Strongly Positioned to Resume Successful Growth Strategy 2020 Interim Results – 1St September 2020
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Strongly positioned to resume successful growth strategy 2020 Interim Results – 1st September 2020 Landmark, from Primal Media for Sky in 2021 Agenda Overview Simon Financial Review Lindsay Covid-19 Response & Strategic Update Simon Q&A 2 STV strongly positioned to resume successful growth strategy • Proactive steps taken to strengthen balance sheet and support STV colleagues and partners • Significant impact from Covid-19, but clear signs of recovery with total advertising -7% in July and +1% in August, and all STV shows now back in production • Crisis has reinforced fundamentals of STV’s diversification strategy, with delivery accelerating: o Continued record audience growth on TV and online o Clear market leadership in Scottish advertising o Digital business going from strength to strength o Tangible progress in production with pipeline converting into significant new commissions and talent deals • Board proposes interim 2020 dividend of 3p per share to be satisfied by way of bonus share issue, with intention to restore cash dividend at earliest opportunity. 3 H1 2020 key financials Total Regional Total Digital Studios Advertising Advertising Revenue Revenue Revenue Revenue Revenue £44.7m £39.1m £6.0m £5.9m £1.6m +5% -19% -20% -18% VOD +13% -17% Operating Adjusted Operating Interim Net Debt Profit EPS Cashflow Dividend £5.2m 10.8p £33.5m £10.5m 3p -52% -50% Dec‘19: £37.5m 2019: £8.4m 2019: 6.3p 4 Financial Review Lindsay Dixon Elizabeth is Missing, STV Studios for BBC1 5 Group Results Almost half of the Covid-19 revenue impact mitigated at a profit level H1 2020 H1 2019 • Revenue down 19%, a result of lower linear TV £m £m Change advertising and limited programme deliveries Revenue - Broadcast 35.0 45.0 (22%) • Total advertising revenue down 20%: - Digital 5.9 5.6 5% o Digital posted revenue increase as strong - Productions 1.6 2.0 (17%) Q1 more than offset Covid-hit Q2 - ELM 2.2 2.3 (5%) o Regional advertising severely impacted in 44.7 54.9 (19%) Q2 but helped by increased Scottish Total advertising revenue 39.1 48.8 (20%) Government spending throughout lockdown Operating profit 5.2 11.0 (52%) • Flow through of revenue reduction to operating Finance costs (1.4) (1.9) profit mitigated by ITV variable cost model and management actions PBT pre-exceptionals 3.8 9.1 Exceptional finance cost (8.7) - • Net receivable due from the lottery fully provided (Loss)/profit before tax (4.9) 9.1 for at the end of the period, resulting in an exceptional finance charge of £8.7m Adjusted EPS (pence) 10.8 21.8 (50%) 6 Operating profit waterfall shows benefit of STV variable cost model and other cost savings implemented £m 7 Decisive steps taken to retain cash and strengthen the balance sheet • FY19 final dividend cancelled and FY20 interim dividend to be paid via bonus share issue • Pension contributions in respect of April, May and June, plus the contingent cash payment, all deferred to December 2020 • Capital expenditure plans delayed to FY21 (subject to reassessment over H2) • VAT payable in Q2 2020 deferred to Q1 2021 under government scheme • Bank facilities extended to £80m (from £60m), maturing in June 2022 • Equity placing completed on 7 July with 7m new ordinary shares admitted to trading, realising net proceeds of £15.5m 8 Strong operating cash conversion reducing net debt by £8.5m on last half year H1 2020 H1 2019 £m £m Operating profit 5.2 11.0 Depreciation/amortisation – owned assets 1.7 1.4 • Operating cash conversion of 202% driven by Depreciation/amortisation – leased assets 0.9 0.9 working capital cash inflow Share based payments 0.2 0.1 EBITDA 8.0 13.4 Working capital 4.9 (1.7) • Limited capital expenditure beyond Q1 Lease payments (1.0) (0.9) Capital expenditure (1.4) (2.4) • Pension deficit payments reflect agreement with Operating cash flow 10.5 8.4 trustees to defer Q2 contributions to December Cash conversion 202% 76% 2020 Pension deficit payments (3.0) (5.9) Interest and refinancing fees (0.8) (0.5) • Tax payments higher than 2019 due to non- Tax (0.9) 0.2 repeat of refund in respect of a prior year Re-organisation costs - (0.8) Dividends - (5.3) SCL funding (0.7) (0.9) • Investment in Two Cities made in January 2020; Share purchases - (0.9) funded from proceeds received on disposal of Investment in Two Cities Television (1.1) - minority investment in September 2019 4.0 (5.7) Net debt 33.5 42.0 9 Net debt and covenants H1 leverage of 1.47x slightly lower than last half year and remains within self- imposed target range Jun-20 Dec-19 Jun-19 Dec-18 Jun-18 Net debt (£m) 33.5 37.5 42.0 36.3 37.8 Leverage covenant 1.47x 1.28x 1.49x 1.36x 1.46x Maximum n/a 3x 3x 3x 3x Interest cover 20.2x 25.1x 23.5x 26.7x 32.4x Minimum 4x 4x 4x 4x 4x • Measures taken to maximise cash retention more than offset upward pressure on net debt from reduced trading • Covenants relaxed following agreement with lenders: in the event leverage exceeds 3x then that covenant falls away and is replaced by a minimum liquidity threshold test 10 Broadcast Benefit of variable cost base mitigates profit flow through of reduced revenues H1 2020 H1 2019 £m £m Change Revenue - National advertising 28.0 36.6 (23%) - Regional advertising 6.0 7.4 (18%) • Benefit of £3.5m to the cost base as a result of - Other 1.0 1.0 (13%) the variable cost arrangement with ITV 35.0 45.0 (22%) • Other cost savings identified have been delivered in line with plan Operating costs (29.6) (34.0) 13% Operating profit 5.4 11.0 (50%) Operating margin 15.5% 24.3% 11 Digital Revenues rise despite Covid; cost base reflects continued investment in growth H1 2020 H1 2019 £m £m Change Revenue 5.9 5.6 5% Operating costs (3.1) (2.5) (24%) • Strong performance in Q1 drives revenue growth for the first half Operating profit 2.8 3.1 (11%) Operating margin 47.4% 55.8% • Investment continued during H1 despite market conditions with resultant impact on margins • Cost base also reflects higher depreciation than in the prior year following a period of intense development activity 12 Studios Improved bottom line despite production hiatus and absorption of Primal costs Programme H1 2019 Primal deliveries Cost savings H1 2020 H1 2020 H1 2019 0 £m £m Change -0.5 Revenue 1.6 2.0 (17%) -1 Operating costs (3.1) (3.6) 11% -1.5 Operating loss (1.5) (1.6) 4% -2 Operating margin (94.4%) (80.9%) -2.5 • Strong secondary sales performance (over £1m in the 6 months) at good margins • Primal costs absorbed in H1 2020 • Cost savings across all major categories of discretionary and staff spend 13 Pensions Constructive engagement with trustees Accounting valuation H1 2020 H1 2019 FY 2019 Assets (£m) 402.9 375.9 381.9 Liabilities (£m) (479.8) (450.3) (445.9) • Swift agreement to postpone Q2 contributions Deficit (£m) (76.9) (74.4) (64.0) • Overall position benefitted from hedging strategies in place Key assumptions: o Asset values increased over H1 Discount rate 1.4% 2.2% 2.0% • Risk weighting of investment portfolio RPI 2.9% 3.3% 3.0% rebalanced to increase proportion allocated to return-seeking asset classes • Planning well underway for 2020 triennial • Increase in accounting deficit reflects: o Lower discount rate as a result of fall in corporate bond yields o Postponement of contributions 14 Scottish Children’s Lottery (ELM) • Divestment process ongoing with timing impacted by Covid • Focus is on sale of the business, rather than other investment or partnership options • Online ticket sales have held up well during lockdown, although retail sales have inevitably been impacted • Net debtor now fully provided for – exceptional finance charge of £8.7m before tax 15 Covid-19 response and strategic update Simon Pitts Catchphrase, STV Studios for ITV 16 Our focus is on accelerating our successful strategy, not changing it Maximise value of • Maintain viewing dominance Broadcast • Reinforce leadership in ad market 1 • Use marketing power to boost rest of STV • Strengthen content offer Drive Digital growth • Aggressively drive UK expansion 2 • Continuous product upgrades • Grow drama business Build world class • Convert pipeline of returnable formats Production 3 • More talent partnerships 17 BROADCAST STV’s broadcast dominance grows, enhanced by lockdown Record audiences in H1 and still the biggest peaktime channel, with gap widening LOCKDOWN STATS • 5 hours 46 mins TV viewing per day in April +25% on 2019 • 90% of Scots watched STV • STV News audience +40% • STV daytime audience +48% Source: BARB, Jan-Jun 2020, peak time (18:00-22:30),individuals H1 Highlights Highest all time Total audience 97% of all large 6/10 most popular H1 viewing share new dramas and audience share volume +12%, commercial 11% higher than 9/10 most popular since 2008 at highest growth audiences in ITV, largest gap entertainment 19.2% ever Scotland on STV in 18 years shows 18 BROADCAST Not just a lockdown phenomenon STV’s audience was growing before lockdown, and has grown since Peaktime lead over BBC1 growing Month by month audience growth on STV in 2020 vs 2019 Jan Feb Mar Apr May Jun Jul H1’20 Source: Barb : Jan-Jun 1800- 2230 Source: BARB : Jan-Jun’2020 ; 0930-2400 STV News’ audience continues to grow strongly H1 viewing share ‘Unmatched’ STV News viewing like 26% Live TV and Netflix & BBC Reporting Scotland 74% OF TV broadcast Youtube SET VIEWING VOD WAS STILL TO BROADCAST TV IN H1 74% Source: BARB Jan-Jun 2020, individuals, total Source: Barb – Jan-Jun 2017-2020, Weekdays 1800-1900 TV/unmatched/non-linear, average mins per day In July, STV beat BBC1 across all time, peak time and daytime for the first time ever 19 BROADCAST We are seeing