REG - STV Group PLC - STV Group plc Half Year Results 2019
Press Release
0700 hours, 3 September 2019
Half Year Results to 30 June 2019
STV reports operating profit up 10% as strategic plan accelerates growth
Strong financial performance ahead of expectations
· Adjusted operating profit1 up 10% to £11.0 million (2018: £10.0 million) with adjusted earnings per share (EPS) up 9% to 21.8p (2018: 20.0p)
· Operating profit of £11.0 million significantly up on the 2018 profit of £1.4 million with no exceptional items this year
· Broadcast operating profit up 7% to £9.7 million (2018: £9.1 million)
· Digital operating profit up 43% to £3.0 million (2018: £2.1 million)
· STV Productions operating loss of £1.7m (2018: loss of £1.2m) due to the phasing of programme deliveries being strongly weighted to the second half
· Total advertising revenue down a marginal 0.6% to £48.8 million (2018: £49.1 million), outperforming the wider TV market, with lower national advertising income offset by continued growth in digital (+19%) and regional advertising (+19%)
· Digital and regional revenues now account for 27% of total advertising revenue, up from 21% in 2017, reducing reliance on the national market
· Total revenue down 5% to £54.9 million (2018: £57.7 million), primarily due to phasing in STV Productions and closure of the loss-making STV2
· Further increase in returns to shareholders with interim dividend of 6.3p per share (+5%)
1 definitions of adjusted metrics are shown in the footnotes to the Financial Highlights table
Continued excellent viewing performance on screen and online
· Best STV all time viewing share since 2009 at 18.7%
· Most popular peak time channel in Scotland
· 99.7% of all commercial audiences over 500,000 in Scotland delivered by STV
· Biggest TV channel in Scotland for young viewers, reaching 91% of all 16-34s
· Online streams on STV Player up 17% and online viewing up 13% even without the FIFA World Cup
· Strong viewing performance driven by entertainment hits including Britain's Got Talent and The Chase, dramas Manhunt, Cheat and The Bay, which broke all STV streaming records, and local favourites Sean's Scotland and the revamped STV News at Six
Delivery of strategic plan progressing at pace
· STV Growth Fund continues to underpin regional advertising growth, attracting over 100 new advertisers to STV since launch
· Virgin partnership delivering digital value to STV as expected and Sky launch of STV Player on track for Q4 2019
· Significant enhancements to the STV Player user experience and content offer already driving increased consumption
· Eleven third party content deals now in place (500+ hours) boosting STV Player content catalogue by a third across entertainment, drama, factual and sport
· STV Productions drama The Victim delivered the highest drama catch up ratings since records began, more than doubling its BBC1 overnight audience to 6.5m, and has now been sold to over 30 countries. Second drama for the BBC, Elizabeth is Missing, currently in production
· Primal Media, acquired on 1 July, has secured three commissions so far; £0.5 million of full year synergies identified and in delivery
· First pilot format developed by STV Productions, The Cash Machine, started strongly on STV on 1 September
Financial Highlights
Six months ended 30 June
2019
2018
Change
Revenue
£54.9m
£57.7m
(4.9%)
Adjusted EBITDA*
£13.4m
£11.4m
17.5%
Adjusted operating profit*
£11.0m
£10.0m
10.0%
Adjusted operating margin*
20.0%
17.3%
270 bps
Operating profit
£11.0m
£1.4m
+686%
Adjusted profit before tax**
£10.1m
£9.4m
7.4%
Profit/(loss) before tax
£9.1m
(£4.3m)
+312%
Adjusted basic EPS**
21.8p
20.0p
9.0%
Basic EPS
19.7p
(10.9p)
+281%
Net debt
£42.0m
£37.8m
(11.1%)
Interim dividend per share
6.3p
6.0p
+5%
*Pre-exceptional items, see note 21 to the financial statements for more detail
**Pre-exceptional items and IAS19 finance costs, see note 21 to the financial statements for more detail
Outlook - good momentum into H2 despite Brexit uncertainty
· National advertising will continue to be impacted by Brexit, with the 9 months until the end of September expected to be 6% to 7% down
· Regional advertising expected to be 10% to 15% up until the end of September
· Digital advertising is expected to be 20% to 25% up for the same period
· Overall, that would see total STV advertising broadly flat for the first 9 months to the end of September
· Productions will have a stronger H2, with current secured revenues of £13m similar to this time last year
· Whilst Brexit will result in market turbulence in H2 that will affect the wider UK media market, the impact on STV's profitability will be mitigated by our advertising trading arrangements, on-going tight management of the cost base and a continued focus on progressing the growth plan
Simon Pitts, Chief Executive Officer, said: "An operating profit increase of 10% when national advertising revenues are down supports the decisions we took to reposition the Group for profitable growth, focusing on STV's regional strengths and the exciting growth potential offered by our digital and production businesses. In the first half of 2019 we have enjoyed the best all time viewing share on STV since 2009 and our total advertising revenue has outperformed the wider TV market, driven by continued growth in digital and regional advertising and by the increasing success of the STV Growth Fund which has attracted over 100 new Scottish advertisers to television since launch. These factors have contributed to a strong first half performance, with a significant improvement in operating margin.
"We continue to make good progress with our strategic growth plan and have laid solid foundations for the future. Although current political uncertainty around Brexit will continue to impact total national advertising revenue in the second half, we expect further growth in digital and regional revenue and an improved performance from STV Productions, including a new quiz format, The Cash Machine, the first commissions from newly acquired Primal Media, and a new drama for BBC1, Elizabeth is Missing.
"We also have an exciting programming line-up to look forward to on STV in the second half of the year, with exclusive coverage of the 2019 Rugby World Cup, new dramas like A Confession and Sanditon, and entertainment juggernauts like Britain's Got Talent The Champions and I'm a Celebrity helping to drive viewing on screen and online."
Enquiries:
STV Group plc:
Katie Martin, PR & Communications Executive
Tel: 0141 300 3109
Camarco
Geoffrey Pelham-Lane, Partner
Ben Woodword, Partner
Tel: 0203 757 4985
Financial performance review
Reflecting the phasing of revenue in Productions and the closure of loss-making STV2, total revenue was down 5% to £54.9m (2018: £57.7m).
However, total advertising revenue was down a marginal 0.6%, ahead of the wider television advertising market and supported by a continued strong performance in digital and regional advertising.
Adjusted operating profit increased significantly by 10% to £11.0m (2018: £10.0m). The growth in the regional advertising market more than offset the decline in national advertising, which was in part due to the absence of the FIFA World Cup. Digital revenue growth at improving margins, and the realisation of benefits from the structural changes made in 2018 (closure of STV2 and restructure of STV News) also contributed to that strong profit growth. The adjusted operating margin for the Group was 20.0% (2018: 17.3%).
Broadcast division revenues were down 3% at £45.0m (2018: £46.5m) with half of this due to the closure of STV2, and the balance a result of the expected weaker national advertising market. Regional advertising revenues were up 19% to £7.3m (2018: £6.1m).
Broadcast division operating profit increased to £9.7m (2018: £9.1m), up 7%, driven by regional advertising and the positive impact of measures taken in 2018 to deliver efficiencies and cost savings. Combined with the impact of profit protection in the face of a decline in the national advertising market secured through the trading arrangements with ITV, these elements all contributed to an operating margin growth of 2 percentage points year on year, up to 21.6%.
The digital division delivered a 19% increase in revenue to £5.6m (2018: £4.7m) and a 43% increase in operating profit to £3.0m (2018: £2.1m). The division's operating margin increased to 53.6% (2018: 44.7%). This strong performance was driven by the launch of the STV Player on Virgin Media, an overall improved user experience and an enhanced content offer.
Due largely to the phasing of programme deliveries, STV Productions' revenues were £2.0m (2018: £3.7m) with an operating loss of £1.7m (2018: loss of £1.2m). This is expected to substantially reverse in the second half with the delivery of already commissioned series. Following the appointment of David Mortimer as managing director in late 2018, the focus in H1 has been on recruitment of key creative talent and the formation of new creative and commercial partnerships to deliver the growth strategy.
The STV External Lottery Manager (ELM) invoiced £2.3m of costs to the Scottish Children's Lottery (SCL) in the period (2018: £2.8m) and the ELM continues to operate on a P&L breakeven basis. The performance of the SCL has, however, fallen below expectations in H1 due to slower than planned retail roll-out and platform issues which have impacted subscriber retention. Having briefly operated on a cash flow breakeven basis at the start of this year, the cash flows generated since January have therefore not been sufficient to meet all of the costs invoiced to the SCL and, as a result the net debtor balance has increased to £7.0m (2018: £6.4m). This is after a provision of £4.7m which is considered appropriate at 30 June 2019 but will be kept under review. A number of initiatives have been identified to improve performance and are in various stages of implementation.
Net finance costs incurred were £1.9m (2018: £1.5m before exceptionals), of which cash costs relating to the Group's borrowings totalled £0.7m (2018: £0.6m). The balance of net finance costs related to the non-cash items of IAS19 pension interest (2019: £1.0m; 2018: £0.9m) and an interest charge of £0.2m on lease liabilities under IFRS16, which the Group adopted on 1 January 2019.
The statutory result for the period after tax was a profit of £7.5m (2018: loss of £4.2m). The Group's effective tax rate for the period was 18%, consistent with the same period last year.
Adjusted earnings per share was up 1.8p to 21.8p, an increase of 9% (2018: 20.0p). On a statutory basis, basic EPS was 19.7p compared to a loss per share of 10.9p in 2018.
The net debt: EBITDA ratio at the half year was 1.49x (2018: 1.46x), within the Group's target range of 1.0x to 1.5x (covenant maximum is 3.0x), despite an increase in net debt to £42.0m (2018: £37.8m). Net debt is expected to reduce by the year end reflecting the second half weighting of deliveries in Productions, and normal seasonal trends.
The main non-operating cash outflows were pension deficit payments of £5.9m, as per the recently agreed triennial valuation and including a contingent payment based on cash generation in 2018, dividend payments of £5.3m, £0.9m of share purchases through the buyback programme and into the Employee Benefit Trust, and reorganisation costs of £0.8m arising from the restructure implemented in 2018.
The Group's preferred measure of operating profit converted to free cash flow, defined as operating profit plus depreciation, amortisation and share based payments, less working capital movements (excluding STV ELM) and capital expenditure, was 74% in the first half of the year (2018: 109%). The lower conversion compared to the same period in the prior year is due to increased capital investment, alongside higher working capital requirements of STV Productions driven by the previously mentioned H2 weighting of deliveries. The expectation is that this cash conversion will increase by the year end.
At 30 June 2019, the balance sheet included £12.8m of right-of-use assets following adoption of IFRS16, Leases, with a corresponding lease liability of £13.0m. The IAS19 pre-tax pension deficit decreased by £4.1m over the first half of the year to £74.4m (June 2018: £59.3m) with the decrease due to key assumptions being updated for current market conditions.
The Group's £60m revolving credit and overdraft facility matures in June 2022 and provides good medium term funding certainty.
Shareholder returns
STV continues to balance the requirement to invest in the strategic growth plan with the need for financial flexibility to enable continued delivery of returns to shareholders. As a result an interim dividend of 6.3 pence per share will be paid, an increase of 5% on the 2018 interim dividend of 6.0 pence per share, and in line with recent guidance.
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 excellent viewing performance achieved during 2018 has been maintained throughout H1 2019 with STV achieving its highest all time share since 2009, at 18.7%. This is despite tough year on year comparatives (the absence of the FIFA World Cup), and an even more competitive market, including the launch of a new BBC channel in Scotland.
The impact of a weaker national advertising market, with revenues down 6% year on year, was minimised through the protection secured in the trading arrangements with ITV, under which STV's programme costs decline in line with any revenue reduction. Continued growth in the regional advertising market, up 19% year on year to £7.3m, has been supported by the successful STV Growth Fund.
So far this year, the STV Growth Fund has allocated £3.2m of value across 135 advertising deals, more than half of which are with clients new to television advertising. Since launch there have been over 200 deals with over 100 new advertisers attracted and over £5m allocated by the fund. The STV Growth Fund Incubator has also launched offering revenue share deals to advertisers, with the first deals already in place.
Operating profit grew by 7% year on year to £9.7m (2018: £9.1m). The positive impact of cost saving measures implemented in 2018, including the closure of STV2 and a change programme implemented across STV News, contributed to an increased margin of 21.6% (2018: 19.6%).
The performance of STV News has continued to strengthen following changes announced in 2018. In Ofcom's report: News Consumption in the UK: 2019, STV News is now identified as the number one source of news for Scotland. Our flagship programme, STV News at Six, continued to increase its viewing share year on year and to date in 2019 has secured an average share of 30%, increasing by nearly 4 share points in the last 18 months (2017: 26.4%). The success of the programme was recognised by the Royal Television Society as Best News Programme in its annual awards in June 2019.
Digital
Our ambition to transform the STV Player into Scotland's digital destination is gaining momentum with confirmation that the Player is now the most popular commercial VoD player in Scotland. This is being achieved through increased digital distribution, more choice through a broader content offer, as well as an enhanced user experience through improved product reliability and the introduction of additional features.
Total time spent watching the STV Player increased 13%, even with the tough comparatives of a FIFA World Cup year. Catch up streams are up 36% to 16.4m, driving a 19% increase in revenues to £5.6m (2018: £4.7m).
Following the successful launch of the STV Player on Virgin Media in December 2018, to date 77% of the Virgin Media user base has been active on STV Player, accounting for 15% to 20% of all VoD views. STV Player will be carried on Sky from Q4, further boosting availability and digital advertising revenues. The Sky partnership has also secured STV's position as the first UK PSB to broadcast all of its regional variants in HD on satellite.
In preparation for the launch on Sky, a partnership was announced with FreeWheel to enable STV to undertake its own ad integration onto the Sky platform, avoiding the need for commission payments on advertising revenue.
Whilst the majority of STV Player content is original and exclusive to STV through the Channel 3 network schedule, new content deals are broadening the appeal of the STV Player with over 500 hours of additional content now available from a range of new content partnerships announced to date, including Endemol Shine International, TCB Media Rights, TVF Media, Hopster, Flame, and Jukin'.
STV's new subscription service, STV Player+, is performing as expected following its successful launch on iOS devices at the end of February and will now be rolled out to all major platforms by the year end.
An ambitious programme of product development has been delivered during H1 providing a range of new features to enhance the customer experience, deliver an increasingly personalised viewing environment and extend viewing times. 'End of play' recommendations, introduced in Q2, have so far resulted in c30% of all content starts pursuing the recommended follow up viewing option. 'Watch live restart' was also launched and where available is being used on 15% to 20% of all live streams. 'Picture in picture' is the latest new feature to be introduced and has already increased content time per stream by 33% on the iOS platform.
STV Productions
The vision for STV Productions is to build a world class production business, based in Scotland, which takes full advantage of the growing local and global demand for high quality content. During H1, implementation of the growth strategy has progressed well with key appointments now in post and a repositioning of the business well underway.
In June, the acquisition of a majority stake in award winning producer Primal Media was announced.
Commissions secured in H1 included 50 episodes of long running popular daytime antiques show, Antiques Road Trip, 20 episodes of its sister version, Celebrity Antiques Road Trip and two further series (total of 15 episodes) of Celebrity Catchphrase. A second series commission of ratings success, Inside Central Station, for new channel BBC Scotland, was announced in late June with delivery scheduled for this year.
A key element of the growth strategy is to leverage STV's producer/broadcaster status and pilot high potential formats developed by the production division on STV. The first of these formats, quiz show The Cash Machine, began its run on STV on Sunday 1 September with a 19% share of viewing, 3 share points ahead of the network and 30% up on the slot average.
Securing drama commissions is a priority. The Victim, a four-part high end network commission for BBC One, achieved the highest catch up ratings for a drama since records began, with a 73% increase on the overnight ratings. It has been sold to over 30 countries including deals with Britbox US, France 2 and BBC Worldwide Australia. Following this success, production of a second drama commission, also for BBC One, is underway. Elizabeth Is Missing, starring academy award winning Glenda Jackson in the lead role, will be delivered to the BBC in late Autumn.
Newly acquired Primal Media has secured three commissions so far this year including two factual entertainment shows for Channel 4, as well as a further yet-to-be-announced series.
Finally, in Q1 the appointment of William Morris Endeavour - WME - as international sales agent was announced to support the increased focus on developing dramas and formats for UK and international audiences. WME are working with STV Productions to develop IP for international markets and broker co-development and co-production deals.
Principal risks and uncertainties
The Board considers the principal risks and uncertainties affecting the business activities of the Group are:
· Regulatory environment
· Dependence on advertising
· Performance of the ITV network
· Brexit
· Cyber security
· Pension scheme shortfalls
· Reputational and financial risk of lottery operation
· Financial risks, primarily currency, credit, liquidity and cash flow interest rate risk
Further details of the Group's policies on principal risks and uncertainties are contained within the Group's 2018 Annual Report, a copy of which is available at www.stvplc.tv.
Simon Pitts
Chief Executive Officer
STV Group plc
Condensed interim income statement
Six months ended 30 June 2019
Six months 2019
Six months 2018
Results
for period
Before
exceptional
items
Exceptional
items
(note 8)
Results
for period
£m
£m
£m
£m
Note
Unaudited
Unaudited
Unaudited
Unaudited
Revenue
7
54.9
57.7
-
57.7
Net operating expense
(43.9)
(47.7)
(8.6)
(56.3)
Operating profit/(loss)
11.0
10.0
(8.6)
1.4
Finance costs
- borrowings
(0.7)
(0.6)
-
(0.6)
- IAS 19 pension
(1.0)
(0.9)
-
(0.9)
- IFRS 16
(0.2)
-
-
-
Impairment losses - exceptional ELM provision
-
-
(4.2)
(4.2)
(1.9)
(1.5)
(4.2)
(5.7)
Profit/(loss) before tax
9.1
8.5
(12.8)
(4.3)
Tax (charge)/credit
9
(1.6)
(1.5)
1.6
0.1
Profit/(loss) for the period
7.5
7.0
(11.2)
(4.2)
Earnings per share
Basic
10
19.7p
18.1p
(10.9p)
Diluted
10
19.1p
17.8p
(10.9p)
A reconciliation of the statutory results to the adjusted results is included at note 21.
Condensed interim statement of comprehensive income
Six months ended 30 June 2019
Six months
Six months
2019
2018
£m
£m
Unaudited
Unaudited
Profit/(loss) for the period
7.5
(4.2)
Items that will not be reclassified to profit or loss:
Re-measurement of defined benefit pension schemes
(0.7)
7.9
Deferred tax credit/(charge)
0.1
(1.4)
Other comprehensive (expense)/income for the period
(0.6)
6.5
Total comprehensive income for the period
6.9
2.3
The above condensed interim income statements should be read in conjunction with the accompanying notes.
Condensed interim balance sheet
As at 30 June 2019
30 June
31 December
2019
2018
£m
£m
Note
Unaudited
Audited
Non-current assets
Property, plant and equipment
12
23.4
9.8
Intangible assets
13
2.1
1.9
Investments
0.7
0.7
Deferred tax asset
14
18.5
19.5
Trade and other receivables
15
8.8
8.2
53.5
40.1
Current assets
Inventories
16.1
14.4
Trade and other receivables
17.1
22.7
Cash and cash equivalents
2.7
6.3
35.9
43.4
Total assets
89.4
83.5
Equity attributable to owners of the parent
Ordinary shares
17
19.6
19.6
Share premium
101.9
101.9
Capital redemption reserve
0.2
0.2
Merger reserve
173.4
173.4
Other reserve
0.9
0.8
Accumulated losses
(354.4)
(355.0)
Total equity
(58.4)
(59.1)
Non-current liabilities
Borrowings
16
44.7
42.6
Lease liabilities
10.7
-
Derivative financial instruments
0.1
-
Retirement benefit obligations
19
74.4
78.5
129.9
121.1
Current Liabilities
Trade and other payables
14.8
20.4
Lease liabilities
2.3
-
Current tax liabilities
0.5
-
Provisions
0.3
1.1
17.9
21.5
Total liabilities
147.8
142.6
Total equity and liabilities
89.4
83.5
The above condensed interim balance sheet should be read in conjunction with the accompanying notes.
Condensed interim statement of changes in equity
Six months ended 30 June 2019
Equity attributable to owners of the parent
Ordinary
shares
Share
premium
Capital redemption reserve
Merger
reserve
Other
reserve
Accumulated
losses
Total
equity
£m
£m
£m
£m
£m
£m
£m
As previously reported
19.6
101.9
0.2
173.4
0.8
(355.0)
(59.1)
Implementation of IFRS 16 (note 3)
-
-
-
-
-
(0.1)
(0.1)
At 1 January 2019 as adjusted
19.6
101.9
0.2
173.4
0.8
(355.1)
(59.2)
Profit for the period
-
-
-
-
-
7.5
7.5
Other comprehensive expense
-
-
-
-
-
(0.6)
(0.6)
Total comprehensive income for the period
-
-
-
-
-
6.9
6.9
Acquisition of treasury shares
-
-
-
-
-
(0.9)
(0.9)
Share based compensation
-
-
-
-
0.1
-
0.1
Dividends
-
-
-
-
-
(5.3)
(5.3)
Balance at 30 June 2019 (unaudited)
19.6
101.9
0.2
173.4
0.9
(354.4)
(58.4)
Balance at 1 January 2018
19.7
101.9
0.1
173.4
0.7
(334.1)
(38.3)
Loss for the period
-
-
-
-
-
(4.2)
(4.2)
Other comprehensive income
-
-
-
-
-
6.5
6.5
Total comprehensive income for the period
-
-
-
-
-
2.3
2.3
Acquisition of treasury shares
-
-
-
-
-
(1.3)
(1.3)
Shares bought back on-market and cancelled
(0.1)
-
0.1
-
-
(0.2)
(0.2)
Share based compensation
-
-
-
-
0.2
-
0.2
Value of employee services
-
-
-
-
-
(0.2)
(0.2)
Dividends
-
-
-
-
-
(4.6)
(4.6)
Balance at 30 June 2018 (unaudited)
19.6
101.9
0.2
173.4
0.9
(338.1)
(42.1)
The above condensed interim statement of changes in equity should be read in conjunction with the accompanying notes.
Condensed interim statement of cash flows
Six months ended 30 June 2019
Six months
Six months
2019
2018
£m
£m
Note
Unaudited
Unaudited
Operating activities
Cash generated by operations
18
10.1
10.0
Interest paid
(0.5)
(0.5)
Refinancing fees paid
-
(0.2)
Taxes refunded/(paid)
0.2
(0.3)
Pension deficit funding
- recovery plan payment
(5.9)
(4.4)
Net cash generated in operating activities
3.9
4.6
Investing activities
Capitalised web development spend
(0.5)
(0.1)
Purchase of property, plant and equipment
(1.9)
(0.6)
Sale of investments
-
0.2
Net cash used in investing activities
(2.4)
(0.5)
Financing activities
Acquisition of treasury shares
(0.9)
(1.3)
Repayment of principal under lease liabilities
(0.9)
-
Share buyback
-
(0.6)
Borrowings drawn
11.0
7.0
Borrowings repaid
(9.0)
(8.0)
Dividend paid
11
(5.3)
(4.6)
Net cash used in financing activities
(5.1)
(7.5)
Net decrease in cash and cash equivalents
(3.6)
(3.4)
Net cash and cash equivalents at beginning of period
6.3
6.1
Net cash and cash equivalents at end of period
2.7
2.7
Notes to the condensed interim financial statements
Six months ended 30 June 2019
1. General information
STV Group plc ("the Company") and its subsidiaries (together "the Group") is listed on the London Stock Exchange and incorporated and domiciled in the UK. The address of the registered office is Pacific Quay, Glasgow, G51 1PQ. The principal activities of the Group are the production and broadcasting of television programmes, internet services and the sale of advertising airtime and space in these media, and lottery management services.
These condensed interim financial statements were approved for issue on 3 September 2019 and have been reviewed, not audited. They do not comprise statutory accounts within
the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year
ended 31 December 2018 were approved by the board of directors on 12 March 2019 and
delivered to the Registrar of Companies. The report of the auditors on those accounts was
unqualified, did not contain an emphasis of matter paragraph and did not contain any
statement under section 498 of the Companies Act 2006.
2. Basis of preparation
These condensed interim financial statements for the six months ended 30 June 2019 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority (previously the Financial Services Authority) and with IAS34, 'Interim financial reporting', as adopted by the European Union. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2018, which have been prepared in accordance with IFRS as adopted by the European Union.
Going concern basis
The Group meets its day-to-day working capital requirements through its bank facilities. The current economic conditions continue to create uncertainty particularly over (a) the level of demand for the Group's products; and (b) the availability of bank finance for the foreseeable future. The group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facilities. After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least twelve months from the date of approval of the financial statements. The directors therefore consider it appropriate to continue to adopt the going concern basis in preparing these condensed interim 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 2018.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.
Apart from the adoption of IFRS 16 described below, other changes to accounting standards in the current period had no material impact.
The Group adopted IFRS 16 'Leases' on 1 January 2019. As a lessee, the Group previously classified its property and vehicle leases as operating leases under IAS 17. Under IFRS 16, the Group recognises a right-of-use asset and a lease liability representing future lease payments. Lease costs are recognised as depreciation and interest rather than as an operating cost. When measuring lease liabilities that were classified as operating leases, the Group discounted lease payments using its incremental borrowing rate at 1 January 2019. The weighted average rate applied is 2.3%.
The Group has applied IFRS 16 using the modified retrospective approach. Under this approach, the comparative information is not restated. In line with the standard, the Group has elected not to recognise right of use assets and lease liabilities for short-term leases or low-value leases. The amounts relating to these leases are not material.
On transition to IFRS 16, the Group recognised right-of-use assets within property, plant and equipment (£13.7m) and lease liabilities (£13.7m). In addition, a property lease accrual of £0.1m has been written off and adjusted through retained earnings.
1 January 2019
£m
Operating lease commitment at 31 December as disclosed in the Group's consolidated financial statements
(13.8)
Impact of IFRS 16 data review*
(1.1)
Operating lease commitments at 31 December 2018
(14.9)
Sub- lease property rentals netted against commitment
(0.4)
Discounted using the incremental borrowing rate at 1 January 2019
1.6
Lease liabilities reported at 1 January 2019
(13.7)
*As part of the transition to IFRS 16, a detailed review of leases identified a small number of commitments not included in the 2018 Annual Report operating lease commitment disclosure.
During the six months ended 30 June 2019, the Group has recognised £0.9m of depreciation and £0.2m of interest costs from these leases, instead of an operating lease expense. In the Consolidated Interim Balance Sheet, right of use assets of £12.8m are included within property, plant and equipment and lease liabilities of £13.0m included within current and non-current liabilities.
4. Estimates
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2018, with the exception of changes in estimates that are required in determining the provision for income taxes.
5. Financial risk management and financial instruments
The Group's activities expose it to a variety of financial risks: currency risk, credit risk, liquidity risk and cash flow interest rate risk.
The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2018.
There have been no changes in any risk management policies since the year end.
6. Seasonality of operations
In line with the UK advertising market as a whole, the autumn season provides the Group with the highest level of revenues. The Productions business also delivers the majority of its programmes to broadcasters in the second half of the year.
7. 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.
External sales
Segment revenues
Six months 2019
Six
months 2018
£m
£m
Broadcast
45.0
46.5
Digital
5.6
4.7
Productions
2.0
3.7
ELM
2.3
2.8
54.9
57.7
Segment result
Six months 2019
Six months
2018
£m
£m
Broadcast
9.7
9.1
Digital
3.0
2.1
Productions
(1.7)
(1.2)
ELM
-
-
Operating profit (pre-exceptionals)
11.0
10.0
Exceptional reorganisation cost attributable to Group
-
(7.8)
Exceptional loss on sale of STV2 attributable to Group
-
(0.8)
Operating profit
11.0
1.4
Finance costs
(1.9)
(1.5)
Impairment losses - exceptional ELM provision
-
(4.2)
Profit/(loss) before tax
9.1
(4.3)
Tax (charge)/credit
(1.6)
0.1
Profit/(loss) attributable to owners of the parent
7.5
(4.2)
There has been no significant change in total assets from the amount disclosed in the last annual financial statements.
8. Exceptional items
In the first six months of 2018, the Group recognised exceptional costs totalling £12.8m. These related to a provision for the restructuring of the business (£7.8m), the loss on sale of STV2 (£0.8m) and recognition of a provision in relation to the ELM debtor (£4.2m).
There have been no exceptional items in the first half of 2019.
9. Tax
Six months
Six months
2019
2018
£m
£m
The charge/(credit) for taxation is as follows:
Charge for the year
1.6
1.5
Tax effect on exceptional items
-
(1.6)
1.6
(0.1)
Tax on the results for the six month period is charged at 18% (30 June 2018: 18%) representing the best estimate of the average annual effective tax rate expected for the full year, applied to the pre-tax profit of the six month period. The tax charge is lower than the standard rate of 19% due to the impact of the anticipated reduction in the statutory rate of corporation tax on the realisation of deferred tax assets in the current period.
10. Earnings per share
Six months
Six months
2019
2018
£m
£m
Profit/(results) for the year attributable to equity shareholders
7.5
(4.2)
Exceptional items (net of tax)
-
7.8
Exceptional impairment losses (net of tax)
-
3.4
Profit for the year before exceptional items
7.5
7.0
Million
Million
Weighted average number of ordinary shares in issue
38.0
38.6
Dilution due to share options*
1.2
0.7
Total weighted average number of ordinary shares in issue
39.2
39.3
Pence
Pence
Basic earnings per ordinary share
19.7p
(10.9p)
Diluted earnings per ordinary share*
19.1p
(10.9p)
Earnings per ordinary share (before exceptional items)
19.7p
18.1p
Diluted earnings per ordinary share (before exceptional items)
19.1p
17.8p
* As the Group reported a basic loss per ordinary share for the six months ended 30 June 2018, any potential ordinary shares are anti-dilutive and so excluded from the calculation of diluted loss per share. These options could potentially dilute earnings per share in future periods.
11. Dividends
A dividend of £5.3m (2018: £4.6m) which relates to the year ended 31 December 2018 was paid in May 2019.
An interim dividend of 6.3p per share (2018: 6.0p per share) has been proposed and is subject to approval by the board of directors. It is payable on 6 November 2019 to shareholders who are on the register at 27 September 2019. This interim dividend, amounting to £2.4m (2018: £2.3m), has not been recognised as a liability in this interim financial information. It will be recognised in shareholders' equity in the year ending 31 December 2019.
12. Property, plant and equipment
During the six months to 30 June 2019, the Group has incurred expenditure of £1.9m on property, plant and equipment (£3.0m in the year to 31 December 2018; £0.6m in the six months to 30 June 2018). The net disposals amount to £nil (£0.1m in the year to 31 December 2018; £0.1m in the six months to 30 June 2018).
See note 3 for further information regarding the initial application of IFRS 16. Right-of-use assets are presented within property, plant and equipment.
13. Intangible assets
During the six months to 30 June 2019, the Group has incurred expenditure of £0.5m on web development (£0.4m in the year to 31 December 2018; £0.1m in the six months to 30 June 2018). The net disposals amount to £nil (£0.4m in the year to 31 December 2018; £0.4m in the six months to 30 June 2018).
14. Deferred tax asset
The deferred tax asset recognised (excluding the deferred tax asset in relation to the pension deficit) at 30 June 2019 is £5.9m (31 December 2018: £6.0m). This relates to tax losses carried forward, accelerated capital allowances and short term timing differences.
The deferred tax asset recognised relating to the pension scheme deficit at 30 June 2019 is £12.6m (31 December 2018: £13.2m).
15. Trade and other receivables
An amount of £7.0m (31 December 2018: £6.4m), included within non-current assets, relates to debt due to ELM (the lottery management company) from the Scottish Children's Lottery. The £7.0m debtor is net of provision for an expected credit loss of £4.7m (31 December 2018: £5.0m).
16. Borrowings
At 30 June 2019, the Group had revolving credit and overdraft bank facilities in place totalling £60.0m (£60.0m at 31 December 2018). At 30 June 2019, £45.0m of the facility was drawn down (£43.0m at 31 December 2018). The amount of borrowings is net of £0.3m unamortised borrowing costs (31 December 2018: £0.4m).
The £60.0m revolving credit and overdraft facility has a maturity date of June 2022. Security is provided to the debt providers by way of cross guarantees and a share pledge.
17. Share capital
Issued share capital as at 30 June 2019 and 31 December 2018 amounted to £19.6m (39,192,137 shares).
18. Notes to the condensed interim statement of cash flows
Six
months
Six
months
2019
2018
£m
£m
Operating profit
11.0
1.4
Add back : exceptionals
-
8.6
Operating profit (excluding exceptionals)
11.0
10.0
Adjustments for:
Depreciation on property, plant and equipment
1.9
0.8
Amortisation of intangible assets
0.4
0.4
Share based compensation
0.1
0.2
EBITDA pre-exceptional
13.4
11.4
Increase in inventories
(1.7)
(5.2)
Decrease in trade and other receivables (excluding ELM)
5.4
2.7
Decrease in trade and other payables (excluding ELM)
(5.3)
(0.9)
(Increase)/decrease in ELM trade and other receivables
(0.6)
2.9
Decrease in ELM trade and other payables
(0.3)
(0.3)
Underlying cash generated by operations
10.9
10.6
Exceptional reorganisation costs
(0.8)
(0.9)
Exceptional net cash received on sale of STV2
-
0.3
Cash generated by operations
10.1
10.0
Additions to property, plant and equipment during the period amounting to £0.1m were financed by new leases.
Analysis of movements in net debt
At 1
January 2019
Cash flows
Non-cash
changes
At 30 June 2019
£m
£m
£m
£m
Cash and cash equivalents
6.3
(3.6)
-
2.7
Long term borrowings
(42.6)
(2.0)
(0.1)
(44.7)
Net debt
(36.3)
(5.6)
(0.1)
(42.0)
Covenant EBITDA reconciliation
Six
months
Six
months
2019
2018
£m
£m
Operating profit
11.0
10.0
Depreciation and amortisation
1.4
1.2
Post-employment benefit charges
1.2
1.3
Non-cash and other adjustments
1.8
0.9
Covenant EBITDA
15.4
13.4
Statutory results are adjusted above for the net debt : EBITDA ratio on a covenant basis, which excludes the impact of IFRS 16. 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.
19. Retirement benefit schemes
The fair value of the assets in the schemes and the present value of the liabilities in the schemes at each balance sheet date was:
At 30 June
At 31 December
2019
2018
£m
£m
Total defined benefit scheme obligations
(450.3)
(421.9)
Total defined benefit scheme assets
obligations
375.9
343.4
Net pension deficit
(74.4)
(78.5)
A related offsetting deferred tax credit of £12.5m (31 December 2018: £13.2m) is included in non-current assets. Therefore the net pension scheme deficit is £61.9m at 30 June 2019 (31 December 2018: £65.3m).
20. Transactions with related parties
There has been no change from the 2018 Annual Report and no transactions with any related parties in the period to 30 June 2019.
21. 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.
2019
2018
Profit
before tax
Basic
EPS
Diluted
EPS
Profit
before tax
Basic
EPS
Diluted
EPS
£m
pence
pence
£m
pence
pence
Post exceptional
9.1
19.7p
19.1p
(4.3)
(10.9p)
(10.7p)
Add back: exceptionals
-
-
-
12.8
29.0p
28.5p
Pre-exceptional
9.1
19.7p
19.1p
8.5
18.1p
17.8p
Add back: IAS 19
1.0
2.1p
2.1p
0.9
1.9p
1.8p
Adjusted results
10.1
21.8p
21.2p
9.4
20.0p
19.6p
Refer to the comment in note 10 with respect to 2018 Diluted EPS.
22. Subsequent event
On 1 July 2019, the Group acquired a majority stake in production company, Primal Media Limited for a nil consideration. Under the terms of the deal, Lionsgate, the previous majority in Primal Media will retain a minority stake in the business, with the founders holding the remaining equity.
Independent review report to STV Group plc
Report on the condensed interim financial statements
Our conclusion
We have reviewed STV Group plc's condensed interim financial statements (the "interim financial statements") in the half year results of STV Group plc for the 6 month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
· the condensed interim balance sheet as at 30 June 2019;
· the condensed interim income statement and condensed interim statement of comprehensive income for the period then ended;
· the condensed interim statement of cash flows for the period then ended;
· the condensed interim statement of changes in equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the half year results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The half year results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half year results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the half year results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half year results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
Glasgow
3 September 2019
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.ENDIR EANNAEEPNEFF
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