STV strategic plan delivers further growth - 2019 Full Year Results - 10 March 2020 - STV Group plc
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STV strategic plan delivers further growth
2019 Full Year Results – 10 March 2020
Delivering on our strategy
• Double digit operating profit growth in an uncertain market
• Maintained excellent viewing performance on TV and online, including amongst
16-34s
• High margin digital business growing well ahead of expectations
• Significantly enhanced creative pipeline in productions starting to bear fruit
• On track to hit 2020 diversification target of 1/3 profit from outside traditional TV
advertising
• Positive outlook for 2020
2
Delivering strong financial performance
Total
Total Regional Digital Production
Advertising
Revenue Revenue Revenue Revenue
Revenue
£123.8m £101.6m £14.9m £13.0m £13.7m
-1.6% +2% +11% +37% -16%
Operating Operating Non-broadcast Full Year
EPS
Profit* Margin Profit Growth Dividend
£22.6m 18% 46.4p 21p
+13% +230 bps +13% +34% +5%
*Operating profit, margin and EPS are adjusted metrics, to exclude the impact of exceptional items and IAS19 3
STV key performance metrics now at historic highs
Operating profit EPS Growth
50.0p new strategic plan
£25.0m new strategic plan
46.4
22.6
40.0p
£20.0m 41.1
20.3 20.1 39.9 39.7 39.6
19.5 19.7
19.0 36.3
30.0p
£15.0m
£10.0m 20.0p
£5.0m 10.0p
- -
2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
Adjusted metrics – before exceptional items and ISA19 4
Profit growth coming predominantly from topline revenue growth
Operating profit bridge, 2017-2019
£30.0m
2.5
£25.0m 4.6
3.2
£20.0m
4.4
1.9
£15.0m
22.6
£10.0m 19.0
£5.0m
-
Operating National Regional Digital Restructuring Investment in Operating
profit 2017 advertising advertising advertising growth profit 2019
strategy
5
Strategic Update & Outlook
Simon Pitts
6
We are pursing the right strategy to grow our business for the long term
1. Maximise the value of our broadcast business
2. Drive digital growth by creating an STV for everyone
3. Build a world class production business
7
BROADCAST
STV’s broadcasting business remains uniquely strong
Across the top 10 commercial channels in Scotland, STV’s peak audience is now
bigger than all the other channels combined
350000
300000
250000
200000
150000
100000
50000
0
STV CH4 CH5 ITV3 ITV2 E4 Film4 More4 Drama ITV4
STV viewing STV now the 96% of the STV News at Six
share still at a biggest peaktime
98% of all large now the best
Scottish adult
decade-long commercial
channel in population watched news
high of 17.6%, audiences were
Scotland, ahead watched STV in programme in
on STV in 2019
+3% on ITV of BBC1 2019 Scotland
8
BROADCAST
TV still dominates youth viewing and ad consumption, with STV
reaching 92% of 16-34s
62% of 16-34 Big Screen viewing is TV 84% of 16-34 video advertising viewing is on TV
Other 8%
Other online (2%)
(14mins)
Youtube Cinema (1%)
8% (14mins)
16-34 BVOD
(9%)
Big Screen TV (57%)
SVOD Viewing 1hr 41mins 62% Playback
84%
22%
(39mins) 2hrs and 55mins TV TV TV
per day (9%)
BVOD 5%
(8mins)
Source: Barb Scotland, 2019 ,16-34s: Total viewing to a TV set = 175mins, total TV viewing = 101mins Source: Thinkbox: 2019, BARB / Broadcaster stream data / IPA Touchpoints 2019
Unmatched = 76mins (allocation based on 2018 data)
STV is the best
The Masked Singer
Commercial TV watched channel in I’m a Celebrity
is the best watched
still reaches 90% Scotland for 16-34s reached 43% of 16-
new show for
of all 16-34s – 92% reach, 3x 34s in Scotland 16-34s
bigger than ITV2 9
“Despite two decades of online
disruption, the UK remains reliant on
traditional platforms and brands
across the media sector – more so
for older cohorts, but also
for younger generations”
Enders Analysis, The ‘surprising’ endurance of broadcast media,
February 2020
10BROADCAST
The STV Growth Fund continues to drive regional growth
Growth Fund at a glance since launch
£9.9m 396
allocated
deals
so far
More than 50%
of members
166 new saw their The focus for 2020 is our find, grow,
keep strategy with aggressive price
advertisers profits increase
comparison to illustrate the value of TV
in Year 1
11BROADCAST
The fund is building brand loyalty to STV
and increasing repeat business “The response was instant. The footfall has been
insane. Every second person is coming in and they've
seen us on TV so it's definitely working.”
Yasmine Ali, Managing Director, Babyland
“What TV can deliver that the other mediums can't is
a real broad brand awareness. Also, when we've run
activity we can see an immediate uplift to traffic to our
website and calls into the business.”
Kerra McKinnie - Head of Marketing &
Communications, Scottish Building Society
“Advertising with STV has enabled us to build our
In 2019 85% of regional revenue business and it's the STV Growth Fund that has
enabled us to open a new showroom in Stirling.”
came from existing clients, up 5%
year on year Pauline McCafferty, Director, Brodie Flooring
12DIGITAL
Our digital business continues to grow strongly, well ahead of
expectations
More people Watching more For longer
Monthly active VOD stream Total online
VOD users starts viewing
+15% +37% +23%
Creating more And more
inventory revenue
Ad impressions Digital revenue
+44% +37% 13DIGITAL
The Sky launch has so far boosted STV Player usage by 30% and ad
impressions by 15-20%
• Very successful launch of STV Player to Sky’s
800,000 Scottish homes in November
• STV prominently positioned next to BBC iPlayer
and receiving significant promotion
• STV’s drama boxsets and Player-only content
performing particularly well
• STV retains 90%+ of all ad revenues
A full year of Sky usage will underpin significant STV Player growth in 2020
14DIGITAL
Our Player-only content has grown to 1000+ hours, representing 15-20%
of usage and growing
Growth of Player-only content as % of total
2 new live STV Player streams
19% last
24/7 sports month
channels 20
18
16
+110 hours 14
12 6%
12 months
of drama 10 ago
8
boxsets
6
4
2
+450 hours 0
of new factual
shows
15DIGITAL
We’re leading the market with innovative features designed to drive total
digital viewing
Live restart Recommendations
• STV the first in the • Introduced across all
UK to introduce platforms in 2019
broadcast live restart
in SD and HD • 30% watch the next
episode
• 18% of Player
streams restarted • Increasing to 50% on
big screen platforms
Picture in Picture Ad innovation
• Introduced for the • c.30% of STV digital
Rugby World Cup inventory now sold
programmatically
• Helped drive +33% across 6 platforms
increase in average
• New ad products
stream length on iOS
rolling out, e.g. digital
carousel sponsorship
16DIGITAL
We see significant potential for future digital growth this year and beyond
New platforms New content
Big exclusive events
and a step change in
Launched Launched Player-only content to
Nov 2019 Feb 2020 come in 2020
UK wide
STV Player
rolling out
across the UK
in 2020
+ Monthly
retail
price STV share
via new
STV share
30% increase in STV via Apple
portal
£3.99
gross revenues per sub £2.23 £2.93
via new payment portal
In 2019, 96% of Scotland watched STV and 55% used STV Player = Room for growth
17Digital is STV’s #1
marketing priority
18PRODUCTION
In the last year we have laid very strong foundations for production growth
• New creative leadership across the genres
• Produced two new dramas for first time in a
decade
2019
• Invested in new production companies, Primal and
Two Cities
17 shows
• More aggressive approach to existing and new IP For 8 different channels
• Maintained financial performance, despite
investment Totalling 120 hours of TV
We are confident we can accelerate STV Productions’ profitability from this year
19We now have a broader slate of new and returning shows PRODUCTION
RETURNING RETURNING RETURNING RETURNING
Inside Central Jerk
ART/CART Catchphrase
Station
RETURNING NEW NEW
Britain’s Biggest
Warship The Cash Machine It Pays to Behave
NEW NEW NEW NEW
Home Free Clear Out, Cash In The Victim Elizabeth is Missing
20PRODUCTION
Low risk acquisitions have significantly strengthened our creative pipeline
• Excellent creative track record Patrick • Excellent creative track record
Melrose
• Very strong pipeline • Very strong pipeline
• No upfront consideration • Low upfront consideration, fully
• Payouts only in success funded by our deltaDNA disposal
• £0.5m synergies on track • Adds significant creative capacity
• Highly complementary to in-house • Nations and regions advantages (Belfast)
• Focus on large scale entertainment • International outlook
and fact ent series and events
Carnage
21PRODUCTION
STV’s drama development slate is now particularly strong, with The
Victim and Elizabeth is Missing significantly enhancing our reputation
Drama
Initial 25% stake with path to
100% owned 50/50 joint venture control
23 projects in active 9 projects in active 20 projects in active
development development development
8 funded 8 funded 15 funded
development development development
7 5 14
scripts scripts scripts
THE VICTIM ELIZABETH IS MISSING
“THE DRAMA OF THE YEAR” “A HARROWING COMPELLING, MAGNIFICENT PERFORMANCE”
THE TIMES THE GUARDIAN 22We are on track to hit our 2020 diversification target
Non-broadcast earnings as a % of operating profit
33%
28%
24%
19%
23Coming up at STV in 2020
• Consolidate ratings lead over rivals
1.Broadcast • Refresh STV Growth Fund positioning
• Progress regulatory settlement over licences and prominence
• Continuous focus on broadcast cost base
• Monetise strong viewing growth
2.Digital • Step change in Player-only content
• More new features and personalisation
• UK-wide launch of STV Player
• Continued focus on returning series
3. Production • Secure at least two new drama series
• Launch new formats on STV
• Integrate acquired companies, consider further partnerships
24Positive outlook
• Strong start to 2020
- STV viewing share up
- STV Player viewing accelerating
- Total advertising revenue expected to be up in Q1, and down 5% in April
• Across the full year we would currently expect:
- Single digit growth in regional advertising
- Strong double digit growth in digital
- STV Productions to move into profitability, with deliveries weighted to H2
• Implications of the Coronavirus unclear at this stage, but we continue to monitor
closely
• Strategy on track and delivering
25Financial Review
Lindsay Dixon
26Group Results
Strong performance in an uncertain market; total advertising revenue up 2%
2019 2018
£m £m Change
• Revenue down 2% reflecting slightly lower
Revenue
Productions deliveries and a lower lottery
- Broadcast 92.3 94.5 (2%)
recharge
- Digital 13.0 9.6 37%
- Productions 13.7 16.3 (16%)
• Total advertising revenue +2%;
- ELM 4.8 5.5 (13%)
- growth in digital and regional continue to
123.8 125.9 (2%)
more than offset the national decline
Total advertising revenue 101.6 100.0 2%
Adjusted operating profit 22.6 20.1 13% • Strong growth in adjusted operating profit; up
13%
• Adjusted operating margin at 18%, more than 2
percentage points up year on year
27Group Results
Adjusted operating profit up 13%
2019 2018
£m £m Change
Adjusted operating profit 22.6 20.1 13%
Exceptional items - (11.1) • Net nil exceptionals in 2019
Operating profit 22.6 9.0
• Other finance costs comprise;
Finance costs
- non-cash pension of £2m; and
- funding (1.3) (1.1)
- lease related items of £0.3m
- other (2.3) (1.8)
- exceptional items - (4.2)
Profit before tax 19.0 1.9 • Growth in operating profit converts to equivalent
increase in adjusted EPS
Adjusted EPS (pence) 46.4 41.1 13%
28Broadcast
Strategic growth drivers more than offset national advertising weakness
2019 2018
£m £m Change
• Stronger second half for national advertising,
Revenue
with full year decline of 4%
- National advertising 75.3 78.1 (4%)
- Regional advertising 14.9 13.4 11%
• Double digit growth in regional advertising
- STV2 - 0.7 (100%)
despite slower Q4 caused by Brexit uncertainty
- Other 2.1 2.3 (9%) and General Election
92.3 94.5 (2%)
• Operating costs tightly controlled; 60% of costs
Operating costs (72.4) (75.1) 4% are with ITV, the majority of which reduce in line
with any national advertising decline
Operating profit 19.9 19.4 3%
• Operating margin reflects our unique variable
cost model and the strength of regional
Operating margin 21.6% 20.5% +110bps advertising, as well as benefits from STV News
restructure and the closure of STV2
29Digital
Excellent revenue growth delivers increased profitability
2019 2018
£m £m Change
Revenue 13.0 9.6 37%
• Strong H1 revenue performance improved
Operating costs (5.7) (4.4) (33%) further in H2 as a result of the consistent focus
on new product features and an enhanced
Operating profit 7.3 5.2 40% content offer
• Viewing up 23% with ad impressions up 44%
Operating margin 55.8% 54.6% +120bps • STV Player launched on Sky at the end of Q4 as
planned; minimal impact on 2019 financials
• First full year of carriage on Virgin; contributing
c.15% of all VOD views
• Operating costs weighted towards H2
• Operating margin gains driven by VOD revenues
Digital becoming an ever larger proportion of digital
Operating revenue
Margin
30Productions
Full year performance in line with guidance in a year of transition
2019 2018
£m £m Change
Revenue 13.7 16.3 (16%) • Programme deliveries heavily weighted to
second half
Operating costs (13.8) (15.8) 13%
• H1 performance recovered as guided, from a
Operating profit (0.1) 0.5 (123%)
£1.7m operating loss to breakeven
Operating margin (0.8%) 2.8% (360bps)
• Highest ever secondary sales in 2019, at strong
margins c.70%, e.g. Antiques Road Trip
• Team restructure now complete; Primal team
fully integrated into the division
• Approximately 50% of the value of 2019 revenue
already secured for 2020
31Strong operating cash conversion
2019 2018
£m £m
Operating profit 22.6 20.1 • Strong operating cash conversion of 93%
Dep'n / amort’n – owned assets 2.9 2.4 • Cash conversion lower than 2018 as prior year
Dep’n / amort’n – leased assets 1.9 -
impacted by timing of ITV working capital of
Share based payments 0.3 0.3
EBITDA 27.7 22.8
c.£4m
Working capital (0.3) 6.0 • Pension deficit payments based on current
Lease payments (1.9) - Schedule of Contributions; include first payment
Capital expenditure (4.5) (3.4) under contingent cash arrangement of £1.4m
Operating cash flow 21.0 25.4 • Reorganisation cash outflow now completed
Cash conversion 93% 126% • Dividend outflows relate to final dividend of 14p
Pension deficit payments (10.3) (8.8) for 2018 and interim dividend of 6.3p for 2019
Interest & tax (1.0) (1.8) • Final dividend proposed for 2019 is 14.7p, an
Re-organisation costs (1.0) (2.4) increase of 5% year on year, as guided
Dividends (7.6) (6.9)
• Share buyback programme completed July 2019
SCL funding (1.8) (2.7)
Share purchases (2.1) (4.1) • Net debt: EBITDA lower than prior year and, at
Sale of investments 1.6 0.5 1.29x well within covenant limits and our self
imposed target range of 1-1.5x
(1.2) (0.8)
Net debt 37.5 36.3
Net debt: EBITDA (covenant basis) 1.29x 1.36x
Covenant 3.0x 3.0x 32
32Net nil exceptional items in 2019
2019 2018
£m £m
Operating exceptionals
Gain on sale of investment 2.0 - • In September, the Group disposed of its minority
Development cost write-off (1.9) - shareholding in deltaDNA, a gaming software
Cost of acquisition – Primal (0.1) - company, for a total consideration of £2.5m
resulting in a gain on sale of £2.0m
Restructuring costs – cash - 3.3
Production cost deferral write down - 4.6
• Consideration is receivable in a mix of cash and
GMP equalisation - 1.6 shares (in the new parent company), with 20%
Other – non cash - 1.6 deferred for 2 years
Non-operating exceptionals • Programme development costs of £1.9m have
been written off in the second half following a
Impairment loss – ELM provision - 4.2
review of the programme slates by the new team
Total exceptional items (pre tax) - 15.3
33Pensions
Accounting valuation reduces by 18% due to asset performance
Accounting valuation 2019 2018 Change
Assets (£m) 381.9 343.4 11% • Triennial valuation process (as at 31 December
Liabilities (£m) (445.9) (421.9) (6%) 2017) completed in April 2019
Deficit (£m) (64.0) (78.5) 18% • Deficit funding recovery plan of 12 year agreed
for pre-tax deficit of £127m, representing a
Key assumptions: continuation of the previous plan:
Discount rate 2.0% 2.8% - Base contribution of £9m pa. paid monthly,
RPI 3.0% 3.3% increasing 2% pa, plus
- 20% contingent funding of any out
performance over an agreed cash
generation target, stated after all funding
needs of the business (e.g. capex, tax,
interest, loyalty and incentive plan awards,
working capital) and prior to pension
funding payments and shareholder returns
34Scottish Children’s Lottery (ELM)
Divestment or partnership being actively sought
• Current trading in line with projections
• Independent review of the ELM operation completed
• Concluded that STV is not the best long term owner of the lottery and
process commenced to investigate partnership or divestment
• Expect to provide update by interims
35Appendices
36Corporate costs – additional information
As
reported Restated 2019 2018
2018 Realloc’n 2018 Corporate costs £m £m Change
Broadcast 15.3 4.1 19.4 Operating costs (4.5) (5.0) 11%
Digital 4.7 0.5 5.2
Productions 0.1 0.4 0.5
Corporate - (5.0) (5.0)
Adjusted operating profit 20.1 - 20.1 • Key elements of cost held centrally are:
- Executive remuneration
- Board costs
- City costs
37Group operating profit bridge
Strategic growth drivers more than offset national advertising weakness
Adjusted operating profit
£25.0m
£20.0m
£15.0m
£10.0m
£5.0m
-
2018 op profit National Regional Digital Productions News STV2 closure Other 2019 op profit
advertising advertising restructure
• Digital revenue growth at high margin, benefiting bottom line
• Additional profit from regional and digital more than offsets profit impact from national decline
• Full year impact of News restructure and closure of STV2 in line with interim results 38You can also read
