STV Group plc (STVG) Earnings Call Transcript & Summary

I hope you're all well. Thank you very much for joining us again today. In a moment, Lindsay and I will talk you through our results for the full year 2022. We'll provide an update on our financial and strategic progress as well as a sense of the outlook for 2023, and we might even show you a little tape of the big shows and Event TV that we've got to look forward to in the year ahead. First of all, let me hand over to STV's Chair, Paul Reynolds for some words of introduction. Paul?

Thanks, Simon. Hi, everybody. Thanks so much for joining. It's been another very busy year for STV. Of course, the COVID pandemic receded, but that was quickly replaced by new uncertainties triggered by the turbulent political and economic climate that we all know about and which has continued right into 2023. But all the while, we've seen opportunities to strengthen our business and put ourselves in a good place for when the economic cycle turns up. Our job at STV in goods and more challenging times is to position the company as a trusted source of news and entertainment delivering high-quality, affordable content for all and a trusted partner for our communities for local businesses and for our creators sector. I'm delighted that we continued to do that successfully. And as a result, we are again reporting a strong financial performance for last year, as you'll hear in a minute from Simon and from Lindsay. STV has changed significantly in recent years. And 2022 saw that change accelerate. The strategy of diversification into streaming and studios has provided a new focus for the commercial, for the operational and the creative skills of our people and allowed us to become a far more resilient business even in the tough economic climate that we face today. There's a refreshing energy about the company as it strives to meet these ambitious strategic goals. And coupled with a growing track record of delivery, that gives us strong grounds for optimism about the future. Based on close monitoring and demonstrable results, the Board will be confident in continuing to back the strategy right through the economic cycle. On that good note, I'll hand back to Simon to talk through the results. Simon?

Thank you, Paul. So 2022 saw us deliver another strong financial performance across the business, building again on the record results we posted for 2021. Adjusted operating profit was up 2%, driven by our growth areas of Digital and Studios which now make up 38% of our total earnings. The advertising market once again showed its resilience with the total advertising down only 2% despite the economic uncertainty we all experienced, particularly in the second half of the year. Strategically, we're in a very strong place. Our TV channel remains by some margin, the most popular in Scotland, and our free-to-air positioning is exactly where you want to be in a cost of living crisis. Our digital service STV Player continues to grow and surpassed our 5 million registered user target 1 year early. And our production business STV Studios is rapidly building scale and reputation in what is an exciting global content market. But the wider economic situation in the U.K. is well known as are the pressures on cost inflation for all businesses, and we're not immune from those at STV going into 2023. As expected, we've seen a weaker advertising market in the first quarter. It's in line with our expectations for the start of the year given the very strong Q1 performance in 2022. And we have seen some encouraging signs in the regional ad market as well as continued good growth in digital VOD advertising. But we do expect the overall uncertainty to weigh on the performance of the business in the first half of this year. That said, we've been here before, of course, many times, with the TV advertising under pressure as the economy weakens. But each time, including the most recent case study of COVID, the market has bounced back quickly and decisively. And that's because TV remains the best and the most cost-effective way of building advertiser brands. And the proof of that is always in the numbers with our total advertising revenues last year still comfortably ahead of our pre-COVID year of 2019. Overall, we remain on track to hit our 2023 diversification targets as we become a more balanced, more resilient business focused on the new growth areas of Digital and Studios. And against that backdrop, the Board is recommending a final dividend of 7.4p per share taking the full year dividend to 11.3p, 3% up on last year as we maintain our commitment to a progressive dividend alongside investing for growth. Right, over to Lindsay to delve deeper into the financial results.

Thanks, Simon, and hello, everyone. And let me just kick off with the key financials for the year. Total revenue at GBP 138 million, was 5% down on 2021, 4% if you exclude the revenue from the lottery business that we sold in August 2021. Total advertising revenue at GBP 110 million, was our second highest result, only 2% down on the record levels in '21 and in line with the updated guidance we gave in early December. Within that, regional advertising was 4% down, although that overall figure masks quite different trends across the core business and Scottish Government spend, which I'll come back to later. Digital revenues grew strongly, up 7% year-on-year with VOD advertising on the STV Player, the biggest component of this up 9%. For the second year in a row, Studios has broken through the GBP 20 million revenue mark, this year hitting GBP 23.7 million and comfortably within our revenue guidance. The decrease year-on-year is mainly to do with the 18-month delivery cycle for drama programming, which was expected. Adjusted operating profit of GBP 25.8 million is 2% up on '21 and so broke last year's record. Our operating margin was 120 basis points higher at 18.7%, driven by improved margins in both Digital and Studios as well as savings in central costs during the year. The group's effective tax rate returned to a more normal level in 2022, although the increase year-on-year has the effect of reducing adjusted EPS, which declined by 7% to 42.3p. We ended the year with net debt of GBP 15 million against a facility of GBP 60 million and a small net cash position at the end of last year. The working capital inflows in 2021 have reversed as expected in 2022 and the Studios business has required some short-term working capital support as it continues to grow. In terms of covenants, we had significant hedging at the end of the year with leverage of 0.5x against a maximum of 3x. Moving to the group P&L. I'll touch on the exceptional items here, and then I'll pick up on other elements as we move through the divisional reviews. The group incurred GBP 0.5 million of exceptional costs associated with the new ITV arrangements announced in December. These are predominantly redundancy costs following ITV's appointment as our agent for national VOD sales. There will be further cash costs associated with the partnership incurred in the first half of 2023, which we expect to be around GBP 3 million in relation to technology and other integration costs. Turning to advertising revenue, where the shape of the year was broadly U shaped as expected. The first quarter started strongly with total advertising revenues up 21%, Q2 was down 11%, which combined to give growth of 4% for the first half. Through the second half, the cost of living crisis and broader macro uncertainty had an increasing impact on consumer confidence, which was felt in the ad market. Q3 TAR was down 17%. And while we saw a stronger performance in Q4 as we expected, the quarter ended flat year-on-year, which resulted in a second half down to 7%. It's worth remembering, though, that Q4 2021 was particularly strong, it scales up 16% on the year before. So the full performance in 2022 is us holding on to the good growth achieved the year before. Compared to 2019, total advertising revenue grew by 8%, which is a reminder of the growth realized through the cycle of the last few years. I also wanted just to flag the strength of Q1 2022, which was our largest Q1 advertising revenues over the last 4 years. This was due to a combination of a very strong program schedule as well as the last of the corporate spend from the Scottish Government. These factors combined to get tough competitors for Q1 '23. The growth of 2% in adjusted operating profit year-on-year masks quite a few moving parts, the most significant of which are shown here. The 3 bars in the middle are the moving parts in Digital and are a net positive to the group's profit year-on-year. The next 2 bars to the right are the Studio division's incremental contribution, another net positive. The chart then bookended by a net decline in the Broadcast division driven by national advertising revenue and net cost savings realized, the largest individual element of which is lower variable pay. Moving on to the divisions and going to Broadcast first. As you can see from the slide, national and regional advertising were both 4% down year-on-year. Over the last few years, regional has tended to outperform national, but we were expecting the performance to be closer in 2022, given the drop off in Scottish Government COVID spend relative to prior years. If we break down the regional advertising spend into its constituent parts, Scottish Government almost halved last year with the underlying core SME customer base growing by 18%. Moving on to costs, you can see an overall 4% saving year-on-year. The largest component of the division's spend is the payment to ITV for access to the national program budgeted, which varies in line with national advertising revenue. This essentially variabilizes our cost base in a way that's unique to STV and provides us with protection in a down market. So the 4% decline in national advertising revenue and a 4% saving in operating costs isn't a coincidence. The division's margin has been broadly maintained as we've realized some savings to offset lower advertising revenues. With a mature advertising-driven business with a large physical and people footprint, we're really pleased with the margin of 22%, but we'd expect that to fall slightly in 2023, given the macro backdrop and inflationary cost pressures. Digital revenue, profit and margin were all up year-on-year as the division had a particularly strong second half, fueled by new content in the Football World Cup. VOD revenues were up 9% on 2021 with a good first half compounded by a strong fourth quarter. Costs were up in pound terms, principally because of volume-related spend as well as continued investment in the Digital team and third-party content, but we also improved margins slightly through making savings in other parts of the cost base. Moving on to another key growth area of Studios, where momentum continues to build. As we scale, this is still a business where there are ups and downs in revenue, as not all commissions are equal in size and not all commissions run to a 12-month cycle. 2022 is a good example of this with the revenue generated, not including any drama delivery, but overall, we were only GBP 3 million down on last year as we offset most of the impact of the absence of drama with new commissions across the other genres. Stalwarts of the in-house labels continued to deliver, including further series for Antiques Road Trip, Catchphrase, The Yorkshire Auction House and Inside Central Station. These were added to by new series Bridge of Lies, The Great Auction Showdown, The Edinburgh Auction House and Written in the Stars, a Discovery+ commission won by the team at Barefaced, who we acquired in September 2020. In terms of profitability and margin, we continue to make progress with both metrics growing year-on-year. The more we keep the momentum going, the more we'll continue to grow the business and the more we'll keep leveraging the cost base and improving margin. This year, I thought it might be helpful to share a little more detail on our cost base. As we've shown consistently over recent years, we've a track record of saving money and demonstrating costs -- control of costs. In 2022, we were able to offset the majority of inflationary increases, which primarily impacted us over the second half. But we're also a business that's investing for growth, and we have a clear plan that we're executing against with the rewards of that investment coming through growth in profit and margin across Digital and Studios. And we want to keep pushing forward in these areas as it's the diversification of our business away from traditional broadcasting that will generate long-term value for our shareholders. So in 2023, our focus is to balance the management of costs with continuing to invest for the longer term. Now between 30% and 35% of our cost base is subject to annual inflationary increases, but the main category is being salaries and energy costs. In 2022, salary inflation was awarded at 3%. In 2023, we made an award of GBP 2,000 across the board, which was equivalent to an average pay increase of about 5.5%. Roughly 60% of our costs are direct variable costs and so move in line with revenue. The largest part of this is the payment to ITV for the channel fee program schedule, the calculation of which is fixed under our long-term contractual arrangements and is not inflation-linked. The remaining 5% to 10% of the cost base is overhead, both contracted and discretionary with most sitting across broadcast and central activities. Pulling this together, we anticipate incurring low-to-mid-single digit millions of extra cost in 2023, of which we should be able to mitigate roughly half. Moving on to the cash flow statement and net debt, where you can see that net debt has gone up a bit in last year. Now the increase relates to 3 main factors: firstly, we generated lower levels of operating cash flow in the year, driven by a reversal of the working capital inflow seen in 2021, which was added to by increased short-term calls on working capital to fund a rapidly growing Studios business. On the basis that we do deficit fund shows, we know that we'll make a profit and therefore be cash positive. So it's a phasing of cash flows -- the phasing of cash flows is really just one of timing. We also had a couple of customers on the advertising side delayed payments in December, and our general accruals were lower this year compared to last, which all comes through the cash flow statement as an outflow. Cutting through all of that noise and seeking to eliminate reversals from 1 year to the next, if you look at our operating cash conversion across both years together, it's at 98%, which is pretty healthy. The second contributing factor to higher net debt is the contingent cash payment to the pension schemes. This payment, which we did report at the half year, reflects the strong cash generation of the group in 2021, and was higher than in previous years, triggering the cap on total annual contributions agreed as part of the triennial valuation. Lastly, in 2021, we realized over GBP 5 million in cash from disposing of noncore investments, which gave us a onetime boost to cash generation in the year. Cash dividends reflect the final dividend for 2021 paid in May of 7.3p per share. And the interim dividend for 2022 of 3.9p paid in November. Overall, we're comfortable with the level of net debt and the facility and covenant headroom that we have at the end of the year. With the levels of headroom we've seen over the last 12 to 18 months, in particular, we think there's scope to look at opportunities to accelerate growth faster as they arise. In terms of pensions, their defined benefit schemes have reduced in size over the last 12 months with the accounting deficit also smaller than it was at the start of the year. The lower deficit is due to contributions paid and a change in mortality assumptions with the reduction in liabilities as a result of yield increases broadly offset by decreases in asset values. This reduction in asset values is because the schemes are hedging in place to mitigate the impact on the liabilities for volatility from inflation and interest rates. So if liabilities go down, so do the assets. But back in September 2020, when the opposite dynamic was happening and liabilities were increasing, the scheme benefited from these arrangements as the value of the assets also increased and the deficit in our schemes didn't increase as much as others at that time. The smaller size of the schemes now means options around buying are closer than they were, but we don't think we're an affordable option for the group in short to each term. There may also be implications for the schemes from the regulators to pose new funding code currently in consultation, and we're working with our advisers to understand what they may be and how to mitigate them. Now before I hand back over to Simon, I want you to pull together just some of the financial items that will impact our performance in 2023, so you can update your models. Taking cash first, we expect a good proportion of the net working capital outflow over the last 2 years to unwind in 2023. The extent to which we see an overall net nil position or even an inflow will depend on activity in Studios towards the end of the year and the expected phasing of monies from commissioners at that point. CapEx of GBP 3 million to GBP 3.5 million is planned with a continued focus on operational resilience and broadcast technology and 2023 should be the last year that we've got some bigger project underway. Pension deficit recovery contributions will increase by 2% to GBP 9.7 million, in line with the schedule of contributions, although we don't expect to make a contingent cash payment in 2023. And on tax, the blended standard rate of 23.5% is a reasonable estimate to use for the year. We should be slightly lower than that, all else being equal, but there are thereabouts as a sensible model assumption. In terms of the P&L, Studios deliveries are expected to be quite H2 weighted this year based on what we're seeing from commissioners with H1 focused on delivery of Criminal Record for Apple and most other deliveries scheduled for the second half. In terms of divisional margins, we expect Broadcast to come down from the GBP 21.7 million we generated in 2022, as advertising declines and cost inflation have a greater impact. Digital margins should be broadly maintained at the levels seen over the last couple of years. And we expect Studios to continue along the road to 10% set for the medium term. Pulling all this together, we expect the split of good book profit across the year to be more H2 weighted than it has been recently. Right, that's definitely more than enough for me. Let's watch [indiscernible] before Simon takes you through the strategic review.

So there we are. You can see there's a huge amount of new original content to come in 2023. Much of it premiering on STV Player, which is very exciting for us, followed by another massive sporting event in the autumn with the Rugby World Cup. 48 matches across 51 days, all of them exclusively live on STV and the STV Player. Firstly, a reminder of our diversification strategy and growth targets. As you know, we have a clear and well-understood plan that has delivered strong financial results in recent years. That plan is built on maximizing the unrivaled strength of our Broadcast business by maintaining our clear viewing and advertising leadership in Scotland. In Digital, it's about also becoming a leader in streaming by continuously growing our STV user base and driving VOD advertising revenues. And in Studios, we have an exciting opportunity to build a world-class production business headquartered in Scotland, but globally facing and fully focused on building a bank of high-quality returning series. We have clear 2023 targets in place for each of our businesses and we remain on track to hit or exceed them as part of our overarching objective for at least 50% of our earnings to come from outside traditional TV by the end of this year. This chart shows our steady progress towards that diversification target over the last few years as we transform STV into a much more balanced media business focused on digital streaming and the ownership of valuable programming IP. You will also note the acceleration required in 2023 to hit the 50% milestone, but we're confident of further digital growth and we already know that this year will be a big year for our Studios business. Our KPIs tell a story of continued progress. Studios accelerating growth in digital streams and users albeit with an expected slowdown in player exclusive streams given the strength of last year's Football World Cup and unrivaled leadership in broadcasting with a number of new advertisers joining our platform still at very healthy levels. Moving on to the divisional updates, and I'm going to start with our Studios business, which continues to exceed expectations. This is STV Studios on a page. We doubled new commissions last year to 30. We now have 11 returning series versus only 4 in 2018. And last year, we grew our delivered production hours by nearly 50% across our 9 labels. Our stated goal is to become the U.K.'s #1 nation's and region's production company by turnover, by profit and by a reputation, and we're making excellent progress towards that goal. 2023 will be a breakthrough year for STV Studios. We've already secured over GBP 50 million in production revenue, more than double last year across over 20 series with an encouraging spread across different genres and across our different production labels. More than 1/3 of that revenue will come from returning series as the pie chart on the right shows. We've always said that this is the foundation of a successful production business. But of course, you also need new IPs coming through all of the time. That's why we placed a number of creative bets on individuals and production businesses, and you can see that this is starting to pay off, with 2/3 of our revenue this year set to come from brand-new original shows that we hope will become the returning series of tomorrow. Everyone of our production labels has delivered encouraging commissions and there isn't a single one-off nonreturnable show in that GBP 50 million of secured revenue for this year. We really are building for the future. This chart shows that we're starting to stand out as well in what is, as you all know, a very competitive marketplace. This is a snapshot of the 6:00 p.m. family slot on Saturday nights in January this year, where 3 STV Studio shows actually went head-to-head across BBC1, BBC2, and ITV1, the 3 biggest channels in the country, collectively delivering nearly 7 million viewers and accounting for almost 50% of all TV viewing in the U.K. at that time. Last month, we achieved another first when 4 of our studio shows were aired on the same day. These encouraging milestones show how far we've come as a production business, and they certainly don't go unnoticed in the industry. And it's our drama business that's the standout performer this year as this slide shows. This year, we'll produce 3 major drama series for Channel 4, for Apple and for the BBC, collectively worth over GBP 35 million with our 3 drama companies each contributing 1 series. Drama is a vital part of a successful production group because of its sheer scale and potential profitability, particularly if you have a long-running returning drama. So it's really encouraging that each of our scripted shows is either already returning in the case of Screw for Channel 4 or Returnable in the case of Criminal Record and Blue Lights. This is also further evidence of our positioning as a nation's and region's production company really starting to bear fruit with Screw filmed in Glasgow and Blue Lights in Belfast. Filming is actually already finished on each of those shows, so you'll get the chance to see them soon. Blue Lights will be the first to hit our screens, it's scheduled to start in the coveted 9:00 slot on BBC1 at the end of this month. It is produced by Two Cities Television, a company which we took a minority stake in 2020. Hence, its performance isn't yet consolidated into STV Studios' financial results. However, under the terms of our deal, we have an automatic route to controlling the business as it moves into profitability. And this provides us with another way of accelerating the growth of Studios over the coming years. And we have similar structures for each of our minority investments as you'll be [ aware ]. Turning now to Digital. And 2022 was another year of good growth for our streaming service STV Player against all the key metrics. Our vision here is to be Scotland's leading advertising-supported streaming service as well as a U.K.-wide free destination, featuring thousands of hours of premium drama from Scotland, the U.K. and around the world. And the strategy for achieving that is straightforward. We want more people watching more content for longer because we know that translates into more financial success. You can see that we're on track against the stretching 3-year targets. We set ourselves back in 2021. We surpassed our goal of 5 million registered users in January this year, nearly a year ahead of target. So our main objective is now evolving into converting not just users, but active users and VIP users as it's those loyal audiences who watch more STV content. We're on track to double our digital viewing by the end of this year compared to our 2020 baseline, with streams and overall consumption both up last year. And our target of GBP 20 million of Digital revenue is very much within our sights. As you can see, we had GBP 19 million last year at a very healthy 45% margin. The biggest digital development in recent weeks has been the new streaming partnership we struck with ITV just before Christmas. The benefit of our arrangement with ITV has always been that it allowed us exclusive access to a high-quality schedule of U.K. original programming without having to fund the full cost of that programming ourselves. In recent years, these content costs have been tied to advertising revenues, ensuring that STV has a very attractive variable cost model to guide against fluctuations in the ad market. We've now managed to extend this favorable deal into the streaming age. We all know that putting new exclusive content on to our streaming service before it gets to a linear transmission is vital if we're going to compete effectively with the global platforms and meet those changing viewer demands. But we also know that new content is extremely expensive, and that is why partnership makes sense for us. Our agreement allows us to largely mirror the original shows on ITV's new service ITVX, providing us with exclusive access in Scotland to over 100 hours a year of additional box sets that will be winded on STV Player to 6 months ahead of their linear transmission on STV. Rather than pay for these shows upfront, our costs will be linked to success. Paying ITV a share of the ad revenue generated in these premium windows, it's a model we've successfully introduced for other third-party content in recent years, as you know, and which will serve us well, providing guaranteed access to brilliant new shows on an affordable basis for the long term. It's the early days, but we're already seeing the benefits of this new content with regular weekly box set drops generating millions of stream so far and growing STV Players user base. This next slide illustrates the step change in our content offer under this enhanced new partnership. Our key differentiator in a crowded marketplace is new U.K. content, not American shows. That is our USP with audiences and with advertisers. Last year, we launched 14 new drama box sets on STV Player before they hit linear TV. This year, that number will more than double to 34. Big names, big shows and no waiting around for weeks for your next binge-worthy series. On screen are just some of the new returning dramas available this quarter with the brilliant unforgotten launching just last week, and loads more to come in 2023. The second dimension to our new partnership with ITV is digital advertising sales. Digital advertising has been a strong performer for STV in recent years with revenues more than doubling since we started our transformation in 2018. But advertising is about scale with the largest players attracting the highest yields. That scale allows these players to maximize reach and frequency for brands, while at the same time delivering targeted addressable advertising at very high volume, something the market is increasingly demanding as standard. Outsourcing our digital sales to ITV gives STV this twin capability at a stroke. And we can see the impact in our numbers even after only a few weeks. ITV have already been able to lift our average cost per thousand, our digital price in line with theirs, bringing in an immediate yield improvement for us. And the terms of our sales agreement mean that we will now closely track ITV's VOD advertising growth over the coming years, which we expect to be strong given their large scale investment in ITVX. We also announced this morning that STV Player has now launched on ITV's Planet V, the U.K.'s second largest programmatic video ad platform after Google, allowing ad agencies to book data-enabled fully addressable advertising at scale on STV Player for the first time. Over 90% of our digital advertising is now targeted by genre, geography and sociodemographic using our own first-party registered user data. This compares to less than 40% targeting on STV Player last year. And as well as national advertisers, we're also opening this targeting up to Scottish advertisers and agencies for the first time, providing another dimension to our local advertising sale. We will continue to sell all regional advertising ourselves at STV through our in-house sales teams based across Scotland, but adding new targeting capability will create a genuine one-stop shop for Scottish advertising across linear VOD and now programmatic. A final word on our third-party content strategy as this remains important even in a world where we've secured access to more original content. That's because it's these programs that are available right across the U.K. on the STV player rather than just in Scotland. We've built a compelling proposition over the last few years through content partnerships with some of the world's best-known program makers. As a result, we now have over 6,000 hours of content, up another 1,600 hours last year alone. 39% of our VOD streams came from third-party titles in 2022, 15 million hours of consumption across an impressive 167 different drama box sets. Our latest program acquisition has caused quite a stir in recent weeks because we brought back the classic, iconic soap Brookside to play from the very start, exclusively on STV player. The audience response has been amazing so far and is already our fastest-growing title ever, racing to over 2.5 million streams in a little over a month and attracting well over 100,000 new users to the STV Player in the process, 2/3 of whom are outside Scotland. In turn, that's propelled our share of VOD streams from across the U.K. to 25% of the total in Q1 this year versus 15% to 20% last year. Success in streaming is obviously about having enough of the big new shows to stand out from the crowd, but it's also about strength in depth and having a strong archive. And our smart acquisitions over the last few years have given us just that. Turning now to Broadcasting, and you are more than used to us telling you about the strength of our Broadcast performance in Scotland. But I doubt you've seen this data before because it's only in recent months that we've been able to track the performance of the whole market, including streamers like Netflix and Disney+ as their viewing is now being measured by BARB. In short, the results show very clearly that the terrestrial broadcasters continue to dominate the SVOD players. On the left are STV's top 3 dramas in 2022 in audience terms, plotted against the top 3s from Netflix, Disney+ and Amazon Prime in Scotland. Two things to take away here: Firstly, the STV's top dramas are at least twice as big as all the others. And secondly, that all of the biggest dramas on the global streaming services are U.S. dramas, not U.K. ones, underlining our key and enduring differentiator in the market. The chart on the right is even more stark and it shows the top 500 program episodes across the whole market in 2022. Together, STV, BBC1 and Channel 4 accounted for 99% of the top 500, including 66% on STV, 329 of the top 500 programs. Netflix, on the other hand, only 1% of the top 500 and the other streamers nowhere to be seen. And of course, in the middle of a cost of living crisis, that competitive advantage of free-to-air TV is only going to get stronger. Our most recent research conducted just last month via the ScotPulse Panel found that 20% of Scot have already canceled at least 1 streaming subscription with a further 40% intending to cancel in the future, suggesting that the vulnerability of the paid-for streaming model that many had predicted is starting to come to pass. This sort of chart should be more familiar to you as it illustrates our enduring strength in the Broadcast market. I won't labor it, but we were the biggest peak time TV channel in Scotland for the fourth year in a row last year. The combination of I'm a Celebrity back in Australia and the Football World Cup took us to a near 20-year high in November. The top right box is also worth calling out because the big channels are often criticized for leaving younger audiences behind. And in fact, STV's 16 to 34 audience was bigger than that of the younger skewing channels, Channel 4, ITV2 and BBC3 put together in 2022. These big audiences convert directly into commercial success for us as this chart demonstrates. STV's ratings peaked at over 500,000 viewers in Scotland on 203 separate days in 2022 compared to only 18 days for our nearest commercial competitor Channel 4. And this translates into an STV share of commercial impacts, effectively our advertising market share that was more than 3x bigger than our closest rival last year. Our Scottish advertising performance was also resilient in 2022 despite a tough second half. Total regional advertising ended the year down 4%. But as Lindsay mentioned, this marks an encouraging trend in the underlying SME market that it is worth just briefly highlighting. On the left of the page, you can see that our average regional brand count continues to grow steadily and that 2022 was the first year since COVID that brand count was at a consistently healthy level throughout the year. These brands generated an 18% increase in revenue from SMEs across Scotland with sectors like travel and transport, household equipment and entertainment performing particularly strongly. However, that growth was offset by a decline in Scottish Government spend, which ramped down by nearly 50% as expected as the COVID threat receded. The bar chart on the right shows that we're now returning to much more normal ratios of government to SME spend with the trend continuing into Q1 this year, which is encouraging. Clearly, there's caution in the regional market at the start of this year given the economic picture just as there is nationally. But again, the decline we've seen in Q1 is largely down to further expected falls in government spend with other regional spend flat to slightly up, if anything, for the quarter so far. Once again, we're seeing our advertising growth fund doing its job in a tough market, making TV advertising more affordable and more accessible and generating healthy influx of new advertisers, the vast majority of which go on to become repeat clients. The fund celebrated its 1000th deal last month since launch, quite a milestone for us and a key reason why we've been able to consistently grow our regional revenues and margins in recent years. So our strategic priorities for 2023 are very clear. In Studios, the focus remains on returning series and we'll also consider larger scale investments in partnerships, given our strong financial position and desire to accelerate production growth further. In Digital, we'll be pushing our exciting new player box sets as well as continuously improving the user experience, including the imminent launch of a new app for Sky customers. And in Broadcast, we're obviously intent on maintaining our leadership, but we're also looking for certainty on our licenses as well as a favorable new media bill from the U.K. government that guarantees prominence for STV and our fellow public service broadcasters on the new digital platforms. In terms of the outlook for the year, the main message is that we remain on track to hit our big diversification milestone of 50% of our total profit coming from our new growth areas for the first time. However, the start of our advertising year has certainly been impacted by the economic uncertainty we're all experiencing. Total advertising is expected to be down around 15%, albeit compared to a first quarter last year that was up over 20%. Within that, we expect Digital advertising to be up an encouraging 20% in Q1 and Scottish advertising down around 20%, although when you net out Scottish Government spend, the underlying regional market is broadly flat to slightly up, as I say. Our first look at April, although it's still a very early estimate is that it will be down 10% to 15%. You'll appreciate that it's hard to predict the remainder of the year, but clearly, we hope for a better second half, fueled by a recovering economy and greater consumer confidence. And most importantly, we have been here before, of course, many times and we know how quickly the TV ad market bank is back after economic shocks. What also gives us confidence is that we have another incredibly strong content lineup in 2023 with a record amount of new original content culminating in the Rugby World Cup in the autumn. Our Studios business meanwhile continues to build encouraging momentum, and we're today reconfirming our guidance of at least GBP 50 million in revenues and GBP 3 million in profit in 2023, a step change in performance year-on-year. Finally, as we move through 2023, we will, of course, be refreshing our medium-term targets for the next phase of our growth plan and those targets will be confirmed later this year. Okay. That's it. I'll leave you with a summary and our key messages on screen. Thank you very much for listening.