stv strategic plan delivers profitable growth
TRANSCRIPT
STV Strategic Plan delivers profitable growth2019 Interim Results - 3 September 2019
Introduction
Financial Results
Strategic Update & Outlook
Q&A
Agenda
Simon Pitts
Lindsay Dixon
Simon Pitts
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• 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
Key Messages
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Total Revenue
2019 H1 Highlights
£54.9m-5%
Total Advertising Revenue£48.8m-0.6%
Regional Revenue
£7.3m+19%
DigitalRevenue
£5.6m+19%
ProductionRevenue
£2.0m-46%
OperatingProfit
£11.0m+10%
OperatingMargin
20%+270 bps
EPS
21.8p+9%
Exceptionals
Nil
Interim Dividend
6.3p+5%
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Financial ReviewLindsay Dixon
Strong performance in an uncertain advertising marketGroup Results
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• Revenue down 5% reflecting national advertising market and phasing of deliveries in Productions• Strong growth in adjusted operating profit, up
10%• Operating margin at 20%; highest H1 margin for
at least 10 years• No exceptional items in the period• Cash finance costs in line with last year• Other finance costs are non-cash and relate to
pensions and introduction of IFRS16, Leases• Operating performance converted to 9%
increase in adjusted EPS
Revenue 54.9 57.7 (5%)
Operating profit pre exceptionals 11.0 10.0 +10%Exceptional items - (8.6)Operating profit 11.0 1.4
Finance costs- Funding (0.7) (0.6)- Other (1.2) (0.9)- Exceptional provision - ELM - (4.2)
Profit/(loss) before tax 9.1 (4.3)EPS pre exceptionals 21.8p 20.0p +9%
H1 2019 H1 2018£m £m Change
Good growth in regional, benefit of news restructure & closure of STV2Broadcast
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• National advertising decline includes impact of FIFA World Cup in comparator• Strong growth in regional advertising at the top
end of expectations• Impact of STV2 closure is £0.5m benefit to
profit (removal of £0.7m revenue and £1.2m costs) • Operating costs tightly controlled; 60% of costs
are with ITV which reduce in line with any national advertising decline• Operating margin reflects STV’s unique variable
cost model, the strength of regional advertising, STV News restructure and closure of STV2
Revenue- National airtime 34.4 36.6 (6%)- Regional airtime 7.3 6.1 +19%- Sponsorship 3.0 3.0 -- STV2 - 0.7 (100%)- Other 1.1 1.4 (21%)- Internal supply (0.8) (1.3) (38%)
45.0 46.5 (3%)
Operating costs (35.3) (37.4) +6%
Operating profit 9.7 9.1 +7%
Operating margin 21.6% 19.6% +200bps
H1 2019 H1 2018£m £m Change
Revenue growth delivers increased profitability Digital
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• Strong revenue growth driven by- increased distribution, new features and improved reliability of STV Player- enhanced content offer• Viewing up 13%, and ad impressions up 20%,
even with FIFA World Cup in the comparator• 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
Revenue 5.6 4.7 +19%
Operating costs (2.6) (2.6) -
Operating profit 3.0 2.1 +43%
Operating margin 53.6% 44.7% +890bps
H1 2019 H1 2018£m £m Change
Impacted by programme deliveries strongly weighted to second halfProductions
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• Significant revenue and profit impact from phasing of deliveries• Total revenue of £13m secured for 2019 as at
end July, similar to last year (c.£14m)• Further series of Antiques Road Trip (ART),
CART and Celebrity Catchphrase all confirmed for H2
• 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
Revenue 2.0 3.7 (46%)
Operating costs (3.7) (4.9) +24%
Operating loss (1.7) (1.2) (42%)
Operating margin (85.0%) (32.4%)
H1 2019 H1 2018£m £m Change
Strong total advertising revenue performance down only 0.6%Group Revenue
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Broadcast 45.0 46.5 (3%)Digital 5.6 4.7 +19%Productions 2.0 3.7 (46%)ELM 2.3 2.8Total revenue 54.9 57.7 (5%)
Total ad revenue 48.8 49.1 (1%)
H1 2019 H1 2018£m £m Change
• Digital and regional revenues now 27% of total advertising revenue, up from 21% in FY 2017:- Regional airtime (including sponsorship) has grown from 13% to 16% due to the strength of our broadcast channel in Scotland and the 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
• 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
Group Operating Profit
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Strategic growth drivers more than offset national advertising weakness
0.0
2.0
4.0
6.0
8.0
10.0
12.0
H1 2018 National airtime Regional airtime
Digital revenue flow through
News restructure
STV2 closure STV Productions
Other H1 2019
Operating profit pre exceptionals
Cash Flow
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H1 2019 H1 2018£m £m
Operating profit 11.0 10.0 Depreciation/amortisation 2.3 1.2Share based payments 0.1 0.2EBITDA 13.4 11.4
Working capital movements (2.9) 0.3
Capital expenditure (2.4) (0.8)
Operating cash flow 8.1 10.9
Cash conversion 74% 109%
Pension deficit payments (5.9) (4.4)Interest paid (0.5) (0.4)
Reorganisation costs (0.8) (0.6)Dividends (5.3) (4.6)SCL funding (0.6) (1.1)Share purchases (0.9) (2.0)Tax paid 0.2 (0.3)Sale of investments - 0.2
(5.7) (2.3)
Net debt (42.0) (37.8)
Net debt: EBITDA (covenant basis) 1.49x 1.46xCovenant 3.0x 3.0x
• £0.9m additional depreciation due to new lease standard• Working capital driven by Productions
- increase in stock - EIM/ART in production - lower deferred income due to timing of deliveries- tax credit received re The Victim• Capital investment in News infrastructure, STV Player
development and Sky integration• Pension payments include £1.4m additional contribution
in line with agreement to share cash outperformance with the schemes• Final dividend of 14p per share (2018: 12p per share)• Net debt expected to reduce by year end as Productions
deliveries are realised, and in line with normal seasonal trends• Share buy-back completed in July; cash outflow of
£1.3m bringing total to £7m
Triennial valuation concluded on same terms, providing certaintyPensions
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• Triennial valuation process (as at 1 January 2018) completed in April 2019• Deficit funding recovery plan of 12 years agreed
for pre-tax deficit of £127m, representing a continuation of the previous plan:
- Base contribution of £9m p.a., paid monthly, 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
Accounting valuation H1 2019 H1 2018 FY 2018
Assets (£m) 375.9 358.1 343.4Liabilities (£m) (450.3) (417.4) (421.9)Deficit (£m) (74.4) (59.3) (78.5)
Key assumptions:Discount rate 2.20% 2.80% 2.75%RPI 3.25% 3.15% 3.30%
• 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
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ELMProgress impacted by slower retail roll-out & platform challenges
Corporate items
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Interest, tax, dividends and covenants
Interest Tax• Cash interest up £0.1m to £0.7m - higher average borrowings and LIBOR rates
• No change to margin payable under facility
• Effective tax rate for 2019 of 18% - lower than standard rate of 19% - pension contributions and utilisation of losses
Dividends Covenants• Interim dividend of 6.3p per share - up 5% on prior year
• Future increases aligned with earnings growth
• Net debt/EBITDA of 1.49x (2018: 1.46x) - covenant test is 3.0x
• 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
Strategic Update & OutlookSimon Pitts
Our 3 strategic objectives remain unchanged
1.
2.
3. Build a world class production business
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Drive digital growth by creating an STV for everyone
Maximise the value of our broadcast business
STV’s broadcast position remains uniquely strong BROADCAST
Broadcast content still 70% of all
video viewing
STV’s best all time viewing share since
2009
99.7% of all large
audiences on STV
Biggest TV channel for
16-34s, 75% watch live
Continuing to outperform
rest of UK and ITV
In H1 STV was the biggest peak time channel in Scotland
Bigger than 4x bigger than 5x bigger than
�18Source: BARB Jan-Jun 2018. Peak time audience = (18:00-22:30), individuals; Mins per day = individuals, all day, Total TV
341 327
96 9160
40 36 27 24 20 19 16
STV BBC 1 BBC 2 CH4 CH5 ITV3 ITV2 E4 BBC Scotland
BBC 4 Film4 Sky1
Average peak time audience in H1
Most popular source of Scottish
news
BGT’s performance bodes well for our autumn schedule
Won its slot
18 out of
19 times
39% 101k614k659KAudience +2% YoY
Viewing share, +2
share points YoY
Catch-up streams
+58% YoY +31% YoY
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Live streams
STV’s Growth Fund goes from strength to strength BROADCAST
Over 100 new TV
advertisers since launch
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Broad range of sectors underpinning 19% regional ad growth
£5m+ allocated so far, vast majority “matched-funded”
BROADCAST
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Growth Fund deals by sector since launch in 2018
200+ deals right across Scotland
Success of Growth Fund accelerating, 135 deals done
this year alone
We continue to make good progress with our vision to become Scotland’s digital destination
DIGITAL
Monthly active VOD users
+13%
VOD consumption
+20%
VOD streamstarts
+36%�22
Watching more content For longerMore people
Big screen is where the digital growth is DIGITAL
• Already our 2nd biggest platform
• 4 out of 5 Virgin customers have used STV Player since launch
• STV’s fastest growing platform
• Usage doubled year on year
• Addressable market of c.700k devices in Scotland
• UK’s largest VOD platform
• Typically 50% of ads fast forwarded
• Freewheel deal means STV retains 90%+ of revenues
STV Player connected TV streams were up 81% in H1
Coming Soon
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Ofcom’s stated position on PSB prominence will support our digital ambition
DIGITAL
Ofcom review of prominence for public service broadcasting, July 2019
54%49%
45%
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“New legislation is required to keep public service broadcasting prominent and ensure that viewers can continue to find andaccess the PSBs’ linear and on-demand services across a range of connected devices”
“PSB content should also be given protected prominence with TV platforms’ recommendations and search results”
New product features are extending Player dwell time, as expected
DIGITAL
FEATURE INTRODUCED IMPACT
LIVE RESTART Q1 2019 Already used on 18% of live streams
END OF PLAY RECOMMENDATIONS Q2 2019 1 in 3 stream starts watch next episode
PICTURE IN PICTURE Q2 2019 IOS streams up 33% since launch, ads per stream +27%
STV PLAYER + Q1 2019 Average streams per user +50% on standard user
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The best exclusive content now complemented by 500+ hours of 3rd party rights
DIGITAL
STV EXCLUSIVE 1000+ HOURS 3RD PARTY NOW 500+ HOURS
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SPORT ENTERTAINMENT DRAMA ACROSS 11 DEALS
6 hours
BGT The Champions12 hours
X Factor Celebrity12 hours
23 hours
Deep Water 6 hours
A confession6 hours
Sanditon8 hours
CO
MIN
G U
P IN
H2 Doc Martin
8 hours
Premier Sports deal enhances our digital advertising sell and sports proposition
DIGITAL
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• 3 year deal for STV to be exclusive advertising partner for Premier Sports 1 & 2, home of Pro14 rugby, Scottish Cup football and Serie A
•Covering all advertising and sponsorship revenues across all broadcast and digital platforms, UK-wide
•STV Player will also live stream the UK’s only free-to-air sports channel - Freesports - on a rev share basis
There is a clear timetable for future digital enhancements DIGITAL
New features launched
STV Player brand refresh
Player marketing push begins
Start of RWC Sky launch
Player+ roll-out
Live restart on TVs
Q2 2019 Q3 2019 Q4 2019 Q1 2020
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Start of I’m a Celebrity
New drama launches
Freesports launch
As we said at the CMD, Digital is increasingly high margin with significant growth potential
DIGITAL
97.5%
Growing Margins
FY 2017 FY 2018 H1 2019
54%49%
45%
Big Growth Opportunity
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STV Advertising
Impressions, c.18 billion p.a
2.5%Currently only
digital
LinearDigital
• 6.5m viewing average• Sold to 30+ countries
• In production now• Starring 2-time Oscar winner Glenda Jackson
• 1m viewers in C4 peaktime
Sex Tape on Channel 4Elizabeth is Missing on BBC1The Victim on BBC1
Antiques Road Trip on BBC2
• 27 series and 625 episodes• Average audience of 2.1 million and 20% share
• Regularly gets audience of 4m+• 27% share of viewing in ITV peaktime
• Most popular commission on new BBC Scotland Channel
2019 has seen a good mix of new and returning series, but we need more
PRODUCTION
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Catchphrase on ITV ICS on BBC Scotland
RET
UR
NIN
GN
EW
We will look to place more creative bets over time through partnerships and joint ventures
We are investing in our creative pipeline to develop valuable IP PRODUCTION
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DRAMA ENTERTAINMENT FACTUAL
Priority is more long-running formats
30+ projects in active development
10+ commissioned scripts
New Creative Director Craig Hunter started
July 20193 shows already
commissioned for BBC and C4
Strong pipeline with 20+ shows in development
Our first STV format is on air now
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• Returnable daily quiz is a key business target • Route to market is challenging unless you have access to a broadcast network• Launched on 1st September with 19% share, +3 on network and +30% on slot average
PRODUCTION
Coming up at STV in H2 2019
• Big marketing push• New features, personalisation and Sky launch• More content, including Freesports launch
• Continued focus on returning series• Fully integrate Primal• Identify next creative partnerships
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DIGITAL
• Maximise value of strong autumn schedule• Ongoing digital news transformation• STV Growth Fund next phase
BROADCAST
• National advertising will continue to be impacted by Brexit, with the 9 months until the end of September expected to be 6% to 7% down
• Regional advertising expected to be 10% to 15% up until the end of September
• Digital advertising expected to be 20% to 25% up for the same period
• Overall, that would see total STV advertising broadly flat for the first 9 months
• Productions will have a stronger H2, with current secured revenues of £13m similar to last year
Outlook
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Good momentum going into H2 despite Brexit uncertainty