Full Year Results 2015

Tagged in: Press Releases
STV Group plc Full Year Results 2015
Commercially focused
Creatively led
Financial Highlights  2015  2014  Year on year
Revenue  £116.5m  £120.4m  -3%
EBITDA*  £22.8m  £21.5m  +6%
Operating profit*  £20.3m  £19.5m  +4%
Pre-tax profit*  £19.1m  £17.3m  +10%
Adjusted EPS**  39.9 pence  36.3 pence  +10%
Statutory EPS  29.8 pence  38.7 pence  -23%
Net debt  £25.7m  £29.4m  -13%
Dividends per share  10.0 pence  8.0 pence  +25%
*Pre exceptional items and IAS19 interest
** Pre exceptional items and IAS 19 interest with a normalised tax rate of 20% (see note 19)
  • Non-broadcast earnings at 22% compared to 11% in 2011
  • Fifth consecutive year of growth in pre-tax operating profit*
  • Double digit growth in pre-tax profit* up 10% to £19.1 million
  • Adjusted EPS** up 10% to 39.9 pence per share
  • Net debt down 13% to £25.7 million (below 1xNet Debt/EBITDA)
  • Digital revenues up 25% at £6.6 million and digital margins maintained above target level at 48%
Strategic Developments
  • ​Strategic growth aim of 10% CAGR in EPS** on track during 2014-2017
  • Dividend payment increased by 25% year on year with total 2015 dividend payment of 10.0 pence per share   
  • Enhanced STV News digital product to launch March 2016
  • 1 in 3 adults in Scotland registered with STV
Rob Woodward, Chief Executive Officer, said: “2015 returned a good performance for the Group with operating profit* above £20m for the first time in eight years generating steadily growing returns to shareholders and reducing net debt to its lowest level since the mid 1990s.
“Our investments and focus have put us in a strong position to deliver organic growth in the future and the increasing diversity of earnings improves the security of returns for our investors.”  
There will be a presentation for analysts at the offices of Peel Hunt, Moor House, 120 London Wall, London EC2Y 5ET today, 24 February 2016, at 12.30 pm.  Should you wish to attend the presentation, please contact Katie Martin, STV:  or telephone: 0141 300 3000.
STV Group plc
George Watt, Chief Financial Officer
Tel: 0141 300 3049

Richard Holligan, PR & Communications Manager
Tel: 0141 300 3670
Charlotte Street Partners
Chris Sibbald
Tel: 0131 516 5310
Operational Review
At the beginning of 2015 the strategic aim to deliver a compound annual growth rate of 10% in adjusted EPS during the period 2014-2017 was announced underscoring the commitment to continue to create enhanced value and deliver returns to shareholders during the next phase of the company’s growth strategy.
Supported by eleven KPI targets, good progress has been achieved against this strategy during 2015; building sustainable growth; creating further value for shareholders and strengthening the business to deliver growth and realise opportunities for further organic growth.
Overall, the Group delivered another year of growth in pre-exceptional profit before tax, adjusted earnings per share and cash generation whilst continuing to invest in key growth areas.  This included investment in the portfolio of digital products and STV Productions whilst absorbing start-up costs from the launch phase of the City TV channels.
Over one fifth of earnings have been derived from non-broadcast activities representing significant progress over the past five years when these activities represented only 11% of earnings.  This is behind the KPI target but reflects a stronger and more resilient core business than was forecast. Diversification to rebalance the business remains at the heart of the growth strategy for 2016 and beyond.
The growth of the non-broadcast business has been driven primarily by the continued development of the digital business.  This has now evolved into a core area of activity, delivering significant growth in revenues, up 25% year on year to £6.6m (2014: £5.3m), and operating margin ahead of target levels with 48% achieved (2014: 32%).
The KPI targets continue to provide strong operational focus across the Group.  Six of the eight KPI targets for the consumer business were met or exceeded or, in the case of the two KPIs with targets for the end of 2016, on track.
Due to below target commissions and deliveries for STV Productions, the two KPI targets for the business were not met.
STV Consumer
During 2015, over 56% of Scots interacted with at least three STV services every month as the STV Family of services has continued to be the focus of growth of the consumer business, building reach and deepening engagement with consumers.   
Targeted investment has been made in key growth areas during 2015.  In the consumer business, the next version of the STV Player was launched in the first half of 2015 and a significantly enhanced online STV News service has been the focus of product development activity and will launch in Q1 of 2016.  Investment has also been made in extending the STV Family through the growth of City TV.
Core channel, STV, continues to hold the position as Scotland’s most watched commercial channel and, for the sixth consecutive year, achieved a peak-time audience share in excess of the Network, tracking 0.2 share points ahead.  STV reached 3.6m viewers per month and showed 44 of the top 50 most watched programmes on commercial television.
Consumer business revenues continued to increase, up 1% to £108.2m (2014: £107.1m).  National airtime revenues were up 1% at £79.3m (2014: £78.6m) and regional airtime sales continued to improve during the second half of the year to be up 6% at £12.5m (2014: £11.8m).  As confirmed in August 2015, the current Airtime Sales Agreement with ITV will expire at the end of this calendar year.  To ensure that all opportunities to maximise margins and revenues across the Consumer business are secured, a review of options to manage airtime and sponsorship sales is currently underway.  Under the provisions of the current arrangement with ITV, STV is legally entitled to receive terms similar and the review is being undertaken on that basis. 
The second of the City TV services, STV Edinburgh, was launched in January 2015 and across the year both City TV services achieved an average monthly reach of 30% of the available audience within their transmission areas.
Revenues generated from City TV increased by 66% year on year to £1.0m (2014: £0.6m). The services continue to be met with a positive response from advertisers with 130 new to television advertising and a number of these progressing to increase spend and advertise across other platforms in the STV Family, including STV.  
The recommendation made by Digital UK that the City TV channels should be able to move to Channel 8 on Freeview, following the move of BBC Three online, is welcomed.  We expect a decision on DUK’s consultation process in the next week.
Licences have been secured to deliver three additional services, in Aberdeen, Ayr and Dundee, and the launch of these is planned for early 2017.  The City TV business remains on track to break even in 2017. 
The enhanced STV Player, which includes ‘watch live’ functionality, has continued to drive engagement and increase reach during 2015.  Long form video streams have increased by 14% and engagement levels continue to grow, with average time spent per user per day, up 15%.
The data and insights strategy is targeted at strengthening consumer engagement and developing innovative opportunities for advertisers and commercial partners to reach their target markets.  The KPI target was achieved with 1.6m individuals in our database, equivalent to 1 in 3 of the Scottish population, representing an increase of 60% year on year.
Segmentation of this data to provide advertisers with increased opportunities for targeting were introduced during 2015, initially with a geo-targeted offer, and this will be further developed during 2016.
STV Productions
STV Productions has continued to expand its customer base, securing commissions with new customers in the UK market whilst continuing to deliver returnable series in daytime and entertainment. Despite this progress, fewer commissions and lower deliveries than forecast have resulted in the growth targets for the business not being met.  As a result, the carrying value of goodwill related to this business has been written down by £5.1m.
The business achieved revenues of £8.3m (2014: £13.3m), down 38% year on year, and a margin of 5% (2014:3%), behind the target of 6%.  In 2015, the number of hours produced totalled 125 including in-house STV commissions.
Returning series commissions were secured with ITV for a fifth series of Catchphrase and the BBC committed to a two-year order for a twelfth series of Antiques Road Trip and a fifth series of Celebrity Antiques Road Trip.  In Q1 of 2016, a new commission has been secured with ITV2 for a second series of Safeword. 
The business also continues to build a reputation for the development of documentaries.  The 7/7 Bombing: Survivors Stories was aired on ITV and, in autumn 2015, Rollermania: Britain’s Biggest Boy Band, aired on BBC Scotland and BBC Four.
A significant strategic development partnership with GroupM Entertainment, announced in August 2015, will provide STV Productions with scale to enter new markets and recognises the capabilities and potential of the highly talented team who are focused on delivering growth and continuing to build a leading content production business of scale.
Revenues secured so far for delivery in 2016 are above the level achieved for the whole of 2015 and the business has a strong pipeline of development activity.
STV national airtime revenue is expected to be down 2% in Q1, slightly behind the broader television market. The regional market has performed strongly in Q1, up 32% year on year.
Digital revenues are up 25% in Q1 and this rate is expected to be maintained in the year ahead.
Financial Performance Review
Total revenue was down 3% at £116.5m (2014: £120.4m) principally due to a reduction in   STV Productions’ revenues.
Consumer division revenues were up 1% at £108.2m (2014: £107.1m) with national airtime revenues up 1%, behind the broader television market, and regional airtime revenue up 6%, with a particularly strong second half performance. 
Digital revenues were up 25% at £6.6m (2014: £5.3m), below their KPI target level, with strong growth in VOD on the STV Player driving this growth trend.
STV Productions revenues amounted to £8.3m (2014: £13.3m) reflecting fewer commissions and lower deliveries.
Operating profit, before exceptional items, continued to increase, up 4% to £20.3m (2014:
£19.5m).  Consumer division operating profit increased to £19.9m (2014: £19.1m) and once again delivered margins ahead of the KPI target at 18.4% (2014: 17.8%).  This result is achieved after absorbing the initial start up losses of City TV which amounted to £1.0m (2014: £0.1m) but which will reduce in 2016 as the City TV business moves toward full break even in 2017. 
A major factor in growing the consumer division margin, despite the City TV losses, was the expansion of the digital margin from 32% to an above target 48%, driven by high margin STV Player growth.
STV Productions operating profit was flat at £0.4m (2014: £0.4m) despite the decline in the top line.
Profit before tax before exceptional items and IAS 19 interest increased by 10% to £19.1m (2014: £17.3m).
Finance borrowing costs reduced by £1.0m to £1.2m (2014: £2.2m) due to lower cash interest costs as net debt fell and the lower interest margin from the 2014 amendment and extension of the Group’s bank facility impacted for a full year.  The IAS 19 non-cash pension finance charge amounted to £0.5m (2014: £nil).
There were four non-recurring, material events which have been classified as exceptional items in 2015 (2014: none) and had a net effect on profit after tax of £8.6m (2014: £nil). These included the goodwill writedown on STV Productions noted above (£5.1m), the H1 writedown of the Group’s investment in Mirriad (£1.0m), a write-off of fixed assets related to City online services and redundant STV Player platforms (£1.0m) and costs related to management incentive plans (£1.7m). The combined tax impact from the latter three items was a credit of £0.2m. This was in part offset by the recognition of a deferred tax asset reflecting greater certainty over the use of the Group’s available tax losses from prior years (£5.1m).
Net debt fell by a further 13% to £25.7m (2014: £29.4m) with the key net debt EBITDA ratio target of below 1.0x on a covenant basis at the year end being met.  The Group’s measure of operating profit converted to free cashflow improved as anticipated in 2015 to 86% (2014: 79%), slightly below the ongoing 90% target due to working capital phasing.
Capital expenditure at £2.3m (2014: £5.0m) reduced to more normal levels in 2015 following significant investment in news equipment in the previous year.  The debt reduction is also after taking account of higher pension deficit funding payments (£7.8m) and increased dividend payments (£3.4m).
The principal movements on the Group’s balance sheet were the reduction in net debt noted above, the reduction in the IAS19 pension deficit, goodwill movements and deferred tax.
The statutory result for the year after tax, exceptional items and IAS 19 interest was a profit of £11.4m (2014: £14.7m). 
The Group’s effective tax rate increased to the standard rate of 20% (2014: 15%) and corporation tax payments are expected to resume in 2016.
EPS before exceptional items and IAS 19 interest with a normalised tax rate of 20% increased by 10% to 39.9p (2014: 36.3p).  On a statutory basis EPS amounted to 29.8p (2014: 38.7p).
The proposed total dividend for 2015 is 10.0p per share, an increase of 25% on 2014 (8.0p).  During 2015, the final 2014 dividend of 6.0p per share was paid together with the interim dividend for 2015 of 3.0p per share.  A final dividend of 7.0p per share has been declared which, subject to approval at the AGM in April, will be paid on 20 May 2016 to shareholders on the register at 15 April 2016.
It remains the intention of the board to continue the progressive dividend policy in future years.
The annual deficit funding contribution of £7.8m was paid to the defined benefit schemes in January 2016.  Discussions with the scheme trustees to settle the triennial valuation are at an advanced stage and it is expected a settlement will be agreed by the end of Q1.
The Group continues to be fully engaged with ongoing regulatory and public policy consultation and reviews, including the BBC Charter Review process; securing a new balance of payments structure between Public Service Broadcasters and Pay-TV operators; and achieving guaranteed prominence for Public Service Broadcasters on the Electronic Programme Guide.
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 2014 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 2015 Annual Report is scheduled to be circulated to shareholders on 24 March 2016.
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.
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 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 material 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. 

Rob Woodward
CEO, STV Group plc