STV GROUP PLC FULL YEAR RESULTS TO 31 DECEMBER 2022

Total revenue for the year was £137.8m (2021: £144.5m), down 5% as a result of lower advertising and Studios revenues year on year. Excluding the external lottery management company (ELM) revenues from 2021, which was disposed of in August 201, total revenues were down 4% year on year.

Total advertising revenue (TAR) was £110.0m (2021: £112.6m), a decrease of only 2% on the record 2021 performance, despite significant economic uncertainty particularly in the second half of the year.  After a first half which saw TAR grow by 4% year on year, the third quarter was more challenging as the interest rate and inflationary environment took hold and consumer confidence was impacted by the cost-of-living crisis.  Q4 was stronger than Q3, boosted by the advertising opportunities associated with hit entertainment shows like I’m a Celebrity and the FIFA World Cup, however the Q4 performance wasn’t sufficient to offset Q3 declines, and TAR fell in H2 by 7% overall.  Revenues in Studios were lower as a result of the timing of drama deliveries in particular.

Adjusted operating profit increased by 2% to £25.8m (2021: £25.2m), equivalent to an operating margin of 18.7% (2021: 17.5%).  On a statutory basis, operating profit increased by 17% to £25.3m (2021: £21.6m).

Adjusted profit before tax (PBT) was £24.1m (2021: £23.6m), after charging finance costs of £1.6m (2021: £1.5m). These comprised interest on the Group’s borrowings of £1.1m (2021: £1.2m) 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 (2022: £1.4m; 2021: £0.8m) and exceptional costs (2022: £0.5m; 2021: £0.8m). The prior year adjusted PBT also included High-End Television (HETV) tax credits receivable (2022: nil; 2021: £1.9m). Statutory profit before tax for the year was £22.2m, up 11% on 2021 (£20.1m).

A total tax charge of £4.9m has been recognised in the year (2021: £0.7m), representing an effective tax rate of 22.1% (2021: 3.5%). This is higher than the UK standard rate of corporation tax, principally due to deferred tax in relation to the Group’s defined benefit pension schemes. Statutory profit after tax for the year was £17.3m (2021: £19.4m).

Adjusted EPS (before exceptional items and IAS19 finance costs) at 42.3p was down 7% on the prior year and on a statutory basis EPS was down 4.4p to 38.3p.  The main driver for the reduction in EPS under both measures is the increase in the effective tax rate in the year.

The Group closed the year with net debt (excluding leases) of £15.1m compared to a small net funds position of £0.3m at the start of the year.  This position reflects the unwinding of the working capital cash inflow in 2021, and the short-term requirements of a growing Studios business.  In addition, we invested £0.9m in Mighty Productions in Q1 2022 and have provided a £3.0m production financing facility to Two Cities (of which £2.4m was drawn in the year) to support the production of Blue Lights for the BBC.  This production financing facility matures in the first half of 2023.  The Group’s operating cash conversion was 45% in the year (2021: 161%) – looking at both years together, the conversion rate was 98%.

The Group has in place a 3-year £60m revolving credit facility, with £20m accordion, that has been extended to March 2026 through the exercise of two 1-year extension options.  At the end of the year, the Group’s leverage was 0.5 times (2021: nil) and interest cover was 42.8 times (2021: 49.4 times), both metrics well within the covenant limits.

The IAS19 accounting deficit across the Group’s two defined benefit pension schemes was £63.1m at the end of the year (2021: £79.4m). The decrease in the liability is primarily driven by an increase in discount rates over the period due to the increase in corporate bond yields, and payment of deficit funding contributions.

STV remains the most watched commercial TV channel in Scotland by a considerable margin. STV reaches 3 million adults in Scotland each month – more than any other commercial channel, and has a higher daily, weekly, and monthly reach than all subscription (SVOD) services combined. STV is the only PSB in Scotland to outperform its Network equivalent, tracking ahead of ITV in terms of network share across all time (+1.4%) and peak time (+1.9%) in 2022.

For the fourth consecutive year, STV was the best watched peak time channel in Scotland, ahead of BBC1.  The channel delivered 96% of the top 500 commercial programme audiences across the year. High quality shows including soap favourites, Coronation Street and Emmerdale; and top dramas Our House and Karen Pirie, were among our top ten most popular series commanding significant audiences.

The 2022 FIFA World Cup and I’m A Celebrity...Get Me Out of Here! helped STV achieve a 25% viewing share in November, the channel’s best-performing month since 2003. Indeed, the FIFA World Cup tournament scored the channel a 19-year viewing share high. The competition was watched by 7 in 10 people on STV in Scotland (3.3m) over four weeks.  24 out of the 29 matches on STV outperformed the UK network, with STV’s viewing share up 3% on the UK average.  The World Cup also delivered the single biggest programme of the year across all channels in Scotland, with the Quarter Final featuring England vs France attracting 1.1m viewers.

News and current affairs are the cornerstone of our service in Scotland. Award-winning news programme, STV News at Six, has been Scotland’s most watched news programme since 2019, reaching 1.4m viewers per month and performs 10 share points ahead of the ITV Network and 5 share points ahead of BBC Reporting Scotland.

Our award-winning training initiative, STV Expert Voices, is committed to establishing more diversity across the contributors on our programmes and the team has trained more than 700 people to date. STV News achieved its gender and diversity targets for its output across 2022, with 50% of contributors female and 9% from an ethnically diverse background.

We use our platforms to make a positive social impact in several ways via programming and promotional airtime. Our charity, the STV Children’s Appeal, continues to support children and young people impacted by poverty in Scotland and this year’s fundraising total of over £3m brought overall funds raised since launch to over £30m.

Reflecting the more challenging economic backdrop in the second half of the year, regional advertising was down 4% in 2022, largely as a result of a decline in Scottish Government advertising as a result of the pandemic threat receding. Excluding Scottish Government spend, regional advertising by Scottish SMEs and larger clients was up 18% year on year. The STV Growth Fund stands at £30m. From launch to the end of 2022, we have allocated almost £20m across more than 950 deals (now more than 1,000 in Q1 2023) with Scottish companies, with over 200 deals completed in 2022. We have also launched The STV Green Fund and the STV Inclusion Fund, which welcome environmentally conscious and socially inclusive businesses to work with us.

Across the year, STV Player delivered its highest ever viewing figures with viewing hours up 6% at 54m and streams up 1.5% at 116m. Average monthly active users were up 10% at 1.1m per month. Our total active registered users – individuals who have signed up to the service and provided their details - were up 400,000 for the full year, and in early 2023 we surpassed our 5m target for total registrations nearly one year early.

Key to this performance were two stand-out pieces of event television:  I’m A Celebrity…Get Me Out Of Here! became our most-streamed series (3.4m streams); and the winter World Cup was our most streamed sporting event ever (6.4m streams). Changes to the linear peak schedule in March reinforced the strength of our Soaps with the combined consumption of Coronation Street and Emmerdale growing 21% to a record high of over 9m streaming hours across 2022.

Our addressable audience is significant, with STV Player available on all major platforms. Registrations to STV Player continue to grow, increasing by 17% year on year to 4.9m (now more than 5m in Q1 2023), and within that our monthly active user base also grew by 10% to 1.1m.  STV Player VIP users also grew by 16%, which is significant because VIP users consume considerably more STV Player content than opted-out users. Total VOD viewing increased year on year in nine months of the year, even with the tough 2021 comparators of lockdown and the UEFA European Championships.

In December 2022, we agreed an enhanced strategic partnership with ITV around content sharing and advertising sales that creates incremental digital value for both companies and aligns our interests in the streaming age. This long-term agreement until 2029 sees STV Player take exclusive Scottish rights for a range of premiere content and is expected to encompass at least 100 hours of original content per year. The first wave of new titles included UK original dramas like A Spy Among Friends, Without Sin and Nolly. This deal also sees ITV’s sales team take on exclusive responsibility for selling national VOD and simulcast advertising inventory on STV Player from 2023, allowing STV to benefit from ITV’s unrivalled scale and targeting capability in the UK market.

We have continued our successful strategy of adding high-quality 3^rd party content, which complements our slate of original programming. 20 new content deals were secured, adding 156 new titles to the Player in 2022 and boosting our already significant library by over 1,600 hours. STV Player-only content generated more than 32m VOD streams across the year, accounting for 39% of total VOD streams.  2023 is off to a strong start, with our acquisition of Brookside seeing the long running soap become the fastest programme on STV Player to reach 1m streams and boosting ex-Scotland streams to 25% of the total in Q1 2023.

All of this resulted in commercial VOD delivery growing across the year, with total advertising impressions up 27% year on year, driving a 9% increase in VOD advertising revenues, and profit and margin growth year on year.

STV Studios has had another excellent year. Our ambitious strategy is to become a world class producer for the biggest TV networks and global streamers and the UK’s number 1 nations & regions production company. In 2022 our growth momentum continued, and a record 30 commissions were won. More than £50m revenue has been secured for 2023, significantly ahead of our target of £40m by 2023.

We continue to win new business across the genres from the main UK broadcasters, global streamers and international buyers, meaning we have been in a consistently busy period of programme production whilst continuing to develop and pitch original new ideas and formats, ensuring a strong pipeline for the future.

Our teams are delivering high value returnable and returning drama series alongside high-volume returning unscripted series, which are significant contributors to our business growth and are also important for the development of the creative industry and talent base in Scotland.

We now work with nine production labels and remain open to future prospects. In addition to our three in-house production teams, we have different holdings in six independent production companies and this low-risk strategy enables us to spread our creative bets, with the option of increasing our holdings in these companies over time. In 2022, we added Mighty Productions to our stable – founded by the creative team behind daytime quiz hits like Tipping Point and !mpossible. Each of our labels has achieved success in 2022 including Tod Productions who, alongside STV Studios, won a major commission for AppleTV+ to produce crime thriller Criminal Record starring Peter Capaldi and Cush Jumbo, and Barefaced TV, who produced a major reality dating show for Discovery+.

Commissioning highlights include a second series of our prison drama, Screw, which was confirmed following the success of the first series that, at the time of broadcast, was Channel 4’s most successful drama launch since It’s A Sin. The show, starring Nina Sosanya (His Dark Materials) and Jamie-Lee O’Donnell (Derry Girls), has just completed shooting in Glasgow.

Quiz show Bridge of Lies with Ross Kemp, a commission won through a fiercely competitive tender process in late 2021, was an instant ratings success for BBC One’s daytime schedule, with an average audience of over 1m viewers. There followed a recommission for a second and third series, made up of 25 x 45” episodes for daytime and a special primetime celebrity series.  The latter launched strongly on Saturday nights in January 2023 with 2.7m viewers (17% share).

Our returnable antiques-based formats have seen us produce seven series in large volumes in 2022 for BBC One, BBC Two, Really and Channel 5, including Antiques Road Trip and its celebrity sister version; new commission, The Great Auction Showdown; The Yorkshire Auction House and a celebrity series, plus off-shoot, The Edinburgh Auction House. An additional win was The Travelling Auctioneers for BBC One, the channel’s most successful daytime launch in 2022 and the BBC’s biggest daytime factual launch in the last 6 years.

We welcome the UK Government’s proposal for a new regulatory framework to secure the vital contribution of free-to-air public service broadcasters in the digital age and look forward to the publication of its new Media Bill in 2023. The Department for Culture, Media and Sport (DCMS) has recognised the "unique relevance" of STV’s public service contribution, particularly in Scottish news and current affairs, and the importance of ensuring our programming is available and easily found on all major digital platforms, as it is on broadcast, in the future. It is important that the Media Bill is published swiftly, given this will be the legislation that underpins the Channel 3 licences, which will renew in January 2025 with applications due in April 2023. STV is confident of renewing its current licence.

We continue to engage with stakeholders and policy-makers on the following regulatory priorities:

• Securing prominence for public service broadcasters, including nations players like STV, on all digital platforms, to ensure our content is available, accessible and prominent on the digital platforms that viewers are increasingly choosing to access their entertainment.
• Safeguarding free-to-air, high quality, impartial and comprehensive Scottish and local news.
• Support and stimulus measures to ensure Nations and Regions television production, across all genres, continues to grow.
• A level regulatory playing field between TV and online players, particularly in relation to advertising regulation.