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 - STV Group plc
STV strategic plan delivers further growth
        2019 Full Year Results – 10 March 2020
STV strategic plan delivers further growth - 2019 Full Year Results - 10 March 2020 - STV Group plc
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
STV strategic plan delivers further growth - 2019 Full Year Results - 10 March 2020 - STV Group plc
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 strategic plan delivers further growth - 2019 Full Year Results - 10 March 2020 - STV Group plc
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
STV strategic plan delivers further growth - 2019 Full Year Results - 10 March 2020 - STV Group plc
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
STV strategic plan delivers further growth - 2019 Full Year Results - 10 March 2020 - STV Group plc
Strategic Update & Outlook
        Simon Pitts
                             6
STV strategic plan delivers further growth - 2019 Full Year Results - 10 March 2020 - STV Group plc
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
STV strategic plan delivers further growth - 2019 Full Year Results - 10 March 2020 - STV Group plc
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
STV strategic plan delivers further growth - 2019 Full Year Results - 10 March 2020 - STV Group plc
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
STV strategic plan delivers further growth - 2019 Full Year Results - 10 March 2020 - STV Group plc
“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
                                                                  10
BROADCAST
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
                                                                                  11
BROADCAST
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

                                                                                                        12
DIGITAL
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%                           13
DIGITAL
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
                                                                                      14
DIGITAL
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
                                                                                              15
DIGITAL
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
                                                                                                 16
DIGITAL
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
                                                                                               17
Digital is STV’s #1
marketing priority

                      18
PRODUCTION
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
                                                                                      19
We 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
                                                                                                                            20
PRODUCTION
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

                                                                                              21
PRODUCTION
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                              22
We are on track to hit our 2020 diversification target
Non-broadcast earnings as a % of operating profit

                                                    33%
                                       28%
                             24%
                   19%

                                                          23
Coming 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
                                                                                           24
Positive 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
                                                                                      25
Financial Review
 Lindsay Dixon
                   26
Group 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

                                                                                                         27
Group 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%

                                                                                                         28
Broadcast
     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
                                                                                                            29
Digital
     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

                                                                                                        30
Productions
     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
                                                                                                         31
Strong 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
                                                                                                        32
Net 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

                                                                                                          33
Pensions
     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

                                                                                                            34
Scottish 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

                                                                          35
Appendices

             36
Corporate 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

                                                                                                          37
Group 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                                                  38
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