Condensed interim statement of cash flows

Six months ended 30 June 2021

Unaudited notes to the condensed interim financial statements

Six months ended 30 June 2021

1.   General information

STV Group plc (the "Company") is a public limited company incorporated and domiciled in Scotland and listed on the London Stock Exchange.  The address of the registered office is Pacific Quay, Glasgow, G51 1PQ.

The principal activities of the Company and its subsidiaries (together "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 operated an external lottery management company throughout the period, however this business was sold on 20 August 2021 (see note 24).

These condensed interim financial statements were approved for issue on 9 September 2021 and have been reviewed, not audited.  They do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.  Statutory accounts for the year ended 31 December 2020 were approved by the Board of Directors on 16 March 2021 and delivered to the Registrar of Companies.  The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

2.   Basis of preparation

These condensed interim financial statements for the six months ended 30 June 2021 have been prepared based on the policies set out in the 2020 annual financial statements and in accordance with UK adopted IAS 34 and the Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial Conduct Authority. These should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2020 which were prepared in accordance with IFRS in conformity with the requirements of the Companies Act 2006 and IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

The year to 31 December 2021 annual financial statements will be prepared in accordance with IFRS as adopted by the UK Endorsement Board. This change in basis of preparation is required by UK company law for the purposes of financial reporting as a result of the UK's exit from the EU on 31 January 2020 and the cessation of the transition period on 31 December 2020. This change does not constitute a change in accounting policy but rather a change in framework which is required to ground the use of IFRS in company law.  There is no impact on recognition, measurement or disclosure between the two frameworks in the period reported.

Going concern

As part of the going concern review, the Group considers forecasts of the advertising market to determine the impact on liquidity and assesses the likelihood of crystallisation of other key risks and their impact on the Group's ability to execute its strategy.  

As set out by the Directors in March 2021, the next stage of the Group's strategy continues to focus on diversification of operations to drive a greater proportion of the Group's results from non-broadcast earnings. At the end of 2020, the Group had achieved its initial target of generating at least one third of the Group's operating profit from non-broadcast activity, and a new target has been set to achieve at least 50/50 between broadcast/non-broadcast earnings by the end of 2023.  Underpinning this ambition are separate targets in relation to Digital and Studios, with the Group aiming to double the size of the digital business and quadruple Studios revenues over the same period. 

The directors performed a full review of principal risks and uncertainties at the start of 2021, coincident with approval of the three-year plan covering the period to 31 December 2023.  A severe but plausible downside scenario was identified that reflected crystallisation of a number of risks.  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.   

In 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 (leverage) must be less than 3 times, and interest cover must be greater than 4 times. 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. 

As part of the going concern assessment at the end of the interim period, the directors have assessed current trading relative to the budget for the year and reconfirmed that the downside scenario previously identified remains appropriate.  Following completion of this work, 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 2020.  There were no changes to accounting standards in the period that had any material impact on the financial statements.

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

4.   Judgements and estimates

Judgements

The Group applies judgement in how it applies its accounting policies, which do not involve estimation, but could materially affect the numbers disclosed in these financial statements. The key accounting judgements, without estimation, that have been applied in these financial statements are as follows:

Inventory

Deferred programme production stock forms part of inventory and is stated in the financial statements at the lower of cost or net realisable value. Programme costs are expensed in line with expected future revenues which is an area involving significant management judgement. A detailed forecast of future secondary sales is prepared by management based on historic experience and expected future trends. £0.5m was expensed through the income statement in the period (2020: £0.3m).

Estimates

The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Pension obligations

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate and mortality rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

The Group determines the appropriate discount rate at the end of each period. This is the rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. With regard to mortality, the base tables used are updated every three years (to coincide with triennial valuations) or more frequently when there is evidence of a change in experience. The CMI tables relating to future improvements in mortality are updated when new information is available, usually annually. Other key assumptions for pension obligations are based in part on current market conditions.  Refer to note 21 for further disclosure.

5.   Financial risk management and financial instruments

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

The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2020. 

There have been no changes in any risk management policies since the year end.

6.   Seasonality of operations

In line with the UK advertising market, the autumn season provides the Group with its highest level of revenues, as trading picks up from the quieter months of July/August.  The Studios business delivers the majority of its programmes to broadcasters in the second half of the year which results in higher work in progress inventory at the interim period end compared to the year end position (see note 16).  In the current year, guidance is for the Studios division to generate revenues of £20-25m, of which £6.0m has been realised in the six months ended 30 June 2021. 

7.   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 reportable segments, which remain the same as the prior year, are Broadcast, Digital and Studios.  The STV ELM (which is an operating but not reportable segment) is included in 'Other' below. 

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

8.   Exceptional items

2021

During 2020, and principally over the second quarter, the Group applied for grants under the Government's Coronavirus Job Retention Scheme ('CJRS') totalling £1.7m.  These monies were received at a time when the business was operating under the tightest of lockdown restrictions, with total advertising revenue down 38% year on year, no programme production activity possible, and visibility over key markets very limited.  The amounts received under the CJRS were allocated against payroll within operating costs in 2020. Over the second half of 2020 and into 2021, the Group's trading improved significantly, despite further lockdown measures in Q1 2021, demonstrating the resilience of its Broadcast business and the successful execution of strategy in Digital in particular.  In March 2021, the Board announced its intention to resume payment of a cash dividend to shareholders.  Although there was no obligation on the Group to repay furlough grants, the Board decided that CJRS monies received would be repaid in full prior to re-commencing payment of a cash dividend.  As the repayment of furlough grants does not relate to the current period of trading, nor was it required under any law or regulation, the Group has presented the cost as exceptional so as not to distort the underlying trading results of the business.

2020

The exceptional item recognised in the first half of 2020 related entirely to the increase in the provision for the debtor receivable from the Scottish Children's Lottery, recognised in the books of STV ELM, the Group's external lottery management company.  The gross debtor was provided for in full as at 30 June 2020, with the additional provision of £8.7m recognised as an exceptional finance cost in the period.  A related exceptional tax credit was also recognised, totalling £1.6m.

9.   Tax

The tax on the results for the six month period is charged at the rate that represents the best estimate of the average annual effective tax rate (ETR) expected for the full year, applied to the pre-tax result for the six month period.

The ETR on the results before exceptional items has been charged at 17.7% (30 June 2020: 9.3%), which is lower than the standard rate of 19%, primarily because of the change in rate at which deferred tax is recognised.

The Government announced in the Budget on 3 March 2021 that the main rate of corporation tax for the financial year beginning 1 April 2023 will increase to 25% from the current rate of 19% previously legislated. The 25% rate was substantively enacted on 24 May 2021 when the Budget Provisional Collection of Taxes Act resolution was passed. The Finance Act 2020 included this amendment and set the main rate at 25% for the financial year beginning 1 April 2023. Therefore, the Group has remeasured the deferred tax balances to be carried at the 25% rate.

The ETR on exceptional items was 19%. This relates wholly to the repayment of furlough monies received which were treated as taxable in the prior year.

10. 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 period, 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 share namely share options granted to employees. In the prior period, as the group reported a basic loss per share, any potential ordinary shares were anti-dilutive and therefore excluded from the calculation of diluted loss per share.

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 therefore 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 2020 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:

11. Dividends

An interim dividend (equivalent to 3.0p per share) in respect of 2020 was made by way of a bonus issue of new ordinary shares in December 2020. A final cash dividend of 6.0p per share in respect of 2020 was paid on 29 May 2021.

An interim dividend of 3.7p per share has been proposed and is subject to approval by the board of directors. It is payable on 5 November 2021 to shareholders who are on the register at 1 October 2021. This interim dividend, amounting to £1.7m has not been recognised as a liability in this interim financial information.  It will be recognised in shareholders' equity in the year ending 31 December 2021. 

12. Intangible assets

During the six months ended 30 June 2021, the Group incurred expenditure of £0.2m on web development (£0.7m in the year to 31 December 2020; £0.5m in the six months ended 30 June 2020).  The net disposals amounted to £nil in the current period and for the year ended 31 December 2020.

13. Property, plant and equipment

During the six months ended 30 June 2021, the Group incurred expenditure of £1.3m on property, plant and equipment (£1.4m in the year ended 31 December 2020; £0.9m in the six months ended 30 June 2020).  The net disposals amounted to £nil in the current period and for the year ended 31 December 2020.

During the six months ended 30 June 2021, the Group incurred additions of £0.1m on right-of-use assets (£0.2m in the year ended 31 December 2020; £0.2m in the six months ended 30 June 2020). The net disposals amounted to £nil in the current period and for the year ended 31 December 2020.

14. Investments

On 30 April 2020, the Group sold the majority of its investment in Unity Technologies Inc., realising net proceeds of £3.3m.  A loss of £1.8m has been recognised in the interim condensed statement of comprehensive income.

15. Deferred tax asset

At 30 June 2021, total deferred tax assets of £15.2m were recognised on the balance sheet (31 December 2020: £20.4m).  Of this, £10.5m relates to the deficit on the Group's defined benefit pension schemes (31 December 2020: £14.6m) and the balance of £4.7m relates to tax losses, accelerated capital allowances and short-term timing differences (31 December 2020: £5.8m).

16. Inventory

17. Trade and other receivables

18. Borrowings

In 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.

19. Share capital

Issued share capital at 30 June 2021 amounted to £23.3m (46,722,499 shares). Issued share capital at 30 June 2020 amounted to £19.6m (39,192,137 shares). The increase was a result of an equity placing of 7,050,665 new ordinary shares in July 2020 and a bonus issue of 476,679 shares in December 2020.

20. Notes to the condensed interim statement of cash flows

Net debt reconciliation

(i)   Non cash changes for long-term borrowings relate to the capitalisation and amortisation of

borrowing costs, and for lease liabilities the acquisition of right-of-use assets.

21. Retirement benefit schemes

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:

The reduction in the net pension deficit is largely driven by an increase in the discount rate due to a rise in corporate bond yields.

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 sensitivities regarding the principal assumptions used to measure the defined benefit obligation are set out below:

These sensitivities have been calculated to show the movement in the defined benefit obligations in isolation, and assuming no other changes in market conditions at the balance sheet date.

22. Transactions with related parties

Other than the loan notes provided to associate referred to in the statement of cash flows, there are no transactions with any related parties in the period to 30 June 2021.

23. 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.

In calculating adjusted operating profit, profit before tax and EPS, the Group excludes exceptional items and amounts in relation to IAS19, as well as the tax charge or credit on those amounts. Exceptional items are items of income or expense which, because of the nature, size and/or infrequency of the events giving rise to them, are one-off and do not necessarily directly relate to the underlying trading of the Group. These items are excluded to reflect performance in a consistent manner and in line with how the business is managed on a day-to-day basis. They are also shown separately on the face of the primary financial statements. IAS19 related items, principally the net interest expense included in the income statement, are excluded from non-statutory measures as they are non-cash items that relate to historical defined benefit pension schemes.

A reconciliation of the statutory results to the adjusted results is presented below.  As the Group reported a loss during the prior period, the diluted EPS measure was taken to be the same as basic EPS as any potential ordinary shares would have been anti-dilutive.

The number of shares reported in 2020 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.

24. Post balance sheet event

On 26 August 2021, the Group announced completion of the transaction to dispose of the STV ELM Limited, the external lottery management company operating the Scottish Children's Lottery, following approval by the UK Gambling Commission.  As previously disclosed, the agreement combines up-front consideration for the business with a multi-year advertising contract.

Independent review report to STV Group plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed STV Group plc's condensed consolidated interim financial statements (the "interim financial statements") in the half year results to 30 June 2021 of STV Group plc for the 6 month period ended 30 June 2021 (the "period").

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

·    the Condensed interim balance sheet as at 30 June 2021;

·    the Condensed interim income statement and Condensed interim statement of comprehensive income for the period then ended;

·    the Condensed interim statement of cash flows for the period then ended;

·    the Condensed interim statement of changes in equity for the period then ended; and

·    the explanatory notes to the interim financial statements.

The interim financial statements included in the half year results to 30 June 2021 of STV Group plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The half year results to 30 June 2021, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the half year results to 30 June 2021 in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the half year results to 30 June 2021 based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half year results to 30 June 2021 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Glasgow

9 September 2021