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New share issue

STV raises £16.2m to shore up Covid defences

The Victim

The Victim was a success for STV Productions which remains suspended

STV has raised £16.2 million via a placing of shares to strengthen the balance sheet and future-proof the company against any long term threat to revenue.

The company has prepared for a “downside scenario”, possibly as a consequence of a second spike in the COVID-19 virus, which will see limited resumption of productions and a sustained slump in advertising.

It said the new issue will “ensure that STV is in a strong position to continue to deliver its successful growth strategy when market conditions normalise.”

The placing of 7,050,665 shares at 230p per share, represented up to 17.99% of the company’s existing issued ordinary share capital. It was conducted through an accelerated bookbuild by Panmure Gordon and Peel Hunt to institutional shareholders, subject to clawback with the intention of providing access to eligible retail investors. 

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All of the directors participated in the placing, to an aggregate value of approximately £125,000.

STV said that it has taken “proactive measures” to mitigate the commercial impact of COVID-19, including cash savings of approximately £18m for the current year to the end of December, increasing bank facilities from £60m to £80m, as well as postponing pension contributions.

“While the economic outlook remains uncertain, the board is confident in the long-term prospects of the group, and there are modest signs that trading is stabilising and starting to improve,” it said in a statement to the Stock Exchange.

Total Q1 2020 advertising revenue was slightly down (-1%), and, as a result of the impact of COVID-19, total advertising revenue was down 42% in April, 39% in May, with a further modest improvement expected in June.

We are starting to see modest signs of improvement in the advertising market

– Simon Pitts, STV

In the meantime STV’s viewing performance has continued into Q2 2020, with broadcast viewing up 13% and online viewing up 70% year to date.

Simon Pitts, STV’s chief executive, said: “Over the last two years STV has been transformed into a leaner, more creative, digital-first media company that has been delivering a consistently strong viewing performance alongside double digit operating profit and earnings per share growth.

“This placing is designed as a prudent step to strengthen the balance sheet and support the continued delivery of our successful growth strategy when market conditions normalise.  

“While the short-term outlook remains uncertain, our on-screen performance continues to be excellent, we are starting to see modest signs of improvement in the advertising market, and the board is confident in the long-term prospects of the group.”

As expected STV Productions’ revenue has been significantly impacted by the temporary the suspension of filming.  

However, STV has been working closely with other broadcasters, producers and the UK and Scottish Governments to adopt new guidelines to allow for the safe return of production over the coming weeks. 

A number of productions, including those produced by STV, will recommence over the summer.  Production revenue for FY20 will depend on the pace of this return although profitability for this division is expected to be broadly breakeven, in line with FY19, boosted by the increased demand from broadcasters for archive sales during lockdown.

Whilst the group believes the advertising market may start to recover in Q4 and return to more normal levels early in 2021, the group has also modelled a downside scenario. 

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This downside scenario assumes that the current uncertainty persists to the end of 2020, possibly as a consequence of a second spike in the COVID-19 virus, and recovers more slowly in 2021. 

Both scenarios assume limited activity within the group’s production business in 2020 and incorporate the benefit from all the previously identified cost and cash mitigations. 

The board has decided that, while the current focus on cash conservation in the company persists as the full effects of Covid-19 remain uncertain, future dividends will be temporarily replaced by the issuance of new ordinary shares by way of bonus issue to shareholders, with any bonus issue for an interim FY20 dividend not to exceed 783,800 new ordinary shares. 

The board’s intention is to reintroduce cash dividend payments as soon as market conditions allow.

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