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Final Results 2012

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STV Group plc – Final Results 2012
 
A profitable growth company

Financial Highlights 2012 2011 Year on year
Revenue   £102.7m   £102.0m  +1%
EBITDA*   £19.5m   £17.3m  +13%
Operating profit*   £17.1m   £15.0m  +14%
Pre-tax profit*   £14.4m   £14.0m  +3%
EPS*
Adjusted EPS**
  32.5 pence
  32.5 pence
  38.0 pence
  32.3 pence
 -14%
 +1%
Statutory EPS   18.3 pence   1.6 pence  
Net debt   £45.3m   £54.5m  -17%
 
*Pre-exceptionals
**Adjusted EPS reflects EPS performance pre-exceptionals year-on-year assuming equivalent 15% tax rate (2011: nil%). 
 
Highlights
  • Operating profit* up 14% at £17.1 million
  • EBITDA* up 13% at £19.5 million
  • Net debt down 17% to £45.3 million
  • Good progress made on KPIs with 5 exceeded
  • STV Productions revenues up 21% to £10.2 million
  • Digital revenues up 84% in growth areas and digital operating profit up 42% to £1.7m
Strategic Developments
  • Proposed renewal of Channel 3 licences for maximum term of 10 years provides long-term stability and continuity for investors and stakeholders
  • New Channel 3 Network affiliate arrangements implemented securing commercially sustainable basis for future
  • STV Productions continues to secure new commissions with a further commission of 20 episodes of Celebrity Antiques Road Trip announced today
  • The award of the new local TV licences in Glasgow and Edinburgh to STV supports the continued strengthening of the portfolio of services we offer to our audiences 

Rob Woodward, Chief Executive Officer, said: “We have delivered strong financial results with double digit growth in operating profit and a significant reduction in net debt.  Our digital and production businesses are delivering strong growth momentum with STV Productions continuing to secure new series commissions. The recommendation to renew our licences for the maximum term of 10 years provides certainty for the future and we remain on track to deliver our sustainable growth objectives.” 
 
20 February 2012 
 
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 Katie Martin, STV (Tel: 0141 300 3000).
 
Enquiries:
 
STV Group plc
George Watt, Chief Financial Officer                              Tel: 0141 300 3049
Eleanor Marshall, PR & Communications Manager         Tel: 0141 300 3670
 
College Hill      
James Hogan
Jamie Ramsay                                                               Tel:  0207 457 2020

Operational Review
 
Introduction
STV is firmly established as a profitable and progressive business, delivering growth in our productions and digital activities and making good progress in deepening relationships with consumers across all platforms and channels.
 
The recommendation of the Secretary of State to renew our licences for the maximum term of 10 years is an endorsement of the excellent service delivered and recognition of the quality of public service content STV consistently provides to audiences and consumers.   Following the agreement of new affiliate status networking arrangements with ITV in early 2012, we have secured a stable cost basis to enable our continued development as a successful digital media business at the heart of the media landscape in Scotland.
 
Our strategic aim to grow non-broadcast earnings to represent one third of Group earnings in 2015 remains on track and will be achieved through the continued growth of STV Productions and our digital services.
 
STV Consumer
STV is committed to delivering an engaging and informative schedule that offers the best Channel 3 network content alongside innovative, home grown productions. Our peak time audience share continued to exceed the Network in 2012, tracking 1.3 share points ahead, and reaching over 4.2m viewers per month.
 
We exceeded our consumer division margin target, achieving a margin of 18.3%, representing an 80% increase since 2009, and demonstrating the underlying profitability of the consumer business and the positive impact of continued cost savings and cost control.
 
Our relationships with advertisers and commercial partners have continued to strengthen and increasingly long standing clients are seeking multi-platform integrated campaigns.  The development of new digital services and platforms is also attracting a broader client base including many new advertisers who have not previously considered STV as a marketing platform and are now successfully utilising our array of digital platforms to reach their target markets.  This added value approach has contributed to the 42% increase in digital margins during 2012.
 
Our offer of an integrated campaign has been further extended to the area of branded content with clients including Bank of Scotland for whom we developed, produced and transmitted on STV, a one hour programme highlighting Scots participating in the 2012 Olympics and supported with a series of one minute short form sponsored programmes in addition to an extensive digital and mobile campaign.
 
Our investment in public service content, delivering an enhanced locally focused news service on air and online in 2012, resulted in our news services delivering a 10 year ratings high in audience share and we continue to exceed our licence requirements in this area. In addition to our investment in technology, we have invested in current affairs programming and within 12 months since launch, Scotland Tonight, has become the most popular current affairs programme in Scotland, reaching over 3 million viewers across the year.  This programme will play a key role in our content engagement strategy as STV becomes the centre stage for the political debate for the referendum on Scotland’s constitutional future in 2014.
 
Public service content is a key driver of traffic to our digital platforms with over one third of our monthly unique users consuming our news content.
 
Building consumer insights was a key priority of the business in 2012 and during the year we increased the consumer data held by 55%, enabling us to continue to build a greater understanding of the tastes and preferences of our audiences and consumers as we develop new digital services and products.
 
Our continued investment in new digital platforms and services is delivering growth for the business. Throughout 2012 we have continued to grow engagement levels and traffic across an increasing number of free platforms.  We attracted an average of 3.2 million unique users every month in the fourth quarter, with our consumers increasingly migrating across our platforms.
 
During 2012 we have continued to invest in the development of new platforms with a focus on mobile and portable devices which now accounts for 56% of our digital traffic.  The STV Player was also launched on YouView in August as one of the first of two initial additional content partners on this platform.  The STV Player App was also released in the Apple App Store and Google Play.
 
Our investment in STV Local has continued and in May we launched Metro sites serving comprehensive and engaging local content and services to consumers in Glasgow and Edinburgh.  This is proving to be a successful commercial model and is delivering increased levels of consumer engagement.
 
We achieved digital revenues of £6.5m and, whilst our revenue target was not achieved, digital revenues in the growth categories, including video on demand (VoD), display and classified advertising, increased by 84% to £3.5m with a margin of 23%.  As the profile of our digital activities continues to evolve, growth categories now account for 54% of digital revenues compared to 27% last year.  Our overall digital operating profit increased by 42% to £1.7m.
 
In November we announced STV will be the first UK broadcaster to implement Gigya’s social infrastructure technology on stv.tv, making our sites completely social and enabling the development of deeper relationships with existing consumers.
 
STV Productions
STV Productions has continued to build its reputation as a world-class content provider.  In 2012 the business has achieved strong growth in revenues and the number of produced hours.  New commissions have successfully been secured across genres with programmes delivered in entertainment, factual, drama and branded content for a broad customer base.
 
A key priority of the business has been to secure returnable formats.  This goal has been fulfilled in 2012 with the re-commission of a further four series of Antiques Road Trip for delivery in 2012 and 2013 and another series of Celebrity Antiques Road Trip for BBC.   The commission of a third series of Celebrity Antiques Road Trip (20 episodes) for BBC1 is announced today.
 
Other significant commissions announced in the year include the commission of Catchphrase for ITV’s prime-time weekend schedule (9 episodes); 20 episodes of a new factual entertainment programme, Country Show Cook Off for BBC2; 8 episodes of a new entertainment panel show for ITV2, Fake Reaction, which was derived from a format developed in partnership with our US content partners, Kinetic Content; and a 2-part drama for ITV, The Poison Tree, produced in conjunction with Group M Entertainment.
 
In late 2012 we announced a high profile commission for BBC2 of a feature film, which will be the first of this format produced by STV Productions.  This documentary is being made to mark the 25th anniversary of the Piper Alpha disaster in the North Sea and will be released in selected cinemas in July 2013, in advance of transmission on BBC2.
 
The business has also developed and delivered content to STV.  An increased focus is being placed on identifying opportunities to deliver branded content for clients, working in conjunction with our commercial team.  In 2012, branded programmes were developed for Bank of Scotland and the Scottish Government.
 
Overall in 2012, revenues generated by STV Productions grew by 21% and the number of produced hours increased by 17%.
 
Outlook
Our outlook for Q1 for total airtime revenues will be up 3% with regional airtime revenues down 16% year-on-year, reflecting phasing of Scottish Government spend.  National revenues are expected to be up 7% in Q1.
 
Digital revenues, in the growth categories of VOD; display and classified advertising, are expected to be up 35% in Q1.  Ex growth categories of digital revenue (PRTS and music revenues) are expected to be flat in Q1.
 
STV Productions enters 2013 with a strong pipeline of commissions and prospects for future growth.  Today we have announced a new commission for a further series of Celebrity Antiques Road Trip (20 episodes) and last week a new commission of a chat show (5 episodes) starring comedian Jo Brand for UKTV Gold was confirmed.
 
Financial Performance Review
 
Revenue
Total revenue amounted to £102.7m (2011: £102.0m). Consumer revenues at £92.5m (2011: £93.6m) reflect a broadly flat airtime performance, a reduction in ex-growth digital revenues and an 84% increase in growth digital revenues as our online audience and inventory grows.
 
Productions revenue grew by 21% to £10.2m (2011: £8.4m) as the business continues to win new commissions from a wider customer base.
 
Operating Profit
Operating profit before exceptional items increased by £2.1m (14%) to £17.1m.  Consumer division operating profit improved to £16.9m (2011: £14.5m) through continued strong cost control.  Margins improved to 18.3% (2011: 15.5%) considerably ahead of the 15.5% KPI target.
 
Productions operating profit amounted to £0.2m (2011: £0.5m) partly reflecting a bad debt charge on the administration of the former international sales agent, Target.
 
Finance Costs
Net finance expenses increased by £1.7m to £2.7m (2011: £1.0m) due to the higher margin in the renewed bank facility which reflects current market conditions.
 
The IAS19 non cash pension credit amounted to £1.3m (2011: £1.3m) and this figure will move to a non cash charge of approximately £1.1m in 2013 following the implementation of the amendments to IAS19 effective from 1 January 2013.
 
Profit Before Tax
Profit before tax and exceptional items increased to £14.4m (2011: £14.0m) as the increase in interest costs mostly offset the growth in operating profit.
 
Exceptional Items
There was only one exceptional item in 2012 amounting to £5.3m net of tax (2011: £13.4m) for the final accounting of the ITV settlement and related change to affiliate status, which resulted in a £4.1m non cash stock write down.
 
Statutory Result
The statutory result for the year after tax and exceptional items amounted to a profit of £6.9m (2011: £0.6m).
 
Earnings Per Share
EPS before exceptional items decreased by 14% to 32.5p (2011: 38.0p) reflecting the increase in profit before tax offset by the higher effective tax rate of 15% (2011: nil%).  EPS adjusted for an equivalent tax rate in each year of 15%, grew by 1% while EPS on a statutory basis increased to 18.3p (2011: 1.6p).
 
Balance Sheet
The principal balance sheet movements over the last 12 months were a reduction in inventories, net debt and the pension deficit.
 
The pension deficit on an IAS 19 basis net of deferred tax was £17.7m (2011: £23.0m) reflecting the increase in liabilities caused by a lower discount rate being more than offset by increases in the scheme’s assets.
 
The inventory reduction reflected the sale of network stock back to ITV network as part of the move to affiliate status.
 
Cash Flow
Net debt fell by 17% in 2012 to £45.3m (2011: £54.5m) due to the strong cash generation of the core operating business.
 
The final elements of the ITV litigation settlement have been paid and the other main non-operating items were an outflow of £4.3m for pension deficit funding and a £5.0m inflow representing deferred consideration for the sale of Primesight.
 
The net debt:EBITDA ratio for the year reduced to 2.3x (2011: 3.1x) and is anticipated to continue to fall in 2013.

 
Dividends
The board remains committed to its intention to resume dividend payments at an appropriate time, however, the short term focus, supported by our principal shareholders, remains debt reduction.  This policy will be kept under review and an update will be given at our interim results.
 
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 2011 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 2012 Annual Report is scheduled to be circulated to shareholders on 18 March 2013.
 
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.
 
The current licences extend until 2014 and the Secretary of State has confirmed that the licences can be renewed for a further 10 year term through to 2024. 
 
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 latest triennial valuation process is ongoing.  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.
 
Rob Woodward
CEO, STV Group plc

STV Group plc Final Results 2012 - Appendix


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