STV Group plc Half Year Results 2016

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STV Group plc Half Year Results 2016
Half year results for the six months ended 30 June 2016
Commercially focused; creatively led

-       Total revenues up 5%, at £56.2m
-       Operating profit* growth for sixth consecutive year, up     28%, at £11.0m, driven by high margin revenue activities of digital and regional airtime with revenues up 25% and 24% respectively
-       Double digit growth in EBITDA up 15%; statutory EPS up 55%; and dividends up 33%
-       Strong balance sheet with net debt continuing to reduce significantly, down 17% at £29.1m, and at target of 1x Net Debt:EBITDA
-       Continuing to deliver returns to shareholders with interim dividend of 4.0 pence per share confirmed representing an increase of 33% year on year.  Intended final 2016 dividend of 12.0 pence per         share
-       STV Productions increased deliveries during H1 with revenues doubling to £3.5m  and a strong secured pipeline for H2.  New commission announced: The Dressing Room (6 episodes) for UKTV
-       Normalised cost base and trading agreements underpinning the business provide resilience in event of changing macro-economic circumstances
Strategic Developments
-       New KPI growth targets to 2018 confirmed which will continue to drive performance; sustainable growth and value to shareholders
Financial highlights
  H1 2016 H1 2015 Year on year
Revenue £56.2m £53.6m  +5%
EBITDA £11.5m £10.0m +15%
Operating profit £11.0m £7.6m +45%
Operating profit* £11.0m  £8.6m +28%
Pre-tax profit and IAS 19 interest* £10.4m  £8.0m +30%
Pre-tax profit £10.2m  £6.8m +50%
EPS pre IAS 19 interest*   21.8p  16.8p +30%
Statutory EPS   21.2p  13.7p +55%
Net debt £29.1m £35.0m -17%
Dividends per share    4.0p    3.0p +33%
*before exceptionals- shown to provide a better understanding of the underlying Group performance. A full reconciliation between the adjusted and statutory results is provided in notes 16 and 19.
Rob Woodward, Chief Executive Officer, said:
“Our consistent delivery of sustainable growth over consecutive years continues with double digit growth in operating profit and EPS resulting in a 90% increase in digital earnings.
Overall, consumer business revenues are up year on year with the growth trajectory in digital continuing at a significant rate, up 25%.  The resilience of our business to fluctuations in national advertising sales is apparent with a high consumer margin being maintained despite a slight reduction in national airtime revenues. 
As forecast, STV Productions has delivered an improved performance with a stream of new commissions announced this year and, earlier this week, the announcement of a further commission from our strategic partnership with GroupM.
Our balance sheet continues to strengthen through a further reduction in net debt, down 17%, which along with our strong cash generation, underscores our financial strength.
Our new KPI growth targets announced today demonstrate the ambition of our vision and the extent of the levels of organic growth and shareholder value we plan to continue to drive and deliver.”
25 August 2016
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
Eleanor Marshall, PR & Communications Manager                            Tel: 0141 300 3670
Charlotte Street Partners
Harriet Moll                                                                                     Tel: 07717 501 626
Financial performance
Performance during the first half of the year is in line with forecasts against key financial measures and KPI targets.
In line with the Board’s commitment to the long-term delivery of increased shareholder returns, it is confirmed that an interim dividend of 4 pence per share will be paid, an increase of 33%.
The balance sheet has continued to improve and net debt has reduced by 17% year on year to £29.1m which represents the Group’s target level of 1.0x net debt:EBITDA, providing financial flexibility.
Overall revenues are up 5% at £56.2m, with consumer business revenues up 2%, at £52.7m. Digital activities continue to deliver strong double digit growth with revenues up 25% to £3.5m. STV Productions’ revenues more than doubled on the same period last year at £3.5m. The delivery schedule for the second half of the year is forecast to continue to grow strongly year on year.
Growth in the high margin activities of regional and digital sales has driven a double digit increase in EBITDA of 15%, to £11.5m.  Operating profit before exceptional items was £11.0m, representing a 28% increase year on year and growth for the sixth consecutive year. PBT before exceptional items and IAS19 interest increased by 30% at £10.4m.  Earnings per share before exceptional items and IAS19 interest is up 30% on an effective tax rate of 20%, amounted to 21.8p.
In line with the progressive dividend policy confirmed last year, the Board has declared the payment of an interim dividend of 4.0 pence per share, up 33%, with a proposed full year payment of 12.0 pence per share.
Operational Review
STV Consumer
The consumer business has performed in line with expectations with particularly strong growth being delivered in regional sales and digital activities.  Overall, revenues are up 2%.  National airtime revenues were down 1%; however, as a result of our ITV agreements the flow through of this impact to profit is significantly reduced. The regional sales market has continued to grow, up 24%, and sponsorship revenues also increased, up 4%.  City TV revenue was flat on a rounded basis.
The strong growth in digital revenues has continued during the first half with revenues up 25%, principally driven by VoD revenues on the STV Player.
Operating profit before exceptional items amounted to £11.8m, up 13%, driven principally by the increase in regional sales revenues and the increase in digital profits.
During the period, the enhanced digital news service was launched within the STV Family of consumer services, supporting increased consumer engagement with STV’s content and increasing our unparalleled reach.
Core channel, STV, has continued to perform ahead of the Network and this is expected to continue in the second half of the year with a strong autumn schedule and improved Network performance.
Both City TV services are performing in line with expectations in relation to revenue and audience targets. The services are reaching an average of 0.7m viewers every month, approximately 30% of consumers within their broadcast area.  This service will be extended in early 2017 as three new licence areas are added to this network.  This service will have a reach of over 80% of Scottish households.  Launch plans will be confirmed in early Q4.
The acquisition of consumer insights remains a key driver to achieving stronger consumer engagement and a new long term target to achieve 2.6 million insights by the end of 2018 is confirmed, representing 60% of the adult population in Scotland.
STV national airtime revenue is expected to be down 6% in Q3, resulting in a cumulative position from January to September of down 3%.The strong growth in the regional market during the first half is expected to continue, up 18% in Q3, with a cumulative position from January to end September up 20%.
Digital revenues are expected to continue to grow, up 25% year on year to the end of Q3 and this rate is expected to be maintained for the full year, as previously indicated.
To ensure that we maximise margins and revenues across the Consumer business, a review of the options to manage airtime and sponsorship sales upon expiry of the current Airtime Sales Agreement with ITV at the end of 2016 has been undertaken and confirmation of the future arrangements is expected in the next two months.
STV Productions
A significant increase in the volume of deliveries during the period has resulted in revenues of £3.5m, more than double the same period last year. The customer base has continued to expand and two returning series were secured – a key growth target.
Following the announcement of a strategic development and production partnership with GroupM Entertainment last year, a new series commission was announced earlier this week.   Documentary series, The Dressing Room, has been commissioned by UKTV (6 episodes),  the first project to be developed under this agreement.   
Commissions secured during the period include a second series of Safeword  (6 episodes) for ITV2; a second series of Prison: First & Last 24 Hours for Sky; two further series of BBC ratings success Antiques Road Trip and Celebrity Antiques Road Trip and a second series of Stopping Scotland’s Scammers for STV.  
The success of the factual team has continued with a one-off documentary for BBC4 and Smithsonian, The Queen Mary; and a one off documentary for Animal Planet, Life After...Chernobyl.  Additionally, a four-part series for Channel 5, Tour de Celeb, was secured and Channel 5 also commissioned two-hour special, Ultimate Celebrity Power Couples ’16 which was delivered with GroupM Entertainment as co-production partner.
Discussions with the trustees’ of the schemes to agree the next triennial valuation are at an advanced stage and are expected to conclude during Q3. The 2016 deficit funding payment of £7.8m was paid in January 2016.
As part of the 2015 triennial valuation process, further mortality studies involving  representative groups of pensioner members of both schemes have been completed to update mortality assumptions underpinning the valuation.  As a result, adjustments to reflect improved mortality of 4 years and 3 years will be made for male and female pensioner members respectively. This update to the best estimate assumption used in the IAS 19 accounting calculation does not impact the funding valuation which includes a larger level of prudence in setting actuarial assumptions. The impact on the IAS19 deficit from this change is to increase the deficit by £39m.
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 2015 Annual Report and Financial Statements the principal risks and uncertainties that could impact its performance.  These remain unchanged since the annual Report was published.  The Group has rigorous internal systems to identify, monitor and manage any risks to the business.  The principal risks identified are set out in detail on pages 22 to 27 of the 2015 Annual Report which is available on the STV Group plc website: These are: regulatory environment; dependence on advertising; performance of the ITV Network; pension scheme shortfalls; and financial risks being 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 2016 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 2015, 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
25 August 2016
Baroness Margaret Ford, Chairman
David Shearer, 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 2016