A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
6
S
T
V
G
r
o
u
p
p
l
c
COMMERCIALLY
FOCUSED
CREATIVELY
LED
Annual Report and Accounts 2016
01 2016 financial highlights
Strategic Report
02 The STV Family
04 Chairman’s statement
06 Chief Executive’s review
– Group
– 2016 a year of achievements
– Consumer
– Showcase of content
– Productions
– STV External Lottery Manager
24 Corporate responsibility
29 STV Children’s Appeal 2016
32 Performance review
34 Principal risks and
uncertainties
36 Risk management
Introduction to governance
Governance
39
40 Board of Directors
42 Corporate governance report
55 Remuneration report
68 Directors’ report
Financial Statements
72
STV Group plc
consolidated financial
statements – independent
auditors’ report
Consolidated income
statement
Consolidated statement
of comprehensive income
Consolidated and parent
company balance sheets
Consolidated and parent
company statement of
changes in equity
Consolidated and parent
company statement
of cash flows
Notes to the financial
statements
78
78
79
80
81
82
111 Five year summary
Additional Information
112 Shareholder information
114 Notice of Annual General
Meeting
STV IS SCOTLAND’S LEADING
DIGITAL MEDIA BRAND,
PROVIDING CONSUMERS WITH
QUALITY CONTENT ON AIR,
ONLINE AND ON DEMAND
2016 financial highlights
01
112.1
120.4
116.5
120.4
19.5
20.3
19.7
18.0
2013
2014
2015
2016
2013
2014
2015
2016
Turnover
(£ millions)
+3%
38.7
39.9
39.7
34.4
Operating profit
(£ millions)*
–3%
15.0
10.0
8.0
2.0
2013*
2014*
2015*
2016*
2013
2014
2015
2016
EPS
(pence)
–1%
* Pre-exceptionals and IAS 19
Dividends per share
(pence)
+50%
STV Annual Report and Accounts 2016 02
The STV Family
A SHOWCASE
OF CHOICE
AND CONTENT
The STV Family of consumer services
demonstrates our commitment to
ensure STV’s content can be accessed
free of charge anywhere, anytime –
on air, on demand and online
ON AIR
STV audience share
continues to track
above ITV network
GovernanceFinancial StatementsAdditional InformationPage headingStrategic Report ON DEMAND
STV Player offers high quality
consumer experience providing
catch up and watch live
03
ONLINE
Building audiences by
integrating STV content
with social media channels
stv.tv
STV Annual Report and Accounts 2016
STV Annual Report and Accounts 2016 04
Chairman’s statement
Baroness Margaret Ford
Chairman
2016 has been another successful
year for STV as we have continued to
build a profitable, consumer focused
business; creating and delivering
great content to audiences and
consumers and increasing returns
to shareholders.
Stability and resilience to de-risk the business
A year characterised by unpredicted events and
uncertainty in the macro-economic outlook has been
contrasted with stability and continuity across the
business. The resilience of our business model has been
further enhanced as key strategic agreements have been
implemented. These have de-risked the business and
created increased financial certainty, securing our
position to enable continued pursuit of our growth
strategy. The normalised cost base and the trading
agreements underpinning the core business are providing
the resilience to respond positively to changes in the
macro-economic environment.
Our growth strategy has two drivers: firstly, from the base
of a strong core business; the diversification of our earnings
base through the growth of a portfolio of highly profitable
digital consumer services. Secondly, to continue to build
a multi-genre content production business of scale.
Following a comprehensive market review process, in late
2016 we announced that we will enter into a renewed
long-term (8 year term) arrangement with ITV plc to
cover our future agency representation of airtime and
sponsorship sales in the national market. This will deliver
transparency, clarity and a future proofed trading
arrangement designed to support our multi-product
commercial offering.
Another significant agreement settled in late 2016 is
the pension deficit funding plan. This triennial valuation
settlement, covering the Company’s two defined benefits
pension schemes, has been agreed within the Company’s
expected cash commitments and provides certainty and
long term visibility on cashflow.
Continued delivery of sustainable growth
The business has continued to be cash generative during
2016. Combined with a culture of strict cost control
and fiscal discipline, a low level of net debt has been
maintained. With a significantly de-risked core business,
we are in the position of having financial flexibility to
pursue growth ambitions and deliver value to shareholders.
The operational performance of the business is highly
transparent to all our stakeholders through the scorecard
of our growth KPIs. During 2016, we announced new
growth targets to the end of 2018. These are stretching
and ambitious and build on the growth and achievements
delivered to date.
Consumer business
The profitability of the core channels business has been
maintained, despite some weakening of the airtime
revenue market during 2016.
The consumer business has continued to deliver an
enhanced portfolio of consumer services, ‘the STV Family’.
This product set offers consumers multiple, complimentary,
free to consume, STV branded services, on air; online;
and on demand.
In early 2016, a new digital news platform was launched.
The iterative process of product enhancement and
improvement to ensure our services exceed the rapidly
evolving and increasing expectations of consumers will
continue in 2017.
The STV Player has had another successful year achieving
a record number of streams delivered in the final quarter
of the year.
A successful digital growth strategy, delivering strong
margin performance is supporting our strategic aim to
rebalance the business. 2016 was the seventh year of
consecutive growth in digital activities, now an established
core activity. We continue to make targeted investment
in digital growth initiatives, particularly to support the
data and insights strategy.
The unrivalled reach we hold across a range of platforms
will be extended in Q2 of 2017 with the launch of a new
GovernanceFinancial StatementsAdditional InformationStrategic Report 05
and innovative network, STV2. This development will
consolidate our strong market position and enhance our
unique ability to deliver mass audiences across platforms.
The launch of a new channel is an important landmark
for the Company. This will create new opportunities to
grow our share of the Scottish advertising market whilst
extending our appeal to a wider range of consumers. This
new network will build on the success of our existing City TV
services and will be delivered through a unique partnership
with academic partners. This is successfully providing
skills and development opportunities to strengthen our
future talent pipeline.
STV Productions
A strong rise in deliveries and new commissions continuing
to be secured resulted in a return to revenue growth for STV
Productions in 2016. Reflecting the trading performance
and growth projections of the business, a £2.8m write
down of the remaining goodwill balance has been made.
It was a welcome development during 2016 to begin to
realise opportunities from the development partnership
venture established with GroupM Entertainment. We will
continue to seek to maximise opportunities from this
relationship in the year ahead.
Through our continued investment in development, the
talented and highly creative team are well positioned
to build on this progress during 2017.
STV External Lottery Manager (STV ELM)
A significant development of 2016 was the launch of
The Scottish Children’s Lottery. This has been supported by
a new operating division of the Group, STV External Lottery
Manager (STV ELM). Further details are set out in the Report.
Shareholder returns
Since the introduction of a progressive dividend policy and
the return to dividends in 2013, we have delivered on our
commitment to increase returns to shareholders. Enabled
by the solid financial performance, strong cash generation
and the financial stability and certainty delivered through
the new pension deficit funding plan, I am pleased to
recommend a final ordinary dividend of 11 pence per
share, ahead of previous guidance.
This will result in a total dividend of 15 pence per share
(2015: 10 pence per share), an increase of 50% year on year.
We are committed to maximising returns to shareholders
and our dividend policy will aim to pay out between 60%
to 80% of cash generation after pension deficit funding.
board in December and holds considerable experience
across financial, commercial and manufacturing
businesses as a Company Director and chair. In June,
Genevieve Shore resigned from the board after four
years’ service and I would like to thank her for her
valuable contribution over this term.
A significant board change will take place in 2017 when
Senior Independent Director, David Shearer, will step
down following the AGM in April. Over the ten year
period that David has served on the board, he has made
an outstanding contribution as Senior Independent
Director and Chairman of the Audit Committee. His wise
counsel has been invaluable and his contribution to the
turnaround of the Company immense. We wish him
continued success in the future.
Delivering social investment
The strength of the connections held with our consumers
is evident through the extent to which they have
embraced and supported the STV Children’s Appeal. As
a leading Scottish based company, we believe we have a
responsibility to put something back into the communities
we serve. In 2016, the Appeal raised over £2.5m, taking
the total raised since launch in 2011 to nearly £14m.
With our partner, The Hunter Foundation, we have
invested all monies raised directly into projects across
Scotland, creating opportunities and improving prospects
for children across the country.
Growth momentum and new opportunities
Looking ahead, the Company has a clear strategy for
growth and delivery of value to our shareholders. 2017
will be a significant year for STV. We will mark our sixtieth
anniversary and celebrate the iconic place we have at the
heart of Scottish society whilst continuing to drive forward
with ambition. Our ability to innovate and develop new
consumer connections will be demonstrated through
the creation of a new network: STV2.
On behalf of the board, I sincerely thank our shareholders
for their continued support. As a creatively led business,
the contribution of our Leadership Team and staff across
the business is the key driver of our success. It is their
drive, energy and focus, under the stewardship and
direction of Rob Woodward, that has delivered another
solid performance and this contribution is recognised
and highly valued.
Your Company is in a strong position to achieve growth
and realise opportunities whilst responding to challenges
in the market during 2017.
Board changes
I was delighted to confirm the appointment of a new
board member in late 2016. Simon Miller joined the
Baroness Margaret Ford
Chairman
STV Annual Report and Accounts 2016 06
Financial Statements
Additional Information
Chief Executive’s review – Group
COMMERCIALLY
FOCUSED
CREATIVELY
LED
Throughout the year, STV’s position as Scotland’s leading
digital media business continued to strengthen as we
delivered against our strategy to drive sustainable
organic growth.
This growth strategy is underpinned by a continuing
and relentless focus on the KPIs. At our half year results
in 2016, a new set of stretching targets were unveiled
setting out our ambitions to 2018.
Following extensive negotiations, we confirmed terms
with ITV plc for a new airtime sales agreement. The new
agreement provides increased efficiency, transparency
and stability for the management of STV’s airtime and
sponsorship sales.
Further to this, we reiterated our KPI target to achieve
30% of earnings from non-broadcast activity. In 2016, we
achieved a 23% non-broadcast earnings share, the highest
share since we introduced this ambition and a solid base to
build on as we progress towards our aim of 30% by 2018.
Non-broadcast earnings share
(%)
Why it’s important
Our strategy is to diversify the Group’s earnings
from being over 90% driven by broadcast to a
more broadly balanced base.
How we measure it
It is calculated as non-broadcast operating profit,
from digital, productions, music publishing and
telephony income, divided by total operating
profit and expressed as a percentage.
21%
22%
23%
19%
30%
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
“ Data, a key component
of delivering the STV Family
of products to multiple users,
increased to 2.1 million
insights… an increase
from 1.6 million in 2015.”
Rob Woodward Chief Executive Officer
GovernanceFinancial StatementsAdditional InformationStrategic Report 07
STV in numbers
STV continues to engage with
94% of Scots each month
through the STV Family
STV reaches
3.5m
viewers each month
on channel 3
20.6m
long form streams
in 2016
2.1m
consumer insights
achieved
City TV reaches
759,000
viewers per month
STV Player available on
14
platforms
STV Children’s Appeal
raises over
£2.5m
in 2016
STV Annual Report and Accounts 2016 08
2016 a year of achievements
STV continues to strengthen
its position as Scotland’s leading
digital media business with
another successful year delivering
sustainable organic growth
1
January
1 Two new entertainment shows,
Live at Five and The Late Show, launch
on STV Glasgow & STV Edinburgh
February
Full Year Results unveil fifth
consecutive year of growth in
pre-exceptional pre-tax operating profit
A second series of Safeword
commissioned for ITV2
STV Player launches in Freeview Play
5
March
2 RMS Queen Mary’s maiden voyage
commissioned for BBC Scotland,
BBC Four & Smithsonian Channel
Launch of digital news services –
‘the home of Scottish news’
April
STV Glasgow & STV Edinburgh
move up the EPG to channel 8
May
3 Reality TV series Tour de Celeb
is commissioned for Channel 5
4 2016 Homeless World Cup
announces STV as its home broadcaster
June
5 STV brings viewers extensive
coverage of Euro 2016
3
2
4
GovernanceFinancial StatementsAdditional InformationStrategic Report 6
8
Nearly
£14 million
raised by the
STV Children’s Appeal
since launch
7
9
09
July
City TV unveils extensive coverage
of the Edinburgh Festival
6 A brand new series of Paul & Nick’s
Big American Food Trip returns to STV
7 Ultimate Celebrity Power Couples ‘16
is commissioned by Channel 5
August
New KPI growth targets to 2018
confirmed at Half Year Results
STV switches off its channels to
encourage Scots to get active for
‘I am Team GB’
STV Productions and GroupM
Entertainment commissioned by
UKTV’s W to make The Dressing Room
September
8 Lorraine Kelly announces £2,568,369
raised by STV Children’s Appeal 2016
STV News Tonight unveiled
October
9 Scotland Tonight celebrates
five years on air
The Scottish Children’s Lottery
is launched
November
STV broadcasts England v Scotland
qualifier match live from Wembley
December
Airtime Sales Agreement is confirmed
with ITV plc
STV Group plc confirms a deficit funding
plan has been agreed with the trustees
of the Company’s defined benefits
pension schemes
STV Annual Report and Accounts 2016 10
Chief Executive’s review – Consumer
EXTENDING
REACH AND
ENGAGEMENT
The consumer business has
continued to perform well in
2016 with the margin exceeding
its KPI target of 18% and delivering
18.5%, an 11 year high.
us to serve our audience with relevant content and
creates targeted opportunities for advertisers.
City TV
It was confirmed in March that STV Glasgow and STV
Edinburgh would move to a more prominent position
at channel 8 on the Freeview EPG. The move followed
the transition of BBC Three to a fully online service.
Data, a key component of delivering the STV Family
of products to multiple users, increased to 2.1 million
insights against a target of 2.4 million, an increase from
1.6 million in 2015.
STV’s data strategy is predominantly driven by the
STV Player as we gain a greater understanding of
our consumers and their preferences. This allows
STV Glasgow and STV Edinburgh continued to establish
an audience with an average reach of 759,000 viewers
per month. This fell short of the KPI of a target audience
of one million viewers per month, however, the channels
achieved their highest average audience on Hogmanay
with an audience over 100,000 viewers and by December,
the volume of streams on the STV Player for City TV
content had increased 59% year on year.
Consumer division margin
(%)
Consumer insights
(millions)
Why it’s important
Margin improvement across the period provides
evidence of profitable growth.
How we measure it
It is calculated as underlying operating profit
divided by turnover and expressed as a percentage.
Why it’s important
Understanding the demographics, tastes and
preferences of our consumers is key to developing
successful consumer services.
How we measure it
It is the number (in millions) of unique consumer
records held on our consumer database.
17.8%
17.8%
18.4%
18.5%
20.0%
2.6m
2.1m
1.6m
1.0m
0.6m
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
GovernanceFinancial StatementsAdditional InformationStrategic Report 11
The channels did not meet their 2016 consumer
engagement target to engage viewers for 10 minutes
per day but the schedule continued to evolve with
new programmes added throughout the year.
A new daytime magazine show launched at the start of
2016. Live at Five is broadcast from the studios at Pacific
Quay in Glasgow each weeknight evening with a mix of
lively and engaging local features from the East and
West of Scotland.
As part of an ongoing commitment to broadcast
local sport for audiences, STV Glasgow and STV
Edinburgh broadcast a series of boxing matches
throughout the year. Further to this, in May the city
channels were announced as the home broadcaster
for the 2016 Homeless World Cup. STV Glasgow and
STV Edinburgh showed live matches daily, with viewers
also getting the chance to watch the highlights in two
programmes on STV.
Throughout summer, the city channels provided live
and extensive coverage from the Edinburgh Festival. The
festival coverage reached 412,000 on the city channels
and STV with live guests and features each day from the
heart of the capital.
The city channels continued the commitment to deliver
foreign language programming with 1920. War and Love,
a 13-part subtitled Polish drama, broadcast following
the success of Czas Honoru.
With the addition of three new licences for Aberdeen,
Ayr and Dundee, the services will rebrand and relaunch
as STV2 in spring 2017. STV2 will be available on Freeview,
Sky and Virgin in the broadcast areas and be streamed
online via the STV Player.
On demand
The STV Player launched in Freeview Play in February
and Freesat in October as we continue to enhance our
multi-platform presence and make our content available
free of charge wherever viewers choose to watch it.
Consumer reach
(monthly average millions)
Why it’s important
These measures indicate the breadth of the
consumer base of each service in the STV Family.
How we measure it
It is the monthly average audience in millions
from sources including BARB and Adobe Analytics.
STV audience
3.6m
3.6m
3.6m
3.5m
3.5m
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
City TV
1.3m
0.8m
0.8m
0.6m
n/a
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
STV Player
1.3m
0.7m
0.6m
0.6m
0.5m
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
The STV Player is now available on 14 platforms,
including iPhones and iPads, Android tablets and
smartphones, Windows 8, Windows Phone, Samsung
Smart TVs, YouView set-top boxes, Xbox 360 consoles,
Amazon Fire TV, Freeview Play, Kindle Fire tablets and
via player.stv.tv.
stv.tv
3.0m
4.2m
4.4m
3.6m
3.6m
Total long form streams across the year on the STV Player
were 20.6 million, a 40% increase year on year, but short
of the target of 21 million. The number of live streams
were up 68% and catch-ups increased 33% in the same
period. The Player reached 2 million downloads and
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
STV Annual Report and Accounts 2016 12
Chief Executive’s review – Consumer
The STV Player is now available
on 14 platforms… total long form
streams across the year on the
STV Player were 20.6 million,
a 40% increase year on year
exceeded its consumer engagement target with viewers
watching for 46 minutes per day against a target of 41
minutes, showing continued strong growth.
The digital margin exceeded target at 52%, up from
48% in 2015, with revenues of £7.9 million against a
target of £10 million.
On air
STV continues to provide viewers with original content
with a range of shows for Scottish audiences and for the
seventh consecutive year achieved the KPI to outperform
the network.
STV continues to reach 3.5 million viewers each month
on channel three with viewers engaging for 39 minutes
each day, just short of the 2016 target of 41 minutes
per day. In 2016, STV aired 47 of the top 50 best watched
programmes on commercial television and was the most
watched commercial channel in Scotland.
Jackie Brambles returned to STV with a new series of
Stopping Scotland’s Scammers. Sponsored by The Royal
Bank of Scotland, the second series offered practical help
and advice from experts on how to avoid scams and
reached over 1 million viewers across four episodes.
In August, another popular STV cooking show returned.
In Paul & Nick’s Big American Food Trip, the chefs stopped
off in eight different culinary locations across the U.S. to
meet local producers and learn more about the history
of the Ulster-Scots from their descendants.
Digital margin
(%)
Why it’s important
Margin improvement across the period
provides evidence of profitable growth.
How we measure it
It is calculated as operating profit divided
by turnover and expressed as a percentage.
Digital revenues
(£ millions)
Why it’s important
Digital revenue growth is a key strategic objective
and this measure tracks its delivery.
How we measure it
It is the value of digital revenues generated
from the STV Family of services.
52%
55%
48%
11.4m
30%
32%
7.9m
6.6m
5.3m
4.3m
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
GovernanceFinancial StatementsAdditional InformationStrategic Report 13
The market for STV Consumer services
Reaching Scotland
In a country where the average person
watches over 4 hours of TV each day,
seven in ten own a smart phone and over
half (56%) have a tablet, STV is well placed
to super serve consumers with a range
of content across multiple devices
MAXIMISING REACH
AND ENGAGEMENT
3 STV viewers spend an average 1 hour 42 minutes watching STV each day
3 STV is the most watched commercial channel in Scotland
3 The STV Player achieved 20.6 million long form streams in 2016
3 60% of population use at least three STV services each month
3 2.8 million newsletters are sent to STV subscribers each month
Monetising Consumer engagement
The STV
business
model
STV Consumer
Delivers unique, high quality content to
attract mass audiences which are sold
to advertisers to generate revenues.
This content is delivered across multiple
platforms. The business aims to use its
unique content to create communities
of interest and to engage consumers.
Measurement
The key corporate KPIs are used to monitor
and measure the progress of each division
in fulfilling its strategy.
STV Annual Report and Accounts 2016 14
Chief Executive’s review – Consumer
Peak time audience
(v ITV Network)
Why it’s important
Our programme strategy results in more Scottish
based content appearing on screen and it is
important that an audience share is delivered
at least equivalent to that of the ITV Network.
How we measure it
Peak audience (18:00 – 22:30) for all adults
is compared to the ITV Network.
+1.5
share
points
+0.3
share
points
+0.2
share
points
+0.2
share
points
2013
Actual
2014
Actual
2015
Actual
2016
Actual
Long form video streams
(millions)
Why it’s important
Video streams are a key advertising currency and are
directly related to generating advertising revenues.
How we measure it
Using analytical tools, the number of video streams
across all platforms can be identified and collated
and this is the annual total in millions.
21m
16m
14m
11m
2013
Actual
2014
Actual
2015
Actual
2016
Actual
n/a
2018
Target
STV aired an extensive line-up of live games of the Euro
2016 tournament live from France with further coverage
on the STV News app and stv.tv. Euro 2016 reached
3.3 million across the tournament with an average
audience of 552,500 viewers.
This is Scotland returned to STV with two brand new
documentaries by upcoming, Scottish filmmakers. The
new talent initiative, run by the Scottish Documentary
Institute (SDI) in association with Creative Scotland offers
a unique opportunity to produce a documentary for
broadcast in peak time on STV. This year’s commissioned
filmmakers were Paul Fegan with Are You Dancing? and
Iain Mitchell with Black Rat Island.
Live football proved popular once again with the England v
Scotland World Cup qualifier match drawing an audience
reach of 1.6 million in November, making it the most
watched programme of the year. The match was
supported with a series of special preview programmes
on STV Glasgow and STV Edinburgh each weeknight in
the build-up to the match.
On Hogmanay, STV broadcast a New Year’s programme
made by independent producer Solus Productions with
Lorraine Kelly welcoming Judy Murray, Eileen McCallum,
Jenni Falconer and Stevie McCrorie to join her onboard
the HM Frigate Unicorn in Dundee.
STV News
STV News at Six outperformed BBC1 News at Six in
December 2016, reaching 423,000 and 27.4% share,
whilst BBC One reached 421,000 with a 27.2% share,
making it the first time in 2016 that the STV News’
share was higher than BBC One’s.
STV’s position as ‘the home of Scottish news’ was
reinforced with the launch of an enhanced online
news service that combines international, national and
local news and up-to-the-minute weather reports with
the personality, quality and reliability of our existing
services. The launch recognises the changing needs of
our consumers and recognises a desire to access the STV
News that they can trust on-air, on demand and online.
The app is a go-to service for up to the minute news and
information and has 28,000 active daily users, an increase
of 22% on the previous year.
GovernanceFinancial StatementsAdditional InformationStrategic Report 15
stv.tv engages with 3.6 million browsers each month
with an average three minutes spent on the site, half
of the KPI target of six minutes.
Consumer engagement
(mins per day per user)
In spring, STV broadcast a comprehensive schedule of
programmes ahead of the Scottish Parliament elections,
including a live debate featuring the five Scottish party
leaders and an overnight results programme.
In September, STV announced its intention to launch STV
News Tonight in spring 2017. The landmark new service for
Scotland will offer a comprehensive service of Scottish, UK
and international news from a Scottish perspective and
delivered with the trademark STV News values. STV News
Tonight will be the flagship news programme on STV2.
The delivery of a news programme of this format
from Scotland will be a UK first and represents the next
enhancement to STV’s extensive cross platform news and
current affairs offer. The programme will be produced and
broadcast from Glasgow using STV’s resources from across
Scotland and ITV’s international and UK news resources.
Why it’s important
These measures indicate the depth of the consumer
base of each of the services in the STV Family.
How we measure it
It is the average minutes per day that consumers
spend on each service sourced from BARB and
Adobe Analytics.
STV audience
41 mins
41 mins
40 mins
39 mins
41 mins
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
Popular current affairs programme Scotland Tonight
celebrated five years on air. The programme has
established itself as the most watched Scottish
current affairs programme.
City TV
10 mins
STV announced its intention
to launch STV News Tonight…
a comprehensive service of
Scottish, UK and international
news from a Scottish perspective
n/a
2013
Actual
2 mins
2 mins
2014
Actual
2015
Actual
1 min
2016
Actual
2018
Target
STV Player
56 mins
60 mins
46 mins
46 mins
37 mins
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
stv.tv
6 mins
3 mins
3 mins
2 mins
2 mins
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
STV Annual Report and Accounts 2016 16
Showcase of content
GovernanceFinancial StatementsAdditional InformationStrategic Report 17
STV Annual Report and Accounts 2016 18
Chief Executive’s review – Productions
BUILDING
A CREATIVE
BUSINESS
OF SCALE
STV Productions returned to revenue
growth during 2016 securing a
number of new commissions
and recommissions.
The business delivered 53% growth on the previous year
with revenue up at £12.7 million, falling short of the KPI
target of £23 million reflecting a shortfall in deliveries.
A margin of 1% was delivered against a KPI of 7% for the
period. During the year, a £2.8m provision for impairment
was recognised against the carrying value of goodwill to
reflect the trading performance and growth projections
for the business.
STV Productions’ commissions and recommissions
were secured across a range of genres, particularly
entertainment, documentaries, popular factual
and daytime.
The most recent series of
Catchphrase to air in a prime
time ITV slot attracted average
audiences of over 3 million
and reached an impressive
13.3 million viewers
throughout the series
Production revenue
(£ millions)
Why it’s important
Increasing production revenues is a key strategic
aim which increases the diversification of the
Group’s revenue sources.
How we measure it
It is the value of revenues generated from external
commissions, secondary sales and ancillary income.
20.0m
13.5m
13.3m
12.7m
8.3m
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
GovernanceFinancial StatementsAdditional InformationStrategic Report 19
In March, a new documentary was announced to mark
the 80th anniversary of the legendary ocean liner the
RMS Queen Mary’s maiden voyage, in a co-production
for BBC Scotland, BBC Four and Smithsonian Channel.
With exclusive access to the magnificent ocean liner
and an extensive archive of film and photographs,
the documentary, which aired in May, explored the
action-packed life of the Clyde-built ship. In its August
transmission, The Queen Mary: Greatest Ocean Liner was
the best watched programme on BBC Four that month
and the third best watched documentary on the channel
across the year.
At the Edinburgh International Television Festival in
August, it was confirmed that STV Productions had been
commissioned to make a two part documentary for BBC
Two, fronted by broadcaster and former BBC political
editor, Andrew Marr. Scotland and the Battle for Britain
aired in September on the second anniversary of the
referendum on Scottish independence.
Three further single documentaries were secured in
2016. Dunblane: Our Story commemorated the 20th
anniversary of the Dunblane tragedy with a landmark
documentary for BBC Two and BBC Scotland. The Paper
Thistle: 200 Years of the Scotsman was delivered for
a January 2017 transmission.
For STV, an hour-long programme featuring Scot
Alan Cumming was commissioned. Supported by
Visit Scotland, the programme follows the actor on
a tour of the Outer Hebrides and aired in early 2017.
STV Productions’ strategic
partnership with international
media company GroupM
Entertainment continues
to flourish with a number of
co-productions commissioned
Entertainment
A successful returning entertainment format is
Catchphrase with a further series confirmed in October
with transmission later this year. The most recent series
of Catchphrase to air in a prime time ITV slot attracted
average audiences of over 3 million and reached an
impressive 13.3 million viewers throughout the series.
STV Productions’ strategic partnership with international
media company GroupM Entertainment continues to
flourish with a number of co-productions commissioned,
including The Dressing Room for UKTV’s entertainment
channel, W. The six part fixed-rig series will debut in 2017.
The non-exclusive partnership sees the two companies
working to co-invest, co-develop and co-produce ideas in
a broad range of genres including entertainment, factual
entertainment, daytime, popular factual and drama.
GroupM also co-produced a data-based countdown show
exploring the phenomenon of the celebrity power couple.
Ultimate Celebrity Power Couples ’16, a two hour special,
aired on Channel 5 in July.
Returning entertainment formats included Safeword, also
a co-production with GroupM Entertainment. In February,
a second series of the gameshow was announced for
ITV2 with six 45-minute episodes airing in June. The series
was nominated for a National Reality TV Award achieving
an average audience of 331,000 across the second series
and performing well with its target 16-34 age group.
Documentaries
In documentaries, a second series of Prison: First & Last
24 Hours was commissioned in April and transmitted
in October on Sky 1. Once again, the series focused on
groups of prisoners on two nerve-wracking days: those
starting the first day of their jail sentence, and those
experiencing their final 24 hours before liberation.
STV Annual Report and Accounts 2016 20
The market for STV Productions services
Diversification of genres
STV Productions continues to secure
commissions across a number of genres
for a variety of channels, including a prison
documentary series for Sky 1, entertainment
show Catchphrase for ITV and a specialist
factual programme, Tree of the Year,
for Channel 4
A WORLD OF
POSSIBILITIES
3 STV Productions continues its strategic partnership with
GroupM Entertainment to co-invest, co-develop and
co-produce ideas across a broad range of genres
3 The BBC is STV Productions’ biggest client with the 14th series
of Antiques Road Trip recently transmitted on BBC One
3 A further series of Catchphrase has been commissioned
for ITV with the most recent series reaching 13.3 million
viewers throughout the series
Monetising Productions output
The STV
business
model
STV Productions
Creates and produces high quality content
for broadcast networks in the UK and
overseas. Profit is made on initial sale
and on the exploitation of back end rights
in the UK secondary and overseas markets.
Measurement
The key corporate KPIs are used to monitor
and measure the progress of each division
in fulfilling its strategy.
GovernanceFinancial StatementsAdditional InformationPage headingStrategic Report 21
The fourteenth series of ART
aired in early 2017 achieving
the highest ratings of any
series to date
Popular factual and features
In factual, successful four-part series Tour de Celeb
was commissioned by Channel 5. This followed eight
celebrities as they prepared for the toughest physical
and mental challenge on TV and in the amateur cycling
world, L’Etape du Tour in France.
Also in the specialist factual genre, Tree of the Year was
broadcast on Channel 4 in December presented by Ardal
O’Hanlon. The one-hour programme, in conjunction with
the Woodland Trust, announced the winners of 2016’s
Tree of the Year competition, revealing the four national
winners chosen by the public in an online poll and, in a
first for the competition, the overall winner of UK Tree
of the Year awarded by an expert panel.
In daytime, Antiques Road Trip (ART) and Celebrity
Antiques Road Trip (CART) continue to prove popular on
BBC One and BBC Two respectively. The fourteenth series
of ART aired in early 2017 achieving the highest ratings
of any series to date. The sixth series of CART aired in
late 2016, featuring high profile celebrities including
Jennifer Saunders and Zoe Ball.
STV Productions continues to work with international
partners, including Red Arrow International, Passion
Distribution, DCD Rights, Sky Vision and DRG, to secure
programme and format sales around the world.
Production margin
(%)
Why it’s important
Margin improvement across the period provides
evidence of profitable growth.
How we measure it
It is calculated as underlying pre-exceptional
operating profit divided by turnover and expressed
as a percentage.
6%
5%
3%
3%
1%
2013
Actual
2014
Actual
2015
Actual
2016
Actual
2018
Target
STV Annual Report and Accounts 2016 22
Chief Executive’s review – STV External Lottery Manager
The Scottish Children’s Lottery…
will invest in projects aimed
at promoting and supporting
the development and potential
of children and young people
in Scotland
A new Group company was established in 2016 – STV
External Lottery Manager (ELM) Limited. STV ELM will
deliver the Scottish Children’s Lottery – a value enhancing
socially driven investment created to raise funds to
support children in Scotland.
Scottish Children’s Lottery
The Scottish Children’s Lottery is a charitable society
lottery. Launched in October 2016, it will invest in projects
aimed at promoting and supporting the development
and potential of children and young people in Scotland.
Charitable society lotteries are a widely used and effective
way of raising significant funds for good causes. Through a
weekly online lottery, proceeds from the Scottish Children’s
Lottery will be invested in a wide range of local projects.
Each week, the winning numbers are drawn on air on STV
and city channels STV Glasgow and STV Edinburgh, with
a £25,000 jackpot and raffle prizes available.
Structure
Inspired by the success of the STV Children’s Appeal, STV
enabled the set up of four charitable societies to support
increased impact and scale of fundraising. These four
societies are:
• Chance to Flourish which will support early years’
intervention;
• Chance to Study which will support projects in
education and health;
• Chance to Connect which will promote employment,
skills and employability;
• Chance to Succeed which will promote community
development and citizenship.
The Scottish Children’s Lottery is the umbrella brand
name under which the four charitable societies operate.
Each charitable society is overseen by an independent
board of trustees who are responsible for operating the
charitable societies in accordance with the terms of the
licences awarded and regulated by the UK Gambling
Commission. The STV Children’s Appeal will act as a
distribution partner for the Scottish Children’s Lottery,
supporting the identification of projects and charities
that would benefit from the award of lottery funding.
Donating to good causes
A guaranteed 30p of every £1 ticket sold is donated
to good causes with the remaining proceeds allocated
to lottery prizes, marketing and operations. The Scottish
Children’s Lottery engages the services of STV ELM to
deliver the lottery product to consumers.
It is anticipated that the Scottish Children’s Lottery will
become self funding and, having financially supported
the creation of the four charitable societies, STV will
recoup its initial £5.4m cash investment from the future
cash generation of the lottery. This recoupment of the
investment is expected to begin in 2018.
This investment will enable the Group to generate
more and improved consumer data and insights and
develop its skills, capabilities and resources in data
analysis and management.
Following a comprehensive marketing campaign,
the Scottish Children’s Lottery has been launched into
a competitive market, with initial feedback* confirming
a position response to the unique opportunity provided
by the Scottish Children’s Lottery to support children
in Scotland.
* ScotPulse surveyed 1177 adults with results weighted
to reflect the Scottish adult population.
GovernanceFinancial StatementsAdditional InformationStrategic Report 23
STV Annual Report and Accounts 2016 24
Corporate responsibility
The creativity and commercial focus
of our people is the driving force
behind the success of the Company.
Our people strategy is based upon
our Company values, the STV Way.
To further enhance management capability across
the Company, a new programme, Leading: The STV Way,
has been introduced. Aimed at the wider management
population, 24 staff have commenced this programme,
beginning their learning journey using psychometric
profiling to create a personal development plan which
is progressed through the programme.
A successful programme of ‘Spotlight on’ sessions,
featuring five different areas of the business, were
delivered in 2016. These sessions enable staff to gain a
deeper understanding of the priorities of other business
areas encouraging collaboration and improved inter-
Company communication and understanding.
A programme of internal work experience placements,
designed to provide staff with an immersion experience
of working in a different area of the business, has
continued in 2016 with one fifth of permanent staff
undertaking a ‘job drop’.
The ‘Tomorrow’s World’ programme has continued to
provide focus on media trends shaping and changing
the industry and identifying opportunities to embrace
innovation to improve our consumer services. This
programme included a ‘Hack Day’ with the product
development function which provided a forum for rapid
development of solutions to address five enhancements
to the Company’s consumer services and wider
business challenges.
Rob Woodward
Chief Executive Officer
The STV Way defines the behaviour and actions that
everyone within the business is expected to embrace
as they progress their goals and objectives and develop
their careers with the Company.
Based upon the STV Way – to be bold, to stand together;
and to strive to surprise – an extensive programme of
activities is delivered to increase engagement whilst
supporting our people in fulfilling their potential and
delivering effectively in their roles. Activities delivered
during 2016 include learning and development and
knowledge sharing; employee engagement and opinion
surveys; business improvement discussion forums;
activities to support staff in achieving ‘Healthy Working
Lives’; and compensation and benefits.
STV Learning
A comprehensive programme of learning and career
development activities has been delivered for staff
during 2016 through STV Learning.
This has provided opportunities for staff in all areas
of the Company ranging from a leadership development
programme to informal drop in sessions designed to
gain an insight into different areas of the business.
The STV Way Leadership Development Programme
commenced in late 2014. To date 35 senior managers
have embarked on this modular programme delivered in
conjunction with an executive coach and the University of
Edinburgh Business School. The programme will continue
in 2017 and is enhancing the capability and knowledge
base of senior managers and strengthening the
succession and talent pipeline of the Company.
GovernanceFinancial StatementsAdditional InformationStrategic Report 25
Rewarding success
Remuneration is benchmarked and determined against
a UK-wide media industry peer group. This approach
has provided a transparent grading and remuneration
banding framework against which all roles are evaluated
relative to a peer group within STV and across the wider
industry sector.
Base salary levels increased by an average of 1.5% in 2016.
This was applied through an ‘across the board’ award
following three years of differentiated salary awards
depending on each employee’s position in their salary
grade relative to the market rate. This approach had been
applied to address the proportion of staff positioned
on salary bands below the market rate for their role,
a situation exacerbated by a previous phase of salary
restraint during the economic downturn. This situation
has now been fully addressed and the Company has a
standard distribution of salary levels across each grade.
The remuneration structure in place continues to enable
the Company to achieve its goals of delivering market
competitiveness, supporting retention and enabling
employees to share in successful business performance.
The Company is accredited as a Living Wage employer
and has signed up to the Scottish Business Pledge, having
met the criteria for all nine components of this standard.
As the Company’s growth strategy has progressed during
2016, external recruitment has continued to build capacity
in key growth areas of activity. Overall there has been an
increase of 4% in permanent staff, testing the market
competitiveness of the Company’s salary and benefits
structure which has continued to attract staff of a
consistently high calibre.
Developing the Young Workforce
and investing in skills
The Company continues to develop close relationships
across secondary, further and higher education to support
the development of future talent to the industry and to
support the Company’s future resourcing requirements.
A commitment to provide career insight opportunities
for school pupils has continued through the delivery
of a broad programme of sessions involving secondary
schools aimed at providing an insight to the world
of work. Through the Company’s commitment to
Developing the Young Workforce in Scotland, a formal
partnership has been established with a secondary
school in Glasgow as part of an initiative to partner every
secondary school in the city with an organisation. This
has enabled staff to volunteer to make a contribution to
develop links between STV and school pupils to provide
them with a greater appreciation of career opportunities
within the creative industries and more generally, to
support the development of employability skills.
Relationships are being developed with a network of
colleges and universities across Scotland through an
innovative strategic partnership formed to deliver the
Company’s new channel, STV2. To date this partnership
has provided over 400 week long work placements
with STV Glasgow and STV Edinburgh. Through these
partnerships, students are being provided with
opportunities to develop their skills in a live broadcast
and production environment and engage with
consumers, particularly through social media.
The Company continues to be a significant employer
of freelance talent in the television production sector
in Scotland. Each month, an average of 70 freelance
employment opportunities have been created across
STV Productions, STV Creative and STV news and current
affairs output during 2016. This investment is contributing
to creating more stable employment opportunities for
freelance staff working in television production in
Scotland, supporting a larger talent pool and making
a positive impact to the creative economy of Scotland.
A number of programmes supporting alternative entry
routes to the industry have been provided, including
apprenticeships in Digital Journalism and Engineering.
STV Annual Report and Accounts 2016
26
Corporate responsibility
Employee engagement
STV Pulse, the Company’s employee engagement tool,
has been used to conduct an extensive engagement
survey during 2016. The participation level was 86%,
in line with the Company’s target level and above
benchmarks for the sector.
This ‘pulse’ style employee opinion survey is designed to
provide staff with regular opportunities to express their
views and opinions whilst providing the Company with
a tracking and measurement tool. The STV Pulse also
tracks employee perceptions of the extent to which the
employee values: to be bold; stand together and strive
to surprise, are being applied.
Regular staff briefings are held by the Leadership Team
to promote increased understanding and awareness of
the wider business amongst staff and provide further
opportunities for staff to have their say. The senior
management forum, comprising the staff responsible
for key growth and revenue targets, meets on a monthly
basis to encourage collaborative working and facilitate
the acquisition of knowledge of future trends impacting
the sector.
The Chief Executive Officer conducts regular all staff
sessions to provide updates on business performance,
strategy and developments affecting the business, and
to obtain feedback and suggestions on the development
and growth of the business.
The partnership relationship with the trade unions
recognised by the Company for the purposes of
collective bargaining has continued to develop
and progress during 2016.
Diversity and inclusion
The Company is committed to a culture where everyone is
treated with dignity and respect and has the opportunity
to deliver their full potential. Policies to ensure that the
Company engages effectively with audiences and
consumers and attracts a diverse pool of creative talent are
monitored on an ongoing basis. The aim of these policies
is to ensure that all employees and potential employees
are treated in a fair and equitable manner regardless of
their age, disability, marital status, family responsibility,
race, colour, ethnic background, nationality, religion or
belief, gender, gender identity or sexual orientation.
A diverse workforce enables the Company to respond
better to and reflect our audiences and consumers
in all their diversity and it is important that a working
environment is created which enables our employees
to thrive and achieve their full potential.
A number of registered disabled persons are employed,
all of whom have had equivalent access to training and
career development opportunities as their able-bodied
colleagues. No employees became disabled during the
course of their employment in 2016.
Equal opportunities
The Company is fully committed to fostering talent
and supporting people from all backgrounds who wish to
progress, however, appointments and promotions are and
will continue to be made based on merit and in line with
the skills and attributes identified for each post, including
those identified by the Nomination Committee for the
Board. Overall, the Company is committed to appointing
the best available person to a role, regardless of gender.
STV has chosen not to target a specific number or
percentage of women for its Board, but to concentrate
its efforts on encouraging more women to remain within
the Company and progress through the ranks to senior
positions. Three of the 10 members of the Leadership
Team are female as is the Company Secretary and as
at 31 December 2016, 46% of staff were female.
Modern Slavery Act
The Company is confident that within its operations,
and more widely across the relationships held with
suppliers with whom we engage and partner to deliver
our services, we comply with the requirements of the
Modern Slavery Act in all aspects of human rights.
Health and Safety
STV is committed to compliance with all workplace
health and safety laws and regulations, to provide
a safe and healthy working environment. Employee
health and accidents are monitored closely and health
promotion programmes designed to reduce health
risk and enhance employee well-being are regularly
undertaken. A proactive approach to improve the
Company’s management documentation systems,
to provide suitable and sufficient information,
instruction, training and supervision is in place.
GovernanceFinancial StatementsAdditional InformationStrategic Report 27
First Aid training refreshers are carried out on a rolling
basis and we have a full complement of 48 first aiders
located throughout STV sites. There are defibrillators on
site at Pacific Quay and Craigshaw and 12 of our staff
are trained in their use.
STV has a proactive and responsible attitude towards
occupational road risk management with clear procedures
in place that are reviewed regularly so that they remain
appropriate and to a high standard. Driving standards and
rules are communicated to staff through STV’s Drivers
Manual and this helps maintain the Company’s low
accident rates.
We have continued to place our News and Creative
teams on safety training with a Chartered Health
and Safety Consultant who specialises in media safety
training. A total of 17 staff this year have completed the
safety training. In addition, two members of our News
team attended Hostile Environment Training, focusing
on improving medical knowledge and judgement when
under pressure. The course was developed in response
to journalists’ experiences and requirements in the field.
Total vehicle accidents
Number attributable to driver error
2016
2015
2014
14
7
13
8
11
6
Our environment
STV recognises that its day-to-day activities can, and
do, have an effect on the environment. The Company’s
environmental policy is aimed at reducing impacts
on the environment and is part of the culture of the
business. The Company is committed to the continuous
improvement of its environmental performance and
the reduction of pollution.
Throughout 2016 we have again been able to recycle
100% of our waste (with the introduction of RDF via our
waste management contractor), resulting in no waste
being diverted to landfill.
STV’s Green Travel Plan at the Glasgow headquarters
encourages staff to use more sustainable means of
transport to commute. To promote cycling, shower
facilities, cycle parking and lockers are provided for
employees. A car sharing initiative, matching up
employees living in the same area, enabling them
to travel to work together is managed and there are
currently 43 members of staff taking part in this initiative.
During 2016, STV continued recycling old mobile phones
via ICT Reverse, who uplift all redundant mobiles and
recycle them. During 2016, 27 handsets were recycled
by STV and the cheque received from ICT Reverse was
subsequently donated to the STV Children’s Appeal.
Percentage attributable to driver error
50% 62% 54%
Additional info:
Health and Safety performance in 2016
STV reports work-related accidents, diseases and
dangerous occurrences in compliance with the
Reporting of Injuries, Diseases and Dangerous
Occurrences Regulation 1995 (RIDDOR). Analysis of
the causes of accidents provides valuable information
for implementing improvements, if and when required,
in working practices and procedures.
The Facilities Manager is the designated senior
manager responsible for health and safety matters.
Seven-day reportable accidents
Total of all accidents
2016
2015
2014
0
11
0
11
1
7
• The electric car charging bays that were installed are
proving very successful and are utilised every day by
approximately 6 staff and we continue to promote
use of electric vehicles throughout the business
• Since enlisting the assistance and guidance from ESOS
(Energy Savings Opportunity Scheme) during 2015
STV has taken on many of their recommendations
to lower our CO2 emissions
• We have reviewed STV pool vehicles and leased
vehicles and new vehicles will be of a lower CO2 rating
STV Annual Report and Accounts 2016
28
Corporate responsibility
Reporting greenhouse gas emissions
Assessment parameters
Boundary summary
All entities and all facilities either owned or under operational control were included
Materiality threshold
Materiality was set at 5%
Intensity ratio
Emissions per £m of revenue
FY2016
FY2015
Greenhouse gas emission source
(tCO2e)
(tCO2e/£m revenue)
(tCO2e)
(tCO2e/£m revenue)
Scope 1
Scope 2
Statutory total (Scope 1 & 2)
501.46
2,039.95
2,541.41
4.16
16.94
21.10
454.43
2,105.27
2,559.70
3.90
18.07
21.97
Scope 1: emissions from activities and sources we own and control e.g. cars.
Scope 2: emissions associated with our consumption of purchased electricity, heat, steam and cooling, heating offices etc.
Explanations
SCOPE 1 Travel
Increase in the travel emissions due to:
• Increased travel for Productions from 2015 –
Tour De Celeb (international travel), Dressing Room,
Antiques Road Trip and Celebrity Antiques Road Trip.
SCOPE 2 Energy
There has been an overall decrease in energy usage
throughout 2016, although certain sites have seen
an increase, for example:
• Electricity usage has increased in Edinburgh and
Aberdeen with increased staff and productions
in operation (The Late Show, STV Edinburgh)
Electricity usage has decreased in Glasgow and
Balmore with the help of more lighting replaced with
LED lights (rather than halogen) resulting in lower
energy consumption.
The Building Management System (‘BMS’) programming
has been refined to minimise the use of electricity also.
Waste
Biffa recycle 100% of any of our waste via RDF
(refuse derived fuel), so no waste is going to landfill.
GHG emissions statement
STV has reported on all of the emission sources required
under the Companies Act 2006 (Strategic Report and
Directors’ Reports) Regulations 2013.
These regulations require us to state the annual
emissions in tonnes of carbon dioxide:
i) from activities for which we are responsible, including
the combustion of fuel and the operation of our
facilities; and
ii) resulting from the purchase of electricity, heat, steam
or cooling by us for our own use.
There is no prescribed methodology under the regulations,
but the independent standard we have chosen to use
in order to ensure effective emissions management
and transparency in reporting, is the UK Government’s
Environmental Reporting Guidance (2013 version).
STV must also express its emissions by way of an intensity
ratio to allow the comparison of our performance over
time and also with other similar types of organisations.
GHG emissions are to be reported as a gross figure in
tonnes of CO2e and the intensity ration we have chosen
is CO2e per million pounds of revenue.
Rob Woodward
Chief Executive Officer
GovernanceFinancial StatementsAdditional InformationStrategic Report
2929
STV
CHILDREN’S
APPEAL
2016
The STV Children’s Appeal was launched in 2011 by
STV and The Hunter Foundation with a commitment to
making a difference to the lives of Scotland’s children and
young people. In 2013, The Wood Foundation pledged
its support for projects in the North East of Scotland.
In the six years since launch, the STV Children’s Appeal
has raised over £13.7 million and distributed 722 big and
small grants to charitable projects across all 32 local
authority areas in Scotland. To date, the Appeal has
provided much needed support to over 62,000 children,
including practical help like food and warm clothes;
creating opportunities for training and employability;
and enabling social and emotional support.
The STV Children’s Appeal is proud to guarantee that all
money raised is invested in Scotland to help children and
young people across all areas of the country. All overheads
are met by STV and The Hunter Foundation, meaning
100% of donations go directly to helping those in need.
For 2016, the Scottish Government once again committed
to match fund the first £1m raised.
Partners
In 2016, the Appeal continued to engage with
communities across Scotland to encourage individuals,
schools, businesses and community groups to get involved
with the charity on a local level. Community based
fundraising to benefit the Appeal took place throughout
the year – a testament to the public support generated for
the charity – with events ranging from a sponsored super
hero walk and bowls trick shot challenge to a sow-a-thon
and a silent disco raising money for Scotland’s children.
Since launch the Appeal has formed fruitful partnerships
with high profile corporate partners including Royal Bank
of Scotland, Lidl, Optical Express and Tunnocks. This year
the Appeal saw a number of new corporate supporters
getting behind its cause, including Quality Meat Scotland,
BaxterStorey Scotland, Wholesale Domestic Bathrooms
and House of Bruar.
Employee engagement
As always, STV’s staff are great ambassadors for the
Appeal, donating their time and energy to a range of
fundraising activities including a tough 400 mile cycling
challenge in September.
Throughout the year, employees are invited to visit projects
who benefit from Appeal funding; a valuable opportunity
to see first-hand the difference their fundraising efforts
makes in the community. In 2016, staff raised £104,042
for the Appeal, which was matched by the Company to
make a £208,084 donation.
The STV Children’s Appeal was fundraising partner for
a number of mass participation events throughout the
year, with people across Scotland, as well as corporate
partners and celebrity supporters, walking, running
and cycling for the Appeal. Kiltwalk, Great Edinburgh
Run, Great Women’s 10k and the Pedal for Scotland
cycling challenge all saw participants raising funds
for Scotland’s children.
Programming
In September, STV aired a series of programmes to
highlight the work carried out by the STV Children’s
Appeal and local fundraisers across the country to raise
money and awareness about child poverty in Scotland.
The line-up of programmes culminated in the annual
live show hosted by Lorraine Kelly, who announced
the total sum raised in 2016.
STV Annual Report and Accounts 2016 30
STV Children’s Appeal 2016
£2.5m RAISED
GovernanceFinancial StatementsAdditional InformationStrategic Report 31
STV Annual Report and Accounts 2016 32
Performance review
Revenue
Total revenue increased by 3% to £120.4m (2015:
£116.5m) with strong growth in STV Productions and
digital revenues partly offset by a weaker national airtime
market and lower telephony and STV Creative revenues.
There was also the first revenues for our new operating
division, STV ELM, which provides services to support
the operation of the new Scottish Children’s Lottery.
Consumer division revenues were down 2% at £105.9m
(2015: £108.2m) reflecting a weak second half national
airtime performance which ended the year down 4% in
total, in line with the broader television market. Regional
airtime rose 14% excluding the impact of STV ELM, while
digital revenues grew by 20% to £7.9m (2015: £6.6m).
Production division deliveries increased on the prior year
and revenues grew by 53% to £12.7m (2015: £8.3m).
The new division, STV ELM, provides operational services
such as ticket sales and marketing, to the recently
launched Scottish Children’s Lottery (SCL). It invoices costs
to the SCL and the division operates on a breakeven basis.
Operating profit
Operating profit, before exceptional items, reduced by
3% to £19.7m (2015: £20.3m) and after exceptional items
increased by 47% to £16.9m (2015: £11.5m). Consumer
division operating profit amounted to £19.6m (2015:
£19.9m) as the impact of lower national airtime flowed
to profit although this was almost fully offset by a
combination of reduced programme costs, increased
regional revenues and digital profit growth. This result
includes the start up losses for City TV of £0.8m (2015:
£1.0m) which will continue to fall as the channel expands
geographically and is rebranded STV2. This service is
expected to break even by the end of 2017. The operating
margin of the Consumer division was up marginally at
18.5% (2015: 18.4%) with the digital margin continuing
to expand to 52% (2015: 48%) reflecting high margin
STV Player growth.
Productions operating profit, before exceptional items,
reduced to £0.1m (2015: £0.4m) despite the increased
revenues. Including exceptional items, operating losses
reduced from £4.7m in 2015 to £2.7m. This reflected
continued increases in investment in the creative
resource in this area which should deliver significant
revenue and profit growth over the next 2 to 3 years.
As noted above, STV ELM operates on a breakeven basis
and any profit generated from the sale of STV regional
airtime to the SCL is being donated to the STV Children’s
Appeal, after recouping incremental costs incurred
from operating STV ELM and the costs of the STV
Children’s Appeal.
Exceptional items
The remaining balance of goodwill related to STV
Productions (£2.8m) has been written down following a
further year of profit underperformance against internal
projections. In 2015 there were 4 exceptional items
resulting in a net after tax charge of £8.8m.
Finance costs
Net finance costs were flat at £1.2m (2015: £1.2m) and the
IAS 19 non cash finance charge fell to £nil (2015: £0.5m).
Statutory result
The statutory result for the year after tax, exceptional
items and IAS 19 interest was a profit of £12.6m (2015:
£11.4m). The Group’s effective tax rate decreased to 17.0%
(2015: 20.0%) due to the utilisation of prior year losses and
corporation tax payments are expected to resume in 2017.
Earnings Per Share (EPS)
EPS before exceptional items and IAS 19 interest
decreased by 1% to 39.7p (2015: 39.9p) reflecting
the fall in operating profit and profit before tax. On a
statutory basis, EPS amounted to 32.5p (2015: 29.8p).
A reconciliation is included in Note 13 in the Notes to
the Financial Statements.
Cashflow and net debt
Net debt increased by £0.7m to £26.4m (2015: £25.7m)
with the key net debt : EBITDA ratio target of at or below
1.0x on a covenant basis again being met at the year end.
The cash outflow includes £5.4m of investment in STV ELM
which will be recouped in future years. Other major cash
outflows were £0.8m on working capital, due to the timing
of Productions deliveries, a £3.2m investment in capital
expenditure, £7.8m of pension deficit cash payments and
a 26% increase in cash dividend payments during 2016
to £4.3m. The increased final dividend announced for
2016 will impact cashflow in 2017.
GovernanceFinancial StatementsAdditional InformationStrategic Report 33
The Group’s preferred measure of operating profit
converted to free cashflow, defined as operating
profit plus depreciation, amortisation and share based
payments, less working capital movements, excluding
STV ELM investment and capital expenditure, improved
to 89% (2015: 86%). This is slightly below the ongoing
90% target due to higher capital expenditure and
changes in working capital.
Pensions
In December 2016 the Group announced a new 11 year
deficit funding plan which is detailed in Note 30 in the
Notes to the Financial Statements. This will fully fund
the pre-tax £129.9m triennial trustees’ valuation deficit
calculated as at 30 November 2016.
Viability statement
The Group has a strategic plan for the next three financial
years which the Directors review at least annually. The
three year plan reflects the Group’s strategy as set out
on pages 6 to 38. The plan also includes a number of
important assumptions about the necessary capital
investments to implement the strategy and models the
expected cash flows including dividends as well as other
key financial and performance indicators over the period.
The Directors have used this planning period as the basis
to assess the ongoing viability of the Group over the next
three years, although the Group’s business model is
open-ended and there is no known threat to its viability
beyond that period.
In making the viability statement the Directors have
also considered the resilience of the Group to a number
of severe but plausible scenarios. These scenarios took
into account the aspects of the principal risks disclosed
on pages 34 and 35.
This sensitivity analysis on the scenarios considered
the potential impacts of these matters on the Group’s
businesses, future performance, solvency and liquidity
over the planning period and the effectiveness of any
mitigating actions that the Directors could take.
Based on this assessment, the Directors confirm that
they have a reasonable expectation that the Group will
be able to continue in operation and meet its liabilities
as they fall due over the three year planning period.
As part of the valuation process a formal health study
was undertaken by a third party on approx 40% of the
pensioner members of the Group’s two defined benefit
pension schemes. The outcomes from this study have
been reflected in an updating of the Group’s IAS 19
mortality assumptions and has resulted in an average
increase in male pensioner longevity, the category which
accounts for the largest element of the schemes’ liabilities,
of approx 3.6 years and a deficit increase of £55.9m.
The investment management of the schemes’ assets
was also transferred to fiduciary manager PSolve during
2016. This has resulted in a significant reduction in the
schemes’ risk profile with the 20 year Value at Risk
measure halved to approx £60m.
The IAS 19 deficit has increased to £88.8m (2015: £7.8m)
pre-tax, £72.6m (2015: £6.3m) post-tax due partly to the
mortality assumption change noted above and also to
decreased corporate bond yields. Reference Note 30,
page 106.
Balance sheet
The principal movements on the Group’s balance sheet
were the reduction in goodwill, increase in the IAS pension
deficit, the receivable balance from the Scottish Children’s
Lottery and related movements in deferred tax, all of
which are discussed above.
STV Annual Report and Accounts 2016 34
Principal risks and uncertainties
Like most businesses, STV Group plc
is exposed to a number of risks
which could have an impact on our
operating results, financial condition
and prospects and there are rigorous
internal systems to identify, monitor
and manage any risks to the business.
STV’s risk register sets out the key risks that have been
identified throughout the business, allocating an owner
to each, together with the risk impact and risk likelihood.
These are scored both on a gross and, after the current
mitigating controls have been taken into account, a net
basis. The effectiveness of the current mitigating controls
is graded as strong, adequate or weak and any additional
controls required are also noted. The register is reviewed
and updated on an ongoing basis both at an operational
level and on a biannual basis by the Board, with the Audit
Committee conducting an in-depth annual review.
The Directors confirm they have carried out a robust
assessment of the principal risks facing the Company and
during 2016 two additional risks emerged, namely the
impact of a possible second independence referendum
and the reputational risk of the lottery operation. There
were no significant changes to the other principal risks.
All of the risks identified have been fully evaluated and
taken into account in preparing the budgets and forecasts
which support going concern, viability statement and
impairment assessments. The risks have also been
reviewed and agreed with the internal auditors.
Regulatory environment
Our television business is operated under licences which
are regulated by Ofcom and the key Channel 3 licences
have a term that runs to the end of 2024. These Channel 3
licences contain conditions around contribution to public
service broadcasting, programme production and
compliance with Ofcom’s codes. As licensees, it is STV’s
responsibility to ensure that the terms of these licences are
adhered to and measures have been put in place internally
to ensure that this occurs. In the event of any serious or
repeated breaches, Ofcom has powers to impose sanctions
on licensees including, in the most extreme circumstances,
financial penalties or revocation of licences.
Dependence on advertising
STV’s sales, expenses and operating results could vary
from period to period as a result of a variety of factors,
some of which are outside STV’s control. These factors
include general economic conditions; conditions specific
to general advertising markets including the commercial
television market; trends in sales, capital expenditure and
other costs, and the introduction of new services and
products by us or our competitors. In response to an
ever-changing operating and competitive environment,
STV may elect from time to time to make certain
pricing, service or marketing decisions that could have
a material adverse effect on sales, results of operations
and financial conditions.
Performance of the ITV Network
The majority of STV’s programming content is provided by
the ITV Network. Therefore, its ability to attract and retain
audiences and the advertising airtime sales performance
of ITV’s sales house – which is responsible for the sale of
STV’s UK national airtime and sponsorship to advertisers –
are factors that affect performance. This relationship is
managed closely, with regular updates on programme and
schedule developments being provided and through STV’s
Commercial Director who manages the sales relationship
with ITV. The terms of the Airtime Sales Agreement
with ITV were amended in December 2016 to provide
improved efficiency, simplicity and transparency.
Pension scheme shortfalls
The STV pension schemes’ investment strategy is
calculated to reduce any market movement impacts.
However, it is possible that the Group may be required to
increase its contributions to cover an increase in the cost
of funding future pension benefits or to cover funding
shortfalls which could have an adverse impact on results
and cash flow. This position is kept under regular review
by the Board. In December 2016 agreement was reached
with the trustees of the Company’s defined benefit
pension schemes on the 1 January 2015 triennial
actuarial funding valuations and an 11 year deficit
recovery plan. During 2016 the trustees selected PSolve
as investment manager for the schemes’ assets and this
is intended to increase returns and meet the schemes’
long term funding objectives.
Possible second independence referendum
STV Group plc is both headquartered and incorporated
in Scotland. Following the result of the EU referendum,
it is uncertain whether there will be a further referendum
on Scottish independence and, if there is to be one, the
timing and the outcome are also unknown. The Board
has discussed fully the potential impact of independence
and continues to monitor the ongoing debate, concluding
that there are no significant issues specific to STV were
GovernanceFinancial StatementsAdditional InformationStrategic Report Scotland to become an independent country. However,
a vote by Scotland to leave the UK would likely lead to
increased volatility in advertising markets and also in
financial markets, fundamental changes to which could
impact on the Group’s debt funding arrangements and
overall leverage over time. The Group has put in place
a number of measures which provide STV with some
level of mitigation in these circumstances, such as
the Network Affiliate Agreement with ITV in relation
to volatile advertising markets and the Group’s bank
facilities maturing in the medium term (2019) together
with half of the core net debt (£15m) being subject to
interest rate hedges to July 2018 to reduce exposure to
financial market movements. In addition, the Scottish
Government has agreed that our Public Service Broadcast
licences will be respected through their full duration.
While the risks are difficult to predict and quantify as
there are so many variables, the Board has agreed it is
comfortable with the Group’s exposure to the current
level of risk.
Reputational and financial risk of lottery operation
The Scottish Children’s Lottery, a new charitable lottery
to raise money for children in Scotland, was launched
in October 2016. The Lottery engages the services of
an External Lottery Manager, STV ELM Limited, which
is a subsidiary of STV Group plc, to deliver the lottery
product to consumers.
The Lottery was awarded licences by the UK Gambling
Commission and while operated independently of STV,
in accordance with the requirements of these licences,
it is provided financial support by STV. Accordingly,
although responsibility for operating the Lottery and
ensuring that the terms of the licence are adhered to lies
with STV ELM Limited, there is a reputational risk to STV,
as the holding company, from any issues related to the
operation of the Lottery.
Internal controls have been put in place to ensure that
the terms of the operating licence are adhered to as the
Gambling Commission has powers to impose sanctions on
licensees in the event of any serious or repeated breaches,
including financial penalties or revocation of licence.
In the event that the Lottery was unsuccessful then
the recoverability of the Scottish Children’s Lottery
debtor would be at risk.
35
Financial
The overall financial position of STV may be constrained
by the Group’s leverage and other debt arrangements.
An increase in LIBOR interest rates could have an adverse
impact on the financial position and business results. STV
is exposed to a variety of financial risks that arise from and
apply to its activities: currency risk, credit risk, liquidity risk
and cash flow interest rate risk. The Group’s borrowings are
denominated in Sterling which is also the Group’s intra-UK
net currency flow. The Group’s overall risk management
programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects
on financial performance.
STV uses derivative financial instruments to hedge
certain risk exposures.
Risk management is carried out under policies approved
by the Board with financial risks being identified, evaluated
and hedged in close co-operation with the operating
divisions. The Board provides written principles for overall
risk management, as well as written policies covering
specific areas, such as foreign exchange risk, interest
rate risk, credit risk, use of financial instruments and
investing excess liquidity.
a) Currency risk
STV operates almost wholly within the UK and is
exposed to minimal currency risk. The Group’s borrowings
are denominated in Sterling which is also the Group’s
intra-UK net currency flow. Currency risk arises primarily
with respect to the Euro and US dollar and from future
commercial transactions and trade assets and liabilities
in foreign currencies.
b) Credit risk
STV has no significant concentration of credit risk.
It has policies in place to ensure that sales are made to
customers with an appropriate credit history. Derivative
transaction counterparties are limited to high-credit
quality financial institutions.
c) Liquidity risk
Prudent liquidity management implies maintaining
sufficient cash and marketable securities, the availability
of funding through an adequate amount of committed
credit facilities and the ability to close out market
positions. Due to the nature of the underlying business,
the aim is to maintain flexibility in funding by keeping
committed credit lines available.
d) Cash flow interest rate risk
STV has no significant interest bearing assets and its
income and operating cash flows are substantially
independent of changes in market interest rates.
STV Annual Report and Accounts 2016 36
Risk management
Risk management and internal control
Identify risks
Measure, control
and monitor
Assess and
analyse risks
Implement risk
management actions
Develop risk
management plan
The Board considers risk management to be a key
business discipline designed to balance risk and reward
and to protect the Group against uncertainties that
could threaten the achievement of business objectives.
It is inherent in the Company’s business and activities
and the review of risk and risk management is embedded
throughout the Company. The ability to identify, assess,
monitor and manage each type of risk to which the
Company is exposed is an important factor in its financial
soundness, performance, reputation and future success.
The management of risk is considered to be of vital
importance and as such, it is a matter for the full Board
and not delegated to a committee. Accordingly, the
Directors have overall responsibility for establishing
and maintaining an adequate system of internal controls
and risk management policies and also for reviewing
the effectiveness of each. This is communicated to the
Leadership Team and each member is accountable
for all risks assumed in their respective areas of
responsibility and for the execution of appropriate
risk management discipline.
During the year a thorough review of STV’s risk register
was carried out, facilitated by the internal auditors. The
process involved one on one structured interviews with
senior management and a half day workshop with the
Leadership Team.
This was designed to challenge and update the current
STV risk profile through:
(i)
(ii)
identifying any new or emerging risks to STV’s
objectives reflecting the current environment
and strategic priorities
assessing and prioritising the impact and likelihood
of the most significant risks
(iii) considering the presence and operating
effectiveness of key controls.
This has ensured that the risk register continues
to be a current and relevant document allowing:
• the key risks facing STV to be easily identified
and summarised
• actions taken to improve controls to be tracked
• changes to the risk portfolio to be monitored.
A formal risk management policy, approved by the
Board, was put in place, which defines the objectives
of and commitment to risk management. The policy sets
out the Group’s risk appetite together with how identified
risks are managed and monitored as well as detailing
how risk management is embedded within the Group.
During 2016, the following reviews were carried out by
the internal auditors: (i) core financial control framework;
(ii) intellectual property; (iii) IT security and cyber risks;
and (iv) governance and management arrangements
of the lottery project.
The system is designed to manage rather than eliminate
risk and internal control can only provide reasonable and
not absolute assurance against material misstatement
or loss. All points raised by the internal auditors were
addressed and executive management believes that the
control environment has been strengthened further by
the actions taken. During the year a follow up review of
all recommendations made by the internal auditors over
the past 18 months was carried out. This involved liaising
with those employees across the business who had
been allocated the responsibility of executing the
recommendations raised to ensure that these had been
acted upon. No significant control failings were identified.
In addition to both the external and the internal audit,
the following key controls are in place:
• a comprehensive financial review cycle, which includes
a detailed budgeting process where business units
prepare budgets for approval by the Board, monthly
GovernanceFinancial StatementsAdditional InformationStrategic Report
37
reporting of trading results for review and, where
necessary, corrective action as well as detailed and
regular re-forecasting
• clearly defined management structure and delegation
of authority to committees of the Board, subsidiary
boards and associated business units
• applying appropriate accounting policies within
the framework of IFRS and ensuring these are
consistently applied
• making judgements and preparing estimates that
are reasonable and prudent
• operating within the guidelines of all the disclosure
• high recruitment standards and formal career
advice provided by UK statute
development and training to ensure the integrity
and competence of staff
• regular reviews of key performance indicators and
business risks and consequent steps to manage
any matters arising
• procedures for the approval of capital expenditure
• monthly monitoring and re-forecasting of results
against budget, with major variances followed up
and management action taken where appropriate
• ongoing procedures to identify, evaluate and manage
significant risks faced by the business and procedures
to monitor the control systems in place to reduce
these risks to an acceptable level
• provision to the Board and management of relevant,
accurate and timely information based on
comprehensive management information systems,
which are continually being improved and updated.
A highly detailed review process conducted on a multi-level
basis ensures that the consolidated Group accounts are
prepared having taken into account the internal control
procedures and risk management strategies outlined above.
The Company has a strong internal control and risk
management system in place in relation both to the
financial reporting process and the process for preparing
the consolidated accounts. The purpose of these is to
ensure that the internal and external financial statements
are presented in accordance with the relevant reporting
standards and the disclosure requirements for listed
companies, as well as to ensure that the financial
statements give a true and fair view, free from
material misstatement.
The Board is satisfied that these responsibilities are met
through applying the following procedures which are
supported by the Group’s system of internal control:
• using an appropriate system of accounting records,
capable of operating with reasonable accuracy to be
compliant with financial and legal reporting requirements.
The basis used to prepare STV’s financial statements is
the International Financial Reporting Standards (IFRS) as
adopted by the European Union. The Company financial
statements and Directors’ Remuneration Report are
prepared in accordance with applicable law and IFRS
• using IFRS to ensure a true and fair view of the state
of affairs of the Group, including the profit or loss for
the period
• considering whether adoption of the going concern
basis is appropriate
• maintaining robust assurance processes and controls
over financial reporting procedures
• extending these principles to half-yearly reports and
other reports in the public domain.
Identified risks are mitigated through unambiguous
business processes with integrated risk management
activities, segregation of duties and appropriate delegation
of authority. Each role within the Company is well-defined
with clear responsibilities and a transparent reporting
structure. The Company’s business processes include
financial controls regarding the approval and accounting
of business transactions and the financial reporting
process has controls regarding recognition, measurement
and disclosure. These include the application of critical
accounting policies and estimates, in individual
subsidiaries as well as in the consolidated accounts.
Regular review is vital to ensure that the risk culture
continues to be embedded throughout the Company
and that the risk framework is operating effectively.
It also provides the Board and the Audit Committee with
an overall view of the Company’s risk profile, identifying
any major exposures and mitigating actions.
The Company has in place a Whistleblowing Policy
through which staff can, in confidence, raise concerns
about possible improprieties either in the conduct of
others in the business or in the way the business is run.
Concerns can relate to actual or potential breaches of law
or Company policy, including those relating to accounting,
risk issues, internal controls, auditing issues and related
matters. All matters raised will be investigated and
reported to the Audit Committee.
The risk management framework and internal controls
system across the Company, which are subject to
continuous development, provides the basis on which
the Company has complied with the Code provisions on
internal control. These have been put in place in order
that the Board can satisfy itself that management has
understood the risks and has implemented and monitored
appropriate policies and controls, enabling the Board to be
provided with timely information so that it can discharge
its own responsibilities.
STV Annual Report and Accounts 2016
38
Risk management
Risk appetite
STV’s risk appetite can best be demonstrated through the following table:
Risk category
Reputation
Compliance & regulatory
Financial
Technology
Opportunities
TV Market
Operational
Pensions
People & culture
<
<
<
<
<
Unacceptable to take risks
Higher willingness to take risks
1
2
3
4
5
6
7
8
9
10
>
<
<
<
>
>
>
>
>
<
>
>
>
Reputation
STV places great importance on upholding its high
reputation and therefore has a low appetite for risk
in conducting any activities that puts its reputation in
jeopardy, could lead to undue adverse publicity or could
lead to loss of confidence by the Scottish and UK political
establishments or by its shareholders and stakeholders.
Compliance and regulatory
It is critical that STV conducts itself in a compliant
manner at all times, particularly in relation to its
broadcasting licences and it has no appetite for
any breaches of statute or regulation.
Financial
STV aims to maintain its long term financial viability
and overall financial strength although recognises that
sometimes taking a small amount of risk is necessary.
However, STV is comfortable in accepting this risk
provided always that the potential benefits and risks
are fully understood before developments are authorised
and sensible measures to mitigate risk are established.
The above statements take priority
over the statements made below
Technology
STV is reliant upon various forms of technology for
the transmission of its programmes and the successful
operation of its business and has a low appetite for risk
in these areas.
Opportunities
New opportunities, projects, collaborations, joint ventures,
mergers and acquisitions are periodically considered by
STV as means of growing its business and these inevitably
involve some element of risk. STV has a strong appetite for
the development of such opportunities provided always
that the potential benefits and risks are fully understood
and that appropriate mitigation measures are in place.
TV market
Various aspects of the TV market are, to an extent,
outwith the control of STV, such as advertising revenue;
Video on Demand (VoD); and pay TV but are vital to STV’s
success. Accordingly, STV has a modest appetite for risk
in activities within this area.
Operational
STV faces various operational risks (inadequate or failed
procedures, systems or policies) in the running of its
business and accepts a medium level of risk around such
areas provided that potential benefits and risks are fully
understood and sensible measures are put in place to
mitigate these.
Pensions
There are shortfalls in STV’s two defined benefit pension
schemes and while the investment strategy is calculated
to reduce any material market movement impacts, various
measures are being taken to reduce the deficit. STV has
a low risk appetite in respect of its pension deficits.
People and culture
STV’s Directors and staff are the driving force behind its
progress and achievements to date and accordingly it aims
to employ the right people for the right job while developing
the full potential of all staff. In this regard it considers
equality, diversity, dignity and respect to be of paramount
importance together with employee development and
the health and safety of employees. It has a low appetite
for any deviation from its standards in these areas.
Rob Woodward
Chief Executive Officer
GovernanceFinancial StatementsAdditional InformationStrategic Report 39
Accountability
Risk is inherent in the Company’s business and activities
and the Board has responsibility for establishing a
framework of prudent and effective controls to enable risk
to be assessed and managed. The review of risk and risk
management is embedded throughout the Company and
further information can be found in the Risk Management
section of the Strategic Report on pages 36 to 38.
Remuneration
The Remuneration Committee ensures that our
remuneration framework is appropriately structured,
in a fair and responsible manner and our current
remuneration policy was approved by shareholders
at the 2015 AGM and will remain in place until a further
policy vote is required in 2018. The annual report on
remuneration, which will be subject to an advisory
vote, can be found on pages 60 to 67.
Relationship with shareholders
The AGM provides an opportunity for shareholders to meet
the Board and to ask questions. Our 2017 AGM will be held
on 25 April 2017 at Pacific Quay and we look forward to
meeting the shareholders who are able to attend.
Compliance with the UK Corporate Governance Code
The Board considers that, in respect to the financial year
ended 31 December 2016, the Company has complied fully
with the UK Corporate Governance Code 2014 (the Code)
and this section, together with the report by the Directors
on Remuneration, set out on pages 55 to 67, describes
in greater detail how the principles and provisions of the
Code have been complied with. The Code is published by
the Financial Reporting Council from whom paper and
downloadable versions can be obtained via its website:
www.frc.org.uk.
Finally, I would like to thank my fellow Directors for their
continued support. Together we can continue to maintain
a strong and effective governance structure to enable the
business to deliver its strategy, generate shareholder value
and safeguard our shareholders’ long-term interests.
Baroness Margaret Ford
Chairman
Introduction to governance
Leadership and diversity
At STV, we seek to maintain the highest standards
of corporate governance and create a working culture
where honesty, openness and fairness are valued.
An important distinction between the management,
led by Rob Woodward, Chief Executive Officer, and
the Board is that the management is responsible for
running the business while the Board, acting under
my leadership, provides constructive challenge to
management which is necessary to create accountability
and drive performance. This results in an environment
that creates and preserves value for shareholders.
While all Board appointments are based on meritocracy
with the prime consideration being to maintain and
enhance the Board’s overall effectiveness, we recognise
that diversity in all its aspects, including gender diversity, is
an important factor to take into consideration. The Board is
committed to improving diversity in its membership in the
broadest sense. Information on the Group’s approach to
diversity and inclusion is set out in the Strategic Report on
pages 6 to 38 and further information on the number of
women within the organisation can be found on page 52.
Effectiveness
The Board is collectively responsible for the long-term
success of the Group with the over-arching aim of
safeguarding shareholders interests and the STV culture
requires that Directors and employees act with integrity
and conduct themselves to the highest ethical standard
to promote and maintain trust.
Performance evaluation of the Board, its Committees and
individual Directors takes place on an annual basis and the
2016 evaluation was internally facilitated. I spoke with all
Board members individually, having first ascertained their
views on a broad range of areas including composition,
strategy, experience, effectiveness, shareholders and
communication between Board members. Further details
on the process can be found on pages 52 and 53 but the
overall conclusion was that the Board and its Committees
were working in an effective and constructive manner.
The Board is mindful of the tenure of the Non-Executive
Directors and the benefits of refreshing the experience,
skills and diversity present on the Board. In light of this,
during the year the Nomination Committee undertook
an evaluation of Non-Executive Director succession and
commenced a recruitment process, culminating in the
appointment of Simon Miller in December 2016. Further
details can be found in the Nomination Committee report
on page 47.
STV Annual Report and Accounts 2016 40
Board of Directors
Margaret Ford
Chairman
Appointed: June 2013
Committees: Nomination (Chair)
Margaret Ford has over 20 years
experience as a non-executive Director
and Chairman of private and listed
companies and extensive experience of
working with Government. She is currently
a non-executive director of Segro plc and
was previously a non-executive director
of Taylor Wimpey plc and the former
chairman of both Grainger plc and
Barchester Healthcare Limited. Margaret
is Chairman of the Tennis Foundation and
National President of the British Epilepsy
Association. From 2009 to 2012, she was
a member of the Olympic Board and
Chairman of the Olympic Park Legacy
Company. She was appointed to the
House of Lords in 2006 and sits as an
Independent Peer. Margaret is Chairman
of the STV Children’s Appeal and in March
2015, was elected a Fellow of the Royal
Society of Edinburgh.
Rob Woodward
Chief Executive Officer
Appointed: February 2007
Previously, Rob was Commercial Director
of Channel 4 Television Corporation
and on the main board. He achieved a
dramatic turnaround of legacy businesses
and built a set of successful new media
and digital businesses. Rob was previously
an MD of UBS and global COO of corporate
finance in Media and Communications.
Prior to this he was Managing Partner of
Deloitte’s European Telecoms Media and
Technology business and UK strategy
consulting practice. Rob is a trustee
of the STV Children’s Appeal and also
a trustee of the Royal Television Society.
He is Chair, City, University of London and
is a non-executive director of Blancco
Technology plc. In 2014 Rob was
appointed Chairman of the Developing
the Young Workforce National Group,
which is leading work to support
improving employment opportunities
for Scotland’s young workforce.
George Watt
Chief Financial Officer
Appointed: February 2001
Appointed to the Board in February 2001
as Group Finance Director. George is a
member of the Institute of Chartered
Accountants in Scotland. He joined the
Company in 1998 as Group Financial
Controller and Treasurer and prior to this
worked with KPMG’s audit and assurance
services practice in the UK and also in the
US. George is a non-executive director of
DeltaDNA Limited and SpaceandPeople
plc. George is also an executive
committee member of the Scottish
Council for Development and Industry
and a trustee of the STV Children’s Appeal.
David Shearer
Senior Independent Director
Appointed: February 2007
Committees: Audit (Chair); Nomination
David is an experienced non-executive
director, corporate financier and
turnaround specialist and was previously
senior partner for Scotland & Northern
Ireland and a UK Executive Board member
of Deloitte LLP. He is Chairman of Liberty
Living Group, Aberdeen New Dawn
Investment Trust plc and the Scottish
Edge Fund and a director of Mithras
Investment Trust plc and Speedy Hire plc.
He was previously the Co-Chairman of
Martin Currie (Holdings) Limited, Chairman
of Mouchel Group and Crest Nicholson plc
and a non-executive director of City Inn
Limited in each case standing down after
completing the successful restructuring
of these businesses. He was also a
non-executive director of Renold plc
and Superglass Holdings plc.
left to right by row, from top left
Margaret Ford
Rob Woodward
George Watt
Simon Miller
Anne Marie Cannon
David Shearer
Michael Jackson
Christian Woolfenden
Ian Steele
Strategic ReportFinancial StatementsAdditional InformationGovernance
41
Michael Jackson
Non-Executive Director
Appointed: May 2009
Committees: Remuneration
Michael is an advisor, investor and director
for digital and television businesses in the
US and UK. Previously he was President
of Programming at InterActiveCorp,
the internet conglomerate, where
he was responsible for overseeing the
development, acquisition and distribution
of content based websites. Prior to this
Michael was Chairman of Universal
Television Group, in charge of the creative
and strategic direction of the television
business. He served four years as Chief
Executive Officer of Channel 4 Television,
where, in addition to commissioning
programmes, he refocused the channel to
exploit digital opportunities and launched
two new channels, FilmFour and E4.
Before joining Channel 4, Michael worked
as Controller of BBC One and Director of
Television, and as Controller of BBC Two.
He was previously a non-executive
director of EMI Group plc. Michael is
a non-executive director of Two Cities
Television, an independent drama supplier
and of Peters, Fraser and Dunlop, the
literary agency. He is also producing
“Civilisations” for the BBC and PBS.
Christian Woolfenden
Non-Executive Director
Appointed: June 2014
Committees: Audit
Christian has extensive operational,
consumer marketing and digital
experience. Previously, he was Chief
Marketing Officer for Lyst.com, the online
fashion retailer and Managing Director
for Paddy Power, the betting and gaming
operator. Prior to that he was Global
Brand Director for Bacardi, responsible for
marketing and product innovation in over
20 markets worldwide. Christian began
his career at Procter & Gamble working in
both finance and marketing roles across
key European businesses. Christian is a
non-executive director of Rentify Ltd.
Anne Marie Cannon
Non-Executive Director
Appointed: November 2014
Committees: Audit; Remuneration
Anne Marie has over 30 years experience
in the energy industry and investment
banking. Anne Marie was a senior advisor
at Morgan Stanley for over 14 years
specialising in international upstream
mergers and acquisitions. Anne Marie has
previously held financial and commercial
roles with Shell UK, J Henry Schroder
Wagg and Thomson North Sea and was
an executive director on the boards of
Hardy Oil and Gas and British Borneo.
She is currently a non-executive director
of Premier Oil plc and Aker ASA and is
Deputy Chair of Aker BP ASA.
Ian Steele
Non-Executive Director
Appointed: November 2015
Committees: Audit; Remuneration;
Nomination
Ian qualified as a CA in 1980 with Arthur
Young McClelland Moores. His subsequent
career involved time with The British Linen
Bank, Touche Ross, Rutherford Manson
Dowds and Deloitte. Ian recently retired
as Senior Partner for Deloitte in Scotland
and Northern Ireland. Prior to retiring, he
had been on the UK Board of Deloitte LLP
for over eight years. Ian was a Corporate
Finance Advisory Partner with Deloitte and
was Head of Global Advisory for some three
years and has recently joined the Council of
The Institute of Chartered Accountants of
Scotland. Ian is a non-executive director
of Killinchy Aerospace Holdings Limited,
the principal trading subsidiary of which
is Martin-Baker Aircraft Company Limited
and of Iomart Group plc.
Simon Miller
Non-Executive Director
Appointed: December 2016
Simon is an experienced company director
and chair with exposure to a wide range of
financial, commercial and manufacturing
businesses in both executive and non
executive roles. He is currently chairman
of Brewin Dolphin Holdings PLC; chairman
of Blackrock North American Income plc;
chairman of JP Morgan Global Convertibles
Income Fund Ltd and non-executive
director of Scottish Friendly Assurance
Limited. Simon read Law at Cambridge.
STV Annual Report and Accounts 2016
STV Annual Report and Accounts 2016 42
Corporate governance report
Principles statement
STV Group plc is fully committed to the highest standards of corporate governance, believing that such
standards are vital to overall business integrity and performance and considers it crucial that it conducts itself
honestly, transparently and responsibly. During the financial year ending 31 December 2016, the Company was
subject to the provisions of the UK Corporate Governance Code (2014), which it considers it fully complied with.
The Board has a critical role to play in shaping business performance while creating and delivering long term
return for shareholders. This requires it to determine business strategy and the Company’s appetite for risk; to
monitor management’s performance in delivering against that strategy and ensure that the risk management
measures and internal controls put in place are appropriate and effective. The Board must ensure that the
funding and talent available to the business will support it in the longer term and must remain aware of the
Company’s obligations to its shareholders and other stakeholders, responding to their needs with transparent
reporting and active engagement.
Board of Directors
The membership of the Board throughout the year and up to the date of signing the financial statements
was as follows:
Chairman
Baroness Margaret Ford
Chief Executive Officer
Rob Woodward
Chief Financial Officer
George Watt
Non-Executive Directors
David Shearer (Senior Independent Director)
Michael Jackson
Genevieve Shore (resigned 2 June 2016)
Christian Woolfenden
Anne Marie Cannon
Ian Steele
Simon Miller (appointed 2 December 2016)
The powers of the Directors (including in relation to the issue or buy back of shares) are exercisable in
accordance with the Companies Act and the Company’s Articles of Association. Any amendments to the
Company’s Articles of Association require a special resolution in accordance with the Companies Act 2006.
Board of Directors
11% Chairman
22% Executive Directors
67% Non-Executive Directors
Strategic ReportFinancial StatementsAdditional InformationGovernance
43
Board appointment, balance and independence
The Board has considered the independence of the Non-Executive Directors and regards all of the current
Directors to be of independent character and judgement.
The Non-Executives mix of skills and wide-ranging business experience is a major contribution to the proper
functioning of the Board and its Committees, ensuring that matters are debated and that no individual or group
dominates the Board’s decision-making processes. Non-Executive Directors have a particular responsibility for
ensuring that the business strategies proposed are fully discussed and critically reviewed and their collective
experience and broad range of skills gained through a range of sectors means they can constructively
challenge management in relation both to the development of strategy and performance against the
goals set by the Board.
The Non-Executive Directors do not participate in any share option or pension scheme of the Company.
All Directors have access to the advice and services of the Company Secretary and, at the Company’s expense,
the Company’s legal advisors. The Company Secretary is an employee of the Company and attends all meetings
of the Board and its committees. She is responsible for making sure that all Board procedures are observed and
for advising the Board on corporate governance matters. She also has responsibility for ensuring the flow of
information within the Board, its committees and between senior management and Non-Executive Directors.
Board responsibilities
There is a well-established division of authority and responsibility within the Company through the separation
of the roles of Chairman and Chief Executive which is set out in writing and has been approved by the Board.
The Chairman is responsible for leadership of the Board, ensuring its effectiveness and that Directors receive
accurate, timely and clear information, as well as setting the agenda. She provides a conduit for communication
to and from shareholders and facilitates the contribution of the Non-Executive Directors while ensuring
constructive relations between the Executive and Non-Executive Directors.
The Board has responsibility for making all key strategic, management and commercial decisions which are
necessary for the conduct of the Company’s business as a whole, including the approval of corporate strategy,
annual budgets, interim and full year financial statements and reports, dividends, accounting policies and all
significant capital projects, acquisitions and disposals. The Chief Executive and his management team are
responsible for developing the appropriate business strategy and, once approved by the Board, for ensuring
that the strategy is effectively implemented in accordance with the approved operating plan and within a
sound system of internal controls to achieve the agreed objectives. He creates a framework of strategy, values,
organisation and objectives to ensure the successful delivery of results, and allocates decision making and
responsibilities accordingly. Compliance with policies and achievement against objectives is monitored by
the Board through monthly and quarterly performance reporting and budget updates.
STV Annual Report and Accounts 2016
44
Corporate governance report
It is the duty of all Directors to promote the success of the Company for the benefit of its members as a whole,
and in doing so, to have regard, amongst other matters, to the:
• likely long term-consequences of any decision
• interests of the Company’s employees
• need to foster the Company’s business relationships
• impact of the Company’s operations on the community and the environment
• desirability of maintaining a reputation for high standards of business conduct
• need to act fairly as between members of the Company.
The Senior Independent Director is available to shareholders should they request a meeting or have concerns
which they have been unable to resolve through normal channels or when such channels would be inappropriate.
He provides a communication conduit between the Chairman and the Non-Executive Directors and is responsible
for leading the Non-Executives discussion on the Chairman’s performance at the annual performance review.
The Board recognises that it is accountable to the Company’s shareholders for good governance to ensure
efficient and effective management in order to deliver shareholder value over the long-term.
Board meetings
Attendance of Board members at Board and Committee meetings held in 2016 is set out below:
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Number of meetings held:
Attendance:
Margaret Ford
David Shearer
Rob Woodward
George Watt
Michael Jackson
Genevieve Shore (resigned 2 June 2016)
Christian Woolfenden
Anne Marie Cannon
Ian Steele
Simon Miller (appointed 2 December 2016)
* Attended at the invitation of the respective Chairman
** Appointed to the Committees on 21 June 2016
*** Appointed Chairman on 21 June 2016
8
8
8
8
8
7
2
6
8
8
1
3
3*
3
3*
3*
2
3
3
5
4*
1*
1*
1*
3
2
1*
5***
5
4
4
3
1*
1
2**
The Board meets regularly, at least eight times a year with additional meetings taking place as and when
required. The Board has adopted a schedule of matters reserved for its decision which can be found on the
Company’s website at www.stvplc.tv, the principal matters being approval of:
• financial statements and shareholder circulars; dividend policy;
significant changes in accounting policies or practices
• Board and committee appointments and terms of reference;
terms and conditions of Non-Executive and Executive Directors
• the Company’s long-term objectives and commercial strategy;
annual operating and capital expenditure budgets
• material contracts and significant variations in terms of the Company’s borrowing facilities
• corporate activity, which is subject to the City Code on Takeovers and Mergers or of a material nature
• major changes to the Company’s pension schemes, share schemes and treasury policy
• risk management, internal control policies and corporate governance arrangements.
Strategic ReportFinancial StatementsAdditional InformationGovernance 45
All Directors, with the exception of Mr Woolfenden, who had a prior commitment, attended the 2016 annual
Strategy Day in October at which the future of the business was considered in a wider context. Presentations
from external contributors, including some of the Company’s advisors, provided different perspectives on
Scotland, the industry and on STV itself and Directors agreed that thinking strategically about the big issues
shaping the Company’s future made for a stimulating day.
When a Director is unable to attend or dial in to a Board or Committee meeting, he or she receives the papers
for consideration at that meeting and has the opportunity to discuss any issues or make any comments in
advance and, if necessary, follow up with the Chairman of the relevant meeting.
Board focus
The main areas of Board focus during 2016 included:
Operational and financial performance, including monitoring
• receipt of operational and financial updates at each Board meeting
• review of monthly finance reports, including details of performance against budget
and the Company’s financial position
• approval of the Annual Report and the full and half-year financial results
• approval and declaration of dividends
• approval of the 2017 Budget
• approval of revised KPI targets
• approval of KPMG as tax advisors
• approval of viability statement
Strategy
• presentations on initiatives to grow revenue
• presentations on proposed new projects
• approval of the Company’s strategy
• discussion on various regulatory issues
• approval of the three year plan
• approval of the appointment of Panmure Gordon as joint brokers
• approval of the amendment to the Airtime Sales Agreement with ITV
Corporate development
• agreement of STV’s corporate objectives and values for 2016
• approval for establishing the Scottish Children’s Lottery
Governance and risk
• consideration of the appropriateness of the financial statements being prepared on a going concern basis
• review and approval of the Risk Register
• approval of the internal audit plan for 2017
• approval of the 2017 AGM Resolutions
• approval of the appointment of Simon Miller
• performance evaluation
• approval of the triennial pension scheme funding and recovery plans
• approval of revised Terms of Reference for the Remuneration Committee
• consideration of the implications of Brexit and Scottish Independence
• consideration of the Group’s risk appetite and risk management
Investor relations
• review of institutional feedback following meetings between the Company’s broker
and shareholders after both the full and half year results
• review of the draft analysts’ results presentations, when reviewing the Company’s
full and half-year financial results
Corporate Social Responsibility
• involvement in the STV Children’s Appeal 2016.
STV Annual Report and Accounts 2016 46
Corporate governance report
Board committees
The Board is supported by the Audit, Remuneration and Nomination Committees.
Chairman
Board of
Directors
Audit
Committee
Remuneration
Committee
Nomination
Committee
Leadership
Team
Senior Management
Team
Leadership
Board of Directors
• Determines long-term direction and strategic aims
• Sets framework of appropriate and robust controls
• Ensures efficient and effective operation of the business
• Engages with shareholders and stakeholders
Audit Committee
• Monitors the integrity of the
published financial statements
• Reviews the effectiveness of
internal financial controls
• Reviews the operation of the
risk management process
• Discusses with the Company’s
auditors, matters arising
from their work
• Reviews the scope of work
and reports produced by the
internal auditors
• Monitors and reviews the
effectiveness of the internal
audit function and the
external auditors
• Considers the Group’s
risk appetite
Remuneration Committee
• Determines and agrees with
the Board the framework for
the remuneration policy
• Reviews the ongoing
appropriateness and relevance
of the remuneration policy
• Approves the design of,
targets for, and payments
from any performance related
pay schemes
• Reviews the design of all share
incentive plans
• Determines the remuneration
packages for Executive Directors
and other senior executives
• Reviews and notes annually
the remuneration trends across
the Company
Nomination Committee
• Reviews the structure, size
and composition of the Board
• Reviews succession plans
and makes recommendations
to the Board
• Identifies and nominates
candidates for approval
of the Board taking diversity
into account
• Recommends to the
Board membership of
the Board Committees
Page 48
Audit Committee Report
Page 55
Remuneration Committee Report
Page 47
Nomination Committee Report
An evaluation of the work and effectiveness of each of these Committees during the year was conducted, the results
of which concluded that each was operating in an effective manner and carrying out its respective delegated duties
efficiently. The Board and its Committees will continue to review critically their procedures, effectiveness and
development throughout the year ahead with any concerns or observations raised with the Chairman.
Strategic ReportFinancial StatementsAdditional InformationGovernance
47
Remuneration Committee
The members of the Committee during the year were:
Genevieve Shore (Chairman, resigned 2 June 2016)
Anne Marie Cannon (appointed Chairman 21 June 2016)
Michael Jackson
Ian Steele
The activities of the Remuneration Committee are described within the report by the Directors on remuneration
which can be found on pages 55 to 67. The written terms of reference of the Remuneration Committee were
revised and updated during the year to take into account various considerations when determining the
Company’s remuneration policy, such as ensuring:
• executives are provided with appropriate incentives to encourage enhanced performance which is in line
with the risk appetite of the Company and its long term strategic goals;
• individuals are rewarded in a fair and responsible manner for their individual contributions to the success
of the Company without being paid more than is necessary and having regard to the views of shareholders
and other stakeholders;
• a significant proportion of Executive Director remuneration is structured so as to link rewards to corporate
and individual performance and is designed to promote the long-term success of the Company.
The Committee is obliged to ensure that contractual terms on termination and any payments made are
fair, that failure is not rewarded and that the duty to mitigate loss is fully recognised. It will review and note
annually the remuneration trends across the Group taking these into account when setting remuneration
for the Executive Directors especially with regard to salary increases.
Copies of the terms of reference are available on request and on the Company’s website www.stvplc.tv
Report from the Nomination Committee
The members of the Committee during the year were:
Baroness Margaret Ford (Chairman)
David Shearer
Genevieve Shore (resigned 2 June 2016)
Ian Steele (appointed 21 June 2016)
The Nomination Committee has written terms of reference which are available on request and on the
Company’s website www.stvplc.tv
The Nomination Committee discussed succession in detail and, with the assistance of the Chief Executive,
recommended that an additional Non-Executive Director be sought to ensure progressive refreshing of the
Board. The Board endorsed this recommendation and the services of Ridgeway Partners, which has no other
connection with STV, were engaged to assist with sourcing suitable candidates.
The process carried out by the Committee was vigorous and robust, firstly evaluating the balance of skills,
experience, independence and knowledge currently on the Board and in light of this, creating a profile of the
role including an assessment of the time commitment expected. Consideration was also given to the benefits
of diversity on the Board.
The Committee reviewed the profiles of eleven candidates from which a shortlist was created and the
Committee met with each. After discussion, the appointment of Simon Miller as a Non-Executive Director was
recommended to the Board. This was unanimously agreed and Simon joined the Board on 2 December 2016.
STV Annual Report and Accounts 2016 48
Corporate governance report
Report from the Audit Committee
The members of the Committee during the year were:
David Shearer (Chairman)
Christian Woolfenden
Anne Marie Cannon
Ian Steele
The Audit Committee, chaired by David Shearer, who has recent and relevant financial experience, is authorised by
the Board to investigate any activity within its terms of reference and to seek any information it requires from any
employee. All employees are directed to co-operate with any request made by the Committee. The Audit Committee
has written terms of reference and these are available on request and on the Company’s website www.stvplc.tv
At the invitation of the Committee, meetings are attended by the Chairman, Chief Executive Officer, Chief Financial
Officer and the Group Financial Controller. Representatives from both the external and the internal auditors also
attend each meeting and the Committee meets separately with senior management and the external auditors.
The Chairman of the Audit Committee reports to the subsequent meeting of the Board on the Committee’s
work and the Board receives a copy of the minutes of each meeting. The papers considered by the Committee
are available to any Director who is not a member should they wish to receive them. The Committee’s
effectiveness is reviewed annually as part of the Board evaluation process.
The Audit Committee and the Board place great emphasis on the objectivity of the Company’s auditors
PricewaterhouseCoopers LLP (PwC) in their reporting. PwC were appointed auditor in 2013 following a tender
process. Due to the introduction of new EU Audit rules, PwC were not able to provide both audit and tax services
after 1 January 2017 and accordingly a tender for STV’s tax services was conducted in September. The result of
the tender was that KPMG was selected as the Company’s tax advisors and it was agreed that PwC continue in
its role as the Company’s auditor.
The audit partner and manager attend all Audit Committee meetings to ensure full communication of matters
relating to the audit. The auditors have confirmed to the Committee that in relation to their services to the
Company they comply with UK regulatory and professional requirements, including Ethical Standards issued
by the Auditing Practices Board and that their objectivity is not compromised.
The auditors are required each year to confirm in writing to the Committee that they have complied with the
independence rules of their profession and regulations governing independence having taken into consideration
matters such as the individual independence of members of the engagement team and the firm as whole and
the nature of any non-audit work undertaken. Before PwC takes on any engagement for other services from the
Company, careful consideration is given as to whether the project could conflict with its role as auditor or impair its
independence. This includes consideration of the safeguards which are in place to mitigate the risks to independence.
In general, the auditor may not provide a service which:
a) creates a mutuality of interest
b) places the auditor in a position to audit their own work
c) results in the auditor acting as a manager or employee of STV
d) puts the auditor in the role of advocate for STV.
Strategic ReportFinancial StatementsAdditional InformationGovernance 49
In October, a letter was received from the FRC’s Conduct Committee, who, having reviewed STV’s 2015 Annual
Report and Accounts, were requesting further information on how various reporting requirements had been
satisfied. Although the review was conducted by FRC staff who have an understanding of the relevant legal
and accounting framework, the review was based on the 2015 report and accounts and did not benefit from
detailed knowledge of STV’s business or an understanding of the underlying transactions entered into.
The Audit Committee engaged fully with PwC in the preparation of the response and made the Board aware
of the matter. Following an exchange of correspondence, the FRC enquiry was satisfactorily brought to a close
in early 2017.
STV undertook to provide enhanced disclosure in four areas:
1. estimation of the measurement of inventory
2. pension risk and plan arrangements
3. revenue recognition and the expensing of costs
4. impairment considerations.
During the year the Committee reviewed the Company’s interim and full year results prior to publication
as well as its risk management procedures and the revised risk register, incorporating relevant, social, ethical
and environmental risks.
Significant issues considered by the Audit Committee in relation to the 2016 financial statements included
the following:
Deferred production stock
Deferred production stock forms part of inventory and is stated in the accounts at the lower of cost and net
realisable value. Programme costs are expensed in line with expected future revenues which are a judgemental
area. A detailed forecast of future secondary sales is prepared by management based on historic experience
and expected future trends, and management’s treatment and disclosures in relation to deferred production
stock were considered to be appropriate.
Pensions
The assumptions in relation to discount rate, salary increases, RPI and CPI were reviewed and were all within
a range that management considered appropriate as well as being consistent with assumptions being used by
other companies. A formal health study was undertaken during the year by a third party covering approximately
40% of the pensioner members of the Group’s two defined benefit pension schemes. This provided information
for the triennial valuation process and enabled an evidence based updating of the mortality assumption.
Management’s treatment and disclosures in relation to IAS19 were considered to be appropriate.
Goodwill
At least annually management undertakes a detailed formal impairment review of goodwill. The most significant
judgements are in setting the assumptions underpinning the calculation of the value in use of the cash generating
unit, specifically the achievability of the short term financial budget assumptions underlying the valuation process.
Specific focus is also given to the long term growth rate and discount rate. Business Plans and budgets are Board
approved and underpin the cash flow forecasts. During the year, a £2.8m provision for impairment has been
recognised against the carrying value of goodwill to reflect the historic trading performance in Productions.
ELM recoverability
As a new venture which has received significant financial backing from the Group, the assumptions around
the future expected progress of the Scottish Children’s Lottery (‘SCL’) were considered. In particular, the key
objective of reaching cashflow breakeven in 2017 was reviewed and considered to have a reasonable expectation
of being achieved. The disclosure of the debtor balance due from the SCL as non current was also deemed
appropriate given the timing of breakeven in 2017 and the likely recoupment of the debtor balance over the
following four years from 2018. Management’s treatment and disclosures in relation to the SCL debtor were
considered to be appropriate.
STV Annual Report and Accounts 2016
50
Corporate governance report
Independence of the external auditor
The Audit Committee is responsible for approving non-audit work and in order to preserve the auditor’s objectivity
and independence, the Company has a policy regulating the provision of non-audit services by the auditors. The Chief
Financial Officer must obtain the approval of either the Chairman of the Audit Committee or another Committee
member if the preference is to use the auditors and must provide an explanation as to why the auditors are the most
suitable supplier of services. A case by case decision is therefore necessary and the auditors cannot be engaged for
non-audit work without reference to the Audit Committee. It is felt that this process ensures shareholders receive
value for money and the Audit Committee keeps this policy under review. PwC also has an internal process whereby
pre-engagement approval of all non-audit services is required to be given by the Audit Partner.
During the year under review, the non-audit work carried out by PwC consisted mainly of advice in relation to tax
developments and tax compliance and as much of the information was derived from the audited financial records,
the Audit Committee agreed that PwC was the most suitable supplier.
There will always be projects for which the external auditor is best placed to perform the work to the extent that its skills
and experience along with its knowledge of the Company makes it the most appropriate provider. While it is important
that the independent role of external auditors in reporting to shareholders is not compromised, it is equally important
that the Company is not deprived of expertise when and where it is needed.
KPMG was appointed the Company’s tax advisor in October 2016 and accordingly all tax work will now be carried out
by them.
External audit effectiveness
With regard to the requirement for the Audit Committee to assess the effectiveness of the external audit process,
feedback is sought from the Audit Committee, the Chief Financial Officer as well as STV’s finance team. This covers
various aspects of the external audit process, including the audit team; how the audit is both planned and executed;
the role of management; and communication. Comments are considered by the Audit Committee and relayed to the
auditors and to management. Following this process, the Audit Committee concluded that the external audit process
operated effectively and efficiently.
Internal audit
Deloitte LLP (Deloitte) are the Company’s internal auditors and the primary focus of their internal audit programme is to
provide assurance over key revenue streams and operating costs. Deloitte review systems and processes and ensure that
the Company is operating effectively, efficiently and economically and in accordance with legislative requirements and
professional standards. Its work is designed to provide insights into the internal control environment and efficiencies of key
processes, as well as providing feedback on the effectiveness of interfaces between the business and enabling functions.
Deloitte attends all meetings of the Audit Committee and provides update reports on which specific areas have been
reviewed in terms of the planned internal audit for the year, together with an evaluation of the current controls and
the key findings and recommendations.
The Board reviews the internal control process and its effectiveness on an ongoing basis to ensure it remains robust
and to identify any control weaknesses and can confirm that no significant failings or weaknesses were identified in
relation to the review.
Strategic ReportFinancial StatementsAdditional InformationGovernance 51
Committee activities
The principal activities undertaken by the Board Committees during 2016 included:
Month
January
January
February
Committee
Nomination
Activity
Succession Planning
Remuneration
Consideration of award entitlement under the Value Creation Plan
Audit
Review of Year End Results
Review of Auditor report on Year End Results
Review of Prelim Announcement
Review of Annual Report
Review of Independence of Auditors
Review of external audit/non-audit fees
Approval of Internal Audit Plan for the year
Review of internal controls/risk management
February
Remuneration
Approval of Remuneration Policy and Report
March
March
June
June
August
Audit
October
Audit
Nomination
Recommendation of re-election of David Shearer
Remuneration
Approval of 2016 incentive arrangements
Remuneration
Review of key responsibilities and processes
Approval of revised Terms of Reference
Nomination
Discussion of potential candidates
Review of Half Year Results
Review of Auditor report on Half Year Results
Internal Audit update
Review of internal controls/risk management
In depth Business Risk Review
Internal audit update
Consideration of FRC letter
October
Nomination
Approval of appointment of Simon Miller
December
Remuneration
Review of Remuneration Policy Performance Evaluation
Approval of Executive Directors’:
– Salary and bonus for 2017
– Bonus Plan targets
– LTIP Targets
Leadership Team
The Leadership Team comprises the Executive Directors; Director of Channels; Deputy Director of Channels;
Director of Content; Commercial Director; Director of Corporate Development; HR & Communications Director;
Chief Technology and Platforms Officer; and the Head of Legal and Regulatory Affairs. The purpose of the team
is to drive the implementation of the Company’s strategic priorities while addressing critical business issues
and opportunities. The team meets weekly and is focused on Group-wide performance with the emphasis
on collaboration and teamwork and ensures that there are clear lines of accountability.
STV Annual Report and Accounts 2016 52
Corporate governance report
Senior Management Team
The Senior Management Team is made up of approximately 35 managers from around the Group who meet
monthly to discuss strategy, share knowledge and address specific issues.
Diversity
STV takes the concept of diversity seriously and further details can be found on page 26. Diversity is about
recognising, respecting and valuing the differences each person can bring and the Board recognises that it is
crucial to the achievement of the Group’s strategic objectives. Diversity of perspective on the Board is vital and
having Directors from different backgrounds with the right mix of talent, skills and experience ensures that
decisions are challenged in a credible manner and ‘group think’ is avoided.
Board
Leadership Team
Staff
22% Women
78% Men
30% Women
70% Men
46% Women
54% Men
STV has chosen not to target a specific number or percentage of women for its Board, but to concentrate its
efforts on encouraging more women to remain within the Company and progress through the ranks to senior
positions. 46% of staff are female.
Training and development
All Directors are given a comprehensive introduction to the Company’s business and continuing development
is provided through briefing sessions in the course of regular Board meetings covering business specific and
broader regulatory issues and including presentations from members of senior management. Directors are
also provided with and encouraged to take up opportunities to meet major shareholders.
Development and training of Directors is an ongoing process. Throughout their period in office the Directors are
regularly updated on the Company’s business; legal matters concerning their role and duties; the competitive
environments in which the Company operates; and any other significant changes affecting the Company and
the market sector of which it is a part. In addition, the Board regularly receives presentations from senior
managers within the Company to ensure that Directors’ knowledge, skills and familiarity with the Company’s
businesses, senior management and advisors are updated and maintained. Board training and development is
considered as part of the annual performance evaluation exercise and during the year the Chairman confirmed
with each Director that they were content with the level of training and development given.
Performance evaluation
The effective functioning of the Board is key to the success of the Company and STV recognises that Board
evaluation is extremely valuable in contributing to Board effectiveness: a formal appraisal encourages all
Directors to reflect on what the Board has accomplished, as well as on what it should be doing, how it
operates and whether any improvements can be made.
Accordingly, each year evaluation is undertaken in order to assess the Board, its committees, the Directors
and the Chairman. The process aims to enhance effectiveness and also provides an opportunity for the
Non-Executive Directors – through their exposure on other Company boards – to draw on their experience
and to suggest areas of best practice. As in previous years, this is an internal exercise led by the Chairman
and the Board considers this to be a sufficiently rigorous process.
Strategic ReportFinancial StatementsAdditional InformationGovernance 53
The evaluation is conducted using a detailed questionnaire which canvasses the opinions of the Directors
on a wide range of matters including Board composition, Board meetings and processes, Board performance,
the performance of individual Directors as well as the Board’s communication both with external stakeholders
and the Company’s senior management.
Directors were asked to complete the questionnaire and return it to the Company Secretary who collated and
anonymised the results before providing a comprehensive and detailed report to the Chairman. The report
covered all comments and suggestions made together with the rating allocated by each Director. Thereafter,
the Chairman held one to one meetings with the Non-Executive Directors and the Senior Independent Director
led the evaluation of the Chairman’s performance.
On completion of the 2016 performance evaluation, the performance of each Director was found to be
effective and following the appointment of Simon Miller, the mix of skills and experience on the Board
was felt to be appropriate.
Measured against the principal duties expected of it, and building upon the progress of previous years, the Board
continued to operate effectively and to meet in full its obligations to support management, to monitor performance
across a wide area, and to maintain its strategic oversight. Accordingly, the process concluded that the Board
provides the effective leadership and control required for a listed company. It was recognised that there was open
dialogue between all Directors enabling issues to be raised and dealt with as they occurred rather than waiting
for the next formal evaluation process and it was agreed that the stability and cohesiveness of the Board had
been vital to the Board’s continued effectiveness. There were already in place appropriate Board processes,
papers and agendas and there was good communication and interaction between the Board and the Leadership
Team. In terms of specific points made, the Non-Executive Directors expressed an interest in deepening and
broadening their knowledge of the business and of acquainting themselves with the talent pool within it.
The evaluation process further concluded that the Board was made up of strong and independent minded
Non-Executive Directors each of whom made a significant contribution to the overall success of the Company
and who demonstrated full commitment in their respective roles. All were able to allocate sufficient time to the
Company enabling them to discharge their responsibilities effectively. The Chairman reported the results of the
evaluations at the Board meeting held on 1 March 2017. The Nominations Committee confirmed to the Board
that the contributions made by the Directors offering themselves for re-election at the AGM in April 2017
continue to be effective and that the Company should support their re-election.
Re-election
Directors stand for election by shareholders at the first Annual General Meeting following their appointment
and thereafter for re-election at intervals of no more than three years. At each AGM, at least one third of the
Directors are required to retire. Copies of the Non-Executives’ letters of appointment are available for inspection
at the Company’s registered office and will be available at the Annual General Meeting.
The Chairman and other members of the Board recommend that the Directors retiring be re-elected and
their biographies can be found on pages 40 and 41. The Chairman has confirmed that the Directors retiring
and seeking re-election have been subject to performance evaluation, apart from Simon Miller who joined
the Board on 2 December 2016, and as part of this evaluation the Chairman confirms that they continue
to demonstrate commitment to their role and continue to fulfil their functions responsibly.
Tenure of Non-Executive Directors and Chairman
29% more than 6 years
N/A 4-6 years
43% 2-4 years
14% 1-2 years
14% 0-1 year
STV Annual Report and Accounts 2016 54
Corporate governance report
Relations with shareholders
STV believes that open and regular dialogue with investors is the basis for a trusted relationship. Its corporate
website (www.stvplc.tv) has information for institutional and private shareholders alike and shareholders
seeking information may contact the Company directly throughout the year. In addition, STV has an electronic
communication facility to allow shareholders to receive information more quickly and in a manner more
convenient for them.
The Board recognises the importance of having continual engagement with its shareholders and fully supports
the principles of the Code which encourage open dialogue between companies and their shareholders. The
Board welcomes and encourages the participation of all shareholders at the Company’s Annual General Meeting
at which the Chief Executive provides a detailed presentation on the activities and performance of the Group
over the preceding year. All Directors attend the AGM so shareholders have the opportunity to meet with them
to discuss particular areas of focus and ask any questions.
Shareholders by type
97% Institutionals
2% Board of Directors
1% Other individuals
(excl. Directors)
Institutional shareholders
STV undertakes a comprehensive programme of meetings and events for institutional investors and research
analysts throughout the year and the Board are kept fully informed of feedback given to the Chief Executive and
Chief Financial Officer in the course of their extensive round of investor meetings. The Board routinely receives
updates on significant movements on the share register, analysts’ consensus forecasts and market sentiment.
The Chairman, the Senior Independent Director and other Non-Executive Directors are available to meet
with shareholders to discuss governance and strategy, and develop a balanced understanding of their issues
and concerns and various meetings have taken place with shareholders during the year. Discussions at these
meetings are conveyed to all Directors in order that each can develop an understanding of major shareholders’
views on the Company.
Communication with major shareholders, analysts and the financial press is maintained throughout the year
and feedback from major shareholders is regularly sought and reviewed by the Board. Copies of analysts’
research relating to the Company are circulated to all Directors upon publication and a brief analysis of the
shareholder register is prepared for each Board meeting.
Detailed reviews of the Company’s performance and financial position are included in the Chairman’s
statement, the Chief Executive’s review and the Performance Review, which the Board uses to present a
balanced and comprehensive assessment of the Company’s position and prospects. Such communication
is designed to establish a mutual understanding of objectives.
Private shareholders
We are always pleased to hear the views of our private shareholders and to answer queries by telephone
or in writing through emailing our Company Secretary jane.tames@stv.tv. We encourage shareholders to
make maximum use of our website to access Company reports, notices of meetings and general shareholder
information. Shareholders can also check their shareholding at any time by visiting the Registrar’s website at
www.capitashareportal.com
Strategic ReportFinancial StatementsAdditional InformationGovernance
Remuneration report
55
Anne Marie Cannon
Chairman of the Remuneration Committee
Annual Statement
Having been appointed to the role of Chair of the Remuneration Committee in June 2016, I am pleased
to introduce the Directors’ Remuneration Report for the year ended 31 December 2016.
We remain committed to an open and ongoing dialogue with our shareholders on the issue of executive
remuneration and I look forward to engaging with you later in 2017 when the Committee will review our
Remuneration Policy in advance of seeking shareholder approval at the 2018 AGM, in line with the normal
three year approval cycle.
In this forthcoming review, the Committee will be focused on ensuring that our current framework remains
appropriately aligned to the strategy and needs of the business. The Committee is also aware that investor
expectations and market practice on some aspects of the structure of executive pay continue to evolve
rapidly and we intend to fully reflect on such developments during our review.
Decisions made for 2017
For 2017, the Committee has agreed salary increases of 1.5% for the Chief Executive Officer and Chief Financial
Officer, in line with the general increase in the business for 2017.
During 2017, we will continue to operate under the new simplified incentive framework approved by
shareholders in 2015. This includes an annual bonus of 125% of salary (based 50% on operating profit,
25% on cash flow and 25% on personal targets). Bonus targets are fully disclosed on a retrospective basis.
This framework also includes an LTIP award of 100% of salary. The performance targets for the 2017 LTIP
award will remain unchanged as they continue to represent an appropriate level of stretch for the business
in the current environment. The EPS growth targets (50% of the award) will remain at 7% to 12% p.a. The TSR
component (20%) is measured against the FTSE Small Cap with vesting between median and upper quartile.
The non-broadcast earnings component (30%) will be based on earnings delivered in FY19 and based upon
a target range of £4m to £9m.
Summary of the framework
Following the changes implemented in 2015, we now have a simple and transparent remuneration framework
aligned with our strategy and the interests of our shareholders, as summarised on the next page.
STV Annual Report and Accounts 2016 56
Remuneration report
Salary/Benefits/Pension
Annual bonus
LTIP
– Market competitive fixed pay
– Salary increases of 1.5% for 2017
– Fixed benefits allowance (£16k)
and cash pension allowance
(20% of salary)
– Maximum: 125% of salary
– 20% of any bonus deferred for
– Maximum: 100% of salary
– Shares vest after three years based on the
three years
delivery of stretching performance target ranges
– Linked to challenging performance
targets (currently operating profit,
cashflow and personal objectives)
– 50% EPS growth
– 30% Non-broadcast operating profit
– 20% relative TSR vs FTSE Small Cap
Recovery provisions – apply to all elements bonus and LTIP awards
Shareholding guidelines – Executive Directors to build holding of 100% of salary
2016 outcomes
During 2016 significant strategic objectives were achieved; further de-risking the business whilst creating a
platform to support future growth activities.
The financial stability and resilience of the business was further strengthened through the agreement of a pension
deficit recovery plan that provides financial flexibility to continue the strategy of organic growth augmented
by targeted investments in key growth activities. The process to review our airtime and sponsorship trading
agreements was concluded in late 2016 following an 18-month market review process. An amended Airtime Sales
Agreement, agreed with ITV plc, provides a modernised trading arrangement designed to support the multi-
product commercial portfolio of advertising products available for our commercial partners. The efficiencies and
transparency delivered by this new long term (8-year) agreement provide increased financial stability for the future.
Additionally, in late 2016, a deficit funding plan was agreed with the trustees of the Company’s defined benefits
pension schemes. An 11-year funding plan was agreed in line with the Board’s expected cash commitments.
A new venture – the Scottish Children’s Lottery – which will support delivery of the data strategy in future was
successfully launched during 2016. This charitable society lottery has been enabled by investment and support
from the Group.
Payments have been triggered under the annual bonus for 2016 as a result of performance against operating
profit, and personal objectives targets. The threshold performance level for the cashflow target was not met
due to macro-economic factors weakening the national airtime revenue market and working capital outflows
due to the phasing of Productions deliveries in the second half of the year. The Executive Directors received
bonus payments of 36% of salary (29% of bonus potential maximum). The performance targets and payment
levels achieved against those targets are disclosed on page 62.
There was no LTIP in place which vested in 2016. The first LTIP award granted under the new framework
outlined above will vest in respect of performance to 2017, and will be reported on in next year’s report.
The final deferred payment earned previously under the legacy ‘bonus banking’ arrangements approved by
shareholders in April 2013 and replaced by the introduction of the current framework was released at the end
of 2016. This deferred share based payment was based on performance over a three-year period from January
2013 to December 2015, with a ‘banked’ balance due for payment at the end of a four year period (subject to
achievement of further performance targets which were met).
The following pages provide an extract of current Remuneration Policy. The Annual Report on Remuneration
provides additional detail on the payments and awards made to the Executive Directors in the year and on
our intentions for 2017 in line with the current Remuneration Policy. The Annual Report on Remuneration
together with this Annual Statement is subject to an advisory shareholder vote at the AGM on 25 April 2017.
At last year’s AGM we received over 99% support for both remuneration related resolutions. I look forward
to receiving your support at this year’s AGM.
Anne Marie Cannon
Chairman of the Remuneration Committee
Strategic ReportFinancial StatementsAdditional InformationGovernance 57
Directors’ Remuneration Policy
An extract of key parts of the Remuneration Policy is reproduced below for information only. The full
Remuneration Policy is on our website and set out on pages 46 to 54 of the 2014 Annual Report, subject to the
correction made on page 53 of the 2015 Annual Report, both of which are also available in the investor relations
section of the Group’s website.
Policy table for Executive Directors
Objective and link to strategy
Operation
Maximum opportunity
Performance
conditions
None
Base salary
The Committee sets
salaries as a retainer for
the Executive Directors
to recognise status and
responsibility to deliver
the strategy
Benefits
To provide competitive levels
of employment benefits
consistent with role
Pension
To provide competitive
levels of retirement benefit
When determining the salary of the Executive
Directors, the Committee takes into
consideration a number of factors including:
• the scale and complexity of the Company
and the scope and responsibilities of the role
• the skills, experience and performance
of the individual
• the Committee’s assessment of the
competitive environment including
consideration of similar positions in
organisations of broadly similar size
and complexity, in particular companies
within the media sector
• pay and conditions throughout the
Company
Salaries are normally reviewed annually,
with any changes effective from 1 January
in the financial year
There is no prescribed
maximum salary
In general, any salary increase
for Executive Directors will be
in line with other employees
in the Group
The Committee retains
discretion to award larger
increases where considered
appropriate to reflect the
factors described in this table
Salaries with effect from
1 January 2017 are set out
on page 60
Executives are entitled to receive a taxable
cash allowance in lieu of benefits in kind,
including car and private medical insurance.
This cash benefits allowance is excluded from
the calculation of any other benefit provided
by the Company
The Executive Directors are eligible to
participate in the Company’s all employee
share plans, as offered from time to time,
on the same terms as all employees
Benefit values vary year-on-
year, depending on premiums,
and the maximum potential
value is the cost of the
provision of the benefits
outlined
Participation in all employee
share plans is subject to HMRC
plan rules and limits
None
The maximum pension
contribution or taxable cash
allowance in lieu of pension
is 20% of salary
None
The Group operates a defined benefit (‘DB’)
scheme (closed to new members), a defined
contribution (‘DC’) scheme and a Group
personal pension plan
Executive Directors have the option to
receive a taxable cash allowance in lieu
of pension benefits
George Watt was a participating member
of the Scottish and Grampian Television
Retirement Benefits Scheme, which is an
approved defined benefits occupational
pension scheme, until 31 March 2010,
when he became a deferred member
No benefits accrued under this scheme
during 2016
STV Annual Report and Accounts 2016
58
Remuneration report
Objective and link to strategy
Operation
Annual bonus
Aligns reward to the
delivery of annual financial
and strategic performance
measures. Deferral creates
long term alignment with
shareholders
This framework will apply with
effect from the 2016 financial
year (the Bonus Plan described
on page 60 will apply in 2017)
Provides an opportunity for
additional reward (up to a
maximum specified as a %
of salary) based on annual
performance against targets set
and assessed by the Committee
A proportion of any bonus (20%)
is deferred into Company shares
under the terms of the STV
Deferred Bonus Plan (‘DBP’) and
normally vest over three years,
subject to continued employment
Recovery and dividend
equivalent provisions apply
(see explanatory notes)
Maximum
opportunity
125% of
salary
Long Term Incentive Plan
Aligns reward to the
delivery of long-term
financial performance
delivered for shareholders
The
maximum
award in
respect of
a financial
year is
100% of
salary
Awards are made under the
terms of the STV Long Term
Incentive Plan
Awards are normally in the form
of a right to acquire shares in the
Company for a zero or nominal
amount
Awards vest over a period of at
least three years, subject to the
satisfaction of performance
conditions
A post-vesting holding period
may apply
Recovery and dividend
equivalent provisions apply
(see explanatory notes)
Performance conditions and assessment
Payment is determined by reference to
performance assessed over one financial
year based on a range of financial and
strategic performance measures
These measures currently include:
• operating profit
• cash flow
• personal objectives
As well as determining the measures and
targets, the Committee will also determine
the weighting of the various measures,
which will normally be weighted towards
the financial measures
At threshold and target performance
12.5% and 50% of base salary, respectively,
is currently payable
The Committee has discretion to use
different or additional measures, weightings
or payout schedules to ensure that the
bonus framework appropriately supports
the business strategy and objectives for
the relevant year
The Committee has the discretion to adjust
targets for any exceptional events that may
occur during the year
Vesting is determined by reference to
performance assessed over a period
of at least three years, based on the
under-noted performance measures
which the Committee consider to be
aligned with the delivery of strategy
and long term shareholder value:
• earnings per share (‘EPS’) – 50%
• non-broadcast operating profit – 30%
• relative total shareholder return – 20%
The Committee has discretion to use
different or additional measures or
weightings to ensure that the LTIP
remains appropriately aligned to the
business strategy and objectives
The Committee has the discretion to adjust
targets for any exceptional events that may
occur during the year. The threshold level
of vesting is 25% of the maximum award
Shareholding requirement
To strengthen long
term alignment with
shareholders
Executive Directors are required
to hold shares equivalent to
100% of their annual salary
None
The
required
level of
holding is
100% of
salary
Strategic ReportFinancial StatementsAdditional InformationGovernance 59
Notes to the Policy table
Recovery provisions
Awards of variable remuneration made under the Policy Table for Executive Directors are subject to recovery
provisions which allow the Committee to reduce or cancel unvested DBP/LTIP awards, or seek to reclaim paid
or deferred cash or DBP/LTIP awards, in certain circumstances.
The recovery provisions for the annual bonus apply for three years from the date of payment of the bonus/grant
of deferred shares, and two years from the date of vesting under the LTIP. The circumstances which may trigger
the recovery provisions are as follows:
• a material misstatement of the Company’s (or any Group members) audited financial results
• misconduct on the part of the participant
• an error in assessing a performance condition
• action by a participant or participants which resulted in a material breach and subsequent loss of the
Company’s Channel 3 licence(s).
Dividend equivalents
The Committee may determine that the number of shares to which a participant’s DBP or LTIP award relates
shall increase to take account of dividends that would have been paid on vested shares on such terms as it
determines, or that an equivalent amount should be paid in cash.
Performance measures and targets
The Committee selects performance measures for the annual bonus which appropriately support the business
strategy and objectives for the relevant year. The financial metrics used (such as operating profit) are the key metrics
used by the Directors to oversee the operation and performance of the business. Personal measures allow the
Committee to reward the delivery of key strategic objectives. The performance measures for the LTIP are aligned
with the delivery of strategy and long term shareholder value. The performance targets are determined annually
by the Committee, and are set at an appropriately stretching level taking into account relevant business forecasts.
Service contracts
When setting notice periods the Committee has regard to market practice and corporate governance best
practice. Notice periods will not be greater than 12 months.
Director
Executive
Date of contract/
letter of appointment
Unexpired term
Notice period by Company/Director
R Woodward
28 February 2007
Rolling contract
12 months/6 months
G Watt
27 February 2001
Rolling contract
12 months/6 months
Director
Non-Executive
Date of contract/
letter of appointment
Date(s) of (re)
appointment
Unexpired as at March 2017
Baroness Ford
1 June 2013
D Shearer
M Jackson
G Shore
28 February 2007
1 May 2009
1 March 2012
C Woolfenden
1 June 2014
A M Cannon
1 November 2014
I Steele
S Miller
1 November 2015
2 December 2016
26 April 2016
26 April 2016
30 April 2015
30 April 2015
30 April 2015
30 April 2015
26 April 2016
–
2 years 1 month
2 years 1 month
1 year 1 month
Resigned in March 2016
1 year 1 month
1 year 1 month
2 years 1 month
2 years 9 months
STV Annual Report and Accounts 2016 60
Remuneration report
Annual Report on Remuneration
This section of the report sets out how the Policy will be implemented in 2017 and how it was implemented
during 2016. Some sections of this report, where indicated, have been audited.
Statement of implementation of remuneration policy for 2017
Executive Directors
The salaries for 2017 are set out below:
Executive Director
R Woodward
G Watt
2016 salary
£000
2017 salary
£000
%
increase
395
223
400
226
1.5%
1.5%
Salary levels of employees throughout the Company were increased by an average of 1.5% in 2017.
Benefits and pension will be provided for as set out in the Policy Table for Executive Directors.
For 2017, the Executive Directors will participate in the annual bonus as described in the table on page 58. The
bonus will be based on stretching targets set for the performance measures in the table below. The Committee
is of the opinion that the performance targets for the Bonus Plan are commercially sensitive, and that it would
be detrimental to the interests of the Company and its shareholders to disclose them at this time. It is the
Committee’s intention to disclose the targets after the end of the financial year if the Committee is satisfied
they are no longer sensitive.
Performance measure
Operating profit
Cash flow
Personal objectives
Totals
Weighting
50%
25%
25%
Maximum bonus
contribution
(% of salary)
62.5%
31.25%
31.25%
125%
In 2017, the Executive Directors will receive awards under the LTIP at the level of 100% of salary that will vest
after three years subject to the following performance targets:
Performance measure
Calibration of targets
EPS
Annualised growth in adjusted EPS from FY16 to FY19
Non-broadcast
operating profit
Relative TSR
Operating profit for non-broadcast activities in FY19
Ranked position of the Company’s total shareholder
return (‘TSR’) against the constituents of the FTSE
Small Cap Index (using 3 month averaging)
Weighting
Threshold vesting
(25% of maximum)
Maximum
vesting
50%
30%
20%
7%
£4.0m
Median
12%
£9.0m
Upper
quartile
There is no vesting for below threshold performance and straight-line vesting between threshold and maximum.
Strategic ReportFinancial StatementsAdditional InformationGovernance 61
Non-Executive Directors
Non-Executive remuneration is determined by the Board based upon recommendations from the Chairman
and Chief Executive Officer (or in the case of the Chairman, it is determined by the Senior Independent
Director and the Chief Executive Officer) and is within the limits set by the Articles of Association.
The fees for the Chairman and Non-Executive Directors effective at 1 January 2017 are set out below. The
fee payable to the Chairman was reviewed in 2016 and has been increased by 30%, the first increase since
appointment in 2013, to reflect market norms:
Non-Executive Director
Chairman fee
Basic NXD fee
Additional fees: SID
Sitting on the Company’s Audit and/or Remuneration Committees
Chairing the Audit or Remuneration Committee
£
125,000
32,500
12,500
5,000
2,500
Single total figure of remuneration
Executive Directors (audited)
The table below sets out the single total figure of remuneration for each Executive Director for the 2016
financial year. Comparative figures for 2015 are also shown.
Executive Director
R Woodward
G Watt
Financial
year
Salary
£000
Taxable
benefits
£000
Annual
bonus
2016
£000
Deferred
payment
2013
£000
Long-term
incentives
£000
Pension
£000
2016
2015
2016
2015
395
388
223
218
16
16
16
16
142
237
80
134
175
–
99
–
n/a
1,552
n/a
799
79
76
45
43
Total
£000
807
2,269
463
1,210
Notes
Taxable benefits – Includes a taxable cash allowance in lieu of benefits-in-kind, including car and private medical insurance.
Annual bonus – This includes the value of bonus earned in respect of the relevant financial year. For 2016, 20% of this will be deferred
into shares for three years.
Deferred payment – This is final payment under this legacy ‘bonus banking’ plan and relates to performance in the years 2013-2015
which was deferred in participants Plan Account since 2015 and not previously included in the table above in a previous financial year.
Long term incentives – There was no LTIP award measured by reference to 2016 performance. The 2015 column includes the value of
the VCP vested with respect to performance over the period 31 December 2015.
Pension – Both Executive Directors receive a taxable cash allowance in lieu of pension. George Watt is a deferred member of the
Scottish & Grampian Television Retirement Benefits Scheme (defined benefit) and as such no additional value was accrued by him
under this plan during the year.
External appointments
During 2016, Rob Woodward received £41,000 as a non-executive director of Blancco Technology Group plc
(formerly Regenersis plc). George Watt received £20,000 as a non-executive director of SpaceandPeople plc.
In accordance with STV’s policy, each was entitled to retain their fees.
STV Annual Report and Accounts 2016 62
Remuneration report
Non-Executive Directors (audited)
The table below sets out the single total figure of remuneration for each Non-Executive Director. Non-Executive
Directors do not participate in any of the Company’s incentive arrangements nor do they receive any benefits.
Non-Executive Director
Baroness Ford
D Shearer
M Jackson
G Shore2
C Woolfenden
A M Cannon
I Steele
S Miller3
Financial
year
Basic
fees
£000
Additional
fees1
£000
Total
fees
£000
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
95,000
95,000
45,000
45,000
32,500
32,500
13,542
32,500
32,500
32,500
32,500
32,500
32,500
5,417
2,708
–
–
7,500
7,500
5,000
5,000
3,125
7,500
5,000
5,000
6,458
1,763
5,000
628
–
95,000
95,000
52,500
52,500
37,500
37,500
16,667
40,000
37,500
37,500
38,958
34,263
37,500
6,045
2,708
Notes
1 Additional fees relate to a fee of £5,000 per annum for sitting on one or more of the Company’s Audit and Remuneration Committees
and a further fee of £2,500 per annum to reflect the additional duties involved in chairing the Audit and Remuneration Committees
2 Genevieve Shore resigned in June 2016
3 Simon Miller was appointed on 2 December 2016
Annual bonus (audited)
The table below sets out the targets and achieved performance against the performance targets for the Bonus
Plan for the year ended 31 December 2016.
Annual contribution (% salary)
Performance targets
Actual performance outcome
Performance condition
Weighting
Threshold Maximum Threshold Maximum
(£m)
(% salary)
R Woodward
G Watt
Operating profit
50%
6.25%
62.5% £19.3m £24.7m £19.7m
Cash flow
25% 3.125% 31.25% £11.6m £13.1m
£9.5m
Personal objectives
25% 3.125% 31.25%
See below
Total
100%
12.5%
125%
–
–
–
11%
0%
25%
36%
£43,290
£24,402
Target not met
£98,383
£55,713
£141,673
£80,115
Strategic ReportFinancial StatementsAdditional InformationGovernance 63
The personal objectives were set at the start of the year by the Committee. These targets related to key
strategic business projects aligned to the strategy, KPIs and creation of shareholder value. The Committee
assessed performance against these targets and concluded that a bonus payment equal to 36% of salary
to each Executive Director appropriately reflected performance.
The key objectives that were successfully delivered will have the effect of de-risking the business whilst
providing financial certainty and flexibility to continue to progress the growth strategy.
In particular, the terms of the amended Advertising Sales Agreement with ITV represent a significant
improvement on the legacy contract under which the business had operated bringing simplicity, clarity
and transparency and a lower cost of sale.
Additionally, in late 2016, a deficit funding plan was agreed with the trustees of the Company’s defined benefits
pension schemes. An 11-year funding plan was agreed in line with the Board’s expected cash commitments.
A new venture, the Scottish Children’s Lottery, was successfully launched in late 2016. It is planned that the
investment in this will enable the Group to generate more and improved customer data and insights.
Despite some weakness in the advertising market in the second half of 2016, the resilience of the core
consumer business was demonstrated through delivery of an above target margin of 18.5%. This margin
represents an 11 year high and was achieved through successful development of the portfolio of consumer
services which are achieving increased reach and engagement. During 2016 digital activities, which are now a
core area of activity achieved significant revenue growth, up 20% on the previous year. This profitable business
delivered an operating margin of 52%, ahead of target levels.
Scheme interests awarded in 2016 financial year (audited)
The table below shows awards made to the Executive Directors during 2016 under the LTIP:
Executive Directors
Award type
Basis of award
Face value of award*
Threshold vesting
Performance period
R Woodward
G Watt
LTIP
LTIP
100% of salary
100% of salary
£395k
25% of maximum
1/1/16-31/12/18
£223k
25% of maximum
1/1/16-31/12/18
* Calculated using the closing share price (367p) on the date prior to the date of award. These awards are subject to the same
performance targets as set out on page 60.
Payments to past Directors (audited)
No payments to past Directors were made during the year.
Payments for loss of office (audited)
No payments for loss of office were made during the year.
All employee share plans
A new three year Savings Related Share Option Plan (‘SAYE’) was launched in October 2016 at a price of
334 pence per share. Rob Woodward was fully subscribed under the 2015 SAYE scheme and George Watt
was fully subscribed under the 2014 SAYE scheme so neither participated in the 2016 plan.
STV Annual Report and Accounts 2016
64
Remuneration report
Statement of Directors’ shareholding and share interests (audited)
Executive Directors are required to build up a shareholding equal to 100% of salary. The table below summarises
the Directors’ interests in shares and the extent to which the shareholding requirements have been achieved.
During 2016, a requirement for the Non-Executive Directors to build up a shareholding of one times annual fee
over a three-year period was introduced.
No. of
beneficially
owned
shares
No. of
deferred
Bonus
Plan
shares
No. of
SAYE
options
subject to
conditions
No. of
unvested
LTIP
awards at
31/12/16
Total
interests
held at
31/12/16
Monetary
value of
shares at
31/12/16
£000
Shareholding
requirement
(% salary/
% annual
fee)
No. of
nil cost
options
Current
holding
(% salary/
fee)
Require-
ment
met?3
Directors
Executive
R Woodward
419,322
48,850 336,735
4,900
198,925 804,907
G Watt
265,769
27,536 133,470
5,325
112,131
426,775
Non-Executive
Baroness Ford
25,958
D Shearer
100,000
M Jackson
C Woolfenden
A M Cannon
I Steele
S Miller
–
9,092
9,042
8,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,958
– 100,000
–
–
–
–
–
–
9,092
9,042
8,000
–
2,710
1,430
93
359
–
33
32
29
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
686%
641%
98%
797%
–
100%
100%
88%
–
Yes
Yes
n/a
Yes
n/a
Yes
Yes
n/a
n/a
Notes
1 Beneficial interests include shares held directly or indirectly by connected persons.
2 Share price at 31/12/16 was 358.5 pence per share.
3 Not applicable as three-year period to acquire is ongoing until 2019.
Dilution
The following table sets out the current level of dilution against the limits in the Bonus Plan and sets out the
commitments to issue shares made during the financial year reported:
Maximum
Current dilution
Additional dilution during
the year in question
10% dilution in ten years
5% dilution in ten years
7.77
4.62
0.68
0.26
The DBP and LTIP are subject to a limit of 10% in ten years.
Strategic ReportFinancial StatementsAdditional InformationGovernance
65
Performance graph and table
The graph below shows the Company’s performance, measured by total shareholder return (‘TSR’), compared
with the performance of the FTSE Small Cap and FTSE Small Cap Media indices. The FTSE Small Cap index will
be used for performance measurement under the new LTI and the FTSE Small Cap Media index provides a
comparison of performance in the media sector.
700
600
500
400
300
200
100
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
FTSE Small Cap index
FTSE All Share Media Index
STV Group plc
The table below shows the Chief Executive Officer’s remuneration over the past eight years.
Year
2016
2015
2014
2013
2012
2011
2010
2009
Single figure of total
remuneration
(£000)
R Woodward
Bonus pay-out
(as % maximum
opportunity)1
Long-term incentive
vesting rates
(as % maximum
opportunity)
807
2,269
661
601
696
958
614
418
29
49
46
54
31
15
75
–
–
100%
–
–
100%
–
–
–
Note
1 Maximum potential bonus opportunity has varied in the period between 2009 and 2016
and therefore this is not a like-for-like comparison.
STV Annual Report and Accounts 2016 66
Remuneration report
Percentage change in Chief Executive Officer’s remuneration
The table below shows the percentage change in the salary, benefits and annual bonus of
the Chief Executive Officer and all employees (on a per capita basis) between 2015 and 2016.
Chief Executive Officer
All employees
Salary
Taxable benefits
1.5%
1.5%
0%
0%
Bonus
41%
n/a
Relative importance of spend on pay
The table below sets out the relative importance of spend on pay in the 2015 and 2016 financial years.
These were the most significant outgoings for the Company in the last financial year.
Significant distributions
Overall spend on pay
Dividend or share buyback
2016
£19.6m
£4.3m
2015
% change
£19.6m
£3.5m
–
+23%
Consideration by the Directors’ of matters relating to Director’s remuneration
Members of the Committee
During the year, the Committee comprised of the following Independent Non-Executive Directors: Genevieve
Shore (Chairman) who resigned in June 2016; Michael Jackson; Anne Marie Cannon, who was appointed
Chairman on 21 June 2016 and Ian Steele. The Committee met five times during the year.
The Committee is responsible for recommending to the Board the remuneration policy for Executive Directors
and the senior management and for setting the remuneration packages for each Executive Director. The
Committee also has oversight of the remuneration policy and packages for other senior members of staff.
The Committee has formal terms of reference which describes its full remit and which can be downloaded
from the Company’s website, www.stvplc.tv.
Advisors to the Committee
The Committee seeks independent advice to assist in considering executive remuneration. This includes
updating the Committee on trends in compensation and governance matters and advising the Committee
in connection with the design and operation of the Company’s incentive arrangements.
During the year, the Committee received advice from Deloitte LLP. Deloitte LLP is a member of the Remuneration
Consultants’ Group and has signed up to that Group’s Code of Conduct on executive remuneration consulting.
On that basis, the Committee is satisfied that the advice received was objective and independent. Deloitte LLP
was also the Company’s internal auditor during the period. The Committee reviewed the nature of the services
provided and was satisfied that no conflict of interest existed in the provision of these services, and that the
advice provided was objective and independent. The total fees paid to Deloitte LLP during the year for advice
to the Committee were £29,100.
In the course of its deliberations during the period under review, the Committee sought the assistance of
the Chairman and Chief Executive Officer on matters relating to Directors’ performance and remuneration.
The Chairman, Chief Executive Officer and the HR & Communications Director attend meetings by invitation.
Strategic ReportFinancial StatementsAdditional InformationGovernance
67
Statement of voting at general meeting
The table below shows the remuneration related votes at the AGM held on 26 April 2016.
2015 Remuneration Report
30,879,904
99.33%
2015 Remuneration Policy**
30,941,967
99.54%
206,896
144,077
0.67
0.46
32,860,709
1,773,909
32,860,709
1,774,665
Votes for
%
Votes against
%
Total votes cast
Votes withheld*
* A vote withheld is not a vote in law and counts neither for nor against a resolution.
** A vote to approve a revision to the Policy in accordance with Section 439A of the
Companies Act in order to effect the correction of a typographical error in the Policy.
Anne Marie Cannon
Chairman of the Remuneration Committee
13 March 2017
STV Annual Report and Accounts 2016 68
Directors’ report
The Directors present the Directors’ report, together with the audited accounts for the year ended
31 December 2016. The Directors’ report comprises pages 68 to 70 and the sections of the annual
report incorporated by reference are set out below:
Directors during 2016 financial year – See page 42
Greenhouse gas emissions – See page 28
Employee equality and diversity – See page 26
Principal risks – See pages 34 and 35
Corporate governance report – See pages 39 to 54
Employee involvement – See pages 26 and 27
Dividends
The proposed total dividend for 2016 is 15.0p per share – an increase of 50% on 2015 (10.0p). During 2016 the
final 2015 dividend of 7.0p per share was paid together with the interim dividend for 2016 of 4.0p per share.
A final dividend of 11.0p per share has been declared which, subject to approval at the AGM in April, will be
paid on 19 May 2017, to shareholders on the register at 18 April 2017.
Share capital
On 13 March 2017, there were 39,548,231 ordinary shares of 50p each in issue, each with one vote. There were
no shares held in treasury at that date. The rights and obligations to the Company’s shares are set out in its
Articles of Association. Details of Directors interests in shares can be found on page 64.
As at 13 March 2017, the Group had been notified of the following interests of 3% or more in its shares:
Shareholders
Crystal Amber Advisers
Columbia Threadneedle Asset Mgt
UBS Global Asset Mgt
Slater Investments
Cavendish Asset Mgt
Artemis Investment Mgt
AXA Investment Mgrs
BlackRock Investment Mgt
Majedie Asset Mgt
March
5,536,676
4,000,791
3,234,316
2,662,001
1,451,350
1,407,311
1,318,681
1,292,227
1,228,765
%
14.00
10.12
8.18
6.73
3.67
3.56
3.33
3.27
3.11
Principal activities
The principal activities of the Group are the production and distribution of content across multiple devices
and platforms, including television broadcasting, and the sale of advertising airtime and space in these media.
The Group continues to focus on its television and digital media businesses and is also involved in supporting
charitable activities including the operation of STV ELM to provide services to the Scottish Children’s Lottery.
Compliance
Part of the information that fulfils the Companies Act requirements of the Directors’ Report can be found in the
Performance Review on pages 32 and 33. The Group’s subsidiaries are listed in note 18 of the Company financial
statements and details of the principal risks and uncertainties facing the Group can be found on pages 34 and 35.
Directors and officers of the Company and its subsidiaries have the benefit of a Directors’ and Officers’ liability
insurance policy. The Company’s Articles of Association also provide that every Director and other officer of
the Company is to be indemnified out of the assets of the Company against any liability he or she incurs in
defending any proceedings brought against them (provided that judgement is not given against them).
Strategic ReportFinancial StatementsAdditional InformationGovernance
69
Directors have a statutory duty to avoid situations where they have or can have, any interest that conflicts
or possibly may conflict with the interests of the Company. A Director will not be in breach of that duty if the
relevant matter has been authorised in accordance with the Articles of Association by the other Directors.
The Directors confirm that there have been no such conflicts during the year to 31 December 2016.
Annual General Meeting
Details of the 2017 AGM, together with the Notice of AGM can be found on pages 114 to 122.
Directors
The Directors of the Company and their profiles are detailed on pages 40 and 41. All of these Directors served
throughout the year under review with the exception of Simon Miller who was appointed to the Board on
2 December 2016. Genevieve Shore resigned on 2 June 2016. The Articles of Association of the Company
require Directors to submit themselves for re-election every three years. In addition all Directors are subject
to election at the first opportunity after their appointment to the Board.
Donations
The Group made no political donations (2015: £nil) during the year.
Voting rights and restrictions on transfer of shares
None of the ordinary shares carry any special rights with regard to control of the Company. There are no
restrictions on transfers of shares other than certain restrictions which may from time to time be imposed by
laws or regulations such as those relating to insider dealing and pursuant to the Company’s share dealing code,
whereby the Directors and designated employees require approval to deal in the Company’s shares.
The Company is not aware of any arrangements between shareholders that may result in restrictions on the
transfer of securities or voting rights. Further details of the rights, restrictions and obligations attaching to the
share capital of the Company, including voting rights, are contained in the Company’s Articles of Association.
The Articles may only be amended by special resolution at a general meeting of shareholders. Copies are
available by writing to the Company Secretary and are also open to inspection at Companies House.
The STV Group plc Employee Benefit Trust, which is used to acquire and hold shares in the Company for the
benefit of employees, waives its right to vote and to dividends on the shares it holds which are unallocated.
Change of control
All of the Company’s employee share plans contain provisions relating to a change of control. On a change
of control, options and awards granted to employees under the Company’s share plans may vest and become
exercisable, subject to the satisfaction of any applicable performance conditions at that time. Certain of the
Company’s credit facilities and banking arrangements contain change of control clauses under which lenders
may cancel their commitments and declare all outstanding amounts immediately due and payable.
The Channel 3 broadcasting licences require STV, as the license holder, to notify Ofcom on a change of control.
Ofcom would thereafter require to determine that any proposed new license holder was a fit and proper person
to hold the licence. There are no other significant agreements that would take effect, alter or terminate upon
a change of control following a takeover bid.
The Scottish Children’s Lottery, which holds licences awarded by the UK Gambling Commission, engages the
services of STV ELM Limited, which is a subsidiary of STV Group plc, to deliver the lottery product to consumers.
Although the lottery is operated independently of STV, in accordance with the requirements of these licences,
STV provides financial support and if there is a change of control of STV, STV ELM is obliged to notify the UK
Gambling Commission who may thereafter review the licences.
STV Annual Report and Accounts 2016 70
Directors’ report
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare the financial statements for each financial year. Under that law
the Directors have prepared the Group and Company financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must
not approve the financial statements unless they are satisfied that they give a true and fair view of the state of
the affairs of the Group and Company and the profit and loss of the Group and Company for that period.
In preparing these financial statements the Directors are required to:
• select suitable accounting policies and then apply them consistently
• make judgements and estimates that are reasonable and prudent
• state whether applicable IFRSs as adopted by the European Union and applicable UK Accounting Standards
have been followed subject to any material departures disclosed and explained in the Group and parent
company financial statements respectively
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
Group will continue in business.
The Directors consider that the annual report and accounts for the year ending 31 December 2016, when taken
as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to
assess the Company’s position and performance, business model and strategy.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company
and the Group and enable them to ensure that the financial statements and the Directors’ Remuneration Report
comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
They are also responsible for safeguarding the assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
Independent Auditors and Disclosure of Information
So far as the Directors are aware there is no relevant audit information (that is information needed by the
Group’s auditors in connection with preparing their report) of which the Group’s auditors are not aware. Each
Director has taken all steps that he or she ought to have taken as a Director in order to make him or herself
aware of any relevant audit information and to establish that the Group’s auditor is aware of that information.
Directors’ Statement pursuant to the Disclosure and Transparency Rules
Each of the Directors, whose names and functions are listed on pages 40 and 41 confirm that, to the best of his
or her knowledge and belief:
• the Group financial statements which have been prepared in accordance with IFRSs as adopted by the EU,
give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
• the Strategic Report includes a fair review of the development and performance of the business and the
position of the Group, together with a description of the principal risks and uncertainties that it faces.
The Directors are responsible for the maintenance and integrity of the Group’s website and legislation in
the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
By order of the Board
Rob Woodward
Chief Executive Officer
13 March 2017
Strategic ReportFinancial StatementsAdditional InformationGovernance 71
Financial Statements
72
STV Group plc
consolidated financial
statements – independent
auditors’ report
79
80
78 Consolidated income statement
Consolidated statement
78
of comprehensive income
Consolidated and parent
company balance sheets
Consolidated and parent
company statement
of changes in equity
Consolidated and parent
company statement
of cash flows
Notes to the financial statements
82
111 Five year summary
81
Additional Information
112 Shareholder information
114 Notice of Annual General
Meeting
STV Annual Report and Accounts 2016 72
STV Group plc consolidated financial statements
Independent auditors’ report to the members of STV Group plc
Report on the financial statements
Our opinion
In our opinion:
Our audit approach
Overview
• STV Group plc’s Group financial statements and Company
financial statements (the ‘financial statements’) give a
true and fair view of the state of the Group’s and of the
Company’s affairs as at 31 December 2016 and of the
Group’s profit and the Group’s and the Company’s cash
flows for the year then ended;
• the Group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards (‘IFRSs’) as adopted by the
European Union;
• the Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with
the provisions of the Companies Act 2006; and
• the financial statements have been prepared in
accordance with the requirements of the Companies
|Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
What we have audited
The financial statements, included within the Annual
Report and Accounts (the ‘Annual Report’), comprise:
• the Consolidated and Parent Company Balance
Sheet as at 31 December 2016;
• the Consolidated Income Statement and the
Consolidated Statement of Comprehensive Income
for the year then ended;
• the Consolidated and Parent Company Statement
of Cash Flows for the year then ended;
• the Consolidated and Parent Company Statement
of Changes in Equity for the year then ended; and
• the notes to the financial statements, which include
a summary of significant accounting policies and
other explanatory information.
Certain required disclosures have been presented elsewhere
in the Annual Report, rather than in the notes to the
financial statements. These are cross-referenced from
the financial statements and are identified as audited.
The financial reporting framework that has been applied
in the preparation of the financial statements is IFRSs
as adopted by the European Union and, as regards the
Company financial statements, as applied in accordance
with the provisions of the Companies Act 2006, and
applicable law.
• Overall Group materiality:
£899,190 which represents 5% of
profit before tax and exceptional
items (as noted on page 74).
• We performed audit work over all
three segments of the business.
• Taken together, the segments and
functions where we performed our
audit work accounted for 100%
of Group revenues and 100%
of Group profit before tax.
• Retirement benefit obligations
(refer to page 49 (Audit Committee
Report), page 82 (Accounting
Policies) and page 106 (Notes).
• Deferred programme production costs carrying
value (refer to page 49 (Audit Committee Report),
page 82 (Accounting Policies) and page 100 (Notes).
• External Lottery Management (‘ELM’) recoverability
(refer to page 49 (Audit Committee Report), page 82
(Accounting Policies) and page 101 (Notes).
• Goodwill (refer to page 49 (Audit Committee Report),
page 82 (Accounting Policies) and page 96 (Notes).
The scope of our audit and our areas of focus
We conducted our audit in accordance with
International Standards on Auditing (UK and
Ireland) (‘ISAs (UK & Ireland)’).
We designed our audit by determining materiality
and assessing the risks of material misstatement in the
financial statements. In particular, we looked at where
the Directors made subjective judgements, for example in
respect of significant accounting estimates that involved
making assumptions and considering future events that
are inherently uncertain. As in all of our audits we also
addressed the risk of fraud in revenue recognition and
the risk of management override of internal controls,
including evaluating whether there was evidence of
bias by the Directors that represented a risk of material
misstatement due to fraud.
The risks of material misstatement that had the
greatest effect on our audit, including the allocation of
our resources and effort, are identified as ‘areas of focus’
in the table below. We have also set out how we tailored
our audit to address these specific areas in order to
provide an opinion on the financial statements as a
whole, and any comments we make on the results
of our procedures should be read in this context. This
is not a complete list of all risks identified by our audit.
Strategic ReportGovernanceAdditional InformationFinancial StatementsMaterialityAudit scopeArea of focus 73
Area of focus
How our audit addressed the area of focus
Retirement benefit obligations
(refer to page 49 (Audit Committee Report),
page 82 (Accounting Policies) and page 106 (Notes).
The Group has a net retirement benefit obligation of
£88.8m (2015: £7.6m). This balance is significant in the
context of the Group balance sheet and is dependent on
key judgemental assumptions, including discount rate,
inflation rate and mortality rates adopted by the Directors
in the actuarial valuation. Given the judgements involved
and that slight movements in these assumptions can
have a significant impact on the overall obligation this
was an area of significant focus in our audit. In particular,
the mortality assumption was outside the range that we
would typically expect to see and hence additional focus
was placed on the consideration of this assumption.
Deferred programme production
costs carrying value
(refer to page 49 (Audit Committee Report),
page 82 (Accounting Policies) and page 100 (Notes)
Productions inventory of £14.8m (2015: £14.8m) relates
to associated costs incurred in the production of
programming which is deferred on the Balance Sheet
at the point of initial sale and charged to the income
statement in line with the associated forecast future
revenue. This is an area of focus because the carrying
value of the deferred programme production costs, and
hence the charge to the income statement are based
on judgements made by the Directors of associated
future revenue.
STV ELM
(refer to page 49 (Audit Committee Report),
page 82 (Accounting Policies) and page 101 (Notes)
Other receivables of £5.4m (2015: Nil) relates to costs
recoverable from the running of the Scottish Children’s
Lottery, through STV ELM. The recoverability of these costs
is dependent on the future growth of the lottery and it
generating future positive cash flows. The balance has been
classified as due greater than 1 year to reflect the Directors’
expectations of the lottery breaking even by end of 2017
and costs recovered over a four year period thereafter.
Goodwill
(refer to page 49 (Audit Committee Report),
page 82 (Accounting Policies) and page 96 (Notes)
The Group goodwill balance of £Nil (2015: £2.8m) relating
to the Productions business is assessed for impairment
on an annual basis, or where there is an impairment
trigger as required by IAS 36. Goodwill has been tested
for impairment by the Directors. This requires the
Directors to prepare a value-in-use calculation that
incorporates a number of significant judgements about
the future profitability of the Productions business.
The audit risk that we focussed on is that the goodwill
balance may be overstated and that an impairment
charge may be required.
We considered the reasonableness of the key assumptions used in the
actuarial valuation, being the discount rate, inflation rate (based on the
Retail Price Index and the Consumer Price Index) and mortality rates,
assessing if they were within a range acceptable by specialists.
All actuarial assumptions, with the exception of the mortality
assumptions, fell within our expected range based on our knowledge
and experience. For the mortality assumptions, which fell outside of
the range we would typically see, we used our specialist knowledge
and experience to challenge the Directors on their rationale and what
evidence they had to support it. Taking into account factors caused by
the specific industry and location of the business, which the Directors
evidenced through a scheme specific mortality study they had
commissioned, we agreed that the judgements made by the
Directors was reasonable.
We analysed the Directors’ assessment of each production in the
catalogue to determine, based on the past history of sales and licence
periods, the appropriateness of their projected future revenues for each
production individually, which are expected to be generated through
associated sales in the UK and overseas, including digital sales.
We considered the actual sales in 2016 against last year’s forecast to
establish the level of accuracy in management’s forecasting, and also
reviewed management’s calculations of forecast revenues to arrive at
a net present value.
We also performed sensitivities on the key assumptions about future
associated sales to determine how much they would need to change
before a further impairment was indicated. We consider any such
changes to be unlikely. We found that the assumptions were appropriate
and there was sufficient headroom, with the carrying value of inventory
not greater than its net realisable value.
From the testing performed, we consider that the judgements exercised
by the Directors are reasonable and supportable, and that the carrying
value of deferred production inventory is not materially misstated.
We have gained an understanding of the Group’s process for recovering
costs from the Scottish Children’s Lottery and assessed if the costs
claimed are reasonable and relevant.
We have reviewed the Directors’ forecasts and considered the latest
performance against these forecasts. We considered the performance
of the lottery against the experience of other lotteries to confirm
whether growth assumptions are appropriate. As the lottery was only
launched in October 2016, the forecasts remain highly judgemental,
however we believe these are reasonable and demonstrate that the
balance will be recoverable over time.
We evaluated the Directors’ future cash flow forecasts for the Productions
business and their underlying assumptions, including comparing them
to the latest budgets and testing the underlying calculations.
We challenged the discount rate by assessing the cost of capital for
the Company and comparable organisations and found it to be in line
with our expectations of long term inflation.
We also considered the long term growth rate of 2% beyond the
three year cash flows as being in line with our expectations.
When assessing the projected future cash flows of the Productions
business, it was determined by management that there was
insufficient evidence, when comparing to historic trading to support
the carrying value of goodwill. An impairment charge of £2.8m has
been booked, which based on the audit procedures highlighted above,
we agree is reasonable.
STV Annual Report and Accounts 2016 74
STV Group plc consolidated financial statements
Independent auditors’ report to the members of STV Group plc
How we tailored the audit scope
We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion on
the financial statements as a whole, taking into account
the geographic structure of the Group, the accounting
processes and controls, and the industry in which the
Group operates.
We performed audit work over all segments of the
business.
Taken together, the segments and functions where
we performed our audit work accounted for 100% of
Group revenues and 100% of Group profit before tax.
Materiality
The scope of our audit was influenced by our application
of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures
and in evaluating the effect of misstatements, both
individually and on the financial statements as a whole.
Based on our professional judgement, we determined
materiality for the financial statements as a whole
as follows:
Overall Group
materiality
How we
determined it
Rationale for
benchmark
applied
£899,190 (2015: £914,848).
5% of profit before tax
and exceptional items.
Profit before tax and exceptional
items is the primary measure used
by the shareholders in assessing the
performance of the Group, and is a
generally accepted auditing benchmark.
STV Group plc is profit orientated.
We agreed with the Audit Committee that we would
report to them misstatements identified during our audit
above £44,960 (2015: £45,742) as well as misstatements
below that amount that, in our view, warranted reporting
for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the
Directors’ statement, set out on page 70, in relation
to going concern. We have nothing to report having
performed our review.
Under ISAs (UK & Ireland) we are required to report to you
if we have anything material to add or to draw attention
to in relation to the Directors’ statement about whether
they considered it appropriate to adopt the going concern
basis in preparing the financial statements. We have
nothing material to add or to draw attention to.
As noted in the Directors’ statement, the Directors have
concluded that it is appropriate to adopt the going concern
basis in preparing the financial statements. The going
concern basis presumes that the Group and Company have
adequate resources to remain in operation, and that the
Directors intend them to do so, for at least one year from
the date the financial statements were signed. As part of
our audit we have concluded that the Directors’ use of the
going concern basis is appropriate. However, because not
all future events or conditions can be predicted, these
statements are not a guarantee as to the Group’s and
Company’s ability to continue as a going concern.
Other required reporting
Consistency of other information and
compliance with applicable requirements
Companies Act 2006 reporting
In our opinion, based on the work undertaken
in the course of the audit:
• the information given in the Strategic Report and
the Directors’ Report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
• the Strategic Report and the Directors’ Report have
been prepared in accordance with applicable legal
requirements.
In addition, in light of the knowledge and understanding
of the Group, the Company and their environment
obtained in the course of the audit, we are required to
report if we have identified any material misstatements
in the Strategic Report and the Directors’ Report.
We have nothing to report in this respect.
Strategic ReportGovernanceAdditional InformationFinancial Statements 75
In our opinion, based on the work undertaken in the
course of the audit:
• the information given in the Corporate Governance
Statement set out on pages 42 to 54 with respect to
internal control and risk management systems and
about share capital structures is consistent with the
financial statements and has been prepared in
accordance with applicable legal requirements; and
• the information given in the Corporate Governance
Statement set out on pages 42 to 54 with respect
to the Company’s corporate governance code and
practices and about its administrative, management
and supervisory bodies complies with rules 7.2.2, 7.2.3
and 7.2.7 of the Disclosure Guidance and Transparency
Rules sourcebook of the Financial Conduct Authority.
In addition, in light of the knowledge and understanding of
the Group, the Company and their environment obtained in
the course of the audit, we are required to report if we have
identified any material misstatements in the information
referred to above in the Corporate Governance Statement.
We have nothing to report in this respect.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required
to report to you if, in our opinion:
• information in the Annual Report is:
− materially inconsistent with the
information in the audited financial
statements; or
− apparently materially incorrect based
on, or materially inconsistent with,
our knowledge of the Group and
Company acquired in the course
of performing our audit; or
− otherwise misleading.
• the statement given by the Directors on
page 70, in accordance with provision
C.1.1 of the UK Corporate Governance
Code (the ‘Code’), that they consider the
Annual Report taken as a whole to be
fair, balanced and understandable and
provides the information necessary for
members to assess the Group’s and
Company’s position and performance,
business model and strategy is materially
inconsistent with our knowledge of the
Group and Company acquired in the
course of performing our audit.
We have no
exceptions
to report.
5% of profit
before tax and
exceptional
items.
• the section of the Annual Report on
page 37, as required by provision C.3.8
of the Code, describing the work of the
Audit Committee does not appropriately
address matters communicated by us
to the Audit Committee.
We have no
exceptions
to report.
The Directors’ assessment of the prospects of the
Group and of the principal risks that would threaten
the solvency or liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to
you if we have anything material to add or to draw
attention to in relation to:
We have
nothing
material to
add or to draw
attention to.
We have
nothing
material to
add or to draw
attention to.
We have
nothing
material to
add or to draw
attention to.
• the Directors’ confirmation on page 70
of the Annual Report, in accordance with
provision C.2.1 of the Code, that they
have carried out a robust assessment
of the principal risks facing the Group,
including those that would threaten its
business model, future performance,
solvency or liquidity.
• the disclosures in the Annual Report that
describe those risks and explain how
they are being managed or mitigated.
• the Directors’ explanation on page 33 of
the Annual Report, in accordance with
provision C.2.2 of the Code, as to how
they have assessed the prospects of the
Group, over what period they have done
so and why they consider that period
to be appropriate, and their statement
as to whether they have a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the period
of their assessment, including any related
disclosures drawing attention to any
necessary qualifications or assumptions.
Under the Listing Rules we are required to review the
Directors’ statement that they have carried out a robust
assessment of the principal risks facing the Group and the
Directors’ statement in relation to the longer-term viability
of the Group. Our review was substantially less in scope
than an audit and only consisted of making inquiries
and considering the Directors’ process supporting their
statements; checking that the statements are in alignment
with the relevant provisions of the Code; and considering
whether the statements are consistent with the knowledge
acquired by us in the course of performing our audit. We
have nothing to report having performed our review.
STV Annual Report and Accounts 2016 76
STV Group plc consolidated financial statements
Independent auditors’ report to the members of STV Group plc
Adequacy of accounting records and
information and explanations received
Under the Companies Act 2006 we are required
to report to you if, in our opinion:
• we have not received all the information and
explanations we require for our audit; or
• adequate accounting records have not been kept by
the Company, or returns adequate for our audit have
not been received from branches not visited by us; or
• the Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not
in agreement with the accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Directors’ remuneration
Directors’ remuneration report –
Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report
to you if, in our opinion, certain disclosures of Directors’
remuneration specified by law are not made. We have
no exceptions to report arising from this responsibility.
Corporate governance statement
Under the Companies Act 2006 we are required to report
to you if, in our opinion, a corporate governance statement
has not been prepared by the Company. We have no
exceptions to report arising from this responsibility.
Under the Listing Rules we are required to review the
part of the Corporate Governance Statement relating
to ten further provisions of the Code. We have nothing
to report having performed our review.
Responsibilities for the financial
statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of Directors’
Responsibilities set out on page 70, the Directors are
responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on
the financial statements in accordance with applicable
law and ISAs (UK & Ireland). Those standards require
us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been prepared
for and only for the Company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies
Act 2006 and for no other purpose. We do not, in giving
these opinions, 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 an audit of financial statements involves
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to
give reasonable assurance that the financial statements
are free from material misstatement, whether caused
by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the
Group’s and the Company’s circumstances and have
been consistently applied and adequately disclosed;
• the reasonableness of significant accounting
estimates made by the Directors; and
• the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing
the Directors’ judgements against available evidence,
forming our own judgements, and evaluating the
disclosures in the financial statements.
Strategic ReportGovernanceAdditional InformationFinancial Statements 77
We test and examine information, using sampling and
other auditing techniques, to the extent we consider
necessary to provide a reasonable basis for us to draw
conclusions. We obtain audit evidence through testing
the effectiveness of controls, substantive procedures
or a combination of both.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements and
to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the
implications for our report. With respect to the Strategic
Report, Directors’ Report and Corporate Governance
Statement, we consider whether those reports include
the disclosures required by applicable legal requirements.
Kenneth Wilson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Glasgow
15 March 2017
STV Annual Report and Accounts 2016 78
Consolidated income statement
Year ended 31 December 2016
Revenue
Net operating expenses
Operating profit
Analysed as:
Operating profit before exceptional items
Exceptional items
Operating profit
Finance costs – borrowings
– IAS 19 pension
Profit before tax
Tax (charge)/credit
Profit for the year
Earnings per share
Basic
Diluted
Note
7
8
10
11
11
2016
£m
2015
£m
120.4
116.5
(103.5)
(105.0)
16.9
11.5
19.7
(2.8)
16.9
(1.2)
–
(1.2)
15.7
20.3
(8.8)
11.5
(1.2)
(0.5)
(1.7)
9.8
1.6
12
(3.1)
12.6
11.4
13
13
32.5p
31.9p
29.8p
29.0p
The above consolidated income statement should be read in conjunction with the accompanying notes.
Consolidated statement of comprehensive income
Year ended 31 December 2016
Profit for the year
Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit pension schemes
Deferred tax credit/(charge) thereon
Other comprehensive expense
Note
2016
£m
2015
£m
12.6
11.4
30
24
(88.7)
15.1
(73.6)
(0.6)
(0.2)
(0.8)
Total comprehensive (expense)/income for the year
(61.0)
10.6
The above consolidated statement of comprehensive income should be read in conjunction with the
accompanying notes.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present
the parent company income statement or statement of comprehensive income. The profit for the parent
company for the year was £9.7m (2015: £87.9m).
Strategic ReportGovernanceAdditional InformationFinancial Statements
Consolidated and parent company balance sheets
at 31 December 2016
79
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments
Deferred tax asset
Trade and other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Equity attributable to owners of the parent
Ordinary shares
Share premium
Merger reserve
Other reserve
Accumulated (losses)/profit
Total equity
Non-current liabilities
Borrowings
Derivative financial instruments
Retirement benefit obligations
Provisions
Current liabilities
Trade and other payables
Provisions
Group
Company
Note
2016
£m
2015
£m
2016
£m
Restated*
2015
£m
15
16
17
18
24
20
19
20
21
26
26
23
22
30
25
22
25
–
2.7
7.3
0.8
21.7
5.9
38.4
19.5
22.8
13.3
55.6
2.8
1.7
7.5
0.7
9.6
–
22.3
19.2
22.1
13.7
55.0
–
–
–
48.0
7.1
153.7
208.8
–
76.7
–
76.7
–
–
–
47.9
2.8
141.0
191.7
–
73.1
–
73.1
94.0
77.3
285.5
264.8
19.8
101.9
173.4
0.4
(348.5)
(53.0)
19.6
101.8
173.4
0.9
(284.8)
10.9
19.8
101.9
–
0.4
78.5
200.6
39.7
0.1
88.8
0.3
128.9
17.9
0.2
18.1
39.4
0.1
7.8
0.5
47.8
18.3
0.3
18.6
–
–
39.2
–
39.2
45.7
–
45.7
19.6
101.8
–
0.9
102.3
224.6
–
–
7.6
–
7.6
32.6
–
32.6
Total liabilities
147.0
66.4
84.9
40.2
Total equity and liabilities
* Refer to note 6 for more information.
94.0
77.3
285.5
264.8
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
The consolidated financial statements on pages 78 to 110 were approved by the Board on 13 March 2017 and were
signed on its behalf by:
Rob Woodward
Chief Executive Officer
George Watt
Chief Financial Officer
STV Annual Report and Accounts 2016
80
Consolidated and parent company
statement of changes in equity
Year ended 31 December 2016
Equity attributable to owners of the parent
Share capital
and premium
£m
Merger
reserve
£m
Other
reserve
£m
Accumulated
(losses)/profit
£m
121.4
173.4
0.9
(284.8)
Balance at 31 December 2016
121.7
173.4
(348.5)
(53.0)
121.4
173.4
0.6
(291.9)
Group
Balance at 1 January 2016
Profit for the year
Other comprehensive expense
Total comprehensive expense for the year
Issue of share capital
Acquisition of treasury shares
Share based compensation
Value of employee services
Deferred tax charge on share based compensation
Current tax credit on share based compensation
Dividends
Balance at 1 January 2015
Profit for the year
Other comprehensive expense
Total comprehensive income for the year
Own shares acquired
Share based compensation
Deferred tax credit on share based compensation
Dividends
–
–
–
0.2
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2015
121.4
173.4
Company
Balance at 1 January 2016 (restated)
Profit for the year
Other comprehensive expense
Total comprehensive expense for the year
Own shares acquired
Acquisition of treasury shares
Share based compensation
Value of employee services
Dividends
Balance at 31 December 2016
Balance at 1 January 2015
Profit for the year (restated)
Total comprehensive income for the year
Own shares acquired
Share based compensation
Dividends
Balance at 31 December 2015
Pension transferred from fellow Group undertaking (note 6)
Restated balance at 31 December 2015
121.4
–
–
–
0.2
–
–
0.1
–
121.7
121.4
–
–
–
–
–
121.4
–
121.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
equity
£m
10.9
12.6
(73.6)
(61.0)
0.2
(0.2)
0.3
1.0
(0.3)
0.4
(4.3)
3.5
11.4
(0.8)
10.6
(0.9)
0.3
0.8
(3.4)
10.9
224.6
9.7
(30.7)
(21.0)
0.2
(0.2)
0.3
1.0
(4.3)
12.6
(73.6)
(61.0)
–
(0.2)
–
1.7
(0.3)
0.4
(4.3)
11.4
(0.8)
10.6
(0.9)
–
0.8
(3.4)
(284.8)
102.3
9.7
(30.7)
(21.0)
–
(0.2)
–
1.7
(4.3)
78.5
200.6
25.0
87.9
87.9
(0.9)
–
(3.4)
147.0
87.9
87.9
(0.9)
0.3
(3.4)
108.6
230.9
(6.3)
(6.3)
102.3
224.6
–
–
–
–
–
0.3
(0.8)
–
–
–
0.4
–
–
–
–
0.3
–
–
0.9
0.9
–
–
–
–
–
0.3
(0.8)
–
0.4
0.6
–
–
–
0.3
–
0.9
–
0.9
Strategic ReportGovernanceAdditional InformationFinancial Statements 81
Consolidated and parent company
statement of cash flows
Year ended 31 December 2016
Operating activities
Cash generated by operations
Interest paid
Pension deficit funding – recovery plan payment
Note
27
Group
Company
2016
£m
2015
£m
2016
£m
Restated
2015
£m
15.9
(1.2)
(7.8)
20.0
(1.2)
(7.8)
9.4
–
(5.4)
5.6
–
(5.4)
Net cash generated by operating activities
6.9
11.0
4.0
0.2
Investing activities
Purchase of investment
Capitalised web development spend
Purchase of property, plant and equipment
(0.1)
(1.4)
(1.8)
(0.5)
(1.2)
(1.1)
(0.1)
–
–
(0.5)
–
–
Net cash used in investing activities
(3.3)
(2.8)
(0.1)
(0.5)
Financing activities
Purchase of treasury shares
Issue of treasury shares to employees
Borrowings repaid
Dividends paid
Net cash used by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
–
0.3
–
(4.3)
(0.9)
–
(10.0)
(3.4)
–
0.3
–
(4.3)
(4.0)
(14.3)
(4.0)
(0.4)
(6.1)
13.7
19.8
(0.1)
(4.6)
(0.9)
–
–
(3.4)
(4.3)
(4.6)
–
Cash and cash equivalents at end of year
27
13.3
13.7
(4.7)
(4.6)
Although not required under IFRS the Directors have provided the following reconciliation of net debt for further
clarity. Net debt represents Group borrowings less cash and cash equivalents.
Reconciliation of movement in net debt
Year ended 31 December 2016
Opening net debt
Net decrease in cash and cash equivalents
Movement in debt financing
Closing net debt
Note
Group
2016
£m
(25.7)
(0.4)
(0.3)
2015
£m
(29.4)
(6.1)
9.8
27
(26.4)
(25.7)
STV Annual Report and Accounts 2016
82
Notes to the financial statements
for the year ended 31 December 2016
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, internet
services and the sale of advertising airtime and space in these media and lottery management services.
2. Adoption of new and revised standards
There are no new IFRS or IFRICs that are effective for the first time this year that have a material impact on the
Group or parent company.
New standards, amendments and interpretations issued but not yet effective for the financial year beginning
1 January 2016 (IFRS 9 “Financial instruments”; IFRS 15 “Revenue from contracts with customers”) are not early
adopted and not expected to have a material impact on the Group or parent company.
IFRS 16 “Leases” addresses the definition of a lease, recognition and measurement of leases and establishes
principles for reporting useful information to users of financial statements about the leasing activities of both
lessees and lessors. A key change arising from IFRS 16 is that most operating leases will be accounted for on
balance sheet for lessees. The standard replaces IAS 17 “Leases” and related interpretations. The standard is
effective for annual periods beginning or after 1 January 2019 and earlier application is permitted, subject to
EU endorsement and the entity adopting IFRS 15 “Revenue from contracts with customers” at the same time.
The full impact of IFRS 16 has not yet been assessed.
3. Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set
out below. These policies have been consistently applied to all the years presented.
Basis of preparation
The consolidated financial statements have been prepared in accordance with IFRS and IFRS Interpretations
Committee (IFRS IC) interpretations, as adopted by the European Union and the Companies Act 2006 applicable
to companies reporting under IFRS. The consolidated financial statements have been prepared on a going
concern basis and under the historical cost convention.
The preparation of the Group and parent company financial statements in conformity with IFRS requires the use
of certain critical accounting estimates. It also requires management to exercise its judgement in the process of
applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 5.
Going concern
The Group continues to review forecasts to determine the impact of both the short term and long term liquidity
position and expects to meet its covenants over the next twelve months. The Group therefore considers it
appropriate to adopt the going concern basis in preparing its consolidated financial statements.
Consolidation
The financial statements comprise a consolidation of the financial statements of the Company and all its subsidiaries
up to 31 December each year. Subsidiaries are entities over which the Company has control. The Company controls
an entity when the Company has existing rights that give it the current ability to direct the activities that affect
the Company’s returns and exposure or rights to variable returns from the entity. Subsidiaries are included in the
consolidated financial statements of the Company from the date control of the subsidiary commences until the
date that control ceases. Intra-Group balances and any unrealised gains and losses or income and expenses
arising from intra-Group transactions are eliminated in preparing the consolidated financial statements.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources
and assessing performance of the operating segments, has been identified as the Group’s Chief Executive.
Strategic ReportGovernanceAdditional InformationFinancial Statements
83
Foreign currency translation
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the
dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet
date are reported at the rates of exchange prevailing at that date.
Property, plant and equipment
The Group’s policy is to state property, plant and equipment at cost less accumulated depreciation and any
recognised impairment loss. Cost includes the original purchase price of the asset and the costs attributable
to bringing the asset to its working condition for its intended use.
Depreciation is provided to write off the cost of tangible non-current assets, less estimated residual values,
by equal annual instalments as follows:
Leasehold buildings
between 5% and 10%
Plant, technical equipment and other
between 10% and 20%
Residual values and useful economic lives are reviewed annually. Depreciation is charged on all additions to,
or disposals of, depreciating assets in the year of purchase or disposal.
Any impairment in value is charged to the income statement.
Intangible assets
i) Goodwill
Goodwill arising on consolidation represents the excess of the consideration transferred and the amount of
any non-controlling interest in the acquiree over the fair value of the identifiable assets and liabilities (including
intangible assets) of the acquired entity at the date of acquisition. Goodwill is recognised as an asset and
assessed for impairment annually or more frequently as triggering events occur. Any impairment is recognised
immediately as an expense in the income statement.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK
GAAP amounts subject to being tested for impairment. Goodwill written off to reserves under UK GAAP prior
to 1998 has not been restated and is not included in determining any subsequent profit or loss on disposal.
ii) Other intangible assets
Other intangible assets are held at cost less accumulated amortisation and any provision for impairment. Included
within intangible assets are assets in the course of construction which comprise primarily web development
projects including directly attributable costs to bring the assets into use and may include capitalised borrowing
costs. Amortisation is provided at the following rates per annum to write off the costs of other intangible assets,
less residual value, on a straight line basis from the date on which they are brought into use:
Internally generated software
between 10% and 25%
Impairment of assets
Assets that have an indefinite useful life are not subject to amortisation and are tested at least annually
or whenever there is an indicator of impairment. Assets that are subject to amortisation or depreciation are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. An impairment loss is recognised in the income statement for the amount by which the
asset’s carrying value exceeds its recoverable amount. For the purposes of assessing impairment, assets are
grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
The recoverable amount is the higher of an asset’s fair value less costs to sell and value-in-use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.
STV Annual Report and Accounts 2016
84
Notes to the financial statements
continued
Inventories
Inventories are stated at the lower of cost or net realisable value. Cost comprises direct materials, and where
applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their
present location and condition. Net realisable value represents the estimated selling price less estimated costs
of completion and the estimated selling costs.
i) Programme production work in progress
Programming made for third parties is valued at cost less appropriate provisions and is charged to the income
statement against related income.
ii) Deferred programme production
Deferred production costs represent original costs of production which are deferred and recognised against
future revenue streams expected to be generated in the secondary sales markets. This is to ensure that revenue
and costs are matched as closely as possible. The amount to be deferred varies by programme based on future
secondary sales potential. There is judgement used in the estimation of future sales and this is referred to in the
critical accounting estimates section (note 5).
iii) Recorded programmes
Recorded programmes are programmes which the Group purchases for transmission on its broadcast and catch
up channels. They are valued at direct cost including labour and overheads less appropriate provisions and are
written off after the first transmission or sale.
The carrying value of inventory is assessed each year at the balance sheet date.
Financial assets and liabilities
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes
a party to the contractual provisions of the instrument.
i) Trade receivables
Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate
allowances for estimated irrecoverable amounts. A provision is established for trade receivables if there is objective
evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables.
ii) Investments
Equity investments are normally carried at fair value. Where an active market value is not available, the investment
is recorded at cost less provision for impairment.
iii) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid
investments that are readily convertible to a known amount of cash and are subject to an insignificant risk
of changes in value.
iv) Bank borrowings
Interest-bearing bank loans and overdrafts are initially recorded at fair value being the proceeds received, net of
direct issue costs. They are subsequently measured at amortised cost using the effective interest rate. Finance
costs, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an
accruals basis to the income statement and are added to the carrying amount of the instrument to the extent
that they are not settled in the period in which they arise.
v) Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the
effective interest method.
Strategic ReportGovernanceAdditional InformationFinancial Statements
85
vi) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
vii) Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments to hedge its exposure to fluctuations in interest. Instruments
accounted for as hedges are designated as a hedge at the inception of contracts.
In order to qualify for hedge accounting, the Group is required to document in advance the relationship between
the item being hedged and the hedging instrument. The Group is also required to document and demonstrate
an assessment of the relationship between the hedged item and the hedging instrument, which shows that the
hedge will be highly effective on an ongoing basis. This effectiveness testing is re-performed at the end of each
quarter end to ensure that the hedge remains highly effective.
The fair value of interest rate swaps is based on the market price (LIBOR) of comparable instruments at the
measurement date.
The fair value of the interest rate swap contracts are calculated on a discounted cash flow basis using market
forward rates. Gains or losses arising from the movement to fair value are taken to the income statement.
Taxation
Taxation expense comprises current and deferred tax. Tax is recognised in the income statement, except to
the extent it relates to items recognised in other comprehensive income or directly in equity, in which case
the related tax is also recognised in other comprehensive income or directly in equity.
Current tax is based on taxable profits for the financial period using tax rates that are in force during the period.
Taxable profit differs from net profit as reported in the income statement because it excludes items of income
or expense that are taxable or deductible in other financial years and it further excludes items that are never
taxable or deductible.
Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax is
calculated using tax rates that have been enacted or substantially enacted at the balance sheet date and are
expected to apply when the related deferred income tax asset is realised or the deferred tax liability settled.
Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax liabilities are
recognised for taxable temporary differences arising on investments in subsidiaries, except where the reversal
of the temporary difference can be controlled by the Group and it is probable that the difference will not reverse
in the foreseeable future.
Deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which
the deductible temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at
each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits
will be available to allow all or part of the asset to be recovered.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax
assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income
taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there
is an intention to settle the balances on a net basis.
Pensions
For defined benefit pension schemes, the difference between the fair value of the assets and the present value
of the defined benefit obligation is recognised as an asset or liability in the balance sheet. The defined benefit
obligation is actuarially calculated using the projected unit credit method.
STV Annual Report and Accounts 2016
86
Notes to the financial statements
continued
The defined benefit cost is made up of three categories:
i) The service cost of providing retirement benefits to employees during the year, together with the cost of any
benefits relating to past service, is charged to operating profit in the year.
ii) The net interest expense or income is recognised within finance costs. Net interest expense includes a credit
representing the expected return on the assets of the retirement benefit schemes and a charge representing
the expected increase in the liabilities of the retirement benefit schemes during the year.
iii) Actuarial gains and losses are recognised immediately in the statement of comprehensive income.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Share-based payments
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based
payments are measured at fair value of the equity instruments at the grant date. The fair value excludes
the effect of non market-based vesting conditions.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on
a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will
eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments
expected to vest as a result of the effect of non market-based vesting conditions. The impact of the revision
of the original estimates, if any, is recognised in profit and loss such that the cumulative expense reflects the
revised estimate, with a corresponding adjustment to the equity-settled employee benefits reserve.
Fair value is measured by use of the Black & Scholes model or Monte Carlo model as relevant. The expected lives
used in the model have been adjusted, based on management’s best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
Provisions
Onerous contracts
Provisions for onerous contracts are recognised when the Group has a detailed forecast of future losses from
the contract.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts
receivable for goods and services provided in the normal course of business, net of discounts and VAT. Revenue
from the sale of goods is recognised when the Group has transferred the significant risks and rewards of ownership
and control of the goods sold and the amount of revenue can be measured reliably. Key classes of revenue are
recognised on the following bases:
i) Advertising and sponsorship revenues
Revenues are stated net of advertising agency commissions.
Television advertising revenue and online advertising revenue are recognised on transmission of the advertisement.
Revenue from sponsorship of the Group’s programmes is recognised on a straight-line basis in accordance with
the transmission schedule for each sponsorship campaign.
ii) Programme production revenues
Revenue from third party commissions is recognised on delivery of the finished programme to the
commissioning broadcaster as at that point the risks and rewards of ownership pass to that broadcaster
for the period of their licence.
Strategic ReportGovernanceAdditional InformationFinancial Statements
87
Revenues from the sale of the above programmes to overseas broadcasters or the UK secondary market (usually
digital channels) are recognised on the signing of the contract with the broadcaster. An element of the original cost
of production is deferred and recognised against the future revenue stream expected to be generated in the
secondary and overseas sales markets. The amount to be deferred varies by programme based on future overseas
and secondary sales potential and involves significant judgement (see critical accounting estimates note 5).
Revenues generated from brand exploitation of the above programmes are recognised when the receipts
are remitted to the Group as these revenues are generated by third parties leasing the brand/programme.
iii) Lottery service revenues
Revenue is recognised when the lottery draw to which the service relates has taken place.
Dividend income
Dividend income is recognised when the right to receive payment is established.
Leasing
All leases are operating leases and the costs in respect of operating leases are charged on a straight-line basis
over the lease term. The value of any lease incentive received to take on an operating lease (for example, a rent
free period) is recognised as deferred income and is released over the life of the lease.
Dividend distribution
Final dividends are recorded in the financial statements in the period in which they are approved by the
Company’s shareholders. Interim dividends are recorded in the period in which they are approved and paid.
Exceptional items
Exceptional items are items that are unusual because of their size, nature or incidence and which the Directors
consider should be disclosed separately to enable a full understanding of the Group’s results.
4. Financial risk management
Capital management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going
concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an
optimal capital structure to reduce the cost of capital.
The capital structure of the Company consists of debt, which includes the bank loans disclosed in note 23, cash
and cash equivalents and equity attributable to equity holders of the parent, comprising issued share capital,
reserves and retained earnings.
The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total
capital. Net debt is calculated as total borrowings less cash and cash equivalents. Total capital is calculated as
‘equity’ as shown in the consolidated balance sheet plus net debt. The gearing ratios at 31 December 2016
and 2015 were as follows:
Total borrowings (note 23)
Cash and cash equivalents (note 21)
Net debt
Total equity
Total capital
The movement is largely due to the increase in the pension deficit of £88.8m (2015: 39.2m).
2016
£m
39.7
(13.3)
26.4
(53.0)
(26.6)
2015
£m
39.4
(13.7)
25.7
10.9
36.6
(99%)
70%
STV Annual Report and Accounts 2016
88
Notes to the financial statements
continued
Covenants
The Group is subject to two financial covenants in respect of its committed borrowing facilities at the balance
sheet date. The terms of the Facility Agreement contain the following covenants (i) the ratio of average net debt
to adjusted earnings (pre exceptional) before interest, tax, depreciation and amortisation (EBITDA) (see note 27)
and (ii) the ratio of adjusted EBITDA to cash interest, both of which are tested quarterly. The Group complied
with all the covenants in each of the test periods to the balance sheet date.
Derivative financial instruments
The Group’s policy is to minimise the exposure to interest rates by ensuring an appropriate balance of floating
and fixed rates. The Group’s primary funding is at floating rates through its bank facilities. In order to manage
its associated interest rate risk, the Group uses interest rate swaps to vary the mix of fixed and floating rates.
Interest rate swap contracts of £15.0m (2015: £15.0m) were entered into on 9 July 2014 and matured on 9 July
2016. The swaps were renewed on similar terms for a further 2 years until 9 July 2018. Fair value is based on the
market price of these instruments at the balance sheet date. In accordance with IFRS 7, the interest rate swaps
are considered to be level 2 with the fair value being calculated at the present value of the estimated future
cash flows using market interest rates.
Financial risk management objectives
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 Group’s overall risk management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses
derivative financial instruments to hedge certain risk exposures.
Risk management is carried out under policies approved by the Board with financial risks being identified,
evaluated and hedged in close co-operation with the Group’s operating divisions. The Board provides written
principles for overall risk management, as well as written policies covering specific areas, such as currency risk,
interest rate risk, credit risk, use of financial instruments and investing excess liquidity.
i) Currency risk
The Group operates almost wholly within the UK and is exposed to minimal currency risk. The Group’s borrowings
are denominated in Sterling which is also the Group’s intra-UK net currency flow. Currency risk arises primarily
with respect to the Euro and the US dollar and from future commercial transactions and trade assets and
liabilities in foreign currencies. No further active management of currency risk is required.
The Group has minimal exposure to currency risk and it is Group policy to ensure that all material payments
or receipts are fully hedged. At 31 December 2016 the Group had no forward foreign currency contracts in
place (2015: £nil).
ii) Credit risk
Credit risk is the risk of losses due to the failure of the Group’s customers to meet their payment obligations
towards the Group. The Group has no significant concentration of credit risk. It has policies in place to ensure
that sales are made to customers with an appropriate credit history. Independent credit ratings are sought
for all potential customers and based on the outcome of the feedback from the ratings agency a judgement
is made on the appropriate level of credit to be given. Derivative transaction counterparties are limited to
high-credit/quality financial institutions.
iii) Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet its payment obligations. Prudent liquidity management
implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate
amount of committed credit facilities and the ability to close out market positions. Due to the nature of the
underlying business, the aim is to maintain flexibility in funding by keeping committed credit lines available.
Management monitors rolling forecasts of the Group’s liquidity reserve (comprises of the undrawn borrowing
facility (note 23) and cash and cash equivalents (note 21)) on the basis of expected cash flow. This is generally
carried out at a Group level. In addition, the Group’s liquidity management policy includes projecting cash flows
Strategic ReportGovernanceAdditional InformationFinancial Statements
89
and considering the level of liquid assets necessary to meet these: monitoring balance sheet liquidity ratios
against internal targets and bank facility requirements; and maintaining debt financing plans.
iv) Cash flow interest rate risk
As the Group has no significant interest bearing assets, the Group’s income and operating cash flows are
substantially independent of changes in market interest rates.
The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at short-term floating rates
expose the Group to cash flow interest rate risk. Group policy is to maintain between 30% and 50% of its core
borrowings in hedged instruments.
A monthly sensitivity analysis is carried out, and on the level of borrowings of the Group at 31 December 2016,
a movement of 0.25% in interest rates would change the level of interest paid in the year by +/- £0.1m (2015:
£0.1m). 0.25% is considered a reasonably possible change.
The Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest
rate swaps have the economic effect of converting borrowing from floating rates to fixed rates. Generally, the
Group raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those
available if the Group borrowed at fixed rate directly. Under the interest rate swaps, the Group agrees with other
parties to exchange, at specific intervals (mainly quarterly), the difference between fixed contract rates and
floating rate interest amounts calculated by reference to the agreed notional principal amounts. An interest
rate swap was entered into on 9 July 2014 and matured on 9 July 2016. The swaps were renewed on similar
terms for a further 2 years until 9 July 2018.
5. Critical accounting estimates and judgements
In the application of the Group’s accounting policies, which are described in note 3, management are required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are
not readily apparent from other sources. The estimates and judgements are continually evaluated and are
based on historical experience and other factors, including expectations of future events that are believed
to be reasonable under the circumstances. Actual results may differ from these estimates.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance
sheet 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 discussed below.
Group
Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value-in-use of the cash-generating
units to which the goodwill has been allocated. The value-in-use calculation requires the entity to estimate
the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order
to calculate the present value. Details of the impairment testing are set out in note 15.
Pension benefits
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. In the event of the pension liability becoming a surplus, the Company
legally has an unconditional right to that surplus and this has been agreed with the scheme trustees.
The Group determines the appropriate discount rate at the end of each year. This is the interest 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.
STV Annual Report and Accounts 2016
90
Notes to the financial statements
continued
Other key assumptions for pension obligations are based in part on current market conditions. Additional
information is disclosed in note 30.
Inventory
Deferred production stock forms part of inventory and is stated in the accounts at the lower of cost or net
realisable value. Programme costs are expensed in line with expected future revenues which are a judgemental
area. A detailed forecast of future secondary sales is prepared by management based on historic experience
and expected future trends. £2.1m was expensed through the income statement in the year (2015: £2.3m).
Additional information is disclosed in note 19.
Deferred tax asset recognition
Deferred tax assets are recognised if sufficient future taxable profit is available. Management evaluates the
recoverability of deferred tax assets based on projected future taxable profits and as future developments are
uncertain and partly beyond management’s control, assumptions are necessary to estimate future taxable
profits as well as the period in which deferred tax assets will recover. No deferred tax was recognised during
the year (2015: £5.1m) in respect of tax losses previously unrecognised.
Lottery recoverability
An amount of £5.9m (2015: £nil) is included within non-current assets as receivable from the Scottish Children’s
Lottery. It is due to ELM (the lottery management company) and is expected to be recovered from 2018 onwards.
Company
Carrying value of parent company investments
The Group’s policy is to carry out annual reviews of its investments. Based on operating results for the subsidiary
undertakings and future forecast cash flows, the Directors consider that the investments’ recoverable amount is
greater than its carrying value and consequently no impairment is considered necessary. Additional information
is disclosed in note 18.
6. Prior year restatement
During March 2015, the Caledonian Publishing Pension Scheme was transferred from STV Television Limited to
STV Group plc (the parent company). This should have been recognised in the parent company accounts as at
31 December 2015. The prior year figures are restated to account for the aforementioned pension balances.
Balance sheet:
Retirement benefit obligations
Trade and other payables
Deferred tax
Equity:
Accumulated profit
Cash flow:
Operating activities – cash generated by operations
pension deficit funding – recovery plan payment
Balance at 1
January
2016
£m
Restatement
£m
Restated
balance at 1
January
2016
£m
–
(32.7)
1.4
(31.3)
(7.6)
0.1
1.4
(6.1)
(7.6)
(32.6)
2.8
(37.4)
108.4
(6.1)
102.3
0.2
–
0.2
5.4
(5.4)
–
5.6
(5.4)
0.2
Strategic ReportGovernanceAdditional InformationFinancial Statements
91
7. Business segments
The Group’s Chief Executive, the chief operating decision maker, considers the business primarily from a product
perspective. Under IFRS 8, the reportable segments are therefore Consumer, Productions and ELM (external
lottery management).
The performance of the segments is assessed based on a measure of adjusted operating profit.
Segment revenues
Consumer
Productions
ELM
Revenue in 2016 includes £0.7m of revenues from sources outside the UK (2015: £0.9m).
Segment result
Consumer
Productions
ELM
Exceptional goodwill impairment attributable to Productions
Exceptional fixed/intangible asset write off attributable to Consumer
Other exceptional items attributable to Group:
Investment write-down
Management incentive plan
Operating profit
Financing
Profit before tax
Tax (charge)/credit
Profit attributable to owners of the parent
Operating profit in 2016 includes £0.3m arising outside the UK (2015: £0.4m).
A breakdown of non-broadcast earnings is as follows:
Digital
Productions
Music/telephony
External revenue
2016
£m
2015
£m
105.9
12.7
1.8
120.4
108.2
8.3
–
116.5
2016
£m
19.6
0.1
–
19.7
(2.8)
–
–
–
16.9
(1.2)
15.7
(3.1)
12.6
2016
£m
4.1
0.1
0.3
4.5
2015
£m
19.9
0.4
–
20.3
(5.1)
(1.0)
(1.0)
(1.7)
11.5
(1.7)
9.8
1.6
11.4
2015
£m
3.2
0.4
0.9
4.5
Percentage of total revenue
23%
22%
STV Annual Report and Accounts 2016
92
Notes to the financial statements
continued
Segment assets and liabilities
Consumer
Productions
ELM
Total of all segments
Unallocated corporate
Consolidated
Other segment information
Capital additions
Depreciation and amortisation
Assets
Liabilities
2016
£m
35.0
30.2
5.9
71.1
22.9
94.0
2015
£m
38.8
29.1
–
67.9
2016
£m
11.2
3.5
0.6
15.3
2015
£m
13.4
2.0
–
15.4
9.4
131.7
51.0
77.3
147.0
66.4
Consumer
Productions
ELM
2016
£m
3.2
2.4
2015
£m
2.3
2.5
2016
£m
–
–
2015
£m
–
–
2016
£m
–
–
2015
£m
–
–
Segment assets consist primarily of goodwill, property, plant and equipment, inventories and trade and other
receivables and cash and bank deposits.
Segment liabilities comprise operating liabilities including trade and other payables and provisions. They exclude
Group borrowings, retirement benefit obligations, tax liabilities and other non-current liabilities.
All the net assets in 2015 and 2016 were held in the UK and therefore operate in a single geographical segment.
8. Operating expenses by nature
Programming costs
Staff costs
Other external charges
Depreciation and amortisation
Operating lease charges
Other operating charges
Exceptional items
2016
£m
54.1
25.1
16.5
2.4
2.6
–
100.7
2.8
103.5
2015
£m
51.0
24.4
15.8
2.5
2.4
0.1
96.2
8.8
105.0
Strategic ReportGovernanceAdditional InformationFinancial Statements
Services provided by the Group’s auditors
During the year the Group obtained the following services from the Company’s auditors:
Group
Fees payable to Company auditors for the audit of parent company and
consolidated financial statements
Fees payable to the Company's auditors and it's associates for other services:
– The audit of Company's subsidiaries pursuant to legislation
– Audit-related assurance services
– Tax advisory services
– Tax compliance services
– Other services
93
2016
£000
2015
£000
105
25
25
146
–
10
311
82
21
24
69
33
8
237
Included in the audit fees payable is £5,000 (2015: £5,000) paid in respect of the parent company.
Other services comprise employee benefit advisory services.
Fees in respect of STV Group plc pension schemes
Audit
9. Staff
The average monthly number of employees (including Executive Directors) was:
Consumer, Productions and ELM
Established
Contract
Contract staff numbers consist of employees on fixed-term contracts.
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
2016
£000
21
2015
£000
21
2016
Number
2015
Number
480
28
508
451
45
496
2016
£m
19.6
2.0
3.5
25.1
2015
£m
19.6
1.8
3.0
24.4
Details of Directors’ remuneration is provided in the Remuneration Report on pages 55 to 67.
STV Annual Report and Accounts 2016
94
Notes to the financial statements
continued
10. Exceptional items
The tax effect on exceptional items during the year was £nil (2015: £0.2m).
Goodwill impairment
During the year a provision for impairment of £2.8m (2015: £5.1m) has been recognised against the carrying
value of goodwill to reflect the historic trading performance and growth projections in Productions and has
resulted in goodwill being fully written down.
Investment write-down
A provision of £1.0m was made against the carrying value of the Group’s investment in MirriAd Limited in 2015.
Fixed/intangible asset write off
£1.0m of fixed and intangible assets was written off in 2015. The write off was in relation to City Online services
and redundant STV Player platforms.
Management incentive plan
A provision of £1.7m for costs in relation to one off discretionary management incentive plan payments and
related national insurance was made in 2015.
11. Finance costs
Bank borrowings
Pension finance charge
12. Tax charge/(credit)
Corporation tax:
Current year
Adjustments in respect of prior years
Deferred tax (see note 24)
Tax charge/(credit) for the year
The charge/(credit) for the year can be reconciled to the profit per the income statement as follows:
Profit before tax
Tax at the UK corporation tax rate of 20% (2015: 20.25%)
Tax effects of:
Other expenses not deductible for tax purposes
Movement in losses not recognised
Impact of changes in tax rates
Tax charge/(credit) for the year
2016
£m
15.7
3.1
0.6
(0.5)
(0.1)
3.1
2016
£m
1.2
–
1.2
2015
£m
1.2
0.5
1.7
2016
£m
2015
£m
0.5
(0.1)
0.4
2.7
3.1
–
–
–
(1.6)
(1.6)
2015
£m
9.8
2.0
1.5
(5.1)
–
(1.6)
Strategic ReportGovernanceAdditional InformationFinancial Statements
95
13. Earnings per share
Basic earnings per share (‘EPS’), is calculated by dividing the profit attributable to equity shareholders by the
weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by
the Company and held as treasury shares.
In order to calculate diluted EPS, the weighted average number of ordinary shares in issue is adjusted to assume
conversion of all dilutive potential ordinary shares. The Company has one type of dilutive potential ordinary
shares namely share options granted to employees.
2016
Weighted
average
number of
shares
(m)
Earnings
£m
Per share
Pence
Earnings
£m
2015
Weighted
average
number of
shares
(m)
Per share
Pence
EPS:
Earnings attributable to ordinary
shareholders
Basic EPS
Potential dilutive shares
Diluted EPS
EPS (pre-exceptional items and deferred
tax and pre-IAS 19):
Earnings attributable to ordinary
shareholders (pre-exceptional items)
Add back: IAS 19 (net of tax)
Deduct: one off recognition of deferred
tax asset
38.8
38.8
0.7
39.5
38.8
12.6
12.6
12.6
15.4
–
–
32.5p
32.5p
11.4
11.4
31.9p
11.4
39.7p
–
–
20.0
0.4
(5.1)
15.3
38.3
38.3
1.0
39.3
38.3
29.8p
29.8p
29.0p
52.2p
1.0p
(13.3p)
38.3
39.9p
1.0
39.3
38.9p
EPS
15.4
38.8
39.7p
Potential dilutive shares
EPS
15.4
0.7
39.5
39.0p
15.3
The adjusted result represents a like for like comparison with the statutory result adjusted for material one off items.
Statutory results are adjusted to reflect the underlying performance of the business, providing a more meaningful
comparison of how the business is managed and measured on a day-to-day basis.
STV Annual Report and Accounts 2016
96
Notes to the financial statements
continued
14. Dividends
Equity dividends on ordinary shares
Declared and paid during the year:
Final for 2015: 7.0p (2014: 6.0p) per share
Interim for 2016: 4.0p (2015: 3.0p) per share
Dividends paid
2016
£m
2015
£m
2.7
1.6
4.3
2.3
1.1
3.4
A final dividend of 11.0p per share (2015: 7.0p per share) has been proposed and is subject to approval by the
board of Directors. It is payable on 19 May 2017 to shareholders who are on the register at 18 April 2017. The
ex dividend date is 13 April 2017. This final dividend, amounting to £4.4m has not been recognised as a liability
in these financial statements.
15. Goodwill
Cost
At 1 January and 31 December 2016
Provisions for impairment
At 1 January 2016
Impairment write-down
At 31 December 2016
Net book value at 31 December 2016
Net book value at 31 December 2015
£m
10.6
7.8
2.8
10.6
–
2.8
During the year a £2.8m (2015: £5.1m) provision for impairment has been recognised resulting in the capitalised
goodwill on the Productions business being fully written down.
Impairment testing
Goodwill is monitored by management at the level of the Group’s cash-generating units (CGUs) identified according
to operating segment. All goodwill recognised at the year end and previous year end related to Productions.
The Group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amount of a
CGU is determined based on value-in-use calculations which require the use of assumptions. The calculations use
cash flow projections based on financial budgets approved by the Board covering a three-year period. A terminal
value is calculated for cash flows beyond the three-year period. The growth rate is not considered to exceed the
long-term average growth rate for the media business in which the CGU operates (2%). Management determine
net cash flow based on past performance and its expectations of market development.
The key assumptions used for the value-in-use calculations are as follows:
Revenue and margin growth (short term)
Based on approved financial budgets
Growth rate (long term)
Discount rate (post tax)
2% (2015: 2%)
10% (2015: 10%)
The above testing resulted in a recoverable amount equal to the carrying value of the remaining assets and
liabilities after the full impairment of goodwill.
Strategic ReportGovernanceAdditional InformationFinancial Statements
16. Other intangible assets
Cost
At 1 January 2015
Additions
Write offs
At 1 January 2016
Additions
At 31 December 2016
Accumulated amortisation and impairment
At 1 January 2015
Amortisation
Write offs
At 1 January 2016
Amortisation
At 31 December 2016
Net book value at 31 December 2016
Net book value at 31 December 2015
97
Web
development
and branding
£m
1.7
1.2
(1.1)
1.8
1.4
3.2
0.1
0.3
(0.3)
0.1
0.4
0.5
2.7
1.7
STV Annual Report and Accounts 2016
98
Notes to the financial statements
continued
17. Property, plant and equipment
Cost
At 1 January 2015
Additions
Write offs
At 1 January 2016
Additions
Write offs
At 31 December 2016
Accumulated depreciation and impairment
At 1 January 2015
Charge for year
Write offs
At 1 January 2016
Charge for year
Write offs
At 31 December 2016
Net book value at 31 December 2016
Net book value at 31 December 2015
18. Investments
Group
Cost
At 1 January 2016
Additions
At 31 December 2016
Provisions for impairment
At 1 January and 31 December 2016
Net book value at 31 December 2016
Net book value at 31 December 2015
Plant,
technical
equipment
and other
£m
Leasehold
buildings
£m
0.1
–
–
0.1
–
–
0.1
0.1
–
–
0.1
–
–
0.1
–
–
27.2
1.1
(0.3)
28.0
1.8
(7.3)
22.5
18.4
2.2
(0.1)
20.5
2.0
(7.3)
15.2
7.3
7.5
Total
£m
27.3
1.1
(0.3)
28.1
1.8
(7.3)
22.6
18.5
2.2
(0.1)
20.6
2.0
(7.3)
15.3
7.3
7.5
£m
1.7
0.1
1.8
1.0
0.8
0.7
Strategic ReportGovernanceAdditional InformationFinancial Statements
99
Subsidiaries
£m
Other
£m
Total
£m
47.3
–
47.3
1.6
0.1
1.7
48.9
0.1
49.0
–
1.0
1.0
47.3
47.3
0.7
0.6
48.0
47.9
Company
Cost
At 1 January 2016
Additions
At 31 December 2016
Provisions for impairment
At 1 January and 31 December 2016
Net book value at 31 December 2016
Net book value at 31 December 2015
Other investments of £0.7m (2015: £0.6m) relates to available for sale investments.
Impairment testing
Investments in subsidiaries is monitored by management to ensure that it has not suffered any impairment.
In order to assess whether the investment in subsidiaries was subject to impairment, a valuation assessment
was performed using a DCF model. The cash flow projections for the model were based on a 3 year plan approved
by the Board in October 2016 which supported moderate growth in the Group through the period from 2017 to
2019. The resultant terminal value provided significant headroom against the investment carrying value.
Further sensitivities were modelled to provide management with sufficient comfort that no impairment would
be required, namely a +/- 1% change in discount rate and also an operating profit fall in 2017 of 10% and then
flat growth. Both scenarios still left the Group with significant headroom.
Based on the above the Directors consider that the investments’ recoverable amount is greater than its carrying
value and consequently no impairment is considered necessary.
STV Annual Report and Accounts 2016
100
Notes to the financial statements
continued
Subsidiary undertakings
A full list of subsidiary undertakings as at 31 December 2016 is as follows:
Undertaking
Principal activity
Registered address
STV News Services Limited*
STV Television Limited
STV Central Limited
STV North Limited
STV Productions Limited
Ginger Television Productions Limited
SKA Ginger Productions Limited (50%)
STV Glasgow Limited
STV Edinburgh Limited
Altissimo Music Limited
stv.tv Limited
Solutions.tv Limited
STV Aberdeen Limited
STV Dundee Limited
STV Ayr Limited
Grampian Television Limited
STV Services Limited*
Scottish News Network Limited
STV SIP Trustees Limited
Rise & Shine (Television) Limited*
STV Publishing Limited
STV Out of Home Limited
Peopleschampion Limited
Scottish Media Group (Jersey) Limited
The Ginger Media Group Limited
STV Appeal*
STV Appeal Trading Company Limited
STV Elm Limited*
* directly held
Investment holding undertaking
Investment holding undertaking
Television broadcasting
Television broadcasting
Programme production
Programme production
Programme production
Television broadcasting
Television broadcasting
Music rights
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Group services undertaking
Dormant
Dormant
Investment holding undertaking
Dormant
Dormant
Dormant
Dormant
Dormant
Holding undertaking for charity
Trading undertaking for charity
Group services undertaking
(1)
(1)
(1)
(2)
(1)
The registered address for all companies (except where noted) is Pacific Quay, Glasgow, G51 1PQ.
(1) 2nd Floor, Bewlay House, 2 Swallow Place, London, W1B 2AE
(2) 13 Castle Street, St Helier, Jersey, Channel Islands, JE4 5UT
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
The investments are stated in the balance sheet at cost less amounts written off for impairment in value.
All of the above investments are 100% shareholdings within the Group except where stated.
19. Inventories
Deferred programme production
Programme production work in progress
Recorded programmes
2016
£m
14.8
4.0
0.7
19.5
2015
£m
14.8
3.6
0.8
19.2
Strategic ReportGovernanceAdditional InformationFinancial Statements
101
Deferred programme production stock represents original costs of production which are deferred and
recognised against future revenue streams expected to be generated in the secondary sales market.
Deferred programme production stock is classified as a current asset even though it will be realised into cash
over several years due to the homogeneous nature of the inventory which would result in an arbitrary split
between the current and non current categories and to be consistent with practice elsewhere in the industry.
It is anticipated that £1.1m is likely to be realised within 12 months.
At 31 December 2016, the net present value (NPV) of the future sales, estimated over a maximum period
of 10 years, was £18.4m (2015: £18.0m), with the net book value of £14.8m representing 80% (2015: 82%)
of the future sales. Revenues in 2017 are expected to be £1.7m.
The sensitivities regarding the principal assumptions used to measure the deferred production costs are
set out below:
Assumption
Change in assumption
Impact on NPV
Discount rate
Rate of price inflation (RPI)
Sales
Increase/decrease by 0.25%
Increase/decrease by 0.25%
Increase/decrease by 10.00%
Decrease/increase by £0.2m
Increase/decrease by £0.1m
Increase/decrease by £1.1m
20. Trade and other receivables
Group
Company
Current
Non-current
Current
Non-current
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
2016
£m
2015
£m
Trade receivables
Amounts owed by Group undertakings
Prepayments and accrued income
Other receivables
14.7
–
7.9
0.2
22.8
12.3
–
8.1
1.7
22.1
–
–
–
5.9
5.9
–
–
–
–
–
–
75.7
1.0
–
76.7
–
72.3
0.8
–
73.1
–
153.7
–
–
153.7
–
141.0
–
–
141.0
As of 31 December 2016, trade receivables of £1.5m (2015: £0.8m) are past due. These are net of a provision for
bad debts of £nil (2015: £nil). Trade receivables relate to a number of independent customers for whom there is
no recent history of default.
The ageing analysis of the trade receivables is as follows:
Up to 3 months
2016
2015
Gross
£m
Provision
£m
14.7
–
Gross
£m
12.3
Provision
£m
–
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
All receivables are expected to be recovered.
Group trade and other receivables of £5.9m (2015: £nil), included within non-current assets, relates to debt
due to ELM (the lottery management company) from the Scottish Children’s Lottery and will be recovered from
2018 onwards.
A loan to a subsidiary undertaking of £80.0m (2015: £80.0m) is included within the Company amounts owed by
Group undertakings. All remaining amounts owed by Group undertakings are unsecured, interest free and have
no fixed date of repayment.
STV Annual Report and Accounts 2016
102
Notes to the financial statements
continued
21. Cash and cash equivalents
Cash and cash equivalents
22. Trade and other payables
Current
Trade payables
Accrued expenses and deferred income
Amounts owed to Group undertakings
Bank overdraft
Social security and other taxes
Non-current
Derivative financial instruments (note 4)
2016
£m
13.3
2015
£m
13.7
Group
Company
2016
£m
2015
£m
2016
£m
2015
£m
4.0
11.1
–
–
2.8
17.9
5.1
9.9
–
–
3.3
18.3
–
0.1
40.9
4.7
–
45.7
–
0.1
27.9
4.6
–
32.6
0.1
0.1
–
–
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
23. Borrowings
Bank loans
The borrowings are repayable as follows:
Expiring in 2 to 5 years
2016
£m
39.7
2015
£m
39.4
39.7
39.4
All undrawn committed borrowing facilities are repayable within 2 to 5 years (2015: 2 to 5 years).
The amount of bank loans is net of £0.3m unamortised borrowing costs (2015: £0.6m).
The effective interest rates were as follows:
Bank loans (floating)
2016
%
2.0
2015
%
2.0
At 31 December 2016, the Group had revolving credit and overdraft bank facilities in place totalling £60.0m
(£60.0m at 31 December 2015). At 31 December 2016, £40.0m of the facility was drawn down.
The £60.0m revolving credit and overdraft facility has a maturity date of June 2019. Security is provided to the
debt providers by way of cross guarantees and a share pledge.
Strategic ReportGovernanceAdditional InformationFinancial Statements
103
The Group has hedged its exposure to fluctuations in interest rates with interest rate swaps of £15.0m (2015:
£15.0m). The notional principal amount of the outstanding interest rate swap contracts at 31 December 2016
was £15.0m (2015: £15.0m). A fair value on the interest rate swaps of £0.1m (2015: £0.1m) has been recognised
at 31 December 2016.
24. Deferred tax
The analysis of the current deferred tax balances is as follows:
Deferred tax asset:
Deferred tax to be recovered after more than one year
Deferred tax to be recovered within one year
Group
Company
2016
£m
2015
£m
2016
£m
Restated*
2015
£m
(19.4)
(2.2)
(21.6)
(8.2)
(1.4)
(9.6)
(5.6)
(1.5)
(7.1)
(2.8)
–
(2.8)
Net deferred tax asset
(21.6)
(9.6)
(7.1)
(2.8)
Deferred tax asset not recognised
(2.1)
(2.2)
–
–
A deferred tax asset has been recognised in respect of these temporary differences as it is probable that the Group
will generate sufficient taxable profits in the future against which these temporary differences can be offset.
The deferred tax asset of £2.1m (2015: £2.2m) which has not been recognised relates to a combination of
trading tax losses and non-trade debits.
The movement in deferred tax assets and liabilities during the year, taking into consideration the offsetting
of balances within the same tax jurisdiction, is as follows:
Group
Tax
trading
losses
£m
Other
temporary
differences
£m
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
Total
£m
At 1 January 2016
Pension transferred from fellow
subsidiary undertaking
At 1 January 2016 restated*
Charge/(credit) to income
Charge/(credit) to equity
(5.4)
(1.4)
(1.3)
(1.5)
(9.6)
–
(5.4)
1.2
–
–
(1.4)
0.4
0.3
–
(1.3)
(0.2)
–
–
–
(1.5)
1.3
(9.6)
2.7
(15.1) (14.8)
Company
Tax
trading
losses
£m
Retirement
benefit
obligations
£m
Total
£m
(1.4)
–
(1.4)
1.1
–
–
(1.4)
(1.4)
(1.4)
0.9
(6.3)
(1.4)
(2.8)
2.0
(6.3)
At 31 December 2016
(4.2)
(0.7)
(1.5)
(15.3) (21.7)
(0.3)
(6.8)
(7.1)
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (No.2) on
26 October 2015. These include reductions to the main rate to reduce the rate to 19% from 1 April 2017. Finance
Act 2016, which was substantively enacted on 6 September 2016, includes legislation reducing the main rate
of UK corporation tax to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured
using these enacted tax rates and reflected in these financial statements.
* Refer to note 6 for more information.
STV Annual Report and Accounts 2016
104
Notes to the financial statements
continued
25. Provisions
At 1 January
Utilised during the year
At 31 December
The provisions are expected to be utilised:
Within one year
Greater than one year
26. Share capital and premium
At 1 January 2016
Issued during the year
Value of employee services
At 31 December 2016
Onerous lease
provisions
2016
£m
0.8
(0.3)
0.5
0.2
0.3
0.5
Number
of shares
(thousands)
Ordinary
shares
£m
Share
premium
£m
39,298
250
–
39,548
19.6
0.2
–
19.8
101.8
–
0.1
101.9
2015
£m
1.0
(0.2)
0.8
0.3
0.5
0.8
Total
£m
121.4
0.2
0.1
121.7
The total authorised number of ordinary shares is 63 million shares (2015: 63 million shares) with a par value
of £0.50 per share (2015: £0.50 per share). All issued shares are fully paid.
During the year 250,000 shares (2015: nil) were issued to the Employee Benefit Trust.
27. Notes to the parent and consolidated statement of cash flows
Operating profit/(loss)
Adjustments for:
Depreciation (note 17)
Amortisation (note 16)
Goodwill impairment charge (note 15)
Investment write-down
Fixed/intangible asset write down
Management incentive plan
EBITDA
Past service cost – pension
Share based payment
Increase in inventories
(Increase)/decrease in trade and other receivables (excluding ELM)
Decrease in trade and other payables (excluding ELM)
Increase in ELM trade and other receivables
Increase in ELM trade and other payables
Increase in intra Group balances
Group
Company
2016
£m
2015
£m
2016
£m
2015
£m
16.9
11.5
(0.9)
(1.6)
2.0
0.4
2.8
–
–
–
2.2
0.3
5.1
1.0
1.0
1.7
–
–
–
–
–
–
–
–
–
1.0
–
–
22.1
22.8
(0.9)
(0.6)
–
0.3
22.4
(0.3)
(0.7)
(0.1)
(5.9)
0.5
–
(0.7)
0.3
22.4
(0.9)
1.0
(2.5)
–
–
–
–
0.3
(0.6)
–
(0.2)
–
–
–
10.2
9.4
–
0.3
(0.3)
–
0.2
0.1
–
–
5.6
5.6
Cash generated by operations
15.9
20.0
Strategic ReportGovernanceAdditional InformationFinancial Statements
105
Group analysis of movements in net debt
Cash and cash equivalents (note 21)
Bank borrowings (note 23)
Net debt
At 1 January
2016
£m
Cash flow
£m
Non-cash
movements
£m
At 31
December
2016
£m
13.7
(39.4)
(25.7)
(0.4)
–
(0.4)
–
(0.3)
(0.3)
13.3
(39.7)
(26.4)
Non-cash movements relate to the amortisation of borrowing costs.
Covenant EBITDA reconciliation
Statutory results are adjusted below for the net debt : EBITDA ratio on a covenant basis. They are adjusted to
reflect the underlying performance of the business, providing a more meaningful comparison of how the
business is managed and measured on a day-to-day basis.
Operating profit
Depreciation and amortisation
Post employment benefit changes
Non-cash and other adjustments
2016
£m
19.7
2.4
2.6
1.5
26.2
2015
£m
20.3
2.5
2.3
1.3
26.4
28. Operating lease commitments
At 31 December the Group had minimum commitments in respect of non-cancellable operating leases for
leasehold buildings payable as follows:
Within one year
Between two and five years
After five years
2016
£m
1.6
5.4
5.2
12.2
2015
£m
1.7
5.9
6.3
13.9
29. Transactions with related parties
During the year £3,700 (2015: £1,700) income was received from related parties and a balance of £1,110 was
owed by related parties at 31 December 2016 (31 December 2015: £1,110). These amounts relate to fees
received from the Group’s investment companies.
Key management personnel are deemed to be the Executive and Non-Executive Directors of the Group,
as they have authority and responsibility for controlling the Group’s activities.
Key management remuneration is detailed as follows:
Short-term employee benefits*
* See Remuneration Report pages 61 to 62 for details.
2016
£m
1.6
2015
£m
3.8
There have been no other transactions with key management personnel as defined under IAS 24.
STV Annual Report and Accounts 2016
106
Notes to the financial statements
continued
30. Retirement benefit schemes
Defined contribution schemes
The Group operates two money purchase schemes, the STV Pension Scheme and the Pearl & Dean Cinemas
Pension Scheme, for which the pension cost charge for the year amounted to £1.5m (2015: £1.1m).
Defined benefit schemes
The Group operates two defined benefit pension schemes. The schemes are trustee administered and the
schemes’ assets are held independently of the Group’s finances. Pension costs are assessed in accordance
with the advice of an independent professionally qualified actuary.
The schemes are the Scottish and Grampian Television Retirement Benefit Scheme and the Caledonian
Publishing Pension Scheme. They are closed schemes to new entrants and therefore under the projected
unit method the current service cost will increase as the members of the scheme approach retirement.
Defined benefit pension deficit
Group
The net pension deficit at 31 December 2016 was £88.8m (2015: £7.8m).
Company
The net pension deficit was £39.2m (2015: £7.6m).
The net assets and liabilities of the schemes are recognised in the consolidated balance sheet and shown within
non-current liabilities. The totals recognised in the current and previous years are:
Total defined benefit scheme obligations
Total defined benefit scheme assets
Net pension deficit
Group
Company
2016
£m
2015
£m
2016
£m
Restated*
2015
£m
(448.2)
359.4
(88.8)
(320.9)
313.1
(7.8)
(186.6)
147.4
(39.2)
(134.8)
127.2
(7.6)
A related offsetting deferred tax credit for the Group of £15.3m (2015: £1.5m) and the Company of £6.3m (2015:
£1.4m) is included under non-current assets. Therefore the net pension scheme deficit for the Group amounts to
£73.5m at 31 December 2016 (£6.3m at 31 December 2015) and the Company amounts to £32.9m (2015: £6.2m).
Total defined benefit scheme obligations
The movement in the present value of the defined benefit obligation is analysed below:
Defined benefit obligation at 1 January/on transfer
Current service cost
Past service cost
Interest cost
Contributions from plan participants
Remeasurement losses/(gains)
Benefits paid from plan
Defined benefit obligation at 31 December
* Refer to note 6 for more information.
Group
Company
2016
£m
2015
£m
2016
£m
320.9
0.1
–
12.1
–
135.8
(20.7)
448.2
336.2
0.4
(0.7)
11.7
0.1
(6.5)
(20.3)
320.9
134.8
–
–
5.1
–
55.9
(9.2)
186.6
Restated*
2015
£m
140.3
–
0.6
4.9
–
(2.5)
(8.5)
134.8
Strategic ReportGovernanceAdditional InformationFinancial Statements
107
Assumptions used to estimate the scheme obligations
The 1 January 2015 valuation has been updated to 31 December 2016 by a qualified independent actuary and
reflect recent market movements in corporate bond yields and inflation. The major assumptions used by the
actuary were:
Rate of increase in salaries
Rate of increase of pensions in payment
Discount rate
Rate of price inflation (RPI)
Group
Company
2016
2015
2016
2015
nil%
3.30%
2.80%
3.30%
nil%
2.90%
3.90%
2.90%
nil%
3.30%
2.80%
3.30%
nil%
2.90%
3.90%
2.90%
In 2015, benefits to members were reduced, including a decrease in pensionable salary increases to £nil. The total
impact was an actuarial gain of £1.7m (Group). In addition, a further communication with pensioner members on
the option of a Pension Increase exchange was undertaken in 2015. This had a positive impact on liabilities on a
technical provisions basis but resulted in an IAS19 actuarial loss of £1.0m (Group) and £0.6m (Company). The two
items together resulted in a Group net past service gain of £0.7m and Company net past service loss of £0.6m.
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).
As part of the 1 January 2015 valuation process, a detailed research project on the health of approximately 40%
of the two schemes’ pensioners was undertaken. The outcomes of this study have been reflected in an update
of the mortality assumptions and has resulted in an average increase in male pensioner longevity, the category
which accounts for the largest element of the schemes’ liabilities, of approximately 3.6 years and a deficit
increase of £55.9m.
Retiring at balance sheet date:
Male
Female
Retiring in 25 years:
Male
Female
Group
Company
2016
Years
2015
Years
2016
Years
2015
Years
19.1
21.4
20.8
22.7
15.5
18.1
18.7
21.5
18.8
21.1
20.3
22.9
14.7
17.3
17.4
20.2
The sensitivities regarding the principal assumptions used to measure the defined benefit obligation are
set out below:
Assumption
Change in assumption
Impact on scheme liabilities
Group
Discount rate
Rate of price inflation (RPI)
Rate of mortality
Company
Discount rate
Rate of price inflation (RPI)
Rate of mortality
Increase/decrease by 0.25%
Increase/decrease by 0.25%
Decrease by 1 year
Decrease/increase by 4%
Increase/decrease by 2%
Decrease by 5%
Increase/decrease by 0.25%
Increase/decrease by 0.25%
Decrease by 1 year
Decrease/increase by 3%
Increase/decrease by 1%
Decrease by 4%
The analysis above has been determined based on reasonably possible changes of the assumptions occurring
at the end of the reporting period assuming that all other assumptions are held constant.
STV Annual Report and Accounts 2016
108
Notes to the financial statements
continued
Total defined benefit scheme assets
The movement in the fair value of the defined benefit scheme’s assets is analysed below:
Fair value of scheme assets at 1 January/on transfer
Interest income
Return on plan assets excluding interest income
Contributions from the employer
Administrative expenses paid from plan assets
Contributions from plan participants
Benefits paid from plan
Fair value of scheme assets at 31 December
Group
Company
2016
£m
2015
£m
2016
£m
313.1
12.1
47.1
9.2
(1.4)
–
(20.7)
359.4
321.3
11.4
(7.0)
9.3
(1.7)
0.1
(20.3)
313.1
127.2
5.0
18.9
5.9
(0.4)
–
(9.2)
147.4
Restated*
2015
£m
128.6
4.6
(2.6)
6.0
(0.9)
–
(8.5)
127.2
Scheme assets
At 31 December 2016 the Scheme’s assets were invested in a diversified portfolio that consisted primarily of equity
and debt securities. The fair value of the Scheme’s assets are shown below:
Cash and cash equivalents
Equity instruments
Debt instruments
Investment funds
Real estate
Total quoted assets
Cash and cash equivalents
Equity instruments
Debt instruments
Investment funds
Derivatives
Total unquoted assets
Total scheme assets
Group
Company
2016
£m
29.4
–
103.9
40.3
–
173.6
–
–
–
181.6
4.2
185.8
2015
£m
0.7
155.0
136.5
–
20.9
313.1
–
–
–
–
–
–
2016
£m
11.2
–
42.8
17.3
–
71.3
–
–
–
74.6
1.5
76.1
2015
£m
0.2
63.0
54.7
–
9.3
127.2
–
–
–
–
–
–
359.4
313.1
147.4
127.2
A process to review and change the defined benefit schemes’ investment manager and introduce fiduciary
management was started in 2015 and completed and implemented during 2016. The result has been a significant
reduction in the schemes risk profile, with the 20 year Value at Risk measure halving to approximately £60.0m.
Strategic ReportGovernanceAdditional InformationFinancial Statements
Amounts recognised through the income statement:
Amounts recognised through the income statement are as follows:
Amount charged to net operating expenses:
Current service cost – defined benefit
Past service cost – defined benefit
Amount charged to finance costs:
Net interest expense
Total charged in the consolidated income statement
Amounts recognised through the statement of comprehensive income:
The amounts recognised through the consolidated statement of comprehensive income are:
Remeasurement (losses)/gains:
Return on plan assets excluding interest income
Actuarial (losses)/gains on liabilities arising from change in:
– demographic assumptions
– financial assumptions
– experience adjustments
Total recognised in the consolidated statement of comprehensive income
109
2016
£m
2015
£m
(2.0)
–
(2.0)
–
(2.0)
(2.1)
0.7
(1.4)
(0.5)
(1.9)
2016
£m
2015
£m
47.1
(55.9)
(62.0)
(17.9)
(88.7)
(7.0)
(4.8)
11.2
–
(0.6)
Funding arrangements
Contribution rates to the scheme are determined by a qualified independent actuary on the basis of triennial
valuation using the projected unit method. The most recent triennial valuation was carried out as at 1 January
2015. This valuation resulted in a deficit of £129.9m on a pre tax basis at 30 November 2016 compared to £83.0m
on a pre tax basis at the previous settlement date of 31 March 2014. This differential is principally due to a
decrease in gilt yields during this period. The next triennial valuation will take place as at 1 January 2018.
Following the valuation, an 11 year recovery plan has been agreed with monthly payments commencing in
January 2017. The 2017 payment will total £8.6m with annual payments increasing at the rate of 2% per annum
over the term of the plan. 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 will
be paid to the schemes. Sensitised forecast net cash flow is defined as cash flow pre-pension deficit funding
payments and returns to shareholders.
The estimated total employer contributions in 2017 are £10.0m (2015: £9.3m) which reflects the deficit funding
payments described above.
The weighted average duration of the Plan’s defined benefit obligation is approximately 15 years.
STV Annual Report and Accounts 2016
110
Notes to the financial statements
continued
31. Share-based compensation
The purpose of the share-based compensation plans is to align the interests of management and employees
with those of shareholders by providing incentives to improve the Company’s performance on a long-term basis,
thereby increasing shareholder value.
The Company has the following plans currently operating:
i) Long-term incentive plans (LTIP)
ii) Employee share plans
In previous years, a Value Creation Plan (VCP) was in operation with the plan maturing at the 2015 year end.
Share-based compensation costs were £0.3m (2015: £0.3m).
i) Long-term incentive plans
The Group has a long-term incentive plan for Executive Directors and other senior executives. Awards are
granted normally in the form of a right to acquire shares in the Company for a zero or nominal amount.
Awards vest over a period of at least three years, subject to the satisfaction of performance conditions.
The performance measures are agreed by the Remuneration Committee based on which they consider to be
aligned with the delivery of strategy and long term shareholder value. The Committee has discretion to use
different or additional measures or weightings to ensure that the LTIP remains appropriately aligned to the
business strategy and objectives. The performance measures are based on a combination of earnings growth
and total shareholder return and are valued based on Monte-Carlo simulation.
The assumptions used in Monte-Carlo simulation for the 2016 LTIP valuation are:
Risk-free interest rate
Expected dividend yield
Expected share price volatility
%
0.44
2.20
25.00
Granted awards under the Company’s long term incentive plan that were outstanding at the end of the year
had the following market prices at the date of award:
Year awarded
2013 VCP
2014 LTIP
2015 LTIP
2016 LTIP
Market price
on grant date
Pence
2016
Number
2015
Number
1.00
3.40
4.25
3.67
470,205 1,164,028
150,705
150,705
159,865
159,865
–
155,814
ii) Employee share plans
The employee share plans are open to all employees. They provide for a grant price approximately equal to
90% of the middle market quotation of a share on the dealing day last preceding the relevant date of invitation as
derived from the London Stock Exchange daily office list and can be purchased once a year. There are currently
3 employee share plans outstanding and the exercise prices for options under these plans range from £3.34
to £4.02. At 31 December 2016 there were 461,463 (2015: 512,899) options outstanding under the plans.
The employee share plans are valued using the Black and Scholes model.
Strategic ReportGovernanceAdditional InformationFinancial Statements
Five year summary
For the year ended 31 December 2016
Results
Revenue
111
Restated*
2012
£m
2013
£m
IFRS
2014
£m
2015
£m
2016
£m
102.7
112.1
120.4
116.5
120.4
Profit from operations before exceptional items
17.1
18.0
19.5
20.3
19.7
Profit on ordinary activities before taxation
and exceptional items
11.7
14.3
17.3
18.6
18.5
Assets
Non-current assets
Current assets
Total assets
Equity and liabilities
Current liabilities
Non-current liabilities
Equity
Total equity and liabilities
Key statistics
Earnings per ordinary share* – basic
– diluted
Dividends per ordinary share
28.2
41.9
70.1
22.5
68.5
(20.9)
70.1
13.0p
12.5p
–
22.6
47.8
70.4
62.0
0.8
7.6
70.4
26.9
61.2
88.1
19.7
64.9
3.5
88.1
22.3
55.0
77.3
18.6
47.8
10.9
77.3
38.4
55.6
94.0
18.1
128.9
(53.0)
94.0
32.2p
31.2p
2.0p
38.7p
37.6p
8.0p
29.8p
29.0p
10.0p
32.5p
31.9p
15.0p
* The 2012 results have been restated to disclose amendments resulting in applying
updated IAS19 and also for investments previously held in current assets.
STV Annual Report and Accounts 2016
112
Shareholder information
Registrars
Capita Asset Services
The Registry, 34 Beckenham Road
Beckenham, Kent BR3 4TU
Tel: 0871 664 0300*
Tel: (overseas) +44 371 664 0300
Fax: +44 (0) 1484 601 512
Email: shareholderenquiries@capita.co.uk
Website: www.capitashareportal.com
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
141 Bothwell Street
Glasgow G2 7EQ
Solicitors
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London EC2A 2HS
Burness Paull LLP
120 Bothwell Street
Glasgow G2 7JL
Principal bankers
Santander UK plc
2 Triton Square
Regent’s Place
London NW1 3AN
Stockbrokers
Peel Hunt LLP
Moor House
120 London Wall
London EC2Y 5ET
Panmure Gordon & Co
One New Change
London
EC4M 9AF
Secretary and registered office
Jane E A Tames
STV Group plc
Pacific Quay
Glasgow G51 1PQ
Tel: 0141 300 3074
Email: jane.tames@stv.tv
Company registration number
SC203873
Strategic ReportGovernanceFinancial StatementsAdditional Information 113
Annual Report on internet
The 2016 Annual Report of STV Group plc including the financial statements is available at: www.stvplc.tv
Amalgamation of accounts
Shareholders who receive duplicate sets of Company mailings because they have multiple accounts
should write to the Registrars to have the accounts amalgamated.
Investor relations
For investor enquiries please contact:
Eleanor Marshall
PR Manager
STV Group plc
Pacific Quay
Glasgow G51 1PQ
Tel: 0141 300 3670
Email: eleanor.marshall@stv.tv
Share price information
The share price of STV Group plc is published in most newspapers and the current price of the Company’s
shares (delayed by up to 15 minutes) can be obtained from the Company’s website www.stvplc.tv
Individual Savings Accounts (ISAs)
The Company has Maxi and Mini ISAs which offer United Kingdom resident shareholders a simple, low-cost
and tax efficient way to invest in the Company’s shares. Full details and an application form are available
from Stocktrade, a division of Brewin Dolphin Securities Limited, on: 0131 240 0441.
Dividend Reinvestment Plan
STV Group plc operates a Dividend Reinvestment Plan to provide United Kingdom shareholders with a facility
to invest cash dividends by purchasing further STV Group plc shares. Further details are available from the
Registrar on: 0371 664 0381.**
Your shareholding
You can check your shareholding at any time by visiting the Registrar’s website at: www.capitashareportal.com
Capita share dealing services
Capita offer a quick and easy share dealing service to buy or sell STV Group plc shares. An online telephone
dealing facility is available providing STV Group plc shareholders with an easy to access and simple to use
service. There is no need to pre-register and there are no complicated forms to fill in. The online and telephone
dealing services allow you to trade ‘real time’ at a known price which will be given to you at the time you
give your instruction. For further information on this service, or to buy and sell shares, please contact:
www.capitadeal.com (online dealing); 0371 664 0445*** (telephone dealing).
*
**
Calls cost 12p per minute plus your phone company’s access charge. Calls outside the UK will be charged at the applicable
international rate. Lines are open between 9am-5:30pm, Monday to Friday excluding public holidays in England and Wales.
Calls are charged at the standard geographic rate and will vary by provider. Calls outside the UK will be charged at the applicable
international rate. Lines are open between 9am-5:30pm, Monday to Friday excluding public holidays in England and Wales.
*** Calls are charged at the standard geographic rate and will vary by provider. Calls outside the UK will be charged at the applicable
international rate. Lines are open between 8am-4:30pm, Monday to Friday excluding public holidays in England and Wales.
STV Annual Report and Accounts 2016 114
Notice of Annual General Meeting
THIS INFORMATION IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt as to the action you should take, you should seek your own advice from a
stockbroker, bank manager, solicitor, accountant or other independent professional adviser authorised
under the Financial Services and Markets Act 2000.
If you have sold or transferred all of your shares in STV Group plc (the ‘Company’), please pass this document,
together with the accompanying documents to the purchaser or transferee or to the person who arranged
the sale or transfer so they can pass these documents to the person who now holds the shares.
The Annual General Meeting is an important opportunity for all shareholders to express their views by asking
questions of the Directors and voting on the resolutions.
The Directors consider that each of the proposals detailed in the Notice of Annual General Meeting will be
of benefit to and are in the best interests of the Company and the shareholders as a whole. The Directors
therefore unanimously recommend that shareholders vote in favour of the Resolutions, as the Directors intend
to do in respect of their own holdings of shares in the Company.
Notice is hereby given that the Annual General Meeting of the Company will be held at Pacific Quay, Glasgow
G51 1PQ on Tuesday 25 April 2017 at 11 am for the purpose of considering and, if thought fit, passing the
resolutions below.
Resolutions 1 to 10 (inclusive) will be proposed as ordinary resolutions and Resolutions 11 to 14 (inclusive) shall
be proposed as special resolutions.
Ordinary resolutions
1.
To receive the annual accounts of the Company for the financial year ended 31 December 2016 which
includes the reports of the Directors and the report by the auditors on the annual accounts and the
auditable part of the Directors’ remuneration report.
2.
To approve the Directors’ remuneration report in the form set out on pages 55 to 67 of the Annual Report
and Accounts for the financial year ended 31 December 2016.
As required by the Directors’ Remuneration Report Regulations 2002, the Company’s auditors,
PricewaterhouseCoopers LLP, have audited those parts of the Directors’ remuneration report capable
of being audited.
3.
To declare a final dividend of 11.0p per ordinary share for the year ended 31 December 2016.
The Board proposes a final dividend of 11.0p per ordinary share for the year ended 31 December 2016
which, if approved, will be paid on 19 May 2017 to all holders of ordinary shares who are on the register
of members of the Company at close of business on the record date of 18 April 2017.
4.
To elect Simon Miller as a Director of the Company, having been appointed since the last Annual
General Meeting.
Simon Miller is standing for election following his appointment as a Non-Executive Director on 2 December
2016. The Articles of Association require that a Director appointed by the Board since the last Annual
General Meeting should retire at the next Annual General Meeting and stand for election to the Board
in order to give shareholders a chance to confirm the appointment.
Biographical details of Simon Miller can be found on page 41 and the Board confirms that he meets
the independence criteria as set out in B.1.1 of the UK Corporate Governance Code.
Strategic ReportGovernanceFinancial StatementsAdditional Information
115
Resolutions 5 to 7
The Articles of Association require that every year a proportion of our Directors retire and that all Directors have
to stand for re-election on the third anniversary of their election or re-election. This gives you the chance to
confirm their appointments.
5.
To re-elect Rob Woodward as a Director of the Company.
Biographical details of Rob Woodward can be found on page 40 and following formal performance
evaluation, Mr Woodward’s performance continues to be effective and to demonstrate commitment
to the role.
6.
To re-elect Christian Woolfenden as a Director of the Company.
Biographical details of Christian Woolfenden can be found on page 41 and the Board confirms
that he meets the independence criteria as set out in B.1.1 of the UK Corporate Governance Code.
Following formal performance evaluation, Mr Woolfenden’s performance continues to be effective
and to demonstrate commitment to the role.
7.
To re-elect Anne Marie Cannon as a Director of the Company.
Biographical details of Anne Marie Cannon can be found on page 41 and the Board confirms that she meets
the independence criteria as set out in B.1.1 of the UK Corporate Governance Code.
Following formal performance evaluation, Ms Cannon’s performance continues to be effective and to
demonstrate commitment to the role.
8.
To re-appoint PricewaterhouseCoopers LLP as the auditors of the Company to hold office until the
conclusion of the next general meeting at which accounts are laid.
9.
To authorise the Audit Committee to fix the remuneration of the auditors of the Company.
10. That for the purpose of Section 551 of the Companies Act 2006, the Directors be and are hereby generally
and unconditionally authorised to exercise all the powers of the Company to allot equity securities (within
the meaning of Section 560 of that Act):
(a) up to an aggregate nominal amount of £6,591,371; and
(b)
up to an aggregate nominal amount of £6,591,371 in connection with a rights issue in favour of
the ordinary shareholders of the Company where the equity securities respectively attributable to
the interests of all ordinary shareholders are proportionate (as nearly as may be) to the respective
number of ordinary shares held by them in the Company, or in favour of the holders of other equity
securities as required by the rights of those securities, subject in both cases to such exclusions or
other arrangements as the Directors may deem necessary or expedient to deal with treasury shares,
fractional entitlements or legal or practical problems arising under the laws of any overseas territory
or the requirements of any regulatory body or stock exchange or by virtue of shares being represented
by depositary receipts or any other matters, provided that this authority shall expire on the date of
the next Annual General Meeting of the Company after the passing of the resolution, but so that the
Directors may at any time prior to such expiry make an offer or agreement which would or might
require equity securities to be allotted after such expiry and the Directors may allot equity securities
pursuant to any such offer or agreement as if the authority conferred by this resolution had not expired;
and all unexercised authorities previously granted to the Directors to allot equity securities are revoked.
STV Annual Report and Accounts 2016
116
Notice of Annual General Meeting
The Directors require the authority of shareholders to allot the Company’s shares and the first part of this
resolution extends for a further year the general authority for the Directors to allot a limited number of
ordinary shares (13,182,743 being shares representing one third of the ordinary issued share capital of the
Company as at 13 March 2017, excluding treasury shares, none of which are held by the Company) to provide
the flexibility to take advantage of business opportunities as they arise. The second part of this resolution
allows the Directors to allot a limited number of ordinary shares (13,182,743 being shares representing one
third of the ordinary issued share capital of the Company as at 13 March 2017, excluding treasury shares, none
of which are held by the Company) pursuant to a fully pre-emptive rights issue of the Company. The authority
will terminate at the next Annual General Meeting of the Company, which must be held no later than 30 June
2018. The Directors do not have any present intention of exercising this authority except to satisfy awards of
shares under the Company’s employee share schemes and no issue of ordinary shares will be made which
would effectively alter control of the Company without the prior approval of the Company in general meeting.
Special resolutions
11.
That subject to the passing of Resolution 10, the Directors be and are hereby empowered, pursuant to Section
570 of the Companies Act 2006 to allot equity securities (within the meaning of Section 560 of that Act) for
cash either pursuant to the authority conferred by Resolution 10 or by way of a sale of treasury shares as if
Section 561 of that Act did not apply to any such allotment, provided that this power shall be limited to:
(a)
the allotment of equity securities in connection with an offer of securities (but in the case of the
authority granted under paragraph (b) of Resolution 10 by way of rights issue only) in favour of
ordinary shareholders of the Company and other persons entitled to participate therein where the
equity securities respectively attributable to the interest of all such holders are proportionate (as
nearly as may be practicable) to the respective numbers of ordinary shares held or deemed to be held
by them, subject to such exclusions or other arrangements as the Directors may deem necessary or
expedient to deal with treasury shares, fractional entitlements or legal or practical problems arising
under the laws of any overseas territory or the requirements of any regulatory body or any stock
exchange or by virtue of shares being represented by depositary receipts or any other matter; and
(b)
the allotment of equity securities (otherwise than pursuant to paragraph (a) above) having a nominal
value not exceeding in the aggregate £988,705,
and shall expire on the conclusion of the next Annual General Meeting of the Company after the passing of
this resolution, save that the Company may before such expiry make offers or agreements which would or
might require equity securities to be allotted after such expiry and the Directors may allot equity securities
pursuant to any such offer or agreement as if the authority conferred by this resolution had not expired.
When ordinary shares are issued for cash, they normally have to be offered, in the first instance, to existing
holders of ordinary shares in proportion to their respective shareholdings. This resolution renews a similar
power granted at last year’s annual general meeting to grant authority to the Directors to allot a limited
number of ordinary shares other than to existing shareholders in proportion to their existing shareholdings.
The power to be granted by this resolution will be limited, otherwise than in connection with a rights issue
or similar pre-emptive issue, to 1,977,411 ordinary shares, representing 5% of the ordinary issued share
capital of the Company as at 13 March 2017.
It also allows the Directors to allot shares up to a nominal amount of £13,182,743 (representing two
thirds of the Company’s issued share capital) on an offer to existing shareholders on a pre-emptive basis.
However, unless the shares are allotted pursuant to a rights issue, the Directors may only allot shares up to
a nominal value of £6,591,371 (representing one third of the Company’s issued share capital). The authority
will terminate at the next Annual General Meeting, which must be held no later than 30 June 2018. No
issue of ordinary shares will be made which would effectively alter control of the Company without the
prior approval of the Company in general meeting. The Board also confirms that no more than 7.5% of the
issued share capital would be issued on a non pre-emptive basis in any three-year period whether pursuant
to this resolution or Resolution 12.
Strategic ReportGovernanceFinancial StatementsAdditional Information
117
12. That subject to the passing of Resolution 10 and in addition to any authority granted under Resolution 11,
the Directors be and are hereby empowered, pursuant to Section 570 of the Companies Act 2006 to allot
equity securities (within the meaning of Section 560 of that Act) for cash either pursuant to the authority
conferred by Resolution 10 or by way of a sale of treasury shares as if Section 561 of that Act did not apply
to any such allotment, provided that this power shall be limited to:
(a) the allotment of equity securities having a nominal value not exceeding in the aggregate £988,705; and
(b)
used only for the purposes of financing (or refinancing, if the authority is to be used within six months
after the original transaction) a transaction which the Board determines to be an acquisition or other
capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption
Rights (the ‘Statement’) most recently published by the Pre-Emption Group prior to the date of this notice,
and shall expire on the conclusion of the next Annual General Meeting of the Company after the passing of
this resolution, save that the Company may before such expiry make offers or agreements which would or
might require equity securities to be allotted after such expiry and the Directors may allot equity securities
pursuant to any such offer or agreement as if the authority conferred by this resolution had not expired.
The power to be granted by this resolution will be limited to 1,977,411 ordinary shares, representing 5% of
the ordinary issued share capital of the Company as at 13 March 2017 and the Board confirms that ordinary
shares will not be allotted pursuant to this resolution other than in connection with an acquisition or
specified capital investment of the type referred to in the Statement.
13. That the Company be and is hereby generally and unconditionally authorised pursuant to Section 701 of the
Companies Act 2006 to make market purchases (as defined in Section 693(4) of that Act) of ordinary shares
of 50p each in the capital of the Company (‘Shares’) and the Directors be and are hereby generally and
unconditionally authorised to exercise all the powers of the Company to purchase the Shares, provided that:
(a)
the maximum number of Shares acquired pursuant to this authority shall not exceed 3,954,823 Shares,
the aggregate nominal value of which is £1,977,411;
(b)
the minimum price (excluding expenses) which may be paid by the Company for a Share purchased
pursuant to this authority shall be 50p;
(c)
(d)
the maximum price (excluding expenses) which may be paid by the Company for a Share purchased
pursuant to this authority shall not be more than the higher of: (i) 5% above the average of the middle
market quotations for a Share derived from the London Stock Exchange Daily Official List for the five
business days immediately preceding the day on which such Share is purchased; and (ii) the price
stipulated by Article 5(1) of the Buy–Back and Stabilisation Regulation (EC2273/2003); and
unless renewed, the authority conferred by this resolution shall expire on the earlier of the conclusion of
the next Annual General Meeting of the Company after the passing of this resolution and the expiry of 12
months from the date of passing this resolution, save that the Company may before such expiry make
a contract to purchase which will or may be executed wholly or partly after the expiry of such authority
and the Company may make a purchase of such Shares after such expiry pursuant to such contract.
This resolution seeks the authority of shareholders to allow the Company to purchase its own shares.
The authority sought extends to 3,954,823 Shares, representing 10% of the ordinary share capital of the
Company in issue as at 13 March 2017. The maximum price, which may be paid per Share, amounts to not
more than 5% above the average of the middle market quotations of the Company’s shares for the five
business days immediately preceding the date of purchase. The power will only be used if the Board is
satisfied that it will be in the best interests of the shareholders generally.
STV Annual Report and Accounts 2016
118
Notice of Annual General Meeting
In exercising the authority to purchase the Company’s shares, the Directors intend to cancel any shares
purchased but may, however, treat the shares that have been bought back as held in treasury and to the
extent that any such shares are held in treasury, earnings per share will only be increased on a temporary
basis, until such time as the shares are resold out of treasury stock.
As at 13 March 2017 warrants and options to subscribe for 1,239,193 ordinary shares in the capital of
the Company were outstanding, representing 3.13% of the Company’s issued ordinary share capital
as at 13 March 2017 (excluding treasury shares held by the Company). If the authority to purchase the
Company’s ordinary shares was exercised in full, these warrants and options would represent 3.48%
of the issued ordinary share capital of the Company (excluding treasury shares held by the Company).
14. That the Company be entitled to hold general meetings of the shareholders of the Company (with the
exception of annual general meetings) on the provision of 14 clear days’ notice to the Company’s shareholders.
The Companies Act 2006 (following the implementation of the EU Shareholder Rights Directive) permits
the holding of general meetings on 14 clear days’ notice provided a special resolution is passed at the
Company’s Annual General Meeting approving this notice period. The shorter notice period would not be
used as a matter of routine for such meetings but only where this was merited by the nature or urgency
of the business of the meeting and was thought to be to the advantage of shareholders as a whole.
By order of the Board
Jane E A Tames
Company Secretary
STV Group plc
Pacific Quay
Glasgow G51 1PQ
13 March 2017
Strategic ReportGovernanceFinancial StatementsAdditional Information
119
Notes
1.
Information regarding the meeting, including the contents of this notice, details of the total number of
shares in respect of which members are entitled to exercise voting rights at the meeting, details of the
totals of the voting rights that members are entitled to exercise at the meeting and, if applicable, any
members’ statements, members’ resolutions or members’ matters of business received by the Company
after the date of this notice, is available from the Investor Centre at www.stvplc.tv
2.
3.
4.
5.
6.
7.
8.
Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and
vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the
Annual General Meeting provided that each proxy is appointed to exercise the rights attached to a different
share or shares held by that shareholder.
A proxy need not be a shareholder of the Company but must attend the meeting to represent you. Your
proxy could be the Chairman or other person who has agreed to attend to represent you. Your proxy will
vote as you instruct and must attend the meeting for your vote to be counted. Details of how to appoint the
Chairman or another person as your proxy using the proxy form are set out in the notes to the proxy form.
A proxy form which may be used to make such appointment and give proxy instructions accompanies this
notice. If you do not have a proxy form and believe that you should have one, or if you require additional
forms, please contact Capita Asset Services on 0871 664 0300 or shareholderenquiries@capita.co.uk
(Calls cost 12p per minute plus your phone company’s access charge. Calls outside the UK will be
charged at the applicable international rate. Lines are open between 9am-5:30pm, Monday to Friday
excluding public holidays in England and Wales). Alternatively, you may appoint a proxy electronically
at www.capitashareportal.com. Please see the notes to the form of proxy for further details.
To be valid any proxy form or other instrument appointing a proxy must be received by post or online or
(during normal business hours only) by hand at Capita Asset Services, The Registry, 34 Beckenham Road,
Beckenham, Kent, BR3 4ZF no later than 11.00am on 23 April 2017 or 48 hours before the time of any
adjournment of the meeting.
The return of a completed proxy form, in writing or online or any CREST Proxy Instruction (as described
in paragraph 11 below) will not prevent a shareholder attending the Annual General Meeting and voting
in person if he/she wishes to do so.
A copy of this notice has been sent for information only to persons who have been nominated by a
member to enjoy information rights under Section 146 of the Companies Act 2006 (a ‘Nominated Person’).
The right to appoint a proxy cannot be exercised by a Nominated Person. However, a Nominated Person
may, under an agreement between him/her and the shareholder by whom he/she was nominated, have
a right to be appointed (or to have someone else appointed) as a proxy for the Annual General Meeting.
If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under
any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights.
To be entitled to attend and vote at the Annual General Meeting (and for the purpose of the determination
by the Company of the votes they may cast), Shareholders must be registered in the Register of Members
of the Company at 6pm on 23 April 2017 (or, in the event of any adjournment, at 6pm on the date which
is two days before the time of the adjourned meeting). Changes to the Register of Members after the
relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the
meeting or the adjourned meeting.
9.
As at 13 March 2017 (being the last business day prior to the publication of this Notice) the Company’s issued
share capital consists of 39,548,231 ordinary shares of 50p each, carrying one vote each. The Company does
not hold any ordinary shares in the capital of the Company in treasury. Therefore, the total voting rights in
the Company as at 13 March 2017 are 39,548,231.
STV Annual Report and Accounts 2016 120
Notice of Annual General Meeting
10. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment
service may do so by using the procedures described in the CREST Manual on the Euroclear website
(www. euroclear.com). CREST Personal Members or other CREST sponsored members, and those CREST
members who have appointed a service provider(s), should refer to their CREST sponsor or voting service
provider(s), who will be able to take the appropriate action on their behalf.
11. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message
(‘a CREST Proxy Instruction’) must be properly authenticated in accordance with Euroclear UK & Ireland
Limited’s (‘EUI’) specifications, and must contain the information required for such instructions, as
described in the CREST Manual. The message, regardless of whether it constitutes the appointment of
a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be
valid, be transmitted so as to be received by the Company’s registrars, Capita Asset Services (IDRA10) by
11.00am on 23 April 2017 or 48 hours before the time of any adjournment of the meeting. For this purpose,
the time of receipt will be taken to be the time (as determined by the timestamp applied to the message
by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to
CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed
through CREST should be communicated to the appointee through other means.
12. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that
EUI does not make available special procedures in CREST for any particular message. Normal system timings
and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility
of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored
member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means
of the CREST system by any particular time. In this connection, CREST members and, where applicable,
their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST
Manual concerning practical limitations of the CREST system and timings.
13. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation
35(5)(a) of the Uncertificated Securities Regulations 2001.
14. To change your proxy instructions simply submit a new proxy appointment using the methods set out
above. Note that the cut-off time for receipt of proxy appointments (see above) also apply in relation
to amended instructions; any amended proxy appointment received after the relevant cut-off time will
be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to
change the instructions using another hard-copy proxy form, please contact Capita Asset Services on
0871 664 0300 or shareholderenquiries@capita.co.uk (Calls cost 12p per minute plus your phone company’s
access charge. Calls outside the UK will be charged at the applicable international rate. Lines are open
between 9am-5:30pm, Monday to Friday excluding public holidays in England and Wales). If you submit
more than one valid proxy appointment, the appointment received last before the latest time for the
receipt of proxies will take precedence.
15. In order to revoke a proxy instruction you will need to inform the Company using one of the following methods:
• by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment
to Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4ZF. In the case of a
member which is a company, the revocation notice must be executed under its common seal or signed
on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any
other authority under which the revocation notice is signed (or a duly certified copy of such power or
authority) must be included with the revocation notice
• by sending an e-mail to shareholderenquiries@capita.co.uk
Strategic ReportGovernanceFinancial StatementsAdditional Information
121
In either case, the revocation notice must be received by Capita Asset Services no later than 8am on
25 April 2017 or 3 hours before the time of any adjourned meeting thereof. If you attempt to revoke your
proxy appointment but the revocation is received after the time specified then, subject to the paragraph
directly below, your proxy appointment will remain valid. Appointment of a proxy does not preclude you
from attending the Annual General Meeting and voting in person. If you have appointed a proxy and
attend the Annual General Meeting in person, your proxy appointment will automatically be terminated.
16. The Company must answer any question asked which relates to the business being dealt with at the
meeting unless:
(i)
answering the question would interfere unduly with the preparation for the meeting or involve
the disclosure of confidential information;
(ii) the answer has already been given on a website in the form of an answer to a question; or
(iii) it is undesirable in the interests of the Company or the good order of the meeting that the question
be answered.
17.
Shareholders should note that it is possible that, pursuant to requests made by shareholders of the
Company under Section 527 of the Companies Act 2006, the Company may be required to publish
on a website a statement setting out any matter relating to:
(i)
the audit of the Company’s accounts (including the auditor’s report and the conduct of the audit)
that are to be laid before the Annual General Meeting; or
(ii)
any circumstance connected with an auditor of the Company ceasing to hold office since the previous
meeting at which annual accounts and reports were laid in accordance with Section 437 of the
Companies Act 2006.
The Company cannot require the shareholders requesting any such website publication to pay its expenses.
Where the Company is required to place a statement on a website under Section 527 of the Companies Act
2006, it must forward the statement to the Company’s auditors not later than the time when it makes the
statement available on the website. The business which may be dealt with at the Annual General Meeting
includes any statement that the Company has been required under Section 527 of the Companies Act
2006 to publish on a website.
18. Members satisfying the thresholds in Section 338 of the Companies Act 2006 may require the Company
to give, to members of the Company entitled to receive notice of the Annual General Meeting, notice of
a resolution which those members intend to move (and which may properly be moved) at the Annual
General Meeting. A resolution may properly be moved at the Annual General Meeting unless it:
(i)
would, if passed, be ineffective (whether by reason of any inconsistency with any enactment or the
Company’s constitution or otherwise);
(ii)
is defamatory of any person; or
(iii) is frivolous or vexatious.
The business which may be dealt with at the Annual General Meeting includes a resolution circulated
pursuant to this right. A request made pursuant to this right may be in hard copy or electronic form, must
identify the resolution of which notice is to be given, must be authenticated by the person(s) making it and
must be received by the Company not later than 6 weeks before the date of the Annual General Meeting.
STV Annual Report and Accounts 2016
122
Notice of Annual General Meeting
19. Members satisfying the thresholds in Section 338A of the Companies Act 2006 may request the
Company to include in the business to be dealt with at the Annual General Meeting any matter (other
than a proposed resolution) which may properly be included in the business at the Annual General
Meeting. A matter may properly be included in the business at the Annual General Meeting unless it:
(i)
is defamatory of any person or
(ii)
is frivolous or vexatious.
A request made pursuant to this right may be in hard copy or electronic form, must identify the matter to
be included in the business, must be accompanied by a statement setting out the grounds for the request,
must be authenticated by the person(s) making it and must be received by the Company not later than six
weeks before the date of the Annual General Meeting.
20. A corporation which is a member can appoint one or more corporate representatives who may exercise, on
its behalf, all its powers as a member provided that no more than one corporate representative exercises
powers over the same share.
21. Copies of Executive Directors’ service agreements and copies of the letters of appointment of Non-Executive
Directors are available for inspection at the Company’s registered office during normal business hours
from the date of this notice until the close of the Annual General Meeting (Saturdays, Sundays and public
holidays excepted) and will be available for inspection at the place of the meeting for at least 15 minutes
prior to and during the meeting.
22. Except as provided above, members who have general queries about the Annual General Meeting should
call our shareholder helpline on 0871 664 0300 (calls cost 12p per minute plus your phone company’s
access charge. Calls outside the UK will be charged at the applicable international rate. Lines are open
between 9am-5:30pm, Monday to Friday excluding public holidays in England and Wales).
You may not use any electronic address provided either:
• in this notice of Annual General Meeting
• any related document (including the Chairman’s letter and proxy form), to communicate with the
Company for any purposes other than those expressly stated.
Strategic ReportGovernanceFinancial StatementsAdditional Information
Designed and produced by Thunderbolt Projects
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
6
S
T
V
G
r
o
u
p
p
l
c
The STV Appeal 2017 is here
Visit www.stv.tv/appeal to see how you can help.
STV Group plc
Pacific Quay
Glasgow G51 1PQ
Tel: 0141 300 3000
www.stv.tv
Company Registration Number SC203873
In producing this report we have chosen production
methods which aim to minimise the impact on our
environment. The papers chosen – Cocoon 50 Gloss
and Cocoon 100% Uncoated contain 50% and 100%
recycled fibre respectively and are certified in accordance
with the FSC (Forest Stewardship Council). Both the
paper mill and printer involved in this production are
environmentally accredited with ISO 14001.