Press Release 0700 hours, 5 March 2024

STV Group plc Full Year Results to 31 December 2023

Diversification targets exceeded; profit in line with guidance; new 3-year growth plan; CEO succession

Highlights

·    Diversification strategy continues to accelerate:

o  Group revenue growth of 22%

o  Studios revenue and adjusted operating profit trebles

o  Digital revenue +6% and operating profit +16%

o  75% of Group adj. operating profit outside broadcasting, well ahead of 50% target

·    Adjusted Group operating profit of £20.1m down 22%, impacted by linear advertising revenue and cost inflation and related to broader UK macro uncertainty, as expected

·    Strong on-screen performance, with STV Player streams + 28% and STV the most-watched peak time TV channel in Scotland for the 5th year in a row

·    Advertising outlook improving; Q1 total advertising revenue expected to be up around 5%

·    Board proposes final dividend of 7.4p and a full year dividend of 11.3p, in line with 2022

·    New 3-year targets set to drive STV's profitable growth

·    CEO Simon Pitts to step down over the next 12 months to take up a new appointment beginning in Q1 2025

Financial highlights

·    Total revenue of £168.4m, +22% on 2022: Studios and Digital growth more than offset expected linear advertising revenue declines

·    Studios revenue of £66.8m, +182% and adjusted operating profit of £5.2m, +280%, due to organic growth and H2 impact of Greenbird acquisition

·    Digital revenue of £20.2m, +6% (VOD revenue +7%), with digital operating profit up 16% to £9.9m

·    Regional advertising revenue down 9% to £15.1m (excluding Scottish Government spend, regional down only 1%)

·    Group adjusted operating profit £20.1m, down 22% on 2022, reflecting expected impact of declines in higher margin linear advertising revenue and inflationary cost pressure

o  Savings realised to offset broadly half the inflationary increases, as guided

·    Total advertising revenue of £97.3m, down 12%

·    Non-recurring costs (included within adjusting items) of £5.5m incurred in the period relating to the new agreement with ITV for digital content and national VOD sales representation (2023: £3.1m; 2022: £0.5m) and Greenbird acquisition and integration costs (2023: £2.4m; 2022: £nil)

·    Net debt of £32.3m, up £17.2m on 2022 and reflecting the consideration paid to date for Greenbird of £21.9m.  Leverage of 1.2x at year end, in line with guidance (2022: 0.5x)

Another year of strong audience performance

·    STV & STV Player combined still the clear number 1 for commercial audiences in Scotland

·    20% share of total peak audience in 2023 (vs Netflix 12%, C4 11% and Sky 9%)

·    486 of top 500 commercial audiences were on STV in 2023 (97%)

·    STV was the most watched peaktime TV channel in Scotland for the 5^th year in a row with a viewing share of 21.8%

·    STV's lead over BBC1 in peak widened to nearly 3 share points

·    Highest lead over ITV Network (2.3 share points) since records began

·    Most watched commercial TV channel on 361 days out of 365 in 2023

·    STV Player delivered another record streaming performance, with growth across all key metrics:

·    Online streams +28% and online consumption +25%

·    Registered users up 17% to 5.7m, beating 5m target

·    Active registered users +20% and STV Player VIP users +33%

Continued strategic momentum and new targets

·    Studios: STV Studios now a leading UK production group:

·    58 new commissions in 2023, up 28 on 2022

·    68 series produced in 2023 delivering 620 hours of new television, +154%

·    Transformative Greenbird acquisition delivered £15.0m revenue and £3.2m operating profit post acquisition on 6 July 2023

·    Jan 2024 consolidation of Two Cities further evidence of successful investment model:

§ £55m+ future revenues secured; acquisition is materially earnings-enhancing

§ 3 new drama series commissions confirmed last month

·    Major Apple drama Criminal Record launched in 100+ countries to widespread acclaim

·    Digital: STV Player continuing to deliver strong viewing and commercial growth:

·    Digital targets all exceeded for users, streams and revenues

·    Year 1 of new ITV digital deal has driven increased viewing and advertising yield

·    Long-term partnership in place until 2029 on a variable cost basis

·    18 programmes delivered 1m+ streams, up from 12 in 2022

·    Continued strong performance of STV 3rd party content, with over 14m Brookside streams since launch

·    UK Government Media Bill continues to progress through Parliament and should guarantee prominence for STV Player on all major digital platforms

·    New 3 Year strategy and targets: Next-phase plan announced to drive STV's profitable growth; strategic objectives will focus on four key areas:

·    CONTENT: Accelerate UK and international Studios growth

·    AUDIENCE: Drive streaming growth and maximise total STV viewing

·    MONETISATION: Maintain advertising leadership and grow new revenues

·    ORGANISATION: Modernise and simplify business for digital-first world

·    In terms of financial targets, by the end of 2026 STV will:

·    Double Studios revenues to £140m with a target to achieve a 10% margin

·    Grow Digital revenues by a further 50% to £30m* at a margin of at least 40%

·    Increase international revenues to 15% of Group / 25% of Studios

·    Achieve a further £5m p.a. savings in STV's cost base

* before commission

Improving outlook

·    Advertising market showing resilience and growth so far in 2024

·    Total advertising revenue (TAR) expected to be up around 5% in Q1 year on year

·    Digital VOD advertising, before commission, expected to be +12% in Q1

·    Scottish advertising down 4% in Q1 reflecting Scottish Government declines (underlying SME advertising +6-8%)

·    Q2 will include live coverage of UEFA Euro 2024

·    Studios forward order book stronger than ever

·    £87m secured future revenue as at March 2024, £30m+ ahead of a year ago

·    Multiple new drama commissions secured for Sky, BBC and others

·    2024 will see full year of Greenbird consolidated performance and 11 months of Two Cities Television

·    3-year cost savings plan in place with £1.5m identified for delivery in 2024 and £5m p.a. expected by end of 2026

·    As in previous years, revenue and operating profit expected to be H2 weighted reflecting Studios delivery schedules

Dividend

·    The Board proposes a final dividend of 7.4p per share for 2023, giving a full year dividend of 11.3p per share, in line with 2022, after considering all relevant factors including ongoing macroeconomic uncertainty.

·    The Board remains committed to a balanced approach to capital allocation across investing for growth, fulfilling our pension obligations, and paying a sustainable dividend to shareholders.

Simon Pitts, Chief Executive, said:

"2023 was another year of strong strategic progress for STV as we delivered revenue growth of 22% and exceeded the stretching 3-year diversification targets we set ourselves to double the size of our digital business and quadruple our Studios business, ending the year with 75% of our profit coming from outside traditional broadcasting, well ahead of our 50% target.

Despite the challenging commissioning environment, STV Studios had a standout 2023, with revenues almost trebling and operating profit up 280%, propelled by fantastic dramas like Criminal Record for AppleTV+ and Screw for C4 and the transformative acquisition of Greenbird.

Our audience position remains unrivalled, with STV the most-watched peaktime TV channel in Scotland for the 5^th year in a row in 2023, ahead of BBC1, and nearly double the commercial audience of Netflix. STV Player growth also continued to accelerate, with streams up a further 28%, driving digital profit up 16%.

Our overall financial performance was impacted by weak linear advertising and cost inflation, as expected and related to the challenging UK macro environment, although the start of 2024 has been more encouraging. Q1 total advertising is expected to be up around 5% and we have a strong H1 schedule to come, culminating in live coverage of UEFA Euro 2024 featuring both Scotland and England. In January we also increased our stake to a majority in leading drama producer Two Cities, who have already secured £55m of future revenues across 3 high-end drama series.

Over the last 6 years STV has been successfully transformed into a digital-first media company with a high-growth streaming service and one of the UK's leading production groups, and we have today set out further ambitious targets for the next phase of profitable growth. With STV's latest diversification targets fully achieved, now is the right time to plan a smooth and orderly succession. As such I have informed the Board that I will step down as CEO over the next 12 months to take up a new appointment beginning in Q1 2025.

The Board has proposed a final dividend of 7.4p per share, giving a full year dividend of 11.3p, in line with 2022."

There will be a presentation for analysts today, 5 March 2024, at 12.30 pm, via Zoom.  Should you wish to attend the presentation, please contact Angela Wilson, angela.wilson@stv.tv or telephone: 0141 300 3000.

Enquiries:

STV Group plc:         Kirstin Stevenson, Head of Communications         Tel: 07803 970 106

Camarco:                Geoffrey Pelham-Lane, Partner                 Tel: 07733 124 226

Ben Woodford, Partner                           Tel: 07790 653 341

Group overview

Total revenue grew by 22% to £168.4m (2022: £137.8m). This was primarily related to growth in Studios revenue, which reached £66.8m in the year, up from £23.7m in 2022, with a contribution of £15.0m from Greenbird Media Limited ("Greenbird") in the period since acquisition.  Digital revenues also continued to grow and were up 6% on the prior year.

Total advertising revenue (TAR) for the year was £97.3m (2022: £110.0m), a decrease of 12% on the 2022 performance, with linear advertising revenues being heavily impacted by the challenging macro-economic environment.  Within this, national advertising revenue was down 16% with regional continuing to out-perform at -9% year on year.

Adjusted operating profit of £20.1m was down 22% on the record set in 2022 of £25.8m, equivalent to an adjusted operating margin of 11.9% (2022: 18.7%).  On a statutory basis, operating profit was £6.4m (2022: £25.3m).  The proportion of Group adjusted operating profit derived from non-broadcast earnings was 75%, compared to 38% achieved in 2022.  This increase is in part due to the absolute quantum of Digital and Studios adjusted operating profit increasing year on year (£5.2m equivalent to 53%) but it is also impacted by the declines in high margin linear advertising revenues that have resulted in a 53% reduction in Broadcast operating profit year on year.

Adjusted profit for the year was £13.8m (2022: £19.1m), which includes a net tax credit of £4.5m (2022: charge of £5.0m), primarily in relation to High-End Television (HETV) tax credits receivable, and is after charging finance costs of £2.9m (2022: £1.6m). The finance costs comprised interest on the Group's borrowings of £2.4m (2022: £1.1m) with the balance being non-cash costs in relation to the Group's lease liabilities. These adjusted results are before finance costs in relation to the Group's defined benefit pension schemes (2023: £2.8m; 2022: £1.4m), finance costs being the unwind of discount in relation to put options recognised in a business combination (2023: £0.5m, 2022: nil) and adjusting items in operating profit (2023: cost of £6.0m; 2022: cost of £0.5m). Statutory profit after tax was £5.3m (2022: £17.3m).

Adjusted earnings per share at 28.2p was down 33% on the prior year, driven by lower operating profit and higher interest costs.  On a statutory basis EPS was 9.7p (2022: 38.3p).

At the balance sheet date, the Group had net debt of £32.3m compared to £15.1m at the start of the year. The increase is principally driven by the acquisition of Greenbird Media, which was a net cash outflow of £15m on acquisition. Initial cash consideration of £21.4m was paid on completion with a further £0.5m paid in December 2023 as surplus cash was paid via a dividend to Greenbird from one of its subsidiaries.  Operating cash conversion in the year improved on 2022, as expected, and was 169% (2022: 45%).

The Group has in place a £70m revolving credit facility, with £10m accordion, maturing in March 2026.  The Group also has a production financing facility relating to commissioned programme production, of which £3.3m was drawn at the end of the year. This facility will mature when the programme is delivered to the commissioner in H1 2024.  At the end of the year, the Group's leverage (calculated on a covenant basis) was 1.2 times (2022: 0.5 times) and interest cover was 12.9 times (2022: 42.8 times), both metrics well within the covenant limits.

The IAS 19 accounting deficit across the Group's two defined benefit pension schemes was £54.8m at the end of the year (2022: £63.1m). The decrease in the liability is primarily driven by updated mortality assumptions that reduce life expectancies.

STV Studios

2023 has been a standout year for STV Studios.  The production business continues its strong growth trajectory, with revenues almost trebling year on year and profit growing nearly fourfold from a combination of organic growth and the acquisition of Greenbird Media.  It is scaling rapidly and profitably, strengthening its position as the biggest production company in Scotland and moving closer towards our core objective of becoming the UK's number 1 nations and regions producer.

Over the past four years a key part of our expansion plan, alongside organic growth, has been to invest in new production partners. In July 2023, we accelerated this strategy through the acquisition of Greenbird Media, significantly increasing the number of production labels under the STV Studios umbrella (from 9 to 24), more than trebling our portfolio of returning series and expanding our forward pipeline of new programme ideas. STV Studios now has expanded bases in Glasgow and London, as well as offices in Cardiff, Belfast, Brighton and Manchester, strengthening our ability to take advantage of the continuing growth of production in the nations and regions.

The Studios business was already on track to exceed our 2023 target of £40m of revenue, but this transformative acquisition has added significant scale and creative firepower to the division and accelerated STV's overall diversification strategy in terms of both revenue and profit.  The acquisition was materially earnings-enhancing from day one and was funded from STV Group's existing financial resources.

STV Studios - including the Greenbird labels - has produced a record 68 series in 2023 while securing more than 50 new commissions and recommissions. This is a very strong performance set against a difficult global commissioning backdrop, with many UK broadcasters and global streaming services slowing their rate of new programme commissions in the current economic climate.

Programme highlights across Scripted and Unscripted for 2023 include:

·    BBC One commissioned two new series of hit gameshow Bridge of Lies with Ross Kemp, with the format also selling to Spain and the US.

·    One of the BBC's biggest new dramas of the year, critically acclaimed Belfast-based police drama, Blue Lights was recommissioned for a second series. In Q1 2024, a further two series were ordered from our label, Two Cities.

·    Series 2 of prison drama, Screw, which aired on Channel 4 in the autumn, attracted an average audience of 1.6m per episode.

·    Thriller Criminal Record, a co-production with our exclusive partner, Tod Productions, launched globally in January 2024 on Apple TV+ to a raft of rave reviews.

·    Antiques Road Trip (BBC), Travelling Auctioneers (BBC) and The Yorkshire Auction House (Really, Discovery) are important returning series for the business and continued to deliver strong ratings.

·    Primal Media produced innovative new reality format, The Underdog: Josh Must Win for Channel 4, airing in 2024; and a series development deal with US media group, NBCUniversal, has been secured.

·    Tuesday's Child won brand new entertainment format The Fortune Hotel for ITV/STV and a recommission for BBC returner, The Hit List.

·    Crackit Productions won and delivered a number of their successful returning series in 2023, including titles such as Casualty 24/7 and Trucking Hell for Channel 5, Deadliest Families for Discovery, and Social Media Murders for ITV2.

As in 2022, tape sales of our extensive programme catalogue remain very strong, proving to be a reliable and valuable income stream for the business. Following the acquisition of Greenbird Media, we have significantly increased the number of episodes in our distribution portfolio, including shows such as Antiques Road Trip, The Travelling Auctioneers, Bridge of Lies, LEGO Masters and A&E After Dark.

Testament to the tenacity, talent and creativity of our people, STV Studios was named Production Group of the Year at the prestigious Edinburgh TV Awards in August 2023.

We move into 2024 mindful of the ongoing uncertainty in the market. However, not only do we have a strong stable of returning series, we have a compelling pipeline of new programme ideas across the expanded STV Studios, and we're excited about the year ahead for our newly enlarged creative powerhouse.

Digital

A combination of appealing and exclusive content, availability across all major platforms in the UK, and a continuously improving user experience ensured that STV Player continued its strong growth trajectory in 2023. The migration of audiences from linear to VoD continues and viewing hours were up 25% at 71m compared with 2022, and streams increased by 28% at 149m.

STV Player marked its biggest ever month and quarter in terms of viewing hours, contributing to a record-breaking year for the streamer.  A strong content line-up, including exclusives in Scotland like dramas Crime, Six Four and The Long Shadow, alongside appealing acquired material, such as Brookside and Suspects, helped make this our biggest year ever for Video on Demand.

Total active registered users - individuals who have signed up to the service, provided their details and viewed content - were up 400,000 at 1.8m across 2023, with 1m users active every month across our STV owned and third-party platforms. STV Player VIP users continued to grow, with new VIPs up by two thirds year on year - that's 570,000 opted-in users by the end of 2023.

Following an agreement with ITV in December 2022, STV Player has exclusive Scottish rights for a range of original and premiere content, encompassing at least 100 hours of brand new and exclusive box sets per year.  58 new series premiered in 2023 under this new deal, driving 28% of VOD viewing. Five of these titles are in the top 15 best-watched VOD shows, including Irvine Welsh drama Crime starring Dougray Scott; true crime drama, The Long Shadow; crime thriller, Payback, along with Six Four and Malpractice.  Favourites like The Bay, Unforgotten and Vera also continue to drive strong viewing numbers for STV Player. Drama remains a big driver of digital viewing, with almost four in ten STV drama hours viewed via STV Player across 2023.  

In addition to access to exclusive Network content in Scotland, this agreement sees ITV's market leading sales team take on exclusive responsibility for selling all national and digital VOD and simulcast advertising inventory on STV Player from 2023, allowing STV to benefit from ITV's unrivalled scale in the UK market. We joined ITV's addressable advertising platform, Planet V, allowing advertisers to access STV's inventory alongside ITV's combination of mass simultaneous reach and data-driven, targeted advertising.

This has seen the level of targeted, programmatic advertising on our streaming service increase from 40% to 90% across the year, with our digital brand count increasing by 25% across the year.  This partnership has also created a genuine one-stop-shop for Scottish advertising across linear, VOD and programmatic, with the aim of attracting new, digital-only advertisers who haven't advertised on TV before.

Across all VOD programming, STV third-party acquired material features strongly in our top 20 - a proven approach which helps us broaden our audience outside of Scotland. Our strategic acquisition of iconic soap, Brookside, delivered vast media profile for the series and it was our number two most watched programme across the year, with c.13m streams in 2023, of which 69% came from outside of Scotland. 

Broadcast

STV reaches 2.8m adults each month, more than any other commercial channel, making STV a unique commercial proposition for advertisers. STV also has a higher daily, weekly and monthly reach than any of the subscription streaming services.

Like all businesses, 2023 saw us operating against a very challenging macro-economic backdrop due to high inflation and rising interest rates. This impacted both the national linear advertising performance the most significantly, down 16% year on year, with the Scottish regional ad market continuing to outperform at -9% year on year.  This is down to STV's Growth Fund, which stands at £30m and makes advertising more affordable and accessible for SMEs. Since launch in 2018 to the end of 2023, we have allocated almost £28m across more than 1200 deals with Scottish companies. 245 deals were secured in 2023 and importantly, over 65% of advertisers have returned from 2022. Within this, we have ring-fenced £1m for an Inclusion Fund, for businesses who support diverse and inclusive practices; and a £1m Green Fund, for businesses with a commitment to sustainability.

For the fifth consecutive year, STV is the most watched peak time channel in Scotland, with our viewing share considerably ahead of BBC One; and the only PSB in Scotland to outperform its UK Network equivalent, tracking ahead of ITV1 in terms of viewing share across all time (1.4 percentage points) and peak time (2.3 percentage points) in 2023.

STV delivered 97% of the top 500 commercial programme audiences last year and was the most watched commercial channel on 361 days in 2023.

Coronation Street and Emmerdale, continue to be schedule favourites with loyal viewers. Other programme highlights for 2023 included new dramas like The Long Shadow, A Spy Among Friends and The Hunt for Raoul Moat; returning dramas, Unforgotten and Vera; and entertainment shows The Masked Singer, Deal or No Deal and The Chase.  I'm A Celebrity? Get Me Out Of Here! again proved our most popular show, with the top rating episode attracting over 800k linear viewers.

Our audience was boosted significantly by large scale sporting events in 2023. STV's Rugby World Cup coverage reached 2.5m Scots (53%) and attracted some of the highest audiences of the year. Viewing to the England vs Scotland Calcutta Cup match during the Six Nations peaked at 900k - our biggest audience of 2023. 1.3m Scots tuned in to watch the FIFA Women's World Cup.

STV News at Six has retained its position as the most-watched news programme in Scotland, tracking 7 share points ahead of BBC Reporting Scotland (its highest ever share lead). The STV News website has also had a strong year, with 3.1m unique visitors to the site on average per month. Our Expert Voices training scheme helps ensure we feature a diverse range of contributors on our news and current affairs programmes and so far, 1000+ people have been trained helping us to reach our on-air diversity targets.

In summer 2023, we launched our first ever Sustainable Scotland Week - a seven-day, cross-platform mission which saw STV raising awareness of how climate change is impacting Scotland's communities and inspiring viewers to live more sustainably. Our dedicated TV content reached 1.5m viewers. ScotPulse research revealed that 72% of those who saw Sustainable Scotland Week activity said it made them more likely to make more environmentally conscious choices. All STV productions are albert certified.

Regulatory update

In March 2024, we accepted terms from Ofcom to renew our Channel 3 licences for a further ten-year period from January 2025, providing further long-term certainty to our core business and securing the future provision of commercial public service broadcasting in Scotland, including the country's highest performing news and current affairs programmes.

STV also welcomed the introduction of the Media Bill at Westminster and its subsequent parliamentary progress. This represents the first major update to UK media legislation for over 20 years and is urgently required to make Public Service Media as prominent on digital platforms as they are today on broadcast platforms, and to ensure STV remains easily available and discoverable for viewers. In late February, Ofcom published their roadmap to support full implementation of the Bill. It's vital that the Bill now makes its way swiftly through Parliament into law.

Consolidated income statement

Year ended 31 December 2023

A reconciliation of the statutory results to the adjusted results is included at note 6. The above consolidated income statement should be read in conjunction with the accompanying notes.

Consolidated statement of comprehensive income

Year ended 31 December 2023

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Consolidated balance sheet

At 31 December 2023

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

*Details of restatements are disclosed in note 2