Final Results

RNS Number : 6578H

STV Group PLC

25 February 2010

 



0700 hrs, 25 February 2010

STV group plc Preliminary Results 2009

Scotland's digital media company

Financial Highlights

	STV (continuing)			Group*
	2009	2008		2009	2008
Turnover	£90m	£111m		£110m	£145m
EBITDA**	£12m	£15m		£12m	£17m
Operating profit**	£9m	£13m		£9m	£14m
Pre-tax profit**				£6m	£13m
Pre-tax profit pre IAS19 notional interest**				£8m	£11m
EPS**				13.7p	25.7p

    * Group includes Pearl & Dean in both years and Virgin Radio until it was disposed of in June 2008

  **Pre-exceptionals

Trading for the full year has met with Board expectations, and despite the incredibly challenging market conditions, we have achieved or exceeded the majority of our targets set in 2007, and are now introducing new KPIs for the next three years.

·        Operating profit at £9.2m**, a strong performance in the face of 30% revenue decline

·        Programming strategy delivered £6m cost savings whilst peak share on par with Network achieved

·        Target operating margins in Ventures and Content business exceeded

·        Share of regional advertising market increased

·        169 new advertisers on STV during challenging advertising recession

·        Strong growth in digital traffic and revenue on stv.tv platform

·        Monthly unique user numbers to stv.tv reach 1.5m in Q4 2009

·        Long term pension deficit funding plan agreed with Trustees

·        Majority of KPI targets achieved or exceeded (4 exceeded, 3 achieved, 5 not achieved)

·        Strong trading start to 2010, national airtime revenues up double digits in Q1

Strategic Developments

·        Key commissions won for BBC2 (Antiques Road Trip) and co-commission agreed with ITV (Taggart)

·       New commercial partnership with People's Postcode Lottery through fully ad-funded second series of Postcode Challenge, 40 episodes for production and broadcast during 2010

·        Two year deal agreed in 2010 with NetPlay, delivering new revenue streams

·        Consultation concluded regarding the granting of STV Productions with same rights as independent producers

·       STV bidding in partnership with ITN and Bauer Media against one other consortium for Independently Funded News Consortium (IFNC) pilot in Scotland

·        Launch of STV Player, with total video streams on stv.tv for 2009 up 307% versus prior year

·        Launch of STV Local, over 200 hyper-local city sites

Richard Findlay, Chairman of STV Group plc, commented: "STV has delivered a strong set of results, particularly in light of the extremely challenging market conditions in 2009, including the demise of Setanta and the delay in ITV's re-commission of Taggart.  We have, however, concluded the successful turnaround of the business over the past three years, delivering on our promises and establishing STV as a focused and ambitious digital media company, structured to deliver shareholder value as the trading environment improves."

Rob Woodward, Chief Executive Officer, added: "STV is a vibrant, innovative and dynamic company with a clear strategy and a dedicated staff.  The media industry has been particularly impacted by the unprecedented economic climate through 2009 and whilst we are seeing early signs of success, we have transformed our business to ensure that STV remains strong and competitive going forward. We are confident that as we go into 2010, against a backdrop of improved trading conditions, STV will continue to deliver against its ambitions."

25 February 2010

There will be a presentation for analysts at the offices of RBS Hoare Govett, 250 Bishopsgate, London EC2 today at 9.30am.

Investor and Analyst Enquiries:

STV group plc

George Watt, Chief Financial Officer                                 Tel: [phone]

Media Enquiries

STV group plc

Kirstin Stevenson, PR Manager                                          Tel: [phone]

Brunswick Group LLP

Simon Sporborg                                                                 Tel: [phone]

OPERATIONAL REVIEW

Overview

STV is Scotland's digital media company, building content and operating across platforms.  Despite the very challenging market conditions, STV continues to trade in line with expectations.  Trading for Q1 is already ahead, with national airtime revenue up 13% in Q1; however, we remain cautious going forward given the continuing economic uncertainty.  We have achieved or exceeded the majority of our KPI targets, demonstrating a solid underlying performance and a clear strategy.

2009 presented the most challenging of trading conditions, which inevitably impacted on advertising revenues.  Despite the loss of confidence in the market in general, STV has successfully increased its share of the regional advertising market, highlighting the strength of the brand and our ability to offer innovative, integrated solutions for advertisers.

2009 saw us invest in key growth areas and developments, such as the launch of the popular STV Player.  We have demonstrated our commercial and organisational agility to take advantage of opportunities arising from the relaxation of regulations surrounding teleshopping, delivering new revenue streams for the business.  Just this month, we signed a two year deal with a strong and established partner to provide this service going forward.

We introduced a new programming strategy in 2009, providing fresh opportunities to engage with our audience and advertisers whilst delivering significant cost savings.  During this time, we have maintained our share of viewing and have attracted a wider advertising inventory.  STV offers a network based schedule (over 90%), with additional high quality indigenous productions and selected acquisition material.  Already in 2010, we are attracting key new demographics to STV via our new programming, which is crucial in this multi-channel digital environment.

Content remains at the heart of our business.  2009 saw a landmark key commission from BBC2, and we go into 2010 with a co-commission with ITV and UKTV for six new episodes of Taggart. Our content team are fully integrated with our digital business, developing formats across platforms.

We have been participating fully in the Government's IFNC pilot scheme, which makes funding available for Channel 3 regional news.  Through our strategic partnership with ITN and Bauer Radio, we are confident of the strength of our bid.  In the event that the IFNC pilot scheme is not implemented, we have commenced dialogue with Ofcom through which we would seek an immediate reduction in our PSB obligations to relieve STV of the deficit within our licence.

STV Legal Proceedings

We have earlier this week written to ITV Network raising a number of issues regarding what we consider to be prejudicial behaviour in the operation of the ITV Network which favours ITV to the detriment of the non-ITV licence holders.  For example, as a shareholder in the Network, STV invests in building Network brands such as X-Factor, from which ITV develops spin-off programmes, such as Xtra-Factor.  These spin-off programmes, which target key premium audiences, are prejudicially and aggressively scheduled on other ITV plc channels in which STV has no economic interest.  If we do not receive a satisfactory response to our concerns then STV will be left with no choice but to issue proceedings in which not only will it claim damages but will also seek a behavioural remedy to stop this damaging activity going forward.

In November 2009, STV launched a strong claim against ITV plc's exploitation of New Media Rights in our licence areas.   ITV plc has entered into agreements with BT Vision and Virgin Media without obtaining our consent to provide ITV branded services in our licence territory.  We are seeking damages for loss of revenue and the detrimental impact on our brand.  Additionally, STV is seeking an injunction to prevent ITV Network and/or ITV Broadcasting from entering into any further new media rights agreements without STV's consent.

In response to ITV's claim (£3m-£20m net), we have served a counterclaim with an estimated value of up to £16m relating to the Airtime Sales Agreement.  Whilst ITV has admitted some of the amounts claimed by STV and STV has admitted some of the amounts claimed by ITV; there remain a number of issues outstanding, the most significant of which relates to programme opt out procedures.

STV is confident of its position in respect of these claims and fully expects a positive outcome.  We welcome the appointment of a new Chair and Chief Executive at ITV and hope that this can lead to a more constructive relationship with ITV, which best serves the interests of viewers, advertisers and shareholders of both our respective businesses and the wider Channel 3 network. 

Business Performance

The last year has seen the deepest advertising recession ever experienced by the Group.  The levels of decline in airtime sales, in particular, were so severe that despite unprecedented cost reduction measures, profits declined.  Profit before tax, exceptional items and IFRS 5 impacts was down £6.8m at £5.5m (2008: £12.3m).  However, £3.8m of the reduction is due to a non cash movement movement with a further £1.0m related to the disposal of Virgin Radio last year, resulting in an underlying fall of £2.0m.

Progress has been made in a number of areas during 2009, particularly in our Content and New Media operations, and the Group is well placed for future growth even if the macro economic recovery is slow.  This is reflected in our KPI performance with three exceeded, four met and five of these targets not achieved.

We remain cautious about prospects for the UK economy in 2010 and through our embedded culture of efficiency and cost savings, we will seek further opportunities to manage our cost base whilst continuing to invest in key growth areas of the business.  2010 is also the final year of the historic onerous Vue Cinemas contract in Pearl & Dean and its conclusion will result in a significant turnaround in the Group's cash generation and overall profitability.

Revenue

Total revenue, which comprises both continuing and discontinued activities, amounted to £110.2m (2008: £144.5m).  This reflected the disposal of Virgin Radio (£11.3m) and adjusting for this, revenues were down 17% (£23.0m) due to the impact of the economic downturn and a lower level of commissions in Content. 

Broadcasting revenues at £77.8m (2008: £89.0m) were down 13%, principally due to a reduction in national and regional airtime revenues which were both down 10% and 12% respectively.  Content revenues fell to £8.1m (2008: £16.1m) despite increased production hours following the lack of high value deliveries.  In our Ventures business, New Media revenues amounted to £2.8m (2008: £3.1m) due to lower Premium Rate Telephony Services income, while the loss of Setanta business caused Solutions revenue to fall by £1.4m to £1.6m (2008: £3.0m).  Pearl & Dean revenues fell by 10% (£2.1m) as a 21% increase in screen numbers following contract wins was more than offset by the general cinema advertising market decline.

Operating Profit

Operating profit from continuing activities before exceptional items, fell by £4.0m to £9.2m (2008: £13.2m) as the £20.9m revenue decline excluding disposals could only be partly offset by cost savings.  However, the Board believe the 2009 profit outturn to be a very credible performance in the face of such significant revenue decline.

Broadcasting margins held up well at 10% (2008: 11%) due to cost savings, while both Content and Ventures exceeded their KPI targets with margins of 12% (target 10%) and 16% (target 15%) respectively.  Pearl & Dean's breakeven result (2008: breakeven) is stated after the release of £12.8m (2008: £8.0m) of the Vue onerous contract provision.

Interest Costs

Net interest expenses increased by £1.8m to £3.7m (2008: £1.9m), which was due to the anticipated change in the IAS 19 non cash pension credit in 2008 of £1.9m becoming a charge in 2009 of £1.9m.  This £3.8m unfavourable movement outweighed a significant £2.0m (53%) reduction in cash interest costs primarily from lower LIBOR rates.

Exceptional Items

Exceptional items resulted in a net charge of £12.7m (2008: £38.9m) with the principal items being a £13.3m increase in the onerous contract provision related to the Vue cinema advertising contract and an increase in the onerous lease provision charge for the excess space at our Pacific Quay, Glasgow property £3.4m partly offset by a £4.0m gain from changes made to the Group's main defined benefit pension scheme.

Statutory Result

The statutory result for the year after tax and exceptional items and including IFRS 5 benefits amounted to a loss of £8.8m (2008: £27.4m loss).

The IFRS 5 impact from not depreciating assets which are held for sale amounted to £nil (2008: £0.5m).

Earnings Per Share

EPS, before exceptional items decreased by 47% to 13.7p (2008: 25.7p), reflecting the fall in profit before tax.  The effective tax rate in both years was 10%, again benefiting from the release of prior year provisions. EPS on a statutory basis, including exceptional items and IFRS 5 impacts, was a loss of 24.1p (2008: loss of 61.3p).

Balance Sheet

The principal balance sheet movements in 2009 were a decrease in the Group's pension deficit and an increase in both debtors and creditors balances with ITV Network and ITV plc as there has been no netting down exercise this year unlike in prior years.

The pension deficit on an IAS 19 basis net of deferred tax decreased to £25.7m (2008: £27.0m), reflecting a reduction in corporate bond yields which are used to discount the future liabilities of the schemes.

A significant event during the year was the agreement of the 1 January 2009 triennial actuarial valuation which saw a new Schedule of Contributions agreed for both defined benefit schemes.  Reflecting the long-term nature of the liabilities in the schemes, an 18-year deficit recovery plan was agreed with payments of £3.7m per annum for 2009 and 2010 and rising to £6.0m per annum for 2020-2026.  All payments required under the previous and current agreements have been made by the Group, including a one off £4.0m contribution made in early 2009 from disposal proceeds received in 2008.

A number of projects are ongoing to address the liabilities of the defined benefit schemes.  One of these saw the introduction of a 1% cap on pensionable salaries from 1 January 2010 and resulted in a net £4.0m reduction in the schemes' liabilities and deficit.  Further projects are planned over the period to the next valuation on 1 January 2012.

Cash Flow

Net debt increased by £13.0m to £49.4m (2008: £36.4m), including the significant cash losses incurred at Pearl & Dean (£13.0m) and pension deficit funding contributions (£7.9m).

Free cashflow conversion was 123% (2008: 80%) for the continuing business due to the strong management of working capital inflows and confirmed low capital expenditure requirements. 

Capital expenditure amounted to £1.0m (2008: £1.3m) and was at the low levels we expect given the lower risk strategy the Group has adopted of entering into partner relationships to deliver key strategic growth projects.

Dividends

The Board has previously stated that no dividends will be declared for 2009 and that dividends will only recommence when there is an improvement in market conditions and sustained evidence of the success of the Group's growth plan.  We will monitor and revisit the position during 2010.

KPIs

The 3-year KPI targets have proved to be highly effective in providing operational focus, and clarity and consistency in communicating our targets and objectives.  In order to maintain this approach during 2010 and beyond, we have reviewed the relevance and appropriateness of the targets in relation to the growth strategy and we are pleased to confirm KPI targets which we are confident will support delivery of our strategic priorities.  For full charts on 2007-2009 and new KPIs for 2010-2012, please see Appendix 1.

Broadcasting

STV reaches 4.2 million people every month, which represents 93% of the Scottish population, and continues to be the most popular peak time TV station in Scotland, with a share of 23.1% compared to BBC1 at 20.7%.

Despite the impact of the downturn on advertising revenue, STV successfully met its target regarding our share of the regional advertising market, and also successfully attracted 169 new advertisers during 2009. The team secured sponsorship for 30 programmes, compared with 10 in 2008, representing a 200% increase year on year. 

In 2009, STV Creative confirmed its position as a leading producer of commercials in Scotland, delivering over 700 adverts for clients across the year - more than any other production company.  Revenues for this part of the business are up 83% from 2008.

Through the introduction of an increased level of home-grown production and key acquired programming, we are seeking to broaden the reach and appeal of our audience. We have successfully achieved this so far in 2010 via our series The Football Years, whose strongest performing audience was Men. The first episode attracted 14 TVR's and a 30% share, 16 share points ahead of the network in this demographic.

We continue to enhance and develop our dedicated and valued news service for the north and central areas of the country.  These programmes reach over 1.5 million viewers per week and consistently outperform the BBC1 national news at 6pm. 

In June 2009, STV agreed a Memorandum of Understanding with the BBC which has seen both broadcasters beginning to share pictures, facilities, training, technology and archive programmes, providing better services for audiences in Scotland.  We expect to deepen this collaboration in 2010.

Content

2009 has been a transitional year for our Content team, in line with our plans for this area of the business. 

We continued to deliver growth in terms of rights exploitation.  Key deals, including pre-sales of new episodes of Taggart, which were agreed in 2009, will be realised in 2010.  2009 was a very effective year for re-licensing and archive sales, including sales of key brands such as Adrenaline Junkie, Taggart and Rebus. 

In June 2009, STV won its first ever series commission from the BBC, a 20 X 30 minute factual series called Antiques Road Trip.  STV Productions was also commissioned to produce a one-hour factual documentary on convicted serial killer, Peter Tobin, for ITV1.

Following STV's previous statement regarding the re-commissioning of Taggart, STV along with ITV, has co-commissioned six new episodes of Taggart for delivery in 2010, with UKTV picking up the secondary market rights.  As part of this innovative deal, the series will receive its first airing on STV in the autumn followed by the rest of the Channel 3 network in 2011, and UKTV in 2013.

Partnership has been a key theme in 2009 and we have successfully worked with a range of partners to bring content to STV, including History, Bio and Sky Real Lives. 

2009 saw an injection of increased and improved Scottish content to complement the high level of network material in our schedule.  A number of our own productions have performed well for us and already in 2010 our new series are delivering key audiences for us.  We have made a number of scheduling changes in 2010 that we expect to strengthen our ratings performance and reflect our position as Scotland's sovereign broadcaster. 

2009 was a very busy year for Ginger Productions, as it produced Take A Seat for ITV4; six part series, Jack Osbourne Adrenaline Junkie for ITV2; and Osbourne Family Adrenaline Junkie for ITV1.

We were pleased that via the Digital Britain Report, the Government confirmed support for the case of granting STV Productions the same benefits as independent producers, which would certainly help fast-track the development of a vibrant creative cluster in Scotland and create jobs in a key growth sector. 

Ventures

Our Ventures business continues to identify new opportunities for revenue generation and sees increasing traffic flow to the stv.tv network of sites.  We have continued to develop and strengthen our digital team and have an ambitious range of developments planned for 2010.  We successfully outperformed our operating margin KPI target of 15% for the Ventures. 

stv.tv is now amongst the most popular commercial media websites in Scotland.   Since June 2007, our digital channel has seen a 417% increase in Unique Users per month. 

Unique Users grew through 2009, with a Q4 monthly average of 1.3m, up 176% on Q4 2008.  This figure peaked at 1.5m Unique Users and continues to grow in 2010.

Our online ad sales team have delivered £0.5m in online advertising revenue in 2009.  Whilst this is not in line with our KPI target, this figure represents a 150% increase on last year's figure and with our strong audience growth, will continue to grow through 2010 and beyond.  Furthermore, in early 2010 we integrated our entire sales team into one operation which will enable us to continue to improve our sales offering to advertisers.

We launched our first classified business, STV Jobs (stvjobs.com) in February and, despite the collapse of the classified recruitment market, successfully established the business in 2009 and are now positioned as a strong and credible alternative to the market leader in Scotland. 

In July, we launched the STV Player, our new online TV on Demand service.  The combined STV Video and STV Player service delivered an average of 700,000 video streams per month in the last quarter of 2009, peaking at 800,000.  Total video streams for 2009 were up 307% year on year; and up 868% since video became available on stv.tv in July 2008.

In late 2009, we launched a major initiative for our digital business, STV Local. An extensive interactive website where people across Scotland can access, and contribute to, a wealth of local information about their area, STV Local will allow us to build strong relationships with communities right across Scotland.

Going into 2010, we are poised to announce further developments of our Video On Demand strategy including addressing the mobile market.

Our product mix of regional transaction based consumer revenues has changed during 2009.  We continue to achieve success via our Watch To Win television competition.  In August, STV partnered with established gaming firm NetPlay to provide late night gaming programmes for viewers, and we have recently signed a new two year deal with the company. We moved quickly to take advantage of changes in regulation around teleshopping, opening up a new revenue stream for the business. 

Update on Non-core business, Pearl & Dean

Pearl & Dean remains a non-core asset of the Group and we will continue to seek an exit from this business.  In 2009 we have increased our provision under the onerous contract we have with Vue Cinemas by £13.3m.  2010 is the last year of this contract and the Group has made the final payment in early 2010.

Pearl & Dean's trading in Q1 2010 has started well with Q1 sales up 12% on the prior year.

Trading Outlook 2010

During Q1 2010, we have experienced a strong performance in national television airtime revenues and an improving position in the regional television airtime market.  However, we remain cautious due to the uncertainty of the market.

	January	February	March	Q1
National Market -     STV -     TV market Scottish Market -     STV	+15% -1% +1%	+8% +4% +15%	+15% +13% +1%	+13% +5% +4%

The Future

The media industry has been particularly impacted by the unprecedented economic climate through 2009 and whilst we are seeing early signs of improvement, we have adapted our business to ensure that STV remains strong and competitive going forward.  STV is a bold and ambitious company.  We remain committed to delivering a strong schedule and distinct service in Scotland; and to delivering shareholder value going forward.

Our business is in a financially sound position, we have increased the level of TV production in Scotland and we have a healthy and growing digital business, all of which will ensure that we will consolidate our position as Scotland's media brand of choice into 2010.

Richard Findlay                            Rob Woodward

Chairman                                     Chief Executive Officer

Appendix 1 - KPIs

STV KPIs 2007-2009

KPI	2007 Actual	2008 Actual	2009 Actual		2009 Target
Broadcasting
1.Increase regional advertising market share	20%	22%	23%	Achieved	23%
2. Grow sponsorship revenues	1.0x	1.5x	1.4x	Achieved	1.4x
3. Increase broadcast margin	9.4x	11.0%	10.0%	Not achieved	12.5%
Content
4. Grow produced hours	72hrs	80hrs	90hrs	Achieved	90hrs
5. Exploit content library	1.0x	1.4x	1.6x	Exceeded	1.5x
6. Grow rights exploitation business	1.0x	1.2x	1.0x	Not achieved	1.1x
7. Maintain margins	17.1%	18.0%	12.0%	Exceeded	10%
Ventures
8. Grow online visitors to stv.tv	8k/day	30k/day	93k/day	Exceeded	90k/day
9.Increase online advertising revenue	£0.1m	£0.2m	£0.5m	Not achieved	£0.9m
10. Grow regional transaction revenues	£2.6m	£3.0m	£2.2m	Not achieved	£4.5m
11.Expand into Scottish classified advertising market	0.1%	0.1%	0.3%	Not achieved	1.0%
12. Increase margins	(13.8%)	10.0%	15.9%	Exceeded	15.0%

STV KPI's 2010-2012

KPI	2009	2010 Measure	2011 Measure	2012 Measure
Broadcasting
1. Regional advertising market share	23%	25% share	26% share	27% share
2. Peak time audience v ITV Network	In line	To be in line with the Network	To be in line with the Network	To be in line with the Network
3. Broadcast margin	10%	10% margin	12.5% margin	14% margin
Content
4. Production hours	90 hours	110 hours	130 hours	150 hours
5.Value of external commissions	£5.6m	£11.2m	£16.8m	£21.0m
6. Content margin	12.0%	10% (min)	10% (min)	10% (min)
Ventures
7. Unique users per month(Q4 monthly average)	1.3m	1.7m	1.9m	2.1m
8.Page impressions per month (Q4 Monthly average)	4.8m	6.7m	8.0m	8.8m
9. Digital revenue value	£2.7m	£5.2m	£7.3m	£9.1m
10. Video Streams per month (Q4 Monthly average)	0.7m	1.0m	1.2m	1.4m
11. Ventures margin	15.9%	25%	30%	35%

Consolidated income statement Year ended 31 December 2009
			2009				2008
		Note	Underlying results	Exceptional items		Results for year	Underlying results		Exceptional items			Results for year
			£m	£m		£m	£m		£m			£m
CONTINUING OPERATIONS
Revenue		3	90.3	-		90.3	111.2		-			111.2
Net operating expenses before exceptional costs			(81.1)	-		(81.1)	(98.0)		-			(98.0)
Pension service credit			-	4.0		4.0	-		-			-
Onerous lease contracts		4	-	(3.4)		(3.4)	-		(3.1)			(3.1)
Cost of change		4	-	-		-	-		(1.3)			(1.3)
Writedown of inventory		5	-	-		-	-		(2.0)			(2.0)
Net operating expenses			(81.1)	0.6		(80.5)	(98.0)		(6.4)			(104.4)
Operating profit			9.2	0.6		9.8	13.2		(6.4)			6.8
Finance income			0.7	-		0.7	0.4		-			0.4
Finance costs	- borrowings	5	(2.5)	-		(2.5)	(4.2)		-			(4.2)
	- IAS 19 pension	5	(1.9)	-		(1.9)	1.9		-			1.9
			(3.7)	-		(3.7)	(1.9)		-			(1.9)
Profit before tax			5.5	0.6		6.1	11.3		(6.4)			4.9
Tax charge		6	(0.5)	(1.1)		(1.6)	(3.3)		-			(3.3)
Profit for the year from continuing operations			5.0	(0.5)		4.5	8.0		(6.4)			1.6
DISCONTINUED OPERATIONS
(Loss)/profit for the year from discontinued operations		3,7	-	(13.3)		(13.3)	3.5		(32.5)			(29.0)
Profit/(loss) for the year			5.0	(13.8)		(8.8)	11.5		(38.9)			(27.4)
Earnings(loss) per ordinary share
-  basic and diluted		9	13.7p			(24.1p)	25.7p				(61.3p)
Earnings per ordinary share from continuing operations
-  basic and diluted		9	13.7p			12.3p	17.9p				3.6p

Consolidated statement of comprehensive income
Year ended 31 December 2009
							2009	2008
							£m	£m
Loss for the year							(8.8)	(27.4)
Other comprehensive income:
Actuarial loss on defined benefit pension schemes							(8.0)	(30.2)
Deferred tax credit							2.2	8.1
Other comprehensive expense for the year							(5.8)	(22.1)
Total comprehensive expense for the year							(14.6)	(49.5)

Consolidated balance sheet
At 31 December 2009
	Note	2009	2008
		£m	£m
ASSETS
Non-current assets
Goodwill and other intangible assets	10	8.2	8.2
Property, plant and equipment	11	12.1	14.2
Deferred tax asset		11.8	12.3
		32.1	34.7
Current assets
Inventories		47.0	41.9
Trade and other receivables		22.4	24.0
Cash and cash equivalents		14.3	13.0
Short-term bank deposits	12	0.5	1.0
		84.2	79.9
Assets held for sale	7	12.1	18.8
Total assets		128.4	133.4
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital	13	18.3	18.0
Share premium	13	111.3	111.3
Merger reserve		173.4	173.4
Other reserve		0.5	0.7
Retained losses		(335.4)	(320.5)
Total equity		(31.9)	(17.1)
LIABILITIES
Non-current liabilities
Borrowings		-	53.8
Trade and other payables		1.2	0.1
Provisions		1.1	3.9
Retirement benefit obligation	16	36.0	38.3
		38.3	96.1
Current liabilities
Borrowings		67.5	-
Trade and other payables		28.7	25.1
Tax liabilities		0.9	5.9
Provisions		3.7	1.5
		100.8	32.5
Liabilities directly associated with assets held for sale	7	21.2	21.9
Total liabilities		160.3	150.5
Total equity and liabilities		128.4	133.4

Consolidated statement of changes in equity Year ended 31 December 2009
	Equity attributable to equity holders of the parent
	Share  capital	Share premium	Merger reserve	Equity reserve	Other reserve	Minority interest	Retained Earnings	Total Equity
	£m	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2009	18.0	111.3	173.4	-	0.7	-	(320.5)	(17.1)
Net loss for the year	-	-	-	-	-	-	(8.8)	(8.8)
Actuarial loss	-	-	-	-	-	-	(8.0)	(8.0)
Deferred tax thereon	-	-	-	-	-	-	2.2	2.2
Total comprehensive expense for the year	-	-	-	-	-	-	(14.6)	(14.6)
Own shares acquired	0.3	-	-	-	-	-	(0.3)	-
Equity-settled share based payments	-	-	-	-	(0.2)	-	-	(0.2)
Balance at 31 December 2009	18.3	111.3	173.4	-	0.5	-	(335.4)	(31.9)
Balance at 1 January 2008	23.8	136.3	173.4	2.5	1.2	(0.2)	(273.3)	63.7
Net loss for the year	-	-	-	-	-	-	(27.4)	(27.4)
Actuarial loss	-	-	-	-	-	-	(30.2)	(30.2)
Deferred tax thereon	-	-	-	-	-	-	8.1	8.1
Total comprehensive expense for the year	-	-	-	-	-	-	(49.5)	(49.5)
Capital return	(5.8)	(25.0)	-	-	-	-	-	(30.8)
Equity-settled share based payments	-	-	-	-	(0.5)	-	-	(0.5)
Minority interest written off	-	-	-	-	-	0.2	-	0.2
Movement in own shares	-	-	-	-	-	-	0.1	0.1
Release of hedging reserve	-	-	-	-	-	-	(0.3)	(0.3)
Equity reserve release	-	-	-	(2.5)	-	-	2.5	-
Balance at 31 December 2008	18.0	111.3	173.4	-	0.7	-	(320.5)	(17.1)

Statement of consolidated cash flows
Year ended 31 December 2009
		Note	2009	2008
			£m	£m
OPERATING ACTIVITIES
Cash (used)/generated by operations		14	(1.2)	2.1
Taxes received			-	1.9
Interest paid			(3.4)	(4.0)
Pension deficit funding	- Recovery plan payment		(3.9)	(3.9)
	- One off disposal proceeds contribution		(4.0)	-
Net cash used by operating activities			(12.5)	(3.9)
INVESTING ACTIVITIES
Interest received			0.5	0.2
Net disposal of discontinued operations			-	46.9
Purchase of property, plant and equipment			(1.0)	(1.3)
Net cash (used)/generated by investing activities			(0.5)	45.8
FINANCING ACTIVITIES
Capital return			-	(30.8)
Release of cash on deposit			0.5	-
Net borrowings drawn/(repaid)			13.7	(8.2)
Net cash generated/(used) by financing activities			14.2	(39.0)
Net increase in cash and cash equivalents			1.2	2.9
Net cash and cash equivalents at beginning of year			16.4	13.5
Net cash and cash equivalents at end of year		15	17.6	16.4

Although not required under IFRS the directors have provided the following reconciliation of net debt for further clarity.  Net debt represents Group borrowing less cash and cash equivalents and short term deposits.

Reconciliation of movement in net debt
Year ended 31 December 2009
	Note	2009	2008
		£m	£m
Opening net debt		(36.4)	(47.1)
Movement in cash and cash equivalents in the year		1.2	2.9
Net cash (inflow)/outflow from movement in debt financing		(13.7)	8.2
Movement in Escrow cash		(0.5)	(0.4)
Closing net debt	15	(49.4)	(36.4)

Notes to the preliminary announcement

Year ended 31 December 2009

1.     Basis of preparation

The financial information set out in the preliminary announcement does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 in respect of the accounts for the year ended 31 December 2009 or Section 240 of the Companies Act 1985 in respect of the accounts for the year ended 31 December 2008. The statutory accounts for the year ended 31 December 2008, upon which the Company's auditors have given a report which was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985, have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2009 have yet to be signed. They will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.  

2.     Accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2008, as described in those financial statements.

The following new standards, amendments to standards or interpretations are mandatory for the first time for the financial year beginning 1 January 2009 and are relevant to the Group's results.

IAS 1 (revised)	Presentation of financial statements	The revised standard requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income.  As a result, a consolidated statement of changes in equity has been included in the primary statements, showing changes in each component of equity for each period presented.
IFRS 8	Operating segments	IFRS 8 replaces IAS 14, Segment reporting.  It requires a management approach under which segment information is presented on the same basis as that used for internal reporting purposes.  This has not resulted in any changes in the operating segments reported by the Group.

3.     Business segments

The Group's Chief Executive, the Chief Operating Decision Maker, considers the business primarily from a product perspective. Under IFRS 8, the reportable segments are therefore Broadcasting, Content, Ventures and Cinema advertising (Cinema), which has not resulted in any material changes from IAS 14. 

The performance of the segments is assessed based on a measure of adjusted operating profit.  This measurement basis excludes the effects of exceptional items such as restructuring costs.

The Group put its Cinema and Radio businesses up for sale on 13 September 2006 and 12 April 2007 respectively.   Cinema continues to meet all the conditions to be classified as held for sale and is therefore classed as discontinued operations.  The completion of the Radio disposal occurred on 30 June 2008.

SEGMENT REVENUES

					External sales
					2009	2008
					£m	£m
Continuing operations
Broadcasting					77.8	89.0
Content					8.1	16.1
Ventures					4.4	6.1
					90.3	111.2
Discontinued operations
Cinema					19.9	22.0
Radio					-	11.3
					19.9	33.3
					110.2	144.5

Turnover in 2009 includes £1.6m of revenues from sources outside the UK (2008: £1.1m).

SEGMENT RESULTS

	Underlying segment result			Exceptional items		Segment result
		2009	2008	2009	2008	2009	2008
		£m	£m	£m	£m	£m	£m
Continuing operations
Broadcasting		7.6	9.7	-	(2.0)	7.6	7.7
Content		0.9	2.9	-	-	0.9	2.9
Ventures		0.7	0.6	-	(1.3)	0.7	(0.7)
		9.2	13.2	-	(3.3)	9.2	9.9
Exceptional onerous lease provision attributable to Group Exceptional past service pension credit attributable to Group						(3.4)	(3.1)
						4.0	-
Operating profit						9.8	6.8
Financing						(3.7)	(1.9)
Profit before tax						6.1	4.9
Tax charge						(1.6)	(3.3)
Profit for the year from continuing operations						4.5	1.6
Discontinued operations
Cinema		-	0.1	(13.3)	(15.0)	(13.3)	(14.9)
Radio		-	1.4	-	-	-	1.4
		-	1.5	(13.3)	(15.0)	(13.3)	(13.5)
Attributable tax credit		-	2.0	-	-	-	2.0
		-	3.5	(13.3)	(15.0)	(13.3)	(11.5)
Loss on disposal of discontinued operations						-	(17.5)
Loss for the year from discontinued operations						(13.3)	(29.0)
Loss attributable to equity shareholders						(8.8)	(27.4)

Operating profit in 2009 includes £0.9m arising outside the UK (2008: £0.6m).

The above result of discontinued operations for 2009 includes an IFRS 5 adjustment relating to depreciation of £nil (2008: £0.5m) which ceased to be charged when the businesses were classified as held for sale.

In 2008, the exceptional items in Broadcasting and Ventures respectively related to a £2.0m stock writedown and a £1.3m cost of change provision which saw all remaining balances of Peopleschampion.com and Smartycars.com being written off.  

In 2009, the exceptional item in Cinema of £13.3m relates to an increase in the Vue onerous contract provision reflecting weaker than anticipated trading (2008: £15.0m). The loss on disposal of discontinued operations related to the sale of Virgin Radio in 2008 (see note 7).

4.     Exceptional items

i)  Pension service credit

A past service pension credit (net of pension costs) of £4.0m has been recognised in the year in relation to changes made to the Scottish and Grampian Television Retirement Benefit Scheme.

ii) Onerous lease contracts

A provision of £3.1m was provided in 2008 in respect of a shortfall on a sub-lease of surplus property at the Group's Pacific Quay, Glasgow premises. A further £2.7m has been provided during the year. The space had become surplus to operational requirements following headcount reductions.  £0.7m has been also provided in 2009 in respect of the lease of non-core properties.

iii) Cost of change

A provision of £1.3m was recognised in 2008 in relation to restructuring within Ventures division with all remaining balances relating to Peopleschampion.com and Smartycars.com being written off.

iv) Writedown of inventory

A stock writedown of £2.0m was recognised in 2008 in relation to ITV1 network stock write offs. 

5.     Finance costs

	2009	2008
	£m	£m
Interest expense:
Bank borrowings	2.5	4.2
Pension finance charge/(credit)	1.9	(1.9)
Finance costs	4.4	2.3

6.     Tax

	2009	2008
	£m	£m
The charge/(credit) for tax on continuing operations is as follows:
Tax on profit on ordinary activities excluding exceptional items at 10% (2008: 29%)	0.5	3.3
Tax effect of exceptional items	1.1	-
	1.6	3.3

The effective tax rate for the Group (continuing and discontinued operations) excluding exceptional items is 10% (2008: 10%). The tax charge is lower than the standard rate of 28% due to adjustments for prior year provisions and certain tax planning initiatives.

7.     Discontinued operations

Cinema continues to meet all the conditions to be classified as held for sale and is therefore classed as discontinued operations.  The completion of the Radio disposal occurred on 30 June 2008.

	2009	2008
	£m	£m
Post tax results from discontinued operations (see note 3)	(13.3)	(29.0)

Exceptional items included within the results are as follows:

Onerous contract provision

A provision of £15.0m was made in 2008 to cover future losses expected from the Vue contract within Cinema division.  A further £13.3m provision has been recognised during the current year.

             Loss on disposal of discontinued operations

On 30 June 2008, the Group completed the sale of its Radio business, Virgin Radio, to TIML Golden Square Ltd ("TIML") for a gross cash consideration of £53.2 million resulting in a loss on disposal of £17.5m.

Cash flows from discontinued operations

	2009	2008
	£m	£m
Net cash flows from operating activities	(9.1)	(4.8)
Net cash flows from investing activities	-	-
	(9.1)	(4.8)

The major classes of assets and liabilities comprising the operations classified as held for sale are as follows:

	2009	2008
	£m	£m
Property, plant and equipment	-	0.1
Trade and other receivables	8.8	11.6
Cash and cash equivalents	3.3	3.4
Tax	-	3.7
Total assets classified as held for sale	12.1	18.8
Trade and other payables	6.9	5.8
Provisions for liabilities and charges	14.3	16.1
Total liabilities associated with assets classified as held for sale	21.2	21.9
Net liabilities of disposal group	(9.1)	(3.1)

8.     Dividends

No dividend is proposed by the Board for the years ended 31 December 2008 and 2009.

9.     Earnings per share

	Earnings £m	2009 Weighted average number of shares (m)	Per share Pence	Earnings £m	2008 Weighted average number of shares (m)	Per share Pence
Basic underlying EPS
Earnings attributable to ordinary shareholders	5.0	36.5	13.7p	11.5	44.7	25.7p
Earnings per share from continuing operations
Basic EPS	5.0	36.5	13.7p	11.5	44.7	25.7p
Pre tax (profit) from discontinued operations	-		-	(1.5)		(3.3p)
Tax relating to discontinued operations	-		-	(2.0)		(4.5p)
Basic underlying EPS from continuing operations	5.0	36.5	13.7p	8.0	44.7	17.9p
Basic EPS
Earnings attributable to ordinary shareholders (including exceptional items)	(8.8)	36.5	(24.1p)	(27.4)	44.7	(61.3p)
Earnings per share from continuing operations
Basic EPS	(8.8)		(24.1p)	(27.4)		(61.3p)
Pre tax loss from discontinued operations	13.3		36.4p	31.0		69.4p
Tax relating to discontinued operations	-		-			(4.5p)
Basic EPS from continuing operations	4.5	36.5	12.3p	1.6	44.7	3.6p
Earnings per share from discontinued operations
Basic EPS
Pre tax (loss) from discontinued operations	(13.3)	36.5	(36.4p)	(31.0)	44.7	(69.4p)
Tax relating to discontinued operations	-		-	2.0		4.5p
Basic EPS from discontinued operations	(13.3)	36.5	(36.4p)	(29.0)	44.7	(64.9p)

There is no difference between basic and diluted EPS as there is no material impact from dilutive share options.

10.  Goodwill and other intangible assets

	Goodwill	Other	Total
	£m	£m	£m
Cost
At 1 January and 31 December 2009	10.6	0.3	10.9
Accumulated amortisation
At  1 January and 31 December 2009	2.7	-	2.7
Net book amount  at 1 January and 31 December 2009	7.9	0.3	8.2

Goodwill comprises capitalised goodwill on acquisitions completed since 1 January 1998.  Other intangible assets of £0.3m (2008: £0.3m) relate to capitalised software costs.

11.  Property, plant and equipment

	Land and buildings leasehold £m	Plant, technical equipment and other £m	Total £m
Cost
At 1 January 2009	0.4	54.8	55.2
Additions	-	1.0	1.0
Fully written down	(0.2)	(32.4)	(32.6)
Disposals	-	(0.5)	(0.5)
At 31 December 2009	0.2	22.9	23.1
Accumulated depreciation and impairment
At 1 January 2009	0.3	40.7	41.0
Charge for year	-	2.6	2.6
Fully written down	(0.2)	(32.4)	(32.6)
At 31 December 2009	0.1	10.9	11.0
Net book value at 31 December 2009	0.1	12.0	12.1
Net book value at 31 December 2008	0.1	14.1	14.2

Following a review of the fixed asset register, fully written down assets with a £nil net book value and an original cost of £32.0m have been written off during the year.

12.  Short-term bank deposit

The short term bank deposit relates to £0.5m (2008: £1.0m) placed in Escrow in relation to certain planning consents currently being sought by Primesight.

13.  Share capital

	Number of shares (thousands)	Ordinary shares £m	Share premium £m	Total £m
At 1 January 2009	36,019	18.0	111.3	129.3
Issued during the year	700	0.3	-	0.3
At 31 December 2009	36,719	18.3	111.3	129.6

14.  Cash flow from operating activities

	2009	2008
	£m	£m
Continuing operations
Operating profit (before exceptional items)	9.2	13.2
Depreciation and other non-cash items	2.8	1.7
Operating cash flows before exceptional items and movements in working capital	12.0	14.9
Increase in inventories	(5.1)	(3.6)
Decrease in trade and other receivables	1.6	1.7
Increase/(decrease) in trade and other payables	3.4	(1.4)
	11.9	11.6
Cost of change and onerous property costs	(4.0)	(4.7)
Cash generated by continuing operations	7.9	6.9
Discontinued operations
Operating profit  (before exceptional items)	-	1.5
Depreciation and other non-cash items	-	(1.2)
Operating cash flows before exceptional items and movements in working capital	-	0.3
Decrease in trade and other receivables	2.8	5.9
Increase/(decrease) in trade and other payables	1.1	(3.0)
	3.9	3.2
Onerous contract costs	(13.0)	(8.0)
Cash used by discontinued operations	(9.1)	(4.8)
Cash (used)/generated by operations	(1.2)	2.1

15.  Analysis of movements in net debt

	At 1 January 2009	Cash flow	At   31 December 2009
	£m	£m	£m
Cash and cash equivalents	13.0	1.3	14.3
Cash and cash equivalents included in the disposal groups held for sale (note 7)	3.4	(0.1)	3.3
	16.4	1.2	17.6
Bank borrowings	(53.8)	(13.7)	(67.5)
Short-term deposits	1.0	(0.5)	0.5
Net debt	(36.4)	(13.0)	(49.4)

At 31 December 2009, the Company had bank facilities in place totalling £75.0m consisting of a £25.0m term facility, £45.0m revolving credit facility and £5.0m overdraft. The facilities were due to expire on 31 December 2012 with amortisation of the revolving credit facility commencing on 30 September 2010. In November 2009, the Company commenced discussions with its lender to amend the covenant suite included in the facility to reflect the continuing cash impact of the Vue contract and potential disposal of Pearl & Dean. The revised banking facilities were agreed on 3 February 2010 with the covenant compliance certificate due on 30 January delayed with lender consent until the revised facility was agreed and submitted on 4 February 2010. Under IAS 1 (revised) para 74, renegotiation of the bank facilities on 3 February 2010 represents a non adjusting post balance sheet event and consequently the borrowings have all been classified as current liabilities as at 31 December 2009. The renegotiated facilities total £78.9m and comprise a £55.0m term facility, £20.0m revolving credit facility and £3.9m standby facility in relation to Pearl & Dean with the facility expiry date unchanged at 31 December 2012 and amortisation of the revolving credit facility commencing on 31 December 2010. 

16.  Retirement benefit schemes

The Group operates two defined benefit pension schemes. The schemes are trustee administered and the schemes' assets are held independently of the Group's finances. Pension costs are assessed in accordance with the advice of an independent professionally qualified actuary.

The schemes are the Scottish and Grampian Television Retirement Benefit Scheme and the Caledonian Publishing Pension Scheme.  They are closed schemes and therefore under the projected unit method the current service cost will increase as the members of the scheme approach retirement.

A full actuarial valuation of the schemes was carried out at 1 January 2006 and updated to 31 December 2008 by a qualified independent actuary.   The major assumptions used by the actuary were:

	At 31 December 2009		At 31 December 2008
Rate of increase in salaries		1.0%		3.3%
Rate of increase of pensions in payment		3.4%		2.8%
Discount rate		5.7%		6.6%
Inflation		3.4%		2.8%

Assumptions regarding future mortality experience are set based on advice, published statistics and experience in each territory.

The average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date is as follows:

	At 31 December 2009		At 31 December 2008
		Years		Years
Male		15.0		15.0
Female		17.9		17.9

The fair value of the assets in the schemes, the present value of the liabilities in the schemes and the expected rate of return at each balance sheet date was:

	At 31 December 2009	At 31 December 2008	At 31 December 2007	At 31 December 2006	At 31 December 2005
	£m	£m	£m	£m	£m
Equities	122.9	108.6	143.2	145.9	146.2
Bonds	120.9	106.7	121.9	114.7	109.6
Fair value of schemes' assets	243.8	215.3	265.1	260.6	255.8
Present value of defined benefit obligations	(279.8)	(253.6)	(279.1)	(307.3)	(308.8)
Deficit in the schemes	(36.0)	(38.3)	(14.0)	(46.7)	(53.0)
Equities	8.0%	8.0%	8.0%	8.4%	8.0%
Bonds	4.5%-5.7%	3.7%-6.6%	4.4%-6.1%	4.6%-5.2%	4.1%-4.9%

A related offsetting deferred tax asset of £10.3m (2008: £11.3m) is shown under non-current assets.  Therefore the net pension scheme deficit amounts to £25.7m at 31 December 2009 (£27.0m at 31 December 2008).

17.  Litigation

In September 2009, ITV plc and other ITV entities launched a claim against STV Group and subsidiaries for £15-£20m (net) primarily in relation to opt-out programming. STV is vigorously defending this claim and has launched a counterclaim under the Advertising Sales Agreement.  In November 2009, STV Group launched an additional claim in relation to the exploitation of new media rights. STV Group asserts that despite new media rights being acquired and held for the benefit of all channel 3 licensees, ITV Network Limited and ITV Broadcasting Limited have entered into commercial agreements without obtaining STV Group's consent.  These commercial agreements use and exploit new media rights in STV Central and STV North's licence areas. STV is preparing to launch a third claim in relation to significant prejudicial behaviour by ITV network and ITV plc against STV Group and its subsidiaries.  The various legal claims result in a maximum potential cash outflow of £17.9m should STV be unsuccessful in all claims and a related unprovided contingent liability for accounting purposes of £8.3m. STV has a potential contingent asset of £9.6m which has not been recognised in the financial statements and which will arise in the event that it is successful in its defence of ITV's initial claim.  Further contingent assets may arise under STV's counterclaim under the Advertising Sales agreement, its claim in relation to the exploitation of new media rights and its potential claim in relation to alleged prejudicial behaviour by ITV.  However it is not practicable to quantify the total potential effect of these claims and potential claim at this stage.

18.  Mailing

A copy of the annual report is being sent to all shareholders on 15 March 2010 and will be available for inspection by members of the public at the Company's registered office at Pacific Quay, Glasgow, G51 1PQ.

 

END

 

 

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