Annual Report and Accounts 2010 Annual Report and Accounts Scotland’s digital media company 2010 STV Group plc STV Group plc In producing this report we have chosen production Pacific Quay methods which aim to minimise the impact on our Glasgow G51 1PQ environment. The papers chosen – Revive 50:50 Gloss and Revive 100 Uncoated contain 50% and 100% recycled Tel: 0141 300 3000 fibre respectively and are certified in accordance with the www.stv.tv FSC (Forest stewardship Council). Both the paper mill and printer involved in this production are environmentally Company Registration Number SC203873 accredited with ISO 14001. Directors’ Report Business Review 02 Highlights of 2010 04 Chairman’s Statement 06 A conversation with Rob Woodward by journalist and media commentator Ray Snoddy 09 Chief Executive’s Review – Scotland’s Digital Media Company 10 – Broadcasting 14 – Content 18 – Ventures 22 KPIs 2010-2012 24 Performance Review 27 Principal Risks and Uncertainties 29 Corporate Social Responsibility Corporate Governance 34 Board of Directors 36 Corporate Governance Report 44 Remuneration Committee Report Accounts 56 STV Group plc Consolidated Financial Statements – Independent Auditors’ Report 58 Consolidated Income Statement 58 Consolidated Statement of Comprehensive Income 59 Consolidated Balance Sheet 60 Consolidated Statement of Changes in Equity 61 Consolidated Statement of Cash Flows 62 Notes to the Financial Statements 90 STV Group plc Company Financial Statements – Independent Auditors’ Report 92 Company Balance Sheet 93 Statement of Total Recognised Gains and Losses 94 Notes to the Company Financial Statements 100 Five-Year Summary Shareholders 101 Shareholder Information 103 Notice of Meeting Designed and produced by Tayburn Annual Report and Accounts 2010 Directors’ Report – Business Review 01 Creating and delivering great content across multiple platforms means that we’re strengthening our connections with our audiences and our advertisers To download a pdf of this report visit www.stvplc.tv Annual Report and Accounts 2010 Directors’ Report – Business Review Highlights of 2010 STV Channel on YouTube announced Launch of new sports programme STV Sports Centre Second series of Antiques Road Trip STV Local launched commissioned by BBC2 Turnover (million) EBITDA (million)* £105m £16.9m 2009: £90m 2009: £12m +16% +41% * pre-exceptional 03 STV News iPhone app launched stv.tv achieves 2.2 million monthly unique users STV Player voted best commercial Taggart co-commission agreed catch-up site in the UK with ITV and UKTV Operating Profit (million)* Pre-tax Profit (million)* £14m £12.5m 2009: £9m 2009: £5.5m +56% +127% Annual Report and Accounts 2010 Directors’ Report – Business Review Chairman’s Statement Last year I reported that I believed 2010 would be a year of considerable change and that has certainly been the case both within the company and externally. Despite the economic environment we have produced a very good financial result against a backdrop of improved national revenues and rigid cost control. Operating profit before tax and exceptional items is £14.4m and earnings before exceptional items, tax, depreciation and amortisation is £16.9m. National airtime revenue performed particularly well with growth of 21% year-on-year, while regionally, within Scotland, the pace of economic recovery was slower and revenue was flat year-on-year, however, we continued to dominate the Scottish marketplace. Once again our Chief Executive, Rob Woodward, has aligned his interests with that of shareholders. Shareholders will recollect that last year (2009) he and his colleagues voluntarily reduced their salaries. This year he has proposed that the performance related bonus he has earned in 2010 should be deferred, subject to future performance, for up to 24 months and payable wholly in shares. Our share price is now beginning to reflect the new STV and given the strong base that has now been established there is scope for further value to be created. The disposal of Pearl & Dean was completed and the general improvement in stock market prices had a beneficial “ With a strong identity and clarity effect on the pension deficit. of vision we are delivering an We are committed to delivering high quality public service content and we entertaining and relevant schedule.” have continued to enhance this through the introduction of new platforms and the launch of STV Local. While much has been made in the press about our decisions to opt out of some Network programmes in favour of our own produced or acquired content, the fact is that viewers have responded well, as demonstrated by the For financial updates increase in our audience share against on STV visit www.stvplc.tv 05 Channel 3 itself across the all important The decision not to proceed with the Whilst we recognise that changes to the peak period. Having said that, 95% of piloting of Independently Funded News television market, including increased our programmes are from the Network, Consortiums by the new coalition competition, the growth of online to which we pay a considerable sum of Government was widely expected. We did advertising and sales house consolidation, money, but we are always mindful that we not stand still, however, and immediately make a review of CRR timely, any relaxation are a Scottish based service, independent began to consider a range of options to of this mechanism must take account of ITV, and have a clear responsibility to develop a sustainable solution that would of the need to ensure that the Merger produce a balanced schedule relevant for allow us to continue to deliver high quality Undertakings put in place to protect the audiences in Scotland. news content across Scotland. In early interests of the non-consolidated Channel 3 2011 we announced the launch of a pilot licensees are not disregarded. Our digital strategy is firmly on track to trial the delivery of an enhanced and and we have exceeded our stretching more locally focused news service. During 2010, we confirmed our investment KPI targets in relation to digital audience This combined with our investment in in MirriAd Limited, the market leader in growth. Our traffic and audience levels STV Local, demonstrates our continuing digital product placement. As both a content have surpassed the targets we set for 2012 commitment to provide high quality maker and national broadcaster offering and as a result we have set new higher public service content. solutions to advertisers, MirriAd’s products targets for 2011. During the course of the and processes are of great value to STV as year we were delighted to have been voted We believe that the Government’s decision the rules on product placement are relaxed. the best commercial catch-up site in the that STV Productions should not be UK. This is an achievement we are granted independent production status During 2010 we contributed to the particularly proud of given the financial is not conducive to supporting the growth consultation process undertaken by Ofcom resources of the competing platforms of the wider production sector in Scotland. into the rules governing television airtime developed by our competitors. Our dedicated We will continue to push for the necessary sales and airtime minutage quotas and, YouTube channel is delivering extremely change of mind to achieve this status, whilst there is no decision expected on strong month-on-month growth in video however, regardless of this, our content these imminently, we will continue to streams and we have achieved 2.2m unique team continue to grow commissions from engage with the regulator on this matter. users per month, exceeding our target of other broadcasters, including the BBC, 1.7m, up 129% on the same time last year. providing clear evidence of its capability So, having achieved or exceeded the We have now exceeded our KPI target and creativity. majority of our 2010 KPI targets we can of one million video streams per month look forward to 2011 with confidence and demonstrating the value placed on The litigation involving ITV will be heard excitement. STV is a company with a our content. in court during the course of 2011 and 2012 focused view on its direction of travel and, while we have always regretted being and has the team in place to achieve As other mainstream media reduce forced to take the defensive action we our 2011 ambitions. services to local marketplaces through have, we are confident that our position cutbacks, increased syndication and will prove to have been properly justified. None of the achievements of the company consolidation, we have taken a contrary would have been possible without a strong view, seeing a service and commercial Our marketplace is highly regulated and and supportive board, a visionary Chief opportunity with the development of STV we anticipate further changes in this area Executive Officer and motivated staff. Local. We piloted this project in one of the in the forthcoming year. We are confident My thanks go to all of them for their more difficult geographical areas for media in our ability to respond positively and extraordinary achievements. and have been so encouraged by the embrace regulatory changes. Most results that we are swiftly rolling out the significant are the opportunities presented concept to other parts of the country. by an increased commitment to supporting the growth of locally focused media Our ability to generate audiences and services and the investment in high speed revenues for our content across different broadband infrastructure, enabling platforms is now firmly established adding enhanced access to our content for Richard Findlay real substance and strength to our position audiences across all platforms. Chairman as Scotland’s digital media company. Annual Report and Accounts 2010 Directors’ Report – Business Review A conversation with Rob Woodward by journalist and media commentator Ray Snoddy The STV press release issued in February But however innovative, will the The strong results for 2010 announced 2011 hardly set the world alight.