STV Strategic Plan delivers profitable growth - 2019 Interim Results - 3 September 2019 - STV Group plc
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STV Strategic Plan delivers profitable growth
2019 Interim Results - 3 September 2019
Agenda
Introduction Simon Pitts
Financial Results Lindsay Dixon
Strategic Update & Outlook Simon Pitts
Q&A
2
Key Messages
• Delivered double digit operating profit growth despite national advertising weakness
• New team executing well on the strategy
• Excellent viewing performance maintained on TV and online
• Uniquely strong position in Scotland, outperforming wider UK advertising market
• Increasingly high margin digital business with significant scope for growth
• Investing in STV’s creative pipeline to meet local and global demand for content
• Growing progressive dividend
• Good momentum into H2 despite Brexit uncertainty
3
2019 H1 Highlights
Total
Total Regional Digital Production
Advertising
Revenue Revenue Revenue Revenue
Revenue
£54.9m £48.8m £7.3m £5.6m £2.0m
-5% -0.6% +19% +19% -46%
Operating Operating Interim
EPS Exceptionals
Profit Margin Dividend
£11.0m 20% 21.8p 6.3p
Nil
+10% +270 bps +9% +5%
4
Financial Review Lindsay Dixon
Group Results
Strong performance in an uncertain advertising market
H1 2019 H1 2018
£m £m Change
Revenue 54.9 57.7 (5%)
• Revenue down 5% reflecting national
advertising market and phasing of deliveries in
Operating profit pre
Productions
exceptionals 11.0 10.0 +10%
• Strong growth in adjusted operating profit, up
Exceptional items - (8.6)
10%
Operating profit 11.0 1.4
• Operating margin at 20%; highest H1 margin for
Finance costs at least 10 years
- Funding (0.7) (0.6) • No exceptional items in the period
- Other (1.2) (0.9) • Cash finance costs in line with last year
- Exceptional
• Other finance costs are non-cash and relate to
provision - ELM - (4.2)
pensions and introduction of IFRS16, Leases
Profit/(loss) before tax 9.1 (4.3) • Operating performance converted to 9%
increase in adjusted EPS
EPS pre exceptionals 21.8p 20.0p +9%
6
Broadcast
Good growth in regional, benefit of news restructure & closure of STV2
H1 2019 H1 2018
£m £m Change
Revenue • National advertising decline includes impact of
- National airtime 34.4 36.6 (6%) FIFA World Cup in comparator
- Regional airtime 7.3 6.1 +19%
• Strong growth in regional advertising at the top
- Sponsorship 3.0 3.0 -
end of expectations
- STV2 - 0.7 (100%)
- Other 1.1 1.4 (21%) • Impact of STV2 closure is £0.5m benefit to
- Internal supply (0.8) (1.3) (38%) profit (removal of £0.7m revenue and £1.2m
45.0 46.5 (3%) costs)
• Operating costs tightly controlled; 60% of costs
Operating costs (35.3) (37.4) +6% are with ITV which reduce in line with any
national advertising decline
Operating profit 9.7 9.1 +7% • Operating margin reflects STV’s unique variable
cost model, the strength of regional advertising,
STV News restructure and closure of STV2
Operating margin 21.6% 19.6% +200bps
7
Digital
Revenue growth delivers increased profitability
H1 2019 H1 2018
£m £m Change
Revenue 5.6 4.7 +19%
• Strong revenue growth driven by
- increased distribution, new features and
Operating costs (2.6) (2.6) -
improved reliability of STV Player
- enhanced content offer
Operating profit 3.0 2.1 +43% • Viewing up 13%, and ad impressions up 20%,
even with FIFA World Cup in the comparator
Operating margin 53.6% 44.7% +890bps • Carriage on Virgin delivering in line with plan;
contributing 15-20% of all VOD views
• Operating costs flat
- additional content charges offset by tight cost
control
• Strong flow through to operating profit
8
Productions
Impacted by programme deliveries strongly weighted to second half
H1 2019 H1 2018
£m £m Change
Revenue 2.0 3.7 (46%) • Significant revenue and profit impact from
phasing of deliveries
Operating costs (3.7) (4.9) +24% • Total revenue of £13m secured for 2019 as at
end July, similar to last year (c.£14m)
Operating loss (1.7) (1.2) (42%) • Further series of Antiques Road Trip (ART),
CART and Celebrity Catchphrase all confirmed
for H2
Operating margin (85.0%) (32.4%)
• Secondary sales growth year on year illustrating
the value of returning franchises
• Additional capability in Factual & Entertainment
to supplement already strong genre teams
• Primal integration progressing to plan
- £0.5m of full year synergies identified and in
delivery
9
Group Revenue
Strong total advertising revenue performance down only 0.6%
H1 2019 H1 2018
£m £m Change
Broadcast 45.0 46.5 (3%)
Digital 5.6 4.7 +19% • Digital and regional revenues now 27% of total
Productions 2.0 3.7 (46%) advertising revenue, up from 21% in FY 2017:
ELM 2.3 2.8 - Regional airtime (including sponsorship) has
Total revenue 54.9 57.7 (5%) grown from 13% to 16% due to the strength of
our broadcast channel in Scotland and the
Total ad revenue 48.8 49.1 (1%) success of The Growth Fund
- Digital has grown from 8% to 11%, with strong
flow through to profit
• ELM revenue represents costs charged to the
Scottish Children’s Lottery (SCL); revenue
reduction reflects lower operating costs so is a
positive
10Group Operating Profit
Strategic growth drivers more than offset national advertising weakness
Operating profit pre exceptionals
12.0
10.0
8.0
6.0
4.0
2.0
0.0
H1 2018 National airtime Regional Digital revenue News STV2 closure STV Other H1 2019
airtime flow through restructure Productions
• Additional profit from regional airtime offsets impact of national airtime decline and FIFA World Cup
• Digital revenue growth at high margin benefiting bottom line
• News restructure commenced in Q2 2018 generating efficiency savings in current year
• Benefit from closure of STV2
• Phasing of deliveries in Productions; more weighted to H2 in 2019
11Cash Flow
H1 2019 H1 2018
£m £m
Operating profit 11.0 10.0 • £0.9m additional depreciation due to new lease
Depreciation/amortisation 2.3 1.2
standard
Share based payments 0.1 0.2
EBITDA 13.4 11.4 • Working capital driven by Productions
Working capital movements (2.9) 0.3 - increase in stock - EIM/ART in production
Capital expenditure (2.4) (0.8) - lower deferred income due to timing of deliveries
Operating cash flow 8.1 10.9 - tax credit received re The Victim
Cash conversion 74% 109% • Capital investment in News infrastructure, STV Player
Pension deficit payments (5.9) (4.4) development and Sky integration
Interest paid (0.5) (0.4)
• Pension payments include £1.4m additional contribution
Reorganisation costs (0.8) (0.6)
Dividends (5.3) (4.6) in line with agreement to share cash outperformance
SCL funding (0.6) (1.1) with the schemes
Share purchases (0.9) (2.0)
Tax paid 0.2 (0.3) • Final dividend of 14p per share (2018: 12p per share)
Sale of investments - 0.2
(5.7) (2.3)
• Net debt expected to reduce by year end as Productions
Net debt (42.0) (37.8)
deliveries are realised, and in line with normal seasonal
trends
Net debt: EBITDA (covenant basis) 1.49x 1.46x
Covenant 3.0x 3.0x • Share buy-back completed in July; cash outflow of
£1.3m bringing total to £7m
12Pensions
Triennial valuation concluded on same terms, providing certainty
Accounting valuation H1 2019 H1 2018 FY 2018
Assets (£m) 375.9 358.1 343.4 • Triennial valuation process (as at 1 January
Liabilities (£m) (450.3) (417.4) (421.9) 2018) completed in April 2019
Deficit (£m) (74.4) (59.3) (78.5) • Deficit funding recovery plan of 12 years agreed
for pre-tax deficit of £127m, representing a
Key assumptions: continuation of the previous plan:
Discount rate 2.20% 2.80% 2.75% - Base contribution of £9m p.a., paid monthly,
RPI 3.25% 3.15% 3.30% increasing by 2% p.a., plus
- 20% contingent funding of any
outperformance 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
13ELM
Progress impacted by slower retail roll-out & platform challenges
• Operational cashflow breakeven met briefly in January 2019; subsequent months impacted by
slower than planned retail roll-out and platform issues impacting subscriber retention
• As a result net debtor increased to £7.0m at the half year being a gross debtor of £11.7m and
a provision of £4.7m
• Focus for H2 2019:
-continuation of retail rollout, and acceleration as far as possible
-implementation of a number of initiatives to grow ticket sales through attracting new players -
-and improving retention
-ongoing cost management
14Corporate items
Interest, tax, dividends and covenants
Interest Tax
• Cash interest up £0.1m to £0.7m • Effective tax rate for 2019 of 18%
- higher average borrowings and LIBOR rates - lower than standard rate of 19%
• No change to margin payable under facility - pension contributions and utilisation of losses
Dividends Covenants
• Interim dividend of 6.3p per share • Net debt/EBITDA of 1.49x (2018: 1.46x)
- up 5% on prior year - covenant test is 3.0x
• Future increases aligned with earnings growth • Remains within target range of 1.0x - 1.5x
• Expect to reduce at year end as Productions’
revenues come through, and in line with
seasonality of the business
15Strategic Update & Outlook
Simon PittsOur 3 strategic objectives remain unchanged
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
17BROADCAST
STV’s broadcast position remains uniquely strong
Broadcast STV’s best all 99.7% of all Biggest TV Most popular Continuing to
content still time viewing large channel for source of outperform
70% of all share since audiences on 16-34s, Scottish rest of UK and
video viewing 2009 STV 75% watch live news ITV
Average peak time audience in H1
In H1 STV was the biggest peak time
341
327
channel in Scotland
Bigger than
4x bigger than
96 91
60 5x bigger than
40 36 27 24 20 19 16
STV BBC 1 BBC 2 CH4 CH5 ITV3 ITV2 E4 BBC BBC 4 Film4 Sky1
Scotland
Source: BARB Jan-Jun 2018. Peak time audience = (18:00-22:30), individuals; Mins per day = individuals, all day, Total TV 18BGT’s performance bodes well for our autumn schedule
659K 39% Won its slot 614k 101k
Live
Audience Viewing
share, +2
18 out of Catch-up
streams streams
+2% YoY
share points 19 times +58% YoY +31% YoY
YoY
19STV’s Growth Fund goes from strength to strength BROADCAST
Over 100
new TV
advertisers
since launch
20BROADCAST
Broad range of sectors underpinning 19% regional ad growth
Growth Fund deals by sector since launch in 2018
£5m+ allocated so far, vast
majority “matched-funded”
200+ deals right across
Scotland
Success of Growth Fund
accelerating, 135 deals done
this year alone
21We continue to make good progress with our DIGITAL
vision to become Scotland’s digital destination
Watching more
More people content For longer
Monthly active VOD stream VOD
VOD users starts consumption
+13% +36% +20%
22DIGITAL
Big screen is where the digital growth is
o n
n g So
mi
Co
• Already our 2nd biggest • STV’s fastest growing • UK’s largest VOD platform
platform platform • Typically 50% of ads fast
• 4 out of 5 Virgin customers • Usage doubled year on year forwarded
have used STV Player since • Addressable market of • Freewheel deal means STV
launch c.700k devices in Scotland retains 90%+ of revenues
STV Player connected TV streams were up 81% in H1 23DIGITAL
Ofcom’s stated position on PSB prominence will support
our digital ambition
“New legislation is required to keep public service broadcasting
54%
prominent and ensure that viewers can continue to find and
49%
access
45% the PSBs’ linear and on-demand services across a
range of connected devices”
“PSB content should also be given protected prominence with
TV platforms’ recommendations and search results”
Ofcom review of prominence for public service broadcasting, July 2019
24DIGITAL
New product features are extending Player dwell time, as
expected
FEATURE INTRODUCED IMPACT
LIVE RESTART Q1 2019 Already used on 18% of live streams
END OF PLAY
Q2 2019 1 in 3 stream starts watch next episode
RECOMMENDATIONS
IOS streams up 33% since launch, ads per
PICTURE IN PICTURE Q2 2019
stream +27%
Average streams per user +50% on standard
STV PLAYER + Q1 2019
user
25DIGITAL
The best exclusive content now complemented by 500+
hours of 3rd party rights
STV EXCLUSIVE 1000+ HOURS 3RD PARTY NOW 500+ HOURS
SPORT ENTERTAINMENT DRAMA ACROSS 11 DEALS
COMING UP IN H2
Doc Martin
6 hours 8 hours
BGT The Champions Deep Water
12 hours 6 hours
X Factor Celebrity A confession
12 hours 6 hours
Sanditon
23 hours 8 hours
26DIGITAL
Premier Sports deal enhances our digital advertising sell
and sports proposition
• 3 year deal for STV to be exclusive
advertising partner for Premier Sports 1 &
2, home of Pro14 rugby, Scottish Cup
football and Serie A
• Covering all advertising and sponsorship
revenues across all broadcast and digital
platforms, UK-wide
• STV Player will also live stream the UK’s
only free-to-air sports channel -
Freesports - on a rev share basis
27DIGITAL
There is a clear timetable for future digital enhancements
Q2 2019 Q3 2019 Q4 2019 Q1 2020
New drama
launches
New features Player marketing Freesports Player+
launched push begins launch roll-out
STV Player Start of RWC Sky Start of I’m a Live
brand refresh launch Celebrity restart
on TVs
28DIGITAL
As we said at the CMD, Digital is increasingly high margin
with significant growth potential
Growing Margins Big Growth Opportunity
Currently only
54%
2.5% digital
49%
45%
STV
Advertising
Impressions,
c.18 billion p.a
97.5%
FY 2017 FY 2018 H1 2019 Digital Linear
292019 has seen a good mix of new and returning PRODUCTION
series, but we need more
The Victim on BBC1 Elizabeth is Missing on BBC1 Sex Tape on Channel 4
NEW
• 6.5m viewing average • In production now • 1m viewers in C4 peaktime
• Sold to 30+ countries • Starring 2-time Oscar winner Glenda
Jackson
Antiques Road Trip on BBC2 Catchphrase on ITV ICS on BBC Scotland
RETURNING
• 27 series and 625 episodes • Regularly gets audience of 4m+ • Most popular commission on new BBC
• Average audience of 2.1 million and 20% • 27% share of viewing in ITV peaktime Scotland Channel
share 30PRODUCTION
We are investing in our creative pipeline to develop valuable IP
DRAMA ENTERTAINMENT FACTUAL
New Creative Director
30+ projects in active
Craig Hunter started
development
July 2019
3 shows already
commissioned for BBC and C4
Priority is more long-
10+ commissioned scripts
Strong pipeline with 20+ running formats
shows in development
We will look to place more creative bets over time through partnerships and joint ventures 31Our first STV format is on air now
• Returnable daily quiz is a key business target
• Route to market is challenging unless you have access to a broadcast network
• Launched on 1st September with 19% share, +3 on network and +30% on slot average
32Coming up at STV in H2 2019
BROADCAST
• Maximise value of strong autumn schedule
• Ongoing digital news transformation
• STV Growth Fund next phase
DIGITAL
• Big marketing push
• New features, personalisation and Sky launch
• More content, including Freesports launch
PRODUCTION
• Continued focus on returning series
• Fully integrate Primal
• Identify next creative partnerships
33Outlook
Good momentum going 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 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
• Productions will have a stronger H2, with current secured revenues of £13m similar to last year
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