ANNUAL REPORT AND ACCOUNTS 2014 COMMERCIALLY FOCUSED CREATIVELY LED Directors’ Report Strategic Report 01 2014 Financial Highlights 02 Meet the STV family 04 Chief Executive’s Review – Consumer 12 – Productions 14 Performance Review 17 Principal Risks 19 Corporate Responsibility Governance 26 Chairman’s Statement 28 Board of Directors 30 Corporate Governance Report 44 Remuneration Report Financial Statements 64 STV Group plc Consolidated Financial Statements – Independent Auditors’ Report 68 Consolidated Income Statement 68 Consolidated Statement of Comprehensive Income 69 Consolidated Balance Sheet 70 Consolidated Statement of Changes in Equity 71 Consolidated Statement of Cash Flows 72 Notes to the Financial Statements 94 STV Group plc Company Financial Statements – Independent Auditors’ Report 96 Company Balance Sheet 97 Notes to the Company Financial Statements 101 Five Year Summary Additional Information 102 Shareholder Information 104 Notice of Annual General Meeting 115 Appendix to the Notice of Annual General Meeting Directors’ Report Strategic Report 2014 FINANCIAL HIGHLIGHTS Revenue Operating Profit Pre-tax Profit (£ millions) (£ millions) (£ millions)* 102.0 102.7 112.1 120.4 15.0 17.1 18.0 19.5 12.7 13.1 15.2 17.3 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014 +7% +8% +14% EPS Dividends Per Share Net Debt (pence)* (pence) (£ millions) 34.5 29.5 34.4 38.7 – – 2 8 54.5 45.3 35.7 29.4 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014 +13% +300% -18% * pre-exceptionals and IAS 19 STV Annual Report and Accounts 2014 Directors’ Report Strategic Report CHIEF EXECUTIVE’S REVIEW MEET THE STV FAMILY CORE CHANNEL ON DEMAND ONLINE stv.tv Peaktime audience 3x 14m streams in 2014 3.6m monthly most watched commercial unique browsers channel in Scotland 03 The STV Family of consumer services showcases our commitment to ensure our consumers can access STV’s content free of charge anywhere, anytime. Through the STV family we are successfully increasing our commercial market share and extending the services available to consumers. CITY CHANNELS CITY APP Achieved 1m combined reach 500k monthly browsers STV Annual Report and Accounts 2014 Directors’ Report Strategic Report CHIEF EXECUTIVE’S REVIEW CONSUMER ENGAGING WITH OUR CUSTOMERS A high profile year for Scotland was a key driver for STV’s strong performance in 2014. In February 2014, the licence renewal process concluded when we agreed new terms of our two Channel 3 broadcast licences with Ofcom. The new licences came into effect on 1 January 2015 and have been renewed for the maximum term of 10 years. The confirmation of licence renewal has allowed us to extend our banking facility with a maturity date of Rob Woodward June 2019, resulting in a lower Chief Executive interest margin being payable reflecting the strong trading position and normalised balance sheet of the Group. These factors combine to provide a solid base from which to develop our aims and objectives for 2015 and beyond. 05 COVERING SCOTLAND STV is Scotland’s leading media brand connecting with consumers and creating opportunities for commercial partners across channels and platforms at a national, regional and city level. Network Coverage Each month STV reaches over 92% of Scots on air 3.6m viewers 92% Micro Regions STV’s micro regions offer advertisers the opportunity to geo-target their TV marketing campaigns £12.6m regional airtime revenues City TV STV Glasgow launched June 2014 STV Edinburgh launched January 2015 1m reach City Apps STV Glasgow, STV Edinburgh, STV Aberdeen and STV Dundee available to download for free as Apps 500k monthly browsers STV Annual Report and Accounts 2014 Directors’ Report Strategic Report CHIEF EXECUTIVE’S REVIEW CONSUMER continued 2014 – what a year! Engaging with our audience In order to deliver on our ambition to be a leading consumer focused FEBRUARY 2014 business, we need to know our 2013 non-broadcast consumers and their preferences. earnings reach 19% Consumer data is a priority metric MARCH for the business and by the end HD service on DSAT APRIL of the year we had accumulated STV Group plc awarded one million consumer records, Large Scottish plc of the year exceeding our KPI target of 0.8m. MAY Dividend resumed CONSUMER INSIGHTS JUNE (millions) STV Glasgow JULY Why it’s important launched STV Live streaming Understanding the demographics, Pension funding agreed tastes and preferences of our consumers is key to developing STV Glasgow reaches successful consumer services. 700,000 viewers in first month How we measure it It is the number (in millions) of AUGUST unique consumer records held on BBC commissions our consumer database. 40 episodes of The Link Referendum coverage – 2016 Target 2.4m the first live TV debate between Alex Salmond 2015 Target 1.6m and Alistair Darling 2014 Actual 1.0m 2014 Target 0.8m OCTOBER STV Appeal raises 2013 Actual 0.6m record £2.6m 2012 Actual 0.5m ITV commissions third series of Catchphrase A major contributor to this was Bids submitted for local the 2014 FIFA World Cup Brazil which TV licences in Aberdeen, delivered a high volume of streams on the STV Player. To coincide with Ayr and Dundee the matches available on STV, STV Live via the STV Player and stv.tv, NOVEMBER we introduced mandatory registration Transmission of Tutankhamun offering an increased insight into the documentary for BBC consumers utilising STV’s range of Recommission by BBC services. The World Cup resulted in of fifth series of Celebrity 480,000 streams on the STV Player and 171,000 new registrations. Antiques Road Trip DECEMBER STV Player on Xbox 360 and JANUARY 2015 Amazon Fire TV STV Edinburgh launched 07 CONSUMER ENGAGEMENT The successful transformation of CONSUMER REACH STV into a consumer focused (mins per day per user) (monthly average millions) Company with an integrated offering required a refreshed approach to Why it’s important Why it’s important marketing and promotion of our These measures indicate the services. This focus has led to some These measures indicate the depth of the consumer base organisational changes to ensure breadth of the consumer base of the STV Family of services. that we have the required level of of the STV Family of services. How we measure it support for each of our core products How we measure it across the STV Family: STV; City TV; It is the monthly average minutes It is the monthly average audience digital city services; STV Player; per day that consumers spend on in millions from sources including and stv.tv. each service sourced from BARB BARB and Comscore. and Comscore. Our refreshed KPIs introduced two new STV Audience STV Audience measures for all of the core consumer platforms within the STV Family to 2016 Target 3.6m 2016 Target 41 mins enable measurement of reach and 2014 Actual 3.6m engagement with consumers. We are 2014 Actual 41 mins determined to deliver the highest 2013 Actual 3.6m 2013 Actual 41 mins quality consumer experience and these stretching targets ensure that STV Player STV Player the business is focused on a strong 2016 Target 1.0m multi-channel offering. 2016 Target 41 mins 2014 Actual 0.7m 2014 Actual 46 mins The development of the STV Family has allowed us to create 2013 Actual 0.5m 2013 Actual 37 mins a recognisable brand family of services. This was cemented with City TV City TV a review of branding ahead of the 2016 Target 1.0m 2016 Target 10 mins launch of our first City TV channel, STV Glasgow, in June. 2014 Actual 0.6m 2014 Actual 014 2 mins 2013 Actual n/a The latest evolution of the STV brand 2013 Actual n/a creates a unified look and a cohesive City Apps City Apps brand family that reflects the consumer focus of the business. 2016 Target 1.0m 2016 Target 6 mins 2014 Actual 0.4m The branding refresh also incorporated 2014 Actual 4 2 mins a redesign of the STV news studios 2013 Actual 0.2m 2013 Actual 2 mins and sets. This delivered a refreshed look for viewers across Scotland STV.TV STV.TV demonstrating our focus on high 2016 Target 3.6m quality public service broadcasting 2016 Target 6 mins and reinforced our commitment 2014 Actual 3.6m 2014 Actual 3 mins to provide a platform for debate ahead of the referendum on 2013 Actual 3.0m 2013 Actual 3 mins Scottish independence in September. STV Annual Report and Accounts 2014 Directors’ Report Strategic Report CHIEF EXECUTIVE’S REVIEW CONSUMER continued Commercially focused The new City TV channels also Digital growth A big year for Scotland resulted attracted new commercial partners, A strategic focus that has been in a big year for STV and the 2014 including STV Glasgow festive embedded in our KPIs is to grow the FIFA World Cup Brazil was just sponsor The St Enoch Centre. The non-broadcast share of earnings to one of the highlights in the shopping centre combined its on air a third. This ambition combines our commercial calendar. sponsorship with desktop and digital digital activity with the growth of the activity for a targeted campaign at STV Productions business to diversify The 2014 Ryder Cup at Gleneagles, a key time in the retail calendar. our earnings and reduce dependence the Commonwealth Games in on airtime revenue. Glasgow, and the referendum on Innovation Scottish independence all ensured The introduction of a brand new The digital business is delivering that the focus was on Scotland City TV service, STV Glasgow, was against stretching KPIs and the team throughout the year. This offered followed by the launch of STV continues to develop and evolve opportunities for targeted advertising Edinburgh in January 2015.