Performance in line with expectations; increasing returns to shareholders
- Simon Pitts to be appointed Chief Executive Officer as of January 2018
- Intended return of capital to shareholders of £10m over next 18 months, reflecting confidence in underlying strength of the business
- Interim dividend of 5.0 pence per share declared, representing an increase of 25% year on year. Proposed total 2017 dividend of 17.0 pence per share, up 13%.
- Drama series commission secured by STV Productions (The Victim, 4 episodes for BBC1) with strong pipeline in H2
- Second network channel, STV2, launched in April 2017 and delivering four-fold increase in commercial impacts
- Trading arrangements with ITV providing buffer against weakness in the national advertising market, (down 10% in H1), and changing macro-economic circumstances
- Continued strong profitable growth in digital activities with revenue up 14%, at £4.0m and margin of 50%
- H1 performance in line with expectations
- No change in full year guidance
|H1 2017||H1 2016||Year on year|
|EBITDA (see note 16)||£10.5m||£11.5m||-9%|
|Pre-tax profit and IAS 19 interest||£8.7m||£10.4m||-16%|
|EPS pre IAS 19 interest (see note 19)||18.8p||21.8p||-14%|
|Dividend per share||5.0p||4.0p||+25%|
Rob Woodward, Chief Executive Officer, said: “Significant markers of progress have been delivered during the first half of 2017 including the launch of STV2, a new channel for Scotland, which will enable the company to continue to grow its share of the Scottish market.
“Digital activities continue to deliver double digit growth while maintaining high margins after taking account of additional investment to support future development.
“STV Productions has built a good pipeline for the rest of this year and into 2018 with a number of commissions secured in the period, including a new drama series for BBC1.
“The performance of the business in the first half of 2017 is in line with expectations despite the weak advertising market.
“The Board’s confidence in the underlying financial strength of the business is conveyed through today’s announcement of an additional return of capital to shareholders. The Board expects to propose a full year dividend of 17 pence per share.”
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).
STV Group plc
George Watt, Chief Financial Officer
Tel: 0141 300 3049
Ellen Drummond, PR & Communications Manager
Tel: 07803 970 143
Charlotte Street Partners
Tel: 07717 501 626
Performance during the first half of the year is in line with expectations, reflecting weakness in the advertising market and macro-economic environment. The outlook for the full year remains unchanged against key financial measures and KPI targets.
Total revenues are down 3% at £54.6m, impacted primarily by a weaker national airtime market as a result of ongoing economic uncertainty. Despite this overall decline, digital activities delivered increased revenue growth, up 14% at £4.0m. Sponsorship revenue increased by 8%, to £2.8m, and the regional airtime market position was slightly up year on year.
Additionally, newly launched service STV2 delivered a 50% increase in revenue from the former CityTV services. STV2 covers 85% of the STV licence area.
STV Productions’ revenues were £2.6m, down 26%, as a result of timing of deliveries across the year; however, the business has a secured pipeline for the second half of 2017. The new division of the STV External Lottery Manager (ELM) delivered revenue of £3.3m from providing services to the Scottish Children’s Lottery (SCL) which it does on a breakeven basis.
Operating profit was £9.2m, down 16%, reflecting the weaker national airtime market with an offset from reduced programme and advertising sales costs under our agreements with ITV. These agreements resulted in only 40% of the decline in national revenues flowing through to operating profit. The first half was also impacted by the phasing of costs under the new advertising sales agreement which increased costs by £0.9m, however, this will reverse in the second half of 2017.
PBT before exceptional items and IAS19 interest was £8.7m, down 16%. Earnings per share before exceptional items and IAS19 interest was 18.8p, down 14%.
The balance sheet continues to be strong, supporting increased returns to shareholders and continued investment in key growth activities. Net debt increased to £34.0m, up 17%, but will reduce in H2 before the effects of the intended capital return to shareholders. The increase from December 2016 is principally due to ongoing working capital requirements to fund the working capital of the SCL and the timing of receiving the cost rebate from ITV. The SCL debt of £8.1m at 30 June 2017 will be recouped in future years with progress towards cash flow breakeven on track.
In line with the Board’s commitment to the long-term delivery of increased shareholder returns, and reflecting the underlying financial strength and stability of the business, it is the Board’s intention that an additional return of capital will be delivered to shareholders over the next 18 months.
It is intended that the capital return will amount to £10m and is in addition to planned dividend payments to be delivered through the previously announced progressive dividend policy. This policy is structured to achieve a distribution of 60% to 80% of cash generation after pension deficit funding payments.
An interim dividend of 5.0 pence per share, up 25%, is declared with a proposed final payment of 12.0 pence per share, resulting in a proposed total dividend of 17 pence per share, up 13%.
The consumer business has performed in line with expectations. Despite the decline in national airtime revenues, growth is continuing to be delivered in regional sales, sponsorship and digital activities.
Growth in digital revenues has continued during the first half with revenues up 14%, principally driven by VoD revenues on the STV Player.
Operating profit amounted to £10.1m, down 14%, reflecting a decline of 10% in national airtime revenues and phasing of costs under the Airtime Sales Agreement with ITV.
In April, a second networked service, STV2, was launched. Formed from the integration of the L-DTPS licences secured by STV to deliver local television in five areas within Scotland, this is a unitary programme service. Early performance is positive with both peak-time audience doubling and commercial impacts increasing four-fold. To date, the performance of the newly formed channel is ranking within the top 30 commercial channels operating in the UK.
Core channel, STV, has continued to perform ahead of the Network, up 0.68 share points. This out-performance is expected to continue in the second half of the year with a strong autumn schedule and improved Network performance.
Supporting the development of deeper engagement with consumers, consumer insights are now held for over 50% of all adults in Scotland.
STV national airtime revenue is expected to be down 2% to 3% in September, down 8% in Q3 and a cumulative position from January to September of down 9%.
The steady growth in the regional market during the first half is expected to continue with a cumulative position from January to end September of up 1%.
Digital revenues are expected to continue to grow, up 15%-20% year on year to the end of Q3 and this rate is expected to be maintained for the full year, as previously indicated.
A number of new commissions have been secured in the period including, significantly, a new drama series for BBC1, The Victim (4 episodes) scheduled for delivery in 2018. Other commissions include returnable series Antiques Road Trip for BBC1 (series 15-18, 80 episodes) and Celebrity Antiques Road Trip for BBC2 (series 7, 20 episodes); a daytime entertainment series for ITV, Babushka, (20 episodes); the first commission secured for More4, a one off documentary, Highland Odyssey; a new one off factual documentary for BBC4, Fizz Bang Wallop; and a documentary for ITV as part of the forthcoming crime and punishment series on the Network.
Revenue was down 26%, at £2.6m, reflecting the timing of deliveries, however, as noted above a good pipeline of deliveries has been secured for the second half.
STV Productions delivered an operating loss of £0.9m, broadly in line with the prior year performance.
The settlement of the 2015 triennial valuation was announced in December 2016. An 11-year funding plan based upon deficit funding contributions of £8.6m per annum increasing by 2% per annum over the term of the plan. The annual deficit contribution payment is made evenly across the year.
Under the valuation settlement, 20% contingent funding of any outperformance over an agreed cash generation target will apply, with this cash generation target determined following all other funding needs of the business having been accounted for and prior to commitment of pension funding payments and shareholder returns.
The net deficit at 30 June 2017 has reduced to £69m, down from £74m reflecting minor updates to the discount rate and inflation assumptions at 30 June 2017.
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 2016 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 reduction in trading risk resulting from the renewed Airtime Sales Agreement, agreed with ITV plc, the terms of which will apply for an 8-year term commencing January 2017, and the launch of the STV ELM.
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:-
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.
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
A significant amount of STV’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 and sponsorship to advertisers – are factors that affect the performance of STV Consumer and, therefore, the Group as a whole. The terms of the Airtime Sales Agreement with ITV were amended in December 2016 to provide improved efficiency, simplicity and transparency.
Pension scheme shortfalls
The STV pension schemes’ investment strategy is calculated to reduce any material market movement impacts; however, it is possible that the Group may be required to increase its contributions at the next triennial valuation which could have an adverse impact on results and cash flow.
Possible second independence referendum
STV Group plc is both headquartered and incorporated in Scotland. Following the result of the EU referendum, it is uncertain whether there will be a further referendum on Scottish independence and, if there is to be one, the timing and the outcome are also unknown. The Group has in place a number of measures as mitigation against increased volatility in the advertising and financial markets. These include the Network Affiliate Agreement with ITV in relation to volatile advertising markets and the Group’s bank facilities maturing in the medium term (2019) together with half of the core net debt (£15m) being subject to interest rate hedges to July 2018 to reduce exposure to financial market movements. In addition, the Scottish Government has agreed that our Public Service Broadcast licences will be respected through their full duration (to 2024).
Reputational and financial risk of lottery operation
The Scottish Children’s Lottery was launched in October 2016. The lottery engages the services of an external lottery manager, STV External Lottery Management Limited, a subsidiary of the Group, to deliver the lottery product to consumers. The lottery was awarded licences by the UK Gambling Commission and while operated independently of STV, in accordance with the requirements of these licences, it is provided with financial support by the Group, which amounted to a debtor of £8.1m at 30 June 2017. Internal controls have been put in place to ensure that the terms of the operating licence are adhered to. In the event that the lottery was unsuccessful then the recoverability of the SCL debtor would be at 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.
Basis of preparation
These condensed interim financial statements for the six months ended 30 June 2017 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS34, ‘Interim financial reporting’, as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with IFRSs as adopted by the European Union.
Going concern basis
The Group meets its day-to-day working capital requirements through its bank facilities. The current economic conditions continue to create uncertainty particularly over (a) the level of demand for the Group’s products; and (b) the availability of bank finance for the foreseeable future. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities. After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its condensed interim financial statements.
Responsibility statement of the directors in respect of the half-yearly financial report
Each of the directors (as detailed below) confirms that to the best of his/her knowledge:
- the condensed set of financial statements has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the European Union.
- the interim management report on pages 1 to 6 includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules (DTR), being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
(b) DTR 4.2.8R of the DTR, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Company during that period; and any changes in the related party transactions described in the last annual report that could do so.
For and on behalf of the directors:
Baroness Margaret Ford
31 August 2017
Baroness Margaret Ford, Chairman
Simon Miller, Senior Independent Director
Rob Woodward, Chief Executive Officer
George Watt, Chief Financial Officer
Anne Marie Cannon, Non-Executive Director
Michael Jackson, Non-Executive Director
Ian Steele, Non-Executive Director
Christian Woolfenden, Non-Executive Director
Appendix - STV Group plc - Half year results 2017