Stvg Regulatory News (STVG)

Press Release

STV Group plc Full Year Results for 2020

Resilience and strategic progress in an exceptional year

Next-phase growth plan announced to accelerate STV's diversification

Highlights

· STV coming through Covid confidently with better than expected 2020 performance

· Digital business continues to accelerate, with online viewing up 68% and VOD advertising up 12% in 2020, and new content deals with Sony and eOne announced

· Studios maintaining positive momentum, with record 19 new commissions in 2020

· Advertising trends improving materially, with Jan-April total advertising revenue expected to be +7-9% including April +60-75%; STV-controlled advertising continues to outperform

· Record audience growth maintained into 2021 on both STV (+14%) and STV Player (+83%)

· Furlough grant of £1.6 million to be repaid in full, reflecting STV's improving financial performance

· Achieved 2020 diversification target of one third of operating profit from new revenue streams

· Refreshed 3-year strategic plan focuses on accelerating STV's diversification, targeting at least 50% operating profit from outside traditional broadcasting by the end of 2023

· Agreement in principle to sell the lottery management company, subject to Gambling Commission approval

· Cash dividend reinstated at 6p (2020 full year of 9p) as a measure of the Board's confidence in STV's future growth

Financial highlights

· Adjusted operating profit of £18.2m, well ahead of initial expectations, with full year decline of 19% significantly improved due to a strong H2

· Total advertising revenue down 10%, with STV-controlled regional advertising down only 5%

· Digital revenues up 5%, with VOD revenues from STV Player up 12%, illustrating the growing strength of STV's digital business

· Studios revenue down 36%, reflecting the pause in filming in 2020, with profit impact almost fully mitigated by strong secondary sales

· Significantly strengthened balance sheet following placing in July 2020, with net debt of £17.5m providing headroom for investment in growth

· New £60m revolving credit facility with £20m accordion agreed in early March 2021; minimum term 3 years

Another record viewing performance on screen and online

· Total audience on STV up 14% in 2020, the highest growth of any channel in Scotland, with all-time viewing share of 19.2%:

o STV still the most watched peaktime channel in Scotland, stretching 10% ahead of BBC1

o Largest ever lead over the ITV Network, with all-time share 12% higher

o Award-winning STV News at Six delivering its highest ever average audience and viewing share

· Online viewing on STV Player up 68%, the fastest growth of any UK broadcaster VOD service

o Total streams up 65% and monthly active users up 50% year on year

o Player-exclusive content now one third of all digital viewing, accounting for 8 of the top 15 digital shows

Strategic progress and new targets

· STV's Growth Fund attracted 91 new advertisers in 2020, taking the total to 236 since launch

· STV's Digital strategy continues to accelerate rapidly:

o STV Player now available on all major platforms UK-wide, and pre-installed in c.70% of the UK's connected TV homes

o Recent UK-wide Sky launch has seen STV streams treble so far in Sky homes

o Major new content partnerships with Sony and eOne for 350 hours of drama boxsets, taking total digital-only content to over 3,000 hours

· STV Studios now proving its growth potential:

o All STV programmes still in production under Covid safety protocols

o 19 new commissions in 2020, including 16 series, our highest ever number

o Momentum continuing in 2021, with major new format, Murder Island, just announced for Channel 4 and new drama series Screw (also C4) about to start production

· Next-phase strategic growth plan announced to accelerate STV's diversification

· Supported by a strong balance sheet, STV plans to invest £30m over the next 3 years through a combination of internal and external investment focused on growing its Digital and Studios businesses

· The following ambitious new growth targets have been set for the end of 2023:

o Double digital viewing, users and advertising revenue (to £20m)

o Quadruple production revenue (to £40m)

o Achieve at least 50% of operating profit from outside traditional broadcasting

· Agreement in principle to sell the non-core lottery management company, subject to Gambling Commission approval. Deal expected to complete in the coming weeks, and will include agreement for STV to provide advertising services to the lottery under a multi-year arrangement

Improving outlook

· Strong start to 2021 on screen:

o STV channel viewing up 14% year to date

o STV Player viewing up 83% and streams up 101%

o Strong programme schedule to come, including delayed Euro 2020 football tournament

· Advertising trends starting to improve materially:

o Resilient Q1 sees total advertising revenue (TAR) down only 3% despite lockdown

o January TAR was -9%, February -9% and March is expected to be +10%

o April TAR currently forecast at +60-75%, with Jan - April +7-9%

o STV-controlled advertising continuing to outperform, with regional +5% for Q1 and VOD advertising +15%, with April also looking positive for both

· STV Studios has now secured £20-25m of revenue for 2021 and is maintaining commissioning momentum

· We will continue to manage cash and costs carefully, with our national programming costs only increasing in line with revenues under our long-term arrangements with ITV

Board update

· The Board has recommended a return to cash dividend payments and a final dividend of 6.0p per share for 2020, giving a full year cash equivalent dividend of 9.0p, +43% on 2019

· The Board is committed to a balanced approach to capital allocation across investing for growth, paying a progressive dividend to shareholders, and meeting pension obligations

· As previously indicated, Baroness Margaret Ford will step down as Chair at the 2021 AGM next month after eight years, in line with planned succession, and will be replaced by Paul Reynolds who joined the Board on 1st February 2021

Simon Pitts, Chief Executive Officer, said: 

"STV is coming through the pandemic with confidence. With profit and net debt materially better than expectations, the 2020 financial results we are confirming today are testament to the strength of our business and the commitment and creativity of our people in what has been an extraordinary 12 months.

We enjoyed record audience growth in 2020, with TV viewing up 14% and online viewing up 68%, the biggest gains of any UK broadcaster, and were also able to accelerate delivery of our strategy. Our advertising Growth Fund enabled us to attract 91 new Scottish advertisers, we bolstered our successful digital content strategy with a further 1200 hours of content, and we launched our streaming service STV Player across the UK for the first time meaning it is now available in over 17m homes. STV Studios also secured 19 new programme commissions, the largest number ever, as it looks to establish itself as the UK's leading nations and regions producer.

We took proactive steps to conserve cash and raise capital from shareholders and, combined with better than expected trading, we now have a significantly strengthened balance sheet as we look to invest £30m in the next phase of our strategic growth, targeting at least 50% of our operating profit from outside traditional broadcasting by 2023. With an improved financial position and good growth prospects the Board has also recommended a return to cash dividend payments and a final dividend of 6p per share, giving a full year dividend of 9p per share for 2020.

We have made another strong start to the year on screen and online, with TV viewing up a further 14% and STV Player up 83%. Advertising trends are also improving materially, with April forecast to be up 60-75% and Jan-April +7-9% as lockdown hopefully begins to ease. Our positive momentum in Studios continues, with recent ground-breaking commission Murder Island for Channel 4, and filming about to start on our new drama series, Screw, also for C4. There is also much to look forward to on STV with more new drama than ever in 2021, as well as the exciting prospect of the delayed Euro 2020 football championships involving both England and Scotland. While there is inevitably still uncertainty around the pandemic, we are positive about the future outlook."

There will be a presentation for analysts today, 16 March 2021, 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 970106

Camarco: Geoffrey Pelham-Lane, Partner Tel: 07733 124226

Ben Woodford, Partner Tel: 07790 653 341

Financial performance review

Trading overview

Total revenues for the Group were £107m (2019: £124m), driven by lower linear advertising revenues and fewer programme deliveries. Total advertising revenue was £91m for the year, down 10% on 2019, a marked improvement on the H1 position when the market declined by 20%. By Q4, total advertising revenue was broadly flat year on year, providing confidence for a strong return in 2021 as lockdown restrictions are removed.

Regional and digital advertising revenue, both within the direct control of the Group, out-performed the national market which was down 14% at £65m (2019: £75m). Regional revenue was £14m, down only 5% year on year, (2019: £15m) whilst digital advertising revenues grew 5% year on year, principally as a result of the 12% growth in Player Video on Demand revenues.

In order to mitigate the impact of the reduction in revenue on the profitability of the Group, a number of actions were taken to reduce costs. These, combined with the benefit of the arrangement with ITV that ties our contribution to the national programme budget to national advertising revenue (worth £5m in 2020), resulted in adjusted operating profit (before exceptional items) of £18.2m (2019: £22.6m), firmly ahead of consensus expectations. The Group's profit performance also reflects grant income of £1.4m from the Group's access of the UK Government's Coronavirus Job Retention Scheme (CJRS), with a further £0.2m being recognised in the balance sheet. The full £1.6m will be repaid to HM Government prior to our return to cash dividend in 2021.

Adjusted profit before tax of £16.6m (2019: £21.0m) was after charging net finance costs of £1.5m (2019: £1.6m). Interest payable on the Group's borrowings was £1.2m (2019: £1.3m) with the balance being non-cash charges in relation to the Group's operating leases.

An agreement in principle has been reached for the sale of the STV external lottery management company, STV ELM Limited, subject to approval by the Gambling Commission, with completion expected in the coming weeks. In addition to a modest consideration for the business, STV will also provide advertising services to the lottery under a multi-year contract. Full provision for the amounts due from the Scottish Children's Lottery was made at the half year with the full year net exceptional items of £8.7m reflecting a small increase to that provision (of £0.1m to a total of £8.8m), recognition of a VAT recoverable in respect of invoices written off (£0.6m) and the estimated costs of disposal (£0.5m). The first two items are recognised as exceptional finance costs with the latter being an operating exceptional item.

On a statutory basis, operating profit was £17.7m (2019: £22.6m) and profit before tax was £6.7m (2019: £19.0m).

A total tax credit of £1.0m has been recognised in the year (2019: charge of £3.1m), representing a negative effective tax rate (ETR) of -14.9% (2019: 16.6%). This tax position is driven by the low ETR of 4% on the profit before tax before exceptional items, reflecting the increase in deferred tax assets as a result of the Government's decision not to lower the rate of corporation tax to 17%. Profit for the year was £7.7m (2019: 15.9m).

Adjusted earnings per share (before exceptional items and IAS19 interest) was 37.5p, down 18% on the prior year (2019 restated: 45.8p), which has been restated to reflect the bonus issue of shares in December 2020. As well as being impacted by the lower profits in the period, the 2020 metric benefits from the significantly reduced effective tax rate for the year and also reflects the increased share capital following the placing in July 2020. On a statutory basis, earnings per share was 18.2p, lower than the prior year as a result of the exceptional items in relation to the disposal of the STV ELM (2019 restated: 41.7p).

In addition to the better than expected performance from a profit perspective, the Group ended the year with lower net debt than anticipated at £17.5m before lease liabilities, a reduction of £20m on 2019. The most significant contribution was the net proceeds of £15.5m raised by the placing of new shares in July 2020, which combined with a number of other cash retention measures to drive a net inflow across the year. Operating cash conversion of 108% was strong (2019: 93%), driven by tight management of working capital and the decision to pause non-essential capital projects in response to the first lockdown over Q2 2020.

The Group's leverage (ratio of net debt to EBITDA) at the end of the year was 0.7 times (2019: 1.5 times), well within the covenant maximum of 3 times, and reflecting the reduction in net debt in particular over the second half. Following the extension to the Group's existing bank facilities in June 2020, the facilities were fully refinanced over Q1 2021, with a new £60 million revolving credit facility and £20m accordion agreed for a minimum tenor of 3 years, with two one-year extension options. Covenants remain in line with those of the previous facility.

Pensions

The IAS19 accounting deficit across the Group's two defined benefit pension schemes was £70.3m, lower than the half year position of £76.9m although slightly higher than last year end (2019: £64.0m). The increase in the deficit year on year is due to a lower discount rate, driven by the significant fall in corporate bond yields as a result of the Covid-19 economic backdrop, although also reflects strong asset returns as a result of the hedging strategies of the schemes.

The next triennial valuation is due as at 31 December 2020 and early stage discussions with the trustees have commenced.

Dividend policy

The Board is confident in the long-term prospects for the Group and in its ability to deliver the new three-year diversification and growth strategy, despite the uncertainties arising during the UK's economic recovery from Covid-19.

Following the cancellation of the 2019 final dividend and the payment of the 2020 interim dividend by way of a bonus issue of new ordinary shares, paid in December 2020, the Board recommends a return to a cash dividend with the 2020 final dividend proposed at 6p per share. It is the Board's intention to pay a progressive dividend to shareholders, subject to prevailing market conditions.

Operational review

Broadcast

The strategy for STV's broadcast business is to maximise its value and profitability through the delivery of high quality, cost-effective news and entertainment on its linear TV channel.

Despite the most challenging conditions faced by the business in its 63-year history, STV achieved a record-breaking year of viewing and was the most watched commercial channel in Scotland across every timeslot. Crucially, its position as the most watched peak time channel in Scotland was maintained, increasing its share to 10% higher than the nearest competitor BBC1. All-time audience was up 14% year on year, the highest annual growth ever recorded. All time share reached a 12-year high of 19.2%. STV's viewing share was also 12% higher than the ITV Network, an indicator of the unique connection the channel holds with its audience.

As audiences sought trusted news and information, STV's public service remit was firmly in the spotlight. Our flagship programme STV News at Six, already the most-watched news programme in Scotland, achieved the highest average audience and viewing share in its history, tracking 10% higher than the competition (from a position of +3% pre-Covid). Average audience was up 32% and viewing share was up 16% year on year. During 2019, five editions of the programme secured an audience of over half a million viewers. Across 2020, 152 editions of the programme attracted this level of audience.

Despite advertising revenues recording the sharpest ever decline in Q2 2020 - down 38% year on year - the advertising market responded quickly and positively as lockdown restrictions were relaxed in H2. Overall, total advertising revenue was 10% down for the full year, with national advertising revenue down 14% year on year within that. The performance of the local Scottish advertising market was relatively stronger than the national market, bucking wider trends and finishing down only 5% year on year.

This strong regional market position has been enhanced through the success of the STV Growth Fund over the last 3 years. This investment fund is designed to make advertising more affordable and accessible for Scottish SMEs. Since its launch in 2018 it has delivered over 550 deals and introduced c.235 new clients to television advertising, including 91 new advertisers in 2020 despite the Covid disruption. The re-booking rate for advertisers receiving Growth Fund investment was 42% in 2020.

Three bespoke funds have been launched in recent months as part of the wider Growth Fund initiative. Local Lifeline allocated airtime to the value of £1m to businesses and charities who responded to the impact of Covid by helping their local communities during the first lockdown. Through this campaign, 105 'local heroes' were celebrated in commercial airtime on STV, showcasing their efforts in supporting people who needed it most. As part of our commitment to be a more inclusive and diverse business, the Inclusion Fund was launched in late 2020 to support businesses who champion diversity through their products and services, consumer engagement or culture. Finally, in early 2021, the Green Fund was announced as part of STV's environmental sustainability commitments to be a net zero carbon business by 2030, with the aim of making advertising more accessible to SMEs championing greener practices.

A doubling of the Growth Fund to £20m was announced at the onset of the pandemic and will be a key factor in continuing to grow STV's share of the regional advertising market as businesses start reinvesting in marketing to support their Covid recovery plans.

Despite a reduction in revenue of 12% to £81.2m (2019: £92.3m), the underlying profitability and resilience of the business resulted in operating profit of £15.5m (2019: £19.9m). The operating margin decreased slightly to 19.2% (2019: 21.6%).

Digital

Acceleration of the profitable growth trajectory of the Digital business was achieved through an increasingly rich and diverse content offering and the successful UK-wide launch of the STV Player for the first time. By the end of 2020, the STV Player was available on all major platforms and pre-installed in nearly three quarters of the UK's connected TV homes, increasing the addressable audience twelvefold to over 50 million adults.

Online viewing was up 68%, securing the STV Player's pole position as the fastest growing broadcaster streaming service in the UK. Within this, VOD viewing was up 57% and live simulcast viewing was up 97%. Active monthly users grew by 50% year on year.

Despite the wider trends in the advertising market in 2020, VOD advertising on STV Player grew 12% for the full year. The year closed with four consecutive months of growth, a positive indicator of the prospects for 2021 against a stronger advertising market.

The UK-wide launch has brought the STV Player onto all major platforms. In June, we announced an extension of our strategic partnership with Virgin Media enabling their customers across the UK to watch the STV Player via their set top boxes. With the Player already installed on YouView and Freesat, in August, the launch on Freeview Play in August connected us to a further 13 million devices in UK homes. The launch on Sky+, Sky Q and Now TV was completed at the close of 2020.

Our digital content strategy aims to create an STV for everyone.  Some 3,000 hours of Player-only content is now available, c1,200 hours of which were acquired in 2020, comprising high-quality UK and international drama boxsets, factual series, entertainment and lifestyle shows, as well as live sports and music channels. This content has been secured through deals with over 20 partners and distributors and across 2020, accounted for over one third of all viewing and 8 of STV's top 15 digital shows. The latest content deals with eOne and Sony will add over 350 hours of predominantly US drama.

The audience profile of the STV Player is enabling new audiences to be reached, enhancing our offer to advertisers. 16-34 year olds account for one third of the audience on STV Player, higher than on STV the channel. Similarly, there is a skew towards ABC1 audiences on STV Player and the male audience is also higher.

The strong growth achieved throughout 2020 has continued into Q1 of 2021 with online viewing up 83% and total streams up 101% year on year, driven by an attractive offer of drama boxsets and UK-wide distribution.

Revenue grew for the third consecutive year, up 5%, to £13.7m (2019: £13.0m) driven by the increase in viewing. As a result of investment commitments to continue to build the scale of the business for the medium term, operating profit was down 10% at £6.5m (2019: £7.3m). The business still achieved an operating margin of 47.5% (2019: 55.7%).

Our ambitious 3-year targets for STV Player aim to double viewing, users and revenue by 2023. To achieve that we will invest more in digital content and marketing (aiming to launch a new boxset every week), increasingly personalise the user experience and launch a new loyalty scheme (STV Player VIP) to drive repeat usage.

STV Studios

2020 saw a record number of new commissions secured and a re-branding to reflect the growing portfolio of businesses that form STV Studios, which now houses seven creative labels across all genres.

Despite the challenges the pandemic presented to the production sector globally, 19 new commissions were secured including 16 series and three single productions across all genres and for a wide range of broadcasters.

The aim for STV Studios is to build a world class production business with a multi-genre slate of returning series; 6 of the 19 commissions announced in 2020 are new returnable series.

2020 started with the largest single order yet placed by the BBC for delivery of four new series of popular long-running show Antiques Road Trip, for BBC One (100 episodes), and two series of Celebrity Antiques Road Trip, for BBC Two (40 episodes). A third series of BBC Scotland ratings success Inside Central Station was also commissioned (6 episodes).

New shows secured by the Factual team include The Yorkshire Auction House for Discovery-owned channel, Really (10 episodes), plus a Scottish version of the series, Clear Out Cash In for STV (8 episodes). This was followed by the commission of a new format for Channel 5, Our Family Farm Rescue (4 episodes). An innovative lockdown production was pitched and delivered to Channel 5 during the summer, The Tabloids and The Royals (4 episodes). A further commissioning success at this time was an investigative documentary for Channel 4, Is Covid Racist? 

With production activity abruptly suspended in March, the creativity of our development teams led to development slates being revamped to serve the new requirements of broadcasters, and productions were redesigned to enable safe working. A new compilation series of ratings success and returning format, Celebrity Catchphrase, was commissioned by ITV for delivery in H2 and the biggest celebrity commission secured to date will be delivered in early 2021. Celebrity Catchphrase was the first UK entertainment show to return to studio under strict Covid-secure working practices in July, which were introduced across the industry to kickstart production. Antiques Road Trip also swiftly resumed production later that month, in accordance with new industry safety guidelines.

Our talented drama team received widespread critical acclaim for the 2019 film Elizabeth is Missing, for BBC One. To date the film has won 9 major awards, including Best TV Movie at the C21 Frama Awards and Banff Media Rockie Awards; an RTS Award for writer Andrea Gibb; an International Emmy recognising Glenda Jackson's performance, and a BAFTA. Further success was confirmed with a significant new drama series commission from Channel 4 (6 episodes) for delivery in 2021. Prison drama, Screw, is written by Rob Williams, creator of the team's 2019 hit for BBC One, The Victim, and production commenced in Scotland in early 2021.

In January 2020, a minority stake was acquired in high-end drama producer Two Cities Television. The business has a strong pipeline of drama projects and scripts at an advanced stage with commissioning success anticipated during 2021. This was followed in September 2020 with the latest addition to the STV Studios portfolio, Barefaced TV, a wholly-owned creative label focused on entertainment formats targeting younger audiences.

Entertainment specialists, Primal Media, majority-owned by STV since July 2019, announced its first commission as part of STV Studios- a ground-breaking seven-part series for Sky Arts, Landmark, also to be produced in 2021.

These creative labels, including long-standing drama partner, TOD Productions, complement the STV Studios in-house businesses: STV Studios Drama, STV Studios Factual and STV Studios Entertainment. 

As the pandemic affected the delivery of programmes, this revenue impact was offset by stronger library sales which accounted for over 40% of total revenue in 2020 (2019: 20%). Strong growth in international sales was driven in part through our distribution deal with WME in the US. Notable deals included the sale of critically acclaimed drama Elizabeth is Missing to over 90 territories through a distribution arrangement with NBC Universal. This has enabled recoupment of all investment finance bringing the film into profit within 6 months.

Total revenues were impacted by the cessation of all production from March which continued throughout Q2. The business was broadly breakeven with a small operating loss of £0.3m, (2019: loss of £0.1m).

Our 3-year target for STV Studios is to quadruple turnover to over £40m. To achieve that we will continue to invest to strengthen our creative pipeline with a view to doubling the number of returning series we make by 2023.

Simon Pitts

Chief Executive, STV Group plc

* The number of shares reported in 2019 for the purposes of earnings per share has been updated to reflect the bonus issue in December 2020; those shares issued are assumed to have been in issue since the start of the comparator period.

A reconciliation of the statutory results to the adjusted results is included at note 18.

Notes to the preliminary announcement

Year ended 31 December 2020

1. General information

STV Group plc ("the Company") and its subsidiaries (together "the Group") is listed on the London Stock Exchange and incorporated and domiciled in the UK. The address of the registered office is Pacific Quay, Glasgow, G51 1PQ. The principal activities of the Group are the production and broadcasting of television programmes, provision of internet services and the sale of advertising airtime and space in these media. Outside the core business, the Group also operates an external lottery management company, although post year end an agreement in principle has been reached to dispose of that business, subject to Gambling Commission approval (note 19).

2. Basis of preparation

The financial information set out in the audited preliminary announcement does not constitute the Group's statutory financial statements for the year ended 31 December 2020 within the meaning of Section 434 of the Companies Act 2006 and has been extracted from the full audited financial statements for the year ended 31 December 2020.

Statutory financial statements for the year ended 31 December 2019, which received an unqualified audit report, have been delivered to the Registrar of Companies. The reports of the auditors on the financial statements for the year ended 31 December 2019 and for the year ended 31 December 2020 were unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The financial statements for the year ended 31 December 2020 will be delivered to the Registrar of Companies and made available to all shareholders in due course.

Going concern basis

At 31 December 2020, the Group was in a financial net debt position with a positive gross cash balance. The Group is in a net current asset position and generates cash from operations that enables the Group to meet its liabilities as they fall due, and other obligations.

As part of the going concern review, the Group considers forecasts of the total advertising market to determine the impact on liquidity. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group will be able to operate within the level of its current available funding and covenant levels.

During 2020, and in response to Covid-19, the Group took a number of measures to create additional headroom to enable it to trade through a severe downside scenario, should one materialise. These measures included the increase of bank facilities from £60m to £80m and the relaxation of certain covenants, as well as raising net proceeds of £15.5m through an issue of new share capital. From the time when the increased facilities were put in place to the start of March when the Group refinanced its banking arrangements, the Group did not need to avail itself of the incremental £20m in facility or the covenant relaxations. In early March, the Group refinanced its existing facilities, due to mature in June 2022, and now has in place a £60m revolving credit facility, with a £20m accordion, for a minimum period of three years with two one-year extension options. The covenant package in place reflects those under the previous arrangement, without the relaxations, and requires the Group's leverage to be less than three times and interest cover to be more than four times. The financial modelling undertaken in support of the Group's application of the going concern basis of preparation remains valid under the new facilities, with the Group being able to continue to trade within the new facility limits and covenant levels.

As set out in the Group's strategy in 2018, the Group continues to focus on diversification of operations to drive a greater proportion of the Group's results from non-broadcast earnings. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation for at least 12 months from the date of this report. Accordingly, the Group continues to adopt the going concern basis in preparing its consolidated financial statements.

3. Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2019.

4. Financial risk management and financial instruments

The Group's activities expose it to a variety of financial risks: currency risk, credit risk, liquidity risk and cash flow interest rate risk.

The carrying value of non-derivative financial assets and liabilities, comprising cash and cash equivalents, trade and other receivables, trade and other payables and borrowings is considered to materially equate to their fair value.

5. Business segments

Information reported to the Group's Chief Executive for the purposes of resource allocation and assessment of segment performance is by product. The Group's operating segments, which remain the same as the prior year, are Broadcast, Digital, Studios (previously called Production), and the STV ELM.

The Group's reportable segments continue to be Broadcast, Digital and Studios, with the STV ELM included within 'Other'.

Revenue includes £1.0m from sources outside the UK (2019: £1.0m). Operating profit includes £0.6m arising outside the UK (2019: £0.6m).

6. Exceptional items

All exceptional items in 2020 relate to the disposal of the STV ELM Limited. The total exceptional cost of £8.7m comprises three elements:

(i) actual and expected costs associated with the disposal of the business of £0.5m;

(ii) VAT recoverable of £0.6m following the write-off of the receivable due from the Scottish Children's Lottery (SCL); and

(iii) expected credit loss provision of £8.8m being full provision for the receivable due from the SCL at the balance sheet date, under IFRS 9.

The first amount has been recognised as an operating exceptional item. The second and third amounts are included as exceptional finance costs.

2019 exceptional items

The disposal of the deltaDNA investment to Unity Technologies Inc in September 2019 resulted in a gain on sale of £2.0m. Costs of £0.1m were incurred in the acquisition of Primal Media Limited on 1 July 2019. A write off of development costs of £1.9m was recognised in 2019. A full review of the development costs previously capitalised was undertaken in the second half of the year by the new management team of STV Studios, and those costs relating to creative ideas and investments that are not aligned to the new strategic direction of the division were written off.

7. Tax (credit)/charge

The Government announced in the Budget on 11 March 2020 that the main rate of corporation tax for the financial year beginning 1 April 2020 will remain at 19% rather than falling to 17% as was previously legislated. The 19% rate was substantively enacted on 17 March 2020 when the Budget Provisional Collection of Taxes Act resolution was passed. The Finance Act 2020 included this amendment and set the main rate at 19% for the financial year beginning 1 April 2021. Therefore, the Group has remeasured the deferred tax balances to be carried at the 19% rate.

8. Earnings per share

The calculation of earnings per share is based on earnings after tax and the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held for use by the STV Employee Benefit Trust.

For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The Group has one type of dilutive potential ordinary shares namely share options granted to employees. 

The adjusted earnings per share figures have also been calculated based on earnings before adjusting items that are significant in nature and/or quantum and are considered to be distortive. The adjusting items include the impact of operating and non-operating exceptional items and the IAS 19 net financing cost; as well as the tax adjustments relating to these items. Adjusted earnings per share have been presented to provide shareholders with an additional measure of the Group's year-on-year performance.

The number of shares reported in 2019 for the purposes of earnings per share has been updated to reflect the bonus issue in December 2020, with those shares issued assumed to have been in issue since the start of the comparator period.

The following reflects the earnings and share data used in the calculation of earnings per share:

9. Dividends

The final dividend of 14.7p per share in respect of 2019 was cancelled in May 2020 as part of the Group's response to the Covid-19 pandemic. An interim dividend in respect of 2020 was made by way of a bonus issue of new ordinary shares in December 2020. The Board is now proposing a final cash dividend of 6.0p per share in respect of 2020, subject to approval at the Company's Annual General Meeting 2021. It is payable on 28 May 2021 to shareholders who are on the register at 16 April 2021. The ex-dividend date is 15 April 2021. This final dividend, amounting to £2.7m has not been recognised as a liability in these financial statements.

10. Intangible assets

 11. Property, plant and equipment

12. Right-of-use assets

13. Investments

Listed investments comprise Mirriad Advertising plc and Unity Software Inc. The increase in the value of listed investments during the year relates to the transfer of Unity Software Inc (formerly Unity Technologies Inc) from 'Other investments' following its listing on the New York Stock Exchange on 22 September 2020 and its revaluation to market value at the balance sheet date. These listed investments are measured at fair value through the Consolidated Statement of Comprehensive Income.

The movement in investments in associates during 2020 relates to the investment in a 25% stake in Two Cities Television Limited for £1.1m in January 2020, with initial recognition at cost, and subsequent recognition of the Group's share of losses (£0.1m) in the investment under the equity method of accounting. No dividends have been received.

14. Trade and other receivables

The reduction in non-current trade and other receivables to £0.9m (2019: £9.5m) relates primarily to amounts written-off during the year that were due to STV ELM Ltd (the external lottery management company) from the Scottish Children's Lottery. In accordance with IFRS 9, management have performed a whole of life probability weighted impairment review resulting in an additional expected credit loss impairment of £8.8m recognised in the year.

15. Ordinary shares and share premium

16. Notes to the consolidated statement of cash flows

Net debt reconciliation

i) Non-cash movements relate to the acquisition of right-of-use assets.

At 31 December 2020, the Group had revolving credit and overdraft facilities in place totalling £80.0m, stepping down to £70.0m on 31 March 2022, (2019: total facility £60.0m with no step down), of which £23.0m was drawn down (2019: £44.0m). The balance sheet value of £22.7m (2019: £43.7m), reported as non-current and expiring within 1 to 2 years from the balance sheet date at the end of the current period (and within 2 to 5 years from the end of the prior period), is presented net of £0.3m of unamortised borrowing costs (2019: £0.3m). The bank facilities in place at the balance sheet date had a maturity date of June 2022 and security was provided to the lenders by way of a bond and floating charge. Subsequent to the year end, the Group's bank facilities have been refinanced (note 19).

17. Retirement benefit schemes

The Group operates two defined benefit pension schemes. The schemes are trustee administered and the schemes' assets are held independently from those of the Group. 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. Both are closed schemes and accounted for under the projected unit method.

Contribution rates to the scheme are determined by a qualified independent actuary on the basis of a triennial valuation using the projected unit method. The most recent triennial valuation was carried out as at 31 December 2017. This valuation resulted in a deficit of £127.0m on a pre-tax basis at 28 February 2019 compared to £130.0m on a pre-tax basis at the previous settlement date of 30 November 2016. The next triennial valuation as at 31 December 2020 is currently underway.

Following the 2017 valuation, a 12 year recovery plan was agreed with the first annual contributions of £9.0m in line with the existing recovery plan. Annual contributions increase at the rate of 2% per annum over the term of the plan, the first such increase being on 1 January 2020. Additionally, in the event of outperformance against the group's sensitised net cash flow, contingent payments equivalent to 20% of any outperformance above a benchmark of available cash are payable to the schemes. Sensitised forecast net cash flow is defined as cash flow pre-pension deficit funding payments and returns to shareholders.

The significant actuarial assumptions used for accounting purposes reflect prevailing market conditions in the UK and are as follows:

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

The average life expectancy in years of a pensioner retiring at age 65 is as follows:

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

A related, offsetting deferred tax asset of £13.3m (2019: £10.9m) is included within non-current assets. Therefore, the pension scheme deficit net of deferred tax was £57.0m at 31 December 2020 (2019: £53.1m).

18. Reconciliation of statutory results to adjusted results

In reporting financial information, the Group presents alternative performance measures (APMs) which are not defined or specified under the requirements of IFRS. The Group believes that these APMs, which are not considered to be a substitute for or superior to IFRS measures, provide stakeholders with additional helpful information on the performance of the business.

The Group makes certain adjustments to the statutory profit measures in order to provide a more meaningful comparison of how the business is managed and measured on a day-to-day basis. 

Below sets out a reconciliation of the statutory results to the adjusted results:

 19. Post balance sheet events

In early March 2021, the Group refinanced its bank facilities, agreeing a new £60m revolving credit facility, with £20m accordion, for a minimum tenor of 3 years (two one-year extension options are available). The covenant package is in line with the Group's previous facility, namely net debt to EBITDA must be less than 3 times, and interest cover must be greater than 4 times.

Also subsequent to the year end, the Group has reached an agreement in principle for the sale of its lottery management company, the STV ELM Limited. The agreement is subject to Gambling Commission approval and will combine a modest consideration for the business with a multi-year advertising agreement.