Final Results

RNS Number : 2418Y

STV Group PLC

20 February 2013

 



0700 hours, 20 February 2013

STV Group plc - Final Results 2012

A profitable growth company

Financial Highlights	2012	2011	Year on year
Revenue	£102.7m	£102.0m	+1%
EBITDA*	£19.5m	£17.3m	+13%
Operating profit*	£17.1m	£15.0m	+14%
Pre-tax profit*	£14.4m	£14.0m	+3%
EPS* Adjusted EPS**	32.5 pence   32.5 pence	38.0 pence   32.3 pence	-14%  +1%
Statutory EPS	18.3 pence	1.6 pence
Net debt	£45.3m	£54.5m	-17%

*Pre-exceptionals

**Adjusted EPS reflects EPS performance pre-exceptionals year-on-year assuming equivalent 15% tax rate (2011: nil%). 

Highlights

·      Operating profit* up 14% at £17.1 million

·      EBITDA* up 13% at £19.5 million

·      Net debt down 17% to £45.3 million

·      Good progress made on KPIs with 5 exceeded

·      STV Productions revenues up 21% to £10.2 million

·      Digital revenues up 84% in growth areas and digital operating profit up 42% to £1.7m

Strategic Developments

·      Proposed renewal of Channel 3 licences for maximum term of 10 years provides long-term stability and continuity for investors and stakeholders

·      New Channel 3 Network affiliate arrangements implemented securing commercially sustainable basis for future

·      STV Productions continues to secure new commissions with a further commission of 20 episodes of Celebrity Antiques Road Trip announced today

·      The award of the new local TV licences in Glasgow and Edinburgh to STV supports the continued strengthening of the portfolio of services we offer to our audiences

Rob Woodward, Chief Executive Officer, said:

"We have delivered strong financial results with double digit growth in operating profit and a significant reduction in net debt.  Our digital and production businesses are delivering strong growth momentum with STV Productions continuing to secure new series commissions. The recommendation to renew our licences for the maximum term of 10 years provides certainty for the future and we remain on track to deliver our sustainable growth objectives." 

20 February 2013

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: [phone]).

Enquiries:

STV Group plc
George Watt, Chief Financial Officer	Tel: [phone]
Eleanor Marshall, PR & Communications Manager	Tel: [phone]
College Hill
James Hogan	Tel:  [phone]
Jamie Ramsay

Operational Review

Introduction

STV is firmly established as a profitable and progressive business, delivering growth in our productions and digital activities and making good progress in deepening relationships with consumers across all platforms and channels.

The recommendation of the Secretary of State to renew our licences for the maximum term of 10 years is an endorsement of the excellent service delivered and recognition of the quality of public service content STV consistently provides to audiences and consumers.   Following the agreement of new affiliate status networking arrangements with ITV in early 2012, we have secured a stable cost basis to enable our continued development as a successful digital media business at the heart of the media landscape in Scotland.

Our strategic aim to grow non-broadcast earnings to represent one third of Group earnings in 2015 remains on track and will be achieved through the continued growth of STV Productions and our digital services.

STV Consumer

STV is committed to delivering an engaging and informative schedule that offers the best Channel 3 network content alongside innovative, home grown productions. Our peak time audience share continued to exceed the Network in 2012, tracking 1.3 share points ahead, and reaching over 4.2m viewers per month.

We exceeded our consumer division margin target, achieving a margin of 18.3%, representing an 80% increase since 2009, and demonstrating the underlying profitability of the consumer business and the positive impact of continued cost savings and cost control.

Our relationships with advertisers and commercial partners have continued to strengthen and increasingly long standing clients are seeking multi-platform integrated campaigns.  The development of new digital services and platforms is also attracting a broader client base including many new advertisers who have not previously considered STV as a marketing platform and are now successfully utilising our array of digital platforms to reach their target markets.  This added value approach has contributed to the 42% increase in digital margins during 2012.

Our offer of an integrated campaign has been further extended to the area of branded content with clients including Bank of Scotland for whom we developed, produced and transmitted on STV, a one hour programme highlighting Scots participating in the 2012 Olympics and supported with a series of one minute short form sponsored programmes in addition to an extensive digital and mobile campaign.

Our investment in public service content, delivering an enhanced locally focused news service on air and online in 2012, resulted in our news services delivering a 10 year ratings high in audience share and we continue to exceed our licence requirements in this area. In addition to our investment in technology, we have invested in current affairs programming and within 12 months since launch, Scotland Tonight, has become the most popular current affairs programme in Scotland, reaching over 3 million viewers across the year.  This programme will play a key role in our content engagement strategy as STV becomes the centre stage for the political debate for the referendum on Scotland's constitutional future in 2014.

Public service content is a key driver of traffic to our digital platforms with over one third of our monthly unique users consuming our news content.

Building consumer insights was a key priority of the business in 2012 and during the year we increased the consumer data held by 55%, enabling us to continue to build a greater understanding of the tastes and preferences of our audiences and consumers as we develop new digital services and products.

Our continued investment in new digital platforms and services is delivering growth for the business. Throughout 2012 we have continued to grow engagement levels and traffic across an increasing number of free platforms.  We attracted an average of 3.2 million unique users every month in the fourth quarter, with our consumers increasingly migrating across our platforms.

During 2012 we have continued to invest in the development of new platforms with a focus on mobile and portable devices which now accounts for 56% of our digital traffic.  The STV Player was also launched on YouView in August as one of the first of two initial additional content partners on this platform.  The STV Player App was also released in the Apple App Store and Google Play.

Our investment in STV Local has continued and in May we launched Metro sites serving comprehensive and engaging local content and services to consumers in Glasgow and Edinburgh.  This is proving to be a successful commercial model and is delivering increased levels of consumer engagement.

We achieved digital revenues of £6.5m and, whilst our revenue target was not achieved, digital revenues in the growth categories, including video on demand (VoD), display and classified advertising, increased by 84% to £3.5m with a margin of 23%.  As the profile of our digital activities continues to evolve, growth categories now account for 54% of digital revenues compared to 27% last year.  Our overall digital operating profit increased by 42% to £1.7m.

In November we announced STV will be the first UK broadcaster to implement Gigya's social infrastructure technology on stv.tv, making our sites completely social and enabling the development of deeper relationships with existing consumers.

STV Productions

STV Productions has continued to build its reputation as a world-class content provider.  In 2012 the business has achieved strong growth in revenues and the number of produced hours.  New commissions have successfully been secured across genres with programmes delivered in entertainment, factual, drama and branded content for a broad customer base.

A key priority of the business has been to secure returnable formats.  This goal has been fulfilled in 2012 with the re-commission of a further four series of Antiques Road Trip for delivery in 2012 and 2013 and another series of Celebrity Antiques Road Trip for BBC.   The commission of a third series of Celebrity Antiques Road Trip (20 episodes) for BBC1 is announced today.

Other significant commissions announced in the year include the commission of Catchphrase for ITV's prime-time weekend schedule (9 episodes); 20 episodes of a new factual entertainment programme, Country Show Cook Off for BBC2; 8 episodes of a new entertainment panel show for ITV2, Fake Reaction, which was derived from a format developed in partnership with our US content partners, Kinetic Content; and a 2-part drama for ITV, The Poison Tree, produced in conjunction with Group M Entertainment.

In late 2012 we announced a high profile commission for BBC2 of a feature film, which will be the first of this format produced by STV Productions.  This documentary is being made to mark the 25^th anniversary of the Piper Alpha disaster in the North Sea and will be released in selected cinemas in July 2013, in advance of transmission on BBC2.

The business has also developed and delivered content to STV.  An increased focus is being placed on identifying opportunities to deliver branded content for clients, working in conjunction with our commercial team.  In 2012, branded programmes were developed for Bank of Scotland and the Scottish Government.

Overall in 2012, revenues generated by STV Productions grew by 21% and the number of produced hours increased by 17%.

Outlook

Our outlook for Q1 for total airtime revenues will be up 3% with regional airtime revenues down 16% year-on-year, reflecting phasing of Scottish Government spend.  National revenues are expected to be up 7% in Q1.

Digital revenues, in the growth categories of VOD; display and classified advertising, are expected to be up 35% in Q1.  Ex growth categories of digital revenue (PRTS and music revenues) are expected to be flat in Q1.

STV Productions enters 2013 with a strong pipeline of commissions and prospects for future growth.  Today we have announced a new commission for a further series of Celebrity Antiques Road Trip (20 episodes) and last week a new commission of a chat show (5 episodes) starring comedian Jo Brand for UKTV Gold was confirmed.

Financial Performance Review

Revenue

Total revenue amounted to £102.7m (2011: £102.0m). Consumer revenues at £92.5m (2011: £93.6m) reflect a broadly flat airtime performance, a reduction in ex-growth digital revenues and an 84% increase in growth digital revenues as our online audience and inventory grows.

Productions revenue grew by 21% to £10.2m (2011: £8.4m) as the business continues to win new commissions from a wider customer base.

Operating Profit

Operating profit before exceptional items increased by £2.1m (14%) to £17.1m.  Consumer division operating profit improved to £16.9m (2011: £14.5m) through continued strong cost control.  Margins improved to 18.3% (2011: 15.5%) considerably ahead of the 15.5% KPI target.

Productions operating profit amounted to £0.2m (2011: £0.5m) partly reflecting a bad debt charge on the administration of the former international sales agent, Target.

Finance Costs

Net finance expenses increased by £1.7m to £2.7m (2011: £1.0m) due to the higher margin in the renewed bank facility which reflects current market conditions.

The IAS19 non cash pension credit amounted to £1.3m (2011: £1.3m) and this figure will move to a non cash charge of approximately £1.1m in 2013 following the implementation of the amendments to IAS19 effective from 1 January 2013.

Profit Before Tax

Profit before tax and exceptional items increased to £14.4m (2011: £14.0m) as the increase in interest costs mostly offset the growth in operating profit.

Exceptional Items

There was only one exceptional item in 2012 amounting to £5.3m net of tax (2011: £13.4m) for the final accounting of the ITV settlement and related change to affiliate status, which resulted in a £4.1m non cash stock write down.

Statutory Result

The statutory result for the year after tax and exceptional items amounted to a profit of £6.9m (2011: £0.6m).

Earnings Per Share

EPS before exceptional items decreased by 14% to 32.5p (2011: 38.0p) reflecting the increase in profit before tax offset by the higher effective tax rate of 15% (2011: nil%).  EPS adjusted for an equivalent tax rate in each year of 15%, grew by 1% while EPS on a statutory basis increased to 18.3p (2011: 1.6p).

Balance Sheet

The principal balance sheet movements over the last 12 months were a reduction in inventories, net debt and the pension deficit.

The pension deficit on an IAS 19 basis net of deferred tax was £17.7m (2011: £23.0m) reflecting the increase in liabilities caused by a lower discount rate being more than offset by increases in the scheme's assets.

The inventory reduction reflected the sale of network stock back to ITV network as part of the move to affiliate status.

Cash Flow

Net debt fell by 17% in 2012 to £45.3m (2011: £54.5m) due to the strong cash generation of the core operating business.

The final elements of the ITV litigation settlement have been paid and the other main non-operating items were an outflow of £4.3m for pension deficit funding and a £5.0m inflow representing deferred consideration for the sale of Primesight.

The net debt:EBITDA ratio for the year reduced to 2.3x (2011: 3.1x) and is anticipated to continue to fall in 2013.

Dividends

The board remains committed to its intention to resume dividend payments at an appropriate time, however, the short term focus, supported by our principal shareholders, remains debt reduction.  This policy will be kept under review and an update will be given at our interim results.

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 2011 Annual Report and Financial Statements the principal risks and uncertainties that could impact its performance.  These remain largely unchanged since the Annual Report was published, with the exception of the negotiated litigation settlement with ITV plc and ITV Network. The 2012 Annual Report is scheduled to be circulated to shareholders on 18 March 2013.

The group has rigorous internal systems to identify, monitor and manage any risks to the business.

The main areas of potential risk and uncertainty are as follows:-

Regulatory environment

Our television business is operated under licences, regulated by Ofcom, which contain conditions that must be adhered to and although measures have been put in place internally to ensure that this occurs, it is possible that these terms may inadvertently be breached and sanctions imposed by Ofcom, the most serious of which could be the withdrawal of the licences.

The current licences extend until 2014 and the Secretary of State has confirmed that the licences can be renewed for a further 10 year term through to 2024. 

Dependence on advertising

STV's results could vary from period to period as a result of a variety of factors, some of which are outside STV's control, including general economic conditions. In response to the operating and competitive environment, STV may elect to make certain decisions that could have a material adverse effect on sales, results of operations and financial conditions.

Performance of the ITV Network

The majority of STV Consumer's programming content is provided by the ITV Network.  Therefore, its ability to attract and retain audiences and the advertising airtime sales performance of ITV's sales house - which is responsible for the sale of STV's UK national airtime to advertisers - are factors that affect the performance of STV Consumer and, therefore, the Group as a whole.

Pension scheme shortfalls

We have a long-term deficit recovery plan in place and the latest triennial valuation process is ongoing.  The investment strategy is calculated to reduce any market movement impacts. It is possible that the Group may be required to increase its contributions which could have an adverse impact on results and cash flow.

Rob Woodward

CEO, STV Group plc

Appendix 1 - 2012 KPI Update

	2012 Actual	2012 Target
Consumer
1.  Peak time audience v ITV Network	+1.30 share points Exceeded	To exceed the  Network
2. Increase consumer division margin	18.3% Exceeded	15.5% Upgraded target
3.  Consumer insights	0.5 million Not met 55% growth on prior year	0.7 million
4. Unique users per month (Q4 monthly average)	3.2 million Not met 7% growth on prior year	3.3 million
5. Page impressions per month (Q4 monthly average)	20.4 million Exceeded	20.0 million
6. Video streams per month (Q4 monthly average)	3.1 million Not met 7% growth on prior year	3.3 million
7. Digital revenue value	£6.5 million Not met increased by 84% on prior year in growth categories*	£9.1 million
8. Digital margin	26% Exceeded	20%
STV Productions
9. Produced hours	141 hours Exceeded	140 hours
10. Production revenues	£10.2m Not met 21% growth on prior year	£12.0m
11. Production margin	2% Not met	10%

*Digital growth revenues categories are video on demand; display and classified advertising

Consolidated income statement Year ended 31 December 2012
			2012						2011
			Pre-exceptional results			Exceptional items	Results for year	Pre-exceptional results		Exceptional items	Results for year
		Note		£m		£m	£m	£m		£m	£m
Revenue			4	102.7		-	102.7	102.0		-	102.0
Net operating expenses before exceptional costs				(85.6)		-	(85.6)	(87.0)		-	(87.0)
Affiliate status change			5	-		(5.3)	(5.3)	-		-	-
Litigation matters			5	-		-	-	-		(13.5)	(13.5)
Cost of change			5	-		-	-	-		(1.4)	(1.4)
Net operating expenses				(85.6)		(5.3)	(90.9)	(87.0)		(14.9)	(101.9)
Operating profit				17.1		(5.3)	11.8	15.0		(14.9)	0.1
Finance income				0.1		-	0.1	0.2		-	0.2
Finance costs	- borrowings		6	(4.1)		-	(4.1)	(2.5)		-	(2.5)
	- IAS 19 pension		6	1.3		-	1.3	1.3		-	1.3
				(2.7)		-	(2.7)	(1.0)		-	(1.0)
Profit/(loss) before tax				14.4		(5.3)	9.1	14.0		(14.9)	(0.9)
Tax (charge)/credit			7	(2.2)		-	(2.2)	-		1.5	1.5
Profit for the year				12.2		(5.3)	6.9	14.0		(13.4)	0.6
Earnings per share
-  basic			9	32.5p			18.3p	38.0p			1.6p
-  diluted			9	31.3p			17.6p	36.1p			1.5p

Consolidated statement of comprehensive income
Year ended 31 December 2012
	2012	2011
	£m	£m
Profit for the year	6.9	0.6
Actuarial gain/(loss) on post employment benefit pension obligations	2.5	(13.5)
Deferred tax (charge)/credit	(1.2)	2.9
Other comprehensive income/(expense) for the year	1.3	(10.6)
Total comprehensive income/(expense) for the year	8.2	(10.0)

Consolidated balance sheet
At 31 December 2012
		2012	2011
	Note	£m	£m
Non-current assets
Goodwill	10	7.9	7.9
Property, plant and equipment	11	8.2	9.5
Deferred tax asset		12.1	15.5
		28.2	32.9
Current assets
Inventories		18.5	29.1
Trade and other receivables		19.5	24.2
Cash and cash equivalents		3.9	0.5
		41.9	53.8
Total assets		70.1	86.7
Equity attributable to owners of the parent
Ordinary shares	12	19.5	19.5
Share premium	12	112.0	112.0
Merger reserve		173.4	173.4
Other reserve		0.4	0.6
Accumulated losses		(326.2)	(335.2)
Total equity		(20.9)	(29.7)
Non-current liabilities
Borrowings		44.2	-
Trade and other payables		-	0.7
Provisions		1.1	2.5
Derivative financial instruments		0.2	-
Retirement benefit obligation	14	23.0	30.9
		68.5	34.1
Current liabilities
Borrowings		5.0	55.0
Trade and other payables		17.0	25.6
Provisions		0.5	1.7
		22.5	82.3
Total liabilities		91.0	116.4
Total equity and liabilities		70.1	86.7

Consolidated statement of changes in equity Year ended 31 December 2012

Equity attributable to owners of the parent

	Ordinary  shares	Share premium	Merger reserve	Other reserve	Accumulated losses	Total equity
	£m	£m	£m	£m	£m	£m
Balance at 1 January 2012	19.5	112.0	173.4	0.6	(335.2)	(29.7)
Profit for the year	-	-	-	-	6.9	6.9
Actuarial gain	-	-	-	-	2.5	2.5
Deferred tax thereon	-	-	-	-	(1.2)	(1.2)
Total comprehensive income for the year	-	-	-	-	8.2	8.2
Own shares awarded	-	-	-	-	0.6	0.6
Equity-settled share based payments	-	-	-	(0.2)	0.2	-
Balance at 31 December 2012	19.5	112.0	173.4	0.4	(326.2)	(20.9)
Balance at 1 January 2011	19.2	111.4	173.4	0.8	(324.6)	(19.8)
Profit for the year	-	-	-	-	0.6	0.6
Actuarial loss	-	-	-	-	(13.5)	(13.5)
Deferred tax thereon	-	-	-	-	2.9	2.9
Total comprehensive expense for the year	-	-	-	-	(10.0)	(10.0)
Own shares issued and acquired	0.3	0.6	-	-	(0.9)	-
Own shares awarded	-	-	-	-	0.3	0.3
Equity-settled share based payments	-	-	-	(0.2)	-	(0.2)
Balance at 31 December 2011	19.5	112.0	173.4	0.6	(335.2)	(29.7)

Statement of consolidated cash flows
Year ended 31 December 2012
			2012	2011
		Note	£m	£m
Operating activities
Cash generated by operations		13	11.8	6.4
Interest paid			(2.2)	(2.9)
Pension deficit funding	- recovery plan payment		(4.3)	(4.2)
Net cash generated/(used) by operating activities			5.3	(0.7)
Investing activities
Interest received			0.6	0.1
Loan note paid			5.0	-
Purchase of property, plant and equipment			(1.0)	(1.6)
Net cash generated/(used) by investing activities			4.6	(1.5)
Financing activities
Net borrowings repaid			(6.5)	(4.9)
Net cash used by financing activities			(6.5)	(4.9)
Net increase/(decrease) in cash and cash equivalents			3.4	(7.1)
Net cash and cash equivalents at beginning of year			0.5	7.6
Net cash and cash equivalents at end of year		13	3.9	0.5

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 2012
		2012	2011
	Note	£m	£m
Opening net debt		(54.5)	(52.2)
Net increase/(decrease) in cash and cash equivalents in the year		3.4	(7.1)
Net movement in debt financing		5.8	4.9
Movement in Escrow cash		-	(0.1)
Closing net debt	13	(45.3)	(54.5)

Notes to the preliminary announcement

Year ended 31 December 2012

1.   General information

STV Group plc ("the Company") and its subsidiaries (together, "the Group) is listed on the London Stock Exchange and incorporated and domiciled in the UK.  The address of the registered office is Pacific Quay, Glasgow, G51 1PQ. The principal activities of the Group are the production and broadcasting of television programmes, internet services and the sale of advertising airtime and space in these media.

2.   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 2012. The statutory accounts for the year ended 31 December 2011, upon which the Company's auditors have given a report which was unqualified and did not contain a statement under the Companies Act 2006, have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2012 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.  

Going concern basis

The Group meets its day-to-day working capital requirements through its bank facilities.  The Group's forecasts and projections, taking account of reasonable possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities.  The Group therefore continues to adopt the going concern basis in preparing its consolidated interim financial statements.

3.   Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2011.

The following new standards, amendments to standards or interpretations are mandatory for the first time for accounting periods beginning on or after 1 January 2012.  They either were not relevant for the Group or had no material impact on the financial statements of the Group.

IFRS 7 (amendment)	Financial instruments: Disclosures on transfer of financial assets
IFRS1 (amendment)	First time adoption on hyperinflation and fixed dates
IAS 12 (amendment)	Deferred tax: Recovery of underlying assets

4.   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 Consumer and Productions.

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

					External sales
Segment revenues					2012	2011
					£m	£m
Consumer					92.5	93.6
Productions					10.2	8.4
					102.7	102.0

Turnover in 2012 includes £1.1m of revenues from sources outside the UK (2011: £1.1m).

Segment result					2012	2011
					£m	£m
Consumer					16.9	14.5
Productions					0.2	0.5
					17.1	15.0
Affiliate status change					(4.1)	-
Litigation matters					-	(9.5)
Cost of change					-	(1.4)
Exceptional legal costs incurred in litigation with ITV Network plc and ITV plc					(1.2)	(4.0)
Operating profit					11.8	0.1
Financing					(2.7)	(1.0)
Profit/(loss) before tax					9.1	(0.9)
Tax (charge)/credit					(2.2)	1.5
Profit attributable to owners of the parent					6.9	0.6

Operating profit in 2012 includes £0.6m arising outside the UK (2011: £0.6m).

In 2012, the £5.3m affiliate status change exceptional costs relate to Consumer.  In 2011, the £9.5m litigation matters and £1.3m of the cost of change exceptional costs related to Consumer.  The remaining £0.1m cost of change exceptional cost in 2011 relates to Productions.

5.   Exceptional items

i)  Affiliate status change

A non-cash stock writedown of £4.1m has been booked in 2012 relating to the Group's new ITV network affiliate status.  This stock would have unwound over future years under the previous networking arrangements but will not do so under the new affiliate arrangements. In addition legal and other costs of £1.2m in relation to this were incurred.

ii) Litigation matters

On 27 April 2011, STV agreed a wide ranging settlement with ITV plc and ITV Network over various longstanding legal disputes.  Under the terms of the settlement, STV agreed to pay ITV £18.0m, of which £7.2m was paid in cash in 2011.  The remaining £10.8m was paid by a transfer of stock and cash in 2012. 

The settlement was recognised as follows:

·  The exceptional write off of legal and other costs incurred by the Group in relation to the claims of £4.0m

·  The recognition of an exceptional charge of £9.5m.

iii) Cost of change

A provision of £1.4m was recognised in 2011 mainly in relation to restructuring the news operation. 

6.   Finance costs

	2012	2011
	£m	£m
Bank borrowings	3.8	2.5
Fair value loss on interest rate swaps	0.2	-
	4.0	2.5
Pension finance credit	(1.3)	(1.3)
Finance costs	2.7	1.2

The increase in finance costs reflects the terms of the renewed bank facility which commenced on 20 January 2012.

7.   Tax charge/(credit)

	2012	2011
	£m	£m
The charge/(credit) for tax on continuing operations is as follows:
Tax on profit on ordinary activities excluding exceptional items at 15% (2011: 0%)	2.2	-
Tax effect of exceptional items	-	(1.5)
	2.2	(1.5)

The effective tax rate for the Group excluding exceptional items is 15% (2011: 0%). The tax charge is lower than the standard rate of 24.5% due to adjustments for prior year provisions and utilisation of prior year losses.

A number of changes to the UK Corporation tax system were announced in the March 2012 UK Budget Statement. Legislation to reduce the main rate of corporation tax from 24% to 23% from 1 April 2013 was included in the Finance Act 2012 and the relevant deferred tax balances have been re-measured accordingly.  A further reduction to the main rate is proposed to reduce the rate to 21% from 1 April 2014.  This further change had not been substantively enacted at the balance sheet date and, therefore, is not included in these financial statements.

The effect of the changes not yet enacted in the Finance Act 2012 would be to reduce the deferred tax asset provided at the balance sheet date by £1.1m.  This £1.1m decrease in the deferred tax asset would decrease profit by £0.6m and decrease other comprehensive income by £0.5m.  This decrease in the deferred tax asset is due to the reduction in the corporation tax rate from 23% to 21% with effect from 1 April 2014.

8.   Dividends

No dividend is proposed by the Board for the year ended 31 December 2012 (2011: £nil).

9.   Earnings per share

		Earnings £m	2012 Weighted average number of shares (m)	Per share Pence	Earnings £m		2011 Weighted average number of shares (m)			Per share Pence
EPS (PRE-EXCEPTIONAL ITEMS):
Earnings attributable to ordinary shareholders		12.2	37.7	32.5p	14.0		36.8			38.0p
Basic EPS		12.2	37.7	32.5p	14.0		36.8			38.0p
EBT purchased shares			1.4				2.0
Diluted EPS		12.2	39.1	31.3p	14.0		38.8			36.1p
EPS (INCLUDING EXCEPTIONAL ITEMS):
Earnings attributable to ordinary shareholders (including exceptional items)		6.9	37.7	18.3p	0.6		36.8			1.6p
Basic EPS		6.9	37.7	18.3p	0.6		36.8			1.6p
EBT purchased shares			1.4				2.0
Diluted EPS		6.9	39.1	17.6p	0.6		38.8			1.5p

"EBT" (Employee Benefit Trust)

10.  Goodwill

Goodwill at 1 January and 31 December 2012 was £7.9m (2011: £7.9m). It comprises capitalised goodwill on acquisitions completed since 1 January 1998 and the cost and amortisation is split £10.6m and £2.7m respectively.  

11.  Property, plant and equipment

	Leasehold buildings £m	Plant, technical equipment and other £m	Total £m
Cost
At 1 January 2012	0.2	25.3	25.5
Additions	-	1.2	1.2
Disposals	-	(0.3)	(0.3)
At 31 December 2012	0.2	26.2	26.4
Accumulated depreciation and impairment
At 1 January 2012	0.1	15.9	16.0
Charge for year	-	2.4	2.4
Disposals	-	(0.2)	(0.2)
At 31 December 2012	0.1	18.1	18.2
Net book value at 31 December 2012	0.1	8.1	8.2
Net book value at 31 December 2011	0.1	9.4	9.5

12.  Share capital

	Number of shares (thousands)	Ordinary shares £m	Share premium £m	Total £m
At 1 January and 31 December 2012	39,050	19.5	112.0	131.5

13.  Notes to the consolidated statement of cash flows

	2012	2011
	£m	£m
Continuing operations
Operating profit (before exceptional items)	17.1	15.0
Depreciation and other non-cash items	2.4	2.3
Operating cash flows before exceptional items and movements in working capital	19.5	17.3
Decrease in inventories	6.5	6.7
(Increase)/decrease in trade and other receivables	(1.3)	0.9
Decrease in trade and other payables	(6.6)	(7.1)
Underlying cash generated by continuing operations	18.1	17.8
Affiliate status change	(1.0)	-
Litigation matters	(4.1)	(11.2)
Cost of change	(1.2)	(1.7)
Cash generated by continuing operations	11.8	4.9
Cash generated by discontinued operations	-	1.5
Cash generated by operations	11.8	6.4

Analysis of movements in net debt

	At 1 January 2012	Cash flow	At  31 December 2012
	£m	£m	£m
Cash and cash equivalents	0.5	3.4	3.9
Bank borrowings	(55.0)	5.8	(49.2)
Net debt	(54.5)	9.2	(45.3)

At 31 December 2012, the Company had bank facilities in place totalling £62.5m consisting of a £30.0m term facility and a £32.5m revolving credit and overdraft facility (2011: £55.0m and £10.0m respectively).

The renewal of a £70.0m bank facility was agreed on 20 January 2012 and £7.5m was amortised on 31 December 2012.  The new facility expires on 31 December 2014 with the term loan partially amortising across the facility term. Security is provided to the debt providers by way of cross guarantees and a share pledge.

14.  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 2012 and updated to 31 December 2012 by a qualified independent actuary.   The major assumptions used by the actuary were:

	At 31 December 2012		At 31 December 2011
Rate of increase in salaries		1.00%		1.00%
Rate of increase of pensions in payment		3.15%		3.00%
Discount rate		4.35%		4.95%
Inflation		3.15%		3.00%

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

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

	At 31 December 2012		At 31 December 2011
		Years		Years
Male		14.3		14.3
Female		17.1		17.1

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 2012	At 31 December 2011	At 31 December 2010	At 31 December 2009	At 31 December 2008
	£m	£m	£m	£m	£m
Equities	141.4	129.4	132.7	122.9	108.6
Bonds	138.0	134.7	129.6	120.9	106.7
Fair value of schemes' assets	279.4	264.1	262.3	243.8	215.3
Present value of defined benefit obligations	(302.4)	(295.0)	(285.2)	(279.8)	(253.6)
Deficit in the schemes	(23.0)	(30.9)	(22.9)	(36.0)	(38.3)
Equities	8.0%	8.0%	8.0%	8.0%	8.0%
Bonds	3.2-4.7%	3.0-5.0%	4.2%-5.6%	4.5%-5.7%	3.7%-6.6%

A related offsetting deferred tax asset of £5.3m (2011: £7.9m) is shown under non-current assets.  Therefore the net pension scheme deficit amounts to £17.7m at 31 December 2012 (£23.0m at 31 December 2011).

15.  Mailing

A copy of the annual report is being sent to all shareholders on 18 March 2013 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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