-tax profit* up 12% to £14.0m (2010: £12.5m)
  • Earnings per share* up 11% to 38.0p (2010: 34.3p)
  • Digital revenues up 69% to £7.1m (2010 £4.2m)
  • Tight cost control offsetting soft advertising markets
  • 6 out of 11 KPI targets met or exceeded
  • Peak time share in excess of the Network for third year running
  • Continued growth in digital traffic and revenues and expansion of platforms
Strategic Developments
  • New three year £70.0m banking facility confirmed in January 2012 providing funding certainty 
  • New KPI growth targets set for 2012 to 2015; including new KPI focusing on collection of consumer data and insights
  • Diversification of Productions business continues; two-year deal for hit series Antiques Road Trip for the BBC (120 episodes) and successful partnership with U.S production company Kinetic and commercial relationship with Group M providing opportunities to deliver network shows, the first being four part show Perez Hilton Super Fan to ITV2
  • Over 20 STV Local sites rolled out, available to 46% of Scottish population and attracting incremental advertising revenues
  • Delivery of unique content across multi-platforms constantly improving:
    • STV News app, on iPhone and Android, delivering over 50% of all online news traffic
    • Ability to share content via Facebook platform
Richard Findlay, Chairman, said: “STV has delivered a robust set of results for 2011 against challenging economic conditions from which no consumer business is immune.  We are focused on our clear strategy and KPI targets and we continue to improve efficiencies behind the scenes, to ensure we deliver value for shareholders and a first rate and distinctive service for viewers and consumers.”
Rob Woodward, Chief Executive Officer, said: “STV has an ambitious plan for growth and our strategy remains clear going forward, with investment in strategic partnerships, helping extend the STV brand in our core Scottish market and beyond. We remain committed to growing a strong, successful and dynamic STV, cementing our position as Scotland’s most popular peak time TV station and leading commercial media website, and as the provider of unique digital content across multi-platforms.”
23 February 2011
There will be a presentation for analysts at the offices of Peel Hunt, Moor House, 120 London Wall, London EC2Y 5ET today at 12.30pm.  Should you wish to attend the presentation, please contact Jamie Ramsay, College Hill (tel: 0207 457 2047).
STV Group plc
George Watt, Chief Financial Officer                             Tel: 0141 300 3049
Kirstin Stevenson, PR Manager                                    Tel: 0141 300 3670
College Hill
James Hogan                                                               Tel:  0207 457 2020
Jamie Ramsay

Operational Review
STV is Scotland’s digital media company with an ambitious strategy for growth.  The creation of innovative, high quality and relevant content remains key to our business.  We are excited by new technological developments that allow us to significantly extend our reach, effectively building consumer relationships and connecting with communities across multi-platforms and gaining insights into consumer trends.  We continue to work with partners to deliver unique, compelling content that can be accessed anywhere, anytime.
Following the transformation of STV and the consistent achievement of its growth KPIs, STV set out strategic aims to grow non-broadcast earnings from 11% in 2011 to represent 33% of Group earnings in 2015.  This will involve:-
  • Doubling STV Productions’ revenues;
  • Becoming the most used digital service in Scotland;
  • Launching two new market-leading consumer propositions.
STV Consumer

STV continues to deliver a high quality, relevant and distinct schedule for Scotland.  STV’s average peak time audience share tracked ahead of the ITV Network in 2011, demonstrating the success of our programming strategy and our position as Scotland’s most popular peak-time TV station, reaching over 4.2m viewers per month.
Despite the challenging marketplace and a reduction in regional advertising revenues we have exceeded our upgraded broadcasting margin target of 15%, demonstrating the underlying profitability of the business and the positive impact of our relentless focus on cost control and operational excellence.
We continue to strengthen our market leading position and we have further increased our share in 2011. This strong position is maintained by offering innovative solutions for our advertisers, providing a fully integrated service incorporating digital and broadcast opportunities.
We are fully committed to Public Service Broadcasting (PSB) and seek to deliver PSB innovatively across multi-platforms, truly engaging and connecting with our viewers.  We offer the most locally-focused news service in the UK, with dedicated 30 minute programmes for the East, West and North of Scotland, alongside a bulletin for Tayside.  This service, which is commercially sustainable and uses innovative production technology, is trusted and popular, and has seen a 7% share increase year on year (June-Dec).  In October, we also increased our commitment to news and current affairs with the introduction of our nightly current affairs programme, Scotland Tonight.
We continue to build new connections, focused at a community level and creating new platforms for our advertisers and commercial partners to reach their target markets. The roll-out of our strategic digital initiative, STV Local, a hyper-local network of websites, online and on mobile, is currently available to 46% of the Scottish population.
In February 2011 STV launched ScotPulse, an online market research panel designed to provide direct access to valuable consumer insights. Over 5,500 panel members have been recruited, allowing us a further enhancement of the relationship we have built up with our audience over the past five decades.
Broadcasting outlook
Our outlook for Q1 for total airtime revenues is to be down 4% with regional airtime revenues increasing 14% year-on-year in Q1, partly offsetting an 8% decline in national airtime revenues.  We remain cautious as a result of the uncertain UK macro economic climate.

Our investment in new digital services is delivering growth for the business. 
Through 2011, we have been consistently building traffic and revenue, with 36% growth in unique users year on year and 69% growth in digital revenue.
We have exceeded three of our KPIs in this area and only narrowly missed our revenue target.  The margins target has been missed due to our ongoing investment in STV Local, which is delivering growth as it rolls out across Scotland.
Our TV-on-demand service, STV Player, continues to build traffic, delivering an average of over 2.9m streams per month in the final quarter of 2011.  The STV Player is also now available via Android devices, making this popular service now available via computer, smart phones and PS3.
By end 2011, the STV News app via iPhone and Android delivered over 50% of all online traffic to news. We are seeing increased engagement levels from our consumers as our successful STV Anywhere strategy delivers our content across an increasing range of mobile devices and platforms.
STV recognises that opportunistic brand extensions of our core businesses are key to driving revenues.  STV Live Casino launched in the summer with technical partner, VueTec, offering a live, real-time casino experience via their computers.  In May we launched in partnership with Scotland’s leading travel firm, Barrhead Travel. 
With strong traffic levels established, our focus will increasingly be on driving consumer engagement. In August, we retained Experian as our Data Partner to help build our customer database capability and deepen our relationship with our audience as consumers of STV services, which is key to developing successful consumer services.  For 2012, we have introduced a new KPI focusing on Consumer Insights, helping us understand better the tastes and preferences of our consumers.
STV Productions

Creating compelling content is at the heart of our business and we will continue to successfully diversify the range of genres we currently produce and extend our customer base.  2011 saw STV Productions produce programmes for Channel 4, ITV1, ITV2 and BBC2.  A key drama commission for 2011 was 90-minute film, Fast Freddie, The Widow and Me, for ITV1 which aired on 27 December and attracted a consolidated audience of over 5 million. 
Our strategic partnership with Kinetic Content in the US saw us working together with the LA-based production company and GroupM – the world’s leading media management investment group - to develop a format, Perez Hilton Super Fan.  This became a four-part series commissioned by ITV2 featuring international stars Lady Gaga, Kelly Rowland, Katy Perry and Enrique Iglesias.  
This strategy places us in a strong position as we enter 2012 with a good pipeline for commissions and growth.  Today we can confirm that we have been commissioned for a further four series of ratings winner, Antiques Road Trip.  This two year deal will see us deliver 120 x 45” episodes for BBC2.
ITV/STV Update

In April, we agreed a wide ranging settlement with ITV plc and ITV Network over the various ongoing legal actions.  All legal actions ceased and we are currently in discussions to agree the basis of a more collaborative relationship for the future.  The terms of the settlement, which totals £18.0m, consist of £7.2m in cash paid in 2011 and the balance of £10.8m to be paid in 18 equal monthly instalments from January 2012 to June 2013.
Financial Performance Review
Total revenue amounted to £102.0m (2010: £111.7m) with 2010 including £6.9m of Pearl & Dean revenues to the date of its disposal. Excluding Pearl & Dean, continuing business revenues were down 3% due to lower airtime and productions revenues only being partially offset by strong growth in digital.
Consumer revenues at £93.6m (2010: £95.0m) were impacted by a 3% fall in national and 13% fall in regional revenues.  These were partially offset by 69% growth in digital revenues to £7.1m (2010: £4.2m) as our online audience continued to grow and be successfully monetised.
Productions revenue fell by 14% to £8.4m (2010: £9.8m) as the impact of Taggart not being delivered could not be offset by higher production hours for a wider customer base.
Operating Profit
Operating profit before exceptional items increased by £0.6m (4%) to £15.0m as strict cost control ensured the lower revenues did not flow through to profit.  This included managing a planned increase in losses in our STV Local operations to £0.9m (2010: £0.4m) as these services were rolled out more widely across Scotland. As a result of this tight cost management, margins improved in the consumer division to 15.5% (2010: 14.1%).
Productions profit amounted to £0.5m (2010: £1.0m) and margins were below target at 6.0% (2010: 10.2%).
Finance Costs
Net finance expenses before exceptional items decreased by £0.9m to £1.0m (2010: £1.9m) which was mainly due to a higher IAS19 non cash pension credit of £1.3m (2010: £0.4m).
Profit Before Tax
Profit before tax and exceptional items increased by 12% to £14.0m (2010: £12.5m).
Exceptional Items
Exceptional items resulted in a net charge of £13.4m (2010: £7.2m).  The accounting for the settlement of the litigation with ITV Network and ITV plc, including legal costs, amounted to £13.5m and there was a £1.4m cost of change provision to provide for redundancy costs in the Consumer division from headcount reductions, mainly in the news operations.
Statutory Result
The statutory result for the year after tax and exceptional items amounted to a profit of £0.6m (2010: £5.3m).
Earnings Per Share
EPS before exceptional items increased by 11% to 38.0p (2010: 34.3p) reflecting the increase in profit before tax with a partial offset from the higher number of shares issue in 2011.  EPS on a statutory basis, including exceptional items, amounted to 1.6p per share (2010: 14.6p).
Balance Sheet
The principal balance sheet movements over the last 12 months were a reduction in inventories and an increase in the pension deficit.
The pension deficit on an IAS19 basis net of deferred tax increased to £23.0m (2010: £16.2m) due to a lower discount rate as gilt yields fell.  This more than offset the £5m benefit following the conclusion of the mortality assumption project in the Caledonian Pension Scheme.  The next triennial valuation of the Group’s two defined benefit schemes will take place at 1 January 2012 with the results and the new funding pattern likely to be finalised in Q1 2013.
Cash Flow
Net debt amounted to £54.5m at the year end (2010: £52.2m) with the increase due mainly to the litigation settlement and related legal costs.  The core operating businesses continued to generate strong cash flows, with 108% of operating profit converted to free cash flow (2010: 138%), again above the target of 100%.  Capital expenditure amounted to £1.6m (2010: £0.8m) with investment in both our online infrastructure and news operations. 
Banking facilities
In January 2012 we announced a renewal of our banking facilities with a £70.0m facility, provided by Bank of Scotland, Barclays and Santander.  The facility runs to 31 December 2014 and is extendable to March 2016 subject to lender approval and the extension of the Group’s broadcasting licences.  The new facility provides funding certainty over the short and medium term.
Principal Risks and Uncertainties
This announcement contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of STV Group plc. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.
The group set out in its 2010 Annual Report and Financial Statements the principal risks and uncertainties that could impact its performance.  These remain largely unchanged since the Annual Report was published, with the exception of the negotiated litigation settlement with ITV plc and ITV Network. The 2011 Annual Report is scheduled to be circulated to shareholders on 12 March 2012.
The group has rigorous internal systems to identify, monitor and manage any risks to the business.
The main areas of potential risk and uncertainty are as follows:-
Regulatory environment
Our television business is operated under licences, regulated by Ofcom, which contain conditions that must be adhered to and although measures have been put in place internally to ensure that this occurs, it is possible that these terms may inadvertently be breached and sanctions imposed by Ofcom, the most serious of which could be the withdrawal of the licences.
Dependence on advertising
STV’s results could vary from period to period as a result of a variety of factors, some of which are outside STV’s control, including general economic conditions. In response to the operating and competitive environment, STV may elect to make certain decisions that could have a material adverse effect on sales, results of operations and financial conditions.
Performance of the ITV Network
The majority of STV Consumer’s programming content is provided by the ITV Network.  Therefore, its ability to attract and retain audiences and the advertising airtime sales performance of ITV’s sales house – which is responsible for the sale of STV’s UK national airtime to advertisers – are factors that affect the performance of STV Consumer and, therefore, the Group as a whole.
Pension scheme shortfalls
We have a long-term deficit recovery plan in place and the investment strategy is calculated to reduce any market movement impacts. It is possible that the Group may be required to increase its contributions which could have an adverse impact on results and cash flow.
The Board has announced its intention to resume dividend payments with a planned progressive dividend policy.  After consultation with our major shareholders and given constraints in the new banking facility, we will keep this under review and update at our interim results.
Rob Woodward
CEO, STV Group plc

STV Group plc Full Year results 2011 - Appendix

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