STV Group plc

Today, we're reporting good performance for the group across 2024. As you know, the economic backdrop continues to be challenging in both advertising and programme commissioning. But despite this, I'm pleased to say that we are delivering in line with expectations. Due to our diversification strategy, we are now very much more a balanced business. This strategy was designed to make us increasingly resilient and able to navigate uncertain times. And so it has, and we're very well positioned for the inevitable market recovery. I'm also pleased to say that we've been controlling our costs tightly with more to come. And the combined mass reach of our broadcast and digital platforms across Scotland provides good confidence in STV's unique commercial proposition. And the demonstrable strong growth in the quality and quantity of our studios business provides very exciting prospects going forward. The new chief executive, Rufus Radcliffe, joined the company on 1st of November. He spent his first four months really getting to know the business and our people, and I'm excited about the future of STV Group under his leadership, as I know he is. We and the team can deliver much more for our customers, our viewers, our partners and shareholders. Thanks again for joining us today and for your interest in STV. And I'll now hand over to Rufus and Lindsay Dixon, our CFO and COO, to take you through the presentation on our 2024 results.

Thanks very much, Paul. And hello, everyone. I'm really pleased to be here for STV's 2024 results presentation. I joined STV on November the 1st and I've had the chance to meet many people. But for those that I haven't met yet, I thought I should kick off by properly introducing myself. I've spent all of my career in media and I know I'm biased, but I think it is an amazing sector to be in. It's exciting, fast changing and dynamic. I started my career working at two different blue chip advertising agencies, McCann Ericsson and JWT, working on clients like Kellogg, Nescafe, and although you wouldn't believe it looking at my hair now, L'Oreal Elviv Shampoo. I then moved to Channel 4, where I spent a lot of focus on expanding their brand portfolio, including the launch of youth brand E4, which is still going strong today, as well as more for a premium factual brand and the launch of their streaming proposition 4OD. And before joining STV, I had a range of roles at ITV. I was sitting on the exec board for eight years as chief marketing officer, running a range of direct to consumer activities, including gaming, live events, merchandise, and their interactive competitions business, and led the development and launch of ITVX, the fastest growing streaming service in the UK. I believe passionately in commercial public service media, or PSM as we call it, and its importance to the UK creative economy. And for three years was chair of Freeview, the PSM-funded joint venture which remains today the biggest TV platform in the UK. And summing up what has joined my career up to date, it is using digital to create opportunities, recognizing the power of brands to unlock business value, and putting viewers and customers at the heart of decision making. So that's my background, and now to STV. We are very pleased that 2024 saw a strong set of results against what is well understood to be a challenging advertising and commissioning backdrop, with financial performance as expected. Total advertising revenue was up 5% before National VOD Commission, with all elements of our advertising mix growing. Strong digital growth continued with revenue up 8% year on year, And alongside digital revenue growth, STV remains the number one destination for commercial viewing on a TV set in Scotland and the best place for advertisers to quickly reach their audiences. Looking beyond Scotland, our studios division delivered record revenue from our widest ever range of customers, maintaining our position as a top 10 UK indie. There is no doubt that the industry continues to change. And to ensure that SDV continues to perform strongly, we've embarked on a strategy refresh to build on the tremendous progress of the past few years, which we will be sharing further details of in May. We propose a final dividend of 7.4 pence, taking the full year to 11.3 pence in line with 2023. And before I talk a bit more about STV's excellent current strategic progress, I'll hand over to Lindsay for the 2024 financial review.

Thanks Rufus and hello everyone. STV performed well in 2024 with total revenue at £188 million up 12% on the prior year and all main revenue streams in growth. Total advertising revenue on a like-for-like basis with 2023 was up 5% to £102 million. Both national and regional linear advertising grew by 4% in the year with digital revenues up 8%. Studio's revenue grew by 26%, driven by the acquisition of two cities at the end of January, and with roughly half of the revenue recognised in the year coming from scripted programming. Adjusted operating profit was £20.6 million, up 3% on the prior year, with profits growing in broadcast and studios partly offset by the impact of National VOD Commission coming into play for the first time in digital. Adjusted operating margin at 11% was slightly down on 2023, principally due to the growth in studios at lower margin. Growth in adjusted EPS matched that of operating profit up 3% to 29 pence. And net debt associated with the group's principal banking facilities at £28.8 million was in line with the start of the year, with operating cash generated being used to finance acquisitions, dividends, interest and pension contributions. Moving to the group P&L, where you can see how these highlights pool together into one page. It's worthwhile highlighting the strong first contribution from two cities during the year, who contributed a revenue of £31.5 million and adjusted operating profit of £2.7 million, off the back of delivering Series 2 of Blue Lights for the BBC and completing most of the production activity on Amadeus for Sky. The average base rate and our average borrowings were both higher in 2024, and so interest costs went up as a result. Roughly one quarter of the increase is due to the higher average rate of interest, with the balance due to higher average net debt, the latter principally a result of the Greenbird investment in 2023. This is the same position as we spoke about at the half year. In terms of adjusting items, the single largest amount is production tax credits in relation to scripted programming. Where claims are made under the high-end television tax credit regime, we make an adjustment to reflect the income as a contribution to costs rather than as a tax income as that better reflects the nature of the amount. The value of these has gone down in the current year due to phasing of activity and as we transition to the new regime of audiovisual expenditure credits. These new credits are recognised with an operating profit and so don't need adjusting, which will be much simpler going forward. However, 2025 will be a year where we make claims under both the high-end TV and audio-visual arrangements, so the adjustment will continue to appear for this year as well. From 2026, we expect to only be making claims under the new regime and the need to adjust results for this income will be gone from then. The other adjusting items relate to acquisition and integration costs and non-cash acquisition related accounting items. Turning to advertising revenue, the table on the left shows the year-on-year performance for each of the main advertising revenue categories for H1, H2 and the full year. After the strong Euros-driven performance in the first half, you can see the relative softness in the national linear market in H2, a product of changes in the UK political landscape and the first Labour budget, and strong Q4 comparators that included the Rugby World Cup in 2023. The regional performance is a combination of our core SME customer base and the Scottish Government, with the latter reducing spend over the last couple of years with an almost hiatus on marketing currently in force. Over the course of 2024, our core customer base generated revenues that were 12% higher than the prior year, whereas revenues from the Scottish Government declined by just under 40%. For 2024, the Scottish Government represented just 8% of total regional revenue, down from over 20% in 2022 and even higher in the Covid years. VOD revenues before commission grew in the second half, albeit at a slower rate than in the first. Against a national linear market that went backwards by 6% in H2, growth of 7% in VOD was a strong performance. In 2024, STV controlled revenues, so all those within the remit of our commercial team based in Glasgow grew by 5%. The chart on the right demonstrates the seasonality of advertising revenue, where we still follow a fairly normal cycle across the year, with the Euros in June and July last year providing the peak I've already touched on. In terms of the advertising outlook, visibility remains limited and in 2025 we've the shift in timing of Easter, which distorts the individual year on year comparison of March and April. Therefore, we've sought to eliminate that from our guidance and have shared expected performance for the first four months of the year. But before going into the detail, it's important to bear in mind the underlying trends. The charts on the left show the 12-month rolling average revenues for both linear advertising and digital advertising since January 2019. You'll remember all the ups and downs of linear advertising over the last few years, but when you look at the underlying trends, the market has been resilient. From January 2019 to the end of December 2024, the compound annual linear advertising decline was only 2%. And looking at the digital performance, we've delivered a double-digit CAGR of 12% over the same period. It would be wrong to project linear forward from the current ad market and assume it will persist forever. History tells us that the ad market goes in cycles and every time it dips, it comes back. The question is when and how quickly. So with those words of caution, we're currently expecting total advertising revenue for the first four months of 2025 to be slightly down. This is a combination of national linear down around 5%, regional slightly up, and VOD continuing to grow at around 6%. The comparators for Q2 include a very strong Euros performance and so are difficult, and we have the introduction of HFSS legislation from the 1st of October, although we don't yet know how that's going to be implemented. So there are some short-term headwinds. The sense we're getting from advertisers is that they're reducing marketing spend temporarily, while they identify mitigations for the impact on their businesses of increased employee costs and lower growth forecasts. And our expectation is that behaviours start to change once plans are identified and executed. Clearly, some wider positive market stimulus wouldn't go amiss either. This chart shows the profit impact of the various revenue points I've talked to. We've shown the gross movements in VOD revenues with the incremental sales and then commission as an offset. When we get to 2025 and have commission in both years, we'll revert to reporting a single net number. Cost inflation in the business in 2024 was driven by two areas. The first is salary inflation for our colleagues and the second relates to one of the agreements we have with ITV for national linear sales that under the terms of the contract increases in line with CPI each year. And the revenue-linked cost bar is things like ad serving that are directly linked to growth in streams and revenue associated with STV player. In terms of cost savings, we delivered £1.9 million against a target of £1.5 million in 2024 and so are on track to deliver a full year run rate saving of £5 million per annum by the end of 2026. The main areas where savings have been realised are in studios where we have completed the integration of the Greenbird businesses and consolidated our London-based teams into a single office, in broadcast where we have streamlined operations across a number of areas and in-sourced post-production to internalise margin and better recover our overhead, and a reduction in spend in other areas including freelance, property and other central functions. We've already started work on the next phase of savings targeted for 2025, which will total a further £1.7 million and have a clear line of sight over the majority of actions required. Salary inflation is the single biggest inflation-linked cost for the business, and the increases in employers' national insurance that come into effect from April present a significant increase to our cost base. The full year effect of this is expected to be around £700,000, with the 2025 impact around half a million. We're working hard to identify ways in which we can offset this incremental cost in the P&L account, but do not expect to be able to do so in 2025. From a cash perspective, however, the lower interest rate negotiated as part of our recent refinancing should mean that we make cash interest savings that will go some way towards covering the incremental NI. Just a few words now on each of the divisions and starting with studios where, despite a challenging commissioning backdrop that persisted through the year, the division has grown both revenue and profit. Our portfolio approach has benefited us with the timing of moving to majority in two cities well judged given their production activity during the year. In terms of scripted activity, we were in production on four dramas during 2024, with a revenue of more than 40 million recognised across those titles. Across unscripted, all majority-owned labels won and delivered commissions during the year, and secondary sales of our increasing IP library also grew, reaching almost 8 million in the year at very attractive margins. These secondary sales are one of the main contributing factors that will support our drive to a 10% margin for the division. The margin in 2024 reduced slightly on 2023, principally due to a mixed shift towards drama programming in the year and margin pressure being applied by commissioners given the macro backdrop. A year ago, we introduced a new KPI, the Forward Order Book, as a way to demonstrate the progress being made in studios. Guiding to annual revenue targets is difficult, given we've little control over the timing of delivery of programmes, which is the basis of revenue recognition for most of the content we produce. But the Order Book gives a good sense of the growth in activity in the business. A few points to highlight. First, there is a very strong upward trajectory in this number since 2020, as we've built momentum in the business and made key acquisitions in Greenbird and Two Cities. Second, in the early years, most of the programmes we made were unscripted and so had lower budgets. Therefore, the movements in the order book from one month to the next were smoother. In more recent times when we've been successful in winning scripted commissions, you can see how bringing a large drama into the order book and then delivering it has much more of an impact on the size of the order book at any point in time. Winning dramas though is a good thing, it just means that the order book will not necessarily increase each time we report it. Lastly, it would also be right to say that while we have continued to win commissions throughout 2024 and into early 2025, the rate at which commissions are being awarded has slowed. This is true industry-wide, although we are starting to see some green shoots in commissioners being open for business again. It will take a bit of time for that to convert to the order book, but momentum is on our side. Moving on to digital, where the division has continued to perform well. On a like-for-like basis, revenue in the division grew by 8% in 2024, with VOD revenue, around 75% of the total, growing by 9%. Having had a 12-month holiday from commission on national VOD advertising in 2023, this kicked in at the start of 2024 and had a resultant impact on total revenue and profit in the division. Now that this cost is reflected in the baseline, we expect to return to revenue and profit growth in 2025. Under our agreement with ITV, our national VOD revenue will grow in line with theirs, and we continue to focus on acquiring third-party content to the player on a revenue share basis, avoiding upfront costs and ensuring that we only pay in success. In terms of margin, we've maintained an operating margin at above 40%, which is our target minimum for 2026. The operating leverage of broadcast is such that relatively small improvements in advertising revenues have a meaningful impact on profitability. Here you can see the 4% increase in total divisional revenues translates to a 12% improvement in profitability. Of the two million increase in costs year on year, around one and a half of this relates to amounts paid to ITV for the national programme budget, which flexes in line with national advertising revenues. The remaining cost increase is the net remainder after realising savings during the year, with broadcast bearing most of the inflationary increases in the group. Turning to net debt, this slide shows the components of the group's total net debt between amounts drawn on our core RCF, cash on hand, and the drawdowns on non-recourse production financing facilities. Taking the RCF first, we had drawn 40 million of our 70 million facility at the year end and had cash balances of 11 million available. Taking those together, that's the equivalent of facility headroom of 40 million pounds. We had amounts drawn under two non-recourse production financing facilities relating to two specific programmes where the costs of funding are met by the Commissioner as part of the programme budget. Both facilities are expected to be repaid over the first half of 2025 and based on current production schedules we expect there to be around 5 million of drawings under similar facilities at the end of the year. Operating cash conversion for 2024 was strong at 134% and leverage excluding the non-recourse production financing was 1.1 times. And touching on our refinancing, we renewed our RCF in February, putting in place a facility of 70 million for a minimum of three years with a 20 million uncommitted accordion. Our key financial covenants remain the same as before with the same covenant limits, but our new facility doesn't have a margin ratchet for interest payable. Instead, we pay a flat margin at a lower level than before, regardless of leverage. This is clearly beneficial to the group when working capital associated with production financing can be more variable, as we will no longer be penalised for short-term outflows while awaiting cash from commissioners. And lastly, a few words on pensions, where the accounting deficit of our defined benefit schemes has reduced to £48 million, down 12% on the prior year, reflecting an increase in the discount rate and cash contributions paid in over the period. I think more important than the accounting valuation is the triennial funding valuation, which was agreed in October with committed contributions at a slightly lower level than previously. In addition, we've agreed to pause the contingent cash mechanism until at least 2028. The recovery plan period for the schemes has been maintained at October 2030, with a deficit of £61 million compared to £116 million in the 2020 valuation. The relationship between company and trustees remains strong and we're working together to identify ways in which full funding could be achieved more quickly. We're now going to have a look at our showreel and you'll get a glimpse of the great telly you've got to look forward to over the next few weeks.