Annual Report and Accounts 2020 ANNUAL REPORT AND STV Group plc ACCOUNTS 2020 RESILIENCE AND PROGRESS IN AN EXTRAORDINARY YEAR While 2020 was a challenging year, the pandemic crisis strengthened our connection with our audience. We achieved record viewing numbers as people turned to Scotland’s public service broadcaster for news, information and entertainment. STV Studios production Celebrity Catchphrase was the first UK entertainment show to get back into studio after the Covid-19 lockdown. The safety of everyone involved was the utmost priority, but it was good to see our cameras and lights back in action. The resilience of our people, culture, operations and business strategy came to the fore across all divisions. We continued to deliver for our viewers, communities and commercial partners; to diversify; and to deliver a strong performance. Contents Overview Financial Statements 01 2020 financial and 88 Independent auditors’ report to operational highlights the members of STV Group plc 02 The STV investor proposition 94 Consolidated income statement 94 Consolidated statement Strategic Report of comprehensive income 04 Chairman’s statement 95 Consolidated and parent company STV 2020 strategic progress 06 balance sheets 14 Operating review 96 Consolidated and parent company – Broadcast statements of changes in equity – Digital 97 Consolidated and parent company – Studios statements of cash flows 26 Finance review 98 Notes to the financial statements 30 Corporate responsibility 126 Five year summary 42 Section 172 statement 44 Risk management Additional Information 127 Shareholder information Governance 53 Introduction to governance 54 Board of Directors View our Annual Report and Accounts 56 Corporate governance report and other information about STV at 67 Remuneration report 85 Directors’ report STVPLC.TV 01 STV Annual Report and Accounts 2020 Overview | Strategic Report | Governance | Financial Statements | Additional Information 2020 FINANCIAL AND OPERATIONAL HIGHLIGHTS REVENUE OPERATING PROFIT1 (£ millions) (£ millions) £107.1m £18.2m 2019: £123.8m 2019: £22.6m TOTAL ADVERTISING REVENUE NON-BROADCAST PROFIT (£ millions) (%) £90.9m 34% 2019: £101.6m 2019: 28% EPS2 DIVIDEND PER SHARE3 (pence) (pence) 37.5p 9.0p 2019: 45.8p 2019: 6.3p +14% +65% in STV all time audience in streams on STV Player 19 £3.6m commissions won by funds raised by the STV Studios, a record year STV Children’s Appeal 1 Before exceptional items. 2 Before exceptional items and IAS19 finance costs (note 30); 2019 restated to reflect the bonus issue in December 2020 (note 10). 3 Dividend of 21p was disclosed in Annual Report in FY19. This comprised interim dividend of 6.3p plus proposed final dividend of 14.7p, the latter subsequently cancelled in order to retain cash in the business in the face of the Covid-19 pandemic. 02 STV Annual Report and Accounts 2020 Overview | Strategic Report | Governance | Financial Statements | Additional Information THE STV INVESTOR PROPOSITION STV Group plc has consistently delivered strong progress THE STV OFFER against its strategic objectives originally set out in its three year plan in 2018 and has demonstrated clear A FAMILY OF STRONG advancement even against the backdrop of Covid-19. BRANDS, CONTENT Therefore, we begin 2021 in a strong position to build AND PRODUCTS on these foundations and deliver the next stage of strategic growth for stakeholders. Our offering is clear and strong and delivered across three business divisions: CLEAR, PROVEN • We are the home of news and entertainment in Scotland, holding a unique and privileged position as Scotland’s commercial Public Service Broadcaster, trusted STRATEGIC OBJECTIVES and relied upon by our viewers and commercial partners alike. Our commercial DELIVERING RESULTS USP is our impressive reach of four out of five adults every month in Scotland. • Our digital streamer, the STV Player, is now available on all major platforms UK-wide, with 3,000 hours of Player-only content alongside a compelling network schedule, creating a unique content offering. It is the fastest growing broadcaster video on demand service in the UK. • With the creative and organisational renewal of STV Studios now complete, and strong momentum in commissions from a wide range of broadcasters, MAXIMISING THE the production business is now in a position to deliver a real profit contribution OPPORTUNITIES IN to the Group. OUR MARKET PLACE Our people sit at the heart of our business and their health and wellbeing, working within an inclusive and empowering environment, is of critical importance. STV’s role as a Public Service Broadcaster and pre-eminent marketing platform, combined with the high levels of trust in the brand, means the business holds a unique position to raise awareness of environmental issues and challenges and positively influence consumer behaviour. In early 2021, we confirmed our commitments on sustainability, with a new target to be net-zero carbon by 2030. WORKING IN Our creative and commercial goals, with vital objectives around diversity and PARTNERSHIP TO inclusion, mental health and sustainability, will make us a more successful business for the long term. DELIVER GROWTH STV business model ing rtis ve d A C o n t e n KEY TARGETS TO t MEASURE SUCCESS s r e w e i V Local National International 03 STV Annual Report and Accounts 2020 WE BEGIN 2021 IN A STRONG POSITION TO DELIVER THE NEXT STAGE OF STRATEGIC GROWTH FOR STAKEHOLDERS THE STV OFFER BROADCAST DIGITAL STUDIOS MAXIMISE THE DRIVE DIGITAL BUILD A WORLD VALUE OF OUR GROWTH VIA CLASS PRODUCTION BROADCAST A UNIQUE, BUSINESS BUSINESS WIDE-REACHING PROPOSITION NO.1 FASTEST BIGGEST Scotland’s No.1 peak UK’s fastest-growing Scotland’s biggest time TV channel broadcaster VOD service production company Our key diversification target has been to increase the proportion of the Group’s operating profit from non-broadcast earnings. In 2020 we achieved our target of at least one third, hitting 34%; our target for the next three years will be to increase that further to at least 50%. 04 STV Annual Report and Accounts 2020 Overview | Strategic Report | Governance | Financial Statements | Additional Information CHAIRMAN’S STATEMENT The last 12 months have been extraordinary Programme, which provides a 24/7 telephone counselling service; Occupational Health; a team of Mental Health First and extremely challenging for everyone. Aiders and other resources available through our ‘Wellbeing from STV’ programme. At our 2019 results, announced on In terms of workplace planning to ensure the safety and 10 March 2020, STV’s key performance wellbeing of all staff and that STV was Covid-19 secure, guidance metrics were at historic highs following was issued on the measures put in place to achieve physical the successful implementation of the new distancing and maintain safe working environments. The capacity of each office was reduced and new safety measures, growth strategy put in place by the CEO and including distance markers, signage and a strict cleaning routine his management team, with strong digital were introduced with employees’ temperatures being taken and regional growth driving a double digit before entry could be gained. increase in operating profit. However, at I am particularly grateful to all our staff for their resolve and commitment through this testing time and for their determination that time there had been little effect on and hard work in helping to tackle this public health emergency the business from Covid-19. Following the while supporting our communities and customers. onset of the pandemic, the priority was to Corporate social responsibility ensure the safety of our people and that I am proud that STV has been there for its viewers every step of the way during the pandemic, at the same time as taking STV was well positioned to continue its care of its advertisers through the STV Growth Fund and its local successful growth strategy even in a communities, through the STV Appeal. STV is committed to driving the Scottish economy by championing Scottish SMEs, providing downside scenario. a platform to grow their businesses and build their brands on television and it has an unrivalled connection with consumers, Covid-19 reaching at least 80% of Scots every month. In March 2020, we The economic impact of the Government’s lockdown measures announced the doubling of our STV Growth Fund to £20 million was significant and STV responded proactively to mitigate the to make advertising even more affordable and accessible for commercial impacts of Covid-19 by maximising cash retention Scottish SMEs looking to bounce back from Covid-19. and saving costs, which included the Management Board and STV directors taking a voluntary 25% pay cut. Like many other During 2020, working closely with the Scottish Government, STV companies, our final FY19 dividend was cancelled and Directors Children’s Appeal was able to commit a total of over £3.6 million agreed that a complementary and balanced package of debt to tackling the impacts of child poverty, making more than 860 (through increasing the current bank facility) and equity (from awards and reaching every Local Authority in Scotland which was conducting a share placing) would strengthen the balance sheet an extraordinary outcome given the lack of mass participation and was the most appropriate action to take. events. We were overwhelmed by the incredible generosity of STV viewers – particularly at a time when donating may be harder to All parts of our business were impacted but our teams have do than normal. Their support, along with that of our community shown incredible resilience. The Studios business joined forces heroes and corporate fundraisers, will make a real difference to with broadcasters to help introduce new industry wide guidance the one in four children living in poverty throughout the country. for producing TV safely. As a trusted source throughout 2020, STV News at Six cemented itself as the best watched news 2021 and beyond programme in Scotland and our digital strategy to expand STV Having taken proactive steps to strengthen the business Player continued throughout the pandemic, demonstrating and support our people, the focus is now on accelerating our considerable growth.