Stvg Regulatory News (STVG)

Press Release 0700 hours, 7 March 2023

STV Group plc Full Year Results to 31 December 2022

Record adjusted operating profit as diversification strategy continues to deliver

Highlights

· Diversification on track, with 38% of earnings now from Digital and Studios

· Favourable new ITV partnership significantly strengthens STV digital strategy

· STV Player registered users surpass 5m target one year early, in Q1 2023

· STV Studios doubles new programme commissions with further strong growth to come

· STV remains Scotland's most watched peak time channel for the 4th year in a row

· Confident of achieving 2023 diversification targets, despite ongoing economic uncertainty

· Board proposes final dividend of 7.4p, bringing full year to 11.3p, +3% on 2021

Financial highlights

· Adjusted operating profit of £25.8m, +2% on 2021

· Total advertising revenue (TAR) of £110.0m, down only 2% on record 2021

· Total Group revenue of £137.8m, -5% on 2021, as a result of marginally lower TAR and timing of production deliveries

· STV-controlled advertising continuing to show growth and resilience, with VOD advertising +9% and regional advertising down 4% (excluding Scottish Government spend, regional grew 18%)

· Digital revenue +7% at £19m and digital profit +9% at £8.5m

· Studios revenue of £23.7m down 11% on prior year due to timing of deliveries, in particular drama (2021: £26.6m). Studios adjusted operating profit +6% at £1.4m

· Adjusted operating margin of 18.7% (2021: 17.5%), reflecting improved margins in both Digital and Studios

· Net debt (excluding leases) of £15.1m (2021: net cash £0.3m) driven by short-term working capital needs to support Studios growth; will unwind as programmes are delivered

Another year of strong audience performance

· On TV, STV's peaktime viewing share of 22.5% was the highest since 2009, with our lead over BBC1 widening:

o  Most watched peaktime channel in Scotland for 4th year in a row

o  Bigger peaktime 16-34 audience than C4, ITV2 and BBC Three combined

o  All-time audience higher than any other commercial channel on 361 days of 2022

o  November 2022 was STV's highest viewing share for 19 years, driven by I'm a Celebrity and the FIFA World Cup

· STV Player enjoyed its best ever streaming performance, with growth across all key metrics:

o  Registered users up 17% to 4.9m, and now over 5m in Q1 2023

o  Online viewing up 6%, advertising impressions +27%

o  Streams up 1%, with live streams up 5%

o  Monthly active users up 10%, STV Player VIP users up 16%

o  New research shows that 20% of Scots have already cancelled at least one paid-for streaming service, with a further 38% saying they intend to

Continued strategic momentum

· Studios: STV Studios continues to scale rapidly:

o  30 new commissions and now 11 returning series

o  3 major new returnable drama series currently in production for Apple, BBC and C4

o  2023 will be a breakthrough year with £50m+ of commissions already secured for delivery, more than double 2022

· Digital: STV Player's long-term streaming growth secured through new ITV partnership:

o  100+ hours per year of new, exclusive content will launch on STV Player through new ITV deal

o Long-term content partnership in place with ITV until 2029, on a variable cost basis

o  Digital content offer now 6,000+ hours, with 156 new titles and 1,600 hours added in 2022

· Scottish advertising: More than 1,000 deals through the STV Growth Fund since launch in 2018, allocating just under £20m. In 2022 there were 223 deals, with 70% of 2022 Growth Fund members re-booking from the previous year.

· Targets: On track to hit or surpass our 3-year growth targets to the end of 2023 to:

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

o  Quadruple Studios revenue (to £40m)

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

2023 outlook

· Advertising impacted by ongoing economic uncertainty, but expected to remain resilient

o  Total advertising revenue down around 15% in Q1 as expected

o  Digital VOD advertising up around 20% in Q1

o  Scottish advertising expected to be down 20-25% in Q1, flat to slightly up excluding Scottish Government spend

o  April TAR expected to be down 10-15%

· 2023 content line-up on STV and STV Player stronger than ever

o  34 new drama boxsets vs 14 in 2022

o  Exclusive coverage of the Rugby World Cup in the autumn

· Studios building momentum, with previous guidance of £50m revenue and at least £3m operating profit reconfirmed

· Digital content cost guidance unchanged post ITV deal; new content funded through revenue share arrangement

· Other cost inflation partly mitigated by savings

· H1/H2 split more pronounced this year due to advertising market and Studios phasing

Dividend

· The Board proposes a final dividend of 7.4p per share for 2022, up 1% on 2021, giving a full year dividend of 11.3p per share, +3% on 2021, after considering all relevant factors including the ongoing macroeconomic and geopolitical uncertainty

· The Board remains committed to a balanced approach to capital allocation across investing for growth, fulfilling our pension obligations, and paying a sustainable, progressive dividend to shareholders.

Simon Pitts, Chief Executive Officer, said:

"2022 was another year of growth for STV where we delivered increased operating profit beyond our record performance in 2021 while continuing to support our people, partners and communities.

Our diversification strategy, focused on driving growth in digital streaming and content production, continues to accelerate, with digital profit up 9% and Studios profit up 6%. Nearly 40% of STV's earnings now come from these new growth areas as we reduce our reliance on traditional television and create a vibrant, future-facing media business.

Our audience position remains unrivalled, with STV being Scotland's most popular peaktime TV channel for the 4th year in a row and our viewing share the highest since 2009.

Streaming service STV Player had another record year, delivering growth against all key metrics and surpassing our target of 5m registered users in early 2023, one year early. Our enhanced long-term partnership with ITV will propel the next phase of our streaming growth, guaranteeing exclusive access to 100+ hours of new, original UK content every year and complementing our extensive acquired content offering.

STV Studios is scaling rapidly and profitably, winning a record 30 new commissions in 2022 and already securing over £50m in revenue for 2023. This will be a breakthrough year as we deliver 3 major new dramas for Apple, BBC and C4 and make meaningful progress towards our goal of becoming the UK's leading nations & regions production company.

The advertising market showed further resilience in 2022 with STV total advertising revenues finishing only 2% down on our record 2021 performance. As expected, given the uncertain economic climate and strong 2022 comparator, STV's Q1 2023 total advertising is down by around 15%, though digital VOD advertising on STV Player is expected to be up around 20% and Scottish SME spend - excluding Scottish Government spend - also expected to be flat to slightly up, offering some encouragement for 2023. Our advertising performance should also be bolstered by a very strong content line-up which includes exclusive coverage of the men's Rugby World Cup starting in September.

The Board has proposed a final dividend of 7.4p per share, giving a full year dividend of 11.3p, +3% on 2021.

There will be a presentation for analysts today, 7 March 2023, 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 970 106

Camarco: Geoffrey Pelham-Lane, Partner Tel: 07733 124 226

Ben Woodford, Partner Tel: 07790 653 341

Financial and operating review

Group overview

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.

Broadcast

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.

Digital

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 3rd 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. 

Studios

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.

Regulatory

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.

Consolidated income statement

Year ended 31 December 2022

A reconciliation of the statutory results to the adjusted results is included at note 19. The above consolidated income statement should be read in conjunction with the accompanying notes.

Consolidated statement of comprehensive income

Year ended 31 December 2022

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Consolidated balance sheet

At 31 December 2022

The above consolidated balance sheet should be read in conjunction with the accompanying notes.

Consolidated statement of changes in equity

Year ended 31 December 2022

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Consolidated statement of cash flows

Year ended 31 December 2022

Notes to the preliminary announcement

Year ended 31 December 2022

1. General information

STV Group plc ("the Company") and its subsidiaries (together "the Group") is listed on the London Stock Exchange, limited by shares, 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. Up to its sale on 20 August 2021, the Group also operated a non-core external lottery management company.

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 2022 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 2022.

Statutory financial statements for the year ended 31 December 2021, 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 2021 and for the year ended 31 December 2022 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 2022 will be delivered to the Registrar of Companies and made available to all shareholders in due course.

Going concern

At 31 December 2022, the Group was in a net debt position of £15.1m (excluding lease liabilities), comprising drawdowns under its banking facility of £26.4m partially offset by a gross cash balance of £11.3m. 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.

The Group has in place a £60m revolving credit facility, with £20m accordion, that matures in March 2026 following exercise of both one-year extension options that were available to the Group (the second being exercised in March 2023). The covenant package remains unchanged and includes the key financial covenants of net debt to EBITDA (leverage), which must be less than 3 times, and interest cover, which must be greater than 4 times.

As part of the going concern review, the Group considers forecasts of the total advertising market, from which the Group generates the majority of its cash inflows, 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 financial covenants.

The directors performed a full review of principal risks and uncertainties during the year and approved the Group's updated three-year plan covering the period to 31 December 2025 in December 2022. As part of this process, the Board gave specific consideration and challenge to the first year of this plan and approved it as the budget for FY23. A severe but plausible downside scenario was identified against the base assumptions in that budget that reflected crystallisation of a number of risks, principally in relation to advertising revenues and the number and scale of programme commissions. Even under this scenario, the Group generated sufficient cash to enable it to continue in operation and remain within covenant levels under the Group banking arrangements. Therefore, the Board concluded that the Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show it will be able to operate within the level of its current available funding and covenant levels.

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 2022. There were no changes to accounting standards in the year that had any material impact on the financial statements.

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 are Broadcast, Digital and Studios. The trade of STV ELM is included within 'Other' up to the date of disposal in August 2021.

Adjusted operating profit (as shown above) is the statutory operating profit before exceptional items and includes High-End Television (HETV) tax credits receivable. The HETV tax credits relate solely to the Studios operating segment. In the current year, no HETV tax credit claims were made (2021: £1.9m) and so there is no impact on the adjusted operating profit metric from this adjustment (2021: statutory operating loss of £0.6m).

There has been no significant change in total assets from the amount disclosed in the last annual financial statements.

6. Exceptional items

To provide the users of the consolidated financial statements with a transparent view of significant and/or non-recurring items and their impact on the underlying trading of the Group, the Group presents items recognised in profit or loss for each year analysed between:

I. Profit before exceptional items; and

II. The effect of exceptional items

The table below analyses the exceptional items in the current financial year and their impact on key financial statement lines in the consolidated income statement.

(i)  Operating profit

On 8 December 2022, the Group announced an extended partnership with ITV for digital content and advertising sales. The agreement is effective from 1 January 2023, however there were a small number of one-off costs incurred in 2022 as part of the agreement reached, principally redundancy and legal costs, that have been presented as exceptional in the current year.

In May 2021, the Group repaid the full amount of furlough grants received in 2020 under the Government's Coronavirus Job Retention Scheme (£1.7m) before resuming payment of cash dividends to shareholders. The Group presented the cost of repayment as exceptional so as not to distort the underlying trading results of the business.

(ii) Finance costs

In the prior year, an exceptional credit of £0.3m was recognised relating to amounts recovered from the Scottish Children's Lottery (SCL) in excess of the expected credit loss provided for in 2020.

(iii) Gain on sale of non-current asset

In 2021, an exceptional gain of £0.6m was recognised, being net proceeds received on disposal of STV ELM Ltd.

(iv) Tax (charge)/credit

 Tax adjustments are the tax effects of the exceptional items recognised in both years.

7. Tax

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2021 on 10 June 2021. These included an increase in the UK corporation tax rate to 25% effective from 1 April 2023. The deferred tax balances at 31 December 2022 have been stated at a rate of 25% (2021:25%), which is the rate at which the temporary differences are expected to unwind.

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 that have also been calculated are based on earnings before adjusting items that are significant in nature and/or quantum and not expected to recur every year and are therefore considered to be distortive. The adjusting items recognised in the current and prior years are operating and non-operating exceptional items and the IAS19 net financing cost, as well as the related tax effect. Adjusted earnings per share has been presented to provide shareholders with an additional measure of the Group's year on year performance.

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

9. Dividends

A final dividend of 7.4p per share (2021: 7.3p per share) has been proposed by the Board of Directors and is subject to approval by shareholders at the 2023 AGM scheduled for 27 April 2023. The proposed dividend would be payable on 26 May 2023 to shareholders who are on the register at 14 April 2023. The ex-dividend date is 13 April 2023. This final dividend, amounting to £3.4m 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 entirely of shares held in Mirriad Advertising plc and are measured at fair value through the Consolidated Statement of Comprehensive Income.

The movement in investments in associates during 2022 relates to the acquisition of a 25% stake in quiz show producer, Mighty Productions Limited, for cash consideration of £0.9m in March 2022. The investment was initially recognised at cost and has subsequently been updated to reflect the Group's share of post-acquisition losses (less than £0.1m) in accordance with the equity method of accounting. The Group acquired a 25% shareholding in the unscripted production company, Hello Mary, for consideration of £0.6m in September 2021 with subsequent recognition of the Group's accumulated share of the loss of £0.1m. The Group also owns a 25% stake in Two Cities Television which has a carrying value of £0.9m at both balance sheet dates. No dividends have been received from any associate undertaking.

14. Deferred tax asset

At 31 December 2022, total deferred tax assets of £21.9m were recognised on the balance sheet (31 December 2021: £26.5m). Of this, £15.7m relates to the deficit on the Group's defined benefit pension schemes (31 December 2021: £19.8m) and the balance of £6.2m relates to tax losses, accelerated capital allowances and short-term timing differences (31 December 2021: £6.7m).

15. Borrowings

Since March 2021, the Group has had in place a £60m revolving credit facility, with £20m accordion. The original tenor was 3 years, however two one-year extension options have been exercised (in February 2022 and March 2023) with the facility now extending to March 2026. Commercial terms are in line with the existing facility and the covenant package also remains unchanged. Key covenants are net debt to EBITDA (leverage) must be less than 3 times, and interest cover must be greater than 4 times.

16. Share capital

The total authorised number of ordinary shares is 63 million shares (2021: 63 million shares) with a par value of £0.50 per share (2021: £0.50 per share). All issued shares are fully paid.

17. Notes to the consolidated statement of cash flows

Net debt reconciliation

(i) Non-cash movements relate to the amortisation of borrowing costs (for long-term borrowings), the acquisition of right-of-use assets and corresponding lease liabilities and lease interest.

Operating cash conversion, calculated as cash generated by operations divided by operating profit and expressed as percentage was 45% (2021: 161%).

18. 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 2020. This valuation resulted in a deficit of £116m on a pre-tax basis at 30 September 2021 compared to £127.0m on a pre-tax basis at the previous settlement date of 28 February 2019. The next triennial valuation will take place as at 31 December 2023.

Deficit recovery plans, which end on 31 October 2030, have been agreed with aggregate monthly payments unchanged from the previous recovery plans. The 2022 deficit recovery payments totalled £9.5m, with annual payments then increasing at the rate of 2% per annum over the term of the recovery plans. A contingent cash mechanism is also in place, which triggers contingent funding payments equivalent to 20% of any outperformance above a benchmark of available cash to be paid to the schemes.

The recovery plans are designed to enable the schemes to reach a fully funded position, using prudent assumptions about the future, by 2030.

The fair value of the assets and the present value of the liabilities in the Group's defined benefit pension schemes at each balance sheet date was:

Assumptions used to estimate the scheme obligations

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 and are reflected in the table below (average life expectations of a pensioner retiring at age 65).

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:

Note, the prior year comparative has been updated to reflect £7.5m of assets previously disclosed within unquoted investment funds to unquoted derivatives to be consistent with current year classification.

A related, offsetting deferred tax asset for the Group of £15.7m (2021: £19.8m) is included within non-current assets. Therefore, the pension scheme deficit net of deferred tax for the Group was £47.4m at 31 December 2022 (2021: £59.6m).

19. 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 to exclude the effects of exceptional items and adjust for other material amounts that it believes are distortive to the underlying trading performance of the Group. By presenting these alternative performance measures, the Group believes it is providing additional insight into the performance of the business that may be useful to stakeholders. 

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