STV Group plc Full Year Results for 2020

Resilience and strategic progress in an exceptional year
Next-phase growth plan announced to accelerate STV’s diversification

 
Highlights 

 

 
Financial highlights 

Another record viewing performance on screen and online 

Improving outlook 

Simon Pitts, Chief Executive Officer, said:
“STV is coming through the pandemic with confidence. With profit and net debt materially better than expectations, the 2020 financial results we are confirming today are testament to the strength of our business and the commitment and creativity of our people in what has been an extraordinary 12 months.

We enjoyed record audience growth in 2020, with TV viewing up 14% and online viewing up 68%, the biggest gains of any UK broadcaster, and were also able to accelerate delivery of our strategy. Our advertising Growth Fund enabled us to attract 91 new Scottish advertisers, we bolstered our successful digital content strategy with a further 1200 hours of content, and we launched our streaming service STV Player across the UK for the first time meaning it is now available in over 17m homes. STV Studios also secured 19 new programme commissions, the largest number ever, as it looks to establish itself as the UK’s leading nations and regions producer.  

We took proactive steps to conserve cash and raise capital from shareholders and, combined with better than expected trading, we now have a significantly strengthened balance sheet as we look to invest £30m in the next phase of our strategic growth, targeting at least 50% of our operating profit from outside traditional broadcasting by 2023. With an improved financial position and good growth prospects the Board has also recommended a return to cash dividend payments and a final dividend of 6p per share, giving a full year dividend of 9p per share for 2020.

We have made another strong start to the year on screen and online, with TV viewing up a further 14% and STV Player up 83%. Advertising trends are also improving materially, with April forecast to be up 60-75% and Jan-April +7-9% as lockdown hopefully begins to ease. Our positive momentum in Studios continues, with recent ground-breaking commission Murder Island for Channel 4, and filming about to start on our new drama series, Screw, also for C4. There is also much to look forward to on STV with more new drama than ever in 2021, as well as the exciting prospect of the delayed Euro 2020 football championships involving both England and Scotland. While there is inevitably still uncertainty around the pandemic, we are positive about the future outlook."

There will be a presentation for analysts today, 16 March 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 970106

Camarco:                     
Geoffrey Pelham-Lane, Partner
Tel: 07733 124226

Ben Woodford, Partner 
Tel: 07790 653 341
 
Financial performance review

Trading overview

Total revenues for the Group were £107m (2019: £124m), driven by lower linear advertising revenues and fewer programme deliveries.  Total advertising revenue was £91m for the year, down 10% on 2019, a marked improvement on the H1 position when the market declined by 20%.  By Q4, total advertising revenue was broadly flat year on year, providing confidence for a strong return in 2021 as lockdown restrictions are removed.

Regional and digital advertising revenue, both within the direct control of the Group, out-performed the national market which was down 14% at £65m (2019: £75m).  Regional revenue was £14m, down only 5% year on year, (2019: £15m) whilst digital advertising revenues grew 5% year on year, principally as a result of the 12% growth in Player Video on Demand revenues.

In order to mitigate the impact of the reduction in revenue on the profitability of the Group, a number of actions were taken to reduce costs.  These, combined with the benefit of the arrangement with ITV that ties our contribution to the national programme budget to national advertising revenue (worth £5m in 2020), resulted in adjusted operating profit (before exceptional items) of £18.2m (2019: £22.6m), firmly ahead of consensus expectations.  The Group’s profit performance also reflects grant income of £1.4m from the Group’s access of the UK Government’s Coronavirus Job Retention Scheme (CJRS), with a further £0.2m being recognised in the balance sheet. The full £1.6m will be repaid to HM Government prior to our return to cash dividend in 2021.

Adjusted profit before tax of £16.6m (2019: £21.0m) was after charging net finance costs of £1.5m (2019: £1.6m).  Interest payable on the Group’s borrowings was £1.2m (2019: £1.3m) with the balance being non-cash charges in relation to the Group’s operating leases.

An agreement in principle has been reached for the sale of the STV external lottery management company, STV ELM Limited, subject to approval by the Gambling Commission, with completion expected in the coming weeks.  In addition to a modest consideration for the business, STV will also provide advertising services to the lottery under a multi-year contract.  Full provision for the amounts due from the Scottish Children’s Lottery was made at the half year with the full year net exceptional items of £8.7m reflecting a small increase to that provision (of £0.1m to a total of £8.8m), recognition of a VAT recoverable in respect of invoices written off (£0.6m) and the estimated costs of disposal (£0.5m).  The first two items are recognised as exceptional finance costs with the latter being an operating exceptional item.

On a statutory basis, operating profit was £17.7m (2019: £22.6m) and profit before tax was £6.7m (2019: £19.0m). 

A total tax credit of £1.0m has been recognised in the year (2019: charge of £3.1m), representing a negative effective tax rate (ETR) of -14.9% (2019: 16.6%). This tax position is driven by the low ETR of 4% on the profit before tax before exceptional items, reflecting the increase in deferred tax assets as a result of the Government’s decision not to lower the rate of corporation tax to 17%.  Profit for the year was £7.7m (2019: 15.9m).

Adjusted earnings per share (before exceptional items and IAS19 interest) was 37.5p, down 18% on the prior year (2019 restated: 45.8p), which has been restated to reflect the bonus issue of shares in December 2020.  As well as being impacted by the lower profits in the period, the 2020 metric benefits from the significantly reduced effective tax rate for the year and also reflects the increased share capital following the placing in July 2020.  On a statutory basis, earnings per share was 18.2p, lower than the prior year as a result of the exceptional items in relation to the disposal of the STV ELM (2019 restated: 41.7p).

In addition to the better than expected performance from a profit perspective, the Group ended the year with lower net debt than anticipated at £17.5m before lease liabilities, a reduction of £20m on 2019.  The most significant contribution was the net proceeds of £15.5m raised by the placing of new shares in July 2020, which combined with a number of other cash retention measures to drive a net inflow across the year.  Operating cash conversion of 108% was strong (2019: 93%), driven by tight management of working capital and the decision to pause non-essential capital projects in response to the first lockdown over Q2 2020. 

The Group’s leverage (ratio of net debt to EBITDA) at the end of the year was 0.7 times (2019: 1.5 times), well within the covenant maximum of 3 times, and reflecting the reduction in net debt in particular over the second half.  Following the extension to the Group’s existing bank facilities in June 2020, the facilities were fully refinanced over Q1 2021, with a new £60 million revolving credit facility and £20m accordion agreed for a minimum tenor of 3 years, with two one-year extension options.  Covenants remain in line with those of the previous facility.

Pensions

The IAS19 accounting deficit across the Group’s two defined benefit pension schemes was £70.3m, lower than the half year position of £76.9m although slightly higher than last year end (2019: £64.0m).  The increase in the deficit year on year is due to a lower discount rate, driven by the significant fall in corporate bond yields as a result of the Covid-19 economic backdrop, although also reflects strong asset returns as a result of the hedging strategies of the schemes.

The next triennial valuation is due as at 31 December 2020 and early stage discussions with the trustees have commenced.

Dividend policy

The Board is confident in the long-term prospects for the Group and in its ability to deliver the new three-year diversification and growth strategy, despite the uncertainties arising during the UK’s economic recovery from Covid-19.

Following the cancellation of the 2019 final dividend and the payment of the 2020 interim dividend by way of a bonus issue of new ordinary shares, paid in December 2020, the Board recommends a return to a cash dividend with the 2020 final dividend proposed at 6p per share.  It is the Board’s intention to pay a progressive dividend to shareholders, subject to prevailing market conditions.

Operational review

Broadcast

The strategy for STV’s broadcast business is to maximise its value and profitability through the delivery of high quality, cost-effective news and entertainment on its linear TV channel. 

Despite the most challenging conditions faced by the business in its 63-year history, STV achieved a record-breaking year of viewing and was the most watched commercial channel in Scotland across every timeslot.  Crucially, its position as the most watched peak time channel in Scotland was maintained, increasing its share to 10% higher than the nearest competitor BBC1. All-time audience was up 14% year on year, the highest annual growth ever recorded.  All time share reached a 12-year high of 19.2%.  STV’s viewing share was also 12% higher than the ITV Network, an indicator of the unique connection the channel holds with its audience.

As audiences sought trusted news and information, STV’s public service remit was firmly in the spotlight.  Our flagship programme STV News at Six, already the most-watched news programme in Scotland, achieved the highest average audience and viewing share in its history, tracking 10% higher than the competition (from a position of +3% pre-Covid).  Average audience was up 32% and viewing share was up 16% year on year.  During 2019, five editions of the programme secured an audience of over half a million viewers.  Across 2020, 152 editions of the programme attracted this level of audience. 

Despite advertising revenues recording the sharpest ever decline in Q2 2020 - down 38% year on year - the advertising market responded quickly and positively as lockdown restrictions were relaxed in H2. Overall, total advertising revenue was 10% down for the full year, with national advertising revenue down 14% year on year within that. The performance of the local Scottish advertising market was relatively stronger than the national market, bucking wider trends and finishing down only 5% year on year.

This strong regional market position has been enhanced through the success of the STV Growth Fund over the last 3 years. This investment fund is designed to make advertising more affordable and accessible for Scottish SMEs.  Since its launch in 2018 it has delivered over 550 deals and introduced c.235 new clients to television advertising, including 91 new advertisers in 2020 despite the Covid disruption. The re-booking rate for advertisers receiving Growth Fund investment was 42% in 2020.

Three bespoke funds have been launched in recent months as part of the wider Growth Fund initiative.  Local Lifeline allocated airtime to the value of £1m to businesses and charities who responded to the impact of Covid by helping their local communities during the first lockdown.  Through this campaign, 105 ‘local heroes’ were celebrated in commercial airtime on STV, showcasing their efforts in supporting people who needed it most.  As part of our commitment to be a more inclusive and diverse business, the Inclusion Fund was launched in late 2020 to support businesses who champion diversity through their products and services, consumer engagement or culture.  Finally, in early 2021, the Green Fund was announced as part of STV’s environmental sustainability commitments to be a net zero carbon business by 2030, with the aim of making advertising more accessible to SMEs championing greener practices.

A doubling of the Growth Fund to £20m was announced at the onset of the pandemic and will be a key factor in continuing to grow STV’s share of the regional advertising market as businesses start reinvesting in marketing to support their Covid recovery plans.

Despite a reduction in revenue of 12% to £81.2m (2019: £92.3m), the underlying profitability and resilience of the business resulted in operating profit of £15.5m (2019: £19.9m).  The operating margin decreased slightly to 19.2% (2019: 21.6%).
 
Digital

Acceleration of the profitable growth trajectory of the Digital business was achieved through an increasingly rich and diverse content offering and the successful UK-wide launch of the STV Player for the first time. By the end of 2020, the STV Player was available on all major platforms and pre-installed in nearly three quarters of the UK’s connected TV homes, increasing the addressable audience twelvefold to over 50 million adults. 

Online viewing was up 68%, securing the STV Player’s pole position as the fastest growing broadcaster streaming service in the UK.  Within this, VOD viewing was up 57% and live simulcast viewing was up 97%.  Active monthly users grew by 50% year on year.

Despite the wider trends in the advertising market in 2020, VOD advertising on STV Player grew 12% for the full year.  The year closed with four consecutive months of growth, a positive indicator of the prospects for 2021 against a stronger advertising market.

The UK-wide launch has brought the STV Player onto all major platforms.  In June, we announced an extension of our strategic partnership with Virgin Media enabling their customers across the UK to watch the STV Player via their set top boxes.  With the Player already installed on YouView and Freesat, in August, the launch on Freeview Play in August connected us to a further 13 million devices in UK homes.  The launch on Sky+, Sky Q and Now TV was completed at the close of 2020.

Our digital content strategy aims to create an STV for everyone.  Some 3,000 hours of Player-only content is now available, c1,200 hours of which were acquired in 2020, comprising high-quality UK and international drama boxsets, factual series, entertainment and lifestyle shows, as well as live sports and music channels. This content has been secured through deals with over 20 partners and distributors and across 2020, accounted for over one third of all viewing and 8 of STV’s top 15 digital shows.  The latest content deals with eOne and Sony will add over 350 hours of predominantly US drama.

The audience profile of the STV Player is enabling new audiences to be reached, enhancing our offer to advertisers. 16-34 year olds account for one third of the audience on STV Player, higher than on STV the channel.  Similarly, there is a skew towards ABC1 audiences on STV Player and the male audience is also higher.

The strong growth achieved throughout 2020 has continued into Q1 of 2021 with online viewing up 83% and total streams up 101% year on year, driven by an attractive offer of drama boxsets and UK-wide distribution.

Revenue grew for the third consecutive year, up 5%, to £13.7m (2019: £13.0m) driven by the increase in viewing. As a result of investment commitments to continue to build the scale of the business for the medium term, operating profit was down 10% at £6.5m (2019: £7.3m). The business still achieved an operating margin of 47.5% (2019: 55.7%).

Our ambitious 3-year targets for STV Player aim to double viewing, users and revenue by 2023. To achieve that we will invest more in digital content and marketing (aiming to launch a new boxset every week), increasingly personalise the user experience and launch a new loyalty scheme (STV Player VIP) to drive repeat usage.

STV Studios

2020 saw a record number of new commissions secured and a re-branding to reflect the growing portfolio of businesses that form STV Studios, which now houses seven creative labels across all genres.

Despite the challenges the pandemic presented to the production sector globally, 19 new commissions were secured including 16 series and three single productions across all genres and for a wide range of broadcasters.

 
The aim for STV Studios is to build a world class production business with a multi-genre slate of returning series; 6 of the 19 commissions announced in 2020 are new returnable series.

2020 started with the largest single order yet placed by the BBC for delivery of four new series of popular long-running show Antiques Road Trip, for BBC One (100 episodes), and two series of Celebrity Antiques Road Trip, for BBC Two (40 episodes).  A third series of BBC Scotland ratings success Inside Central Station was also commissioned (6 episodes).

New shows secured by the Factual team include The Yorkshire Auction House for Discovery-owned channel, Really (10 episodes), plus a Scottish version of the series, Clear Out Cash In for STV (8 episodes).  This was followed by the commission of a new format for Channel 5, Our Family Farm Rescue (4 episodes).  An innovative lockdown production was pitched and delivered to Channel 5 during the summer, The Tabloids and The Royals (4 episodes). A further commissioning success at this time was an investigative documentary for Channel 4, Is Covid Racist? 

With production activity abruptly suspended in March, the creativity of our development teams led to development slates being revamped to serve the new requirements of broadcasters, and productions were redesigned to enable safe working.  A new compilation series of ratings success and returning format, Celebrity Catchphrase, was commissioned by ITV for delivery in H2 and the biggest celebrity commission secured to date will be delivered in early 2021. Celebrity Catchphrase was the first UK entertainment show to return to studio under strict Covid-secure working practices in July, which were introduced across the industry to kickstart production. Antiques Road Trip also swiftly resumed production later that month, in accordance with new industry safety guidelines.

Our talented drama team received widespread critical acclaim for the 2019 film Elizabeth is Missing, for BBC One.  To date the film has won 9 major awards, including Best TV Movie at the C21 Frama Awards and Banff Media Rockie Awards; an RTS Award for writer Andrea Gibb; an International Emmy recognising Glenda Jackson’s performance, and a BAFTA.  Further success was confirmed with a significant new drama series commission from Channel 4 (6 episodes) for delivery in 2021.  Prison drama, Screw, is written by Rob Williams, creator of the team’s 2019 hit for BBC One, The Victim, and production commenced in Scotland in early 2021.

In January 2020, a minority stake was acquired in high-end drama producer Two Cities Television.  The business has a strong pipeline of drama projects and scripts at an advanced stage with commissioning success anticipated during 2021.  This was followed in September 2020 with the latest addition to the STV Studios portfolio, Barefaced TV, a wholly-owned creative label focused on entertainment formats targeting younger audiences.

Entertainment specialists, Primal Media, majority-owned by STV since July 2019, announced its first commission as part of STV Studios– a ground-breaking seven-part series for Sky Arts, Landmark, also to be produced in 2021.

These creative labels, including long-standing drama partner, TOD Productions, complement the STV Studios in-house businesses: STV Studios Drama, STV Studios Factual and STV Studios Entertainment.

As the pandemic affected the delivery of programmes, this revenue impact was offset by stronger library sales which accounted for over 40% of total revenue in 2020 (2019: 20%).  Strong growth in international sales was driven in part through our distribution deal with WME in the US.  Notable deals included the sale of critically acclaimed drama Elizabeth is Missing to over 90 territories through a distribution arrangement with NBC Universal.  This has enabled recoupment of all investment finance bringing the film into profit within 6 months. 

Total revenues were impacted by the cessation of all production from March which continued throughout Q2.  The business was broadly breakeven with a small operating loss of £0.3m, (2019: loss of £0.1m).

Our 3-year target for STV Studios is to quadruple turnover to over £40m. To achieve that we will continue to invest to strengthen our creative pipeline with a view to doubling the number of returning series we make by 2023.
 
Simon Pitts
Chief Executive, STV Group plc

STV Group plc, consolidated income statement year ended 31 December 2020