STV saves £10m in costs as virus impacts advertising
Liar: one of a number of drama productions
STV is expecting a big hit to its advertising revenue because of the coronavirus outbreak and has instigated a series of cost-cutting measures that will retain £10 million in the business.
This includes cancellation of its final dividend payment and delaying capital expenditure. It has also halted filming of some its popular programmes.
“We are very focused on cash and have already taken steps to reduce costs and cash commitments,” said the company in a trading update.
“National programming costs will reduce in line with any reduction in revenues (thanks to our unique variable cost model) and we have identified a further £2m of other cost savings across the business for 2020, along with c.£2.5m of cash savings from delayed capital expenditure.”
The board said it is no longer recommending a final dividend of 14.7p per share for the year ended 31 December and this will no longer be paid, conserving a further £5.5m.
“We recognise how important the dividend is to our shareholders and the board will revisit the position for future dividends once there is greater clarity on the impact of COVID-19 on the business,” said the company.
We guided to single digit revenue growth in regional advertising for 2020 and this now looks challenging– STV update
“Taken together these actions will ensure that at least an additional £10m of cash (over and above current cash balances) is retained within the business in the short to medium term.”
On the impact of the lockdown on advertising, it said: “The new restrictions implemented by Government are…having an increasing impact on our advertising revenues across a range of categories, both nationally and regionally, and national forecasts have deteriorated for March and April.
“In our preliminary results announcement on 10 March we guided to single digit revenue growth in regional advertising for 2020 and this now looks challenging.”
Offsetting this it is the long-standing arrangement with ITV whereby programming costs (60% of cost base) vary in line with national advertising revenues. Therefore, if national advertising is down 10%, STV’s programming costs also reduce by 10%, protecting its broadcast profit margins.
The digital business grew strongly in 2019, well ahead of expectations, and this growth accelerated in Q1.
However, it said digital revenues “are not immune from the wider market uncertainty at present” and the company’s full year guidance of strong double digital growth “will likely come under some pressure in the coming weeks”, though the continued strong performance of the STV Player should help mitigate this impact.
The company added that increased restrictions on working practices are having a significant impact on the whole TV production sector and it has paused filming on Antiques Road Trip and Celebrity Antiques Road Trip, as well as new factual entertainment series Clear Out Cash In.
STV Productions’ relatively small scale and largely variable cost base mean that the profit impact on STV is likely to be limited for the full year, albeit achieving profit growth in line with previous guidance “will be increasingly difficult the longer the current situation persists”. Over 50 drama projects are in development.
We have implemented contingency plans to keep our programmes on air, especially our news coverage– Simon Pitts, CEO
The company said it has good ongoing access to liquidity through its £60m overdraft and revolving credit facility. Net debt was £37.5m at the end of 2019 and is expected to be c.£38m at the end of March.
The company is allocating £1m of its growth fund to provide free advertising across STV to local charities and small local businesses who are working to get people through the current crisis.
Simon Pitts, STV Chief Executive, said: “We have implemented contingency plans to keep our programmes on air, especially our news coverage, have taken decisive steps to reduce costs, manage our cashflow and make funding available to support the local businesses and charities in Scotland who now need it most, and we remain committed to our successful growth strategy for the long term.”