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Full year results 2013

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STV Group plc – Final Results 2013
 
Commercially focused
Creatively led
 
Financial Highlights 2013 2012*** Year on year
Revenue £112.1m £102.7m   +9%
EBITDA*  £20.1m   £19.5m   +3%
Operating profit*  £18.0m   £17.1m   +5%
Pre-tax profit**  £15.2m   £13.1m  +16%
EPS**  34.4 pence   30.4 pence  +13%
Statutory EPS  32.2 pence   13.0 pence +147%
Net debt  £35.7m   £45.3m   -21%
*Pre-exceptionals
**Pre-exceptionals and IAS19
***2012 results have been restated to reflect the accounting for employee benefits following changes to the IAS19 standard (IAS19(R))
 
Highlights
  • Revenue up 9% to £112.1 million
  • Operating profit* up 5% at £18.0 million
  • EPS** up 13% to 34.4p per share
  • Net debt down 21% to £35.7 million
  • Robust KPI performance
  • STV Productions revenues up 32% to £13.5 million
  • Digital revenues up 23% in growth areas and digital operating profit up 76% to £3.0m
  • Dividend recommended at 2.0 pence per share full year payout
 
 
Strategic Developments
  • Payment of a full year dividend of 2.0 pence per share in respect of 2013 and, subject to achievement of 2014 financial targets, a payment of 3.0 pence per share for 2014 to be paid one third as an interim dividend and two thirds as a final dividend payment.  It is intended to pursue a continuation of this progressive dividend policy in future years.
  • Net debt down 21% to £35.7m and on track to achieve target of net debt level of 1.5x EBITDA by end 2014.
  • Successful diversification of earnings base with non-broadcast earnings increasing by 8 percentage points to 19% in 2013 through growth in STV Productions and digital activities.
  • STV Productions continues to secure commissions with 25 episodes of new quiz show, The Link, commissioned by BBC One.  Additionally, a deal has been agreed with Warner Bros International Television Production to bring new format, The Link, to an international market.
  • Continued growth momentum in digital with 23% revenue growth and 40% margin as successful locally focused products and services are launched.
  • Channel 3 licences renewed for maximum term of 10 years until end 2024 with consequent bank facility extension to 31 March 2016.
 
Rob Woodward, Chief Executive Officer, said: “This is a strong set of financial and operational results underpinned by confirmation of broadcast licences being renewed which provides long-term stability and continuity for investors and stakeholders. We have delivered further significant reduction in net debt and through strong growth in our digital and productions business; we delivered 19% of earnings from non-broadcast activities and are on track to meet our 33% target by the end of 2015.”
 
6 March 2014
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
 
Instinctif           
Jamie Ramsay                                                                          Tel:  0207 457 2020
 
  
Operational Review
 
Introduction
STV has delivered a strong operational and financial performance, achieving growth in STV Productions and digital activities through the introduction of new consumer services and deepening relationships with consumers across all platforms and channels.
 
Significant progress has been made towards achievement of the strategic aim to grow non-broadcast earnings to represent one third of Group earnings by end of 2015 with this increasing from 11% to 19% year on year.
 
The KPIs which have served as a useful and highly transparent measure of progress have been reviewed and refreshed.  We have today set out updated targets through to 2016. New KPIs focused on monitoring consumer reach and engagement have been introduced for the consumer business.  The key strategic aim of achieving 33% of earnings from non-broadcast activities has been incorporated into the KPIs to underscore the strategic importance of this target. The target to measure hours of commissioned content secured by STV Productions has been removed as this is no longer relevant with a number of long running series commissions secured as we continue our organic growth strategy.
 
STV Consumer
STV is Scotland’s most popular peak time channel and in 2013 peak time share achieved a three-year high at 22%.  Peak time audience share continued to exceed the Network in 2013, tracking 1.5 share points ahead, and reaching over 3.6m viewers per month.
 
The underlying profitability of the consumer division was maintained during the year with the KPI margin target exceeded, achieving a margin of 17.8%. This was a particularly strong performance as the business bore a significant increase in costs arising from planned increases to Network programme costs and continued investment in digital services.
 
As new consumer products and services are developed the range of opportunities for our commercial partners to reach their target markets continues to grow. Increasingly, advertisers are taking advantage of STV’s key differentiator: the ability to take their brands to customers at both a national and local level.  The positive response from commercial partners to the digital city services, launched in the autumn, demonstrates the demand from advertisers for geographically targeted services and this ability will be further enhanced when STV’s City TV services are launched during 2014. 
 
The pace of growth of the digital business continued with digital revenues up 15% to £7.5m, with revenues in digital growth categories* up 23% driven principally by long-form catch up viewing which was up 125% year on year.
 
*Growth categories are transactional, video on display, display, mobile and classified advertising
 
 
Public service content serves as a cornerstone of our connection with our consumers.  We continue to  deliver in excess of our licence obligations for news.
 
STV News achieved an audience share of 25.6% throughout the year and Scotland Tonight is the most watched Scottish current affairs programme.  STV has secured the position as the leading media provider for coverage of the Scottish independence referendum campaign. This commitment will continue during 2014 with an extensive range of programmes, features and coverage delivered through STV News, Scotland Tonight, and online coverage.
 
The popularity of STV news content online has grown again with news delivering half of page views in 2013 and monthly news browsers up 43% year on year to 1.6m each month.
 
We have continued to make progress in deepening our consumer relationships through collecting consumer insights data.  Despite not meeting our KPI target of 1.2 million we increased the number of registrations held by 25% on the previous year.  The deployment of the infrastructure provided by our technology partners, Gigya, will generate further opportunities to progress towards our target of 2.4m by 2016.
 
Our product development strategy is based on a philosophy of ‘mobile first’ to meet the emerging demand profile of our consumers with over 77% of page views via mobile devices in the period. 
 
In 2013, the STV Player was introduced on further platforms including Windows 8, Samsung Smart TV and Kindle Fire, supporting the increase of 125% in long form video stream views to 11.5m during the year.
 
Our overall digital operating profit increased by 76% to £3.0m.
 
STV Productions
STV Productions has enhanced its reputation as a thriving UK content production business successfully increasing the number of new commissions secured during the year across a number of genres, including further commissions of long-running returning series.
 
Today we have announced a new commission for 25 episodes of a new quiz show, The Link, for BBC One. Coinciding with this, a deal has been agreed with Warner Bros International Television Production to bring this new format to an international market.
 
During 2013 over 20 commissions have been secured, including a commission for eight episodes of entertainment show Let Me Entertain You for ITV1’s weekend schedule; a re-commission for 13 episodes of peak-time entertainment show Catchphrase, including four celebrity specials also for ITV; 10 episodes of Fake Reaction for ITV2; and two one-off documentaries for Channel 5. The first feature film produced by the business, Fire in the Night, was made for BBC2 and was subsequently awarded a BAFTA Scotland for Best Single Documentary.
 
In addition to the success delivered through commissions secured in 2013, the pipeline is strong into 2014 with a number of new creative formats commissioned, including The Lie, a co-production for TV3 in Ireland, GroupM Entertainment and STV.
 
A further commission for four series of Antiques Road Trip for BBC One (80 episodes) and a fourth series (20 episodes) of Celebrity Antiques Road Trip was announced earlier this week.
 
The profile of STV Productions is successfully developing internationally.  In October a new strategic international partnership with Red Arrow Entertainment Group, incorporating co-investment, co-development and worldwide distribution was announced.  The innovative format deal with Kinetic Content, US production company, continues providing each business with exclusivity to license each other’s original format in their respective countries.
 
We have reviewed the KPI metrics for STV Productions and the KPI to measure produced hours will not be used going forward as it is now less relevant as the business has a strong base of long running returning series.  The KPI targets for revenues and margin are maintained and the targets have been updated.
 
In 2013, revenues were up 32% at £13.5m and operating profit doubled to £0.4m.  The number of produced hours in the year was 157 hours exceeding the target of 150 hours.
 
Outlook
Our outlook for Q1 for total airtime revenues will be up 5% with Scottish airtime revenues up 6%
year-on-year, and national revenues are expected to be up 4% in Q1. In the four months to April, we expect total airtime revenues to be up 7% to 8%.
 
Digital growth revenues are expected to be up 15-20% in Q1, which is also their expected run rate for the full year. 
 
Financial Performance Review
 
Revenue
Total revenue amounted to £112.1m (2012: £102.7m). Consumer revenues at £98.6m (2012: £92.5m) reflect a strong airtime performance, with national airtime revenues up 6%, outperforming the broader television market. Digital revenues grew by 15% to £7.5m (2012: £6.5m), with digital growth revenues up 23% year on year driven by continued strong growth in long form catch up viewing.
 
Productions revenue grew by 32% to £13.5m (2012: £10.3m) as the business continues to win new commissions and secure returning commissions, particularly of long running series.
                                                                                                             
Operating Profit
Operating profit before exceptional items increased by £0.9m (5%) to £18.0m.  Consumer division operating profit improved to £17.6m (2012: £16.9m) through continued focus on cost control.  Despite an increase in the cost base of the Consumer business arising from an increase in the Network programme costs of £2.1m, the consumer division margin was ahead of the KPI target of 16% at 17.8%, broadly flat year on year (2012: 18.3%).
 
Although STV Productions continued with its investment phase of the rebuilding and expansion strategy, operating profit doubled to £0.4m (2012: £0.2m).  As the business enters a growth phase, the margin targets have been increased in the updated KPI targets for 2014 to 2016.
 
Finance Costs
Net finance costs decreased by £1.7m to £3.7m (2012: £5.4m) principally due to a reduction in cash interest costs of £1.2m.
 
Profit Before Tax
Profit before tax and exceptional items and IAS 19 increased by 16% to £15.2m (2012: £13.1m).
 
Exceptional Items
There were no exceptional items in 2013 (2012: £5.3m).
 
Statutory Result
The statutory result for the year after tax and exceptional items amounted to a profit of £12.2m (2012: £4.9m).
 
Earnings Per Share
EPS on a statutory basis increased to 32.2 pence (2012: 13.0 pence).
 
Balance Sheet
The principal balance sheet movements over the last 12 months were a reduction in net debt and a movement from a pension deficit to surplus on an IAS 19 basis.
 
The prior year deficit of £17.7m (net of deferred tax) moved to a surplus of £1.2m due to improvements in the asset values and deficit funding payments.
 
Cash Flow
Net debt fell by 21% to £35.7m (2012: £45.3m) resulting in a reduction of over one-third in the last two years. The further reduction was due to the strong cash generation of the core operating business and a conversion rate of operating profit to free cash flow of 94% (2012:120%).
 
The net debt EBITDA ratio for the period reduced to 1.8x EBITDA (2012: 2.3x) and is on track to meet the Group’s 1.5x EBITDA target level in 2014.
 
The principal cash outflows during the period arose from pension deficit funding of £4.2m, interest payments of £2.5m and capital expenditure of £1.4m.
 
Dividends
The Board has declared the payment of a full year dividend of 2.0 pence per share in respect of 2013 and, subject to achievement of 2014 financial targets, a payment of 3.0 pence per share for 2014 to be paid one third as an interim dividend and two thirds as a final dividend payment.  It is intended to pursue a continuation of this progressive dividend policy in future years.
 
Board Change
It is announced today that Vasa Babic will retire from the Board at the Group’s forthcoming Annual General Meeting after seven years valued service.
 
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 2012 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.  The 2013 Annual Report is scheduled to be circulated to shareholders on 21 March 2014.
 
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 broadcast 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 renewal of the current licences was confirmed in February 2014.  The new licences will apply for a 10 year term from 1 January 2015. 
 
In August 2012 Scotland’s First Minister confirmed that should Scotland become an independent country, STV’s broadcasting licences would be honoured for their full duration through until December 2024.  In addition, the Scottish Culture Cabinet Secretary confirmed in November 2013 that the local TV licences covering Glasgow and Edinburgh would also be honoured for their full duration.
 
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 significant amount 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
The STV pension schemes are relatively strong and the investment strategy is calculated to reduce any market movement impacts, however, it is possible that the Group may be required to increase its contributions which could have an adverse impact on results and cash flow.
 
Financial risk
STV may be constrained by the Group’s leverage and other debt arrangements. An increase in LIBOR interest rates would have an adverse impact on the financial position and business results.  STV is exposed to currency risk, credit risk, liquidity risk and cash flow interest rate risk.  The Group’s borrowings are denominated in Sterling which is also the Group’s intra-UK net currency flow.
 
 
Rob Woodward
CEO, STV Group plc

 
STV Group plc Full year results 2013 - Appendix.pdf


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