News

STV Group plc Half Year Results to 30 June 2021

Tagged in: RNS Announcements
Highlights
  • Strong financial performance, with revenue and adjusted operating profit accelerating ahead of pre-Covid levels
  • Advertising recovery continues, with Total Advertising Revenue (TAR) +32% in H1 and expected to be +25-30% for the 9 months to end of September
  • Record audience growth maintained on both STV (+5%) and STV Player (+66%)
  • Good momentum in Studios, with further new commissions and an 8th creative label added
  • Sale of lottery completed, with long term advertising contract in place
  • Following a return to cash dividend in May, Board proposes interim dividend of 3.7p, +23% on 2020
 
Financial Summary 2021 2020 Change
Revenue £60.3m £44.7m  35%
EBITDA* £13.9m £7.8m  78%
Operating profit** £11.4m £5.2m 118%
Operating margin 19% 12%  7pps
Adjusted profit before tax*** £10.6m £4.4m 137%
Profit/(loss) before tax £8.5m £(4.9)m 273%
Adjusted basic EPS*** 19.2p 10.7p  79%
Statutory basic EPS**** 15.4p (9.1)p 269%
Net debt+ £17.6m £33.5m  47%
Dividend per share 3.7p 3.0p  23%
 
* Earnings before interest, tax, depreciation & amortisation
** Before exceptional items
*** Before exceptional items and IAS19 interest
**** 2020 restated to reflect bonus issue of shares in December 2020
+ Excluding lease liabilities
  Refer to note 23 to the condensed interim financial statements for a reconciliation of the adjusted to statutory numbers
 
Financial highlights
  • Total revenue of £60.3m, +35% on 2020 and +10% on 2019
  • Adjusted operating profit of £11.4m, +118% on 2020 and +3% on 2019
  • STV-controlled advertising continues to outperform the wider market, with video on demand (VOD) advertising on the STV Player +62% (2019: +83%) and regional advertising revenues +27% (2019: +4%) in H1
  • Studios revenue +265% on 2020 (2019: +202%), reflecting the recovery in production activity and recent commissioning momentum
  • Operating margin of 19%, +7 percentage points and broadly back to pre-Covid levels
  • Adjusted EPS is 19.2p, up 79% on 2020, with the higher effective tax rate in the current period diluting the year on year growth relative to operating profit
  • Net debt of £17.6m in line with opening position for the year
 
Another record viewing performance on screen and online 
  • Six consecutive years of viewing share growth, with STV’s all time share at 20.8%, the highest growth of all of the UK’s 500+ TV channels so far in 2021
    • Total audience on STV +5%, even against 2020 lockdown comparators
    • STV still the most watched channel in Scotland, with largest lead over BBC1 since 2008
    • 99.5% of all commercial audiences over 500k viewers on STV
    • STV News audiences at a 19-year high at 541k viewers, +11% on 2020
  • Online viewing on STV Player up 66%, still the fastest growing UK broadcaster VOD service
    • Total streams up 94%
    • Monthly active users up 61%
    • Registered users up 11% to 4m
 
Strong strategic momentum
  • STV’s Growth Fund has attracted more than 60 new advertisers so far in 2021, taking the total to 285 since launch, with STV Self Service now allowing SMEs to design and book their own advertising campaigns
  • STV’s Digital strategy continues to accelerate rapidly:
    • 11 new content deals in H1 including Sony, EOne and Banijay adding 100+ titles
    • Player-exclusive viewing up 137% in H1, now 43% of all VOD viewing vs 6% in 2019
    • Ex-Scotland already 10-15% of streams, viewing and users
    • Successful STV Player VIP launch to drive future engagement and viewing
  • STV Studios maintaining growth momentum:
    • 15 new commissions so far in 2021 and 8 new returnable series
    • Focus is on high value formats like Screw (C4), The Bridge of Lies (BBC1) and Murder Island (C4), all filming in Scotland in 2021
    • 8th creative label added through a minority investment in entertainment indie Hello Mary founded by former MTV, C4 and C5 exec Steve Regan
  • Good early progress towards STV’s 3-year growth targets to 2023 to:
    • Double digital viewing, users and advertising revenue (to £20m)
    • Quadruple production revenue (to £40m)
    • Achieve at least 50% of operating profit from outside traditional broadcasting
 
Important regulatory developments 
  • In July, Ofcom published its recommendations to ensure public service media thrives in the digital age. These emphasised the importance of sustaining choice in local news; the urgent need for new rules to ensure public service media like STV receive prominence on new digital platforms; and the introduction of a new objective to support the UK’s creative economy to generate sustainable economic value across the nations and regions in the years to come.
  • Last month the UK Government also confirmed the extension of the public service broadcasters’ Freeview licences for a further 12-year period, guaranteeing certainty of distribution for STV on its most important TV platform into the 2030s.
  • Taken together these developments are very positive steps towards the long-term renewal of STV’s public service broadcasting licences from 2024.  We expect clarity on this during 2022.
 
Positive outlook 
  • Strong H2 programme schedule on TV and online:
    • c.50 hours of new network drama
    • 30+ new boxsets on STV Player
  • Advertising trends continuing to strengthen through the Autumn:
    • Q3 TAR expected to be +20-25%; 9-month TAR to September expected to be +25-30%
    • Q3 outlook for regional is expected to be +10-15% and VOD +40-45%
    • October TAR positive though tougher overall comparators in Q4
  • Studios on track for best ever financial performance in 2021:
    • Confirmed revenues of £20-25m
    • Good visibility of 2022 performance given stronger returning series.
 
Capital allocation
  • The Board proposes an interim cash dividend of 3.7p per share, +23% on 2020
  • As previously communicated, the Board is committed to a balanced approach to capital allocation across investing for growth, fulfilling pension obligations, and paying a sustainable, progressive dividend to shareholders
  • STV has already identified an investment programme of £30m to drive Digital and Studios growth with the target of delivering at least 50% of operating profit from outside traditional broadcasting by 2023.  The 2020 triennial valuation of the defined benefit pension schemes is on-going.  The Board remains mindful of the importance of the dividend to our shareholders and will seek to strike the most appropriate balance between sustainability of the dividend and pursuing growth opportunities.
Simon Pitts, Chief Executive Officer, said:

“Ahead of expectations, STV has returned to pre-pandemic levels of growth and profitability, thanks to the strength of our programming, the success of our diversification strategy, and the commitment and creativity of our people.

"Our record viewing performance has continued into 2021, with TV audiences up 5% even on last year’s lockdown levels, and online viewing via STV Player up a further 66% thanks to huge audiences for Euro 2020, dramas like The Pembrokeshire Murders, and our increasingly popular Player-exclusive boxsets which now constitute over 40% of our on-demand viewing. This has driven a 32% advertising bounceback in the first half which is continuing into the autumn.

"Our strategy of creating a more diversified business through a relentless focus on digital and production growth is delivering.  STV Studios is going from strength to strength, winning 15 programme commissions so far this year, and we’re delighted to be filming new, large scale returnable formats in Scotland like drama series Screw (C4), quiz show The Bridge of Lies (BBC1) and the genre-bending Murder Island (C4), as we aim to become the UK’s leading nations and regions producer.

"Our high margin digital business continues to accelerate with streams nearly doubling so far this year and much more to look forward to for the remainder of 2021, with a new drama boxset drop on the STV Player every week, together with huge events like I’m a Celebrity and the return of the FA Cup.

"STV also continues to drive positive social change through a range of important initiatives, from the STV Children’s Appeal, to our campaign to improve on and off screen diversity and inclusion, and our advertising Green Fund which has set aside £1m to champion Scottish businesses taking climate action as Glasgow prepares to host COP26 in November.

"With an improved financial position and good growth prospects, the Board has proposed an interim dividend of 3.7p, +23% on 2020.”

There will be a presentation for analysts today, 9 September 2021, at 12.30 pm, via Zoom.  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 970 106

Camarco:                         
Geoffrey Pelham-Lane, Partner Tel: 07733 124 226
Ben Woodford, Partner Tel: 07790 653 341
  
Financial and operating review
 
Group overview

Total revenue increased by 35% to £60.3m (2020: £44.7m), underpinned by the recovery in advertising and the resumption of programme production. Total advertising revenues of £51.4m were up 32% on the same period in the prior year, aided by the rebound in national advertising and continued success in STV controlled regional and digital advertising. Regional advertising revenues of £7.6m (2020: £6.0m) and national advertising revenues of £36.1m (2020: £28.0m) were generated during the period.

Digital revenues increased by 45% in the period to £8.5m (2020: £5.9m), with VOD advertising accounting for most of the growth, and a net contribution to operating profit of £3.9m (2020: £2.8m).

Studio revenues were £6.0m (2020: £1.6m) with an operating loss of £0.9m (2020: loss of £1.5m).  In line with historic norms, the phasing of programme deliveries is heavily weighted towards H2.  Although challenges remain in delivering programmes under covid-19 restrictions and margins continue to be under pressure with the associated costs, the division is on track for its most successful year yet in terms of the number of commissions delivered, and the associated revenue and flow through to operating profit.

As a result, adjusted operating profit of £11.4m was up 118% on the first half of 2020 and up 3% on the pre-pandemic interim period to June 2019.

Total finance costs were £1.2m (2020: £1.4m before exceptional items).  These comprised interest on the Group’s borrowings of £0.7m (2020: £0.7m) with the balance being non-cash costs in relation to the Group’s defined benefit pension schemes of £0.4m (2020: £0.6m) and interest on lease liabilities of £0.1m (2020: £0.1m).

As intimated in our 2020 year end results announcement, in March 2021 the Board decided to repay all monies received through the Government’s Coronavirus Job Retention Scheme (‘CJRS’) in advance of returning to payment of cash dividends in May 2021.  The repayment of CJRS monies has been recorded as an exceptional charge in the income statement of £1.7m, as it was a voluntary repayment and does not relate to trading performance in the first half of the year.

Before exceptional items and IAS19 interest, the Group generated a profit before tax of £10.6m (2020: £4.4m).  The statutory result for the year was a profit before tax of £8.5m (2020: loss before tax of £4.9m).  The effective tax rate (ETR) on the profit before exceptional items is 17.7%, lower than the standard rate in the UK of 19% and mainly driven by the impact of restating the opening deferred tax asset from 19% to 25% following the passing of legislation confirming that the rate of UK corporation tax would increase to 25% from 1 April 2023.  The tax credit on exceptional items represents an ETR of 19.0% as it relates wholly to the repayment of CJRS monies received in 2020 and which were taxed at the standard rate.

Adjusted earnings per share (before exceptional items and IAS19 interest) increased by 79% to 19.2p.  On a statutory basis, earnings per share was 15.4p as a result of the exceptional charge recognised.

The Group’s leverage (ratio of net debt to EBITDA) at the end of the period was 0.6 times, slightly lower than the position at the start of the year (December 2020: 0.7 times).  During the first half, the Group realised net proceeds of £3.3m following partial disposal of its minority investment in Unity Technologies Inc in April 2021.  In March 2021, the Group refinanced its bank facilities, agreeing a new £60m revolving credit facility, with a £20m accordion, for a minimum tenor of 3 years (two one-year extension options are available).  The covenant package is in line with the Group’s previous facility, namely net debt to EBITDA must be less than 3 times, and interest cover must be greater than 4 times.

Across the Group’s two defined benefit pension schemes, the accounting deficit before tax decreased to £42.1m at the half year (31 December 2020: £70.3m). This was largely driven by an increase in the discount rate due to a rise in corporate bond yields, offset to some extent by an increase in long-term inflation expectations. 

Broadcast

STV’s exceptional viewing performance throughout the pandemic continued into 2021, with an all time share of 20.8%, STV’s highest half-year share since 2006, and the highest growth in H1 2021 of all the UK’s 500+ channels.  STV remains the best watched channel in Scotland, achieving the largest lead over BBC1 since 2008. 

This viewing success was driven by a strong schedule of drama, entertainment, factual and sport output, including Six Nations Rugby and, in particular, Euro2020, which captured the attention of a nation of football fans. The much-anticipated England v Scotland match saw STV’s highest ever peak audience at 1.94m, becoming our most watched programme of the last decade and best watched football match ever.

Other highlights in H1 included entertainment juggernauts The Masked Singer and Ant and Dec’s Saturday Night Takeaway; crime dramas The Pembrokeshire Murders and Grace; and Oprah’s interview with Meghan and Harry, which one million Scots tuned into making it our second top programme of H1. 

STV News is the jewel in our regional crown and is watched by over half (54%) of the Scottish population each month, across all STV News bulletins; with STV News at Six the most watched news programme in the country. Audiences are up 11% on 2020 with an average audience of 541k, our tireless, talented news team is delivering the programme’s highest audience since records began in 2002.

This strong content offering, and unrivalled reach of the channel, have helped drive Total Advertising Revenue growth of 32% for H1 which, encouragingly, is 5% up on the same period in 2019.

We continue to work closely with the Scottish business community, ensuring that advertising is both affordable and accessible via our innovative STV Growth Fund. This initiative is more important than ever as we seek to boost economic recovery post pandemic.  Since launching the Growth Fund in 2019, we have secured 675 deals and 285 new advertisers to television, with more than 60 in 2021.  In March, we launched a £1m Green Fund aimed at sustainable Scottish businesses; and in July, £1m from the Growth Fund was allocated to businesses committed to inclusive practices, reflecting STV’s commitment to sustainability and diversity in business.  The recent launch of STV Self Service, enabling our advertisers to design and book their own campaigns, will provide ease of access to our leading marketing platform for SMEs.

Digital

The significant growth of our digital business has continued, with an exceptional performance in H1, ensuring we remain the UK’s fastest growing broadcaster streaming service.  Viewing on STV Player was up 66% with total streams almost doubling to 64m from January to June, up 94% for the same period year on year; with Video On Demand (VOD) advertising on STV Player up 62% compared with the same period in 2020.

There is strong evidence of the progression of our strategy to significantly increase our addressable audience via UK wide rollout and expand our high-quality content offering.  STV Player is now available on all major platforms, and 43% of our streams came from our Player-only content in H1, up from only 6% two years ago. Ex-Scotland streams increased to 10-15% of the total from a standing start.

In line with our growth strategy, in H1 we agreed 11 new content deals, adding more than 650 hours of content to our ever-expanding catalogue including 22 drama box sets and over 100 new titles including drama, true crime and factual entertainment programming.

Drama, both Channel 3 and acquired, along with soaps dominate STV Player’s top 15 shows, with 8 of the top 15 best watched shows being Player-only content.  These include titles such as US crime drama, The Bridge (2.5m total streams to date), UK crime thriller, Thorne (1.2m streams); and US legal drama, The Firm (1.1m streams).  Given the increase in STV Player exclusive titles, STV’s dependency on soaps to drive streams continues to diminish with soaps now accounting for only 1 in 5 VOD streams.

Euro2020 saw STV Player breaking records, with football fans watching in their millions. The day of the France v Switzerland and Croatia v Spain clashes on 28 June saw the STV Player deliver its best performing day ever with more than 1m streams.  The Denmark v England semi-final was STV Player’s most watched live event, drawing in almost half a million streams. Total streams across the tournament were 3.9m.

In June, we became the first broadcaster video on demand service to launch a VIP rewards scheme to help build stronger connections with our viewers and further drive streams.  STV Player VIP brings members a range of benefits including personalised email recommendations, opportunities to win prizes every month as well as a reduced advertising load, and we will constantly be refining and improving this offer.

We continue to develop strong relationships with distributors and platforms and are beginning to focus our content offering around the most popular genres, with more drama box sets being added monthly.  This July, we secured our biggest ever content deal to date, partnering with Banijay Rights to bring 1,250 hours of new programming to our free streaming service, with regular content drops into 2022.

STV Studios

Despite the impact of the pandemic on the whole production community, STV Studios has shown resilience and creativity, ensuring that 2021 will be its most successful year to date, with forecast revenues of £20-25m.

The business entered 2021 with a strong pipeline of commissions, which were developed and won during the height of the pandemic and has continued that positive momentum through 2021. The team has secured new commissions across all genres - 15 in total for 2021 to date - and successfully delivered a range of shows, despite the ongoing impact of Covid restrictions. 

Importantly, we are creating returning and returnable series, which are particularly valuable to the business.  Highlights include: a significant entertainment commission from the BBC, a 25-part quiz show The Bridge of Lies with Ross Kemp; a recommission of the successful Yorkshire Auction House for Discovery, involving 2x10 part series plus a celebrity series; and a 13-episode commission for Celebrity Catchphrase, the biggest since the show’s launch in 2013.  This was no doubt fuelled by the show attracting its highest ever viewing figures, with the fifth series of Celebrity Catchphrase being the most-watched series of the show ever with an average audience of 5.1m viewers across its eight-week run.

Our Factual team has had a strong H1. They secured and produced our first commission from UKTV to produce a new six-part factual entertainment travel series for Dave, British as Folk, featuring three comedians travelling the country interrogating the stereotypes that make up British life today. The team also completed production on Murder Island for Channel 4, an innovative competition format that blends crime drama and factual entertainment and sees members of public find out if they’ve got what it takes to solve a murder. Murder Island was the first production to be commissioned via Channel 4’s new Contestable Fund, which seeks to find their next channel defining format.

Filming has now concluded on our high-end prison drama for Channel 4, Screw, a six-part returnable series starring Nina Sosanya (His Dark Materials) and Jamie-Lee O’Donnell (Derry Girls). One of our biggest drama productions to date, we expect this to air next year.  The series was the first production to film in Scotland’s new creative hub in the west end of Glasgow, in the historic Kelvin Hall, contributing significantly to the county’s cultural economy and delivering new training opportunities in partnership with Screen Scotland and Channel 4.

The new creative labels within our production family are all making encouraging progress. Belfast-based Two Cities announced a significant win in March this year with an original returnable police drama, Blue Lights, for BBC One – its first commission as part of the STV Studios family.  Primal’s ground-breaking series for Sky Arts, Landmark, launched this week.  Both Tod Productions and Barefaced are in advanced discussions with broadcasters and streaming services on key projects.

STV Studios has also focused on continuing to strengthen its creative pipeline with the addition of an 8th label through a minority investment in Brighton-based entertainment indie Hello Mary, run by former MTV, Channel 4 and Channel 5 exec Steve Regan. Hello Mary has already secured 3 series commissions, the most recent an 8-part paranormal series for Discovery, announced last week.

Principal risks and uncertainties

The Board considers the principal risks and uncertainties affecting the business activities of the Group are:
  • Regulatory environment
  • Market volatility and advertising spend
  • Post Brexit uncertainty
  • Reliance on ITV
  • Cyber
  • Defined benefit pension scheme shortfalls
  • Group funding
Further details of the Group’s policies on principal risks and uncertainties are contained within the Group’s 2020 Annual Report, a copy of which is available at www.stvplc.tv.

STV Group plc, consolidated income statement six months ended 30 June 2021