Preliminary Results

RNS Number : 7581B

STV Group PLC

24 February 2011

 



0700 hours, 24 February 2011

STV Group plc - Preliminary Results 2010

Scotland's Digital Media Company

STV delivers strong results and growth across business

Financial Highlights

	STV (continuing)			Group
	2010	2009		2010	2009
Revenue	£105m	£90m		£112m	£110m
EBITDA*	£17m	£12m		£17m	£12m
Operating profit*	£14m	£9m		£14m	£9m
Pre-tax profit*				£13m	£6m
EPS*				32.9p	13.7p
Net debt				£52m	£49m

*Pre-exceptionals

The disposal of non-core business Pearl & Dean was completed on 14 May 2010.   The performance of Pearl & Dean is included within Group trading for the period until its disposal.  STV (continuing) refers to the core business.

Highlights

·     Pre-tax profit pre-exceptionals up 127% at £12.5m

·     Operating profit pre-exceptionals up 57% at £14m

·     Earnings per Share pre-exceptionals up 140% at 32.9 pence

·     Revenue up 16% at £105m

·     Broadcasting revenue up 16% to £90.3m; revenue in Content business up 21% at £9.8m and digital revenues up 50% at £4.2m

·     EBITDA pre-exceptionals up 42% at £17m

·     Operating margins up by 4.6 points to 12.9%

·     Trading for the full year has exceeded Board expectations with 8 out of 11 KPI targets achieved or exceeded and key financial targets achieved

·     4 KPIs exceeded beyond the 2012 target

Strategic Developments

We continue to deliver in line with our focussed, self-reinforcing growth strategy.   We are building on the strength of our relationship with our audience, delivering unique, high quality content across multiple platforms and competing in new locally based advertising markets.

·     Programming strategy has worked well and delivered cost savings of £5m

whilst securing peak time audience share ahead of the Network

·     Key KPI for Content, produced hours, exceeded at 113 hours. New

commissions secured with BBC2 (Antiques Road Trip) and first deal secured through format exploitation deal with US production company, Kinetic Content, with US channel, A&E

·     STV Local successfully launched with 19 sites in local authorities covering a third of the Scottish population. Roll-out plan for the rest of Scotland continues on track

·     Upgraded KPI targets for digital business confirmed for 2011 and 2012 given

the strength of 2010 performance which included a new record of 2.2m

      average monthly unique users in Q4 2010 (52% of our broadcast audience)

Richard Findlay, Chairman, said:

"The hard work of the last few years is now bearing fruit with a profit before tax of £12.5 million. The company is on a strong growth trajectory and benefits from a focussed view on its direction of travel. Importantly, it has the motivated staff and management team to continue the journey and meet the challenges ahead."

Rob Woodward, Chief Executive Officer, said:

"We have achieved growth and firmly secured our position as Scotland's digital media company.  We continue to deliver against our targets and STV is generating sustainable growth across all areas of business. Our latest launch into hyper-local media has got off to an excellent start and is a further example of extending STV's reach through the execution of innovative consumer services."

24 February 2011

There will be a presentation for analysts at the offices of Peel Hunt, 111 Old Broad Street, London, EC2N 1PH today at 12.30pm.

Enquiries:

STV Group plc
George Watt, Chief Financial Officer	Tel: [phone]
Kirstin Blackie, PR Manager	Tel: [phone]
College Hill
James Hogan	Tel:  [phone]
Jamie Ramsay

Operational Review

Chief Executive Officer Review

Introduction

The Company has delivered an exceptionally strong set of results for the 2010 financial year which demonstrate dramatic turnaround of the business driven by a highly successful digital strategy which is delivering earnings growth and a strong revival in free to air advertising revenues.    During 2010, STV has been at the forefront of key trends in UK broadcasting leading the whole market with its vision and investment in local media markets with the roll out of STV Local.  Additionally, our Content business has continued to build its customer base and secure new commissions from a wider range of broadcasters.

Broadcasting

During 2010 we have continued to extend our reach through the development of new platforms and channels, providing our audiences with an increased choice in the way they can access our content.  These new platforms are also increasing opportunities for our advertisers to target their marketing expenditure at specific audience groups and creating new opportunities for brand and service promotion.  We continue to hold the position as Scotland's most popular peak time television station, reaching 4.2 million viewers every month (93% of our potential audience).

We have delivered against all of our Broadcasting KPIs, with the key metrics of audience share versus the Network and the broadcast margin being exceeded.  The improvement in the advertising market was sustained throughout the year and we have successfully continued to grow our share of the Scottish market during 2010.

2010 marks the first full year of the implementation of our programming strategy.  This approach has proved to be highly successful, delivering a peak time audience share in excess of the ITV Network, and introducing new programming, enabling us to change and broaden our audience profile to provide opportunities for new advertisers.

Our commitment to delivering high quality public service content to our audiences on all platforms has continued during 2010 and our audience share for these services on air continues to be one of the highest in the ITV Network.  We have recently announced the introduction of a pilot project which, if proven, will deliver an enhanced news service which is affordable and commercially sustainable.

Broadcasting outlook

	Jan 2011	Feb 2011	March 2011	Q1 2011
TV Market	+11%	+18%	+3%	+10%
STV National	+8%	+21%	+3%	+9%
STV Regional	-11%	+1%	Par	-3%
Total STV airtime revenues	+1%	+15%	+2%	+6%

Content

During 2010, STV Productions and Ginger Productions have achieved success in winning commissions from an increasing range of broadcasters, including Living, Sky Real Lives, BBC, Channel 4 and ITV. 

Additionally, we have entered into an innovative format exploitation deal with US company, Kinetic Content, to support our international expansion.  The first deal under this agreement has already been secured through the US channel, A&E, commissioning a pilot of an STV programme format on parenting. 

A third commission of Antiques Road Trip has been secured from BBC2.  The second series has delivered outstanding ratings and has delivered an increase in the slot average performance of approximately 40% for BBC2.  The further commission is for 60 episodes for delivery in late 2011.

In early 2010 we secured the first co-commission of crime drama, Taggart, through an innovative deal with ITV and UKTV.  The series was filmed for the first time in high definition and through a first run window on STV, achieved a 33% audience share. 

Ventures

Our digital strategy has delivered growth as we have successfully built audiences and traffic, launched new initiatives and invested in digital distribution to create new platforms and grow digital revenues which have increased 50% year on year.

Our very strong performance has resulted in three of the KPI targets for 2011 and 2012 being exceeded.    As a result of this exceptional performance, we have significantly increased our targets for 2011 and 2012.

A key part of our strategy is the creation of STV Anywhere which supports our commitment to make our content available to audiences anywhere and anytime.  In early 2010 we launched our first iPhone app providing STV branded news content to audiences across the globe.

In June we announced a content deal with Google making over 2,500 hours of content, both new and archive, available via the YouTube video sharing website across the UK and internationally. Advertiser supported content is delivered free of charge and on demand.

The launch of STV Local in late 2010 has enabled us to leverage our investment in our content across platforms.  This network of hyper local websites is available online and via mobile devices and has successfully created a new platform for audience engagement and the opportunity for our advertisers to geo-target their marketplace.  To date, 19 sites have been launched in local authority areas covering a third of the Scottish population, including cities such as Edinburgh and Aberdeen as well as other areas such as Airdrie, Elgin and Hamilton.  The roll-out of more services to cover the whole of Scotland is planned over the next 18 months.

Regulatory

We are proactively engaging with the Government as it determines the future regulatory landscape.  In particular, through our continued commitment to delivering high quality public service content across platforms, our strategy is closely aligned to the current policy of the Government to increase the provision of local media services.

There is no material change since our last trading update on the legal proceedings against ITV. 

Financial Performance Review

Revenue

Total group revenue, which includes Pearl & Dean up to its disposal in May, amounted to £111.7m (2009: £110.2m) and Television revenues were up 16% at £104.8m (2009: £90.3m).  Revenues increased in all business areas and, in particular, the increase in airtime revenue was sustained throughout the year.

Broadcast revenues were up 16% at £90.3m (2009: £77.8m) due mainly to the improved national advertising airtime market which grew by 21%. The Scottish market remained flat reflecting a slower rate of economic recovery relative to the rest of the UK.   Content revenues increased 21% at £9.8m (2009: £8.1m) demonstrating continued growth and a broadening of the customer base of the Content business.  Within the Ventures business, digital revenues performed strongly, increasing by 50% to £4.2m (2009: £2.8m) reflecting continued growth in traffic.  The Solutions business within Ventures experienced a reduction in revenue to £0.5m (2009: £1.6m) as a result of the loss of the Setanta contract in the previous year.

Operating Profit

Group operating profit before exceptional items increased by £5.2m (57%) from £9.2m to £14.4m driven by improved airtime revenues.

Broadcasting operating profit increased by 76% to £13.4m (2009: £7.6m)

Finance Costs

Net interest expenses before exceptional items decreased by £1.8m to £1.9m (2009: £3.7m) mainly due to the anticipated reduction in the IAS 19 non-cash pension charge which was partly offset by higher cash interest costs due to the higher average net debt balances in 2010.

Profit Before Tax

As a result of the revenue growth noted above and reduced interest costs, Profit Before Tax and exceptional items increased to £12.5m (2009: £5.5m).

Exceptional Items

Exceptional items resulted in a net charge of £7.2m (2009: £13.8m), non cash items included the final accounting on the sale of Pearl & Dean (£nil net), a write-down to film stock inventory values (£2.7m) and a write-off of bank facility fees in H1 (£1.5m).  Cash costs included litigation costs (£3.5m), and a cost of change provision (£0.9m) related to restructuring in our Sales operation and a change in the Group's core business from three divisions to two: Consumer and Production.

Earnings Per Share

EPS before exceptional items increased by 140% to 32.9 pence (2009: 13.7 pence) reflecting the increase in profit before tax and a 0% effective tax rate (2009: 10%).

Balance Sheet

The principal balance sheet movements in 2010 were a reduction in ITV Network stock and a reduction in the pension deficit to £16.2m net (2009: £25.7m net).

Cash Flow

Net debt amounted to £52.2m at the year end (2009: £49.4m) with the increase due to the final year of cash losses at Pearl & Dean offsetting cash generated in the core businesses.  With the disposal of Pearl & Dean now completed, the cash generation of the continuing businesses will become much clearer and net debt will quickly decrease.  The continuing businesses converted 138% of operating profit into free cashflow (2009: 118%), considerably above the target of 100%.

Dividends

The Board has previously stated that no dividends will be declared for 2010.  With the improved trading position of the Group, we would normally expect to re-instate dividend payments during 2011; however, the Board have decided that while the intention is to resume dividend payments, this will only occur when the outcomes of the ongoing legal disputes are known.

Appendix 1

KPI UPDATE

During 2010 a number of the KPI targets set for the period have been exceeded and, in the case of four of the KPI targets, the performance achieved in 2010 has exceeded the targets previously set for 2011 and 2012.  As a result of this over-performance, the targets for 2011 and 2012 have been reviewed and five KPIs will be upgraded for financial years 2011 and 2012.  The new targets are set out below:

	2010 target	2010 actual	2011 target	2012 target
Broadcasting
1. Increase regional advertising market share	25% share	25% Achieved	26% share	27% share
2.  Peak time audience v ITV Network	To be in line with the Network	0.24 share points above Network Exceeded	To be in line with the Network	To be in line with the Network
3. Increase broadcast margin	10%	15% Exceeded	15% Upgraded target (12.5% previously)	16% Upgraded target (14% previously)
Content
4. Production hours	110 hours	113 hours Exceeded	130 hours	150 hours
5. Value of external commissions	£11.2m	£7.0m Not met	£16.8m	£21.0m
6. Content margin	10% (min)	10.2% Exceeded	10% (min)	10% (min)
Ventures
7. Unique users per month (Q4 monthly average)	1.7m	2.2m Exceeded	2.5m Upgraded target (1.9m previously)	3.0m Upgraded target (2.1m previously)
8. Page impressions per month (Q4 monthly average)	6.7m	11.0m Exceeded	14.0m Upgraded target (8.0m previously)	18.0m Upgraded target (8.8m previously)
9. Digital revenue value	£5.2m	£4.2m Not met	£7.3m	£10.5m Upgraded target (£9.1m previously)
10. Video streams per month (Q4 monthly average)	1.0m	2.0m Exceeded	2.7m Upgraded target (1.2m previously)	3.5m Upgraded target (1.4m previously)
11. Ventures margin	25%	Breakeven Not met	30%	35%

Consolidated income statement Year ended 31 December 2010
				2010				2009
		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	104.8	-		104.8	90.3	-			90.3
Net operating expenses before exceptional costs				(90.4)	-		(90.4)	(81.1)	-			(81.1)
Litigation matters			4	-	(3.5)		(3.5)	-	-			-
Writedown of inventory			4	-	(2.7)		(2.7)	-	-			-
Cost of change			4	-	(0.9)		(0.9)	-	-			-
Pension service credit			4	-	-		-	-	4.0			4.0
Onerous lease contracts			4	-	-		-	-	(3.4)			(3.4)
Net operating expenses				(90.4)	(7.1)		(97.5)	(81.1)	0.6			(80.5)
Operating profit				14.4	(7.1)		7.3	9.2	0.6			9.8
Finance income				0.2	-		0.2	0.7	-			0.7
Finance costs	- borrowings		5	(2.5)	(1.5)		(4.0)	(2.5)	-			(2.5)
	- IAS 19 pension		5	0.4 2	-		0.4	(1.9)	-			(1.9)
				(1.9)	(1.5)		(3.4)	(3.7)	-			(3.7)
Profit before tax				12.5	(8.6)		3.9	5.5	0.6			6.1
Tax credit/(charge)			6	-	1.4		1.4	(0.5)	(1.1)			(1.6)
Profit for the year from continuing operations				12.5	(7.2)		5.3	5.0	(0.5)			4.5
Discontinued operations
Profit/(loss) for the year from discontinued operations			3,7	-	-		-	-	(13.3)			(13.3)
Profit/(loss) for the year				12.5	(7.2)		5.3	5.0	(13.8)			(8.8)
Earnings/(loss) per share
From continuing operations
-  basic and diluted			9	32.9p			13.9p	13.7p			12.3p
From continuing and discontinued operations
-  basic and diluted			9	32.9p			13.9p	13.7p			(24.1p)

Consolidated statement of comprehensive income
Year ended 31 December 2010
	2010	2009
	£m	£m
Profit/(loss) for the year	5.3	(8.8)
Actuarial gain/(loss) on defined benefit pension schemes	9.1	(8.0)
Deferred tax (charge)/credit	(2.9)	2.2
Other comprehensive income/(expense) for the year	6.2	(5.8)
Total comprehensive income/(expense) for the year	11.5	(14.6)

Consolidated balance sheet
At 31 December 2010
	Note	2010	2009
		£m	£m
Non-current assets
Goodwill and other intangible assets	10	7.9	8.2
Property, plant and equipment	11	10.1	12.1
Deferred tax asset		11.1	11.8
		29.1	32.1
Current assets
Inventories		35.8	47.0
Trade and other receivables		26.4	22.4
Cash and cash equivalents		7.6	14.3
Short-term bank deposits	12	0.1	0.5
		69.9	84.2
Assets classified as held for sale	7	-	12.1
Total assets		99.0	128.4
Equity attributable to owners of the parent
Share capital	13	19.2	18.3
Share premium	13	111.4	111.3
Merger reserve		173.4	173.4
Other reserve		0.8	0.5
Accumulated losses		(324.6)	(335.4)
Total equity		(19.8)	(31.9)
Non-current liabilities
Borrowings		54.9	-
Trade and other payables		2.5	1.2
Provisions		3.1	3.7
Retirement benefit obligation	15	22.9	36.0
		83.4	40.9
Current liabilities
Borrowings		5.0	67.5
Trade and other payables		29.0	28.7
Tax liabilities		-	0.9
Provisions		1.4	1.1
		35.4	98.2
Liabilities directly associated with assets classified as held for sale	7	-	21.2
Total liabilities		118.8	160.3
Total equity and liabilities		99.0	128.4

Consolidated statement of changes in equity Year ended 31 December 2010

Equity attributable to owners of the parent

	Share  capital	Share premium	Merger reserve	Other reserve	Accumulated Losses	Total Equity
	£m	£m	£m	£m	£m	£m
Balance at 1 January 2010	18.3	111.3	173.4	0.5	(335.4)	(31.9)
Net profit for the year	-	-	-	-	5.3	5.3
Actuarial gain	-	-	-	-	9.1	9.1
Deferred tax thereon	-	-	-	-	(2.9)	(2.9)
Total comprehensive income for the year	-	-	-	-	11.5	11.5
Own shares acquired	0.9	0.1	-	-	(1.0)	-
Own shares awarded	-	-	-	-	0.3	0.3
Equity-settled share based payments	-	-	-	0.3	-	0.3
Balance at 31 December 2010	19.2	111.4	173.4	0.8	(324.6)	(19.8)
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)

Statement of consolidated cash flows
Year ended 31 December 2010
		Note	2010	2009
			£m	£m
Operating activities
Cash generated/(used) by operations		14	6.3	(1.2)
Interest paid			(3.4)	(3.4)
Pension deficit funding	- 18 year recovery plan payment		(3.7)	(3.9)
	- one off disposal proceeds contribution		-	(4.0)
Net cash used by operating activities			(0.8)	(12.5)
Investing activities
Interest received			0.2	0.5
Purchase of property, plant and equipment			(0.8)	(1.0)
Net cash used by investing activities			(0.6)	(0.5)
Financing activities
Release of cash on deposit			0.4	0.5
Net borrowings (repaid)/drawn			(9.0)	13.7
Net cash (used)/generated by financing activities			(8.6)	14.2
Net (decrease)/increase in cash and cash equivalents			(10.0)	1.2
Net cash and cash equivalents at beginning of year			17.6	16.4
Net cash and cash equivalents at end of year		14	7.6	17.6

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 2010
	Note	2010	2009
		£m	£m
Opening net debt		(49.4)	(36.4)
Net (decrease)/increase in cash and cash equivalents in the year		(10.0)	1.2
Net movement in debt financing		7.6	(13.7)
Movement in Escrow cash		(0.4)	(0.5)
Closing net debt	14	(52.2)	(49.4)

Notes to the preliminary announcement

Year ended 31 December 2010

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 2010. The statutory accounts for the year ended 31 December 2009, 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 2010 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

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2009.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The following new standards, amendments to standards or interpretations are mandatory for the first time for accounting periods beginning on or after 1 January 2010.  They either were not relevant for the Group or had no material impact on the financial statements of the Group.

		Effective date
IFRS 3 (revised)	Business combinations	1 January 2010
IAS 27 (revised)	Consolidated and separate financial statements	1 January 2010
IAS 28 (amended)	Investments in associates	1 January 2010
IAS 31 (amended)	Interests in joint ventures	1 January 2010
IFRIC 17	Distribution of non-cash assets to owners	1 January 2010
IFRIC 18	Transfers of assets to customers	1 January 2010
IFRS 1 (amendment)	Additional exemptions for first-time adopters	1 January 2010

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).  The Group sold its Cinema business on 14 May 2010.

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.

Segment revenues

					External sales
					2010	2009
					£m	£m
Continuing operations
Broadcasting					90.3	77.8
Content					9.8	8.1
Ventures					4.7	4.4
					104.8	90.3
Discontinued operations
Cinema					6.9	19.9
					6.9	19.9
					111.7	110.2

Turnover in 2010 includes £1.6m of revenues from sources outside the UK (2009: £1.6m).

Segment result

	Underlying segment result			Exceptional items		Segment result
		2010	2009	2010	2009	2010	2009
		£m	£m	£m	£m	£m	£m
Continuing operations
Broadcasting		13.4	7.6	(3.1)	-	10.3	7.6
Content		1.0	0.9	(0.2)	-	0.8	0.9
Ventures		-	0.7	(0.3)	-	(0.3)	0.7
		14.4	9.2	(3.6)	-	10.8	9.2
Exceptional legal costs incurred in litigation with ITV Network plc and ITV plc						(3.5)	-
Exceptional onerous lease provision attributable to Group						-	(3.4)
Exceptional past service pension credit attributable to Group						-	4.0
Operating profit						7.3	9.8
Financing						(1.9)	(3.7)
Exceptional financing costs						(1.5)	-
Profit before tax						3.9	6.1
Tax credit/(charge)						1.4	(1.6)
Profit for the year from continuing operations						5.3	4.5
Discontinued operations
Cinema		-		-	(13.3)	-	(13.3)
Tax credit		-	-	1.5	-	1.5	-
		-	-	1.5	(13.3)	1.5	(13.3)
Loss on disposal of discontinued operations						(1.5)	-
Loss for the year from discontinued operations						-	(13.3)
Profit/(loss) attributable to equity shareholders						5.3	(8.8)

Operating profit in 2010 includes £0.7m arising outside the UK (2009: £0.9m).

In 2010, the exceptional items in Broadcasting relate to a writedown of film stock of £2.7m and a £0.4m cost of change provision.  The exceptional item in Content of £0.2m and Ventures £0.3m relates to a cost of change provision.

In 2009, the exceptional item in Cinema of £13.3m related to an increase in the Vue onerous contract provision reflecting weaker than anticipated trading.  

4.   Exceptional items

i)    Litigation matters

As was disclosed in our 2009 Annual Report, 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 in addition has launched further counter claims.  The £3.5mexceptional represents legal costs incurred to 31 December 2010 in respect of these claims.

i)    Writedown of inventory

A stock writedown of £2.7m has been recognised during the year in relation to film stock as a result of new information received. 

ii)   Cost of change

A provision of £0.9m has been recognised during the year in relation to restructuring within the business.

iii)  Pension service credit

A past service pension credit (net of pension costs) of £4.0m was recognised in 2009 in relation to changes made to the Scottish and Grampian Television Retirement Benefit Scheme.

iv)  Onerous lease contracts

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

v)   Finance costs

A loss on extinguishment of debt of £1.5m was recognised during the year.  On 3 February 2010, the Group renegotiated its banking facilities in part to enable a disposal of Pearl & Dean and the £1.5m loss represents the write off of unamortised fees in respect of the original debt obligations.

5.   Finance costs

	2010	2009
	£m	£m
Bank borrowings	2.5	2.5
Pension finance (credit)/charge	(0.4)	1.9
Finance costs excluding exceptional items	2.1	4.4
Exceptional finance costs (see note 4)	1.5	-
Finance costs	3.6	4.4

6.   Tax

	2010	2009
	£m	£m
The (credit)/charge for tax on continuing operations is as follows:
Tax on profit on ordinary activities excluding exceptional items at 0% (2009: 10%)	-	0.5
Tax effect of exceptional items	(1.4)	1.1
	(1.4)	1.6

The effective tax rate for the Group (continuing and discontinued operations) excluding exceptional items is 0% (2009: 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

The disposal of the Group's cinema business, Pearl & Dean, completed on 14 May 2010 with an effective sale date of 30 April 2010.

	2010	2009
	£m	£m
Post tax results from discontinued operations (see note 3)	-	(13.3)

Exceptional items included within the results are as follows:

          Loss on disposal of discontinued operations

Pearl & Dean Limited was sold to Image Ltd ("Image") for a gross cash consideration of £1 resulting in a £nil post tax result on disposal.  Pearl & Dean paid the 2010 minimum income guarantee of £17.6m to Vue Cinemas by way of an intercompany loan from STV.  As part of the deal agreed with Image, Pearl & Dean were to repay the portion of this loan relating to the period from 1 May 2010 to 31 December 2010 amounting to £9.1m. The first repayment of £2.5m was received upon completion, further payments of £5.1m were received to 31 December 2010 and the balance was fully repaid in January and February 2011.

Onerous contract provision

A provision of £13.3m was made in 2009 to cover future losses expected from the Vue contract within the Cinema division. 

Cash flows from discontinued operations

	2010	2009
	£m	£m
Net cash flows from operating activities	(9.5)	(9.1)

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

	2010	2009
	£m	£m
Trade and other receivables	-	8.8
Cash and cash equivalents	-	3.3
Total assets classified as held for sale	-	12.1
Trade and other payables	-	6.9
Provisions for liabilities and charges	-	14.3
Total liabilities associated with assets classified as held for sale	-	21.2
Net liabilities of disposal group	-	(9.1)

The net liabilities of Pearl & Dean at the date of disposal were as follows:

30 April 2010
	£m
Property, plant and equipment	0.5
Intangibles	0.2
Trade and other receivables	22.9
Trade and other payables	(4.3)
Tax liabilities	(1.5)
Working capital adjustment agreed as part of disposal	1.4
	19.2
Onerous contract provision released	(11.9)
Loan due to STV Group plc	(9.1)
	(21.0)
Net liabilities	(1.8)
Disposal expenses	1.8
Gain/(loss) on disposal	-
Total consideration	-
Net cash flow arising on disposal:
Cash consideration	-

8.   Dividends

No dividend is proposed by the Board for the years ended 31 December 2009 and 2010.

9.   Earnings per share

	Earnings £m	2010 Weighted average number of shares (m)	Per share Pence	Earnings £m	2009 Weighted average number of shares (m)	Per share Pence
BASIC UNDERLYING EPS:
Earnings attributable to ordinary shareholders	12.5	38.0	32.9p	5.0	36.5	13.7p
Basic underlying EPS from continuing operations	12.5	38.0	32.9p	5.0	36.5	13.7p
BASIC EPS INCLUDING EXCEPTIONAL ITEMS:
Earnings attributable to ordinary shareholders (including exceptional items)	5.3	38.0	13.9p	(8.8)	36.5	(24.1p)
EPS from continuing operations
Basic EPS	5.3	38.0	13.9p	(8.8)	36.5	(24.1p)
Pre tax loss from discontinued operations	1.5	-	3.9p	13.3	-	36.4p
Tax relating to discontinued operations	(1.5)	-	(3.9p)	-	-	-
Basic EPS from continuing operations	5.3	38.0	13.9p	4.5	36.5	12.3p
EPS from discontinued operations
Basic EPS
Pre tax (loss) from discontinued operations	(1.5)	38.0	(3.9p)	(13.3)	36.5	(36.4p)
Tax relating to discontinued operations	1.5	-	3.9p	-	-	-
Basic EPS from discontinued operations	-	38.0	-	(13.3)	36.5	(36.4p)

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 at 1 January and 31 December 2010 was £7.9m (2009: £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.  Other intangible assets of £0.3m relating to capitalised software costs were disposed of during the year.

11.  Property, plant and equipment

	Land and buildings leasehold £m	Plant, technical equipment and other £m	Total £m
Cost
At 1 January 2010	0.2	22.9	23.1
Additions	-	0.8	0.8
Fully written down	-	(0.1)	(0.1)
At 31 December 2010	0.2	23.6	23.8
Accumulated depreciation and impairment
At 1 January 2010	0.1	10.9	11.0
Charge for year	-	2.5	2.5
Disposals	-	0.3	0.3
Fully written down	-	(0.1)	(0.1)
At 31 December 2010	0.1	13.6	13.7
Net book value at 31 December 2010	0.1	10.0	10.1
Net book value at 31 December 2009	0.1	12.0	12.1

          During the year £0.3m of depreciation written back under IFRS 5, was written off as part of the Pearl & Dean disposal.

12.  Short-term bank deposit

The short term bank deposit relates to £0.1m (2009: £0.5m) placed in Escrow in relation to certain planning consents currently being sought by Primesight, the outdoor business sold by the Group in 2007.

13.  Share capital

	Number of shares (thousands)	Ordinary shares £m	Share premium £m	Total £m
At 1 January 2010	36,719	18.3	111.3	129.6
Issued during the year	1,617	0.9	0.1	1.0
At 31 December 2010	38,336	19.2	111.4	130.6

14.  Notes to the consolidated statement of cash flows

	2010	2009
	£m	£m
Continuing operations
Operating profit (before exceptional items)	14.4	9.2
Depreciation and other non-cash items	2.5	2.8
Operating cash flows before exceptional items and movements in working capital	16.9	12.0
Decrease/(increase) in inventories	8.5	(5.1)
(Increase)/decrease in trade and other receivables	(6.0)	1.6
Increase in trade and other payables	1.1	3.4
	20.5	11.9
Litigation costs	(3.5)	-
Cost of change and onerous property costs	(1.2)	(4.0)
Cash generated by continuing operations	15.8	7.9
Cash used by discontinued operations	(9.5)	(9.1)
Cash generated/(used) by operations	6.3	(1.2)

Analysis of movements in net debt

	At 1 January 2010	Cash flow	At  31 December 2010
	£m	£m	£m
Cash and cash equivalents	14.3	(6.7)	7.6
Cash and cash equivalents included in the disposal group held for sale (note 7)	3.3	(3.3)	-
	17.6	(10.0)	7.6
Bank borrowings	(67.5)	7.6	(59.9)
Short-term deposits	0.5	(0.4)	0.1
Net debt	(49.4)	(2.8)	(52.2)

At 31 December 2010, the Company had bank facilities in place totalling £70.0m consisting of a £55.0m term facility and £15.0m revolving credit and overdraft facility. The facilities expire on 31 December 2012 with the revolving credit facility amortising by £5.0m on 31 December 2011.  Security is provided to the debt provider by way of cross guarantees and a share pledge.

15.  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 2009 and updated to 31 December 2010 by a qualified independent actuary.   The major assumptions used by the actuary were:

	At 31 December 2010		At 31 December 2009
Rate of increase in salaries		1.00%		1.00%
Rate of increase of pensions in payment		3.30%		3.40%
Discount rate		5.55%		5.70%
Inflation		3.30%		3.40%

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 2010		At 31 December 2009
		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 2010	At 31 December 2009	At 31 December 2008	At 31 December 2007	At 31 December 2006
	£m	£m	£m	£m	£m
Equities	132.7	122.9	108.6	143.2	145.9
Bonds	129.6	120.9	106.7	121.9	114.7
Fair value of schemes' assets	262.3	243.8	215.3	265.1	260.6
Present value of defined benefit obligations	(285.2)	(279.8)	(253.6)	(279.1)	(307.3)
Deficit in the schemes	(22.9)	(36.0)	(38.3)	(14.0)	(46.7)
Equities	8.0%	8.0%	8.0%	8.0%	8.4%
Bonds	4.2%-5.6%	4.5%-5.7%	3.7%-6.6%	4.4%-6.1%	4.6%-5.2%

A related offsetting deferred tax asset of £6.7m (2009: £10.3m) is shown under non-current assets.  Therefore the net pension scheme deficit amounts to £16.2m at 31 December 2010 (£25.7m at 31 December 2009).

16.  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 both 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 launching 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 £14.2m should STV be unsuccessful in all claims and a related unprovided contingent liability for accounting purposes of £6.9m. STV has a potential contingent asset of £7.3m which has not been recognised in the accounts 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 potential effect of these claims and potential claim at this stage.

17.  Mailing

A copy of the annual report is being sent to all shareholders on 14 March 2011 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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