Reach Plc · LSE:RCH
Reach — Trinity Mirror — FY2009 Earnings Presentation
71 slides from Reach's earnings presentation, Mar 4, 2010
Slide 1: Preliminary Results 2009
04 March 2010 Preliminary Results 2009
Slide 2: Vijay Vaghela, Finance Director
Vijay Vaghela Finance Director
Slide 3: Overview
Overview 53 weeks to 3rd January 2010 • Entered 2009 with uncertain and challenging economic environment • However, we finished 2009 in a strong position with: o profit and cash flows ahead of consensus forecasts o a strong balance sheet and healthy finance position o continue to meet all defined be
Slide 4: Presentation structure
Presentation structure 53 weeks to 3rd January 2010 • Summary of Group results • Revenue trends • Cost savings, Financing, Pensions, Non-recurring items • GMG Regionals acquisition • Divisional performance • Current trading and Outlook for 2010 3
Slide 5: Group performance
Group performance 53 weeks to 3rd January 2010 • Group revenues(1) down 12.4% or £108.4m to £763.3m (2008: £871.7m) o advertising revenues fell 22.2% or £94.7m to £331.8m (2008: £426.5m) o circulation revenues fell 1.7% or £6.0m to £339.3m (2008: £345.3m) • Excluding additional week of trading, reve
Slide 6: Group performance
Group performance 53 weeks to 3rd January 2010 • Profit before tax(1) (2) down 41.5% to £72.7m (2008: £124.2m) o in part due to IAS 19 pension finance charge swing of £21.9m from an £11.4m credit to a £10.5m charge • Earnings per share(1) (2) down 13.4p or 40.1% to 20.0p (2008: 33.4p) • No final div
Slide 7: Revenue trends
Revenue trends Year on year revenue performance - 52 weeks 2009 v 52 weeks 2008 0.0% (5.0%) (10.0%) (15.0%) (20.0%) YOY % (25.0%) (30.0%) (35.0%) (40.0%) (45.0%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month Regionals advertising Nationals advertising Group advertising Group total revenue 6
Slide 8: Cost savings
Cost savings 53 weeks to 3rd January 2010 Impact of Impact of decreased 53 weeks Impact of title pension Cost 2009* 2008* Change Change 53rd week closures charge reduction £m £m £m % £m £m £m £m Labour 255.6 293.5 37.9 12.9% 0.1 (1.6) (9.5) 26.9 Newsprint 114.5 115.4 0.9 0.8% 1.8 (1.2) - 1.5 Depreci
Slide 9: Financing
Financing 53 weeks to 3rd January 2010 Dec Dec Net debt on contracted basis (1) 2009 2008 Movement £m £m £m US private placement loan notes (382.1) (382.1) - £178.5m bank facility - (10.0) 10.0 Finance leases - (10.6) 10.6 Interest rate swaps (3.1) (2.1) (1.0) Gross debt (385.2) (404.8) 19.6 Cash ba
Slide 10: Defined benefit pension schemes
Defined benefit pension schemes 53 weeks to 3rd January 2010 Full Year Full Year 2009 2008 Change IAS 19 pension charge £m £m £m Current service cost 14.6 24.1 9.5 Pension finance charge/(income) 10.5 (11.4) (21.9) Income statement charge(1) 25.1 12.7 (12.4) • Full year increase in IAS 19 combined c
Slide 11: Defined benefit pension schemes
Defined benefit pension schemes 53 weeks to 3rd January 2010 • Defined benefit pension scheme closed to future accrual from 31st March 2010 • Deficit funding payments of around £30m in 2010 • 2010 charge for pension provision to be similar to 2009 • 2010 IAS 19 pension finance charge of £5.5m 10
Slide 12: Defined benefit pension schemes
Defined benefit pension schemes 53 weeks to 3rd January 2010 Dec 2009 Dec 2008 Change £m £m £m Assets 1,398.1 1,233.6 164.5 Liabilities (1,683.1) (1,378.8) (304.3) Asset ceiling (11.6) (61.7) 50.1 Deficit (296.6) (206.9) (89.7) • IAS 19 is not basis upon which pension schemes are funded • £164.5m in
Slide 13: Non-recurring items
Non-recurring items 53 weeks to 3rd January 2010 2009 £m Restructuring costs 17.9 Impairment of receivables 6.0 Loss/(profit) on disposal of businesses 2.4 Profit on disposal of land and buildings (5.1) Curtailment gain on defined benefit scheme liabilities (9.9) Total non-recurring items 11.3 Non-r
Slide 14: GMG Regionals acquisition
GMG Regionals acquisition • Contracts exchanged on 9 February and completion scheduled for 28 March 2010 • Cash consideration of £7.4m • Acquisition includes: o 30 newspaper titles and related websites o print plant in Reading o transfer of GMG printing presses in Oldham plant at no cost • £3m to £4
Slide 15: Regionals division
Regionals division 53 weeks to 3rd January 2010 • Revenues(1) fell 23.5% or £93.1m to £302.9m (2008: £396.0m) o Excluding 53rd week revenues fell by 24.1% o Advertising revenues fell by 29.5% (29.9% excluding 53rd week trading) – declines of 34.5% in H1 and 28.2% in Q3 and 18.5% in Q4 (ex 53rd week)
Slide 16: Regionals division
Regionals division 53 weeks to 3rd January 2010 • £93.1m fall in revenues partially mitigated by cost savings(1)(2) of £60.8m • Cost savings(1)(2) were 18.5% of the 2008 cost base • Operating profit(1)(2) down 47.4% or £32.3m to £35.9m (2008: £68.2m) • Operating margin fell 5.3% to 11.9% (1) The add
Slide 17: Nationals division
Nationals division 53 weeks to 3rd January 2010 • Revenues more resilient through 2009 • Revenues(1) fell by only 3.2% or £15.3m to £460.4m (2008: £475.7m) o Excluding 53rd week revenues fell by 4.8% or £22.8m o Advertising revenues fell by 7.8% – classified only represents 16.6% (2008: 18.9%) of to
Slide 18: Current trading
Current trading 53 weeks to 3rd January 2010 • Cautious about outlook for UK economy, moved into 2010 with: o much improved financial position o a tight grip on cost base and o improved revenue trends • The revenue performance in January and February 2010 is:- January & Year on Year January February
Slide 19: Outlook
Outlook 53 weeks to 3rd January 2010 • Advertising revenues expected to decline with: o improvement in rate of decline as we progress through the year o anticipate month-on-month volatility with limited visibility o could flatten year on year in H2 dependent on stability of the UK economy • Circulat
Slide 20: Sly Bailey, Chief Executive
Sly Bailey Chief Executive
Slide 21: Overview
Overview • We said that ’09 would be tough, and it was • We can’t control the economic environment or defy gravity of the ad market • We have focused relentlessly on what is in our control o removing costs o driving revenues o continuing to invest in developing the business for the longer term to en
Slide 22: Managing the business through recession
Managing the business through recession • Declining revenues, inflationary cost pressures, steep increase in newsprint prices • Put in place an aggressive package of self help measures to significantly reduce our fixed cost base • Group-wide recruitment and salary freeze • All areas of discretionary
Slide 23: Managing the business through recession
Managing the business through recession • Closure of or sale of 30 unprofitable regional titles • Changes to regional titles’ format and frequency • Closure of 15 regional offices • Closure of Liverpool print plant • Smaller portfolio of titles allowed us to re-size management structures • Overall r
Slide 24: Managing the business through recession
Managing the business through recession Revenues • Strategy of diversifying revenues has resulted in a more resilient mix of revenues across the Group o non-ad revenues accounted for 57% of total revenues up from 51% in 2008 o non-classified ad revenue now 58% of total ad revenues up from 50% in 200
Slide 25: Regionals
Regionals • Regionals business hit hard by recession, with significant pressure on recruitment and property reflecting rising unemployment and fragile housing market • However, recruitment and property now represent a smaller proportion of regionals ad revenues with a growing proportion of these cat
Slide 26: Regionals
Regionals • 2009 property ads: £21.4m, 11% of regional advertising down from 14% in 2008 • These categories remain challenging but their impact on overall business is much reduced • Slowing economy also impacted circulation and other revenues though to a lesser extent 25
Slide 27: Regionals Digital
Regionals Digital • Continue to invest in regionals business • Extending reach into local markets through launch of new digital products o new business directories - LocalMole.co.uk o mobile sites o social media tools for companion sites to increase interactivity and usage 26
Slide 28: Regionals Digital
Regionals Digital • Digital recruitment and property also hit by downturn • Excluding recruitment and property, digital revenues grew by 38.3% year on year • Audience growth driving strong underlying revenue growth • Average monthly unique users increased by 11% year on year to 7 million per month •
Slide 29: Nationals
Nationals • Nationals performed strongly in 2009 • Our titles have a higher proportion of full rate sales than any competitors - 95% • Ad market remained difficult throughout 2009 however all five titles increased advertising volume market share • Testament to the strength and appeal of our titles t
Slide 30: Nationals
Nationals • Joint circulation of the Daily Mirror and Daily Record in excess of 1.6 million copies per day on average during 2009 • Readership per issue nearly 4.5 million 29
Slide 31: Nationals
Nationals • Introduced a new look for The People which has improved the circulation trend • Sunday Mail continued to be biggest selling newspaper in Scotland with 100K more copies than next best-selling title • Both Scottish newspapers are clear market leaders in readership terms o Daily Record reac
Slide 32: Nationals
Nationals • Circulation volumes have been under pressure but revenue performance was supported by cover price increases during the year • Circulation strategy is the appropriate balance of volume, revenue, marketing investment and profit 31
Slide 33: Nationals Digital
Nationals Digital • Average monthly unique users grew by 78% year on year to 9 million • Over 50% of Mirror Group website users are from the UK • The highest proportion from within the peer group, a characteristic highly prized by advertisers 32
Slide 34: New operating model
New operating model • Newspaper publishing model had to change • Required a step change in what and how we publish to significantly and permanently reduce the cost base • Goal - a more efficient publishing model across all platforms o enhance operating margins o generate more cash for re-investment
Slide 35: New operating model
New operating model • Replace obsolete and outdated processes • Detailed analysis of each part of the business – editorial, advertising and production • Not trying to do the same things with fewer people – fundamentally changing how we publish • Costs reduced by in excess of £40 million • Leaner, fi
Slide 36: Charging for online content
Charging for online content • Possible to charge for unique high value contact which is difficult for consumers to access elsewhere • Not possible to successfully charge for general online news content o why would a consumer pay when they can get the same thing for free, eg. BBC? o consumers always
Slide 37: Charging for online content
Charging for online content • Think about customers first – consumers/business o what services do they want? o what products meet those needs? o national or local need? o what is the revenue model? o who will pay for what…. and how much? • Our regionals business is developing strong and sustainable
Slide 38: Charging for online content
Charging for online content • Regionals is an ad-driven business model which works as well online as in print • Our regionals online model: o diversified revenue streams across multiple ad categories o low cost base • Regionals – we know how to make money on-line • Key challenge – scale: o grow digi
Slide 39: Charging for online content
Charging for online content • Regionals digital growth dependent on delivering an attractive and growing audience to advertisers • No plans to introduce a paywall to regional sites • Will continue to develop market insight • Some trials of specific paid on-line content • Regionals business will rema
Slide 40: Charging for online content
Charging for online content • Nationals model is different • Cover-price-driven model in print, high cost of content generation, very little classified • Nationals print model doesn’t translate as successfully online • Needs a different approach • Role of our Nationals companion websites (ie. mirror
Slide 41: Charging for online content
Charging for online content • Based on consumer insight, we’re developing new, specific content brands with diversified revenue streams • Mirrorfootball.co.uk is first example 40
Slide 42: Mirrorfootball.co.uk
Mirrorfootball.co.uk • Multiple revenue streams: o gaming and interactive competitions eg. Fantasy football o content and section sponsorship o e-tailing of merchandise with iconic football photographs from archive o display advertising 41
Slide 43: Mirrorfootball.co.uk
Mirrorfootball.co.uk • Passionate, self-defining audience • Content remains king but we are also exploiting technology to enrich content and further engage our audience o real-time interactive match centre o live commentary, immediate reaction and real-time betting odds • Delivers what advertisers w
Slide 44: Mirrorfootball.co.uk
Mirrorfootball.co.uk • Mirrorfootball.co.uk is number 14 in the Hitwise football category, ahead of Chelsea FC, the FA and MSN Sport • Our goal is to achieve a top 10 ranking this year • Encouraging start 43
Slide 45: Mirrorfootball.co.uk - iPhone App
Mirrorfootball.co.uk - iPhone App • iPhone app for Mirrorfootball.co.uk website currently in development • Site is specifically built for the app. A unique portable experience o all the best of Mirrorfootball.co.uk o breaking news o live match tracker o club specifc news o quality video • Social med
Slide 46: Digital
Digital • Consumer-driven approach • Some opportunities to charge for specific content • Throwing up a paywall around everything is not the right strategy • Building a successful digital business is not dependent on a paywall • Successful digital business o strong consumer-driven propositions o dive
Slide 47: GMG Regional Media
GMG Regional Media • A perfect strategic fit for our business • Increases our reach into new attractive geographies across print and online • Trusted and well-established brands • Real opportunities for revenue and profit growth 46
Slide 48: GMG Regional Media
GMG Regional Media • Multi-media portfolio, publishing 32 newspapers and associated websites o MEN Media publishes 22 titles including flagship Manchester Evening News in the North West o S&B Media publishes 10 titles in the South including the Surrey Advertiser and Reading Post 47
Slide 49: GMG Regional Media
GMG Regional Media • Clear about characteristics we value in regional media o operate well in defined geographical areas o strong brands which sit at the heart of their markets o strong growth potential across print and digital o best in class margin potential • GMG media has all of these 48
Slide 50: GMG Regional Media
GMG Regional Media • Expect to be earnings enhancing in first full year of ownership • Underlines our commitment to regional media • Expect to achieve similar margin to the rest of our regionals portfolio in the short to medium term • Acquisition does not include Channel M • Take ownership from Marc
Slide 51: In conclusion
In conclusion • Resilience of brands and commitment of staff ensured delivery of profits ahead of expectations • Continued to manage cost base tightly, this coupled with our more resilient circulation revenues played a crucial role in supporting profits • Reaping benefits of investment in cutting ed
Slide 52: Appendices
Appendices
Slide 53: Financial Summary: Income statement
Financial Summary Income statement 53 weeks to 3rd January 2010 53 weeks(1) 53 weeks(1) 2009 2008 2009 2008 Statutory Statutory Adjusted(2) Adjusted(2) £m £m £m £m Group revenue 763.3 871.7 763.3 871.7 Operating profit/(loss) 87.0 (88.4) 105.4 145.2 Adjusted operating profit 105.4 145.2 105.4 145.2
Slide 54: Financial Summary: Revenue by segment and type
Financial Summary Analysis of revenue by segment and type 53 weeks to 3rd January 2010 53 weeks 09 52 weeks 09 53 weeks(1) 52 v 08 v 08 2009 weeks 2008 change change £m 2009 £m % % £m Circulation 339.3 333.6 345.3 (1.7)% (3.4)% Advertising 331.8 328.4 426.5 (22.2)% (23.0)% Other revenues 92.2 91.4 9
Slide 55: Financial Summary: Digital revenues
Financial Summary Digital revenues 53 weeks to 3rd January 2010 53 weeks(1) 2009 2008 Change £m £m % Regionals Advertising 26.5 35.3 (24.9)% Other 4.3 2.7 59.3% Total 30.8 38.0 (18.9)% Nationals Advertising 2.5 2.8 (10.7)% Other 2.3 2.8 (17.9)% Total 4.8 5.6 (14.3)% Group Advertising 29.0 38.1 (23.9
Slide 56: Financial Summary: Quarterly revenue trends
Financial Summary Quarterly revenue trends – year on year change 53 weeks to 3rd January 2010 14 weeks 13 weeks Q1 Q2 Q3 Q4 Q4 Advertising (29.7)% (26.2)% (21.4)% (8.5)% (12.1)% Circulation (3.4)% (4.9)% (3.2)% 5.1% (1.9)% Other (10.9)% (8.2)% (8.0)% (3.9)% (6.8)% Group revenue (17.9)% (15.8)% (12.3
Slide 57: Financial Summary: Half yearly revenue trends
Financial Summary Half yearly revenue trends – year on year change 53 weeks to 3rd January 2010 27 weeks 26 weeks 53 weeks 52 weeks H1 H2 H2 FY FY Advertising (28.0)% (15.1)% (16.8)% (22.2)% (23.0)% Circulation (4.2)% 0.8% (2.6)% (1.7)% (3.4)% Other (9.7)% (5.9)% (7.4)% (7.7)% (8.5)% Group revenue (
Slide 58: Financial Summary: Revenue, operating profit and margin by segment
Financial Summary Analysis of revenue, operating profit and margin by segment 53 weeks to 3rd January 2010 53 weeks(1) 2009 2008 Change £m £m % Regionals division 302.9 396.0 (23.5)% Nationals division 460.4 475.7 (3.2)% Total revenue 763.3 871.7 (12.4)% Regionals division 35.9 68.2 (47.4)% National
Slide 59: Financial Summary: Operating costs
Financial Summary Operating costs 53 weeks to 3rd January 2010 53 weeks 52 weeks 52 weeks 53 week 52 week 2009 2009 2008 change change Adjusted basis £m £m £m % % Labour 255.6 255.5 293.5 12.9% 12.9% Newsprint 114.5 112.7 115.4 0.8% 2.3% Depreciation 36.8 36.8 38.0 3.2% 3.2% Other 251.5 247.7 279.4
Slide 60: Reconciliation of statutory to adjusted results
Financial Summary Reconciliation of statutory results to adjusted results 53 weeks to 3rd January 2010 Non- Tax recurring Finance legislation Statutory items Amortisation costs changes Adjusted results (a) (b) (c) (d) results £m £m £m £m £m £m 2009 Revenue 763.3 - - - - 763.3 Operating profit 87.0 1
Slide 61: Balance sheet
Financial Summary Balance sheet at 3rd January 2010 3rd Jan 28th Dec 2010 2008 Movement £m £m £m Non-current assets 1,458.8 1,512.6 (53.8) Current assets 162.7 149.8 12.9 Total assets 1,621.5 1,662.4 (40.9) Non-current liabilities Borrowings (355.0) (388.3) 33.3 Obligations under finance leases - (7
Slide 62: Net debt - statutory
Financial Summary Net debt - statutory 53 weeks to 3rd January 2010 Other 28th Dec Cash Income Loans non-cash 3rd Jan 2008 flow statement repaid changes 2010 £m £m £m £m £m £m Non-current liabilities Loan notes (388.3) - 33.3 - - (355.0) Derivative financial instruments - - (2.9) - - (2.9) Finance l
Slide 63: Net debt - contracted
Financial Summary Net debt – contracted(1) 53 weeks to 3rd January 2010 Other 28th Dec Cash Income Loans non-cash 3rd Jan 2008 flow statement repaid changes 2010 £m £m £m £m £m £m Non-current liabilities Loan notes (382.1) - - - - (382.1) Finance leases (7.6) - - 7.6 - - (389.7) - - 7.6 - (382.1) Cu
Slide 64: Reconciliation of statutory to contracted net debt
Financial Summary Reconciliation of statutory net debt to contracted net debt at 3rd January 2010 3rd Jan 28th Dec 2010 2008 £m £m Statutory net debt (299.8) (348.7) Loan notes at period end exchange rate 355.0 388.3 Loan notes at swapped exchange rates (382.1) (382.1) Cross-currency interest rate s
Slide 65: Financial covenants
Financial Summary Financial covenants at 3rd January 2010 Minimum Maximum Interest Debt to Cover EBITDA US private placement Throughout term of notes 2.0x 4.0x £178.5 million bank facility Up to December 2010 2.50x 3.75x January 2011 to December 2011 2.75x 3.50x January 2012 to June 2012 3.00x 3.25x
Slide 66: Defined benefit pension schemes assets and liabilities
Financial Summary Defined benefit pension schemes assets and liabilities at 3rd January 2010 3rd Jan 28th Dec 2010 2008 Net scheme liabilities £m £m Present value of defined benefit obligations (1,683.1) (1,378.8) Fair value of scheme assets 1,398.1 1,233.6 Effect of asset ceiling (11.6) (61.7) Sche
Slide 67: Regionals division performance
Regionals Division Regionals division performance 53 weeks to 3rd January 2010 53 weeks(1) 2009 2008 Change £m £m % Advertising 198.9 282.3 (29.5)% Circulation 72.5 77.1 (6.0)% Other 31.5 36.6 (13.9)% Total revenue 302.9 396.0 (23.5)% Operating profit(2) 35.9 68.2 (47.4)% Margin(2) 11.9% 17.2% (5.3)
Slide 68: Regionals: Analysis of advertising revenue
Regionals Division Analysis of advertising revenue 53 weeks to 3rd January 2010 52 weeks 2009 % of total 2008 % of total Change yoy Advertising by category £m % £m % % Display 81.1 41.0% 96.0 34.0% (15.5)% Recruitment 39.3 19.9% 76.1 27.0% (48.4)% Property 21.4 10.8% 39.2 13.9% (44.7)% Motors 12.4 6
Slide 69: Nationals division performance
Nationals Division Nationals division performance 53 weeks to 3rd January 2010 53 weeks(1) 2009 2008 Change £m £m % Circulation 266.8 268.2 (0.5)% Advertising 132.9 144.2 (7.8)% Classifed 22.1 27.3 (19.0)% Other 110.8 116.9 (5.2)% Other 60.7 63.3 (4.1)% Total revenue 460.4 475.7 (3.2)% Operating pro
Slide 70: UK Nationals newspaper advertising market share
UK Nationals Newspaper advertising market share (volumes) 53 weeks to 3rd January 2010 2009 2009 1 6 1 5 5 2 2 4 3 3 4 Dailies Sundays 2009 2008 2009 2008 1 Mirror 18.0% 17.3% 1 Sunday Mirror 15.2% 13.9% 2 Sun 22.2% 21.0% 2 People 8.7% 7.5% 3 Star 15.5% 16.2% 3 News of the World 17.1% 14.7% 4 Mail 2
Slide 71: Scottish Nationals newspaper advertising market share
Scottish Nationals Newspaper advertising market share (volumes)(1) 53 weeks to 3rd January 2010 Dailies Sundays 2009 2008 2009 2008 Daily Record 12.3% 10.7% Sunday Mail 29.9% 27.0% (1) Share of Scottish market 70