Stvg Regulatory News (STVG)

0700 hours, 23 February 2012

STV Group plc - Final Results 2011

Scotland's Digital Media Company

STV Financial Results in line with expectations with digital revenues up 69%

Financial Highlights

*Pre-exceptionals

*\* The disposal of non-core business Pearl & Dean was completed on 14 May 2010. The performance of

P&D is included within Group trading for the period until its disposal. STV (continuing) refers to the core business.

Highlights

·; Operating profit* up 4% year on year to £15.0m (2010: £14.4m)

·; Pre-tax profit* up 12% to £14.0m (2010: £12.5m)

·; Earnings per share* up 11% to 38.0p (2010: 34.3p)

·; Digital revenues up 69% to £7.1m (2010 £4.2m)

·; Tight cost control offsetting soft advertising markets

·; 6 out of 11 KPI targets met or exceeded

·; Peak time share in excess of the Network for third year running

·; Continued growth in digital traffic and revenues and expansion of platforms

Strategic Developments

·; New three year £70.0m banking facility confirmed in January 2012 providing funding certainty

·; New KPI growth targets set for 2012 to 2015; including new KPI focusing on collection of consumer data and insights

·; Diversification of Productions business continues; two-year deal for hit series Antiques Road Trip for the BBC (120 episodes) and successful partnership with U.S production company Kinetic and commercial relationship with Group M providing opportunities to deliver network shows, the first being four part show Perez Hilton Super Fan to ITV2

·; Over 20 STV Local sites rolled out, available to 46% of Scottish population and attracting incremental advertising revenues

·; Delivery of unique content across multi-platforms constantly improving

o STV News app, on iPhone and Android, delivering over 50% of all online news traffic

o Ability to share stv.tv content via Facebook platform

Richard Findlay, Chairman, said: "STV has delivered a robust set of results for 2011 against challenging economic conditions from which no consumer business is immune. We are focused on our clear strategy and KPI targets and we continue to improve efficiencies behind the scenes, to ensure we deliver value for shareholders and a first rate and distinctive service for viewers and consumers."

Rob Woodward, Chief Executive Officer, said: "STV has an ambitious plan for growth and our strategy remains clear going forward, with investment in strategic partnerships, helping extend the STV brand in our core Scottish market and beyond. We remain committed to growing a strong, successful and dynamic STV, cementing our position as Scotland's most popular peak time TV station and leading commercial media website, and as the provider of unique digital content across multi-platforms."

23 February 2012

There will be a presentation for analysts at the offices of Peel Hunt, Moor House, 120 London Wall, London EC2Y 5ET today at 12.30pm. Should you wish to attend the presentation, please contact Jamie Ramsay, College Hill (tel: 0207 457 2047).

Enquiries:

STV Group plc

George Watt, Chief Financial Officer Tel: 0141 300 3049

Kirstin Stevenson, PR Manager Tel: 0141 300 3670

College Hill

James Hogan Tel: 0207 457 2020

Jamie Ramsay

Operational Review

Introduction

STV is Scotland's digital media company with an ambitious strategy for growth. The creation of innovative, high quality and relevant content remains key to our business. We are excited by new technological developments that allow us to significantly extend our reach, effectively building consumer relationships and connecting with communities across multi-platforms and gaining insights into consumer trends. We continue to work with partners to deliver unique, compelling content that can be accessed anywhere, anytime.

Following the transformation of STV and the consistent achievement of its growth KPIs, STV set out strategic aims to grow non-broadcast earnings from 11% in 2011 to represent 33% of Group earnings in 2015. This will involve:-

- Doubling STV Productions' revenues;

- Becoming the most used digital service in Scotland;

- Launching two new market-leading consumer propositions.

STV Consumer

Channels

STV continues to deliver a high quality, relevant and distinct schedule for Scotland. STV's average peak time audience share tracked ahead of the ITV Network in 2011, demonstrating the success of our programming strategy and our position as Scotland's most popular peak-time TV station, reaching over 4.2m viewers per month.

Despite the challenging marketplace and a reduction in regional advertising revenues we have exceeded our upgraded broadcasting margin target of 15%, demonstrating the underlying profitability of the business and the positive impact of our relentless focus on cost control and operational excellence.

We continue to strengthen our market leading position and we have further increased our share in 2011. This strong position is maintained by offering innovative solutions for our advertisers, providing a fully integrated service incorporating digital and broadcast opportunities.

We are fully committed to Public Service Broadcasting (PSB) and seek to deliver PSB innovatively across multi-platforms, truly engaging and connecting with our viewers. We offer the most locally-focused news service in the UK, with dedicated 30 minute programmes for the East, West and North of Scotland, alongside a bulletin for Tayside. This service, which is commercially sustainable and uses innovative production technology, is trusted and popular, and has seen a 7% share increase year on year (June-Dec). In October, we also increased our commitment to news and current affairs with the introduction of our nightly current affairs programme, Scotland Tonight.

We continue to build new connections, focused at a community level and creating new platforms for our advertisers and commercial partners to reach their target markets. The roll-out of our strategic digital initiative, STV Local, a hyper-local network of websites, online and on mobile, is currently available to 46% of the Scottish population.

In February 2011 STV launched ScotPulse, an online market research panel designed to provide direct access to valuable consumer insights. Over 5,500 panel members have been recruited, allowing us a further enhancement of the relationship we have built up with our audience over the past five decades.

Broadcasting outlook

Our outlook for Q1 for total airtime revenues is to be down 4% with regional airtime revenues increasing 14% year-on-year in Q1, partly offsetting an 8% decline in national airtime revenues. We remain cautious as a result of the uncertain UK macro economic climate.

Digital

Our investment in new digital services is delivering growth for the business.

Through 2011, we have been consistently building traffic and revenue, with 36% growth in unique users year on year and 69% growth in digital revenue.

We have exceeded three of our KPIs in this area and only narrowly missed our revenue target. The margins target has been missed due to our ongoing investment in STV Local, which is delivering growth as it rolls out across Scotland.

Our TV-on-demand service, STV Player, continues to build traffic, delivering an average of over 2.9m streams per month in the final quarter of 2011. The STV Player is also now available via Android devices, making this popular service now available via computer, smart phones and PS3.

By end 2011, the STV News app via iPhone and Android delivered over 50% of all online traffic to news. We are seeing increased engagement levels from our consumers as our successful STV Anywhere strategy delivers our content across an increasing range of mobile devices and platforms.

STV recognises that opportunistic brand extensions of our core businesses are key to driving revenues. STV Live Casino launched in the summer with technical partner, VueTec, offering a live, real-time casino experience via their computers. In May we launched ScottishPassport.com in partnership with Scotland's leading travel firm, Barrhead Travel.

With strong traffic levels established, our focus will increasingly be on driving consumer engagement. In August, we retained Experian as our Data Partner to help build our customer database capability and deepen our relationship with our audience as consumers of STV services, which is key to developing successful consumer services. For 2012, we have introduced a new KPI focusing on Consumer Insights, helping us understand better the tastes and preferences of our consumers.

STV Productions

Creating compelling content is at the heart of our business and we will continue to successfully diversify the range of genres we currently produce and extend our customer base. 2011 saw STV Productions produce programmes for Channel 4, ITV1, ITV2 and BBC2. A key drama commission for 2011 was 90-minute film, Fast Freddie, The Widow and Me, for ITV1 which aired on 27 December and attracted a consolidated audience of over 5 million.

Our strategic partnership with Kinetic Content in the US saw us working together with the LA-based production company and GroupM - the world's leading media management investment group - to develop a format, Perez Hilton Super Fan. This became a four-part series commissioned by ITV2 featuring international stars Lady Gaga, Kelly Rowland, Katy Perry and Enrique Iglesias.

This strategy places us in a strong position as we enter 2012 with a good pipeline for commissions and growth. Today we can confirm that we have been commissioned for a further four series of ratings winner, Antiques Road Trip. This two year deal will see us deliver 120 x 45" episodes for BBC2.

ITV/STV Update

In April, we agreed a wide ranging settlement with ITV plc and ITV Network over the various ongoing legal actions. All legal actions ceased and we are currently in discussions to agree the basis of a more collaborative relationship for the future. The terms of the settlement, which totals £18.0m, consist of £7.2m in cash paid in 2011 and the balance of £10.8m to be paid in 18 equal monthly instalments from January 2012 to June 2013.

Financial Performance Review

Revenue

Total revenue amounted to £102.0m (2010: £111.7m) with 2010 including £6.9m of Pearl & Dean revenues to the date of its disposal. Excluding Pearl & Dean, continuing business revenues were down 3% due to lower airtime and productions revenues only being partially offset by strong growth in digital.

Consumer revenues at £93.6m (2010: £95.0m) were impacted by a 3% fall in national and 13% fall in regional revenues. These were partially offset by 69% growth in digital revenues to £7.1m (2010: £4.2m) as our online audience continued to grow and be successfully monetised.

Productions revenue fell by 14% to £8.4m (2010: £9.8m) as the impact of Taggart not being delivered could not be offset by higher production hours for a wider customer base.

Operating Profit

Operating profit before exceptional items increased by £0.6m (4%) to £15.0m as strict cost control ensured the lower revenues did not flow through to profit. This included managing a planned increase in losses in our STV Local operations to £0.9m (2010: £0.4m) as these services were rolled out more widely across Scotland. As a result of this tight cost management, margins improved in the consumer division to 15.5% (2010: 14.1%).

Productions profit amounted to £0.5m (2010: £1.0m) and margins were below target at 6.0% (2010: 10.2%).

Finance Costs

Net finance expenses before exceptional items decreased by £0.9m to £1.0m (2010: £1.9m) which was mainly due to a higher IAS19 non cash pension credit of £1.3m (2010: £0.4m).

Profit Before Tax

Profit before tax and exceptional items increased by 12% to £14.0m (2010: £12.5m).

Exceptional Items

Exceptional items resulted in a net charge of £13.4m (2010: £7.2m). The accounting for the settlement of the litigation with ITV Network and ITV plc, including legal costs, amounted to £13.5m and there was a £1.4m cost of change provision to provide for redundancy costs in the Consumer division from headcount reductions, mainly in the news operations.

Statutory Result

The statutory result for the year after tax and exceptional items amounted to a profit of £0.6m (2010: £5.3m).

Earnings Per Share

EPS before exceptional items increased by 11% to 38.0p (2010: 34.3p) reflecting the increase in profit before tax with a partial offset from the higher number of shares issue in 2011. EPS on a statutory basis, including exceptional items, amounted to 1.6p per share (2010: 14.6p).

Balance Sheet

The principal balance sheet movements over the last 12 months were a reduction in inventories and an increase in the pension deficit.

The pension deficit on an IAS19 basis net of deferred tax increased to £23.0m (2010: £16.2m) due to a lower discount rate as gilt yields fell. This more than offset the £5m benefit following the conclusion of the mortality assumption project in the Caledonian Pension Scheme. The next triennial valuation of the Group's two defined benefit schemes will take place at 1 January 2012 with the results and the new funding pattern likely to be finalised in Q1 2013.

Cash Flow

Net debt amounted to £54.5m at the year end (2010: £52.2m) with the increase due mainly to the litigation settlement and related legal costs. The core operating businesses continued to generate strong cash flows, with 108% of operating profit converted to free cash flow (2010: 138%), again above the target of 100%. Capital expenditure amounted to £1.6m (2010: £0.8m) with investment in both our online infrastructure and news operations.

Banking facilities

In January 2012 we announced a renewal of our banking facilities with a £70.0m facility, provided by Bank of Scotland, Barclays and Santander. The facility runs to 31 December 2014 and is extendable to March 2016 subject to lender approval and the extension of the Group's broadcasting licences. The new facility provides funding certainty over the short and medium term.

Principal Risks and Uncertainties

This announcement contains certain statements that are or may be forward-looking with respect to the financial condition, results or operations and business of STV Group plc. By their nature forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.

The group set out in its 2010 Annual Report and Financial Statements the principal risks and uncertainties that could impact its performance. These remain largely unchanged since the Annual Report was published, with the exception of the negotiated litigation settlement with ITV plc and ITV Network. The 2011 Annual Report is scheduled to be circulated to shareholders on 12 March 2012.

The group has rigorous internal systems to identify, monitor and manage any risks to the business.

The main areas of potential risk and uncertainty are as follows:-

Regulatory environment

Our television business is operated under licences, regulated by Ofcom, which contain conditions that must be adhered to and although measures have been put in place internally to ensure that this occurs, it is possible that these terms may inadvertently be breached and sanctions imposed by Ofcom, the most serious of which could be the withdrawal of the licences.

Dependence on advertising

STV's results could vary from period to period as a result of a variety of factors, some of which are outside STV's control, including general economic conditions. In response to the operating and competitive environment, STV may elect to make certain decisions that could have a material adverse effect on sales, results of operations and financial conditions.

Performance of the ITV Network

The majority of STV Consumer's programming content is provided by the ITV Network. Therefore, its ability to attract and retain audiences and the advertising airtime sales performance of ITV's sales house - which is responsible for the sale of STV's UK national airtime to advertisers - are factors that affect the performance of STV Consumer and, therefore, the Group as a whole.

Pension scheme shortfalls

We have a long-term deficit recovery plan in place and the investment strategy is calculated to reduce any market movement impacts. It is possible that the Group may be required to increase its contributions which could have an adverse impact on results and cash flow.

Dividends

The Board has announced its intention to resume dividend payments with a planned progressive dividend policy. After consultation with our major shareholders and given constraints in the new banking facility, we will keep this under review and update at our interim results.

Rob Woodward

CEO, STV Group plc

Appendix 1 - 2011 KPI Update

* The 2010 basic EPS has been restated (see note 9).

Although not required under IFRS the directors have provided the following reconciliation of net debt for further clarity. Net debt represents Group borrowing less cash and cash equivalents and short term deposits.

Notes to the preliminary announcement

Year ended 31 December 2011

1. Basis of preparation

The financial information set out in the preliminary announcement does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 in respect of the accounts for the year ended 31 December 2011. The statutory accounts for the year ended 31 December 2010, upon which the Company's auditors have given a report which was unqualified and did not contain a statement under the Companies Act 2006, have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 December 2011 have yet to be signed. They will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.

2. Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2010.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The following new standards, amendments to standards or interpretations are mandatory for the first time for accounting periods beginning on or after 1 January 2011. They either were not relevant for the Group or had no material impact on the financial statements of the Group.

3. Business segments

The Group's Chief Executive, the chief operating decision maker, considers the business primarily from a product perspective. Under IFRS 8, the reportable segments are therefore Consumer (previously Broadcasting and Ventures), Productions (previously Content) and Cinema advertising (Cinema). The Group sold its Cinema business on 14 May 2010.

The performance of the segments is assessed based on a measure of adjusted operating profit. This measurement basis excludes the effects of exceptional items.

Segment revenues

Turnover in 2011 includes £1.1m of revenues from sources outside the UK (2010: £1.6m).

Segment result

Operating profit in 2011 includes £0.6m arising outside the UK (2010: £0.7m).

In 2011, the exceptional items in Consumer relate to an exceptional charge in relation to the ITV litigation of £9.5m and a £1.3m cost of change provision. The exceptional item in Productions of £0.1m relates to a cost of change provision.

In 2010, the exceptional items in Consumer related to a writedown of film stock of £2.7m and a £0.7m cost of change provision. The exceptional item in Productions of £0.2m related to a cost of change provision.

4. Exceptional items

i) Litigation matters

On 27 April 2011, STV agreed a wide ranging settlement with ITV plc and ITV Network over various longstanding legal disputes. Under the terms of the settlement, STV will pay ITV £18.0m, of which £7.2m was paid in cash in 2011. The remaining £10.8m will be paid in cash from existing bank facilities in 18 equal instalments from January 2012 to June 2013.

The settlement has been recognised as follows:

·; The exceptional write off of legal and other costs incurred by the Group in relation to the claims of £4.0m (2010: £3.5m);

·; The recognition of an exceptional charge of £9.5m.

ii) Cost of change

A provision of £1.4m has been recognised during the year mainly in relation to restructuring the news operation. A provision of £0.9m was recognised in 2010 in relation to restructuring within the business.

iii) Writedown of inventory

A stock writedown of £2.7m was recognised in 2010 in relation to film stock as a result of new information received.

iv) Finance costs

A loss on extinguishment of debt of £1.5m was recognised in 2010. On 3 February 2010, the Group renegotiated its banking facilities in part to enable a disposal of Pearl & Dean and the £1.5m loss represents the write off of unamortised fees in respect of the original debt obligations.

5. Finance costs

Included within bank borrowings is £0.4m of unamortised bank fees written off during the year.

6. Tax

The effective tax rate for the Group (continuing and discontinued operations) excluding exceptional items is 0% (2010: 0%). The tax charge is lower than the standard rate of 26.5% due to adjustments for prior year provisions and certain tax planning initiatives.

During the year, a change in the UK corporation tax rate from 28% to 26%, effective from 1 April 2011 was substantively enacted in March 2011. A further reduction to 25%, effective from 1 April 2012 was substantively enacted in July 2011 and the relevant deferred tax balances have been re-measured accordingly.

In addition to the change in rate of corporation tax disclosed above, a number of further changes to the UK Corporation tax system were announced in the March 2011 UK Budget Statement. Further reductions to the main corporation tax rate are proposed to reduce the rate by 1% per annum to 23% by 1 April 2014. None of these rate reductions had been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements.

Had the change of rate to 23% been substantively enacted as at the balance sheet date, the deferred tax asset included within the accounts would have been reduced by approximately £1.2m.

7. Discontinued operations

The disposal of the Group's cinema business, Pearl & Dean, completed on 14 May 2010.

The post tax results from discontinued operations (see note 3) were £nil (2010: £nil).

Included within the results is the exceptional loss on disposal of Pearl & Dean Limited which was sold to Image Ltd ("Image") for a gross cash consideration of £1 resulting in a £nil post tax result on disposal. Pearl & Dean paid the 2010 minimum income guarantee of £17.6m to Vue Cinemas by way of an intercompany loan from STV. As part of the deal agreed with Image, Pearl & Dean were to repay the portion of this loan relating to the period from 1 May 2010 to 31 December 2010 amounting to £9.1m. The first repayment of £2.5m was received upon completion, further payments of £5.1m were received to 31 December 2010 and the balance was fully repaid in January and February 2011.

Cash flows from discontinued operations

The net liabilities of Pearl & Dean at the date of disposal were as follows:

8. Dividends

No dividend is proposed by the Board for the years ended 31 December 2010 and 2011.

9. Earnings per share

The 2010 basic EPS figures have been restated to exclude ordinary shares held by the Employee Share Trust from the weighted average number of ordinary shares calculation.

10. Goodwill and other intangible assets

Goodwill at 1 January and 31 December 2011 was £7.9m (2010: £7.9m). It comprises capitalised goodwill on acquisitions completed since 1 January 1998 and the cost and amortisation is split £10.6m and £2.7m respectively.

11. Property, plant and equipment

12. Short-term bank deposit

The short term bank deposit related to £nil (2009: £0.5m) placed in Escrow in relation to certain planning consents currently being sought by Primesight, the outdoor business sold by the Group in 2007.

13. Share capital

14. Notes to the consolidated statement of cash flows

Analysis of movements in net debt

At 31 December 2011, the Company had bank facilities in place totalling £65.0m consisting of a £55.0m term facility and a £10.0m revolving credit and overdraft facility. The facilities were due to expire on 31 December 2012. In September 2011, the Company commenced discussions with lenders to amend the facility and on 20 January 2012 the renewal of the facility was agreed. Under IAS 1 (revised) para 74, renegotiation of the bank facilities on 20 January 2012 represents a non adjusting post balance sheet event and consequently the borrowings have all been classified as current liabilities as at 31 December 2011. The renegotiated syndicated facilities total £70.0m and comprise a £37.5m term facility and £32.5m revolving credit and overdraft facility with 31 December 2014 maturity dates. The term loan partially amortises across the facility term. Security is provided to the debt providers by way of cross guarantees and a share pledge.

15. Retirement benefit schemes

The Group operates two defined benefit pension schemes. The schemes are trustee administered and the schemes' assets are held independently of the Group's finances. Pension costs are assessed in accordance with the advice of an independent professionally qualified actuary.

The schemes are the Scottish and Grampian Television Retirement Benefit Scheme and the Caledonian Publishing Pension Scheme. They are closed schemes and therefore under the projected unit method the current service cost will increase as the members of the scheme approach retirement.

A full actuarial valuation of the schemes was carried out at 1 January 2009 and updated to 31 December 2011 by a qualified independent actuary. The major assumptions used by the actuary were:

Assumptions regarding future mortality experience are set based on advice, published statistics and experience in each territory.

The average life expectancy in years of a pensioner retiring at age 65 on the balance sheet date is as follows:

The fair value of the assets in the schemes, the present value of the liabilities in the schemes and the expected rate of return at each balance sheet date was:

A related offsetting deferred tax asset of £7.9m (2010: £6.7m) is shown under non-current assets. Therefore the net pension scheme deficit amounts to £23.0m at 31 December 2011 (£16.2m at 31 December 2010).

16. Mailing

A copy of the annual report is being sent to all shareholders on 12 March 2012 and will be available for inspection by members of the public at the Company's registered office at Pacific Quay, Glasgow, G51 1PQ.