STV Group plc Half Year Results 2016

0700 hours, 25 August 2016

STV Group plc Half Year Results 2016

Half year results for the six months ended 30 June 2016

Commercially focused; creatively led

Highlights

- Total revenues up 5%, at £56.2m

- Operating profit* growth for sixth consecutive year, up 28%, at £11.0m, driven by high margin revenue activities of digital and regional airtime with revenues up 25% and 24% respectively

- Double digit growth in EBITDA up 15%; statutory EPS up 55%; and dividends up 33%

- Strong balance sheet with net debt continuing to reduce significantly, down 17% at £29.1m, and at target of 1x Net Debt:EBITDA

- Continuing to deliver returns to shareholders with interim dividend of 4.0 pence per share confirmed representing an increase of 33% year on year. Intended final 2016 dividend of 12.0 pence per share

- STV Productions increased deliveries during H1 with revenues doubling to £3.5m and a strong secured pipeline for H2. New commission announced: The Dressing Room (6 episodes) for UKTV

- Normalised cost base and trading agreements underpinning the business provide resilience in event of changing macro-economic circumstances

Strategic Developments

- New KPI growth targets to 2018 confirmed which will continue to drive performance; sustainable growth and value to shareholders

Financial highlights

*before exceptionals- shown to provide a better understanding of the underlying Group performance. A full reconciliation between the adjusted and statutory results is provided in notes 16 and 19.

Rob Woodward, Chief Executive Officer, said:

"Our consistent delivery of sustainable growth over consecutive years continues with double digit growth in operating profit and EPS resulting in a 90% increase in digital earnings.

Overall, consumer business revenues are up year on year with the growth trajectory in digital continuing at a significant rate, up 25%. The resilience of our business to fluctuations in national advertising sales is apparent with a high consumer margin being maintained despite a slight reduction in national airtime revenues.

As forecast, STV Productions has delivered an improved performance with a stream of new commissions announced this year and, earlier this week, the announcement of a further commission from our strategic partnership with GroupM.

Our balance sheet continues to strengthen through a further reduction in net debt, down 17%, which along with our strong cash generation, underscores our financial strength.

Our new KPI growth targets announced today demonstrate the ambition of our vision and the extent of the levels of organic growth and shareholder value we plan to continue to drive and deliver." 

25 August 2016

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: 0141 300 3000).

Enquiries:

STV Group plc

George Watt, Chief Financial Officer Tel: 0141 300 3049

Eleanor Marshall, PR & Communications Manager Tel: 0141 300 3670

Charlotte Street Partners

Harriet Moll Tel: 07717 501 626

Financial performance

Performance during the first half of the year is in line with forecasts against key financial measures and KPI targets.

In line with the Board's commitment to the long-term delivery of increased shareholder returns, it is confirmed that an interim dividend of 4 pence per share will be paid, an increase of 33%.

The balance sheet has continued to improve and net debt has reduced by 17% year on year to £29.1m which represents the Group's target level of 1.0x net debt:EBITDA, providing financial flexibility.

Overall revenues are up 5% at £56.2m, with consumer business revenues up 2%, at £52.7m. Digital activities continue to deliver strong double digit growth with revenues up 25% to £3.5m. STV Productions' revenues more than doubled on the same period last year at £3.5m. The delivery schedule for the second half of the year is forecast to continue to grow strongly year on year.

Growth in the high margin activities of regional and digital sales has driven a double digit increase in EBITDA of 15%, to £11.5m. Operating profit before exceptional items was £11.0m, representing a 28% increase year on year and growth for the sixth consecutive year. PBT before exceptional items and IAS19 interest increased by 30% at £10.4m.  Earnings per share before exceptional items and IAS19 interest is up 30% on an effective tax rate of 20%, amounted to 21.8p.

Dividends

In line with the progressive dividend policy confirmed last year, the Board has declared the payment of an interim dividend of 4.0 pence per share, up 33%, with a proposed full year payment of 12.0 pence per share.

Operational Review

STV Consumer

The consumer business has performed in line with expectations with particularly strong growth being delivered in regional sales and digital activities. Overall, revenues are up 2%. National airtime revenues were down 1%; however, as a result of our ITV agreements the flow through of this impact to profit is significantly reduced. The regional sales market has continued to grow, up 24%, and sponsorship revenues also increased, up 4%.  City TV revenue was flat on a rounded basis.

The strong growth in digital revenues has continued during the first half with revenues up 25%, principally driven by VoD revenues on the STV Player.

Operating profit before exceptional items amounted to £11.8m, up 13%, driven principally by the increase in regional sales revenues and the increase in digital profits.

During the period, the enhanced digital news service was launched within the STV Family of consumer services, supporting increased consumer engagement with STV's content and increasing our unparalleled reach.

Core channel, STV, has continued to perform ahead of the Network and this is expected to continue in the second half of the year with a strong autumn schedule and improved Network performance.

Both City TV services are performing in line with expectations in relation to revenue and audience targets. The services are reaching an average of 0.7m viewers every month, approximately 30% of consumers within their broadcast area. This service will be extended in early 2017 as three new licence areas are added to this network. This service will have a reach of over 80% of Scottish households. Launch plans will be confirmed in early Q4.

The acquisition of consumer insights remains a key driver to achieving stronger consumer engagement and a new long term target to achieve 2.6 million insights by the end of 2018 is confirmed, representing 60% of the adult population in Scotland.

Outlook

STV national airtime revenue is expected to be down 6% in Q3, resulting in a cumulative position from January to September of down 3%.The strong growth in the regional market during the first half is expected to continue, up 18% in Q3, with a cumulative position from January to end September up 20%.

Digital revenues are expected to continue to grow, up 25% year on year to the end of Q3 and this rate is expected to be maintained for the full year, as previously indicated.

To ensure that we maximise margins and revenues across the Consumer business, a review of the options to manage airtime and sponsorship sales upon expiry of the current Airtime Sales Agreement with ITV at the end of 2016 has been undertaken and confirmation of the future arrangements is expected in the next two months.

STV Productions

A significant increase in the volume of deliveries during the period has resulted in revenues of £3.5m, more than double the same period last year. The customer base has continued to expand and two returning series were secured - a key growth target.

Following the announcement of a strategic development and production partnership with GroupM Entertainment last year, a new series commission was announced earlier this week. Documentary series, The Dressing Room, has been commissioned by UKTV (6 episodes), the first project to be developed under this agreement.  

Commissions secured during the period include a second series of Safeword (6 episodes) for ITV2; a second series of Prison: First & Last 24 Hours for Sky; two further series of BBC ratings success Antiques Road Trip and Celebrity Antiques Road Trip and a second series of Stopping Scotland's Scammers for STV.

The success of the factual team has continued with a one-off documentary for BBC4 and Smithsonian, The Queen Mary; and a one off documentary for Animal Planet, Life After...Chernobyl.  Additionally, a four-part series for Channel 5, Tour de Celeb, was secured and Channel 5 also commissioned two-hour special, Ultimate Celebrity Power Couples '16 which was delivered with GroupM Entertainment as co-production partner.

Pensions

Discussions with the trustees' of the schemes to agree the next triennial valuation are at an advanced stage and are expected to conclude during Q3. The 2016 deficit funding payment of £7.8m was paid in January 2016.

As part of the 2015 triennial valuation process, further mortality studies involving representative groups of pensioner members of both schemes have been completed to update mortality assumptions underpinning the valuation. As a result, adjustments to reflect improved mortality of 4 years and 3 years will be made for male and female pensioner members respectively. This update to the best estimate assumption used in the IAS 19 accounting calculation does not impact the funding valuation which includes a larger level of prudence in setting actuarial assumptions. The impact on the IAS19 deficit from this change is to increase the deficit by £39m.

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 2015 Annual Report and Financial Statements the principal risks and uncertainties that could impact its performance. These remain unchanged since the annual Report was published. The Group has rigorous internal systems to identify, monitor and manage any risks to the business. The principal risks identified are set out in detail on pages 22 to 27 of the 2015 Annual Report which is available on the STV Group plc website: www.stvplc.tv. These are: regulatory environment; dependence on advertising; performance of the ITV Network; pension scheme shortfalls; and financial risks being currency risk; credit risk; liquidity risk and cash flow interest rate risk.

Basis of preparation

These condensed interim financial statements for the six months ended 30 June 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS34, 'Interim financial reporting', as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with IFRSs as adopted by the European Union.

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 condensed interim financial statements.

Responsibility statement of the directors in respect of the half-yearly financial report

Each of the directors (as detailed below) confirms that to the best of his/her knowledge:

- the condensed set of financial statements has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the European Union.

- the interim management report on pages 1 to 6 includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules (DTR), being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

(b) DTR 4.2.8R of the DTR, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Company during that period; and any changes in the related party transactions described in the last annual report that could do so.

For and on behalf of the directors:

Baroness Margaret Ford

25 August 2016

Baroness Margaret Ford, Chairman

David Shearer, Senior Independent Director

Rob Woodward, Chief Executive Officer

George Watt, Chief Financial Officer

Anne Marie Cannon, Non-Executive Director

Michael Jackson, Non-Executive Director

Ian Steele, Non-Executive Director

Christian Woolfenden, Non-Executive Director

Appendix 1

KPI targets - progress update and new KPI growth targets

A reconciliation of the statutory results to the adjusted results is included at note 19.

The above condensed interim income statements should be read in conjunction with the accompanying notes. 

The above condensed interim balance sheet should be read in conjunction with the accompanying notes.

The above condensed interim statement of changes in equity should be read in conjunction with the accompanying notes.

Although not required under IFRS the directors have provided the following reconciliation of net debt for further clarity. The net debt represents Group borrowings less cash and cash equivalents.

Notes to the condensed set of financial statements

Six months ended 30 June 2016

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.

These condensed interim financial statements were approved for issue on 25 August 2016 and have been reviewed not audited. They do not comprise statutory accounts withinthe meaning of section 434 of the Companies Act 2006. Statutory accounts for the yearended 31 December 2015 were approved by the board of directors on 14 March 2016 anddelivered to the Registrar of Companies. The report of the auditors on those accounts wasunqualified, did not contain an emphasis of matter paragraph and did not contain anystatement under section 498 of the Companies Act 2006.

2. Accounting policies

Basis of preparation

These condensed interim financial statements for the six months ended 30 June 2016 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS34, 'Interim financial reporting', as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2015, which have been prepared in accordance with IFRSs as adopted by the European Union.

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 condensed interim financial statements.

Changes in 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 2015.

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

The following new standards, amendments to standards or interpretations are mandatory for the first time for accounting periods beginning on or after 1 January 2016. They either were not relevant for the Group or had no material impact on the financial statements of the Group.

3. Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2015, with the exception of changes in estimates that are required in determining the provision for income taxes.

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.

The condensed interim 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 2015. There have been no changes in any risk management policies since the year end.

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 therefore Consumer and Productions.

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

There has been no significant change in total assets from the amount disclosed in the last annual financial statements. There are no differences from the last annual financial statements in the basis of segmentation or in the basis of measurement of segment profit or loss.

6. Seasonality of operations

In line with the UK advertising market as a whole, the autumn season provides the Group with the highest level of revenues. The Productions business also delivers the majority of its programmes to broadcasters in the second half of the year.

7. Exceptional items

In the six months to 30 June 2015, a provision of £1.0m was made against the carrying value of the Group's investment in MirriAd Limited.

8. Finance costs

9. Tax

Tax on underlying results for the six month period is charged at 20% (30 June 2015: 20%) representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-exceptional pre-tax income of the six month period. The tax charge is lower than the standard rate of 20.25% due to adjustments for prior year provisions and certain tax planning initiatives.

10. Earnings per share

11. Dividends

A dividend of £2.7m (2015: £2.3m) which relates to the year ended 31 December 2015 was paid in May 2016.

An interim dividend of 4.0p per share (2015: 3.0p per share) has been proposed and is subject to approval by the board of directors. It is payable on 7 October 2016 to shareholders who are on the register at 9 September 2016. This interim dividend, amounting to £1.6m (2015: £1.2m), has not been recognised as a liability in this interim financial information. It will be recognised in shareholders' equity in the year to 31 December 2016.

12. Property, plant and equipment

During the six months to 30 June 2016, the Group has incurred expenditure of £1.3m on property, plant and equipment (£1.1m in the year to 31 December 2015; £0.7m in the six months to 30 June 2015).

13. Other intangible assets

During the six months to 30 June 2016, the Group has incurred expenditure of £0.6m on web development (£1.2m in the year to 31 December 2015; £0.6m in the six months to 30 June 2015).

14. Borrowings and loans

At 30 June 2016, the Group had revolving credit and overdraft bank facilities in place totalling £60.0m (£60.0m at 31 December 2015; £60.0m at 30 June 2015). At 30 June 2016, £40.0m of the facility was drawn down.

The £60.0m revolving credit and overdraft facility has a maturity date of June 2019. Security is provided to the debt providers by way of cross guarantees and a share pledge.

15. Share capital and share premium

During the six months to 30 June 2016 the Group issued 250,000 of its ordinary shares of 50p each which has resulted in a £0.2m increase in share capital and a £1.0m increase in share premium. The shares were acquired by the employee share trust to meet future share awards under long term incentive plans.

16. Notes to the condensed interim statement of cash flows

17. Retirement benefit schemes

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:

A related offsetting deferred tax credit of £9.8m is shown under non-current assets. Therefore the net pension scheme deficit amounts to £44.1m at 30 June 2016 (£6.3m at 31 December 2015; £5.7m at 30 June 2015).

18. Transactions with related parties

There has been no change from the 2015 Annual Report and no transactions with any related parties in the period to 30 June 2016.

19. Reconciliation of statutory results to adjusted results

 Independent review report to STV Group plc

Report on the condensed interim financial statements

Our conclusion

We have reviewed the condensed interim financial statements, defined below, in the interim financial report of STV Group plc for the six month period ended 30 June 2016. Based on our review, nothing has come to our attention that causes us to believe that the condensed interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed

The condensed interim financial statements, which are prepared by STV Group plc, comprise:

• the condensed balance sheet as at 30 June 2016

• the condensed interim income statement and condensed interim statement of comprehensive income for the period then ended;

• the condensed interim statement of cash flows for the period then ended;

• the condensed interim statement of changes in equity for the period then ended; and

• the explanatory notes to the condensed interim financial statements.

As disclosed in note 2, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed interim financial statements included in the interim financial report have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

What a review of condensed financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed interim financial statements.

Responsibilities for the condensed interim financial statements and the review

Our responsibilities and those of the directors

The interim financial report, including the condensed interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express to the company a conclusion on the condensed interim financial statements in the interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLPChartered AccountantsGlasgow

25 August 2016