STV Group plc Full Year Results 2017

        

                                                                                                0700 hours, 1 March 2018

 

STV Group plc Full Year Results 2017

Resilient performance; increased returns to shareholders

Highlights

·     Resilient consumer division delivering increased margin of 18.7% despite a 7% decline in national advertising revenues

·     Continuing to deliver profitable digital growth with revenue up 14% at £8.4million and digital margin at target level of 55%

·     Data and insights strategy has secured 2.5m insights, with more than 60% of the Scottish population now registered users of STV services, significantly ahead of all other UK broadcasters

·     STV Productions back in the high end drama business with the commission of BBC1 drama series The Victim. Strong start to 2018, with secured revenue already 25% ahead of full year 2017

 

Strategic Developments

·     Progressive dividend policy delivering further increase in returns to shareholders with final ordinary dividend of 12 pence per share proposed and full year dividend payment of 17 pence per share, up 13% year on year

·     Additional return of £10 million of capital to shareholders commenced

·     Strategic review of the business underway under leadership of new Chief Executive, Simon Pitts, with a further update planned in Q2

 

Financial Highlights	2017	2016	Year on year
Revenue	£117.0m	£120.4m	-3%
EBITDA	£21.5m	£22.4m	-4%
Operating profit*	£19.0m	£19.7m	-4%
Pre-tax profit**	£18.0m	£18.5m	-3%
Statutory pre tax profit	£13.9m	£15.7m	-11%
Adjusted EPS**	39.6 pence	39.7 pence	flat
Statutory EPS	30.1 pence	32.5 pence	-7%
Net debt	£35.5m	£26.4m	n/a
Dividends per share	17.0 pence	15.0 pence	+13%

*Pre exceptional items

**Pre exceptional items and IAS19 - see note 17

  

Simon Pitts, Chief Executive Officer, said: "The results announced today are broadly in line with expectations, reflecting a weak 2017 advertising market and ongoing UK macro-economic uncertainty.  Despite this, the resilience of our broadcast business has ensured a solid performance and a higher margin.  In addition our digital business has continued to deliver profitable growth, at a margin of 55%.

 

"2018 has started strongly across all parts of the business, with both national and regional advertising expected to be up in the first quarter. We're also delivering good growth in digital driven by increased viewing on the STV Player, and STV Productions has already secured 10 new commissions in 2018, including a number of returning and returnable series.

 

"Since joining in January I have begun to work with colleagues across the business to assess performance and develop plans for growth. A further update will be confirmed during Q2."

 

Margaret Ford, Chairman, said: "When I was appointed Chairman, I stated my intention to deliver value to our shareholders through the introduction of a progressive dividend policy. This decision reflected the Board's confidence in the underlying financial strength of the company and the resilience of the core business, despite macro-economic uncertainty placing downward pressure on the advertising revenue market during this period.

 

"We have delivered on this commitment since 2013, and I am pleased to propose a final ordinary dividend of 12 pence per share, resulting in a total dividend of 17 pence per share, an increase of 13% year on year. 

 

"In line with this commitment to the long-term delivery of increased shareholder returns, in August we announced the Board's intention to return an additional sum of £10 million capital to shareholders over a period of up to 18 months and the share buyback process is continuing."

 

 

There will be a presentation for analysts at the offices of Peel Hunt, Moor House, 120 London Wall, London EC2Y 5ET today, 1 March 2018, at 1.00 pm.  Should you wish to attend the presentation, please contact Katie Martin, STV: [email protected]  or telephone: 0141 300 3000.

 

 

Enquiries:

STV Group plc

George Watt, Chief Financial Officer                              Tel: 07710 763713

Ellen Drummond, PR & Communications Manager             Tel: 07803 970143

 

Charlotte Street Partners

Harriett Moll                                                             Tel: 07717 501626

 

 

 

 

 

 

Financial performance review

As forecast, largely as a result of a weaker national advertising revenue market during the first three quarters of 2017, total revenues were down 3% at £117.0m (2016: £120.4m).

 

Consumer division revenues were down 5% at £100.2m (2016: £105.9m).  In line with previous guidance and the ITV Network, national airtime revenues were down 7% at £74.3m (2016: £79.9m).  Regional airtime revenues were £11.0m, down 2% (2016: £11.2m) due to phasing of campaigns at the end of the year.

 

Revenues from digital activities and sponsorship packages increased as did revenues generated by recently launched channel, STV2. Digital revenues were up 14% at £8.4m (2016: £7.4m) continuing their strong growth trajectory.  Sponsorship revenue increased by 6% at £5.7m (2016: £5.4m).  Established from the former City TV services, STV2 was launched in April and delivered revenues of £1.7m (2016: City TV £1.2m) with a loss on the channel of £0.8m incurred as the service becomes established (2016: £0.8m loss). 

 

STV Productions' revenues were down 20% at £10.4m (2016: £12.7m), as a result of lower commissions. 

 

As the Scottish Children's Lottery completed its first full year of operation, revenues generated by STV External Lottery Manager (ELM) increased to £6.4m (2016: £1.8m) in line with expectations.

 

Operating profit before exceptional items was £19.0m, down only 4% as a result of the resilience of the operating model underpinned by the agreements in place with ITV on programme supply and advertising sales (2016: £19.7m).  Operating profit after exceptional items increased by 3%, to £17.4m (2016: £16.9m). 

 

Margins in the consumer division increased, at 18.7% (2016: 18.5%), despite a decline in operating profit year on year. The margin achieved through digital activities was 55%, also up year on year (2016: 52%).  Overall consumer division operating profit reduced to £18.7m (2016: £19.6m). STV Productions delivered a slight increase in operating profit before exceptional items to £0.3m (2016: £0.1m).

 

There were two exceptional items in 2017, both related to the ELM. These totalled £1.6m and comprised a £0.9m IAS39 non-cash charge on the outstanding debtor from the SCL and a £0.7m write off of post-launch non-billable costs.  In the previous year the remaining balance of goodwill related to STV Productions, amounting to £2.8m was written off.

 

Profit before tax, exceptional items and IAS19 interest was £18.0m, down 3% on the prior year (2016: £18.5m).  Despite these reductions, earnings per share was flat on a similar basis at 39.6 pence per share (2016: 39.7 pence per share).

 

EPS before exceptional items and IAS 19 interest was flat at 39.6 pence per share,  reflecting the fall in operating profit and profit before tax  being offset by the lower effective tax rate. On a statutory basis, EPS was 30.1 pence (2016: 32.5 pence).

 

The statutory result for the year after tax, exceptional items and IAS19 interest was a profit of £11.7m (2016: £12.6m). The effective tax rate decreased to 15% (2016: 17%) due to the utilisation of prior year losses and capital allowances.

 

The balance sheet remains robust enabling increased returns to shareholders to be delivered and investment in new activities including the launch of STV2 in April and the growth of the Scottish Children's Lottery (SCL).  The investment of £9.0m in the SCL will be recouped in future years with current growth trends in ticket sales indicating cash breakeven is expected to be achieved in autumn 2018, with repayment commencing at that time.

 

The IAS19 deficit decreased to £70.6m (2016: £88.8m) pre tax. The next triennial valuation process (at 31 December 2017) has commenced.  It is expected this will be concluded in Q1 2019.

 

Net debt increased to £35.5m (2016: £26.4m) reflecting increased returns to shareholders through the dividend policy and the share buy-back process which commenced in Q3 of 2017, the timing of £3.7m of payments due to be received in Q2 of 2018 arising through the trading agreements with ITV and £3.9m of funding for the SCL.

 

The net debt:EBITDA ratio target of 1.0x to 1.5x on a covenant basis was achieved at 1.41x despite net debt increasing. The major cash outflows were share purchases and dividends of £8.2m; pension deficit funding payments of £7.9m; £3.9m of funding for the Scottish Children's Lottery from the STV ELM which will be recouped in future years; capital expenditure investment of £3.4m; and working capital funding of £2.2m principally in STV Productions.

 

As a result of the phasing of payments which will be received in Q2 of 2018 from the various trading agreements with ITV and other working capital movements mainly relating to STV Productions, the Group's measure of operating profit converted to free cashflow (defined as operating profit plus depreciation, amortisation and share based payments, less working capital movements excluding ELM investment and capital expenditure), was below the target level of 90% at 64%.  The target for 2018 will continue to be 90% or above.

 

Shareholder returns

In line with the progressive dividend policy structured to achieve a distribution of 60% to 80% of cash generation after pension deficit funding payments, an increase in the full year dividend payment is proposed.

 

The proposed total dividend for 2017 is 17.0 pence per share, an increase of 13%, (2016: 15.0 pence per share).  During 2017 the final 2016 dividend of 11.0 pence per share was paid together with the interim dividend for 2017 of 5.0 pence per share. A final dividend of 12.0 pence per share has been declared which, subject to approval at the AGM in April 2018, will be paid on 31 May 2018 to shareholders on the register at 13 April 2018.

 

In line with the Board's commitment to the long-term delivery of increased and sustainable shareholder returns, and reflecting the underlying financial strength and stability of the business, it was announced in August 2017 that an additional return of capital of £10m would be delivered to shareholders over a period of 18 months. The Board announced a share buyback programme on 22 September 2017. As at 27 February 2018, the buyback of 198,177 ordinary shares of 50 pence each, has been completed for an aggregate consideration of £0.7m.  

 

Outlook

STV national airtime revenue is expected to be up 1% in Q1 of 2018 with a positive Q2 anticipated reflecting a strong on air schedule and the impact of the FIFA World Cup.

 

Regional airtime revenue is expected to be up 20% to 25% in the same period following a strong start in 2018.

 

Digital revenues are expected to continue their growth trajectory, up an expected 20-25% in Q1.

 

With an increased volume of new commissions secured so far in 2018, STV Productions' revenues committed to date are 25% up on full year 2017.

 

Operational review

Despite the challenging market conditions experienced during 2017, it has been another successful year for the Group as the consumer division has been further de-risked through efficient trading arrangements with ITV Network and continued strict capital discipline. As a result, even with the backdrop of macro-economic uncertainty impacting advertising markets, the Group is well placed with debt levels within the target range.

 

Twenty eight percent of earnings have been derived from non-broadcast activities. This level represents significant progress as this has increased over the past seven years when these activities represented only 11% of earnings. This rebalancing of the business is on track to meet the target level of 30% at the end of 2018.

 

The growth of the non-broadcast business has been driven principally by the continued development of profitable digital services.

 

There are KPI targets in place until the end of 2018 (see Appendix 1) and the Group KPIs are now under review by the new Chief Executive, Simon Pitts.

 

STV Consumer

STV continues to hold the position as Scotland's most watched commercial channel and, for the eighth consecutive year, achieved a peak-time audience share in excess of the Network, tracking 0.6 share points ahead, an increase on the previous year, underscoring the unparalleled reach and resilient performance of the core channel.  STV reached 3.5m viewers each month and showed 46 of the top 50 most watched programmes on commercial television. STV's reach was further extended in 2017 by the launch of second channel, STV2.

 

Digital activities have continued to deliver increased revenues and high margin growth, driven by the strong performance of the STV Player.  Streams increased by 37% year on year.

 

The data strategy aims to develop new connections with consumers whilst bringing innovative opportunities for advertisers and commercial partners to reach their target markets.  Consumer insights increased by 19% to 2.5 million, meaning that over 60% of the Scottish population are now registered users of STV services like STV Player, STV News or the Scottish Children's Lottery.

 

STV Productions

Commissions and re-commissions were secured in entertainment, documentaries and popular factual and daytime. Significantly, a new drama series commission for BBC1 was secured.  Four part legal thriller, The Victim, is scheduled for delivery in 2018.

 

Other new commissions included twenty episodes of a game show for ITV Daytime (Babushka); a six-part series for BBC1, And They're Off....For Sport Relief; a one-off documentary for BBC Scotland, The Paper Thistle: 200 Years of The Scotsman; an hour-long documentary sponsored by VisitScotland, Alan Cumming's Edge of Scotland; a new commission for More4, Richard Wilson's Highland Fling; a documentary for ITV's Crime and Punishment series, Ross Kemp Behind Bars - Inside Barlinnie; and for BBC Scotland, a three-part documentary series, The Force: The Story of Scotland's Police.

 

Recommissions delivered in the year included a sixth series of popular family entertainment show, Catchphrase, for ITV; four further series of Antiques Road Trip (series 15-18) for BBC and a seventh series of twenty episodes of the celebrity version, Celebrity Antiques Road Trip for the BBC; and a third series of Stopping Scotland's Scammers, for STV and sponsored by

Royal Bank of Scotland.

 

The strategic partnership established with GroupM Entertainment has resulted in international format deals being secured for The Dressing Room to be remade in The Netherlands and Norway, and for SafeWord to be remade for MTV in the US. 

 

In late 2017, a new distribution deal was confirmed with Sky Vision covering international distribution rights to STV Productions' unscripted catalogue; and the new drama commission secured for the BBC, The Victim; and the sales rights for the format of new entertainment commission, And They're Off.

 

With an increased volume of new commissions secured so far in 2018, STV Productions' revenues committed to date are 25% up on full year 2017.

 

STV External Lottery Manager

Established in late 2016, the STV External Lottery Manager (ELM) was formed to provide operational services, such as ticket sales and marketing, to charitable society lottery, Scottish Children's Lottery.

 

STV ELM operates on a breakeven basis, invoicing operating costs to the Scottish Children's Lottery.  The Group recoups costs incurred from operating both the STV ELM and the STV Children's Appeal. STV ELM purchases regional airtime from the consumer division and any profit generated by the Group from the sale of regional airtime, after recouping costs, is donated to the Group's main social investment activity, the STV Children's Appeal.

 

Regulatory

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

 

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 and during 2017 one additional risk was added to the register which related to the Lobbying (Scotland) Act, coming into force March 2018. There were no significant changes to the other 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

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 an ever-changing operating and competitive environment, 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.

 

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 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. 

 

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 PSolve 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 £9.0m gross at 31 December 2017. This debtor is expected to be recovered by 2022 and requires weekly ticket sales to increase by 33% from their 2017 year end run rate to achieve the cashflow breakeven point of 176k ticket sales per week.  

 

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 £9.0m 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.

 

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.

 

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.

 

 

 

 

 

 

Simon Pitts

Chief Executive Officer, STV Group plc

 

 

 

 

 

 

 

 

Appendix 1 - 2017 KPI Update

 

The Key Performance Indicators (KPIs) will be reviewed through the strategic review currently being undertaken

 

 

KPI		2017 Actual	2018 Target	Performance
Group
1	Non broadcast EBIT share	28%	30%	On track
Consumer
2	Peak time audience ITV Network	+0.6 share points	To exceed Network	On track
3	Consumer division margin	18.7%	20.0%	Trending below
4	Consumer reach
	-    STV	3.5m	3.5m	On track
	-    STV2	1.0m	1.3m	On track
	-    STV Player	0.7m	1.3m	On track
	-    stv.tv	3.7m	4.4m	On track
5	Consumer engagement
	-    STV	39 mins per day	41 mins per day	On track
	-    STV2	1 min per day	10 mins per day	Trending below
	-    STV Player	43 mins per day	60 mins per day	Trending below
	-    stv.tv	3 mins per day	6 mins per day	Trending below
6	Consumer insights	2.5m	2.6m	On track
7	Digital revenues	£8.4m	£11.4m	On track
8	Digital margin	55%	55%	On track
STV Productions
9	Production revenue	£10.4m	£20.0m	Trending below
10	Production margin	3%	6%	Trending below

 

      

 

 

      

 

 

       

Consolidated income statement Year ended 31 December 2017
				2017	2016
			Note	£m	£m
Revenue			5	117.0	120.4
Net operating expenses				(99.6)	(103.5)
Operating profit				17.4	16.9
Analysed as:
Operating profit before exceptional items				19.0	19.7
Exceptional items			6	(1.6)	(2.8)
Operating profit				17.4	16.9
Finance costs	- borrowings		7	(1.0)	(1.2)
	- IAS 19 pension		7	(2.5)	-
				(3.5)	(1.2)
Profit before tax				13.9	15.7
Tax charge			8	(2.2)	(3.1)
Profit for the year				11.7	12.6
Earnings per share
Basic			9	30.1p	32.5p
Diluted			9	29.6p	31.9p

 

A reconciliation of the statutory results to the adjusted results is included at note 17.

 

 

 

Consolidated statement of comprehensive income Year ended 31 December 2017
	2017	2016
	£m	£m
Profit for the year	11.7	12.6
Items that will not be reclassified to profit or loss:
Re-measurement of defined benefit pension schemes	12.7	(88.7)
Deferred tax (charge)/credit thereon	(2.4)	15.1
Write up of investment to market value	0.6	-
Other comprehensive income/(expense)	10.9	(73.6)
Total comprehensive income/(expense) for the year	22.6	(61.0)

 

 

                                                                                                                                     

Consolidated balance sheet
At 31 December 2017
		2017	2016
	Note	£m	£m
Non-current assets
Intangible assets		2.6	2.7
Property, plant and equipment	11	8.6	7.3
Investments	12	1.4	0.8
Deferred tax asset		18.4	21.7
Trade and other receivables	13	8.2	5.9
		39.2	38.4
Current assets
Inventories		20.6	19.5
Trade and other receivables		26.7	22.8
Cash and cash equivalents		6.1	13.3
		53.4	55.6
Total assets		92.6	94.0
Equity attributable to owners of the parent
Ordinary shares	14	19.7	19.8
Share premium	14	101.9	101.9
Capital redemption reserve		0.1	-
Merger reserve		173.4	173.4
Other reserve		0.7	0.4
Accumulated losses		(334.1)	(348.5)
Total equity		(38.3)	(53.0)
Non-current liabilities
Borrowings		41.6	39.7
Provisions		0.1	0.3
Retirement benefit obligations	16	70.6	88.8
Derivative financial instruments		-	0.1
		112.3	128.9
Current liabilities
Trade and other payables		17.5	17.9
Corporation tax		0.9	-
Provisions		0.2	0.2
		18.6	18.1
Total liabilities		130.9	147.0
Total equity and liabilities		92.6	94.0

 

 

 

Consolidated statement of changes in equity Year ended 31 December 2017

 

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 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
Shares bought back on-market and cancelled	(0.1)	-	0.1	-	-	(1.0)	(1.0)
Acquisition of treasury shares	-	-	-	-	-	(1.6)	(1.6)
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)

 

 

Balance at 1 January 2016	19.6	101.8	-	173.4	0.9	(284.8)	10.9
Profit for the year	-	-	-	-	-	12.6	12.6
Other comprehensive expense	-	-	-	-	-	(73.6)	(73.6)
Total comprehensive expense for the year	-	-	-	-	-	(61.0)	(61.0)
Issue of share capital	0.2	-	-	-	-	-	0.2
Acquisition of treasury shares	-	-	-	-	-	(0.2)	(0.2)
Share based compensation	-	-	-	-	0.3	-	0.3
Value of employee services	-	0.1	-	-	(0.8)	1.7	1.0
Deferred tax charge on share based compensation	-	-	-	-	-	(0.3)	(0.3)
Current tax credit on share based compensation	-	-	-	-	-	0.4	0.4
Dividends	-	-	-	-	-	(4.3)	(4.3)
Balance at 31 December 2016	19.8	101.9	-	173.4	0.4	(348.5)	(53.0)

 

 

Statement of consolidated cash flows
Year ended 31 December 2017
			2017	2016
		Note	£m	£m
Operating activities
Cash generated by operations		15	11.2	15.9
Interest paid			(0.7)	(1.2)
Refinancing fees paid			(0.3)	-
Taxes paid			(0.3)	-
Pension deficit funding	- recovery plan payment		(7.9)	(7.8)
Net cash generated by operating activities			2.0	6.9
Investing activities
Purchase of investment			-	(0.1)
Capitalised web development spend			(0.5)	(1.4)
Purchase of property, plant and equipment			(2.9)	(1.8)
Net cash used in investing activities			(3.4)	(3.3)
Financing activities
Purchase of treasury shares			(1.4)	-
Share buyback			(0.6)	-
Issue of treasury shares to employees			0.4	0.3
Net borrowings drawn			2.0	-
Dividends paid			(6.2)	(4.3)
Net cash used by financing activities			(5.8)	(4.0)
Net decrease in cash and cash equivalents			(7.2)	(0.4)
Cash and cash equivalents at beginning of year			13.3	13.7
Cash and cash equivalents at end of year		15	6.1	13.3

 

 

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 2017
		2017	2016
	Note	£m	£m
Opening net debt		(26.4)	(25.7)
Net decrease in cash and cash equivalents		(7.2)	(0.4)
Movement in debt financing		(1.9)	(0.3)
Closing net debt	15	(35.5)	(26.4)

Notes to the preliminary announcement

Year ended 31 December 2017

 

 

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 2017. The statutory accounts for the year ended 31 December 2016, 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 2017 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 2016.

The following new standards, amendments to standards or interpretations are mandatory for the first time for accounting periods beginning on or after 1 January 2017. They either were not relevant for the Group or had no material impact on the financial statements of the Group.

 

IAS 12 (amendment)	Income taxes
IAS 7 (amendment)	Statement of cash flows
IFRS 12 (amendment)	Disclosure of Interests in Other Entities

 

 

 

 

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 2016.  There have been no changes in any risk management policies since the 2016 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 of £15.0m categorised as level 2.  The fair value of interest rate swaps 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.   There are no financial instruments measured as level 3.

 

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, Productions and ELM (external lottery management).

 

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

 

					External sales
					2017	2016
Segment revenues					£m	£m
Consumer					100.2	105.9
Productions					10.4	12.7
ELM					6.4	1.8
					117.0	120.4

 

Revenue in 2017 includes £0.8m of revenues from sources outside the UK (2016: £0.7m).

 

					2017	2016
Segment result					£m	£m
Consumer					18.7	19.6
Productions					0.3	0.1
ELM					-	-
					19.0	19.7
Exceptional non-cash charge attributable to ELM					(1.6)	-
Exceptional goodwill impairment attributable to Productions					-	(2.8)
Operating profit					17.4	16.9
Financing					(3.5)	(1.2)
Profit before tax					13.9	15.7
Tax charge					(2.2)	(3.1)
Profit attributable to owners of the parent					11.7	12.6

 

Operating profit in 2017 includes £0.5m arising outside the UK (2016: £0.3m).

 

 

 

6.   Exceptional items

 

i)    ELM debtor

A £1.6m non-cash charge has been incurred during the year in relation to the ELM debtor. A change in the timeline for recovery of the debtor has resulted in an IAS39 discounting provision of £0.9m being applied. The remaining £0.7m is a write off of post-launch non-billable costs.

 

ii)   Goodwill impairment

In 2016 a provision for impairment of £2.8m was recognised against the carrying value of goodwill to reflect the historic trading performance in Productions and resulted in goodwill being fully written down.

 

7.   Finance costs

	2017	2016
	£m	£m
Bank borrowings	1.0	1.2
Pension finance charge	2.5	-
	3.5	1.2

 

8.   Tax charge

 

				2017	2016
				£m	£m
The charge for taxation is as follows:
Charge for the year before exceptional items				2.3	3.1
Tax effect on exceptional items				(0.1)	-
Charge for the year				2.2	3.1

 

The effective tax rate for the Group excluding exceptional items and the additional deferred tax asset recognised is 15% (2016: 17%). The tax charge is lower than the standard rate of 19.25% 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		2017 Weighted average number of shares (m)	Per share Pence	Earnings £m	2016 Weighted average number of shares (m)	Per share Pence
EPS:
Earnings attributable to ordinary shareholders		11.7	38.9	30.1p	12.6	38.8	32.5p
Basic EPS		11.7	38.9	30.1p	12.6	38.8	32.5p
Potential dilutive shares			0.6			0.7
Diluted EPS		11.7	39.5	29.6p	12.6	39.5	31.9p

 

10. Dividends

 

	2017	2016
	£m	£m
Equity dividends on ordinary shares
Declared and paid during the year:
Final for 2016 of 11.0p (2015: 7.0p) per share	4.3	2.7
Interim for 2017 of 5.0p (2016: 4.0p) per share	1.9	1.6
Dividends paid	6.2	4.3

 

A final dividend of 12.0p per share (2016: 11.0p per share) has been proposed and is subject to approval by the board of directors. It is payable on 31 May 2018 to shareholders who are on the register at 13 April 2018. The ex-dividend date is 12 April 2018. This final dividend, amounting to £4.7m 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	Total £m
Cost
At 1 January 2017	0.1	22.5	22.6
Additions	0.3	2.6	2.9
Disposals	-	(0.1)	(0.1)
At 31 December 2017	0.4	25.0	25.4
Accumulated depreciation and impairment
At 1 January 2017	0.1	15.2	15.3
Charge for year	-	1.6	1.6
Disposals	-	(0.1)	(0.1)
At 31 December 2017	0.1	16.7	16.8
Net book value at 31 December 2017	0.3	8.3	8.6
Net book value at 31 December 2016	-	7.3	7.3

 

 

12. Investments

 

Mirriad, one of STV group's investments, became a listed company during the year. The £0.6m movement represents the increase in the investment to market value.

 

13. Trade and other receivables

 

Trade and other receivables of £8.2m (2015: £5.9m), included within non-current assets, relates to debt due to ELM (the lottery management company) from the Scottish Children's Lottery and will be recovered from 2018 onwards.  Management have considered a change in the timeline for recovery of the debtor and in line with IAS 39, the fair value of the debtor has been determined by applying a discount rate of 3%.  This has resulted in a discounting provision of £0.9m - refer note 6.

 

14. Share capital

 

	Number of shares (thousands)	Ordinary shares £m	Share premium £m	Total £m
At 1 January 2017	39,548	19.8	101.9	121.7
Shares bought back on-market and cancelled	(181)	(0.1)	-	(0.1)
At 31 December 2017	39,367	19.7	101.9	121.6

 

 

15. Notes to the consolidated statement of cash flows

 

	2017	2016
	£m	£m
Operating profit (before exceptional items)	19.0	19.7
Adjustments for:
Depreciation on property, plant and equipment	1.6	2.0
Amortisation of intangible assets	0.6	0.4
Share based payment	0.3	0.3
EBITDA	21.5	22.4
Increase in inventories	(1.1)	(0.3)
Increase in trade and other receivables (excluding ELM)	(3.9)	(0.7)
Decrease in trade and other payables (excluding ELM)	(1.4)	(0.1)
Increase in ELM trade and other receivables	(3.9)	(5.9)
Increase in ELM trade and other payables	-	0.5
Cash generated by operations	11.2	15.9

 

The exceptional items noted above are non-cash.

 

 

 

Analysis of movements in net debt

	At 1 January 2017	Cash flow	Non-cash movements	At  31 December 2017
	£m	£m	£m	£m
Cash and cash equivalents	13.3	(7.2)	-	6.1
Bank borrowings	(39.7)	(1.7)	(0.2)	(41.6)
Net debt	(26.4)	(8.9)	(0.2)	(35.5)

 

At 31 December 2017, the Group had revolving credit and overdraft bank facilities in place totalling £60.0m (£60.0m at 31 December 2016). At 31 December 2017 £42.0m of the facility was drawn down.

 

An extension to the £60.0m revolving credit and overdraft facility was agreed on 15 September 2017 and the facility now 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.

 

	2017	2016
	£m	£m
Operating profit	19.0	19.7
Depreciation and amortisation	2.2	2.4
Post-employment benefit charges	2.5	2.6
Non-cash and other adjustments	1.4	1.5
Covenant EBITDA	25.1	26.2

 

16. Retirement benefit schemes

 

The Group operates two defined benefit pension schemes. The schemes are trustee administered and the schemes' assets are held independently of the Group's finances. Pension costs are assessed in accordance with the advice of an independent professionally qualified actuary.

 

The schemes are the Scottish and Grampian Television Retirement Benefit Scheme and the Caledonian Publishing Pension Scheme.  They are closed schemes and therefore under the projected unit method the current service cost will increase as the members of the scheme approach retirement.

 

A full actuarial valuation of the schemes was carried out at 1 January 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 £7.9m in 2017, 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 2017 by a qualified independent actuary.   The major assumptions used by the actuary were:

 

	At 31 December 2017	At 31 December 2016
Rate of increase in salaries	Nil%	Nil%
Rate of increase of pensions in payment	3.21%	3.30%
Discount rate	2.55%	2.80%
Rate of price inflation (RPI)	3.20%	3.30%

 

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 2017	At 31 December 2016
	Years	Years
Retiring at balance sheet date:
Male	18.8	19.1
Female	20.8	21.4
Retiring in 25 years:
Male	20.6	20.8
Female	22.3	22.7

 

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 2017			At 31 December 2016
	Quoted	Unquoted	Total	Quoted	Unquoted	Total
	£m	£m	£m	£m	£m	£m
Debt instruments	100.3	-	100.3	103.9	-	103.9
Investment funds	109.7	144.2	253.9	40.3	181.6	221.9
Cash and cash equivalents	8.9	-	8.9	29.4	-	29.4
Derivatives	-	6.3	6.3	-	4.2	4.2
Fair value of schemes' assets	218.9	150.5	369.4	173.6	185.8	359.4
Present value of defined benefit obligations			(440.0)			(448.2)
Deficit in the schemes			(70.6)			(88.8)

 

A related offsetting deferred tax asset of £12.0m (2016: £15.3m) is shown under non-current assets.  Therefore the net pension scheme deficit amounts to £58.6m at 31 December 2017 (£73.5m at 31 December 2016).

 

 

 

17. 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.

 

	2017			2016
	Profit  before tax	Basic EPS	Diluted EPS	Profit  before tax	Basic EPS	Diluted EPS
	£m	pence	pence	£m	pence	pence
Post-exceptional	13.9	30.1p	29.6p	15.7	32.5p	31.9p
Add back: exceptionals	1.6	4.1p	4.1p	2.8	7.2p	7.1p
Pre-exceptional	15.5	34.2p	33.7p	18.5	39.7p	39.0p
Add back: IAS 19	2.5	5.4p	5.3p	-	-	-
Adjusted results	18.0	39.6p	39.0p	18.5	39.7p	39.0p

 

18. Mailing

 

A copy of the annual report is being sent to all shareholders on 22 March 2018 and will be available for inspection by members of the public at the Company's registered office at Pacific Quay, Glasgow, G51 1PQ.