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Annual Report and Accounts 2017
Contents
01
2017 financial and
operational highlights
Strategic Report
02
The STV Family
04 Chairman’s statement
06 Operating review
– Group
– Consumer
– Showcase of STV content
– Productions
– STV External Lottery Manager
22 Corporate responsibility
29
32
34
36 Risk management
STV Children’s Appeal 2017
Performance review
Principal risks and uncertainties
Introduction to governance
Governance
39
40 Board of Directors
42 Corporate governance report
55 Remuneration report
72 Directors’ report
Financial Statements
76
82
82
83
84
85
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
86
113 Five year summary
Additional Information
114 Shareholder information
116
Notice of Annual General Meeting
STV is Scotland’s leading
digital media brand, providing
consumers with quality content
on air, online and on demand.
View our Annual Report and Accounts
and other information about STV at
www.stvplc.tv
2017 financial and
operational highlights
Turnover
(£ millions)
Operating profit*
(£ millions)
.
4
0
2
1
.
5
6
1
1
.
4
0
2
1
.
0
7
1
1
2014
2015
2016
2017
-4%
.
5
9
1
.
3
0
2
.
7
9
1
.
0
9
1
2014
2015
2016
2017
-3%
STV reaches
3.5m
viewers each month
on channel 3
Dividends per share
(pence)
.
0
7
1
.
0
5
1
.
0
0
1
0
8
.
2014
2015
2016
2017
+13%
+37%
in streams on
the STV Player
STV Children’s Appeal
raises over £2.6m
STV2 launches as
Scotland’s newest channel
EPS*
(pence)
Flat
.
7
8
3
.
9
9
3
.
7
9
3
.
6
9
3
2014
2015
2016
2017
* Pre-exceptionals and IAS 19. See Note 30.
01
STV Annual Report and Accounts 2017 The STV Family
UNRIVALLED CONNECTION
WITH CONSUMERS, REACHING
80% OF SCOTS EVERY MONTH
ON AIR
STV audience share continues
to track above ITV Network
STV2 regularly attracts more
viewers than many long-established
non-terrestrial channels
0.6
share points ahead of
Network in peak-time
46/50
of Scotland’s top commercial
programmes shown on STV
02
57%
reach of STV2 since launch
Top 30
non-PSB digital channel
Strategic Report STV delivers high quality content on air,
online and on demand for consumers to
access free of charge, via multiple platforms
wherever and whenever they want.
ONLINE
ON DEMAND
stv.tv
STV Player
Building audiences by
delivering content online and
on social media channels
STV Player offers a high quality
consumer experience providing
catch up and watch live
3.7m
unique monthly browsers
20%
increase in article views
37%
growth in streams
43 mins
average time spent
on STV Player
03
Strategic ReportSTV Annual Report and Accounts 2017 Chairman’s statement
Baroness Margaret Ford
2017 was a landmark
year for the Company
marking its sixtieth
anniversary, and we
celebrated the fact
that STV is as relevant,
trusted and iconic a
brand and a presence
in Scottish life as at
any time over the
past six decades.
04
£10 million capital to shareholders
over a period of up to 18 months.
This process commenced in
September 2017.
Sustainable growth
The strong capital discipline instilled
across the business, along with the
business continuing to be cash
generative during 2017, has enabled
the key net debt:EBITDA ratio target to
be maintained in the range of one to
one and a half times. This has provided
financial flexibility and facilitated
the additional return of capital to
shareholders to be committed.
Our trading arrangements with
ITV have provided a buffer against
weakness in the national advertising
market and changing macro-economic
circumstances. Through these
arrangements STV is responsible
for the growth components of the
STV Family of consumer services
and non-broadcast products.
The strong profitable growth trend
in our digital activities continued
during 2017 as the STV Player was
extended on to new platforms,
increasing accessibility and
availability of our content.
It is a marker of the resilience and
strength of commercial free to air
television that in this anniversary
year, the reach and impact of STV is
unrivalled and we continue to deliver
the largest mass audience for
advertisers seeking to connect
with Scottish consumers.
Delivering returns to shareholders
When I was appointed Chairman,
I stated my intention to deliver value
to our shareholders through the
introduction of a progressive dividend
policy. This decision reflected the
Board’s confidence in the underlying
financial strength of the Company
and the resilience of the core business,
despite macro-economic uncertainty
placing downward pressure on the
advertising revenue market during
this period.
We have fulfilled this commitment
since our return to dividend in 2013.
Our policy continues to pay out
between 60-80% of cash generation
after pension deficit contributions
and I am pleased to propose a final
ordinary dividend of 12 pence per
share. This will result in a total
dividend of 17 pence per share,
an increase of 13% year on year.
In line with this commitment to
the long-term delivery of increased
shareholder returns, in August we
announced the Board’s intention
to return an additional sum of
Strategic Report Having served on the Board as Senior
Independent Director for 10 years,
David Shearer also stepped down
from the Board at the AGM in April.
I would like to thank them both for
their outstanding contribution to
the success of the Company and
wish them both continued success
in the future.
I was delighted to announce the
appointment of Simon Pitts as
successor to Rob Woodward. Simon
took up his role in January 2018.
Simon Miller, who joined the Board
during 2016, has been appointed
as Senior Independent Director.
On behalf of the Board, I would like
to thank all colleagues across the
business for their contributions
during 2017. Their energy, drive,
creativity and passion to create and
produce great content and serve and
delight our audiences and consumers
is highly valued.
Looking ahead, my Board
colleagues and I are looking
forward to supporting Simon Pitts
as he develops and implements
the strategy and plan to take the
Company forward and deliver
sustainable returns to shareholders.
Thank you for your continued support.
Baroness Margaret Ford
Chairman
Investing in our connections
with audiences
In the year that marked a significant
anniversary of STV’s longevity, a
newly created channel was launched.
STV2, Scotland’s newest and most
innovative television channel has
been formed through the integration
of the five local television (L-DTPS)
licences won by STV. STV2 has
brought together city-focused
television services, initially
established for Glasgow and
Edinburgh, with those subsequently
enabled for Aberdeen, Dundee
and Ayr, into a single networked
service with a unitary schedule.
We will engage fully with the process
being undertaken by Ofcom to assess
the impact on our channels, and
STV2 in particular, of the proposed
BBC Scotland channel.
STV Productions
STV Productions has secured
several new commissions during
2017, including the first drama
commission for delivery to the BBC.
The strategy for the business
continues to be the growth of a
Scottish based production company
of scale delivering content to UK
and international broadcasters.
We support the increased focus of
commissioners on ensuring that their
schedules represent regional and
societal diversity, and we welcome
increased commissioning spend
being committed to content
producers located in the nations and
regions of the UK who are in a strong
position to deliver on this brief.
Board changes
A significant chapter in the
Company’s more recent history was
brought to a close as Rob Woodward
stepped down at the end of 2017
after serving over 10 years as
Chief Executive Officer.
STV 60th Anniversary
STV launched on 31st August 1957.
Reflecting the fact that Scotland has
seen major changes over the past 60
years, STV has come a long way too
– growing from a small TV company
to a 21st century broadcaster which
is now Scotland’s leading digital
media brand.
STV’s diamond anniversary and
unique contribution to broadcasting
in Scotland was celebrated and
commemorated with 1957-style
vintage promos and a series
of programme highlights.
At a time when STV is very much
focused on the future of broadcasting
in Scotland, it’s great to pause for a
moment to reflect on the 60 years
that have taken us to where we are
and the cultural and social impact
of STV on Scottish life.
05
Strategic ReportSTV Annual Report and Accounts 2017 Operating review – Group
RESILIENT PERFORMANCE;
INCREASED RETURNS TO
SHAREHOLDERS
During 2017 STV
continued to focus on
consolidating its position
as Scotland’s leading
digital media business
and delivering returns
to shareholders.
Key to the development of
successful consumer services is our
understanding of the demographics,
habits and preferences of consumers.
We are well on the way to meeting
our 2018 consumer insights KPI and
expect to exceed this – supported by
the considerable data capturing assets
at our disposal, including the STV
Player and Scottish Children’s Lottery.
The de-risking of the business
through the trading arrangements
with ITV plc has delivered a resilient
performance in an adverse market.
A key strategic priority is to
diversify our earnings and reduce
the broadcast-based percentage to
provide a more broadly based revenue
stream. In 2017 we continued to build
on previous years’ progress to achieve
a 28% non-broadcast earnings
share, up 5 percentage points
on the previous year.
Our consumer division margin
continued to improve, increasing
to 18.7% despite a 7% decline in
national advertising revenues.
To meet our 2018 targets, we
continued to focus on extending
our consumer reach – or monthly
average audience in millions –
across each of our services and on
increasing consumer engagement;
the average length of time users
interact with our services.
Our digital business continued
to deliver profitable growth, with
revenues up 14% and a margin of
55%. Demand for catch-up streams
on the STV Player was up 37%.
The peak time audience share
achieved during 2017 continued
to strengthen, tracking 0.6 share
points ahead of the ITV Network.
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 (digital and
productions) divided by total
operating profit and expressed
as a percentage.
%
0
3
%
8
% 2
3
2
%
1
2
%
2
2
2014
2015
2016
2017
2018
Target
06
Strategic Report
STV Annual Report and Accounts 2017
AN ICONIC BRAND
AT THE HEART OF
SCOTLAND
60th anniversary
2017 was a special year for STV
as we celebrated our diamond
anniversary at the end of August.
It was on 31st August 1957 that
the distinctive voice of the inimitable
James Robertson Justice introduced
the channel’s launch programme –
This Is Scotland – a special variety
show broadcast live from Glasgow’s
Theatre Royal. Since that very first
programme, STV has entertained
and informed generations of Scots,
documenting the nation’s news and
landmark developments through
each of the decades and creating
memorable television moments
across all genres.
Our anniversary provided an
opportunity to look back on the
channel’s development from a
small TV company to a 21st century
broadcaster which is now Scotland’s
leading digital media brand.
We commemorated our unique
contribution to broadcasting
in Scotland with a series of
programming highlights. A special
edition of popular series The People’s
History Show looked back at some
of the shows that have delighted
viewers through the years, such
as Weir’s Way, Scotsport, Rebus
and Take the High Road, and STV2
broadcast a range of archive
highlights including Taggart, Reid
about Russia and The Steamie.
To tie in with our commemorative
programming, we saw out our
special anniversary year with a
unique New Year’s Eve show, the
Thingummyjig Hogmanay Ceilidh,
which paid homage to one of the
most-watched entertainment
programmes of the 1970s and 80s.
Filmed at St Andrews in the Square
in Glasgow and featuring a host of
well-known STV faces from both
past and present, the show
generated considerable positive
feedback from viewers.
07
Strategic Report Operating review – Consumer
EXTENDING REACH
AND ENGAGEMENT
Consumer division
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 before exceptional items
divided by turnover and
expressed as a percentage.
%
8
7
1
.
%
4
8
1
.
%
5
8
1
.
%
7
8
1
.
%
0
0
2
.
Consumer insights
(millions)
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.
m
6
2
.
.
m
5
m 2
1
m 2
6
m 1
0
1
.
.
.
2014
2015
2016
2017
2018
Target
2014
2015
2016
2017
2018
Target
STV2
It was also a landmark year for the
Company as we launched STV2,
Scotland’s newest and most
innovative channel, in April.
STV2 brought together the existing
services of the former STV Glasgow
and STV Edinburgh channels with
the new city licences won for, and
serving, Aberdeen, Ayr and Dundee
to provide a single local TV network.
The channel supports a partnership
with colleges and universities across
Scotland, providing students with the
opportunity to augment their learning
in a live broadcast environment.
STV2’s distinct schedule features an
award-winning soap, international
drama, classic films, sports, and
entertainment including a 5pm
weekday magazine show and
a weekly late night chat show.
Underpinning the channel is its strong
news focus, with hourly news bulletins
and three dedicated half-hour
programmes featuring stories from
across Scotland at 1pm, 6pm and
10pm. In addition its flagship news
programme, STV News Tonight, which
airs weeknights at 7pm, provides a
landmark service combining Scottish,
UK and international news from a
Scottish perspective.
08
Strategic Report Consumer reach
(monthly average millions)
Why it’s important
These measurements 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
m
6
3
.
m
6
3
.
m
5
3
.
m
5
3
.
m
5
3
.
2014
2015
2016
2017
2018
Target
STV2
m
8
0
.
m
6
0
.
m
3
m 1
0
.
m 1
.
8
0
.
2014
2015
2016
2017
2018
Target
STV Player
m
3
1
.
m
7
0
.
m
6
0
.
m
6
0
.
m
7
0
.
2014
2015
2016
2017
2018
Target
stv.tv
m
2
4
.
m
6
3
.
m
6
3
.
m
4
m 4
7
3
.
.
2014
2015
2016
2017
2018
Target
STV2’s daily reach is in the top 30
non-terrestrial channels in Scotland
and it regularly attracts more viewers
than long-established channels
including Sky Sports, Comedy Central,
Sky Atlantic and Discovery. STV2
offers advertisers a new marketing
platform and enhanced opportunities
to reach audiences across Scotland.
News and current affairs
Over the course of the year, STV
strengthened its position as ‘the
home of Scottish news’, delivering
an increased news output across all
platforms and, following the launch
of STV2, daily bulletins increased from
six to 14 to reach 1.6 million viewers
across our channels each week.
Scotland Tonight continued to be
the most-watched Scottish current
affairs programme, providing analysis
of the day’s headlines, guest
interviews, political debate and
social media interaction to offer
viewers a platform for discussion
of the big issues of the day.
On air and online coverage of the 2017
General Election was comprehensive.
Continuing STV’s strong track record of
delivering election debates for viewers
in Scotland, a debate was screened
prior to the June General Election
to give an audience comprising a
representative cross-section of the
Scottish electorate the opportunity
to put their questions to the leaders
of the four main political parties.
Scotland Debates was broadcast
live from the Tramway in Glasgow.
Live face-to-face interviews with
the Scottish party leaders, filmed
for STV2, were also shown on
Scotland Tonight.
STV consolidated its
position as ‘the home
of Scottish news’
during 2017 and
extended its news
output considerably
with the launch of STV2
and the channel’s STV
News Tonight.
09
Strategic ReportSTV Annual Report and Accounts 2017
Operating review – Consumer
In an STV news first, a
series of special Scotland
Tonight programmes
was broadcast live
from inside the Scottish
Parliament during April.
STV News Tonight
STV2 reflects what is happening
across Scotland with a distinct and
exciting schedule featuring live
events, news and a diverse range
of programming including soap,
drama, sport and movies.
The STV2 schedule includes hourly
news bulletins and three dedicated
half-hour news programmes with
stories from across Scotland.
In addition, STV2’s flagship STV
News Tonight programme offers a
landmark service combining Scottish,
UK and international news from
a Scottish perspective.
STV News Tonight airs weeknights
at 7pm.
The extensive election coverage also
included news reports from Holyrood,
updates on STV2’s STV News Tonight,
and in-depth analysis on Scotland
Tonight each weeknight in the run-up
to the polls on 8 June. A live overnight
results programme was simulcast on
STV and STV2. Senior politicians and
expert commentators joined the
presenters in the studio throughout
the night to discuss the results
being reported by STV from count
centres across Scotland. Working
in partnership with ITV News,
STV also brought viewers the key
developments from all over the UK.
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.
%
1
5
%
2
5
%
5
5
%
5
5
%
0
3
2014
2015
2016
2017
2018
Target
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 continuing
STV Family of services.
.
m
4
1
m 1
4
8
.
m
4
7
.
m
2
6
.
m
0
5
.
2014
2015
2016
2017
2018
Target
10
Strategic Report
Consumer
engagement
(mins per day, per user)
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
i
s
n
m
1
4
i
s
n
m
0
4
i
s
n
m
9
3
i
s
n
m
9
3
i
s
n
m
1
4
2014
2015
2016
2017
STV2
i
s
n
m
2
i
s
n
m
2
i
n
m
1
i
n
m
1
2014
2015
2016
2017
STV Player
i
s
n
m
6
5
i
s
n
m
6
4
i
s
n
m
6
4
i
s
n
m
3
4
2018
Target
i
s
n
m
0
1
2018
Target
i
s
n
m
0
6
2014
2015
2016
2017
2018
Target
stv.tv
i
s
n
m
6
i
s
n
m
3
i
s
n
m
3
i
s
n
m
3
i
s
n
m
2
2014
2015
2016
2017
2018
Target
Edinburgh Festival 2017
For the 2017 international event, STV
and STV2 featured 43 programmes
of dedicated coverage.
Our coverage set out to reflect
the Edinburgh Festival the way that
audiences experience it, capturing
not only the broad spectrum of
shows on offer but also the fun
and unbeatable atmosphere of
this world-famous event.
Entertainment, drama and sport
A series of returning entertainment
hits – including The Voice UK, which
began in January following its move
from BBC One, Ant & Dec’s Saturday
Night Takeaway, I’m A Celebrity Get
Me Out of Here, Britain’s Got Talent
and The X Factor – helped boost
peak time audiences.
In 2017 STV screened its best-
watched drama in the last decade –
the third series of Broadchurch, which
reached 1.7million viewers – and
other stand-out highlights for the
genre included The Loch, a Scottish-
set drama which outperformed the
ITV Network by 6 share points, and
psychological thriller Liar, which
had an audience of 533,000.
STV also aired the best-watched
soaps in Scotland – Coronation Street
and Emmerdale – both of which saw
a year on year growth in audience
of 3% and 0.5% respectively.
Sports highlights also attracted
excellent viewing figures. In January,
horse racing galloped back to STV
and Six Nations Rugby kicked off in
February. In April STV’s city channels
broadcast exclusive coverage of Celtic
v Rangers in The Glasgow Cup Final,
and in June the World Cup qualifier:
Scotland v England reached over
1.3m viewers.
11
Strategic ReportSTV Annual Report and Accounts 2017
The market for STV Consumer services
SUPER-SERVING
CONSUMERS
As Scotland’s leading digital
media brand, STV provides
quality content – on air, online
and on demand – attracting
mass audiences to maximise
advertising revenue generation.
Engaging with Scotland
Maximising reach
Delivering content across multiple
platforms is key to engaging with
our audiences across Scotland
STV is the most watched commercial
channel in Scotland
Viewers spend on average 1 hour
In a country where the average person
42 minutes watching STV every day
watches over 3 hours and 40 minutes of TV
each day, 70% own a smartphone and 56%
have a tablet, STV is well-placed to serve
consumers with a diverse range of content
to access whenever and wherever they want
60% of the population use at least
three STV services each month
The STV Player achieved 28 million
long form streams in 2017
STV Consumer
Delivers unique, high quality content
to attract mass audiences which
is 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.
12
r t i s i ng
Ad v e
STV
business
model
C
o
n
t
e
n
t
r
e
m
Consu
Strategic Report Operating review – Consumer
Peak time audience
(share points)
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.
.
6
0
+
.
3
0
+
.
2
0
+
.
2
0
+
2014
2015
2016
2017
STV Player
A key driver of non-broadcast
earnings, the STV Player delivered
a strong performance during 2017.
Available on a wide range of
platforms, from iOS and Android
tablets and smartphones to set-top
boxes and Smart TVs such as those
provided by Youview, Freeview Play
and Fire TV, the STV Player offers
simulcast and on-demand access
to the STV and STV2 schedules.
Long form streams across the year
(live and catch-up) on the STV Player
totalled 28 million, a 37% growth
year on year. Particularly strong
results were seen for soaps catch-up
streams, with streams of Coronation
Street alone up 47% driven in part
by the screening of an additional
episode every week. Demand for
drama catch-up streams was also
very high, with the top five dramas
in 2017 generating a 63% increase
year on year.
Live streams continued to increase
during 2017. Reaching a total of
6.4 million, these were up by
1.4 million or +29% year on year.
Offering simulcast
and on-demand access
to the STV and STV2
schedules, the STV
Player saw particularly
strong performances
in 2017.
The People’s History Show
The series – which achieves a share
above Network on STV and is fronted
by presenter and journalist Sarah Mack
and historian and adventurer Ashley
Cowie – looks back in time to discover
the places and people that make up
Scotland’s shared social history.
The People’s History Show digs
deep into Scotland’s lesser-known
past and we’ve filmed some very
inspirational, awe-inspiring
and emotional stories featuring
the blood, sweat and tears of
the people who built our nation.
13
Strategic ReportSTV Annual Report and Accounts 2017 Strategic Report
Showcase of STV content
Broadchurch
STV News Tonight
See page 10
Liar
Peter and Roughie’s Football Show
And They’re Off… for Sport Relief
Coronation Street
14
The Late Show
Catchphrase
Broadchurch
STV Annual Report and Accounts 2017
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
Celebrity Antiques Road Trip
See page 17
Ross Kemp Behind Bars
– Inside Barlinnie
Burdz Eye View
The People’s History Show
See page 13
The Dressing Room
See page 19
Edinburgh Festival 2017
See page 11
I’m a Celebrity… Get Me Out of Here
15
Operating review – Productions
CREATED WITH PASSION,
CRAFTED WITH CARE
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.
m
0
0
2
.
m
3
3
1
.
m
7
2
1
.
m
4
0
1
.
m
3
8
.
2014
2015
2016
2017
2018
Target
New commissions and
recommissions were
secured, including a
new drama series
for the BBC.
Entertainment
In January ITV Daytime commissioned
STV Productions to make 20 episodes
of a new high-stakes game show
Babushka, conceived by Armoza
Formats, a key player in the global
content market. The show, which aired
in May, later received a nomination
in the prestigious Rose d’Or Awards,
which are organised by the European
Broadcasting Union and recognise the
very best in international television
and online entertainment.
ITV game show Catchphrase
maintained its hit status during 2017,
again demonstrating its success as
a returning entertainment format. In
October ITV confirmed its commission
of a sixth series for broadcast in 2018.
International format deals were
secured during 2017 for The Dressing
Room to be remade in the Netherlands
and Norway, and for SafeWord to be
remade for MTV in the US. Both were
original formats co-developed and
co-produced by STV Productions and
Motion Content Group – The Dressing
Room originally produced in the UK
for UKTV and SafeWord for ITV2.
Towards the end of the year, a new
BBC commission for a Saturday
night game show, And They’re Off…
For Sport Relief, was confirmed.
Production then commenced for
the six-part series to start airing
on BBC One in January 2018.
Daytime and popular factual
BBC One long-running daytime show
Antiques Road Trip remained a ratings
winner and top performer for both the
channel and STV Productions. Series
14, which aired in January, reached
over 17 million people across the UK
and in August a further four series of
the show were commissioned. Series
15-18, comprising ninety 45-minute
programmes, are being aired over
two years.
The BBC also commissioned
a seventh series of the show’s
celebrity version, Celebrity Antiques
Road Trip, and the new series of
20 hour-long episodes began airing
on BBC Two in mid-November.
In December, the commission
of an eighth series of the hit show
featuring high-profile celebrity
antique hunters was confirmed.
16
Strategic Report STV Productions has
a record of successes
across a range of
genres, including
drama, entertainment
and factual, for a wide
range of broadcasters.
Documentaries
During 2017 a raft of new commissions
for documentaries was secured.
In January The Paper Thistle: 200
Years of The Scotsman, a one-hour
programme produced for BBC
Scotland, told the fascinating story
of one of Britain’s most famous
newspapers, The Scotsman.
In February Alan Cumming’s Edge of
Scotland, sponsored by VisitScotland,
was broadcast on STV and a version
which aired on NBS in the US won
an Emmy Award for Best Lifestyle
Programme. The hour-long film
saw the Scottish film and TV star
reflecting on his experiences as
he explored the Outer Hebrides.
Channel 4 commissioned a film
following another personal journey
of discovery for a famous Scot.
Richard Wilson’s Highland Fling –
which featured actor, director and
broadcaster Richard Wilson fulfilling
a lifelong ambition to tour the
Highlands and Islands – aired
on More4 in October.
Unique individual insight was also the
focus for My Beatles’ Black Album with
Charles Hazlewood. Produced for Sky
Arts, this saw the acclaimed British
conductor examining the break-up
of the greatest pop group in history.
A third series of Stopping Scotland’s
Scammers, sponsored by The Royal
Bank of Scotland and produced early
in 2017 for broadcast on STV, featured
investigations of a financial nature.
The four programmes highlighted the
range and scope of scams in Scotland
and their impact on victims. Aimed
at raising awareness of the issue and
helping people protect themselves
from financial crime, the series
reached 669,000 viewers.
One of the major documentary
highlights of the year, which
generated a great deal of media
interest and public support, was
a special film produced for the ITV
autumn ‘Crime and Punishment’
series. Ross Kemp Behind Bars – Inside
Barlinnie saw the former actor turned
presenter providing a hard-hitting
and thought-provoking insight into
the lives of inmates and prison
officers within Scotland’s historic and
most famous prison. The hour-long
programme aired at the beginning
of November and in Scotland it
won a 34% audience share, with
650,000 viewers.
A landmark documentary series
on the history of the Scottish police
commissioned by BBC Scotland,
began screening on BBC One at the
end of November. The Force: The
Story of Scotland’s Police, comprised
three episodes which focused on
the development of the service
through the years.
Celebrity Antiques Road Trip
Airing on BBC Two, Celebrity Antiques
Road Trip features some of Britain’s
best-loved celebrities who take to
the road in vintage vehicles for a
treasure trail around the
UK’s antique emporiums.
The seventh series – 20 hour-long
episodes – began airing on BBC Two
in mid-November and in December,
the BBC confirmed its commission
of an eighth series of the hit show.
17
Strategic ReportSTV Annual Report and Accounts 2017 The market for STV Productions services
DIVERSIFICATION
OF GENRES
STV Productions continued to
secure multi-genre commissions
for a variety of channels – with
several returning hit series,
new factual programmes and a
new BBC four-part legal drama.
Connecting with audiences
All of the high-quality content we create
and produce for UK and overseas broadcast
networks shares a common objective –
audience engagement
Profit is made on initial sale and on the
capitalisation of back-end rights in the
UK secondary and overseas markets
A world of possibilities
The BBC remained our biggest client,
due to returning hits Antiques Road Trip
and Celebrity Antiques Road Trip plus new
commissions And They’re Off… For Sport
Relief and drama series The Victim
Our strategic partnership with global
content rights management company
Motion Content Group enabled the
co-investment, co-development and
co-production of formats across a
broad range of genres
Partnerships with a number of international
agents supported the effective distribution
of our programmes and the sale of their
formats outside the UK
A deal was agreed with Sky Vision for
the international distribution rights to our
unscripted catalogue and new BBC drama
series, plus the format sales rights for game
show And They’re Off… For Sport Relief,
co-developed with Motion Content Group
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.
18
r t i s i ng
Ad v e
STV
business
model
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Consu
Strategic Report Operating review – Productions
STV Productions
is focusing on the
development of a slate
of writer-led TV drama,
including a raft of
projects set in Scotland.
The Dressing Room
The Dressing Room is a fixed-rig
factual entertainment series which
goes behind closed doors to find out
what really happens in the dressing
rooms of amateur sports teams
across Britain. The six-part series was
commissioned by UKTV’s premium
entertainment channel W as an STV
Productions and Motion Content
Group co-production.
In 2017, format deals were secured
for The Dressing Room to be remade
in the Netherlands and Norway.
19
Production 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 before exceptional items
divided by turnover and
expressed as a percentage.
%
6
%
5
%
3
%
1
%
3
2014
2015
2016
2017
2018
Target
Another 2017 highlight for STV
Productions was the announcement
that it had won a Royal Television
Society Award for Scotland and
the Battle for Britain – a two-part
documentary which explored
Scotland’s political transformation
during the historic events of
recent years.
Drama
In August STV Productions secured
a drama series commission for BBC
One – a four-part contemporary legal
thriller, The Victim, written by Rob
Williams (The Man in the High Castle,
Chasing Shadows). Set in Edinburgh,
The Victim will be filmed in Scotland
early in 2018. The high quality drama,
which will air on BBC One, will present
a significant boost for TV production
in Scotland, supporting STV’s ongoing
commitment to the country’s
creative industries.
Distribution
STV Productions uses a number
of leading international agents to
distribute its finished programmes
and sell their formats outside the UK.
At the end of 2017, a deal was agreed
for Sky Vision to handle three key
content areas. These are the
international distribution rights to STV
Productions’ unscripted catalogue and
the new BBC drama The Victim which
it will produce in 2018, plus the sales
rights for the format of game show
And They’re Off, co-developed with
Motion Content Group.
Strategic ReportSTV Annual Report and Accounts 2017 Operating review – STV External Lottery Manager
In its first year, over
£1 million has been
raised to benefit
Scotland’s children.
Established in late 2016, the STV
External Lottery Manager (ELM)
was formed to provide operational
services, such as ticket sales and
marketing, to charitable society
lottery, the Scottish Children’s Lottery.
The ELM operates on a breakeven
basis, invoicing operating costs to the
Scottish Children’s Lottery. The Group
recoups costs incurred from operating
both the ELM and the STV Children’s
Appeal. The ELM purchases regional
airtime from the consumer division.
Any profit generated by the Group
from the sale of regional airtime,
after recouping costs, is donated to
The Group’s main social investment
activity, the STV Children’s Appeal.
During 2017, ticket sales continued
to rise and were boosted with the
introduction of a second weekly draw in
early October. With weekly sales having
now exceeded 100,000, breakeven on
sales is expected during Q2 of 2018
at 176,000 ticket sales per week,
assuming the current steady growth
rate is maintained. Recoupment of
the debtor will then commence in H2
of 2018. Revenues generated by the
ELM in 2017 increased in line with
expectations, from £1.8 million in
2016 to £6.4 million.
The Scottish Children’s Lottery
achieved a double milestone in 2017.
In October it not only celebrated its
first anniversary but also marked
having raised charitable funds
reaching the landmark figure of
£1 million. The total charitable
amount it raised since launch up until
31 December 2017 was £1.3 million.
20
The funds generated by the Scottish
Children’s Lottery – thanks to the
support of subscribed players all over
Scotland – are used to help children
and young people’s charities and
projects across four key areas: early
years’ intervention, education and
health, employment skills and
employability, and community
development and citizenship.
To enable funding to be channeled
directly into appropriate good causes
helping children and young people
across these vital areas, the funding
awards are distributed through four
Scottish Charitable Incorporated
Organisations: Chance to Flourish,
Chance to Study, Chance to Succeed,
and Chance to Connect.
Distributing to deserving causes
Over 50 awards ranging from £1,000
to £50,000 were distributed during
2017, with examples of the charities
and projects which have received
funding including:
• Enable Scotland in Cumbernauld
(£23,777 award). The charity
supports children with learning
disabilities and their families and
carers, and the funding has helped
the RASCALS project which provides
after school support for children with
learning disabilities. It is the only
service of its kind in Lanarkshire.
• Bobath Scotland Cerebral Palsy
Centre in Glasgow (£11,770 award).
The charity offers advice, help and
support to children and families
living with cerebral palsy all over
Scotland. Specialist therapy
focuses on reducing pain,
developing communication and
improving mobility to help children
with the condition make the most
of their abilities.
• Fischy Music in Edinburgh (£11,696).
The charity uses music and song to
support the emotional wellbeing
of young children and works with
thousands every year, from those
dealing with the challenges of
everyday life to those facing
significant emotional trauma,
such as loss and grief.
• Strathmore Centre for Youth
Development in Blairgowrie
(£13,853). The charity offers
services to 11-25 year-olds in the
Strathmore area, delivering a range
of projects providing opportunities
for young people to realise their
potential. Services range from
employment advice and abuse
counseling to budgetary guidance
and volunteering opportunities.
Increasing awareness
The Scottish Children’s Lottery
promoted its £1 million milestone
through media relations activities
targeted at national and regional
news titles and charitable sector
publications, plus a series of
communications directed at MSPs
and MPs to further raise public
awareness and encourage online
applications from eligible charitable
organisations and groups across
the country.
Generating more funds
In October, a second weekly
Scottish Children’s Lottery draw
was introduced with the objective
of generating additional ticket sales
to increase the funds raised. The
development means that subscribers
can now choose to play twice weekly
for the chance to win a £25,000
jackpot and raffle prizes and to tune
in to STV on Mondays and Thursdays
to watch presenters Jennifer Reoch
and Sean Batty announcing the
winning numbers as they are drawn.
Strategic Report STV Annual Report and Accounts 2017
21
Strategic Report Corporate responsibility
Baroness Margaret Ford
Chairman
As a creative business,
our people and the
commitment, drive
and focus they bring
to the Company is a
key contributor of our
success. Providing
an environment that
affords everyone
the opportunity to
maximise their potential
is underpinned by a
culture focused on
delivery of goals
and priorities.
22
The feedback is currently being
developed into action plans by
a cross-business group of Pulse
ambassadors. The actions identified
will be implemented in early 2018.
STV Learning
Opportunities to undertake broader
development and learning to extend
knowledge beyond immediate role
requirements are delivered through
STV Learning. During 2017, this has
included over 120 colleagues
undertaking ‘job drop’ placements
providing insight into different roles
and business areas through short
duration placements. Additionally,
a comprehensive programme of
drop-in sessions where colleagues
share insights and experience to
provide an overview of their business
area have been conducted. Topics
covered include the law and the
broadcasting code, news gathering
skills, insights into virtual reality
technology, presentation skills,
writing skills.
Our people strategy is built on The
STV Way: to be bold, stand together,
and strive to surprise. These values
provide colleagues across the
business with a cultural framework
within which they can undertake
their role and develop their skills
and potential.
During 2017, an extensive
programme of activities has been
delivered through The STV Way
to support learning and career
development, engagement and
communications, participation in
business improvement, recognition
and reward, and wellbeing.
The latest Pulse, our employee opinion
survey, was undertaken in late 2017.
The survey invited responses from
colleagues on permanent contracts of
employment and those working on a
freelance basis to support production
activities. The engagement level was
high at 66% and above wider industry
benchmarks. This represents an
increased level of engagement on the
previous year (2016: 61%). Responses
and feedback were sought across a
range of employment-related topics
including internal communications,
team working and relationships
with managers, understanding of
business goals and strategy, working
environment, reward and recognition,
and benefits and wellbeing. Overall,
85% of respondents stated they were
proud to work for the Company.
Strategic Report The STV Way Leadership Development
programme has continued providing
35 senior managers with an executive
level modular programme delivered
by the University of Edinburgh
Business School.
Strengthening the talent pipeline and
building future leadership capability
has been supported through the
introduction of a management
development programme, Leading:
The STV Way, which has been delivered
to two cohorts covering 25 front line
managers representing all areas of the
business. The scope of this programme
will be extended in 2018 based on
positive feedback and development
outcomes from participants.
The Company has also increased
its commitment to apprenticeship
programmes designed to support
widening routes to access our
industry. Apprenticeships are now
being provided within enabling
functions and STV News.
Investing in the development of
talent for the future is a key aim
of the Company’s development
planning and we continue to build
close relationships across secondary,
further and higher education.
This has included the formation of
partnerships with secondary schools
through which we can showcase the
range of career opportunities available
across the creative industries whilst
providing colleagues from STV with
personal development opportunities.
The strategic partnership with seven
colleges and universities formed
to deliver STV2 has continued
to grow and is the focus of our
interaction and support for
further and higher education.
Health and wellbeing
Our working environment and
wellbeing are important factors in
making STV a creative and rewarding
place to work. Throughout 2017,
ten health related campaigns
were delivered.
Raising awareness of mental health
in the workplace was a high priority
campaign during 2017 and a
successful campaign supported by
SAMH (Scottish Association for Mental
Health) included sessions to increase
knowledge and understanding on
how to maintain positive mental
health. This was followed by mental
health training provided for line
managers across the business, and
in 2018 mental health first aiders will
be appointed to support increasing
awareness and understanding in
this area.
The Company has maintained a
Bronze Award under the Scottish
Government’s Healthy Working Lives
campaign. This accreditation has
provided a benchmark against which
we will continue to enhance STV as a
positive and supportive place to work.
Reward and recognition
The remuneration and reward
framework applied across all roles
continues to be determined with
reference to benchmarks from a
UK-wide media industry peer group.
This structure provides transparency
and relative comparisons to be
made with colleagues and the wider
sector beyond STV. This enables the
Company to ensure remuneration
is market competitive, and supports
recruitment and retention.
Across this framework, base salary
levels increased by 1.5% in 2017.
Outwith this annual review process,
base salary levels are monitored
on an ongoing basis, particularly
in relation to colleagues at earlier
stages of their careers where more
rapid progression is required to reflect
the pace of skills acquisition.
Diversity and inclusion
Our focus on diversity and inclusion
is about creating an environment
where everyone can thrive, develop
and succeed. We are passionate
about supporting social mobility
and making a real difference to
the futures of others.
The Company’s commitment to
ensuring all colleagues are treated
with dignity, respect and fairness is
fulfilled through creating a culture
based on merit and equality of
opportunity.
A range of programmes and activities
are undertaken to widen access
routes into employment with the
Company and more widely to the
creative industries sector.
These include the provision of work
experience opportunities structured
to inform young people about career
opportunities. During 2017, over 50
placements have been provided. We
are committed to supporting Modern
Apprenticeship programmes which
provide an alternative access route
into the industry. Apprenticeships
provided in Creative & Digital Media
enable young people to gain practical
industry experience whilst developing
the necessary skills for entry and
mid level roles. Additionally, we
have partnerships with a number of
higher education institutions across
Scotland, particularly within the
content generation areas of our
business, which aim to educate
and provide practical experience
of the opportunities available in
our industry within a live broadcast
and production environment.
23
Strategic ReportSTV Annual Report and Accounts 2017 The Company’s anti-slavery
initiatives include:
• the proactive review of policies
and operating processes to ensure
these provide protection against
discrimination, a fair working
environment and fair trading
conditions that do not violate
human rights;
• a rigorous process to identify,
monitor and manage the principal
risks that have been identified
through the business and its
supply chains and which are set
out in the Company’s risk register;
• training which is delivered to staff
on an ongoing basis to ensure
that responsibilities to achieve
compliance with the Company’s
policies are understood and fulfilled.
Specifically, during 2018, staff with
responsibility for procurement of
suppliers will undertake training
designed to support a response to
slavery and human trafficking risks.
Corporate responsibility
STV is also an employer partner for
the Developing the Young Workforce
programme in Scotland which aims to
increase employment opportunities
for school pupils through the provision
of employability-related initiatives
and work experience opportunities.
To ensure that STV continues to deliver
on its commitment as an inclusive
employer and one which is accessible
to all, regardless of age, marital status,
family responsibility, ethnicity, gender
or disability, we will be undertaking
a series of Diversity Awareness
workshops during 2018. These will be
introduced with managers and rolled
out to all colleagues across the year.
These sessions will raise awareness
of the importance of engaging a
diverse workforce, consider how
this can be practically achieved and
provide guidance on how potential
barriers, such as unconscious bias,
can be overcome.
In 2018 we will continue to build
on initiatives and schemes already
in place with a specific focus on
increasing the representation of
talent from ethnic minority groups.
In 2017 STV Productions supported
the ‘PACT Indie Diversity Training
Scheme’ through the provision of
a six month paid placement to entry
level diverse talent which supported
the development and acquisition of
the talents and skills required in the
creative industries.
Additionally, we are developing
employer partnerships with Creative
Access and Mama Youth. Both of
these schemes exist to help young
people from BAME backgrounds
secure paid training opportunities
in the creative industries.
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 employee became
disabled during the course of their
employment in 2017.
Modern Slavery Act
The Company recognises that it
has a responsibility to take a robust
approach to slavery and human
trafficking and is committed to
preventing these in its corporate
activities and to ensuring that its
supply chains are free from slavery
and human trafficking.
STV’s anti-slavery statement reflects
its commitment to acting ethically
and with integrity in all business
relationships and to implementing
and enforcing effective systems
and controls to ensure slavery and
human trafficking are not taking place
anywhere within the business or its
supply chain. Staff are expected and
encouraged to report any concerns
about slavery and human trafficking,
and management will act upon them
in accordance with the relevant
policies and procedures.
An assessment of the Company’s
current operations and supply chains
has not identified any activities that
are deemed to represent a high level
of risk of slavery or human trafficking.
Monitoring of this is incorporated
into the Company’s ongoing risk
assessment and this will continue
on a routine basis.
24
Strategic Report Gender pay report
Under the requirements of the Equality
Act 2010 (Gender Pay Gap Information)
Regulations 2017, the Company will
publish a gender pay report annually.
The 2017 report is based on a total
population of 538 colleagues who
were in employment on the statutory
reporting date of 5 April 2017. On this
date the Company’s gender profile
was 46% women and 54% men.
The 2017 report identifies a gender
pay gap which, as is the case in a
number of organisations, arises as
a result of a higher proportion of men
than women in senior management
and leadership roles. Our gender
profile and mean and median gender
pay gaps, as at 5 April 2017, are
outlined below.
Gender split and gender pay gap by level
Gender split
Gender pay gap
(mean)
Leadership
team
Senior
management
70%
7
64%
14
30%
3
36%
8
Staff
54%
272
46%
234
22.8%
538
16.3%
528
13.9%
506
Men
Women
Key data:
mean and median gender pay gap
The mean gender pay gap is the
difference in average hourly rates of
pay between men and women as at the
snapshot date of 5 April 2017, expressed
as a percentage of male earnings.
The median gender pay gap shows
the difference in the midpoints of the
ranges of hourly rates of pay for men
and women by ordering individual rates
of pay from lowest to highest and
comparing the middle value.
%
8
2
2
.
%
4
7
1
.
%
3
7
1
.
%
4
8
1
.
Mean
Median
STV
National*
*Source: 2017ASHE, ONS.
The Company has chosen not to target a specific number or percentage of women for senior management
or leadership positions, but to concentrate efforts on encouraging more women to remain with the Company
and progress through the organisation to these roles. As at April 2017, just under a third of the leadership
team and 36% of the senior management team were female.
Mean pay gap and proportion of
women and men, in each pay quartile
With the exception of the leadership
team, base salary levels across the
organisation are determined with
reference to a pay and grading
framework applied by a wide range
of companies in the creative industries
sector and administered by Towers
Watson, benefit consultants. As a
result of the rigour with which this
framework is applied across all
grades of employment within the
Company, we are confident that
colleagues are paid equally for
undertaking equivalent roles
regardless of gender or any
other personal characteristic.
This is reflected in the charts below
which outline the proportion of
women and men in each pay quartile,
and illustrates that the gender pay
gap within the first three pay quartiles
is less than 1.5%. Inclusion of the
Company’s leadership team, all of
whom are within the upper pay
quartile, results in a mean pay gap
of 11.1% due to the proportion of
positions at this level which are held
by male colleagues. Exclusion of the
leadership team from the upper
quartile returns a negligible gender
pay gap of -0.5%. That is, outwith
the leadership team, the average
hourly pay of women and men in
the upper pay quartile is equivalent.
This confirms that the main reason
for the Company’s gender pay gap
is the balance of men and women
across senior roles.
Lower
Lower middle
Upper middle
Upper
Upper excluding leadership team
42%
42%
42%
1.3%
1.3%
42%
1.3%
58%
42%
1.3%
58%
58%
49%
1.3%
58%
49%
58%
1.1%
49%
1.1%
1.1%
49%
51%
51%
1.1%
49%
51%
1.1%
51%
57%
57%
-0.2%
-0.2%
51%
57%
43%
-0.2%
57%
43%
43%
-0.2%
57%
43%
-0.2%
70%
43%
11.1%
11.1%
70%
11.1%
70%
70%
11.1%
70%
11.1%
70%
-0.5%
-0.5%
70%
-0.5%
70%
-0.5%
70%
70%
-0.5%
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
Men
Women
25
Strategic ReportSTV Annual Report and Accounts 2017 Corporate responsibility
Bonus gender pay gap
The Company’s bonus gender pay profile is also influenced by a higher proportion of men than women holding
senior management and leadership roles. These roles which attract higher levels of remuneration have a higher
bonus opportunity.
Key data:
mean and median bonus gender pay gap
The mean bonus gender pay gap is
the difference in average bonus payment
between men and women in the year
to 5 April 2017.
The median bonus gender pay gap
shows the difference in the midpoints
of the ranges of bonus pay for men and
women by ordering individual payments
from lowest to highest and comparing
the middle value.
%
6
5
%
4
3
Key data:
proportion of men and women
awarded a bonus
This is the percentage of men and
women who were awarded a bonus
payment in the 12 months leading up
to the snapshot date of 5 April 2017.
%
7
1
%
5
1
Mean Median
Men Women
We are confident that colleagues
undertaking equivalent roles have
equivalent bonus opportunity,
regardless of gender or any other
personal characteristic. This is
illustrated through an analysis
by bonus pay quartile.
Within the upper middle bonus pay
quartile the bonus earned by female
colleagues is greater than the bonus
earned by male colleagues by 7.3%.
In the upper bonus pay quartile,
which includes senior management
and all leadership team roles, there
is a mean bonus gender pay gap
of 34%; however, removing the
leadership team from this quartile
closes this gap to 0.8%.
Upper middle
Upper
Upper excluding leadership team
-7.3%
-7.3%
57%
57%
57%
43%
43%
-7.3%
43%
30%
30%
30%
31%
31%
31%
34%
34%
34%
70%
70%
70%
0.8%
0.8%
0.8%
69%
69%
69%
Men
Women
Bonus payments earned by
colleagues who are employed
on a part-time basis (8% of those
in receipt of a bonus payment) are
pro-rated to reflect the actual hours
of work; however, the bonus pay
gap calculation does not recognise
that individuals may be working
part-time. 12% of our people work
on a part-time basis of which 98%
are women.
Next steps
In response to our 2017 gender pay
report, our action plan will build on
our existing diversity and inclusion
programme. This programme
comprises a number of targeted
interventions to support our long term
aim of achieving a greater balance of
women in senior roles. This will include
raising awareness of flexible working
options and ensuring equality of
access to opportunities for career
development, as well as progressing
our wider objective of creating an
inclusive culture that fosters diversity,
progression and equality of
opportunity for all, regardless
of any personal characteristic.
26
Strategic Report 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 wellbeing 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.
First Aid training refreshers are
carried out on a rolling basis and we
have a full complement of 37 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
44 staff have completed the safety
training in 2017.
In 2016, we implemented an
online training system BeSafe,
which has a number of modules
that are tailored to individual job
roles. Training continued in 2017,
with modules including Manual
Handling, Office Safety and Fire
Wardens, being covered.
2017
2016
2015
16
10
14
13
7
8
62% 50% 62%
Total vehicle
accidents
Number
attributable
to driver error
Percentage
attributable
to driver error
Health and Safety
performance in 2017
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
2017
2016
2015
0
2
0
0
11
11
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 2017 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 37 members of
staff taking part in this initiative.
During 2017, STV continued recycling
old mobile phones via ICT Reverse
and 15 handsets were recycled in
this way. Any money raised from
ICT Reverse is donated to the STV
Children’s Appeal.
Additional info:
• The electric car charging bays
that were installed are proving
very successful and are utilised
every day by approximately 8
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), STV
continues to take 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
27
Strategic ReportSTV Annual Report and Accounts 2017
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
Greenhouse gas emission source
Scope 1
Scope 2
Statutory total (Scope 1 & 2)
(tCO2e)
433.89
2,055.77
2,489.66
FY2017
(tCO2e/£m
revenue)
3.71
17.57
21.28
(tCO2e)
501.46
2,039.95
2,541.41
FY2016
(tCO2e/£m
revenue)
4.16
16.94
21.10
(tCO2e)
454.43
2,105.27
2,559.70
FY2015
(tCO2e/£m
revenue)
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 (air)
Decrease in the travel emissions
due to:
• During 2017 there was a reduction
in international and domestic air
travel associated with Productions,
so the CO2 emissions decreased by
approx 24% in this area.
SCOPE 2 Energy
There was less than 1% increase in
this area, so we have managed to
maintain the previous year levels by
continuing to replace lighting with
LED lights (rather than halogen)
and continuing to review the
BMS programming to minimise
electricity use.
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.
Waste
J&M Murdoch Ltd recycles 100%
of any of our waste via RDF (refuse
derived fuel), so no waste is going
to landfill.
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.
Baroness Margaret Ford
Chairman
28
Strategic Report
STV Children’s Appeal 2017
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. And in 2013,
The Wood Foundation
pledged its support for
projects in the North
East of Scotland.
In its first seven years, the STV
Children’s Appeal has raised
£16.3 million. This has enabled the
charity to make 964 large and small
awards to charitable projects across
all 32 local authority areas in Scotland,
providing much-needed support and
assistance to over 66,700 children and
young people. The funding helps make
a real difference to young lives by
providing practical help like food and
warm clothes; creating opportunities
for training and employability; and
enabling social and emotional support
for those who need it most.
The STV Children’s Appeal is proud
to guarantee that all the money it
raises is invested in Scotland, helping
children and young people across all
areas of the country. All of the charity’s
overheads are met by STV and The
Hunter Foundation so that every penny
of donations goes directly to helping
those in need. For 2017, the Scottish
Government once again committed
to match-fund the first £1m raised.
Connecting with communities
In 2017, the Appeal continued to
engage with communities across
Scotland to encourage individuals,
schools, businesses and community
groups to get involved with the charity
at a local level. Community-based
fundraising for the Appeal took place
throughout the year – a testament to
the public support generated for the
charity – with events ranging from a
sponsored bounceathon, Big Scottish
Breakfast events and a Back to
School with Sean Batty tour all
raising money for Scotland’s children.
Since its launch the Appeal has
formed fruitful partnerships with
high-profile corporate partners
including Royal Bank of Scotland, Lidl,
Quality Meat Scotland and Tunnocks.
This year the Appeal saw a number
of new corporate supporters getting
behind its cause, including Asset
Alliance, Dundee City Council,
Glasgow Taxis and Loganair.
Employee engagement
During 2017 STV employees
once again proved to be great
ambassadors for the Appeal,
donating their time and energy
to a range of fundraising activities
including a tough 500-mile cycling
challenge in September. Throughout
the year, employees were invited
to visit projects which benefit from
Appeal funding – a valuable
opportunity to see at first-hand
the difference their fundraising
efforts make in the community.
STV staff raised £113,685 for the
Appeal throughout the year and
this was matched by the Company
to make a £227,370 donation. The
STV Children’s Appeal was fundraising
partner for a number of mass
participation events during 2017
with people across Scotland, as well
as corporate partners and celebrity
supporters, walking, running and
cycling for the Appeal. The Kiltwalk,
Great Edinburgh Run, Great Women’s
10k and Pedal for Scotland cycling
challenge all saw participants raising
funds for Scotland’s children.
Programming
In March, STV Children’s Appeal –
Changing Lives aired on STV,
revealing how the Appeal makes a
real difference to the lives of children
and young people in Scotland.
STV also aired a series of programmes
in October to highlight the work
carried out by the Appeal and by local
fundraisers across the country to raise
money and awareness about child
poverty in Scotland. The line-up of
programmes culminated in the
annual televised STV Children’s
Appeal Live Show hosted by
Lorraine Kelly, who announced
the total sum raised in 2017.
29
Strategic ReportSTV Annual Report and Accounts 2017 Strategic Report
STV Children’s Appeal 2017
£16.3 MILLION RAISED IN
THE FIRST SEVEN YEARS
30
30
STV Annual Report and Accounts 2017
31
31
Strategic Report Performance review
During 2017, the
business has been
further derisked and
the strategy to deliver
sustainable growth
and increase returns
to shareholders
was progressed.
The Group uses non-statutory
measures of performance to give
shareholders a better understanding
of the underlying performance of
its operations and cash generation.
The principal adjustments made to
the statutory results are for IAS19,
as this is a significant non-operational
non-cash item, and for exceptional
items, due to their non-recurring and
often non-cash nature. A reconciliation
of the adjusted results to the statutory
results is included at Note 30.
Revenue
Total revenue decreased by 3% to
£117.0m (2016: £120.4m) reflecting
the weakness in national airtime in
the first three quarters of the year,
partly offset by the first full year of
revenues for the STV ELM. The STV
ELM provides services to support the
operation of the Scottish Children’s
Lottery (SCL) which launched in
October 2016.
Consumer division revenues
were down 5% at £100.2m (2016:
£105.9m) caused by a weak national
airtime performance which was
down 7%, in line with the ITV
Network. Regional airtime
experienced a weak end to the year
which resulted in 2017 being down
2%, although this has been followed
by a stronger start to 2018. Digital
revenues continued to grow strongly,
up 14% to £8.4m (2016: £7.9m).
32
Production division revenues
at £10.4m (2016: £12.7m) were
down 18% due to a lower volume
of deliveries.
The STV ELM invoiced £6.4m of costs
to the SCL and the division operates
on a breakeven basis.
Operating profit
Operating profit, before exceptional
items, reduced by 4% to £19.0m
(2016: £19.7m). Operating profit after
exceptional items increased by 3%
to £17.4m (2016: £16.9m).
Consumer division operating profit
at £18.7m (2016: £19.6m) was down
5% as the impact of the £5.6m (7%)
reduction in national advertising
revenues was almost fully offset by
reduced programme costs and digital
profit growth. Consumer division
operating profit includes a loss on
STV2 (2016: City TV) of £0.8m (2016:
£0.8m) which will fall as the channel
continues to grow in 2018. The
operating margin of the Consumer
division increased to 18.7% (2016:
18.5%) reflecting high margin STV
Player growth which resulted in the
digital margin continuing to expand
to 55% (2016: 52%).
Productions’ operating profit,
before exceptional items, increased
modestly to £0.3m (2016: £0.1m) and
the operating margin increased to
2.9% (2016: 0.8%). There were no
exceptional costs in 2017 resulting
in Productions’ operating profit after
exceptional items of £0.3m (2016:
£2.7m loss).
The STV ELM operates on a breakeven
basis as noted above and had a loss
after exceptional items of £1.6m
(2016: £nil).
Exceptional items
A £1.6m exceptional item has been
recognised in 2017 comprising a
£0.9m IAS39 non cash change to
discount the SCL long term debtor
and £0.7m to write off non-billable set
up costs of ELM and SCL. In 2016 the
remaining balance of goodwill related
to STV Productions, amounting to
£2.8m, was written off.
Finance costs
Net finance costs increased to £3.5m
(2016: £1.2m) due to the non cash
IAS19 finance charge increasing to
£2.5m (2016: £nil). Cash interest costs
fell to £1.0m (2016: £1.2m).
Statutory result
The statutory result for the year after
tax, exceptional items and IAS19
interest was a profit of £11.7m (2016:
£12.6m). The Group’s effective tax
rate decreased to 14% (2016: 17%)
due to the utilisation of prior year
losses and capital allowances.
Earnings Per Share (EPS)
EPS before exceptional items and
IAS19 interest was flat at 39.6p (2016:
39.7p) reflecting the fall in operating
profit and profit before tax being
offset by the lower effective tax rate.
On a statutory basis, EPS amounted
to 30.1p (2016: 32.5p). A reconciliation
is included in Note 12 in the Notes to
the Financial Statements.
Cashflow and net debt
Net debt at 31 December increased by
£9.1m to £35.5m (2016: £26.4m) with
the net debt: EBITDA ratio, as detailed
in Note 25 in the Notes to the Financial
Statements at 1.41x, within the target
range of 1.0x – 1.5x on a covenant
basis. The cash outflow includes
£3.9m of working capital funding for
the SCL from the STV ELM. The total
investment of £9.1m in the SCL will be
recouped in future years. There is also
a £3.7m timing impact on sums due
from ITV under the Network Affiliate
Strategic Report 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.
Balance sheet
The principal movements on the
Group’s balance sheet were the
movement in the IAS19 pension
deficit, the debtor movements in
working capital and the change in net
debt, all of which are discussed above.
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.
Agreement (NAA) and Advertising
Sales Agreement (ASA) which will
be received in Q2 2018. Other major
outflows were £2.2m on working
capital, mainly in the Productions
division, £3.4m of capital expenditure
investment, £7.9m of pension deficit
funding cash payments and share
purchases and dividends totalling
£8.2m. Included in this total is £0.6m
of shares purchased and cancelled
under the £10.0m buyback
programme announced in August.
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) and capital expenditure, reduced
to 64% (2016: 89%) due to the timing
impact from the NAA and ASA and
other working capital movements
noted above. The ongoing target
remains 90% for 2018 and beyond.
In September 2017, the Group
announced an extension of its £60m
revolving credit and overdraft facility
to June 2022, providing medium term
funding certainty.
Pensions
The IAS19 deficit decreased to
£70.6m (2016: £88.8m) pre-tax,
£58.6m (2016: £72.6m) post-tax
due to strong asset returns. The
assumptions underpinning the
deficit calculation are detailed in
Note 28 in the Notes to the Financial
Statements. The 31 December 2017
triennial valuation process has
recently commenced and is expected
to be completed by 31 March 2019.
The previous valuation and deficit
payment recovery plan were agreed
in December 2016 and are detailed in
Note 28 in the Notes to the Financial
Statements. The payments will fully
fund the pre-tax £129.9m trustees’
valuation deficit calculated as at
30 November 2016.
33
Strategic ReportSTV Annual Report and Accounts 2017 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. The impact and likelihood of
each risk is considered and risks 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 2017 one additional risk was
added to the register which related to
the Lobbying (Scotland) Act, coming
into force in March 2018. 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
34
impairment assessments. The risks
have also been reviewed and agreed
with the internal auditors.
Regulatory environment
STV’s 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
and simplified in December 2016
to provide improved efficiency,
transparency and stability.
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
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 and
there is still a question over whether
there will be a further referendum on
Scottish independence. 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 if Scotland was 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
Strategic Report circumstances, such as the Network
Affiliate Agreement with ITV in relation
to volatile advertising markets; the
Group’s bank facility arrangements
being extended from 2019 to 2022; and
£15m of the core net debt being subject
to interest rate hedges to July 2018 to
reduce exposure to financial market
movements. In addition, the Scottish
Government has agreed that STV’s
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
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 with
financial support by STV, which
amounted to a debtor of £9.1m gross
at 31 December 2017. This debtor is
expected to be recovered by 2022 and
requires weekly ticket sales to increase
by 33% from the 2017 year end run rate
to achieve the cash flow breakeven
point of £176k ticket sales per week.
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.
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 apart from the £9.0m
debtor from the SCL noted above.
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. Interest rate hedges
are maintained to reduce the impact
of changes in market interest rates
on the Group’s borrowings.
Brexit
While there is no immediate or specific
risk to STV, the general macroeconomic
risk of the UK’s departure from the
European Union (‘Brexit’) could affect
the UK’s economic performance
which in turn would affect advertising
and would have an adverse impact
upon the Group’s revenue due to
STV’s dependence on advertising
as set out above.
35
Strategic ReportSTV Annual Report and Accounts 2017 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.
Risk 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,
designed to challenge and update
the current STV risk profile through:
36
(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.
The Board has approved a formal risk
management policy, 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 2017, various reviews were
carried out by the internal auditors,
including: (i) cyber risk; (ii) payroll
controls; (iii) progress, governance
and management of an internal
project; and (iv) revenue controls.
Given the growing importance of
cyber security, Phase 2 of the cyber
risk review will be carried out in Q1
2018. This review will build upon the
initial high level review of cyber risk
arrangements already undertaken
and extend coverage and assessment
to other parts of STV’s IT infrastructure
and operations.
A cyber risk register was established
during 2017 which is reviewed twice
a year.
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. At
the November Audit Committee
meeting, a follow-up report of all
recommendations made by the
internal auditors over the past two
years was provided by the Company.
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 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
Strategic Report Board, subsidiary boards and
associated business units
• high recruitment standards and
formal career 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
• 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 advice provided
by UK statute
• 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.
37
Strategic ReportSTV Annual Report and Accounts 2017 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.
38
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, beyond 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.
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.
Operational
STV faces various operational risks
(inadequate or failed procedures,
Baroness Margaret Ford
Chairman
Strategic Report Introduction to governance
Board of Directors
STV is committed to maintaining
the highest standards of corporate
governance and has created a
working culture where honesty,
openness and fairness are valued.
The Board is responsible for the
overall leadership and control of
STV and there is a formal schedule
of matters reserved for decision by
it. This includes approval of strategy,
annual budgets, financial statements,
significant capital expenditure,
changes to capital structure, Board
appointments and STV’s corporate
governance arrangements and
system of internal control.
The Board also delegates some of its
responsibilities to Board Committees,
details of which are set out on pages
46 to 49.
Diversity
All Board appointments are based
on meritocracy and candidates will
be considered against appropriate
criteria, as the prime consideration
is to maintain and enhance the
Board’s overall effectiveness.
Diversity means positive recognition
of the differences individuals can
bring to the Company and how these
individuals work together to exploit
these differences for the benefit of
the business. 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 25.
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 2017 evaluation was
internally facilitated. 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 and further details of the work
of the Nomination Committee can
be found on page 47.
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,
chaired by Anne Marie Cannon,
ensures that our remuneration
framework is appropriately structured,
in a fair and responsible manner. The
report from the Committee denotes
the approach taken to executive
remuneration and the work done on
revising the Company’s Remuneration
Policy as well as other work carried
out during the year on this high profile
topic. The revised Remuneration Policy
is set out on pages 55 to 63 and with
this new framework in place and
aligned to our strategic objectives,
the Committee expects the new
Policy to remain in place until a
further vote is required in 2021. Our
annual report on remuneration, which
will be subject to an advisory vote,
can be found on pages 64 to 71.
Relationship with Shareholders
The AGM provides an opportunity
for shareholders to meet the Board
and to ask questions. Our 2018 AGM
is scheduled for 26 April 2018 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 of
the financial year ended 31 December
2017, the Company has complied fully
with the UK Corporate Governance
Code 2016 (the Code) and this
section, together with the report
by the Directors on remuneration,
set out on pages 55 to 71, 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
colleagues on the Board for their
excellent and constructive input
and to acknowledge the exemplary
performance of Rob Woodward,
who resigned as CEO at the end
of 2017. My thanks also go to our
employees, our shareholders and
our stakeholders who supported us
throughout the year. 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
39
GovernanceSTV Annual Report and Accounts 2017 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
Senior Independent Director of both Segro
plc and NewRiver REIT plc, Chairman
of Buckingham Palace Reservicing
Programme and a Senior Advisor to H/2
Capital Partners. Margaret is Chairman of
the Tennis Foundation, a non-executive
director of the British Olympic Association
and National President of the British
Epilepsy Association. 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
a Fellow of the Royal Society of Edinburgh.
Simon Pitts
Chief Executive Officer
Appointed: January 2018
Simon was previously a member of the
executive board of ITV plc, holding the
position of Managing Director, Online,
Pay TV, Interactive & Technology. Over
a 17 year career there, Simon held a
range of senior roles, was one of the
main architects of the company’s recent
transformation, and oversaw strong
growth in ITV’s digital businesses. Simon
was also on the board of news provider
ITN for eight years and is Vice Chair of the
trustees of the Royal Television Society.
Board of Directors
at 13 March 2018
left to right by row, from top left
Margaret Ford
Simon Pitts
George Watt
Michael Jackson
Christian Woolfenden
Anne Marie Cannon
Ian Steele
Simon Miller
40
Governance Anne Marie Cannon
Non-Executive Director
Michael Jackson
Non-Executive Director
Appointed: November 2014
Committees: Audit; Remuneration
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 and “Patrick Melrose”
for Sky Atlantic and Showtime.
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. She 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.
Anne Marie 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 Chartered Accountant in
1980 with Arthur Young McClelland Moores.
His subsequent career involved time with
The British Linen Bank, Touche Ross,
Rutherford Manson Dowds and Deloitte.
Prior to retiring as Senior Partner for Deloitte
in Scotland and Northern Ireland, Ian had
been on the UK Board of Deloitte LLP for
over eight years. He was a Corporate
Finance Advisory Partner with Deloitte
and was Head of Global Advisory for some
three years and is a member of 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.
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.
Simon Miller
Non-Executive Director
Appointed: December 2016
Committees: Nomination
Simon is an experienced company director
and chair with exposure to a wide range
of financial and commercial 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
and non-executive director of Scottish
Friendly Assurance Limited. Simon read
Law at Cambridge.
Christian Woolfenden
Non-Executive Director
Appointed: June 2014
Committees: Audit
Christian has extensive operational,
consumer marketing and digital
experience and is currently Managing
Director of Photobox, the online photo
printing company. 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.
41
GovernanceSTV Annual Report and Accounts 2017 Corporate governance report
Governance structure
External auditors
Elected at the AGM. Review the
financial statements to ensure they provide
a ‘true and fair’ account of past financial
performance and current financial position.
<>
Audit Committee
Monitors the integrity of the
financial statements and reviews
internal financial controls.
>
<
>
Shareholders in general meetings
The Company’s highest
decision-making body. Exercises
its authority via these meetings.
<>
The Board of Directors
Elected by shareholders, the Board
led by the Chairman,is responsible for
the Company’s organisation and
the administration of its affairs.
<
<
<
Nomination Committee
Nominates Board
members, auditors and proposes
fees for these roles.
Remuneration Committee
Sets the policy for remuneration
of executives and determines the
total remuneration package for
each Executive Director.
<>
<>
Internal Audit
Provides independent assurance
that risk management, governance
and internal control processes are
operating effectively.
Executive Directors
Manage the Company’s operations within the
framework of rules established by the Board.
<>
Leadership Team
Drives the implementation of the Company’s strategic priorities
while addressing critical business issues and opportunities.
<>
Senior Management Team
Shares knowledge, discusses strategy
and consider specific topics.
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 2017, the Company was
subject to the provisions of the UK Corporate Governance Code (2016) and the Board considers that it has
complied with all relevant provisions of the 2016 Code.
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
Simon Pitts (appointed 3 January 2018)
Rob Woodward (resigned 31 December 2017)
Chief Financial Officer
George Watt
Non-Executive Directors
Simon Miller (appointed Senior Independent Director 25 April 2017)
David Shearer (retired as Senior Independent Director 25 April 2017)
Michael Jackson
Christian Woolfenden
Anne Marie Cannon
Ian Steele
42
Governance 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
12.5% Chairman
25% Executive Directors
62.5% Non-Executive Directors
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-Executive Directors’ 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
The roles of Chairman and Chief Executive are separate with a clear division of responsibility between them,
which is set out in writing and approved by the Board. The Board delegates responsibility for the day to day
running of the business through the Chief Executive to executive management while the Board 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.
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,
43
GovernanceSTV Annual Report and Accounts 2017
Corporate governance report
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 performance reporting and budget updates.
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 2017 is set out below:
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
Number of meetings held:
Attendance:
Margaret Ford
Simon Miller**
David Shearer (resigned 25 April 2017)
Simon Pitts (appointed 3 January 2018)
Rob Woodward (resigned 31 December 2017)
George Watt
Michael Jackson
Anne Marie Cannon
Christian Woolfenden
Ian Steele***
8
8
7
3
–
8
8
8
7
8
8
Attended at the invitation of the respective Chairman.
*
** Appointed to the Nomination Committee on 14 December 2017.
*** Appointed Chairman of the Audit Committee on 25 April 2017.
3
3*
–
1
–
3*
3*
–
2
2
3
3
3*
–
–
–
–
–
1
3
–
3
4
4
1*
1
–
–
–
1*
1*
1*
4
44
Governance 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.
All Directors attended the 2017 annual Strategy Day in November which was held off site to allow Directors
to step out of their usual Board meeting routines and fully consider all matters being discussed. The future
strategy of the business was not the main focus, given the imminent arrival of a new Chief Executive, since his
input would be fundamental, so various aspects of the organisation were looked at in greater detail than Board
meetings generally allowed. Presentations were received from members of the Leadership Team, allowing
more in depth examinations of specific elements of the Productions, Sales, Broadcasting and STV ELM areas
of the business and Directors agreed that this was extremely helpful and had provided a better understanding
of the drivers and key influencing factors in these specific areas.
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 2017 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 to extension of current bank facility arrangements
• approval of the Annual Report and the full and half-year financial results
• approval and declaration of dividends
• approval of the 2018 Budget
• approval of revised KPI targets
• approval of viability statement
Strategy
• presentations on initiatives to grow revenue
• approval of share buyback scheme
• approval of progressive dividend policy
• approval of the launch of STV2
• approval of the Company’s strategy
• discussion on various regulatory issues
• approval of the three year plan
Corporate development
• agreement of STV’s corporate objectives and values for 2017
45
GovernanceSTV Annual Report and Accounts 2017
Corporate governance report
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 2018
• approval of the 2018 AGM Resolutions
• approval of the appointment of Simon Pitts
• performance evaluation
• 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 2017.
Board committees
The Board is supported by the Audit, Remuneration and Nomination Committees.
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
46
Governance
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.
Remuneration Committee
The members of the Committee during the year were:
Anne Marie Cannon (Chairman)
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 71. The written terms of reference of the Remuneration Committee set out
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 (retired 25 April 2017)
Ian Steele
Simon Miller (appointed 2 December 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 following the announcement that Rob Woodward,
Chief Executive Officer would step down from his role and it was agreed that Russell Reynolds Associates,
which has no other connection with STV, be appointed to assist with the process of finding a new CEO.
The Committee considered the alignment of Board composition with Company strategy and a vigorous and
robust process thereafter began whereby the specification for the role and the main attributes required by
the successful candidate were discussed and agreed. The need to ensure that the Board as a whole had the
necessary skills to secure its long term success was agreed to be vital and following a series of interviews with
several exceptional quality candidates, a short list of three was agreed. While all were considered to be high
calibre individuals, the preferred candidate was Simon Pitts, who was then MD of Online, Pay TV, Interactive
& Technology at ITV and a member of ITV’s Management Board. The Committee’s recommendation of this
appointment to the Board was unanimously agreed and Simon Pitts joined the Company on 3 January 2018.
47
GovernanceSTV Annual Report and Accounts 2017 Corporate governance report
Report from the Audit Committee
The members of the Committee during the year were:
Ian Steele (appointed Chairman on 25 April 2017)
David Shearer (retired as Chairman on 25 April 2017)
Christian Woolfenden
Anne Marie Cannon
The Audit Committee was chaired by David Shearer up until his retiral on 25 April 2017 and thereafter
by Ian Steele, both of whom have recent and relevant financial experience.
The Committee 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 are not now able to provide both audit and tax
services so following the tender for STV’s tax services carried out last year, KPMG has carried out tax work
for the Company while PwC continue in their role as 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 or infringe the EU Audit rules. This includes consideration of the safeguards which are in place
to mitigate the risks to independence.
48
Governance 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.
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 2017 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 in 2016 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 the year end assumptions. Management’s treatment and disclosures
in relation to IAS19 were considered to be appropriate.
SCL debtor recoverability
As a new venture which has received significant financial backing from the Group, the assumptions around
the future expected progress of the SCL were considered. In particular, the key objective of reaching cashflow
breakeven in 2018 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 2018 and the likely recoupment of the debtor balance over the following four
years from 2018. The change in the timing of the recoverability of the debtor resulted in an IAS39
provision of £0.9m being required to discount the present value of the cash flows expected from the SCL.
Management’s treatment and disclosures in relation to the SCL debtor were considered to be appropriate.
49
GovernanceSTV Annual Report and Accounts 2017 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 bearing in mind the EU Audit rules. 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 solely of covenant reporting
and 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.
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.
50
Governance Committee activities
The principal activities undertaken by the Board Committees during 2017 included:
Month
January
February
March
March
April
August
August
Committee
Activity
Remuneration
Consideration of performance under 2016 Bonus 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
Approval of Internal Audit Plan for the year
Review of internal controls/risk management
Committee Performance Evaluation
Nomination
SID succession
Remuneration
Approval of Remuneration Report, 2017 remuneration
and Committee Performance Evaluation
Nomination
Nomination
Audit
CEO Succession – role specification
CEO succession – approval of Simon Pitts
Review of Half Year Results
Review of Auditor report on Half Year Results
Internal Audit update
Review of internal controls/risk management
Annual Business Risk Review
Internal audit update
November
Audit
November
December
Nomination
General succession planning
Remuneration
Review of Remuneration Policy and NXD fees
Leadership Team
The Leadership Team comprises the Executive Directors; 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.
Senior Management Team
The Senior Management Team is made up of approximately 25 managers from around the Group who meet
monthly to discuss strategy, share knowledge and address specific issues.
Diversity
STV believes that diversity is wider than simply gender and aims to hire the best candidates with the widest
range of skills and experience, whatever their background or gender. The Board is committed to improving
diversity in its membership in the broadest sense as a diverse Board provides a range of perspectives, insights
and challenges that are needed to support good decision making.
STV takes the concept of diversity seriously and further details can be found on page 23. Diversity is about
recognising, respecting and valuing the differences each person can bring and the Board appreciates 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.
51
GovernanceSTV Annual Report and Accounts 2017 Corporate governance report
Board
Leadership Team
Staff
25% Women
75% Men
22% Women
78% Men
49% Women
51% 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. 49% 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.
A thorough induction programme was devised for Simon Pitts which commenced prior to him assuming his
role in January 2018. This included him spending two days at the main office in December 2017 where he met
staff and had full access to the Leadership Team as well as to the 2018 budget process and other strategic
processes. Since joining STV, Simon has visited other STV offices and met with various shareholders,
stakeholders and advisors.
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.
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.
52
Governance 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 to each question by Directors.
Thereafter, the Chairman held one to one meetings with the Non-Executive Directors to discuss the results.
The Senior Independent Director spoke with all Directors individually to evaluate the Chairman’s performance.
On completion of the 2017 performance evaluation, the performance of each Director was found to be effective
and 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 and meetings were well chaired with
an appropriate level of involvement outside formal meetings. It was suggested that Board meetings be longer
to allow more in depth reviews into specific areas of the business and that additional opportunities for interaction
with the Leadership Team be arranged.
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 16 January 2018. The Nomination Committee confirmed to the Board
that the contributions made by the Directors offering themselves for re-election at the AGM in April 2018
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 Pitts who joined the Board
on 3 January 2018, 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
17% more than 6 years
50% 4-6 years
17% 2-4 years
17% 1-2 years
N/A 0-1 year
53
GovernanceSTV Annual Report and Accounts 2017 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
1% Board of Directors
2% 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.signalshares.com
54
Governance
Remuneration report
Anne Marie Cannon
Chairman of the Remuneration Committee
Annual Statement
I am pleased to introduce the Directors’ Remuneration Report for the year ended 31 December 2017. In line
with the three year cycle under the remuneration reporting regulations, we will be seeking shareholder approval
for a renewal of our Remuneration Policy at this year’s AGM in April 2018.
We are committed to open and ongoing dialogue with our shareholders and we also recognise that market
practice and investor expectations of executive remuneration continue to develop at a considerable pace. We
are confident that our proposed approach will meet these changing expectations and practice whilst providing
an incentive structure that is appropriately aligned with our strategy and the delivery of our plans and priorities.
As we have embarked on this triennial review process, we have reconfirmed the key principles we believe
should underpin our remuneration framework as follows:
• Closely aligning rewards with the delivery of Company strategy;
• Ensuring a significant proportion of the awards are based on long term success criteria;
• Reflecting changes in best practice and governance;
• Simplifying and streamlining the framework for clarity and effectiveness;
• Ensuring market competitiveness.
Proposed changes to Remuneration Policy from previous policy
The Committee has determined that the current framework continues to support the delivery of our key
strategic objectives whilst providing incentives to deliver sustained long-term value for our shareholders.
Therefore, the Committee is not proposing to make any major changes to the structure of the Remuneration
Policy at this time. We are, however, proposing to incorporate some additional features to ensure that we
continue to be aligned with evolving guidance. Specifically, the following changes are proposed:
• LTIP holding period: Strengthening the requirement under our existing Policy to ensure a two-year
post-vesting holding period is applied to all long-term incentives awards granted from 2018 awards;
• Increasing shareholding requirements: Increasing the shareholding requirement for Executive Directors
from 100% to 150% of salary; and
• Reducing pension provision for new hires: For future executive appointments, reducing the maximum
pension contribution from 20% to 7% of salary. This reduced contribution is consistent with the pension
benefits provided to employees across the business.
A shareholder consultation on the new arrangements was conducted in early 2018 and I would like to thank
those who took part in this process. The responses have indicated a strong level of support for the current
Remuneration Policy and the further changes that the Committee is proposing to implement.
55
GovernanceSTV Annual Report and Accounts 2017 Remuneration report
CEO succession
In April 2017, Rob Woodward confirmed his intention to resign and the Board implemented a succession
process. In order to provide the Board with sufficient time for a successor to be appointed, it was agreed
that Rob Woodward would continue in his role throughout his notice period of up to 12 months. Simon Pitts
was appointed in January 2018 at which time Rob Woodward left the Company’s employ and received a
payment in respect of his fixed pay in lieu of notice for the four month balance of the remaining notice period.
Details of the termination arrangements are set out in full in the Annual Report on Remuneration.
Full details of Simon Pitts’ remuneration, which was determined in accordance with the Remuneration Policy,
are also set out in the Report. In order to facilitate the appointment, it was necessary to make share awards
and compensatory payments, in line with the Remuneration Policy, which reflected incentive awards forfeited
from his previous employer.
2017 incentive outcomes
As a result of progress delivered in 2017, payments have been triggered under the annual bonus. The Executive
Directors will receive bonus payments of 40% of salary (32% of bonus potential maximum). The 2015 LTIP was
based on performance measured over the three years to 31 December 2017. Based on performance achieved,
13.8% of this award will vest in June 2018. Full details of both the bonus and LTIP outcomes are contained
within the Report.
Decisions made for 2018
The Annual Report on Remuneration provides additional detail on the payments and awards made to
the Directors in the year and on our intentions for 2018. The Annual Report on Remuneration together with
the Annual Statement is subject to an advisory shareholder vote at the AGM on 26 April 2018. I look forward
to receiving your support for all of the remuneration related resolutions at our AGM.
Anne Marie Cannon
Chairman of the Remuneration Committee
13 March 2018
56
Governance Directors’ Remuneration Policy
The Directors’ Remuneration Policy (‘the Policy’), determined by the Company’s Remuneration Committee
(‘the Committee’) and presented below, will be effective following shareholder approval at the 2018 Annual
General Meeting.
Changes from the current policy are: strengthening the requirement to apply a two-year post vesting holding
period to all LTIP awards granted from 2018; increasing shareholding requirements for Executive Directors
to 150%; and for future executive appointments reducing pension contributions to 7%.
Policy table for Executive Directors
Operation
Maximum
opportunity
Objective and link
to strategy
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
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
Other reasonable benefits may be granted to
Executive Directors at the discretion of the
Remuneration Committee
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
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 2017
Performance
conditions
None
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 2018 are set out
on page 64
None
The cash allowance paid to
Executive Directors in lieu of
benefits in kind is currently
£15,500 per annum
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 for current
Executive Directors.
For future executive
appointments, pension
allowance will be capped
at 7% of base salary
57
GovernanceSTV Annual Report and Accounts 2017 Remuneration report
Objective and link
to strategy
Annual bonus
Aligns reward to the
delivery of annual
financial and strategic
performance measures.
Deferral creates long
term alignment with
shareholders
Operation
Maximum
opportunity
Performance
conditions
125% of salary
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)
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
normally 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
of two years will apply
Recovery and dividend
equivalent provisions apply
(see explanatory notes)
Shareholding requirement
To strengthen long
term alignment
with shareholders
Executive Directors are required
to hold shares equivalent to
150% of their annual salary
The required
level of holding
is 150% of
salary
58
Payment is determined by reference to
performance assessed over one financial
year based on a range of financial and
strategic performance measures
For 2018, these measures will 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 performance
measures which the Committee consider
to be aligned with the delivery of strategy
and long term shareholder value
The measures for the 2018 award are:
• earnings per share (EPS)
• non-broadcast operating profit
• relative total shareholder return
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 occur during the period
The threshold for vesting is no higher
than 25% of the maximum award
Governance 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 and cash flow)
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 at that time.
Discretion
The Committee has discretion in several areas of policy as set out in this report. The Committee may also
exercise operational and administrative discretions under relevant plan rules approved by shareholders
as set out in those rules.
Differences in remuneration policy for all employees
All employees are entitled to base salary, pension and benefits. Bonus plan participation is dependent on the
role and seniority and responsibility of the role. Long-term incentive awards are only available to the leadership
team and key senior staff by invitation.
The Committee reserves the right to make any remuneration payments and/or payments for loss of office
(including exercising any discretions available to it in connection with such payments) notwithstanding that
they are not in line with the Policy where the terms of the payment were agreed (i) before the 2015 AGM (the
date the Company’s first shareholder-approved Directors’ remuneration policy came into effect); (ii) before
the policy set out above came into effect, provided that the terms of the payment were consistent with the
shareholder-approved Directors’ remuneration policy in force at the time they were agreed; or (iii) at a time
when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the
payment was not in consideration for the individual becoming a Director of the Company. For these purposes
‘payments’ includes the Committee satisfying awards of variable remuneration and, in relation to an award
over shares, the terms of the payment are ‘agreed’ at the time the award is granted.
The Committee may make minor amendments to the Policy (for regulatory, exchange control, tax or
administrative purposes or to take account of a change in legislation) without obtaining shareholder approval.
59
GovernanceSTV Annual Report and Accounts 2017 Remuneration report
Non-Executive Directors
The table below sets out the key elements of the policy for non-Executive Directors:
Objective and link to strategy
Operation
To attract Non-Executive
Directors with the
requisite skills and
experience
The fees of the Non-Executive Directors are determined by
the Board based upon recommendations from the Chairman
and Chief Executive Officer (or, in the case of the Chairman, based on
recommendations from the Senior Independent Non-Executive
Director and the Chief Executive Officer)
The fee for Non-Executive Directors encompasses a basic fee and
may also include supplementary fees for committee or other duties
The Chairman receives a single fee for all duties
Fees are normally reviewed annually with changes effective
from 1 January
Fees are paid in cash
The Chairman and Non-Executive Directors do not participate
in any bonus or share incentive scheme, nor do they participate
in any pension arrangements
Maximum opportunity
Fees are set at a level
which reflects skills,
experience, time
commitment and
appropriate market data
Fees are set within the
limits set by the Articles
of Association
Fees with effect from
1 January 2018 are
set out on page 65
Illustrations of application of remuneration policy
The graphs below seek to demonstrate how pay varies with performance for the Executive Directors
based on the Policy Table for Executive Directors.
Chief Executive Officer
Chief Financial Officer
£2.0m
£1.5m
£1.0m
£0.5m
£0
£1.00m
£1,395,000
£0.75m
£845,500
12%
30%
£495,500
29%
36%
100%
59%
36%
£0.50m
£0.25m
£0
£809,000
28%
36%
£492,750
12%
29%
£291,500
100%
59%
36%
Minimum
On-target
Maximum
Minimum
On-target
Maximum
LTIP
Annual bonus
Fixed pay
Assumptions used in determining the level of pay-out under given scenarios are as follows:
• Minimum – reflects fixed pay only (base salary as at 1 January 2018, benefits allowance (£15.5k),
and cash in lieu of pension contributions at 20% of salary)
• Target – reflects fixed pay, target bonus (62.5% of salary) and LTIP awards (100% of salary)
vesting at threshold performance (25% of maximum)
• Maximum – reflects maximum bonus (125% of salary) and LTIP awards vesting in full (100% of salary).
60
Governance Recruitment remuneration policy
The Committee’s approach to recruitment remuneration is to pay no more than it considers necessary
to secure appropriate candidates to the role.
The principle is that the pay of any new recruit would be assessed following the same principles as for
the Executive Directors. The structure of the remuneration package would therefore normally include the
components, and be subject to relevant maxima, as set out in the Policy Table for Executive Directors. Salaries
would typically be set at an appropriately competitive level to reflect skills and experience. They may be set at
a level to allow future salary progression to reflect performance in role. The Executive Director would be eligible
to participate in the annual bonus and LTIP for the year subject to a maximum level of variable remuneration
which may be awarded (excluding any compensatory awards referred to below) at 225% of salary.
Where an individual forfeits remuneration with a previous employer as a result of appointment to the Company,
the Committee may make compensatory payments or awards to facilitate recruitment. In determining the
structure of these commitments, the Committee will normally seek to replicate, as far as practicable, the
timing and performance requirements of remuneration foregone. Such payments or awards could include
cash (where cash-based remuneration is forfeited) as well as share awards. There is no limit on the value
of such compensatory awards, but the Committee’s intention is that the value awarded would be no more
generous than a broadly equivalent economic value of the forfeited remuneration.
In instances where the new Executive Director relocates from one workbase to another, the Company may
provide compensation to reflect the cost of relocation. The level of relocation package will be assessed on
a case by case basis but will take into consideration any cost of living differences, housing allowance and
schooling in accordance with the Company’s normal relocation package for employees.
Where an existing employee is promoted to the Board, the policy would apply from the date of promotion
but there would be no retrospective application of the policy in relation to subsisting incentive awards or
remuneration arrangements. Accordingly, existing elements of the remuneration package of the employee
would be honoured and form part of the ongoing remuneration for the person concerned.
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
S Pitts
G Watt
Director
Non-Executive
Date of contract/
letter of appointment
Unexpired term
Notice period by Company/Director
3 January 2018
Rolling contract
12 months/6 months
27 February 2001
Rolling contract
12 months/6 months
Date of contract/
letter of appointment
Date(s) of
(re)appointment
Unexpired as at March 2018
Baroness Ford
1 June 2013
M Jackson
1 May 2009
C Woolfenden
1 June 2014
A M Cannon
1 November 2014
I Steele
S Miller
1 November 2015
2 December 2016
26 April 2016
30 April 2015
25 April 2017
25 April 2017
26 April 2016
25 April 2017
1 year 1 month
1 month
2 years 1 month
2 years 1 month
1 year 1 month
2 years 1 month
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GovernanceSTV Annual Report and Accounts 2017 Remuneration report
Policy on payment for loss of office
When determining any loss of office payment the Committee will always seek to minimise cost to the Company
whilst seeking to reflect the circumstances in place at the time.
In the event of termination by the Company, there will be no compensation for loss of office due to misconduct
or normal resignation. In other circumstances Executive Directors may be entitled to receive compensation for
loss of office which will be paid monthly for a maximum of twelve months. Such payments will be equivalent
to the monthly salary, pension supplements, and benefits that the Executive would have received if still in
employment with the Company. Executive Directors will be expected to mitigate their loss within a 12 month
period of their departure from the Company.
The treatment of incentive awards would be determined by the relevant plan rules. If the individual is a ‘good
leaver’, the treatment of awards will be as set out in the table below (which also describes the Committee’s areas
of discretion). The ‘good leaver’ circumstances are death, ill-health, injury, disability, the sale of the business
or entity that employs the participant out of the Group, or for any other reason at the Committee’s discretion.
If the individual is not a good leaver, unvested awards will lapse in full. It is the Committee’s policy to only
apply its discretion to determine an individual is a ‘good leaver’ where the circumstances at the time are, in its
opinion, sufficiently exceptional, and to provide a full explanation to shareholders where discretion is exercised.
Treatment of awards for a ‘good leaver’
Annual bonus
The Committee has discretion to make a payment under the annual bonus
in respect of the year of cessation. This would reflect performance in the year
and be pro-rated to reflect the period worked in that year.
DBP
LTIP
Unvested DBP awards will usually continue, unless the Committee determines
that the award should vest as soon as reasonably practicable following the
date of cessation.
An award will normally vest in full but the Committee retains discretion to
determine the extent to which it vests, taking account of the period of time that
has elapsed since the award was granted until the date on which the participant
ceases to hold office or employment with the Group.
Unvested LTIP awards will usually continue, unless the Committee determines
that the award should be released as soon as reasonably practicable following
the date of cessation. The Committee will decide the extent to which an
unvested award vests in these circumstances, taking into account the extent
to which any performance condition is satisfied and, unless the Committee in
its discretion determines otherwise, the period of time that has elapsed since
the award was granted until the date of cessation.
The Committee reserves the right to make any other payments in connection with a Director’s cessation of office
or employment where the payments are made in good faith in discharge of an existing legal obligation (or by way
of damages for breach of such an obligation) or by way of settlement of any claim arising in connection with the
cessation of a Director’s office or employment. Any such payments may include but are not limited to paying any
fees for outplacement assistance and/or the Director’s legal and/or professional advice fees in connection with
his cessation of office or employment.
62
Governance Change of control
DBP
LTIP
An award will normally vest in full but the Committee retains discretion to
determine the extent to which it vests, taking account of the period of time that
has elapsed since the award was granted until the date on which the participant
ceases to hold office or employment with the Group.
Awards will vest, taking into account the extent that any performance condition
has been satisfied, and, unless the Committee determines otherwise, the period
of time which has elapsed between the grant date and the relevant event.
Alternatively, the Committee may permit participants to exchange awards
for equivalent awards which relate to shares in a different company.
Consideration of employment conditions elsewhere in the Company
In making annual pay decisions the Committee gives consideration to pay and employment conditions in the
rest of the Company. The Committee is provided with data on the remuneration structure for the Executive
leadership team, and uses this information to work with the HR team to ensure consistency of approach
throughout the Company.
To appraise itself of conditions elsewhere in the Company, the Committee invites the HR & Communications
Director to present on the proposals for salary increases for the employee population generally, and on any
other changes to remuneration policy within the Company.
The Committee actively considers the relationship between general changes to employees pay and conditions
and any proposed changes in the remuneration packages for Executive Directors to ensure it can be sufficiently
robust in its determinations in light of the position of the Company as a whole.
Although the Committee takes into account the pay and conditions of other employees, the Company did not
consult with employees when developing the Policy.
Consideration of shareholder views
The views of the Company’s shareholders are very important and the Committee welcomes constructive feedback
with respect to the remuneration policies or structure which we take on board to formulate our arrangements.
63
GovernanceSTV Annual Report and Accounts 2017 Remuneration report
Annual Report on Remuneration
This section of the report sets out how the Policy will be implemented in 2018 and how it was implemented
during 2017. Some sections of this report, where indicated, have been audited.
Statement of implementation of remuneration policy for 2018
Executive Directors
The salaries for 2018 are set out below:
Executive Director
S Pitts
G Watt
2017 salary
£000
2018 salary
£000
%
increase
–
226
400
230
–
2%
Salary levels of employees throughout the Company were increased by an average of 2% in January 2018.
Benefits and pension will be provided for as set out in the Policy Table for Executive Directors.
For 2018, 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
Total
Weighting
50%
25%
25%
Maximum bonus
contribution
(% of salary)
62.5%
31.25%
31.25%
125%
In 2018 the Executive Directors will receive awards under the LTIP at the level of 100% of salary.
These will vest after three years subject to the following performance targets and will be subject
to a two-year holding period post vesting:
Performance measure
Calibration of targets
EPS
Annualised growth in adjusted EPS from FY17 to FY20
Non-broadcast
operating profit
Relative TSR
Operating profit for non-broadcast activities in FY20
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%
£7m
Median
12%
£11m
Upper
quartile
There is no vesting for below threshold performance and straight-line vesting between threshold and maximum.
64
Governance Buy-out award for Simon Pitts appointment
Simon Pitts was appointed as Chief Executive Officer on 3 January 2018. His remuneration package was
determined in accordance with the Remuneration Policy and is described in the section above in respect
of 2018 implementation.
Additionally, in order to facilitate Simon Pitts’ appointment, it was necessary to make share awards and
compensatory payments reflecting incentive awards forfeited from his previous employer. This buyout package
was designed to be no more generous than the awards forfeited and to reflect the performance conditions,
form and time horizons of the forfeited awards, in line with the provisions of Remuneration Policy. This package
comprised an immediate cash payment of £187k made on joining (reflecting a forfeited cash payment), awards
of STV Group plc deferred shares (with a face value of £666k) vesting in phases over the period to 2021, and an
STV Group plc LTIP award (with a face value of £652k) which will vest in 2020, subject to the achievement of the
2017 STV Group plc LTIP performance targets measured over the three years to 31 December 2019, as set out
on page 67. As these payments and awards were made in 2018, they are not disclosable in the tables which
form the rest of this report but will be included in full in next year’s report.
Non-Executive Directors
Following a review of fee levels during 2017, it was determined that the basic fee for Non-Executive Directors
would be increased by 2% whilst the fee payable for chairing the audit and remuneration committees would
increase by 100% to £5k per annum, to reflect market norms. Additionally, the fee structure has been simplified
and the fee previously paid for membership of a board committee has been consolidated into the basic fee.
The fee payable to the Chairman will not be increased in 2018.
Non-Executive Director
Chairman fee
Basic Non-Executive Director fee
Additional fees: Senior Independent Director
Chairing the Audit or Remuneration Committee
£
125,000
38,250
12,750
5,000
Single total figure of remuneration
Executive Directors (audited)
The table below sets out the single total figure of remuneration for the Executive Directors for the 2017 financial
year. Comparative figures for 2016 are also shown.
Executive Director
R Woodward
G Watt
Financial
year
Salary
£000
Taxable
benefits
£000
Annual
bonus
£000
Deferred
payment
£000
Long-term
incentives
£000
Pension
£000
2017
2016
2017
2016
401
395
226
223
16
16
16
16
159
142
90
80
–
175
–
99
41
n/a
23
n/a
80
79
45
45
Total
£000
697
807
400
463
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 2017, 20% of this will be deferred
into shares for three years for George Watt. In accordance with the plan rules and terms of his departure, the annual bonus payment
earned by Rob Woodward will be paid in cash immediately.
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 Incentive Plan – This will vest in June 2018. Awards will be payable in relation to performance of non-broadcast earnings growth.
Pension – Both Executive Directors receive a taxable cash allowance in lieu of pension.
65
GovernanceSTV Annual Report and Accounts 2017 Remuneration report
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 2017.
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% £18.5m £23.5m £19.0m
Cash flow
25% 3.125% 31.25% £17.5m £21.1m £12.8m
Personal objectives
25% 3.125% 31.25%
See below
Total
100%
12.5%
125%
–
–
–
16%
0%
24%
40%
£65,394
£36,862
Target not met
£94,051
£53,015
£159,445
£89,877
The personal objectives relate to the key strategic priorities of the business and projects related to progression of
the business plan, achievement of KPIs and delivery of shareholder value. Assessment of performance against
these objectives concluded that a bonus payment equal to 40% of salary appropriately reflected performance
delivered in 2017 for both Executive Directors.
The key objectives that were successfully delivered were continued growth and increased profitability of the
digital business; extending the STV Family of consumer services through the launch of STV2; progression of
the Company’s data strategy and growth of the Scottish Children’s lottery towards its breakeven target date.
The Committee is of the opinion that the performance targets are commercially sensitive and that it would
be detrimental to the interests of the Company and its shareholders to disclose them at this time.
The Committee will review disclosure of personal objectives targets at the end of each performance period
and will disclose these if satisfied they are no longer sensitive.
Long-term Incentive Plan (audited)
The table below sets out the achieved performance for the 2015 Long-term Incentive Plan:
EPS
(50% of award)
Non-broadcast profit
(30% of award)
Relative TSR vs. FTSE Small Cap
(20% of award)
Performance period
Annualised
growth
Vesting
Final year
performance
FY2017
1/1/15-31/12/17
0.8%
Nil
£5.4m
Vesting
46%
Ranked TSR
vs. Group
Below
Median
Vesting
Nil
Overall
vesting
13.8%
66
Governance Scheme interests awarded in 2017 financial year (audited)
The table below shows awards made to the Executive Directors during 2017 under the LTIP.
As Rob Woodward had tendered his resignation in April 2017, he did not participate in the 2017 LTIP award:
Executive Director
Award type
Basis of award
Face value
of award*
Threshold
vesting
G Watt
LTIP 100% of salary
£226k
25% of
maximum
Performance period
1/1/17-31/12/19
* Calculated using the closing share price 364.5 pence on the date prior to the date of award.
The awards granted under the LTIP in 2017 will vest after three years subject to the following
performance targets:
Performance
measure
EPS
Calibration of targets
Annualised growth in adjusted EPS
from FY16 to FY19
Non-broadcast
operating profit
Operating profit for non-broadcast
activities in FY19
Relative TSR
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%
12%
£4.0m
£9.0m
Median
Upper
quartile
There is no vesting for below threshold and straight-line vesting between threshold and maximum.
Payments for loss of office (audited)
No payments for loss of office were made during the year.
Rob Woodward tendered his resignation on 25 April 2017. To support the Board in identifying a successor and
ensuring a smooth transition, it was agreed that Rob Woodward would continue in his role throughout his
notice period of a maximum of up to 12 months duration. Following confirmation that a successor had been
identified, Rob Woodward’s employment was terminated on 31 December 2017. Details of the remuneration
paid to Rob Woodward in respect of his services as an Executive Director in 2017 are set out in the single figure
and accompanying notes. Details of the remuneration arrangements in respect of his departure, including the
treatment of outstanding share awards, are set out below. In accordance with his service agreement and the
Company’s Remuneration Policy, Rob Woodward received a payment in lieu of notice of £166k. This payment
comprised base salary, benefits and pension allowance for the remaining four months of his 12 month notice
period which was not worked.
The deferred share element of the 2016 annual bonus plan will be released in line with the normal release
date in March 2020.
Rob Woodward’s outstanding awards under the Company’s long-term incentive plan will be treated in
accordance with the respective plan rules. The 2015 STV Group plc LTIP will vest in June 2018 at the level set
out elsewhere in this report and the 2016 STV Group plc LTIP will be exercisable on the normal release date
subject to the determination of performance over the three-year performance period and pro-rated to reflect
the term of employment.
Options held under the 2013 Value Creation Plan will remain exercisable until March 2023, as previously
determined by the Remuneration Committee.
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GovernanceSTV Annual Report and Accounts 2017 Remuneration report
Payments to past Directors (audited)
No payments to past Directors were made during the year.
All employee share plans
A new three year Save As You Earn Option Plan (‘SAYE’) was launched in October 2017 at a price of 349 pence
per share. George Watt joined the 2017 SAYE at the maximum contribution level with 5,157 shares under option
exercisable on 1 November 2020.
George Watt was fully subscribed under the 2014 SAYE which matured on 1 November 2017 and exercised
5,325 shares at the option price of 338 pence per share.
External appointments
During 2017, Rob Woodward served as a non-executive director of Blancco Technology Group plc. George Watt
received £20k as a non-executive director of SpaceandPeople plc. In accordance with STV’s policy, Executive
Directors are entitled to retain their fees.
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
C Woolfenden
A M Cannon
I Steele
S Miller
Financial
year
Basic
fees
£
Additional
fees1
£
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
125,000
95,000
15,000
45,000
32,500
32,500
32,500
32,500
32,500
32,500
32,500
32,500
40,833
2,708
–
–
2,500
7,500
1,667
5,000
5,000
5,000
7,500
6,458
6,667
5,000
3,334
–
Total
fees
£
125,000
95,000
17,500
52,500
34,167
37,500
37,500
37,500
40,000
38,958
39,167
37,500
44,167
2,708
Notes
Additional fees relate to the fee structure in place during 2017 through which 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 was paid.
David Shearer resigned on 25 April 2017.
68
Governance Statement of Directors’ shareholding and share interests (audited)
Under the current policy, Executive Directors are required to build up a shareholding equal to 100% of salary.
Non-Executive Directors are required to build up a shareholding equivalent to their basic fee over a three-year
period. The table below summarises the Directors’ interests in shares and the extent, where applicable, to
which the shareholding requirements have been achieved.
From 2018, the shareholding requirement will be increased to 150% of salary under the new policy.
Number of
beneficially
owned
shares2
Number of
nil cost
options
Number
of SAYE
options
subject to
conditions
Number of
unvested
LTIP
awards at
31/12/17
Total
interests
held at
31/12/17
Monetary
value of
shares at
31/12/173
Shareholding
requirements
(% salary)
Current
shareholding
(% salary/
basic fee)
Requirement
met4
Director
Executive
R Woodward1
447,944
336,735
4,900
198,925
784,679
G Watt
271,094
133,470
5,325
174,188 404,564
Non-Executive
Baroness Ford
25,958
M Jackson
C Woolfenden
A M Cannon
I Steele
S Miller
–
9,092
9,042
8,000
5,000
–
–
–
–
–
–
–
–
–
–
–
–
25,958
–
9,092
9,042
8,000
5,000
2,550
1,315
84
–
30
29
26
16
100
100
100
100
100
100
100
635
581
67
0
80
73
66
36
Yes
Yes
n/a
n/a
n/a
n/a
n/a
n/a
1 Resigned 31/12/2017.
2 Beneficial interests include shares held directly or indirectly by connected persons.
3 Share price as at 31/12/17 was 325 pence per share.
4 Not applicable as three-year period to acquire is ongoing.
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
9.16
4.40
1.39
(0.22)
The bonus plan and the long term incentive plan are subject to a limit of 10% in ten years.
69
GovernanceSTV Annual Report and Accounts 2017 Remuneration report
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 All Share Media indices. The FTSE Small Cap index will
be used for performance measures under the new LTIP the FTSE All Share 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
2018
FTSE Small Cap index
FTSE All Share Media Index
STV Group plc
Single figure of total remuneration
The table below shows the Chief Executive Officer’s remuneration over the past nine years.
Year
2017
2016
2015
2014
2013
2012
2011
2010
2009
Single figure of total
remuneration
(£000)
R Woodward
Bonus pay-out
(as % maximum
opportunity)
Long-term incentive
vesting rates
(as % maximum
opportunity)
697
807
2,269
661
601
696
958
614
418
32
29
49
46
54
31
15
75
–
13.8%
–
100%
–
–
100%
–
–
–
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 2016 and 2017.
Chief Executive Officer
All employees
Salary
Taxable benefits
2%
2%
–
–
Bonus
12%
n/a
70
Governance Relative importance of spend on pay
The table below sets out the relative importance of spend on pay in the 2016 and 2017 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 buy back
2017
£20.4m
£6.8m
2016
% change
£19.6m
£4.3m
4%
58%
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; Anne
Marie Cannon (Chairman); Michael Jackson; and Ian Steele. The Committee met three 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.
Advisers 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 connections with the design and operations 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 that 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 £17,350.
In the course of its deliberations during the period under review, the Committee sought the assistance of the
Chairman on matters relating to the Directors’ performance and remuneration, including the termination of the
employment of the former Chief Executive Officer, Rob Woodward, and the structure of the buy-out package
element of the remuneration to be paid to the newly appointed Chief Executive Officer, Simon Pitts.
The Chairman, Chief Executive Officer and the HR & Communications Director attend meetings by invitation.
Statement of voting at general meeting
The table below shows the remuneration related votes at the AGM held on 25 April 2017.
2016 Remuneration Report
30,517,889
99.33
207,052
0.67
30,727,065
2,124
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.
Anne Marie Cannon
Chairman of the Remuneration Committee
13 March 2018
71
GovernanceSTV Annual Report and Accounts 2017 Directors’ report
The Directors present the Directors’ report, together with the audited accounts for the year ended
31 December 2017. The Directors’ report comprises pages 72 to 74 and the sections of the annual
report incorporated by reference are set out below:
Directors during 2017 financial year – See page 42
Greenhouse gas emissions – See page 28
Employee diversity and inclusion – See page 23
Principal risks – See pages 34 and 35
Corporate governance report – See pages 42 to 54
Employee involvement – See pages 22 to 24
Dividends
The proposed total dividend for 2017 is 17.0p per share – an increase of 13% on 2016 (15.0p). During 2017 the
final 2016 dividend of 11.0p per share was paid together with the interim dividend for 2017 of 5.0p per share.
A final dividend of 12.0p per share has been declared which, subject to approval at the AGM in April, will be paid
on 31 May 2018, to shareholders on the register at 13 April 2018.
Share capital
The Company announced a share buyback programme on 22 September 2017 and as at 13 March 2018 the
Company has completed the buyback of 330,294 ordinary shares of 50p each, the aggregate consideration of
which was £1,160,507. Each of these shares was cancelled upon purchase. Consequently, on 13 March 2018 there
were 39,217,937 ordinary shares of 50p each in issue, each with one vote and no shares are held in treasury.
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 69.
As at 13 March 2018, the Group had been notified of the following interests of 3% or more in its shares:
Shareholders
Crystal Amber Advisers
Columbia Threadneedle Asset Mgt
Slater Investments
UBS Global Asset Mgt
Schroder Inv. Mgt
Majedie Asset Mgt
Chelverton Asset Mgt
Cavendish Asset Mgt
Shares held
6,336,041
3,777,707
3,475,001
3,133,876
2,625,240
2,199,277
1,641,365
1,429,100
%
16.11
9.60
8.83
7.96
6.67
5.59
4.17
3.63
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 16 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
72
Governance
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).
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 2017.
Annual General Meeting
Details of the 2018 AGM, together with the Notice of AGM can be found on pages 116 to 124.
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 Pitts who was appointed to the
Board on 3 January 2018 as Chief Executive Officer. Rob Woodward resigned as Chief Executive Officer
on 31 December 2017. David Shearer retired from the Board on 25 April 2017.
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 during the year (2016: £nil).
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.
73
GovernanceSTV Annual Report and Accounts 2017 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 2017, 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 in 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
Margaret Ford
Chairman
13 March 2018
74
Governance Financial Statements
76
83
STV Group plc
consolidated financial statements
– independent auditors’ report
82 Consolidated income statement
Consolidated statement
82
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
86
113 Five year summary
84
85
Additional Information
114 Shareholder information
116 Notice of Annual General Meeting
75
Financial StatementsSTV Annual Report and Accounts 2017 STV Group plc consolidated financial statements
Independent auditors’ report to the members of STV Group plc
Report on the audit of the financial statements
Opinion
In our opinion, STV Group plc’s Group financial
statements and Parent company financial statements
(the ‘financial statements’):
• give a true and fair view of the state of the Group’s
and of the Parent company’s affairs as at 31 December
2017 and of the Group’s profit and the Group’s and the
Parent company’s cash flows for the year then ended;
• have been properly prepared in accordance with IFRSs
as adopted by the European Union and, as regards the
Parent company’s financial statements, as applied
in accordance with the provisions of the Companies
Act 2006; and
• 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.
We have audited the financial statements, included
within the Annual Report and Accounts (the ‘Annual
Report’), which comprise: the consolidated and parent
company balance sheets as at 31 December 2017;
the consolidated income statement and consolidated
statement of comprehensive income, the consolidated
and parent company statements of cash flows, and the
consolidated and parent company statements of changes
in equity for the year then ended; and the notes to the
financial statements, which include a description of the
significant accounting policies.
Our opinion is consistent with our reporting to the
Audit Committee.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (‘ISAs (UK)’) and applicable
law. Our responsibilities under ISAs (UK) are further
described in the Auditors’ responsibilities for the audit of
the financial statements section of our report. We believe
that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance
with the ethical requirements that are relevant to our
audit of the financial statements in the UK, which includes
the FRC’s Ethical Standard, as applicable to listed public
interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that
non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent company.
76
Other than those disclosed in note 7 to the financial
statements, we have provided no non-audit services
to the Group or the Parent company in the period from
1 January 2017 to 31 December 2017.
Our audit approach
Overview
• Overall Group materiality:
£775,000 (2016: £899,190),
based on 5% of profit before
tax and exceptional items.
• Overall Parent company
materiality: £420,000 (2016:
£854,230), based on an allocation
of Group materiality.
• We performed audit work over all
three segments of the business.
• Taken together, the entities
where we performed our
audit work accounted for 99%
of Group revenue and 95%
of Group profit before tax.
• Retirement benefit obligations (Group and Parent
company).
• Carrying value of deferred programme production
costs (Group only).
• Recoverability of External Lottery Management’s
(‘ELM’) other receivable (Group only).
The scope of our audit
As part of designing our audit, we determined materiality
and assessed 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.
We gained an understanding of the legal and regulatory
framework applicable to the Group and the industry
in which it operates, and considered the risk of acts
by the Group which were contrary to applicable laws
and regulations, including fraud. We designed audit
procedures at Group and significant component level
to respond to the risk, recognising that the risk of not
detecting a material misstatement due to fraud is higher
than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or
through collusion. We focused on laws and regulations
that could give rise to a material misstatement in the
Group and Parent company financial statements,
including, but not limited to, the Companies Act 2006,
the Listing Rules, Pensions legislation and UK tax
Financial StatementsMaterialityAudit scopeKey auditmatters legislation. Our tests included, but were not limited
to, review of the financial statement disclosures to
underlying supporting documentation, review of
correspondence with legal advisors, enquiries of
management and review of internal audit reports in so
far as they related to the financial statements. There are
inherent limitations in the audit procedures described
above and the further removed non-compliance with
laws and regulations is from the events and transactions
reflected in the financial statements, the less likely we
would become aware of it.
We did not identify any key audit matters relating to
irregularities, including fraud. 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 testing journals and evaluating whether there
was evidence of bias by the Directors that represented
a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the
audit of the financial statements of the current period
and include the most significant assessed risks of material
misstatement (whether or not due to fraud) identified by
the auditors, including those which had the greatest effect
on: the overall audit strategy; the allocation of resources
in the audit; and directing the efforts of the engagement
team. These matters, and any comments we make on the
results of our procedures thereon, were addressed in the
context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide
a separate opinion on these matters. This is not a complete
list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Retirement benefit obligations
(Group and Parent company)
(Refer to page 90 (Significant accounting policies)
and page 107 (Retirement benefit schemes)).
The Group has a net retirement benefit obligation of £70.6m
(2016: £88.8m) and the Parent company an obligation of
£30.6m (2016: £39.2m). These balances are significant in the
context of the Group and Parent company balance sheets and
are dependent on key judgemental assumptions, including
discount rate, inflation rate and mortality rates adopted by
the Directors in the actuarial valuations. Given the judgements
involved and that slight movements in these assumptions can
have a significant impact on the overall obligations, 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
(Group only)
(Refer to page 88 (Significant accounting policies)
and page 102 (Inventories)).
Productions inventory of £14.8m (2016: £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.
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 our expected range.
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 evidence through a scheme specific mortality
study they had commissioned, we agreed that the final
judgements made by the Directors were 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 attributable
advertising sales generated through digital platforms.
We considered the actual sales in 2017 against last year’s
forecast to establish the level of accuracy in management’s
forecasting.
Finally, we performed sensitivities on the key assumptions
for future associated sales to satisfy ourselves that no
impairment of inventory was required. We concluded that
there was sufficient headroom and that the carrying value
of inventory was not greater than its net realisable value.
77
Financial StatementsSTV Annual Report and Accounts 2017 STV Group plc consolidated financial statements
Independent auditors’ report to the members of STV Group plc
Key audit matter
How our audit addressed the key audit matter
ELM Other receivable (Group only)
(Refer to page 88 (Significant accounting policies)
and page 102 (Trade and other receivables)).
Other receivables of £8.2m (2016: £5.4m) relates to costs
recoverable from the running of the Scottish Children’s
Lottery, through ELM. The recoverability of these costs is
dependent on the future growth of the lottery and its ability
to generate 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 during 2018 and
costs recovered over a four year period thereafter.
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 2017 performance against these forecasts. The forecasts
have been revised by the Directors and this led to the
debtor being discounted to reflect the extended period
over which repayment is now expected. We have reviewed
this calculation and agree with the approach taken by
management and the discount applied of £0.9m.
The recoverability of this balance is dependent on the
Directors future sales growth assumptions for lottery ticket
sales. We reviewed the growth achieved since inception,
and the future forecasts, and have concluded that the
forecasts adopted by the Directors are reasonable.
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 structure of the Group and the Parent company,
the accounting processes and controls, and the industry
in which they operate.
Several subsidiary entities within the Group require an
audit of their own financial information and coverage
from these audits was included as part of the scoping
exercise. Entities which were individually financially
significant, or contained individually significant balances,
were included in the overall scope. All audits were carried
out by the Group engagement team and we performed
work over all segments of the business.
A full scope audit was performed on the Parent entity.
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 in aggregate on the financial statements
as a whole.
Based on our professional judgement, we determined
materiality for the financial statements as a whole
as follows:
Taken together, the segments and functions where
we performed our audit work accounted for 99% of
Group revenues and 95% of Group profit before tax.
Group financial statements
£775,000 (2016: £899,190).
Parent company financial statements
£420,000 (2016: £854,230).
5% of profit before tax and exceptional items.
An allocation of Group materiality.
Consistent with last year, we have applied
this benchmark, in line with generally accepted
auditing practice, in the absence of indicators that
an alternative benchmark would be appropriate.
We also believe the measure of profit before tax
and exceptional items is the measure most
commonly used by the shareholders to measure
the performance of the Group.
We considered the most appropriate benchmark
for the Parent company to be total assets as it is
a holding company, however, this resulted in a
materiality that was significantly higher than
Group materiality. Therefore, we applied an
allocation of Group materiality.
Overall
materiality
How we
determined it
Rationale for
benchmark
applied
78
Financial Statements For each component in the scope of our Group audit, we
allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across
components was between £127,200 and £750,000.
Certain components were audited to a local statutory
audit materiality that was also less than our overall
Group materiality.
We agreed with the Audit Committee that we would
report to them misstatements identified during our
audit above £39,000 (Group audit) (2016: £44,960)
and £21,000 (Parent company audit) (2016: £42,712)
as well as misstatements below those amounts that,
in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we
have anything material to add or
draw attention to in respect of the
Directors’ statement in the financial
statements about whether the
Directors considered it appropriate
to adopt the going concern basis of
accounting in preparing the financial
statements and the Directors’
identification of any material
uncertainties to the Group’s and
the Parent company’s ability to
continue as a going concern over
a period of at least twelve months
from the date of approval of the
financial statements.
We are required to report if the
Directors’ statement relating to
Going Concern in accordance with
Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge
obtained in the audit.
We have nothing
material to add or
to draw attention to.
However, because
not all future events
or conditions can
be predicted, this
statement is not a
guarantee as to the
Group’s and Parent
company’s ability to
continue as a going
concern.
We have nothing
to report.
Reporting on other information
The other information comprises all of the information
in the Annual Report other than the financial statements
and our auditors’ report thereon. The Directors are
responsible for the other information. Our opinion on the
financial statements does not cover the other information
and, accordingly, we do not express an audit opinion or,
except to the extent otherwise explicitly stated in this
report, any form of assurance thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements or
our knowledge obtained in the audit, or otherwise appears
to be materially misstated. If we identify an apparent
material inconsistency or material misstatement, we are
required to perform procedures to conclude whether there
is a material misstatement of the financial statements
or a material misstatement of the other information. If,
based on the work we have performed, we conclude that
there is a material misstatement of this other information,
we are required to report that fact. We have nothing to
report based on these responsibilities.
With respect to the Strategic Report, Directors’ Report and
Corporate Governance Statement, we also considered
whether the disclosures required by the UK Companies
Act 2006 have been included.
Based on the responsibilities described above and
our work undertaken in the course of the audit, the
Companies Act 2006, (CA06), ISAs (UK) and the Listing
Rules of the Financial Conduct Authority (FCA) require us
also to report certain opinions and matters as described
below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in
the course of the audit, the information given in the
Strategic Report and Directors’ Report for the year
ended 31 December 2017 is consistent with the financial
statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group
and Parent company and their environment obtained in
the course of the audit, we did not identify any material
misstatements in the Strategic Report and Directors’
Report. (CA06)
79
Financial StatementsSTV Annual Report and Accounts 2017 STV Group plc consolidated financial statements
Independent auditors’ report to the members of STV Group plc
Corporate Governance Statement
Other Code Provisions
We have nothing to report in respect of our responsibility
to report when:
• The statement given by the Directors, on page 74, that
they consider the Annual Report taken as a whole to be
fair, balanced and understandable, and provides the
information necessary for the members to assess the
Group’s and Parent company’s position and performance,
business model and strategy is materially inconsistent
with our knowledge of the Group and Parent company
obtained in the course of performing our audit.
• The section of the Annual Report on page 49
describing the work of the Audit Committee does
not appropriately address matters communicated
by us to the Audit Committee.
• The Directors’ statement relating to the Parent
company’s compliance with the Code does not properly
disclose a departure from a relevant provision of the
Code specified, under the Listing Rules, for review by
the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration
Report to be audited has been properly prepared in
accordance with the Companies Act 2006. (CA06)
In our opinion, based on the work undertaken in the
course of the audit, the information given in the Corporate
Governance Statement (on pages 42 to 54) about internal
controls and risk management systems in relation to
financial reporting processes and about share capital
structures in compliance with rules 7.2.5 and 7.2.6 of the
Disclosure Guidance and Transparency Rules sourcebook of
the FCA (‘DTR’) is consistent with the financial statements
and has been prepared in accordance with applicable
legal requirements. (CA06)
In light of the knowledge and understanding of the Group
and Parent company and their environment obtained in
the course of the audit, we did not identify any material
misstatements in this information. (CA06)
In our opinion, based on the work undertaken in the
course of the audit, the information given in the Corporate
Governance Statement (on pages 42 to 54) with respect
to the Parent company’s corporate governance code and
practices and about its administrative, management
and supervisory bodies and their committees complies
with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06)
We have nothing to report arising from our responsibility
to report if a corporate governance statement has not
been prepared by the Parent company. (CA06)
The Directors’ assessment of the prospects of the
Group and of the principal risks that would threaten
the solvency or liquidity of the Group
We have nothing material to add or draw attention
to regarding:
• The Directors’ confirmation on page 34 of the Annual
Report 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
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.
We have nothing to report having performed a review
of the Directors’ statement that they have carried out a
robust assessment of the principal risks facing the Group
and 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 UK Corporate Governance
Code (the ‘Code’); and considering whether the statements
are consistent with the knowledge and understanding of
the Group and Parent company and their environment
obtained in the course of the audit. (Listing Rules)
80
Financial Statements Other required reporting
Companies Act 2006 exception reporting
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 Parent company, or returns adequate for our
audit have not been received from branches not
visited by us; or
• certain disclosures of Directors’ remuneration
specified by law are not made; or
• the Parent 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.
Appointment
Following the recommendation of the audit
committee, we were appointed by the Directors
on 4 March 2004 to audit the financial statements
for the year ended 31 December 2004 and subsequent
financial periods. The period of total uninterrupted
engagement is 14 years, covering the years ended
31 December 2004 to 31 December 2017.
Kenneth Wilson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Glasgow
13 March 2018
Responsibilities for the financial
statements and the audit
Responsibilities of the Directors
for the financial statements
As explained more fully in the Statement of the Directors’
Responsibilities set out on page 74, the Directors are
responsible for the preparation of the financial statements
in accordance with the applicable framework and for being
satisfied that they give a true and fair view. The Directors
are also responsible for such internal control as they
determine is necessary to enable the preparation of
financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors
are responsible for assessing the Group’s and the
Parent company’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern
and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the
Parent company or to cease operations, or have no
realistic alternative but to do so.
Auditors’ responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error,
and to issue an auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities for the audit
of the financial statements is located on the FRC’s website
at: www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for
and only for the Parent 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.
81
Financial StatementsSTV Annual Report and Accounts 2017 Consolidated income statement
Year ended 31 December 2017
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
Profit for the year
Earnings per share
Basic
Diluted
Note
2017
£m
2016
£m
6
7
9
10
10
117.0
120.4
(99.6)
(103.5)
17.4
16.9
19.0
(1.6)
17.4
(1.0)
(2.5)
(3.5)
19.7
(2.8)
16.9
(1.2)
–
(1.2)
13.9
15.7
11
(2.2)
(3.1)
11.7
12.6
12
12
30.1p
29.6p
32.5p
31.9p
The above consolidated income statement should be read in conjunction with the accompanying notes.
Consolidated statement of comprehensive income
Year ended 31 December 2017
Profit for the year
Items that will not be reclassified to profit or loss:
Re-measurement of defined benefit pension schemes
Deferred tax (charge)/credit thereon
Write up of investment to market value
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Note
2017
£m
2016
£m
28
22
16
11.7
12.6
12.7
(2.4)
0.6
10.9
(88.7)
15.1
–
(73.6)
22.6
(61.0)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
82
Financial Statements
Consolidated and parent company balance sheets
at 31 December 2017
Non-current assets
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
Capital redemption reserve
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
Current tax liabilities
Provisions
Total liabilities
Total equity and liabilities
Group
2017
£m
2016
£m
Company
2017
£m
2016
£m
Note
14
15
16
22
18
17
18
19
24
24
21
20
28
23
20
23
2.6
8.6
1.4
18.4
8.2
39.2
20.6
26.7
6.1
53.4
2.7
7.3
0.8
21.7
5.9
38.4
19.5
22.8
13.3
55.6
–
–
48.6
5.2
167.5
221.3
–
77.0
–
77.0
–
–
48.0
7.1
153.7
208.8
–
76.7
–
76.7
92.6
94.0
298.3
285.5
19.7
101.9
0.1
173.4
0.7
(334.1)
(38.3)
41.6
–
70.6
0.1
19.8
101.9
–
173.4
0.4
(348.5)
(53.0)
39.7
0.1
88.8
0.3
112.3
128.9
17.5
0.9
0.2
18.6
17.9
–
0.2
18.1
19.7
101.9
0.1
–
0.7
86.5
208.9
–
–
30.6
–
30.6
58.8
–
–
58.8
19.8
101.9
–
–
0.4
78.5
200.6
–
–
39.2
–
39.2
45.7
–
–
45.7
130.9
147.0
89.4
84.9
92.6
94.0
298.3
285.5
The above consolidated balance sheet 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 £11.3m (2016: £9.7m).
The consolidated financial statements on pages 82 to 112 were approved by the Board on 13 March 2018 and were
signed on its behalf by:
Simon Pitts
Chief Executive Officer
George Watt
Chief Financial Officer
83
Financial StatementsSTV Annual Report and Accounts 2017 Consolidated and parent company
statement of changes in equity
Year ended 31 December 2017
Equity attributable to owners of the parent
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Merger
reserve
£m
Other
reserve
£m
Accumulated
(losses)/profit
£m
Total
equity
£m
Group
Balance at 1 January 2017
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Shares bought back on-market and cancelled
Acquisition of treasury shares
Share based compensation
Deferred tax credit on share based compensation
Issue of treasury shares to employees
Dividends
19.8
101.9
–
–
–
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
Balance at 31 December 2017
19.7
101.9
0.1
173.4
173.4
0.4
(348.5)
(53.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
–
0.7
11.7
10.9
22.6
(1.0)
(1.6)
–
0.1
0.5
(6.2)
11.7
10.9
22.6
(1.0)
(1.6)
0.3
0.1
0.5
(6.2)
(334.1)
(38.3)
Balance at 1 January 2016
19.6
101.8
–
173.4
0.9
(284.8)
10.9
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
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2016
19.8
101.9
–
173.4
Company
Balance at 1 January 2017
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Shares bought back on-market and cancelled
Acquisition of treasury shares
Share based compensation
Issue of treasury shares to employees
Dividends
Balance at 31 December 2017
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
Dividends
19.8
101.9
–
–
–
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
19.7
101.9
19.6
101.8
–
–
–
0.2
–
–
–
–
–
–
–
–
–
–
0.1
–
Balance at 31 December 2016
19.8
101.9
–
–
–
–
0.1
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
(0.8)
–
–
–
0.4
12.6
(73.6)
(61.0)
–
(0.2)
–
1.7
(0.3)
0.4
(4.3)
12.6
(73.6)
(61.0)
0.2
(0.2)
0.3
1.0
(0.3)
0.4
(4.3)
(348.5)
(53.0)
0.4
78.5
200.6
–
–
–
–
–
0.3
–
–
0.7
11.3
5.0
16.3
(1.0)
(1.6)
–
0.5
(6.2)
11.3
5.0
16.3
(1.0)
(1.6)
0.3
0.5
(6.2)
86.5
208.9
0.9
102.3
224.6
–
–
–
–
–
0.3
(0.8)
–
0.4
9.7
(30.7)
9.7
(30.7)
(21.0)
(21.0)
–
(0.2)
–
1.7
(4.3)
0.2
(0.2)
0.3
1.0
(4.3)
78.5
200.6
84
Financial Statements Consolidated and parent company
statement of cash flows
Year ended 31 December 2017
Operating activities
Cash generated by operations
Interest paid
Refinancing fees paid
Taxes paid
Pension deficit funding – recovery plan payment
Note
25
Group
2017
£m
2016
£m
Company
2017
£m
2016
£m
11.2
(0.7)
(0.3)
(0.3)
(7.9)
15.9
(1.2)
–
–
(7.8)
12.5
–
–
–
(4.1)
Net cash generated by operating activities
2.0
6.9
8.4
Investing activities
Purchase of investment
Capitalised web development spend
Purchase of property, plant and equipment
Net cash used in investing activities
Financing activities
Purchase of treasury shares
Share buyback
Issue of treasury shares to employees
Net borrowings drawn
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
–
(0.5)
(2.9)
(3.4)
(1.4)
(0.6)
0.4
2.0
(6.2)
(5.8)
(7.2)
(0.1)
(1.4)
(1.8)
(3.3)
–
–
0.3
–
(4.3)
(4.0)
(0.4)
Cash and cash equivalents at beginning of year
13.3
13.7
Cash and cash equivalents at end of year
25
6.1
13.3
–
–
–
–
(1.4)
(0.6)
0.4
–
(6.2)
(7.8)
0.6
(4.7)
(4.1)
9.4
–
–
–
(5.4)
4.0
(0.1)
–
–
(0.1)
–
–
0.3
–
(4.3)
(4.0)
(0.1)
(4.6)
(4.7)
85
Financial StatementsSTV Annual Report and Accounts 2017 Notes to the financial statements
for the year ended 31 December 2017
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 2017 are as follows:
Financial instruments
IFRS 9
IFRS 15 Revenue from contracts with customers
IFRS 16 Leases
IFRS 2
IFRS 4
IAS 40
Share based payments (amendments)
Insurance contracts (amendments)
Investment property
IFRS 2, IFRS 4 and IAS 40 are either not relevant for the Group and parent company or had no material impact
on their financial statements.
IFRS 9 ‘Financial Instruments’ replaces all phases of the financial instruments project and IAS 39 ‘Financial
Instruments: Recognition and Measurement’. The standard is effective from periods beginning on or after
1 January 2018 and introduces: new requirements for the classification and measurement of financial assets
and financial liabilities; a new model for recognising provisions based on expected credit losses; and simplified
hedge accounting by aligning hedge accounting more closely with an entities risk management methodology.
The Group has substantially completed an assessment on the impact of IFRS 9 and the adoption of the standard
is unlikely to have a material impact on the Group or parent company financial statements. The standard will be
adopted on 1 January 2018 and applied using the cumulative retrospective transition approach whereby any
impact is adjusted through equity at the date of adoption.
IFRS 15 ‘Revenue from Contracts with Customers’ is effective for periods beginning on or after 1 January 2018.
The standard will require the Group to identify distinct promises in contracts with customers that qualify as
‘performance obligations’. The price receivable from customers must then be allocated between the performance
obligations identified. The Group has completed an assessment on the impact of IFRS 15 and no impact is expected
on the revenue streams. The standard will be adopted on 1 January 2018 and applied using the cumulative
retrospective transition approach whereby any impact is adjusted through equity at the date of adoption.
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 and is effective for
annual periods beginning or after 1 January 2019. The full impact of IFRS 16 has not been assessed by Directors.
See note 26 for further details on operating leases held.
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 and parent company 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 and parent company 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
86
Financial Statements
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.
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
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 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).
87
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
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.
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.
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 together with advertising
generated on STV2 and the STV Player platforms. 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.
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 only exception being films acquired for transmission on STV2,
which are amortised over a two year period at a rate of 50% in the first year.
The carrying value of inventory is assessed each year at the balance sheet date.
Financial instruments
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 amortised cost 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.
The ELM debtor, included in non-current assets, is reviewed at each reporting period. If there is a change
in the timeline for recovery, the fair value of the debtor is determined by applying the effective interest rate
and the resulting discounting provision is recognised in the profit and loss.
ii) Investments
Investments are classified as ‘available-for-sale’ and are initially measured at fair value, including transaction
costs directly attributable to the acquisition of the financial asset. Gains or losses arising from changes in fair
value are recognised in other comprehensive income, until the security is disposed of or is determined to be
impaired, at which time the cumulative gain or loss previously recognised in other comprehensive income is
included in the income statement for the period. Equity investments that do not have a quoted market price
in an active market and whose fair value cannot be reliably measured by other means are held at cost.
iii) Classification of financial liabilities and equities
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.
88
Financial Statements
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, 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.
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.
89
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
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.
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.
90
Financial Statements
Revenues from the sale of the above programmes to overseas broadcasters or the UK secondary market
(usually digital channels) is 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 estimate (see critical
accounting estimates note 5).
iii) Lottery service revenues
Revenue is recognised for ongoing lottery costs rebilled to the SCL when the lottery draw to which the service
relates has taken place. Set up costs of £3.2m are being recognised on a monthly basis over 39 months starting
from October 2016.
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 21, 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 2017
and 2016 were as follows:
Total borrowings (note 21)
Cash and cash equivalents (note 19)
Net Debt
Total equity
Total capital
2017
£m
41.6
(6.1)
35.5
(38.3)
(2.8)
2016
£m
39.7
(13.3)
26.4
(53.0)
(26.6)
(1,268%)
(99%)
The movement in total equity is largely due a pension remeasurement decrease of £12.7m (2016: increase of £88.7m).
91
Financial StatementsSTV Annual Report and Accounts 2017
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 25)
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 (2016: £15.0m) were entered into on 9 July 2016 and mature on 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 2017 the Group had no forward foreign currency contracts in place
(2016: £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 except for the £8.2m debtor due
from the SCL. 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 21) and cash and cash equivalents (note 19)) 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
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.
92
Financial Statements
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 hedge between 30% and 50% of its core borrowings.
A monthly sensitivity analysis is carried out, and on the level of borrowings of the Group at 31 December 2017, a
movement of 0.25% in interest rates would change the level of interest paid in the year by +/- £0.1m (2016: £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 2016 and matures on 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
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.
Other key assumptions for pension obligations are based in part on current market conditions. Additional
information is disclosed in note 28.
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. £1.4m (including £0.7m write offs) was expensed through the income statement
in the year (2016: £2.1m). Additional information is disclosed in note 17.
93
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
Lottery recoverability
An amount of £8.2m (2016: £5.9m) 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. Management have considered a change in the timeline for recovery of the debtor and in line with
IAS 39, the fair value of the debtor has been determined by applying a discount rate of 3%. This has resulted in a
discounting provision of £0.9m. Additional information is disclosed in note 9.
Company
Carrying value of parent company investments
The Company’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 16.
6. 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 2017 includes £0.8m of revenues from sources outside the UK (2016: £0.7m).
Segment result
Consumer
Productions
ELM
Exceptional item attributable to ELM (note 9)
Exceptional goodwill impairment attributable to Productions
Operating profit
Financing
Profit before tax
Tax charge
Profit attributable to owners of the parent
Operating profit in 2017 includes £0.5m arising outside the UK (2016: £0.3m).
External revenue
2017
£m
2016
£m
100.2
10.4
6.4
117.0
105.9
12.7
1.8
120.4
2017
£m
18.7
0.3
–
19.0
(1.6)
–
17.4
(3.5)
13.9
(2.2)
11.7
2016
£m
19.6
0.1
–
19.7
–
(2.8)
16.9
(1.2)
15.7
(3.1)
12.6
94
Financial Statements
A breakdown of non-broadcast operating profit before exceptionals is as follows:
Digital
Productions
Music/telephony
2017
£m
4.6
0.3
0.5
5.4
2016
£m
4.1
0.1
0.3
4.5
Percentage of total operating profit before exceptionals
28%
23%
Segment assets and liabilities
Consumer
Productions
ELM
Total of all segments
Unallocated corporate
Consolidated
Other segment information
Capital additions
Depreciation and amortisation
Assets
Liabilities
2017
£m
33.5
29.4
8.2
71.1
2016
£m
35.0
30.2
5.9
71.1
2017
£m
9.6
5.1
0.5
15.2
2016
£m
11.2
3.5
0.6
15.3
21.5
22.9
115.7
131.7
92.6
94.0
130.9
147.0
Consumer
Productions
2017
£m
3.4
2.2
2016
£m
3.2
2.4
2017
£m
–
–
2016
£m
–
–
ELM
2017
£m
–
–
2016
£m
–
–
Segment assets consist primarily of 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 2016 and 2017 were held in the UK and therefore operate in a single geographical segment.
7. Operating expenses by nature
Programming costs
Staff costs
Other external charges
Depreciation and amortisation
Operating lease charges
Other operating charges
Exceptional items
2017
£m
47.9
28.6
16.8
2.2
2.3
0.2
98.0
1.6
99.6
2016
£m
54.1
25.1
16.5
2.4
2.6
–
100.7
2.8
103.5
95
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
Services provided by the Group’s auditors
During the year the Group obtained the following services from the Company’s auditors:
2017
£m
2016
£m
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
– Other services
110
25
26
–
–
161
Included in the audit fees payable is £5,000 (2016: £5,000) paid in respect of the parent company.
Other services in 2016 comprise employee benefit advisory services.
Fees in respect of STV Group plc pension schemes
Audit
8. Staff
Group
The average monthly number of employees (including Executive Directors) was:
2017
£m
25
105
25
25
146
10
311
2016
£m
21
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
2017
Number
2016
Number
480
23
503
480
28
508
2017
£m
20.4
2.2
6.0
28.6
2016
£m
19.6
2.0
3.5
25.1
Details of Directors’ remuneration is provided in the Remuneration Report on pages 55 to 71.
Company
The Company had no employees during the current or preceding year. No Director received remuneration from
the Company during the year (2016: £nil). The emoluments of the Directors are paid by another Group company
which makes no recharge to the parent company.
96
Financial Statements
9. Exceptional items
A £1.6m non-cash charge has been incurred during the year in relation to the ELM debtor. A change in the
timeline for recovery of the debtor has resulted in an IAS39 discounting provision of £0.9m being applied.
The remaining £0.7m is a write off of post-launch non-billable costs.
The tax effect on exceptional items during the year was £0.1m credit (2016: £nil).
10. Finance costs
Bank borrowings
Pension finance charge
11. Tax charge
Corporation tax:
Current year
Adjustments in respect of prior years
Deferred tax (see note 22)
Tax charge for the year
The charge 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 19.25% (2016: 20%)
Tax effects of:
Other expenses not deductible for tax purposes
Movement in losses not recognised
Impact of changes in tax rates
Changes in estimates related to prior years
Tax charge for the year
2017
£m
1.0
2.5
3.5
2017
£m
1.2
–
1.2
1.0
2.2
2016
£m
1.2
–
1.2
2016
£m
0.5
(0.1)
0.4
2.7
3.1
2017
£m
2016
£m
13.9
15.7
2.7
0.1
(0.2)
(0.2)
(0.2)
2.2
3.1
0.6
(0.5)
(0.1)
–
3.1
97
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
12. 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.
2017
Weighted
average
number of
shares
(m)
Earnings
£m
Per share
Pence
Earnings
£m
2016
Weighted
average
number of
shares
(m)
Per share
Pence
11.7
11.7
11.7
38.9
38.9
0.6
39.5
30.1p
30.1p
12.6
12.6
29.6p
12.6
38.8
38.8
0.7
39.5
32.5p
32.5p
31.9p
13.3
38.9
34.2p
15.4
38.8
39.7p
2.1
15.4
15.4
38.9
0.6
39.5
5.4p
39.6p
–
15.4
–
38.8
39.7p
39.0p
15.4
0.7
39.5
39.0p
EPS:
Earnings attributable to ordinary
shareholders
Basic EPS
Potential dilutive shares
Diluted EPS
EPS (pre-exceptional items
and pre-IAS 19):
Earnings attributable to ordinary
shareholders (pre-exceptional items)
Add back: IAS 19 (net of tax at
effective rate)
EPS
Potential dilutive shares
EPS
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.
13. Dividends
Equity dividends on ordinary shares
Declared and paid during the year:
Final for 2016: 11.0p (2015: 7.0p) per share
Interim for 2017: 5.0p (2016: 4.0p) per share
Dividends paid
2017
£m
2016
£m
4.3
1.9
6.2
2.7
1.6
4.3
A final dividend of 12.0p per share (2016: 11.0p per share) has been proposed and is subject to approval by
the board of Directors. It is payable on 31 May 2018 to shareholders who are on the register at 13 April 2018.
The ex dividend date is 12 April 2018. This final dividend, amounting to £4.7m has not been recognised as a
liability in these financial statements.
98
Financial Statements
14. Other intangible assets
Cost
At 1 January 2016
Additions
At 1 January 2017
Additions
At 31 December 2017
Accumulated amortisation and impairment
At 1 January 2016
Amortisation
At 1 January 2017
Amortisation
At 31 December 2017
Net book value at 31 December 2017
Net book value at 31 December 2016
15. Property, plant and equipment
Cost
At 1 January 2016
Additions
Write offs
At 1 January 2017
Additions
Disposals
At 31 December 2017
Accumulated depreciation and impairment
At 1 January 2016
Charge for year
Write offs
At 1 January 2017
Charge for year
Disposals
At 31 December 2017
Net book value at 31 December 2017
Net book value at 31 December 2016
Web
development
and branding
£m
1.8
1.4
3.2
0.5
3.7
0.1
0.4
0.5
0.6
1.1
2.6
2.7
Total
£m
28.1
1.8
(7.3)
22.6
2.9
(0.1)
25.4
20.6
2.0
(7.3)
15.3
1.6
(0.1)
16.8
8.6
7.3
99
Plant,
technical
equipment
and other
£m
Leasehold
buildings
£m
0.1
–
–
0.1
0.3
–
0.4
0.1
–
–
0.1
–
–
0.1
0.3
–
28.0
1.8
(7.3)
22.5
2.6
(0.1)
25.0
20.5
2.0
(7.3)
15.2
1.6
(0.1)
16.7
8.3
7.3
Financial StatementsSTV Annual Report and Accounts 2017 Notes to the financial statements
continued
16. Investments
Group
Listed
Other
2017
£m
2016
£m
0.8
0.6
1.4
0.2
0.6
0.8
Mirriad, one of the Group’s investments, became a listed company during the year. The £0.6m movement
represents the increase in the investment to market value.
Company
Share in Group undertakings
Other investments
Listed
Other
2017
£m
2016
£m
47.3
47.3
0.8
0.5
48.6
0.2
0.5
48.0
The £0.6m movement in other investments represents the increase to market value (see above under Group).
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 2017 which supported moderate growth in the Group through the period from 2018
to 2020. 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 2018 of 10% and then
flat growth. Both scenarios still left the Group with significant headroom. The discount rate applied was 7.95%
(2016: 8.44%).
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.
100
Financial Statements
Subsidiary undertakings
A full list of subsidiary undertakings as at 31 December 2017 is as follows:
Undertaking
Principal activity
Registered address
STV News Services Limited *
STV Television Limited
STV Central Limited
STV North Limited
STV Productions Limited
STV Drama 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
Programme production
Television broadcasting
Television broadcasting
Music rights
Dormant
Dormant
Television broadcasting
Television broadcasting
Television broadcasting
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
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 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.
(1)
(1)
(1)
(2)
(1)
101
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
17. Inventories
Deferred programme production
Programme production work in progress
Recorded programmes
Group
2017
£m
14.8
4.9
0.9
20.6
2016
£m
14.8
4.0
0.7
19.5
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 noncurrent categories and to be consistent with practice elsewhere in the industry.
It is anticipated that £1.0m is likely to be realised within 12 months.
At 31 December 2017, the net present value (NPV) of the future sales, estimated over a maximum period of 15
years for drama and 10 years for other genres of programming, was £24.7m (2016: £18.4m), with the net book
value of £14.8m representing 54% (2016: 80%) of the future sales. A discount rate of 6.0% (2016: 6.7%) was
applied. Revenues in 2018 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 £0.3m
Increase/decrease by £0.2m
Increase/decrease by £1.7m
18. Trade and other receivables
Group
Company
Current
Non-current
Current
Non-current
2017
£m
2016
£m
2017
£m
2016
£m
2017
£m
2016
£m
2017
£m
2016
£m
Trade receivables
Amounts owed by group undertakings
Prepayments and accrued income
Other receivables
15.4
–
10.9
0.4
26.7
14.7
–
7.9
0.2
22.8
–
–
–
8.2
8.2
–
–
–
5.9
5.9
–
75.9
1.1
–
77.0
–
75.7
1.0
–
–
167.5
–
–
–
153.7
–
–
76.7
167.5
153.7
As of 31 December 2017, trade receivables of £1.8m (2016: £1.5m) are past due. These are net of a provision for
bad debts of £nil (2016: £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
2017
2016
Gross
£m
Provision
£m
Gross
£m
Provision
£m
15.4
–
14.7
–
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
All receivables are expected to be recovered.
102
Financial Statements
Group trade and other receivables of £8.2m (2016: £5.9m), 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. Management have considered a change in the timeline for recovery of the debtor and in line with
IAS 39, the fair value of the debtor has been determined by applying a discount rate of 3%. This has resulted in
a discounting provision of £0.9m – refer to note 9.
A loan to a subsidiary undertaking of £80.0m (2016: £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.
19. Cash and cash equivalents
Cash and cash equivalents
20. 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)
Group
2017
£m
6.1
2016
£m
13.3
Group
2017
£m
2016
£m
Company
2017
£m
2016
£m
4.3
9.5
–
–
3.7
17.5
4.0
11.1
–
–
2.8
17.9
–
0.5
54.2
4.1
–
58.8
–
0.1
40.9
4.7
–
45.7
–
0.1
–
–
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
21. Borrowings
Bank loans
The borrowings are repayable as follows:
Expiring in 2 to 5 years
Group
2017
£m
41.6
2016
£m
39.7
41.6
39.7
All undrawn committed borrowing facilities are repayable within 2 to 5 years (2016: 2 to 5 years).
The amount of bank loans is net of £0.4m unamortised borrowing costs (2016: £0.3m).
The effective interest rates were as follows:
Bank loans (floating)
2017
%
2.0
2016
%
2.0
103
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
At 31 December 2017, the Group had revolving credit and overdraft bank facilities in place totalling £60.0m
(£60.0m at 31 December 2016). At 31 December 2017, £42.0m of the facility was drawn down.
An extension to the £60.0m revolving credit and overdraft facility was agreed on 15 September 2017 and
the facility now has a maturity date of June 2022. Security is provided to the debt providers by way of cross
guarantees and a share pledge.
The Group has hedged its exposure to fluctuations in interest rates with interest rate swaps of £15.0m (2016:
£15.0m). The notional principal amount of the outstanding interest rate swap contracts at 31 December 2017
was £15.0m (2016: £15.0m). A fair value on the interest rate swaps of £nil (2016: £0.1m) has been recognised
at 31 December 2017.
22. 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
Net deferred tax asset
Deferred tax asset not recognised
Group
2017
£m
2016
£m
Company
2017
£m
2016
£m
(17.0)
(1.4)
(18.4)
(19.5)
(2.2)
(21.7)
(18.4)
(21.7)
(1.9)
(2.1)
(4.7)
(0.5)
(5.2)
(5.2)
–
(5.6)
(1.5)
(7.1)
(7.1)
–
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 £1.9m (2016: £2.1m) 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:
Tax
trading
losses
£m
Other
temporary
differences
£m
Accelerated
tax
depreciation
£m
Retirement
benefit
obligations
£m
(4.2)
0.3
–
(3.9)
(0.3)
0.3
–
–
(0.7)
(0.1)
(0.1)
(0.9)
–
–
–
–
(1.5)
(0.1)
–
(1.6)
–
–
–
–
(15.3)
0.9
2.4
(12.0)
(6.8)
0.4
1.2
(5.2)
Total
£m
(21.7)
1.0
2.3
(18.4)
(7.1)
0.7
1.2
(5.2)
Group
At 1 January 2017
Charge/(credit) to income
(Credit)/charge to equity/OCI
At 31 December 2017
Company
At 1 January 2017
Charge to income
Charge to equity/OCI
At 31 December 2017
104
Financial Statements
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.
23. Provisions
Onerous lease
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
24. Share capital and premium
At 1 January 2017
Shares bought back on-market and cancelled
At 31 December 2017
2017
£m
0.5
(0.2)
0.3
0.2
0.1
0.3
Number of
shares
(thousands)
Ordinary
shares
£m
Share
premium
£m
39,548
(181)
39,367
19.8
(0.1)
19.7
101.9
–
101.9
2016
£m
0.8
(0.3)
0.5
0.2
0.3
0.5
Total
£m
121.7
(0.1)
121.6
The total authorised number of ordinary shares is 63 million shares (2016: 63 million shares) with a par value
of £0.50 per share (2016: £0.50 per share). All issued shares are fully paid.
The Group commenced a share buyback programme during the year. At 31 December 2017 181,000 shares
had been purchased and cancelled.
105
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
25. Notes to the parent and consolidated statement of cash flows
Group
Company
Operating profit/(loss)
Adjustments for:
Depreciation (note 15)
Amortisation (note 14)
Share based payment
Goodwill impairment charge
ELM exceptional
EBITDA
Increase in inventories
Increase 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
Cash generated by operations
Reconciliation of movement in net debt
Share buy-back
Long-term borrowings
Total liabilities from financing activities
Deduct: Share buy-back
Cash and cash equivalents
Net debt
2017
£m
2016
£m
17.4
16.9
1.6
0.6
0.3
–
1.6
2.0
0.4
0.3
2.8
–
21.5
22.4
(0.3)
(0.7)
(0.1)
(5.9)
0.5
–
15.9
(1.1)
(3.9)
(1.4)
(3.9)
–
–
11.2
At 1
January
2017
£m
–
(39.7)
(39.7)
–
13.3
(26.4)
2017
£m
(0.8)
–
–
0.3
–
–
(0.5)
–
(0.1)
–
–
–
13.1
12.5
2016
£m
(0.9)
–
–
0.3
–
–
(0.6)
–
(0.2)
–
–
–
10.2
9.4
Cash flows
£m
Non-cash
changes
£m
At 31
December
2017
£m
–
(1.7)
(1.7)
–
(7.2)
(8.9)
(0.4)
(0.2)
(0.6)
0.4
–
(0.2)
(0.4)
(41.6)
(42.0)
0.4
6.1
(35.5)
The share buy-back liability is included within Trade and other payables on the balance sheet and relates to a
contract to purchase our own shares as part of the share buy-back scheme.
The long-term borrowings non-cash changes 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
106
2017
£m
19.0
2.2
2.5
1.4
25.1
2016
£m
19.7
2.4
2.6
1.5
26.2
Financial Statements
26. 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
2017
£m
2.1
8.0
6.1
16.2
2016
£m
1.6
5.4
5.2
12.2
27. Transactions with related parties
Key management compensation
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 page 64-65 for details.
2017
£m
1.4
2016
£m
1.6
Other related party transactions
During the year £3,700 (2016: £3,700) of fee income was received from the Group’s investment companies and a
balance of £2,220 owed at 31 December 2017 (31 December 2016: £1,110).
During the year airtime advertising transactions occurred between the Group and a company of which Christian
Woolfenden is the Managing Director. The transactions amounted to £32,683 during the year (2016: £nil) with
an outstanding receivable of £25,610 at 31 December 2017 (31 December 2016: £nil).
There have been no other transactions with key management personnel as defined under IAS 24.
28. 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 (2016: £1.5m).
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 2017 was £70.6m (2016: £88.8m).
Company
The net pension deficit was £30.6m (2016: £39.2m).
107
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
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
2017
£m
2016
£m
Company
2017
£m
2016
£m
(440.0)
369.4
(70.6)
(448.2)
359.4
(88.8)
(182.2)
151.6
(30.6)
(186.6)
147.4
(39.2)
A related offsetting deferred tax credit for the Group of £12.0m (2016: £15.3m) and the Company of £5.2m
(2016: £6.3m) is included under non-current assets. Therefore the net pension scheme deficit for the Group
amounts to £58.6m at 31 December 2017 (£73.5m at 31 December 2016) and the Company amounts to
£25.4m (2016: £32.9m).
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
Current service cost
Interest cost
Remeasurement losses/(gains)
Benefits paid from plan
Defined benefit obligation at 31 December
Group
2017
£m
2016
£m
Company
2017
£m
2016
£m
448.2
–
12.2
0.4
(20.8)
440.0
320.9
0.1
12.1
135.8
(20.7)
448.2
186.6
–
5.1
(0.2)
(9.3)
182.2
134.8
–
5.1
55.9
(9.2)
186.6
Assumptions used to estimate the scheme obligations
The 1 January 2015 valuation has been updated to 31 December 2017 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
2017
2016
2017
2016
nil%
3.21%
2.55%
3.20%
nil%
3.30%
2.80%
3.30%
nil%
3.21%
2.55%
3.20%
nil%
3.30%
2.80%
3.30%
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 the
mortality assumptions used at both 31 December 2016 and 2017.
108
Financial Statements
Retiring at balance sheet date:
Male
Female
Retiring in 25 years:
Male
Female
Group
2017
Years
2016
Years
Company
2017
Years
2016
Years
18.8
20.8
20.6
22.3
19.1
21.4
20.8
22.7
18.5
20.6
20.1
22.5
18.8
21.1
20.3
22.9
The sensitivities regarding the principal assumptions used to measure the defined benefit obligation are set
out below:
Assumption
Group
Discount rate
Rate of price inflation (RPI)
Rate of mortality
Company
Discount rate
Rate of price inflation (RPI)
Rate of mortality
Change in assumption
Impact on scheme liabilities
Increase/decrease by 0.25%
Increase/decrease by 0.25%
Decrease by 1 year
Decrease/increase by 3-4%
Increase/decrease by 2%
Decrease by 4%
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.
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
Interest income
Return on plan assets excluding interest income
Contributions from the employer
Administrative expenses paid from plan assets
Benefits paid from plan
Fair value of scheme assets at 31 December
Group
2017
£m
2016
£m
Company
2017
£m
2016
£m
359.4
9.9
13.1
9.4
(1.6)
(20.8)
369.4
313.1
12.1
47.1
9.2
(1.4)
(20.7)
359.4
147.4
4.0
5.4
4.2
(0.1)
(9.3)
151.6
127.2
5.0
18.9
5.9
(0.4)
(9.2)
147.4
109
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
Scheme assets
At 31 December 2017 the Scheme’s assets were invested in a diversified portfolio that consisted primarily
of investment funds and debt instruments. The fair value of the Scheme’s assets are shown below:
Group
Investment funds
Debt instruments
Cash and cash equivalents
Derivatives
Company
Investment funds
Debt instruments
Cash and cash equivalents
Derivatives
At 31 December 2017
At 31 December 2016
Quoted
£m
Unquoted
£m
Total
£m
Quoted
£m
Unquoted
£m
Total
£m
109.7
100.3
8.9
–
218.9
144.2
–
–
6.3
150.5
253.9
100.3
8.9
6.3
369.4
40.3
103.9
29.4
–
173.6
181.6
–
–
4.2
185.8
At 31 December 2017
At 31 December 2016
Quoted
£m
Unquoted
£m
Total
£m
Quoted
£m
Unquoted
£m
44.7
41.4
3.6
–
89.7
59.5
–
–
2.4
61.9
104.2
41.4
3.6
2.4
151.6
17.3
42.8
11.2
–
71.3
74.6
–
–
1.5
76.1
221.9
103.9
29.4
4.2
359.4
Total
£m
91.9
42.8
11.2
1.5
147.4
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
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 gains/(losses):
Return on plan assets excluding interest income
Actuarial gains/(losses) on liabilities arising from change in:
– demographic assumptions
– financial assumptions
– experience adjustments
Total recognised in the consolidated statement of comprehensive income
2017
£m
2016
£m
(1.9)
(2.0)
(2.5)
(4.4)
–
(2.0)
2017
£m
2016
£m
13.1
47.1
11.8
(12.2)
–
12.7
(55.9)
(62.0)
(17.9)
(88.7)
110
Financial Statements
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 was agreed with monthly payments commencing in January
2017. Annual payments will increase 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 2018 are £10.2m (2017: £10.0m) which reflects the deficit funding
payments described above.
The weighted average duration of the Plan’s defined benefit obligation is approximately 15 years.
29. 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 (2016: £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 2017 LTIP valuation are:
Risk-free interest rate
Expected dividend yield
Expected share price volatility
%
0.46
4.20
30.00
111
Financial StatementsSTV Annual Report and Accounts 2017
Notes to the financial statements
continued
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
2017 LTIP
Market price
on grant date
pence
2017
Number
2016
Number
1.00
3.40
4.25
3.67
3.65
470,205
20,040
302,473
324,265
292,888
470,205
150,705
302,473
324,265
–
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 quotion 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 2017 there were 452,030 (2016: 461,463) options outstanding under the plans.
The employee share plans are valued using the Black and Scholes model.
30. Reconciliation of statutory results to adjusted results
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. The principal
adjustments made to the statutory results are for IAS 19, as this is a significant non-operational, non-cash item,
and for exceptional items, due to their non-recurring and often non-cash nature.
2017
2016
Profit
before tax
£m
Basic EPS
pence
Diluted EPS
pence
Profit
before tax
£m
Basic EPS
pence
Diluted EPS
pence
Post-exceptional
Add back: exceptionals
13.9
1.6
30.1p
4.1p
29.6p
4.1p
15.7
2.8
32.5p
7.2p
31.9
7.1p
Pre-exceptional
Add back: IAS 19
Adjusted results
15.5
34.2p
33.7p
18.5
39.7p
39.0p
2.5
5.4p
5.3p
–
–
–
18.0
39.6p
39.0p
18.5
39.7p
39.0p
112
Financial Statements
Five year summary
For the year ended 31 December 2017
Results
Revenue
2013
£m
2014
£m
IFRS
2015
£m
2016
£m
2017
£m
112.1
120.4
116.5
120.4
117.0
Profit from operations before exceptional items
18.0
19.5
20.3
19.7
19.0
Profit on ordinary activities before taxation
and exceptional items
14.3
17.3
18.6
18.5
15.5
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
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
39.2
53.4
92.6
18.6
112.3
(38.3)
92.6
30.1p
29.6p
17.0p
113
Financial StatementsSTV Annual Report and Accounts 2017
Shareholder information
Registrars
Link 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: enquiries@linkgroup.co.uk
Website: www.signalshares.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
114
Additional Information Annual Report on internet
The 2017 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: +44 (0) 371 664 0385.**
Your shareholding
You can check your shareholding at any time by visiting our share portal at: www.signalshares.com
Link share dealing services
Link 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.linksharedeal.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.
115
Additional InformationSTV Annual Report and Accounts 2017
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 Thursday 26 April 2018 at 11 am for the purpose of considering and, if thought fit, passing the
resolutions below.
Resolutions 1 to 11 (inclusive) will be proposed as ordinary resolutions and Resolutions 12 to 15 (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 2017 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 64 to 71 of the Annual Report
and Accounts for the financial year ended 31 December 2017.
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 approve the Directors’ Remuneration Policy, in the form set out on pages 57 to 63 of the Annual Report
and Accounts for the financial year ended 31 December 2017.
Resolution 3 seeks approval (on a binding basis) of the remuneration policy governing Directors’
remuneration. If the remuneration policy is approved and remains unchanged, it will be valid for up to
three financial years without a new shareholder approval. If the Company wishes to change the Directors’
remuneration policy, it will need to put the revised policy to shareholders to vote on before it can
implement any new policy.
4. To declare a final dividend of 12.0p per ordinary share for the year ended 31 December 2017.
The Board proposes a final dividend of 12.0p per ordinary share for the year ended 31 December 2017
which, if approved, will be paid on 31 May 2018 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 13 April 2018.
116
Additional Information
5.
To elect Simon Pitts as a Director of the Company, having been appointed since the last Annual
General Meeting.
Simon Pitts is standing for election following his appointment as Chief Executive Officer on 3 January
2018. 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 Pitts can be found on page 40.
Resolutions 6 to 8
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.
6. To re-elect Baroness Margaret Ford as a Director of the Company.
Biographical details of Baroness Ford can be found on page 40 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, Baroness Ford’s performance continues to be effective and
to demonstrate commitment to the role.
7. To re-elect George Watt as a Director of the Company.
Biographical details of George Watt can be found on page 41 and the following formal performance
evaluation, Mr Watt’s performance continues to be effective and to demonstrate commitment to the role.
8. To re-elect Ian Steele as a Director of the Company.
Biographical details of Ian Steele 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 Steele’s performance continues to be effective and to
demonstrate commitment to the role.
9.
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.
10. To authorise the Audit Committee to fix the remuneration of the auditors of the Company.
11. 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 £6,536,323; and
(b)
up to an aggregate nominal amount of £6,536,323 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
117
Additional InformationSTV Annual Report and Accounts 2017
Notice of Annual General Meeting
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.
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 (13,072,646 being shares representing one third of the ordinary issued
share capital of the Company as at 13 March 2018, 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
(13,072,646 being shares representing one third of the ordinary issued share capital of the Company
as at 13 March 2018, 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 2019. 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
12. That subject to the passing of 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 11 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 11 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 £980,448,
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 1,960,897 ordinary shares, representing 5% of the ordinary issued share
capital of the Company as at 13 March 2018.
118
Additional Information
It also allows the Directors to allot shares up to a nominal amount of £13,072,646 (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 £6,536,323 (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 2019. 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 13.
13. That subject to the passing of Resolution 11 and in addition to any authority granted under Resolution 12,
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 11 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 £980,448; 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 1,960,897 ordinary shares, representing 5%
of the ordinary issued share capital of the Company as at 13 March 2018 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.
14. 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 3,921,794 Shares,
the aggregate nominal value of which is £1,960,897;
(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(6) of the Market Abuse Regulation (No 598/2014); 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.
119
Additional InformationSTV Annual Report and Accounts 2017
Notice of Annual General Meeting
This resolution seeks the authority of shareholders to allow the Company to purchase its own shares.
The authority sought extends to 3,921,794 Shares, representing 10% of the ordinary share capital of the
Company in issue as at 13 March 2018. 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.
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.
The Company announced a share buyback programme on 22 September 2017 and as at 13 March 2018 the
Company has completed the buyback of 330,294 ordinary shares of 50p each, the aggregate consideration
of which was £1,160,507. Each of these shares was cancelled upon purchase. Consequently, on 13 March
2018 there were 39,217,937 ordinary shares of 50p each in issue, each with one vote and no shares are
held in treasury.
As at 13 March 2018 warrants and options to subscribe for 1,260,193 ordinary shares in the capital of the
Company were outstanding, representing 3.21% of the Company’s issued ordinary share capital as at 13
March 2018 (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 3.57% of the issued
ordinary share capital of the Company (excluding treasury shares held by the Company).
15. 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 2018
120
Additional Information
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 Investors section 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 Link Asset Services on 0871 664 0300 or enquiries@linkgroup.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.signalshares.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 Link Asset Services, The Registry, 34 Beckenham Road,
Beckenham, Kent, BR3 4ZF no later than 11.00am on 24 April 2018 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, speak 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 24 April 2018 (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 2018 (being the last business day prior to the publication of this Notice) the Company’s issued
share capital consists of 39,217,937 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 2018 are 39,217,937.
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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, Link Asset Services (IDRA10) by 11.00am on
24 April 2018 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 Link Asset Services on 0871 664 0300 or
enquiries@linkgroup.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 send a signed hard copy notice clearly stating your
intention to revoke your proxy appointment to Link 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.
The revocation notice must be received by Link Asset Services no later than 8am on 26 April 2018 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.
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16. Any member attending the meeting has a right to ask the Company questions and 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.
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.
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Additional InformationSTV Annual Report and Accounts 2017
Notice of Annual General Meeting
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.
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Additional Information
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The STV Appeal 2018 is here
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STV Group plc
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Tel: 0141 300 3000
www.stv.tv
Company Registration Number SC203873
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