STV Group plc Full Year Results 2018

RNS Number : 3517R

STV Group PLC

28 February 2019

 

             Press Release

                                                                                                 0700 hours, 28 February 2019

STV Group plc Full Year Results for 2018

STV's new strategic growth plan delivers strong results and

increased shareholder returns

Strong financial performance

·  Total revenue up 8% reflecting good growth across all divisions - Broadcast, Digital and Productions

·     Operating profit pre-exceptionals up 6%

·     Total advertising revenue up 4% across national, regional and digital

·     Broadcast revenue up 3%, including regional advertising up 24%

·     Digital revenue up 17%, including VOD revenue up 39%, with digital operating margin increasing to 49%

·     STV Productions revenue up 60% reflecting increased high value commissions

·     Overall, non-broadcast profit up 30%, with one quarter of earnings now derived from non-linear spot advertising

·    Increased returns to shareholders with final ordinary dividend of 14 pence per share confirmed and full year dividend payment of 20 pence per share, up 18% year on year

Exceptional viewing performance on screen and online

·     Strongest STV share of viewing since 2009, up 13% year on year, with STV 4x bigger than C4 and 5x bigger than C5

·     STV achieved the highest growth in share of any of the UK's 500+ channels and delivered 99% of all commercial audiences over 500k in Scotland in 2018

·     STV viewing volume up 8%, with all age groups watching more STV in 2018, including 16-34s

·     STV News modernisation programme driving increased viewing share, with STV News at Six now the most watched news programme in Scotland

·     Online streams on STV Player up 24%, with live simulcast viewing up 81%

Strong foundations to deliver profitable growth

·     A year of significant change and progress with a new team and divisional structure fully in place and focused on the key growth areas

·     Key strategic partnerships secured with Sky and Virgin Media increasing digital distribution

·     Significant improvement in user experience and content of STV Player, and launch of new ad-free SVOD service, STV Player+, to target pay TV market for first time

·    Delivered peak time drama, entertainment and factual series for BBC, ITV and C4 for the first time, as well as new creative partnerships to expand IP pipeline

·     Successful launch of STV Growth Fund to drive incremental growth in regional advertising market, with the fund now doubled to £10m of airtime

·     The Scottish Children's Lottery continued to grow with cashflow breakeven now reached as of 1 January 2019

Financial Highlights	2018	2017	Year on year
Revenue	£125.9m	£117.0m	+8%
EBITDA*	£22.8m	£21.5m	+6%
Operating profit*	£20.1m	£19.0m	+6%
Pre-tax profit**	£19.0m	£18.0m	+6%
Statutory pre tax profit	£1.9m	£13.9m	-86%
Adjusted EPS**	41.1 pence	39.6 pence	+4%
Statutory EPS	4.2 pence	30.1 pence	-86%
Net debt	£36.3m	£35.5m	+2%
Dividends per share	20.0 pence	17.0 pence	+18%

*Pre exceptional items

**Pre exceptional items and IAS19

Simon Pitts, Chief Executive Officer, said: "The results announced today show encouraging underlying growth across all of our key business areas in 2018. Total advertising revenue is up 4% on the back of STV's strongest viewing performance in a decade. All age groups watched more STV in 2018, including the younger 16-34 audience, and online viewing via STV Player also gave us a significant boost fuelled by the football World Cup, the soaps, big entertainment shows like I'm a Celebrity and drama boxsets.

"2018 was a year of significant change and progress at STV with a new team and organisation now fully in place and excellent early progress made with the implementation of our strategic growth plan.

"We have signed valuable, long-term partnerships with Virgin Media and Sky, improved the user experience and content of the STV Player, and now launched a new subscription service, STV Player+, to enter the fast-growing pay TV market for the first time.

"In programming, we are producing popular, peak-time series for the UK's biggest broadcasters, have invested in our news operation and agreed new talent partnerships to strengthen our creative pipeline. Our exciting new Scottish drama series, The Victim, will hit screens shortly on BBC1.

"In advertising, our STV Growth Fund has got off to the best possible start with over 100 Scottish businesses already signed up, driving a 24% increase in regional ad revenues, and I'm delighted to be announcing a doubling of the fund to £10m of airtime.

"2019 has also started well, with strong digital and regional growth off-setting the more cautious national advertising market."

Margaret Ford, Chairman, said: "In a year of significant change for STV, the Board is delighted with the delivery of a strong set of financial results and the extent of the progress that has been made in implementing the new strategic growth plan. We continue to increase returns to shareholders and are confident that the growth opportunities identified will be progressed in 2019 and beyond." 

There will be a presentation for analysts at the offices of Peel Hunt, Moor House, 120 London Wall, London EC2Y 5ET today, 28 February 2019, at 1.00 pm.  Should you wish to attend the presentation, please contact Angela Wilson, [e-mail] or telephone: [phone].

Enquiries:

STV Group plc:                   George Watt, Chief Financial Officer  Tel: [phone]

Charlotte Street Partners:     Harriet Moll                                  Tel: [phone]

Financial performance review

Total revenue increased by 8% to £125.9m (2017: £117.0m) reflecting particularly strong growth in regional advertising revenue, digital revenue and production revenue. Operating profit, before exceptional items principally relating to the refocusing and restructuring of the business, increased by 6% to £20.1m (2017: £19.0m).  Operating profit after exceptional items decreased to £9.0m (2017: £17.4m).

Broadcast division revenues were up 3% at £94.5m (2017: £92.0m) due to regional airtime growing by 24% as a result of the success of the STV Growth Fund. National airtime revenues were down slightly, as a weak December market offset the positive impact of the World Cup earlier in the year.

Broadcast division operating profit at £15.3m (2017: £15.3m) was flat with the growth in revenue offset by higher costs including the one-off impact of increased transmission costs.  The operating margin of the Broadcast division fell slightly to 16.1% (2017: 16.6%).

The newly established Digital division grew revenues by 17% to £9.6m (2017: £8.2m) reflecting a very strong STV Player performance as VOD advertising revenues grew by 39%. Digital division operating profit grew by 27% to £4.7m (2017: £3.7m) with margins also expanding to 48.5% (2017: 45.1%) caused by high margin incremental STV Player revenue. 

STV Productions revenue grew strongly, up 60% to £16.3m (2017: £10.2m) as higher value productions, particularly new drama, The Victim, were delivered. STV Productions operating profit amounted to £0.1m (2017: nil). Increasing the number of higher margin productions will be a key area of focus going forward, in line with the strategy.

The STV External Lottery Manager (The STV ELM) invoiced £5.5m of costs to the Scottish Children's Lottery (SCL) (2017: £6.6m) and the division continues to operate on a breakeven basis.   The STV ELM incurred a loss after exceptional items of £4.2m (2017: £1.6m) primarily due to provisions made for the risk of not achieving a full recovery of the debtor due from the SCL.

A total of £11.1m cash and non-cash exceptional charges have been made in 2018 related to the closure of STV2, GMP equalisation and the organisational restructure which has taken place.  These include £3.3m of cash exceptional costs which principally related to redundancy costs (£2.3m) arising from the closure of STV2 and restructuring of the business. 

There are non-cash exceptional costs of £7.8m, with the two largest items being a writedown to the value of STV Productions' stock following the closure of STV2 (£4.6m) and the impact of GMP (guaranteed minimum pension) equalisation (£1.6m).

Net finance costs increased to £7.1m (2017: £4.3m) due largely to an increase in impairment losses against the SCL debtor to the ELM to £4.2m (2017: £nil) offset by the non-cash IAS19 finance charge decreasing to £1.8m (2017: £2.5m).  Cash interest costs increased to £1.1m (2017: £1.0m) due to slightly higher average interest rates.

The statutory result for the year after tax, exceptional items and IAS19 interest was a profit of £1.6m (2017: £11.7m).  The Group's effective tax rate increased to 17% (2017: 14%) due to a reduced level of prior year losses utilisation.

Earnings per share before exceptional items and IAS19 interest was up 4% at 41.1p (2017: 39.6p) reflecting the growth in operating profit partly offset by a higher effective tax rate of 17% (2017: 14%). On a statutory basis, EPS amounted to 4.2 pence (2017: 30.1p).

Net debt increased by £0.8m to £36.3m (2017: £35.5m) with the net debt:EBITDA ratio at 1.36x, within the target range of 1.0x-1.5x on a covenant basis.  There was a significant working capital inflow as sums due from ITV under the Network Affiliate Agreement (NAA) and Advertising Sales Agreement (ASA) related to 2017, amounting to £3.6m, were received in Q3. The Scottish Children's Lottery (SCL) had a need for further working capital of £2.7m, however, following changes to the cost base from 1 January 2019, the SCL has reached cashflow breakeven and the Group will see a cash inflow in 2019 as the ELM's debtor balance of £6.6m begins to be repaid.

Other major outflows in 2019 included pension deficit funding cash payments of £8.8m, dividends of £6.9m, £3.4m of capital expenditure, £2.4m of reorganisation costs and £3.9m of share purchases through the buyback programme and into the Employee Benefit Trust.

The Group's preferred measure of operating profit converted to free cashflow, defined as operating profit plus depreciation, amortisation and share based payments, less working capital movements (excluding STV ELM) and capital expenditure, increased to 125% (2017: 64%) due to the NAA and ASA timing impact and other working capital movements.

The Group's £60m revolving credit and overdraft facility matures in June 2022 and provides good medium term funding certainty.

The balance sheet remains robust providing the Group with financial flexibility. The principal movements were the movement in the IAS19 pension deficit and the debtor and creditor movements in working capital following the exceptional charges taken in 2018.

The IAS19 deficit, net of tax, increased to £65.3m (2017: £58.6m) and the 2018 triennial valuation process is underway. We expect this to be concluded by end of Q1 2019.

Shareholder returns

The Group's strategic plan, announced in 2018, has been fully costed and is self-financing.  This has enabled the Board to continue to fulfil its commitment to pursue a progressive dividend policy. This targets 60% to 80% of cash generation for shareholders after pension funding arrangements.

As a result, it is proposed that a final dividend of 14 pence per share, in line with recent guidance, will be paid (2017: 12 pence), resulting in a total dividend for 2018 of 20 pence, up 18% on 2017.

Future increases in shareholder returns will continue to be aligned with earnings growth. A further increase of 5%, to 21 pence per share, is proposed for the total dividend for 2019.

Outlook

Despite the unprecedented macroeconomic uncertainty, total advertising revenue is expected to be flat to +1% over the first four months of 2019.

STV national airtime revenue is expected to be down 5%, with anticipated stronger trading in April helping to offset the forecast decline in March.

The regional airtime market continues to perform strongly and is expected to be up 20% to 25% to end of April.

Strong growth in digital revenue is continuing and is expected to be up 15% to 20% to end April, driven by boxset consumption and the increased distribution of the STV Player.

STV Productions has achieved a positive start to the year with approximately 50% of 2018 revenues already secured.

Operational review

Broadcast

The aim of the Broadcast division is the delivery of high quality, cost-effective news and entertainment to maximise the value of this stable and profitable business. The underlying strength and resilience of the business was evident during 2018 as STV delivered its highest viewing share in a decade and the highest viewing share growth of any UK channel. An increase of 13% in share year-on-year was achieved and share increased across every age group. Significantly - and bucking the trend across many other broadcasters - the highest year-on-year growth in share was across 16-34 year olds, with an increase of 10% in this key audience.

This strong performance on screen supported an increase in revenues, up 3% at £94.5m (2017: £92.0m). This was achieved against the backdrop of extensive organisational change as STV2 was closed on 30 June 2018 and a major change programme and restructure was implemented across STV News with target cost savings realised.

National advertising revenues were broadly flat due to a weak performance in December; however, conversely regional revenues continued their strong growth, up 24% across the year at £13.6m (2017: £11.0m).  The growth in regional revenue was supported by the success of the STV Growth Fund. Launched in May 2018, this has resulted in £3m being invested in growing Scottish businesses, and extending STV's advertiser base of the future. 

Digital

Solid early progress has been made in implementing the strategy to achieve the aim of driving digital growth through the STV Player by creating an STV for Everyone.  Underpinning this growth plan are three strategic priorities: increasing digital distribution; enhancing the consumer experience through improved product reliability; and expanding the range of content available on STV Player.

On distribution, key strategic partnerships with Virgin Media and Sky were secured in the second half of 2018.  Due to the penetration of both Virgin Media and Sky in Scotland, these deals will have the effect of doubling the distribution of STV Player across Scotland and enabling STV to become the first UK PSB to broadcast all of its regional variants in HD.

STV Player was launched on the Virgin Media platform, ahead of schedule, in December 2018, and in February 2019 the fully regionalised HD version of the service was introduced.  The Sky launch is on track to be delivered in the second half of 2019. 

A programme of activities to enhance the consumer experience through improved product reliability combined with the introduction of new features, including HD streaming, has been introduced and will continue in 2019.  This includes, earlier this month, the launch of STV Player+, a new ad-free subscription service, extending the range of products available to consumers and allowing STV to enter the fast-growing pay TV market for the first time. 

Three new content partnerships were announced in 2018 (Hopster, Little Dot Studios, Eleven Sports), all designed expand the range of content on the platform and, over time, drive incremental viewing and revenue to STV Player.

As the foundations of the digital growth strategy are being set, the highly profitable digital business continued to enjoy strong growth, with revenue up 17% at £9.6m (2017: £8.2m).  Online streams were up 24%, generating an increase in ad impressions of 29%. 

STV Productions

The strategic growth plan for STV Productions is developing momentum against the positive backdrop of stronger deliveries in 2018.  Importantly, the 2018 deliveries included a return to high end drama, leading to growth in revenues, up 60% at £16.3m (2017: £10.2m). Additionally, new commissions were secured across all genres with eleven shows, including seven series, being delivered throughout the year.

This growth trend has continued into 2019 with a re-commission by BBC One of long-running ratings success, Antiques Road Trip (series 19 and 20), and by BBC Two of Celebrity Antiques Road Trip (series 9), all of which will be delivered in 2019.

The strategic growth plan has a straightforward aim: to build a world class production business based out of Scotland.  David Mortimer was appointed Managing Director of the business in November and has made early progress in implementing the growth plan, forming new creative partnerships and sowing the seeds to develop valuable IP.

This includes a co-production deal with Primal Media, announced in January 2019. Primal Media, the creators of hit entertainment shows including Release the Hounds for ITV2, Carnage for Sky and Bigheads for ITV, will work in partnership with STV's talented entertainment team to pitch to UK and international networks with the aim that commissions are co-produced in Scotland.

It has also been announced that William Morris Endeavour - WME - has been appointed as international sales agent to support the increased focus on developing dramas and formats for UK and international audiences. WME are one of the world's leading entertainment and media companies and have an unparalleled list of artists and content creators on their books. WME will work with STV Productions to develop IP for international markets and broker co-development and co-production deals.

STV External Lottery Manager

The STV ELM, established in late 2016, provides operational services, including ticket sales and marketing to the Scottish Children's Lottery, in addition to providing wider benefits to the Group including access to consumer data, transactional service capabilities and data analysis capabilities.

The strategically significant target of cashflow breakeven for the Scottish Children's Lottery was achieved on 1 January 2019. The debtor balance of £6.6m net is expected to be repaid over the next 6 years.

Online lottery ticket sales and new customer sign-ups continue to grow, and the launch, in early 2019, of a retail sales opportunity will further support increased ticket sales.

Simon Pitts

Chief Executive Officer, STV Group plc

Principal Risks and Uncertainties

Like most businesses, STV Group plc is exposed to a number of risks which could have an impact on our operating results, financial condition and prospects and there are rigorous internal systems to identify, monitor and manage any risks to the business.

STV's risk register sets out the key risks that have been identified throughout the business, allocating an owner to each. The impact and likelihood of each risk is considered and risks are scored both on a gross and, after the current mitigating controls have been taken into account, a net basis. The effectiveness of the current mitigating controls is graded as strong, adequate or weak and any additional controls required are also noted. The register is reviewed and updated on an ongoing basis both at an operational level and on a biannual basis by the Board, with the Audit Committee conducting an in-depth annual review. The Directors confirm they have carried out a robust assessment of the principal risks facing the Company. There were no significant changes to the principal risks. All of the risks identified have been fully evaluated and taken into account in preparing the budgets and forecasts which support going concern, viability statement and impairment assessments. The risks have also been reviewed and agreed with the internal auditors.

Regulatory environment

The Group continues to be fully engaged with ongoing regulatory and public policy consultations and reviews.

STV's television business is operated under licences which are regulated by Ofcom and the key Channel 3 licences have a term that runs to the end of 2024. These Channel 3 licences contain conditions around contribution to public service broadcasting, programme production and compliance with Ofcom's codes. As licensees, it is STV's responsibility to ensure that the terms of these licences are adhered to and measures have been put in place internally to ensure that this occurs. In the event of any serious or repeated breaches, Ofcom has powers to impose sanctions on licensees including, in the most extreme circumstances, financial penalties or revocation of licences.

Dependence on advertising

STV's sales, expenses and operating results could vary from period to period as a result of a variety of factors, some of which are outside STV's control. These factors include general economic conditions; conditions specific to general advertising markets including the commercial television market; trends in sales, capital expenditure and other costs, and the introduction of new services and products by us or our competitors. In response to market conditions, STV may elect from time to time to make certain pricing, service or marketing decisions that could have a material adverse effect on sales, results of operations and financial conditions.

Brexit

While there is no immediate or specific risk to STV, the general macroeconomic risk of the UK's departure from the European Union ("Brexit") could affect the UK's economic performance which in turn would affect advertising and would have an adverse impact upon the Group's revenue due to STV's dependence on advertising as set out above.

To the extent that this involves a decline in national advertising revenues, then the Group receives a partial offset to this impact through its arrangements with ITV plc in the Network Affiliate Agreement and Advertising Sales Agreement.

Performance of the ITV Network

The majority of STV'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 and sponsorship to advertisers - are factors that affect performance. This relationship is managed closely, with regular updates on programme and schedule developments being provided to STV's Broadcast division MD and through STV's Commercial Director who manages the sales relationship with ITV. The terms of the Airtime Sales Agreement with ITV were amended and simplified in December 2016 to provide improved efficiency, transparency and stability.

Cyber Security

Cyber risk commonly refers to any risk of financial loss, disruption or damage to a company's reputation resulting from the failure of its information technology systems.  STV is dependent on technology for the smooth running of its business and a cyber-security incident could lead to a loss of commercially sensitive data, a loss of data integrity within our systems or loss of financial assets through fraud.

Vulnerability to an external attack is a growing worldwide issue and cyber risk has been subject to increased focus by the Audit Committee.  An initial review of cyber risk was undertaken by the internal auditors, Deloitte LLP, in 2017, and a cyber risk register was established which is reviewed and updated regularly.  A further wider review was carried out in the second half of 2018, the results of which were reported to the Audit Committee in November. 

Pension scheme shortfalls

The STV pension schemes' investment strategy is calculated to reduce any market movement impacts. However, it is possible that the Group may be required to increase its contributions to cover an increase in the cost of funding future pension benefits or to cover funding shortfalls which could have an adverse impact on results and cashflow. This position is kept under regular review by the Board. In 2016 the trustees selected River and Mercantile as investment manager for the schemes' assets and this is intended to increase returns and meet the schemes' long term funding objectives.

Reputational and financial risk of lottery operation

The Scottish Children's Lottery was launched in October 2016. The Lottery engages the services of an External Lottery Manager, STV ELM Limited, which is a subsidiary of STV Group plc, to deliver the lottery product to consumers. The Lottery was awarded licences by the UK Gambling Commission and while operated independently of STV, in accordance with the requirements of these licences, it is provided with financial support by STV, which amounted to a debtor of £11.6m gross, £6.6m net, at 31 December 2018.

Although responsibility for operating the Lottery and ensuring that the terms of the licence are adhered to lies with STV ELM Limited, there is a reputational risk to STV, as the holding company, from any issues related to the operation of the Lottery. Internal controls have been put in place to ensure that the terms of the operating licence are adhered to as the Gambling Commission has powers to impose sanctions on licensees in the event of any serious or repeated breaches, including financial penalties or revocation of licence. In the event that the Lottery was unsuccessful then the recoverability of the Scottish Children's Lottery debtor would be at risk.

Financial

The overall financial position of STV may be constrained by the Group's leverage and other debt arrangements. An increase in LIBOR interest rates could have an adverse impact on the financial position and business results. STV is exposed to a variety of financial risks that arise from and apply to its activities: currency risk, credit risk, liquidity risk and cashflow interest rate risk. The Group's borrowings are denominated in Sterling which is also the Group's intra-UK net currency flow. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on financial performance. STV uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out under policies approved by the Board with financial risks being identified, evaluated and hedged in close co-operation with the operating divisions. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of financial instruments and investing excess liquidity.

a) Currency risk

STV operates almost wholly within the UK and is exposed to minimal currency risk. The Group's borrowings are denominated in Sterling which is also the Group's intra-UK net currency flow. Currency risk arises primarily with respect to the Euro and US dollar and from future commercial transactions and trade assets and liabilities in foreign currencies.

b) Credit risk

STV has no significant concentration of credit risk apart from the debtor of £6.6m (£11.6m less £5.0m provision) from the SCL as noted above. It has policies in place to ensure that sales are made to customers with an appropriate credit history. Derivative transaction counterparties are limited to high credit quality financial institutions.

c) Liquidity risk

Prudent liquidity management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the nature of the underlying business, the aim is to maintain flexibility in funding by keeping committed credit lines available.

d) Cashflow interest rate risk

STV has no significant interest bearing assets and its income and operating cash flows are substantially independent of changes in market interest rates. Interest rate hedges are maintained to reduce the impact of changes in market interest rates on the Group's borrowings.

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.

Consolidated income statement Year ended 31 December 2018
				2018	2017
			Note	£m	£m
Revenue			5	125.9	117.0
Net operating expenses				(116.9)	(99.6)
Operating profit				9.0	17.4
Analysed as:
Operating profit before exceptional items				20.1	19.0
Exceptional items			6	(11.1)	(1.6)
Operating profit				9.0	17.4
Finance costs	- borrowings		7	(1.1)	(1.0)
	- IAS 19 pension		7	(1.8)	(2.5)
Impairment losses	- exceptional ELM provision		7	(4.2)	-
				(7.1)	(3.5)
Profit before tax				1.9	13.9
Tax charge			8	(0.3)	(2.2)
Profit for the year				1.6	11.7
Earnings per share
Basic			9	4.2p	30.1p
Diluted			9	4.1p	29.6p

A reconciliation of the statutory results to the adjusted results is included at note 18.

Consolidated statement of comprehensive income Year ended 31 December 2018
	2018	2017
	£m	£m
Profit for the year	1.6	11.7
Items that will not be reclassified to profit or loss:
Re-measurement of defined benefit pension schemes	(13.3)	12.7
Deferred tax credit/(charge) thereon	2.0	(2.4)
Write (down)/up of investment to market value	(0.5)	0.6
Other comprehensive (expense)/income	(11.8)	10.9
Total comprehensive (expense)/income for the year	(10.2)	22.6

Consolidated balance sheet
At 31 December 2018
		2018	2017
	Note	£m	£m
Non-current assets
Property, plant and equipment	11	9.8	8.6
Intangible assets	12	1.9	2.6
Investments	13	0.7	1.4
Deferred tax asset		19.5	18.4
Trade and other receivables	14	8.2	8.2
		40.1	39.2
Current assets
Inventories		14.4	20.6
Trade and other receivables		22.7	26.7
Cash and cash equivalents		6.3	6.1
		43.4	53.4
Total assets		83.5	92.6
Equity attributable to owners of the parent
Ordinary shares	15	19.6	19.7
Share premium	15	101.9	101.9
Capital redemption reserve		0.2	0.1
Merger reserve		173.4	173.4
Other reserve		0.8	0.7
Accumulated losses		(355.0)	(334.1)
Total equity		(59.1)	(38.3)
Non-current liabilities
Borrowings		42.6	41.6
Provisions		-	0.1
Retirement benefit obligations	17	78.5	70.6
		121.1	112.3
Current liabilities
Trade and other payables		20.4	17.5
Corporation tax		-	0.9
Provisions		1.1	0.2
		21.5	18.6
Total liabilities		142.6	130.9
Total equity and liabilities		83.5	92.6

 

Consolidated statement of changes in equity Year ended 31 December 2018

Equity attributable to owners of the parent

Share capital

Share premium

Capital Redemption reserve

Merger reserve

Other reserve

Accumulated losses

Total equity

	£m	£m	£m	£m	£m	£m	£m
Balance at 1 January 2018	19.7	101.9	0.1	173.4	0.7	(334.1)	(38.3)
Profit for the year	-	-	-	-	-	1.6	1.6
Other comprehensive expense	-	-	-	-	-	(11.8)	(11.8)
Total comprehensive expense for the year	-	-	-	-	-	(10.2)	(10.2)
Acquisition of treasury shares	-	-	-	-	-	(3.3)	(3.3)
Shares bought back on-market and cancelled	(0.1)	-	0.1	-	-	(0.2)	(0.2)
Share based compensation	-	-	-	-	0.3	-	0.3
Deferred tax charge on share based compensation	-	-	-	-	-	(0.2)	(0.2)
Issue of treasury shares to employees	-	-	-	-	(0.2)	(0.1)	(0.3)
Dividends	-	-	-	-	-	(6.9)	(6.9)
Balance at 31 December 2018	19.6	101.9	0.2	173.4	0.8	(355.0)	(59.1)
Balance at 1 January 2017	19.8	101.9	-	173.4	0.4	(348.5)	(53.0)
Profit for the year	-	-	-	-	-	11.7	11.7
Other comprehensive income	-	-	-	-	-	10.9	10.9
Total comprehensive income for the year	-	-	-	-	-	22.6	22.6
Acquisition of treasury shares	-	-	-	-	-	(1.6)	(1.6)
Shares bought back on-market and cancelled	(0.1)	-	0.1	-	-	(1.0)	(1.0)
Share based compensation	-	-	-	-	0.3	-	0.3
Deferred tax credit on share based compensation	-	-	-	-	-	0.1	0.1
Issue of treasury shares to employees	-	-	-	-	-	0.5	0.5
Dividends	-	-	-	-	-	(6.2)	(6.2)
Balance at 31 December 2017	19.7	101.9	0.1	173.4	0.7	(334.1)	(38.3)

 

Statement of consolidated cash flows
Year ended 31 December 2018
			2018	2017
		Note	£m	£m
Operating activities
Cash generated by operations		16	23.7	11.2
Interest paid			(0.9)	(0.7)
Refinancing fees paid			(0.2)	(0.3)
Taxes paid			(0.7)	(0.3)
Pension deficit funding	- recovery plan payment		(8.8)	(7.9)
Net cash generated by operating activities			13.1	2.0
Investing activities
Sale of investments			0.2	-
Sale of STV2 local licence companies			0.3	-
Capitalised web development spend			(0.4)	(0.5)
Purchase of property, plant and equipment			(3.0)	(2.9)
Net cash used in investing activities			(2.9)	(3.4)
Financing activities
Purchase of treasury shares			(3.3)	(1.4)
Share buyback			(0.6)	(0.6)
Issue of treasury shares to employees			(0.2)	0.4
Net borrowings facility utilised			1.0	2.0
Dividends paid			(6.9)	(6.2)
Net cash used by financing activities			(10.0)	(5.8)
Net increase/(decrease) in cash and cash equivalents			0.2	(7.2)
Cash and cash equivalents at beginning of year			6.1	13.3
Cash and cash equivalents at end of year		16	6.3	6.1

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.

Reconciliation of movement in net debt
Year ended 31 December 2018
		2018	2017
	Note	£m	£m
Opening net debt		(35.5)	(26.4)
Net decrease in cash and cash equivalents		0.2	(7.2)
Movement in debt financing		(1.0)	(1.9)
Closing net debt	16	(36.3)	(35.5)

Notes to the preliminary announcement

Year ended 31 December 2018

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, the sale of advertising airtime and space in these media and lottery management services.

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 2018. The statutory accounts for the year ended 31 December 2017, 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 2018 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 current economic conditions continue to create uncertainty particularly over (a) the level of demand for the Group's products; and (b) the availability of bank finance for the foreseeable future. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities. After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing its consolidated financial statements.

3.   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 2017.

Apart from the adoption of IFRSs 9 and 15, which are described below, other changes to accounting standards in the current year had no material impact.

IFRS 9 has resulted in a change to accounting policy, but has not had a material impact on the financial statements. The ELM debtor impairment (note 6) has been calculated based on a whole of life weighted probability impairment review in line with the new standard. 

IFRS 15 'Revenue from contracts with customers' has resulted in a change in policy but has no material impact on the results.  The policy change means that revenue is now recognised on secondary sales at the licence commencement date rather than when the sale has occurred.

4.   Financial risk management and financial instruments

The Group's activities expose it to a variety of financial risks:  currency risk, credit risk, liquidity risk and cash flow interest rate risk.

These preliminary consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2017.  There have been no changes in any risk management policies since the 2017 year end annual report.

The carrying value of non-derivative financial assets and liabilities, comprising cash and cash equivalents, trade and other receivables, trade and other payables and borrowings is considered to materially equate to their fair value.  Derivative financial instruments, which are measured at fair value, comprise interest rate swaps with a principal value of £15.0m categorised as level 2.  The fair value of interest rate swaps of £21,000 is calculated at the present value of the estimated future cash flows using market interest rates. The valuation techniques employed are consistent with the year end annual report.  

5.   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 Broadcast, Digital, Productions and ELM (external lottery management). 

The performance of the segments is assessed based on a measure of adjusted operating profit. 

Since the last annual financial statements, there has been a change in the basis of segmentation. The previous Consumer segment has been further broken down into Broadcast and Digital and as such the 2017 figures have been restated.

See note 19 for a summary of the results under the previous divisional reporting basis.

					External sales
					2018	2017
Segment revenues					£m	£m
Broadcast					94.5	92.0
Digital					9.6	8.2
Productions					16.3	10.2
ELM					5.5	6.6
					125.9	117.0

Revenue in 2018 includes £0.5m of revenues from sources outside the UK (2017: £0.8m).

 

					2018	2017
Segment result					£m	£m
Broadcast					15.3	15.3
Digital					4.7	3.7
Productions					0.1	-
ELM					-	-
Operating profit (pre-exceptionals)					20.1	19.0
Exceptional provision attributable to ELM					-	(1.6)
Exceptional reorganisation cost attributable to Group					(8.7)	-
Exceptional loss on sale of STV2 attributable to Group					(0.8)	-
Exceptional GMP equalisation attributable to Group					(1.6)	-
Operating profit					9.0	17.4
Financing					(2.9)	(3.5)
Impairment losses - exceptional ELM provision					(4.2)	-
Profit before tax					1.9	13.9
Tax charge					(0.3)	(2.2)
Profit attributable to owners of the parent					1.6	11.7

Operating profit in 2018 includes £0.3m arising outside the UK (2017: £0.5m).

6.   Exceptional items

Reorganisation cost

A provision of £8.7m has been recognised during the year in relation to restructuring within the business.  The restructure was mainly as a result of the closure of STV2. The £8.7m includes a non-cash writedown of stock and assets of £6.0m.

Loss on sale of STV2

The disposal of the STV2 companies to That's Media Limited on 30 June resulted in a loss on sale of £0.8m.  The loss on sale includes a non-cash writedown of stock and assets of £0.4m.

GMP charge

The £1.6m relates to the impact of GMP (guaranteed minimum pension) equalisation. 

ELM debtor

An additional £4.2m provision has been recorded during the year in relation to the ELM debtor. 

In line with IFRS 9, as a result of recent trends in ticket sales and updated future forecasts, which show a significantly slower repayment profile and a resulting increased credit risk for the debtor than previously anticipated, management has performed a whole of life probability weighted impairment review.  The outcome has been to increase the provision by £4.2m to £5.0m.

In 2017, the £1.6m non-cash charge incurred in the year included the IAS 39 discounting provision of £0.8m (above) and also a £0.8m write off of post-launch non-billable costs.

7.   Finance costs

	2018	2017
	£m	£m
Bank borrowings	1.1	1.0
IAS 19 pension finance charge	1.8	2.5
	2.9	3.5
Impairment losses - exceptional ELM provision (note 6)	4.2	-
	7.1	3.5

8.   Tax charge

				2018	2017
				£m	£m
The charge for taxation is as follows:
Charge for the year before exceptional items				2.9	2.3
Tax effect on exceptional items				(2.6)	(0.1)
Charge for the year				0.3	2.2

The effective tax rate for the Group excluding exceptional items and the additional deferred tax asset recognised is 17% (2017: 14%). The tax charge is lower than the standard rate of 19% due to the utilisation of losses on which deferred tax has not been recognised.

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (No.2) on 26 October 2015. These include reductions to the main rate to reduce the rate to 19% from 1 April 2017.  Finance Act 2016, which was substantively enacted on 6 September 2016, includes legislation reducing the main rate of UK corporation tax to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.

9.   Earnings per share

	Earnings £m		2018 Weighted average number of shares (m)	Per share Pence	Earnings £m	2017 Weighted average number of shares (m)	Per share Pence
EPS:
Earnings attributable to ordinary shareholders	1.6		38.4	4.2p	11.7	38.9	30.1p
Basic EPS	1.6		38.4	4.2p	11.7	38.9	30.1p
Potential dilutive shares			0.8			0.6
Diluted EPS	1.6		39.2	4.1p	11.7	39.5	29.6p

Adjusted EPS (pre-exceptional items and pre-IAS 19):
Earnings attributable to ordinary shareholders (pre-exceptional items)	14.3		38.4	41.1p	13.3	38.9	34.2p
Add back: IAS 19 (net of tax at effective rate)	1.5				2.1
Adjusted EPS	15.8		38.4	41.1p	15.4	38.9	39.6p
Potential dilutive shares			0.8			0.6
Adjusted EPS	15.8		39.2	40.3p	15.4	39.5	39.0p

10. Dividends

	2018	2017
	£m	£m
Equity dividends on ordinary shares
Declared and paid during the year:
Final for 2017 of 12.0p (2016: 11.0p) per share	4.6	4.3
Interim for 2018 of 6.0p (2017: 5.0p) per share	2.3	1.9
Dividends paid	6.9	6.2

A final dividend of 14.0p per share (2017: 12.0p per share) has been proposed and is subject to approval by the board of directors. It is payable on 31 May 2019 to shareholders who are on the register at 12 April 2019. The ex-dividend date is 11 April 2019. This final dividend, amounting to £5.3m has not been recognised as a liability in these financial statements.

11. Property, plant and equipment

	Leasehold buildings £m	Plant, technical equipment and other £m	Assets under construction £m	Total £m
Cost
At 1 January 2018	0.4	24.1	0.9	25.4
Additions	-	-	3.0	3.0
Transfers	-	1.8	(1.8)	-
Disposals	-	(0.2)	-	(0.2)
At 31 December 2018	0.4	25.7	2.1	28.2
Accumulated depreciation and impairment
At 1 January 2018	0.1	16.7	-	16.8
Charge for year	-	1.7	-	1.7
Disposals	-	(0.1)	-	(0.1)
At 31 December 2018	0.1	18.3	-	18.4
Net book value at 31 December 2018	0.3	7.4	2.1	9.8
Net book value at 31 December 2017	0.3	7.4	0.9	8.6

12. Intangible assets

	Web development and branding £m
Cost
At 1 January 2018		3.7
Additions		0.4
Disposals		(0.7)
At 31 December 2018		3.4
Accumulated amortisation and impairment
At 1 January 2018		1.1
Amortisation		0.7
Disposals		(0.3)
At 31 December 2018		1.5
Net book value at 31 December 2018		1.9
Net book value at 31 December 2017		2.6

13. Investments

The movement of £0.7m during the year relates to Mirriad, one of STV group's investments.   324,203 shares were sold in the year for £0.2m and the value of the remaining investment was written down by £0.5m to market value.

14. Trade and other receivables

Trade and other receivables of £8.2m (31 December 2017: £8.2m), included within non-current assets, relates mainly to debt due to ELM (the lottery management company) from the Scottish Children's Lottery and will be recovered from 2019 onwards.  The £6.6m (2017: £8.2m) ELM debtor is net of an expected credit loss impairment of £5.0m. In line with IFRS 9, as a result of recent trends in ticket sales and updated future forecasts, which show a significantly slower repayment profile and a resulting increased credit risk for the debtor than previously anticipated, management has performed a whole of life probability weighted impairment review.  The outcome has been to increase the provision by £4.2m to £5.0m.

15. Share capital

	Number of shares (thousands)	Ordinary shares £m	Share premium £m	Total £m
At 1 January 2018	39,367	19.7	101.9	121.6
Shares bought back on-market and cancelled	(175)	(0.1)	-	(0.1)
At 31 December 2018	39,192	19.6	101.9	121.5

16. Notes to the consolidated statement of cash flows

	2018	2017
	£m	£m
Operating profit	9.0	17.4
Add back : exceptionals	11.1	1.6
Operating profit (excluding exceptionals)	20.1	19.0
Adjustments for:
Depreciation on property, plant and equipment	1.7	1.6
Amortisation of intangible assets	0.7	0.6
Share based payment	0.3	0.3
EBITDA pre-exceptional	22.8	21.5
Decrease/(increase) in inventories	0.7	(1.1)
Decrease/(increase) in trade and other receivables (excluding ELM)	2.2	(3.9)
Increase/(decrease) in trade and other payables (excluding ELM)	3.1	(1.4)
Increase in ELM trade and other receivables	(2.6)	(3.9)
Decrease in ELM trade and other payables	(0.1)	-
Underlying cash generated by operations	26.1	11.2
Exceptional reorganisation costs	(2.4)	-
Cash generated by operations	23.7	11.2

Analysis of movements in net debt

	At 1 January 2018	Cash flow	Non-cash movements	At  31 December 2018
	£m	£m	£m	£m
Cash and cash equivalents	6.1	0.2	-	6.3
Bank borrowings	(41.6)	(0.8)	(0.2)	(42.6)
Net debt	(35.5)	(0.6)	(0.2)	(36.3)

At 31 December 2018, the Group had revolving credit and overdraft bank facilities in place totalling £60.0m (£60.0m at 31 December 2017). At 31 December 2018 £43.0m of the facility was drawn down.

The £60.0m revolving credit and overdraft facility has a maturity date of June 2022.  Security is provided to the debt providers by way of cross guarantees and a share pledge.

Covenant EBITDA reconciliation

Statutory results are adjusted below for the net debt : EBITDA ratio on a covenant basis. They are adjusted to reflect the underlying performance of the business, providing a more meaningful comparison of how the business is managed and measured on a day-to-day basis.

	2018	2017
	£m	£m
Operating profit (excluding exceptional items)	20.1	19.0
Depreciation and amortisation	2.4	2.2
Post-employment benefit charges	2.4	2.5
Non-cash and other adjustments	1.8	1.4
Covenant EBITDA	26.7	25.1

17. 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.  Both are closed schemes and accounted for under the projected unit method.

A full actuarial valuation of the schemes was carried out at 1 January 2015 and resulted in an actuarial deficit to be funded by the Group of £129.9m as at November 2016 compared to £83.0m at the previous settlement date of 31 March 2014.  A recovery plan period of 11 years was agreed with payments of £8.8m in 2018, increasing at the rate of 2% per annum over the term of the plan. These payments are tax deductible.

 

The 1 January 2015 valuation has been updated to 31 December 2018 by a qualified independent actuary.   The major assumptions used by the actuary were:

	At 31 December 2018	At 31 December 2017
Rate of increase in salaries	Nil%	Nil%
Rate of increase of pensions in payment	3.30%	3.21%
Discount rate	2.75%	2.55%
Rate of price inflation (RPI)	3.30%	3.20%

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 is as follows:

	At 31 December 2018	At 31 December 2017
	Years	Years
Retiring at balance sheet date:
Male	19.4	18.8
Female	21.6	20.8
Retiring in 25 years:
Male	21.4	20.6
Female	23.1	22.3

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

	At 31 December 2018			At 31 December 2017
	Quoted	Unquoted	Total	Quoted	Unquoted	Total
	£m	£m	£m	£m	£m	£m
Debt instruments	184.0	-	184.0	100.3	-	100.3
Investment funds	36.1	110.4	146.5	109.7	144.2	253.9
Cash and cash equivalents	13.1	-	13.1	8.9	-	8.9
Derivatives	-	(0.2)	(0.2)	-	6.3	6.3
Fair value of schemes' assets	233.2	110.2	343.4	218.9	150.5	369.4
Present value of defined benefit obligations			(421.9)			(440.0)
Deficit in the schemes			(78.5)			(70.6)

A related offsetting deferred tax asset of £13.2m (2017: £12.0m) is shown under non-current assets.  Therefore the net pension scheme deficit amounts to £65.3m at 31 December 2018 (£58.6m at 31 December 2017).

 

18. Reconciliation of statutory results to adjusted results

Statutory results are adjusted to reflect the underlying performance of the business, providing a more meaningful comparison of how the business is managed and measured on a day-to-day basis.

	2018			2017
	Profit  before tax	Basic EPS	Diluted EPS	Profit  before tax	Basic EPS	Diluted EPS
	£m	pence	pence	£m	pence	pence
Post-exceptional	1.9	4.2p	4.1p	13.9	30.1p	29.6p
Add back: exceptionals	15.3	33.0p	32.4p	1.6	4.1p	4.1p
Pre-exceptional	17.2	37.2p	36.5p	15.5	34.2p	33.7p
Add back: IAS 19	1.8	3.9p	3.8p	2.5	5.4p	5.3p
Adjusted results	19.0	41.1p	40.3p	18.0	39.6p	39.0p

19. Previous divisional reporting basis summary

		Turnover			Operating profit (excluding  exceptional items)
		2018	2017		2018	2017
		£m	£m		£m	£m
Consumer		104.1	100.2		20.0	18.7
Productions		16.3	10.2		0.1	0.3
ELM		5.5	6.6		-	-
		125.9	117.0		20.1	19.0

20. Mailing

A copy of the annual report is being sent to all shareholders on 21 March 2019 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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