TIDMSTVG
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
GBP10m 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 GBP125.9m GBP117.0m +8%
------------ ------------ -------------
EBITDA* GBP22.8m GBP21.5m +6%
------------ ------------ -------------
Operating profit* GBP20.1m GBP19.0m +6%
------------ ------------ -------------
Pre-tax profit** GBP19.0m GBP18.0m +6%
------------ ------------ -------------
Statutory pre tax profit GBP1.9m GBP13.9m -86%
------------ ------------ -------------
Adjusted EPS** 41.1 pence 39.6 pence +4%
------------ ------------ -------------
Statutory EPS 4.2 pence 30.1 pence -86%
------------ ------------ -------------
Net debt GBP36.3m GBP35.5m +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 GBP10m 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, angela.wilson@stv.tv or
telephone: 0141 300 3000.
Enquiries:
STV Group plc: George Watt, Chief Financial Officer Tel: 07710 763713
Charlotte Street Partners: Harriet Moll Tel: 07717 501626
Financial performance review
Total revenue increased by 8% to GBP125.9m (2017: GBP117.0m)
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 GBP20.1m (2017:
GBP19.0m). Operating profit after exceptional items decreased to
GBP9.0m (2017: GBP17.4m).
Broadcast division revenues were up 3% at GBP94.5m (2017:
GBP92.0m) 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 GBP15.3m (2017: GBP15.3m)
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
GBP9.6m (2017: GBP8.2m) reflecting a very strong STV Player
performance as VOD advertising revenues grew by 39%. Digital
division operating profit grew by 27% to GBP4.7m (2017: GBP3.7m)
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 GBP16.3m (2017:
GBP10.2m) as higher value productions, particularly new drama, The
Victim, were delivered. STV Productions operating profit amounted
to GBP0.1m (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 GBP5.5m
of costs to the Scottish Children's Lottery (SCL) (2017: GBP6.6m)
and the division continues to operate on a breakeven basis. The STV
ELM incurred a loss after exceptional items of GBP4.2m (2017:
GBP1.6m) primarily due to provisions made for the risk of not
achieving a full recovery of the debtor due from the SCL.
A total of GBP11.1m 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 GBP3.3m of cash exceptional costs which principally related
to redundancy costs (GBP2.3m) arising from the closure of STV2 and
restructuring of the business.
There are non-cash exceptional costs of GBP7.8m, with the two
largest items being a writedown to the value of STV Productions'
stock following the closure of STV2 (GBP4.6m) and the impact of GMP
(guaranteed minimum pension) equalisation (GBP1.6m).
Net finance costs increased to GBP7.1m (2017: GBP4.3m) due
largely to an increase in impairment losses against the SCL debtor
to the ELM to GBP4.2m (2017: GBPnil) offset by the non-cash IAS19
finance charge decreasing to GBP1.8m (2017: GBP2.5m). Cash interest
costs increased to GBP1.1m (2017: GBP1.0m) due to slightly higher
average interest rates.
The statutory result for the year after tax, exceptional items
and IAS19 interest was a profit of GBP1.6m (2017: GBP11.7m). 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 GBP0.8m to GBP36.3m (2017: GBP35.5m) 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 GBP3.6m, were received in Q3. The Scottish
Children's Lottery (SCL) had a need for further working capital of
GBP2.7m, 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 GBP6.6m begins
to be repaid.
Other major outflows in 2019 included pension deficit funding
cash payments of GBP8.8m, dividends of GBP6.9m, GBP3.4m of capital
expenditure, GBP2.4m of reorganisation costs and GBP3.9m 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 GBP60m 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 GBP65.3m (2017:
GBP58.6m) 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 GBP94.5m (2017: GBP92.0m). 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 GBP13.6m
(2017: GBP11.0m). The growth in regional revenue was supported by
the success of the STV Growth Fund. Launched in May 2018, this has
resulted in GBP3m 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 GBP9.6m (2017: GBP8.2m). 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 GBP16.3m (2017:
GBP10.2m). 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 GBP6.6m 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 GBP11.6m gross, GBP6.6m 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 GBP6.6m (GBP11.6m less GBP5.0m 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 GBPm GBPm
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)
* exceptional ELM provision
Impairment losses 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
GBPm GBPm
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 GBPm GBPm
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
Capital
Share Share Redemption Merger Other Accumulated Total
capital premium reserve reserve reserve losses equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
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 GBPm GBPm
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 GBPm GBPm
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 GBP15.0m categorised as level
2. The fair value of interest rate swaps of GBP21,000 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 GBPm GBPm
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 GBP0.5m of revenues from sources
outside the UK (2017: GBP0.8m).
2018 2017
Segment result GBPm GBPm
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 (8.7) -
to Group
Exceptional loss on sale of STV2 attributable (0.8) -
to Group
Exceptional GMP equalisation attributable (1.6) -
to Group
Operating profit 9.0 17.4
Financing (2.9) (3.5)
Impairment losses - exceptional ELM (4.2) -
provision
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 GBP0.3m arising outside the UK
(2017: GBP0.5m).
6. Exceptional items
Reorganisation cost
A provision of GBP8.7m 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 GBP8.7m includes a
non-cash writedown of stock and assets of GBP6.0m.
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 GBP0.8m. The loss on sale
includes a non-cash writedown of stock and assets of GBP0.4m.
GMP charge
The GBP1.6m relates to the impact of GMP (guaranteed minimum
pension) equalisation.
ELM debtor
An additional GBP4.2m 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 GBP4.2m to GBP5.0m.
In 2017, the GBP1.6m non-cash charge incurred in the year
included the IAS 39 discounting provision of GBP0.8m (above) and
also a GBP0.8m write off of post-launch non-billable costs.
7. Finance costs
2018 2017
GBPm GBPm
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
GBPm GBPm
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
2018 2017
Weighted Weighted
average average Per
Earnings number Per share Earnings number share
GBPm of shares Pence GBPm of shares Pence
(m) (m)
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
GBPm GBPm
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 GBP5.3m has not been recognised
as a liability in these financial statements.
11. Property, plant and equipment
Plant, technical
equipment
Leasehold and other Assets under
buildings GBPm construction Total
GBPm GBPm GBPm
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
GBPm
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 GBP0.7m during the year relates to Mirriad, one
of STV group's investments. 324,203 shares were sold in the year
for GBP0.2m and the value of the remaining investment was written
down by GBP0.5m to market value.
14. Trade and other receivables
Trade and other receivables of GBP8.2m (31 December 2017:
GBP8.2m), 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
GBP6.6m (2017: GBP8.2m) ELM debtor is net of an expected credit
loss impairment of GBP5.0m. 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 GBP4.2m to GBP5.0m.
15. Share capital
Number of Ordinary Share
shares (thousands) shares premium Total
GBPm GBPm GBPm
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
GBPm GBPm
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 At 31 December
January Non-cash 2018
2018 Cash flow movements
GBPm GBPm GBPm GBPm
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 GBP60.0m (GBP60.0m at
31 December 2017). At 31 December 2018 GBP43.0m of the facility was
drawn down.
The GBP60.0m 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
GBPm GBPm
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 GBP129.9m as at November 2016 compared to GBP83.0m at
the previous settlement date of 31 March 2014. A recovery plan
period of 11 years was agreed with payments of GBP8.8m 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 At 31 December
2018 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 At 31 December
2018 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
GBPm GBPm GBPm GBPm GBPm GBPm
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 GBP13.2m (2017:
GBP12.0m) is shown under non-current assets. Therefore the net
pension scheme deficit amounts to GBP65.3m at 31 December 2018
(GBP58.6m 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 Basic Diluted Profit Basic Diluted
before tax EPS EPS before tax EPS EPS
GBPm pence pence GBPm 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
GBPm GBPm GBPm GBPm
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAEAXASFNEAF
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