2023 INTERIM RESULTS

Total revenue increased by 21% to £75.3m (2022: £62.1m), with growth driven primarily by the Studios division, which saw an increase in revenue of £20.3m due to two significant drama productions partially delivering in the period. Total advertising revenues of £45.8m were down 14% on H1 2022, which reflects the challenging and well-documented macro-economic conditions impacting the linear advertising market.

Adjusted operating profit of £8.0m was down 33% on the first half of 2022, impacted by the softness in linear advertising markets combined with inflationary cost pressures.  The Group realised cost savings to offset roughly half of the inflationary increases, as guided at the start of the year.  The adjusted operating profit performance is before exceptional items of £2.8m for one-off costs relating to the extended partnership with ITV for digital content and national VOD advertising sales representation. The adjusted operating profit also includes £5.2m for High-End Television (HETV) tax credits which are due in relation to the drama commissions that have been partially delivered in the period, which aligns with the revised approach to these credits to be implemented from 1 January 2024 following HMRC consultation. There were no exceptional items or HETV tax credits in the prior period.  On a statutory basis, the Group generated a nil operating profit in the period (2022: £11.9m).

Total finance costs were £2.3m (2022: £1.3m), comprising interest on the Group’s borrowings of £0.8m (2022: £0.4m), and non-cash costs in relation to the Group’s defined benefit pension schemes of £1.3m (2022: £0.6m) and interest on lease liabilities of £0.2m (2022: £0.3m).  The higher interest payable on the Group’s borrowings was driven by the higher base rate in the period, with the margin payable under the Group’s bank facility remaining constant year on year.

The Group generated adjusted profit before tax (before exceptional items and IAS19 interest, and including HETV tax credits) of £6.9m (2022: £11.2m), a decrease of 38% on the prior period, with adjusted basic earnings per share decreasing by 26% to 14.8p (2022: 20.0p).

The statutory result for the period was a loss before tax of £2.4m (2022: profit of £10.6m), with the presentation of HETV tax credits within the tax line for statutory purposes.  The effective tax rate (ETR) on the profit before tax, before exceptional items and excluding HETV tax credits, has been charged at 23.7%, which is in line with the pro-rated standard rate of 23.5%. The ETR on exceptional items in the period was a credit of 23.5%.

The Group was in a net debt position (excluding lease liabilities) of £16.3m (December 2022: £15.1m) comprising drawdowns under its banking facility of £20.3m (December 2022: £26.4m) partially offset by a gross cash balance of £4.0m (December 2022: £11.3m).

The Group’s key financial covenants are leverage (ratio of net debt to EBITDA), which must be no higher than 3 times, and interest cover, which must be at least 4 times.  At the end of the period, leverage was 0.6 times, (December 2022: 0.5 times) and interest cover was 24.3 times (December 2022: 42.8 times), with significant headroom against covenant thresholds for both.  In March 2023, the Group exercised its second option to extend its revolving credit facility by one year with the facility now maturing in March 2026.

Across the Group’s two defined benefit pension schemes, the accounting deficit before tax decreased to £55.0m at the half year (31 December 2022: £63.1m). This was largely driven by an increase in the discount rate due to a rise in corporate bond yields, partially offset by the reduction in the market value of scheme assets.

Total advertising revenue (TAR) for the first half of the year was down 14% year on year. Regional advertising revenue at -14% for the period performed better than national advertising at -19%, and within the regional number the core SME advertiser base declined by only 2%.  The majority of the regional decline came from Scottish Government spend, which was down c.55% with no covid-related public health spending since Q1 2022.  This advertising market performance is driven by the challenging macro backdrop as a result of high inflation and interest rates, and we expect markets to continue to be cautious as those broader conditions persist.  That said, there has been some improvement in Q3, boosted by large scale sporting events like the Women’s Football World Cup and Men’s Rugby World Cup.

For the sixth first half year running, STV is the most watched peak time channel in Scotland, with our viewing share up 1% year on year (22.5%), and considerably ahead of BBC One. We delivered the largest commercial audience on 180 of the 181 days of H1, with the England vs Scotland Calcutta Cup match delivering our biggest audience of the year so far. Soap giants, Coronation Street and Emmerdale, continue to be schedule favourites. Other top 10 programmes for the first half of the year include dramas Unforgotten and Vera; Harry: The Interview, which drew in a linear audience of over half a million; and entertainment juggernaut, The Masked Singer proving itself our most popular show, with the top rating episode attracting over 600k viewers.

STV News has held its position as the most-watched news programme in Scotland – tracking 7 share points ahead of Reporting Scotland - and our current affairs programme, Scotland Tonight, continues to provide debate and analysis four times a week including one evening in peak.  STV was the first channel to air an SNP leadership debate, with STV’s Political Editor putting candidates through their paces. The 1-hour Special attracted the highest audience of all SNP leadership debates to air that month, which is testament to the skill and professionalism of our highly experienced team.

In H1, we celebrated two years of Expert Voices, our media workshop initiative designed to increase diversity of contributors in our news and current affairs programmes.  Established in 2021 to expand our network of subject matter spokespeople, our news team have now trained almost 1000 individuals from under-represented groups, with around 10% already using their skills on air. Year to date, 11% of our news contributors have come from ethnically diverse backgrounds (target 8%); and 52% were female (target 50%).

STV’s Growth Fund, which makes advertising more affordable and accessible for SMEs, goes from strength to strength. A further 180 deals have been secured so far in 2023, and importantly over 70% have returned from 2022.  This Spring saw four businesses awarded £25k of commercial airtime from our dedicated Inclusion Fund, which targets diversity-championing businesses across Scotland. Their campaigns will air on STV and STV Player in 2024.

In March, we welcomed the announcement from the Secretary of State that Channel 3 licences can be renewed for a further ten-year period from January 2025, thus securing the future provision of public service obligations, including the country’s highest performing news and current affairs programmes. STV also welcomed the publication of the Draft Media Bill and in particular the Government’s recognition that the new legislation is urgently required to make Public Service Media as prominent on digital platforms as they are today on broadcast. We look forward to the swift passage of the Bill through Parliament to ensure STV remains discoverable for viewers.

This summer, STV launched its first ever Sustainable Scotland Week, using our privileged position to convey accurate climate-related information to our viewers in an accessible way. This seven-day, cross-platform mission – including specially commissioned research, programming and promos – saw the channel raising awareness of how climate change is impacting Scotland’s communities and inspiring viewers to live more sustainably. This activity is part of our overall commitment to sustainability across our organisation through STV Zero, and we are currently measuring the impact of this dedicated week, with a view to further progressing our work in this area.

We have delivered strong growth across our Digital division in the first half of the year, with STV Player streams and online consumption both up 25%, new registrations up 65% and VIP users up 24%. Digital VOD revenues are up 14% compared with H1 2022.

Following an agreement with ITV in December 2022, STV Player has exclusive Scottish rights for a range of original and premiere content, encompassing at least 100 hours of new box sets per year.  Thirty new series have premiered in H1 under this new deal already, driving 11% of VOD viewing in H1. Four of these titles are in the top 15 best-watched VOD shows of the first half, including Scottish dramas Crime and Six Four, starring Scots Dougray Scott and Kevin McKidd respectively.

Other streaming highlights include Emmerdale and Coronation Street at positions 2 and 3, with returning stalwart dramas The Bay and Unforgotten at 4 and 5.

An important contributor to the growth of our digital division in H1 2023 has been our involvement with ITV’s addressable advertising platform, Planet V. This has seen the level of targeted, programmatic advertising on our streaming service increase from 40% to 90% across the period, with our digital brand count increasing by 50% in H1 and the STV average price (cost per thousand) increasing by 55%.  This partnership has also created a genuine one-stop-shop for Scottish advertising across linear, VOD and programmatic, with the aim of attracting new, digital-only advertisers who haven’t advertised on TV before.

In April, the STV Player app launched on Sky Q. This was an important step in our long-term partnership with Sky, making our service easy to find verbally via remote control or on the Sky Q apps rail. Although STV Player content has featured throughout Sky Q’s user interface across the UK since January 2021, this is the first time the dedicated app has been available, enabling customers to easily browse our extensive catalogue of content, access our ad-free tier, STV Player+, and become STV Player VIP members (with the reward of fewer adverts and prize draw entries).

We continue with our digital content acquisition strategy, ensuring visitors to STV Player, across the whole of the UK, have access to a wide range of high-quality content from around the world.  Acquired titles include high performing shows such as Irish crime thriller Redemption and Australian police procedural Rush. However, a key acquisition for H1 2023 was iconic soap, Brookside, achieving 1m streams in its first week and significantly raising the profile of STV Player across the UK. Brookside is our top performing VOD programme in 2023, with c.8m streams in H1 of which 65% came from outside Scotland.

Our production business continues its strong growth trajectory, with revenues nearly quadrupling year on year in H1.  This is a good performance set against a difficult commissioning backdrop, with many UK broadcasters slowing their rate of new programme commissions in the current economic climate, and actions by global streaming services to cut costs impacting the rate and number of new commissions awarded.

Commissions for H1 2023 include two new series of hit gameshow Bridge of Lies with Ross Kemp. BBC One commissioned a further 8 episodes of the celebrity version for primetime, and a third series of the regular version (25 episodes) for BBC Daytime. The wider appeal of this format was demonstrated by its first major international format sale to Spanish public broadcaster Televisión Espanola’s free to air channel, La 1.

BBC One confirmed a second six-part series of police drama, Blue Lights, which is now currently in production in Belfast. Co-produced by STV Studios production label, Two Cities, series 1 of Blue Lights launched on the BBC in March to five-star reviews. One of the BBC’s biggest new dramas of the year, it delivered an average audience of 5.7m (consolidated), reaching 12.5m across all episodes. We now have three major dramas in play, with a second of series of Screw recently launched on Channel 4; and Criminal Record, a co-production with our label, TOD Productions, set to air soon on Apple TV+.

Production is ongoing on returning series such as Antiques Road Trip and a new series of The Travelling Auctioneers for BBC, as well as new observational documentary, The Firm, for BBC Scotland.

Primal Media have completed production of innovative reality format, Alan Must Win for Channel 4, and Mighty Scotland attracted significant press attention via their Channel 4 you-tube documentary, The Black Alien Project.

In July 2023, we announced our acquisition of Greenbird Media, which has significantly increased the number of production labels under the STV Studios umbrella, more than trebled our portfolio of returning series and expanded our forward pipeline of new programme ideas. This transformative acquisition represents a major step towards our goal of becoming the UK’s number 1 nations and regions producer and has immediately accelerated STV’s overall diversification strategy in terms of both revenue and profit.

We recently announced the first major commission from one of the new labels joining the STV Studios family through Greenbird, new reality format The Fortune Hotel for ITV, from Tuesday’s Child Television, along with a further 6 new programme commissions by Tuesday’s Child, Interstellar and Rumpus Media.

STV Studios was named Production Group of the Year at the prestigious Edinburgh Festival Awards in August 2023.

The Board considers the principal risks and uncertainties affecting the business activities of the Group are:

• Regulatory environment
• Market volatility and impact on advertising spend
• Reliance on ITV for quality network programming and effective national sales
• Changing viewing habits
• Cyber attack or breach incident
• Defined benefit pension scheme shortfalls
• Recruitment and retention of people

Further details of the Group’s policies on principal risks and uncertainties are contained within the Group’s 2022 Annual Report, a copy of which is available at www.stvplc.tv.