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STV Group plc Full Year Results for 2019

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Strong financial performance
  • Double digit growth in adjusted operating profit up 13% to £22.6m (2018: £20.1m), the highest level in over a decade
  • Adjusted earnings per share (EPS) also up 13%, to 46.4p per share (2018: 41.1p per share)
  • Adjusted operating margin improved by 230 bps to 18.2% (2018: 15.9%)
  • Increase in total advertising revenue, up 2% to £101.6m (2018: £100.0m), driven by strong digital revenue growth and an 11% increase in regional advertising
  • Digital revenues up 37% to £13.0m (2018: £9.6m) with digital operating margin up to 56%
  • On track to deliver diversification target of one third of profit from outside traditional television advertising by end of 2020, with non-broadcast earnings 28% of the total in 2019 (2018: 24%)
  • Further increase in returns to shareholders with final ordinary dividend of 14.7p per share, giving a full year dividend of 21.0p per share, up 5% year on year
Financial Highlights
  2019 2018 Change
Revenue £123.8m £125.9m (2%)
EBITDA* £27.7m £24.6m 13%
Adjusted operating profit** £22.6m £20.1m 13%
Adjusted operating margin** 18.2% 15.9% 230bps
Adjusted profit before tax*** £21.0m £19.0m 11%
Profit before tax £19.0m £1.9m 853%
Adjusted basic EPS*** 46.4p 41.1p 13%
Statutory basic EPS 42.2p 4.2p 905%
Net debt £37.5m  £36.3m (3%)
Dividend per share 21.0p 20.0p 5%
* Earnings before interest, tax, depreciation & amortisation, with 2018 adjusted to reflect new standard for leases (as reported of £22.8m with lease charge of £1.8m added back)
** Before exceptional items
*** Before exceptional items and IAS19 interest
  
Continued excellent viewing performance on screen and online
  • All time viewing share maintained at 10-year high of 17.7%, 3 points up on ITV Network
  • STV now the best watched peaktime channel in Scotland, beating BBC One for first time since 2013
  • 98% of commercial audiences over 500,000 in Scotland delivered by STV
  • Biggest TV channel in Scotland for young people, reaching 92% of 16-34 year olds in 2019
  • STV News at Six now the most watched news programme in Scotland with STV identified as the number one source of news for Scotland by Ofcom
  • Online viewing up 23%, with VOD stream starts up 37%, driving a 44% increase in ad impressions
  • Total STV Player registrations up 17% at 3.5m, representing 80% of Scottish adults
  • Strong viewing performance driven by entertainment hits like I’m a Celebrity and The Chase, new dramas Manhunt, The Bay, Cheat and Deep Water, which broke all STV streaming records, the Rugby World Cup and the STV News at Six
STV strategic plan continues to deliver at pace
  • STV Growth Fund driving regional advertising growth, with £10m allocated, attracting over 160 new advertisers to STV since launch
  • STV Player now universally available, with successful Sky launch boosting streams by 30%
    • Over 1,000 hours of additional Player-only content available, now delivering 15-20% of total digital viewing
    • Significant potential for future digital growth, driven by new exclusive content, new product features and new platforms like Apple TV where STV Player launched last week
  • STV Productions now has a broader slate of new and returning shows:
    • Biggest recommission to date of Antiques Road Trip and Celebrity Antiques Road Trip  (140 episodes, 2-year deal for BBC), plus recommissions for Celebrity Catchphrase (further 9 episodes for ITV), Inside Central Station (6 episodes for BBC Scotland) and Jerk (4 episodes for BBC3)
    • New commissions include two new factual entertainment series, Clear Out Cash In (10 episodes for Discovery-owned lifestyle channel, Really) and a further unannounced series, both for delivery this year, and two new commissions for Primal Media, including Home Free for C4
    • Successful return to drama production for first time in a decade with two critically acclaimed productions for BBC One: The Victim and Elizabeth is Missing
    • Acquisition of Primal Media and investment in Two Cities Television significantly enhances STV’s creative pipeline in unscripted and drama
  • Process underway to investigate partnership or divestment of the Scottish Children’s Lottery to enable STV to focus fully on progressing successful growth of broadcast, digital and production businesses
Positive outlook
  • Strong start to 2020
    • STV viewing share up
    • STV Player viewing accelerating
    • Total advertising revenue expected to be up in Q1, and down 5% in April
  • Across the full year we would currently expect:
    • Single digit growth in regional advertising
    • Strong double digit growth in digital
    • STV Productions to move into profitability, with deliveries weighted to H2
  • Implications of the Coronavirus unclear at this stage, but we continue to monitor closely
  • Strategy on track and delivering
Simon Pitts, Chief Executive Officer, said: “An operating profit increase of 13% when national advertising revenues are down illustrates our growing resilience and the exciting growth potential of our regional, digital and production businesses. In 2019 STV was the most popular peaktime channel in Scotland, ahead of BBC One for the first time in 6 years; our Growth Fund has now welcomed over 160 new advertisers to TV since launch, underpinning strong growth in regional revenues; and our digital streaming service STV Player launched on Sky and became universally available for the first time, helping to drive 37% growth in both streams and revenue. These factors contributed to a strong full year performance, with EPS also up 13% and operating margin up over 230 basis points to 18%.

“We continue to make excellent progress with our strategic growth plan and have laid solid foundations for future growth, including in STV Productions where 2019 saw a return to high-end drama for the first time in a decade with the critically acclaimed The Victim and Elizabeth is Missing for BBC One. We also made two exciting investments in entertainment and drama companies to significantly strengthen our creative pipeline. 2020 has started with a range of new commissions and recommissions, including the biggest ever order for Antiques Road Trip and a new 10 part series for Discovery.

“Despite uncertainty following the UK’s exit from the EU and the Coronavirus, we are positive about the outlook for 2020.  We have made a strong start to the year on screen and online, in line with our expectations, and have an exciting programming line-up to look forward to, with the return of Saturday Night Takeaway, Britain’s Got Talent and new dramas like Liar and Quiz all helping to drive viewing on STV and the STV Player.”
 
There will be a presentation for analysts at the offices of Panmure Gordon, One New Change, London EC4M 9AF today, 10 March 2020, at 12.30 pm.  Should you wish to attend the presentation, please contact Angela Wilson, angela.wilson@stv.tv or telephone: 0141 300 3000.

Enquiries:

STV Group plc:             
Kirstin Stevenson, Head of Communications, Tel: 07803 970106

Camarco:                     
Geoffrey Pelham-Lane, Partner, Tel: 020 3757 4985
Ben Woodford, Partner, Tel: 020 3781 8333

Financial performance review
Against a national advertising market that fell 4% year on year, total revenue decreased only 2% to £123.8m (2018: £125.9m).  Within this, total advertising revenue grew by 2% to £101.6m (2018: £100.0m) with gains in regional and digital offsetting the national market decline brought about by the political and economic uncertainty that defined 2019. 

Reflecting the national advertising market, broadcast division revenues were down 2% at £92.3m (2018: £94.5m).  Digital division revenue growth was strong, up 37%, to £13.0m (2018: £9.6m).

The increase in total advertising revenue was offset by lower revenues in STV Productions of £13.7m (2018: £16.3m) as the business was re-positioned under a new management team for future growth and a return to profitability.

Adjusted operating profit (before exceptional items) was £22.6m, an increase of 13%, the highest level for over a decade (2018: £20.1m) as declining national revenues were more than offset by more profitable regional and digital revenue growth. 

The biggest contributor to the £2.5m increase in Group adjusted operating profit year on year was the digital division, which delivered an additional £2.1m profit.  The broadcast division reported an increase of £0.5m. Following a year of transition, investment and significant change in the creative leadership team, STV Productions reported a marginal loss of £0.1m, a reduction of £0.6m on the prior year, which was offset at a Group level by £0.5m savings in corporate costs. 

During the year, the basis of allocation of central/corporate costs to the divisions was changed to better reflect the underlying trading of those businesses.  Previously, all such costs were allocated across the divisions with none held centrally.  Now, those costs incurred centrally that relate to the Group’s operation as a PLC, as well as the remuneration of the Directors, are held centrally as a corporate division.  All the metrics in this narrative are on the basis of this new methodology and a reconciliation for 2018 is included in note 5 to the financial information.

Net operating exceptional items in 2019 were nil (2018: £11.1m).  The two significant offsetting items in the current year were the gain on sale of the Group’s minority shareholding in non-core asset, deltaDNA, of £2.0m, and the write down of development costs in STV Productions of £1.9m.  The deltaDNA transaction completed in September 2019. The total consideration receivable was £2.5m, in a mix of cash and shares in the new parent company, with 20% deferred for two years.  The write down of development costs was a result of a full review undertaken in the second half of the year by the new management team of STV Productions.  In 2018, the operating exceptional items related to restructuring, the cost of equalising guaranteed minimum pensions and the loss on disposal of STV2.  In addition, in 2018, there was an exceptional finance cost of £4.2m related to an increase in the provision for the receivable due from the Scottish Children’s Lottery.
 
Revenue from the STV External Lottery Manager (ELM) in 2019 was down to £4.8m (2018: £5.5m), reflecting further cost savings made by that operation.
 
Total finance costs were £3.6m (2018: £2.9m before exceptional items).  Cash finance costs on the Group’s borrowings totalled £1.3m (2018: £1.1m) with the balance being non-cash costs in relation to the Group’s defined benefit pension schemes (£2.0m; 2018: £1.8m) and interest on the lease liability of £0.3m following adoption of the new accounting standard at the start of the year.
 
The statutory result for the year was a profit before tax of £19.0m (2018: £1.9m).  The effective tax rate for the year was 17% (2018: 16%), lower than the UK standard rate primarily due to tax deductions on pension contributions.  The profit after tax for the year was £15.9m (2018: £1.6m).
 
Adjusted earnings per share (before exceptional items and IAS19 interest) was up 13% to 46.4p per share (2018: 41.1p per share) reflecting the growth in operating profit.  On a statutory basis, earnings per share was 42.2p per share (2018: 4.2p per share) with the prior year impacted by the significantly higher level of exceptional items.

The net debt: EBITDA ratio at the end of the year was 1.29 times (2018: 1.36 times), within the Group’s target range of 1.0 – 1.5 times and well within the covenant maximum of 3 times.  Net debt increased slightly on the prior year, by £1.2m to £37.5m albeit operating cash conversion was strong at 92%.

The main non-operating cash outflows were pension deficit payments of £10.3m, net dividend payments of £7.6m, share purchases of £2.1m and reorganisation costs of £1.0m in relation to the restructure implemented in 2018.

Across the Group’s two defined benefit pension schemes, the accounting deficit before tax reduced to £64.0m at the end of 2019 (2018: £78.5m) due to contributions invested and improved investment returns more than offsetting the impact of a lower discount rate.  The latest triennial valuation, as at 31 December 2017, was concluded in April 2019 with no changes to the schedule of contributions agreed at the previous triennial valuation (31 December 2014).

Shareholder returns
The Board remains committed to the delivery of increased returns to shareholders whilst ensuring there is financial flexibility to enable strategic investments in support of the growth strategy. A final dividend of 14.7p per share, resulting in a total dividend of 21.0p per share for 2019 is recommended, an increase of 5% on 2018.  Future increases in shareholder returns will continue to be aligned with earnings growth.

Operational review

Broadcast
The strategy to maximise the value of the profitable broadcast business through delivery of high quality, cost-effective news and entertainment was successfully fulfilled in 2019 with an excellent viewing performance on STV.  All-time viewing share was maintained at a 10-year high of 17.7%, 3 share points ahead of the ITV Network, demonstrating the resilience and enduring appeal of the channel.  

In premium peaktime, STV outperformed every other channel, including BBC One, securing the position of best watched channel in Scotland.  This ‘best watched’ position includes the key 16-34 year old audience. STV was watched by 92% of Scots in this age group, representing a reach three times bigger than youth-focused ITV2.  With an average peaktime audience bigger than the top 10 commercial channels in Scotland combined, STV reached 4 out of 5 Scots every month in 2019 and delivered 98% of large commercial audiences over 500,000 viewers. 

The growing success of our news and current affairs programming and highly popular bespoke Scottish content bolstered the strong ratings performance delivered by the Network schedule. Following a successful change programme to invest in and modernise STV News and current affairs in 2018, flagship programme STV News at Six was the most watched news programme in Scotland in 2019.  We have also relaunched STV’s digital news service on all platforms and are now the leading source of news video in Scotland.
In addition, the STV News team produced 17 hours of regional programming across 2019.  This included three new series, broadcast in peak time, which were highly popular, regularly achieving an audience share in excess of the Network.  This included Sean’s Scotland which secured a 28% share in STV peaktime.

Weakness in the national advertising market, which was down 4%, was partially offset by regional advertising growth of 11%. This resulted in a slight decline in broadcast advertising revenues, down 2% to £92.3m (2018: £94.5m). Our regional advertising performance bucked the trend across the wider UK advertising market, positively impacted by the STV Growth Fund for the second year in succession which has allocated almost £10.0m across nearly 400 deals and secured over 160 new advertisers.  Since launch, the Growth Fund has been a key factor in strengthening STV’s leading position in the regional market, growing market share and driving revenue.    

Operating profit increased by 3% to £19.9m (2018: £19.4m) and the division’s operating margin increased by 1% to 21.6%.

Digital
The aim of the digital business is to drive growth by creating an STV for everyone with the STV Player becoming Scotland’s content destination of choice. The success of this strategy in 2019 has delivered significant growth in revenue and profit, ahead of expectations. 

Revenue increased by 37% to £13.0m (2018: £9.6m), driven by the 37% increase in VoD streams.  Operating profit increased by 40% to £7.3m (2018: £5.2m) and the margin performance of this highly profitable division again increased year on year, up to 56% (2018: 55%).

The growth plan for STV Player is underpinned by three strategic priorities: increased digital distribution; an expanded range of content to provide something for everyone; and improved product functionality, all designed to secure more people, watching more often and staying for longer.  This strategy has delivered exceptional growth in 2019 with total time spent watching the STV Player up 23% year on year.  Across the year, monthly active VoD users increased by 15%. Half a million more users signed up taking the total number of registered users to 3.5m, the equivalent of 4 out of 5 Scottish adults.

VoD stream starts were up by 37%, driven in part by the addition of over 1,000 hours of Player-only content, including 110 hours of drama boxsets and the addition of two live sports channels. This   Player-only content now represents 15-20% of viewing, with drama titles from this catalogue regularly featuring in the top ten best watched titles.

An important advancement in 2019 was achieving universal availability of the STV Player in Scotland, in all homes and on all platforms, as strategic partnerships with Virgin Media and Sky were implemented.  As a measure of success, 88% of Virgin Media’s users in Scotland accessed the STV Player in 2019.

Although only launched on Sky in late October, already c30% of VoD streams are from this platform, delivering a 15-20% increase in ad impressions as the STV Player becomes available in Scottish homes that subscribe to Sky.  Ad-server integration on the Sky platform has been designed to maximise the commercial impact and profitability for STV with 90% of advertising revenues retained. Managed by STV, this is being achieved through a partnership with ad-tech company, FreeWheel.  Additionally, the Sky partnership also positioned STV as the first UK PSB to broadcast all of its regional variants in HD on satellite.

New and innovative features designed to increase time spent viewing through an enhanced user experience and improved functionality have been introduced throughout 2019. ‘End of play’ was introduced across all platforms providing users with automatic recommendations for what to watch next when their selected programme concludes. Across the second half, 7.5m end of play recommendations were displayed with more than half acted upon, driving a significant increase in time spent enjoying content on the STV Player.

Launched in time for the Rugby World Cup 2019, ‘picture in picture’ enables users to continue watching their favourite shows while using other apps, and supported a significant uplift on typical usage during matches.

This innovative approach to improving functionality of the Player is also being applied to ad serving on the platform with 30% of digital inventory being sold programmatically across six platforms, maximising the commercial impact for STV. Additionally, we continue to add new commercial products for our advertisers and commercial partners.  In December 2019, STV was the first UK commercial broadcaster to launch the ‘green button’ broadcast restart capability on FreeView.

STV Player+, the ad-free subscription service launched in early 2019, continues to perform in line with expectations and will be rolled out to all major platforms during 2020.

STV Productions
The aim for STV Productions is to build a world class production business with a multi-genre slate of returning series.  2019 was a year of creative and organisational change, putting in place the foundations to deliver profitable growth.  The new creative team has overhauled the development slate and the pipeline across all genres is strong.  This is beginning to convert to commissions, including a new series, Clear Out Cash In, co-commissioned by Discovery-owned lifestyle channel, Really (10 episodes) and STV (8 episodes) and a further unannounced factual entertainment series, both for delivery in 2020.  Additionally, Primal Media has secured two new commissions, including Home Free for C4.  Across the year, the team delivered 17 shows, for 8 channels, amounting to 120 hours.
 
A key aim is to increase the number of returning series. In 2019, five returning series were delivered.  These were Celebrity Catchphrase (series 3 and 4) for ITV; Antiques Road Trip (series 18 and 19) and Celebrity Antiques Road Trip (series 8 and 9), both for the BBC; Britain’s Biggest Warship: Goes to Sea (series 2) for BBC2; and Inside Central Station (series 2) along with a one-off Christmas special of this ratings success for new channel, BBC Scotland.

This run of success is continuing in early 2020. Four new series (100 episodes) of the popular long running show Antiques Road Trip have been commissioned by BBC One, along with two series (40 episodes) of the celebrity version, for BBC Two, making this the largest ever order the BBC has placed for these shows.
Significantly, 2019 marked STV’s return to drama for the first time in a decade.  The team produced two of the most successful and critically acclaimed dramas of the year.  The Victim (BBC One), delivered an average audience across the series of 6.5m and broke records, achieving the highest  catch-up viewing figure of 73% since catch-up viewing records began in 2002. 

TV film, Elizabeth is Missing, saw Glenda Jackson in the lead role and making her return to screen for the first time in 28 years.  Tipped to perform well in the forthcoming awards season, it has received widespread plaudits and many five star reviews, reinforcing the creative credentials of our drama team.

Investments in new creative and financial partnerships designed to accelerate growth were also successfully progressed during this formative year for the business.  In July, we acquired a majority stake in innovative unscripted production company, Primal Media.  STV Productions will realise full value from Primal Media’s current and future programming slate and has a path to full ownership in success. 

A second investment, of an initial minority stake in high-end drama producer Two Cities Television (Two Cities), was completed in early 2020.   With an exciting pipeline of projects at an advanced stage of development, the deal is structured to enable STV to take a majority holding once Two Cities reaches profitability.  Strategically, this deal is aligned with STV’s nations and regions strategy; with a base in Belfast, Two Cities is well positioned to benefit from increased investment outside London, augmenting STV Productions’ position with its substantive base in Glasgow.
 
Total revenues generated by STV Productions were £13.7m (2018: £16.3m) and despite the placing of strategic investments in future growth, the business was broadly breakeven with an operating loss of £0.1m, (2018: profit of £0.5m), delivering an operating margin of -1%.

Good progress was made in 2019 with an international strategy to maximise existing IP, using the successful secondary sales business as the launch pad to increase this source of revenue and build profile for STV Productions. 

STV External Lottery Manager (ELM)
The STV ELM has continued to operate on a breakeven basis, with the costs it incurs in providing external lottery management services to the Scottish Children’s Lottery (SCL) being recharged in full and at nil mark-up. 

Ticket sales exceeded £4m during 2019.  The roll-out of the retail proposition was progressed, reaching the target number of outlets by the end of the year, albeit at a slower rate than initially planned and end-loaded into Q4.  As a result, the cash generation of the SCL did not cover its operating costs and so the amounts due from the lottery to the ELM increased from gross amounts of £11.4m at the end of 2018, to £12.4m at the end of 2019.  

The provision of £5.0m in place at the start of the year has reduced slightly to £4.7m as a result of forgiveness of £0.3m of debt agreed with the trustees of the SCL as part of an overall package of changes implemented at the start of the year to reduce the cost base of the ELM.

Notwithstanding the net cash consumption of the lottery during the year, the prospects for the lottery are one of cash generation and no increase to the provision has been recognised on that basis.  The resultant net debtor due from the lottery to the ELM at the end of the year was £7.7m (2018: £6.4m).

Concurrently with the continued operation of the ELM, a strategic review of that operation was conducted during Q4 2019 to consider options for its future.  This review concluded that STV is not the best long term owner of the lottery, and a process is therefore underway to investigate a partnership or divestment of the ELM to enable STV to focus fully on the execution of its growth strategy.  

Board changes
In accordance with Listing Rule 9.6.11, it is announced that Christian Woolfenden resigned as a non-executive director on 9 March 2020 having served on the Board since June 2014.  The Board would like to thank Christian for his contribution to the Company over this time.
  
Simon Pitts
Chief Executive Officer, STV Group plc

​STV Group plc, consolidated income statement year ended 31 December 2019