STV Interims Presentation FINAL
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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 !10 Group 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 !11 Cash 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 deliveries are realised, and in line with normal seasonal Net debt (42.0) (37.8) 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 !12 Pensions 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 !13 ELM 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 !14 Corporate 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 !15 Strategic Update & Outlook Simon Pitts Our 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 !17 BROADCAST 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.