Reach Plc · LSE:RCH
Reach — FY2019 Earnings Presentation
64 slides from Reach's earnings presentation, Feb 24, 2020
Slide 1: Strategy Update and 2019 Annual Results
Strategy Update and 2019 Annual Results 24 February 2020
Slide 2: Disclaimer
Disclaimer This presentation has been prepared by Reach plc (the Forward-looking statements speak only as of the date of such "Company") and its subsidiaries or associated companies or its or statements reflecting the knowledge and information available and, their affiliates (the “Group”) in connect
Slide 3: Welcome
Welcome Nick Prettejohn Chairman 3
Slide 4: Agenda
2019 Highlights Jim Mullen, CEO 2019 Financial update Simon Fuller, CFO Our customer value strategy Jim Mullen, CEO The time is now and measures of success Simon Fuller, CFO Content… it’s what we do Lloyd Embley, Group Editor-in-Chief In summary Jim Mullen, CEO 4
Slide 5: 2019 Highlights
2019 Highlights Jim Mullen Chief Executive 5
Slide 6: Our vision
Our vision Touching lives, shaping conversations and stirring emotions… our trusted brands connect people to the world. Every minute, every day. 6 6
Slide 7: 2019 Financial highlights
2019 Financial highlights Group revenue (£m) Earnings per share (pence) 2019 £703m (-3.0%) 2019 41.1p (+4.8%) 2018 £724m (LFL:-5.3%) 2018 39.2p 2017 £623m 2017 36.1p Digital revenue (£m) Dividend per share (pence) 2019 £107m (+17.2%) 2019 6.55p (+6.7%) 2018 £91m (LFL:+13.2%) 2018 6.14p 2017 £69m 201
Slide 8: Our colleagues have achieved a lot in 2019
Our colleagues have achieved a lot in 2019 Q1 Q2 Q3 Q4 Jim Mullen appointed Hit first audience as CEO milestone Simon Fuller appointed as CFO Ireland ended the year as top performing region(2) Reached #5 in iTunes Sport Chart Brand safety Seven new sites tool announced Customer revenues begin Become
Slide 9: Reach today
Reach today 47m 40m 5th UK Adults Online monthly largest 34 Live 7 Titles in the Top 51% Digital market 20 market share share in the users in the UK Online property Total audience of Reach print and 1st UK publisher in the UK(3) branded of digital audience for Regional press(5) digital brands(1) to
Slide 10: 2019 Financial update
2019 Financial update Simon Fuller CFO 10
Slide 11: Outperformed expectations on revenue and profit
Outperformed expectations on revenue and profit Group adjusted results 2018 2019 Var Var £m £m £m % Strong progress made across all Revenue 723.9 702.5 (21.4) (3.0%) key financial metrics: Costs (579.4) (550.9) 28.5 4.9% • Reduced rate of revenue decline Associates 1.1 1.8 0.7 63.6% Operating profit
Slide 12: Improving Group revenue mix
Improving Group revenue mix Group revenue (£m) Group revenue LFL YOY (%) -3.0% £724m £703m (LFL -5.3%) -5.3% 9 4 -6.6% 91 -7.8% -8.0% 107 -8.8% 2015 2016 2017 2018 2019 624 592 • Slower decline in FY Group revenue: LFL -5.3% Other (H1 2019: -6.3%, 2018: -6.6%) Digital • Digital mix improves to 15% o
Slide 13: Circulation revenue continues to be resilient
Circulation revenue continues to be resilient Print revenue (£m) Circulation and advertising revenue LFL YOY (%) -5.1% -5.0% -5.2% -5.1% -4.5% £623m £592m -6.5% (LFL -7.9%) -16% -17% -16% (1) 36 -19% 36 39 -20% 39 189 153 2015 2016 2017 2018 2019 Circulation Advertising Other • Higher mix of more re
Slide 14: Strong digital performance metrics
Strong digital performance metrics Digital revenue (£m) Average monthly page views (m)(1) Monthly unique users (m)(2) +17.2% +33% (LFL +13.2%) (LFL +25%) +8% 1,271 107 40 91 959 37 2018 2019 2018 2019 Dec-18 Dec-19 • LFL Digital revenue growth accelerates to 13.2% (H1 2019: 9.7%, 2018: 9.6%) • Stron
Slide 15: Page view progress drives digital growth
Page view progress drives digital growth Accelerating growth of existing sites in 2019 (1) Digital revenue growing at increasing pace Average monthly PVs YoY (%) Digital revenue LFL YoY (%) 41% 16.4% 26% 9.7% 21% 9% Q1 Q2 Q3 Q4 H1 19 H2 19 • Further development of national and regional brands delive
Slide 16: Organic investment supports momentum
Organic investment supports momentum Content Digital verticals newsroom Show Business, development Royals and Politics Scotland digital investments in online editorial investment, Mirror/Express, 19 new including Daily Record journalists Key digital investments in H2 2019 Further Regional New produc
Slide 17: Operating margin discipline maintained
Operating margin discipline maintained Operating costs (£m) Adjusted operating profit margin (%) 21.8% -£28.5m £579m £551m 20.0% 20.1% -4.9% 19.3% 18.5% 235 216 2015 2016 2017 2018 2019 22 22 76 73 • Management track record of improving operating margin Other through cost optimisation and acquisitio
Slide 18: Strong operating cash flow enables debt repayment
Strong operating cash flow enables debt repayment Low cash outflows Agreed schedule of 175 (3) (12) contribution Full repayment (14) of acquisition (3) (10) term loan 133 (3) (19) ahead of schedule (49) £ million 62 (61) 2018 Final and 2019 Interim 1 Note: (1) See Appendices for further details 18
Slide 19: High conversion of profit to operating cash flow
High conversion of profit to operating cash flow Operating cash flow (£m) (1) Net cash flow • Business remains Other consistently cash Dividends generative Pension payments 151 133 • Strong net cash flow 133 demonstrates that 102 101 post pension 62 payments and dividends, there is 3 19 still opport
Slide 20: Net debt to net cash, pension deficit reduced
Net debt to net cash, pension deficit reduced Net (debt) / cash (£m) Net pensions deficit after deferred tax (£m) 2018 20 2019 (41) 284 243 2018 2019 • More than £60m swing from net debt • Improvement in net deficit position reflecting to net cash cash contributions made in the year • £65m new facil
Slide 21: Well positioned for growth
Well positioned for growth 2019 has been a year of significant progress 2020 outlook: the Group is performing in line with management’s expectations Secure foundation for next stage of strategy, building on these fundamentals 21
Slide 22: Our customer value strategy
Our customer value strategy Jim Mullen Chief Executive 22
Slide 23: The customer value opportunity
The customer value opportunity + + 9 National print brands 110 50 Regional print brands Websites 40 News product apps 47m UK Adults Total print and digital audience + 2 Magazines 120 4 Events Online jobsites 8 E-commerce sites 40m Online monthly unique users Only 2% of our customers are registered 2
Slide 24: Our customer value strategy has content at its heart
Our customer value strategy has content at its heart We will build an intelligent, relevant and trusted content business for the long term 24
Slide 25: The pillars of our customer value strategy
The pillars of our customer value strategy 1 2 3 4 REVENUE INCREASED CUSTOMER A SINGLE VIEW OF THE HARNESSING TALENT DIVERSIFICATION AND ENGAGEMENT CUSTOMER AND TEAMS GROWTH A unified view of the A customer-centric Improved customer customer across Reach culture underpinned by experience, Innovation
Slide 26: Increased customer engagement
Increased customer engagement Better understanding enables 3 us to: Non-registered customers ID store • Drive engagement via personalisation Registered customers ID store • Funnel customers within Reach network Customer behaviour store • Introduce new products and Consents store services Reach brand
Slide 27: A single view of the customer
A single view of the customer Unknown Known (with consent) Customer signs-up for Customer enters Customer visits IYA and Customer clicks through Customer visits REGISTRATION football newsletter: postcode in IYA widget signs up for App: to a story from Mirror: BirminghamLive: Signs up for Aston Villa
Slide 28: Revenue diversification and growth
Revenue diversification and growth Unknown Known (with consent) Customer signs-up for Customer enters Customer visits IYA and Customer clicks through Customer visits REGISTRATION football newsletter: postcode in IYA widget signs up for App: to a story from Mirror: BirminghamLive: Signs up for Aston
Slide 29: Harnessing talent and teams
Harnessing talent and teams Increasing our customer focus further >4,500 >2,000 Journalists and Editorial 50+ Offices and printing centres Colleagues colleagues across UK and ROI 29 29
Slide 30: We will have 7m Registered Customers by the end of 2022
We will have 7m Registered Customers by the end of 2022 Registered Customer = a customer who has provided a valid email address that is active or created within the last 12 months 30 30
Slide 31: The time is now and measures of success
The time is now and measures of success Simon Fuller CFO 31
Slide 32: Acquisitions and investment have delivered scale
Acquisitions and investment have delivered scale Monthly unique users (m) 29 Live 5th largest branded UK digital Acquisition of Express & Star sites 40 property 9 Live branded Acquisition of sites Local World 15 £30m Digital revenue £107m Digital revenue 0.5bn monthly page views 1.3bn monthly page v
Slide 33: To audience scale, we will add depth of engagement
To audience scale, we will add depth of engagement Assuming constant audience and page view consumption Customer Customer Audience value / ARPU Audience value / ARPU Scale 47m audience UK Adults Declining customer Increasing customer value / ARPU value / ARPU Known customers Known customers 2% Time
Slide 34: A significant market opportunity exists for Reach
A significant market opportunity exists for Reach UK Digital Display UK Digital AdSpend Ad Spend £14.7bn(1) £5.6bn(1) Total UK UK Digital Display AdSpend £5.6bn(1) Market potential / opportunity alongside new revenue streams UK Digital Display Newsbrands AdSpend Reach’s £0.5bn(2) current share: Reac
Slide 35: We have the required ingredients for growth
We have the required ingredients for growth Financial attributes Operational capabilities Ongoing platform Net cash Low capex Valuable brands investment Established Product & New Chief Customer Strong free cash flow New financing Engineering team Officer and team 35
Slide 36: Our capital allocation framework and approach
Our capital allocation framework and approach 2015 2016 2017 2018 2019 2015-19 Average Allocation approach Internal investment Further organic investment Capex £5m (Note: general digital (£m) 8 development expensed) 4 4 5 3 Return to shareholders Dividends and share buyback Progressive dividend poli
Slide 37: How will our progress be measured?
How will our progress be measured? At FY2020 results Target announced today At H1 2020 results (and every HY/FY results thereafter) We will have 7m Registered Customers Progress against Registered Continued progress updates by the end of 2022 Customers target • Registered Customers • Key monetisatio
Slide 38: We have powerful network brands to create value
We have powerful network brands to create value 38
Slide 39: Content… it's what we do
Content… it’s what we do Lloyd Embley Group Editor-in-Chief 39
Slide 40: 2,000+ journalists …one common goal
2,000+ journalists …one common goal 40
Slide 41: …a social purpose
A rich history …a social purpose 41
Slide 42: And some light relief too...
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Slide 44: We're already making progress…
We’re already making progress… 44
Slide 45: Verticalization
Verticalization New apps Podcasts INSIGHT Engagement 'v Investment .§ st'xclusives & D AT A 3 © Live streaming Efficiency = = a LIVE BLOGS Newsletters fm ubbing SCALE'S = Influencers Audience teams 8 8 Relevance Analysis ©, NICHES | & Partnerships’. Launches? toyalty © Reach
Slide 46: In summary
In summary Jim Mullen Chief Executive 46
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Slide 48: Thank you
Thank you Questions Reach «
Slide 49: Appendices
Appendices 49
Slide 50: Reach is the 5th largest online property in the UK
Reach is the 5th largest online property in the UK Top 10 online properties in the UK (m) (1) Average weekly local audience reach (%) (2) Google Sites 50 Liverpool Facebook 44 Wales Amazon Sites 44 Bristol Microsoft Sites 43 Manchester Reach Group 40 Nottingham News UK Sites 38 Plymouth BBC Sites 36
Slide 51: Revenue definition
Revenue definition PREVIOUSLY 2018 NOW 2018 PRINT £575.4m PRINT £623.3m Circulation £362.1m Circulation £362.1m Advertising £176.7m Advertising £189.0m Other £36.6m Printing £35.6m Other £36.6m DIGITAL £103.6m DIGITAL £91.3m Display and Classifieds £91.3m £12.3m transactional PRINTING £35.6m SPECIAL
Slide 52: Income statement
Income statement 2019 2018 2019 2018 (1) Statutory Statutory Adjusted Adjusted(1) £m £m £m £m Group revenue 702.5 723.9 702.5 723.9 Operating profit/(loss) 131.7 (107.6) 153.4 145.6 Adjusted operating profit 153.4 145.6 153.4 145.6 Operating adjusted items (21.7) (253.2) - - Profit/(loss) before tax
Slide 53: Group balance sheet
Group balance sheet 2019 2018 £m £m Intangible assets 852.0 852.0 Property, plant and equipment 224.9 246.2 Investment in associates 21.9 25.3 Retirement benefit assets 31.2 10.2 Deferred tax assets 55.9 69.8 Non-current assets 1,185.9 1,203.5 Cash and cash equivalents 20.4 19.2 Short-term debt - (2
Slide 54: Reconciliation of statutory LFL revenue
Reconciliation of statutory LFL revenue FY 2018 (a) (c) (d) FY 2018 (LFL) £m £m £m £m £m Print 623.3 26.7 (8.1) - 641.9 Circulation 362.1 17.5 (0.9) - 378.7 Advertising 189.0 7.3 (7.1) - 189.2 Printing 35.6 0.5 - - 36.1 Other 36.6 1.4 (0.1) - 37.9 Digital 91.3 3.2 - 94.5 Other 9.3 - (3.6) 5.7 Total
Slide 55: Group revenue trends 2019
Group revenue trends 2019 2019 Q1 Q2 H1 Q3 Q4 H2 FY Print 7.7% (9.3%) (1.5%) (8.7%) (8.5%) (8.6%) (5.1%) Circulation 18.9% (5.3%) 5.4% (5.6%) (5.0%) (5.3%) (0.1%) Advertising (14.1%) (22.3%) (18.2%) (20.2%) (20.4%) (20.3%) (19.3%) Printing 16.0% 9.3% 12.6% 9.5% (0.9%) 4.1% 8.1% Other 19.0% (2.1%) 6.
Slide 56: Group revenue trends 2018
Group revenue trends 2018 2018 Q1 Q2 H1 Q3 Q4 H2 FY Print (1.3%) 19.9% 9.2% 19.4% 23.5% 21.5% 15.1% Circulation 6.0% 35.3% 20.6% 34.9% 33.4% 34.2% 27.2% Advertising (11.4%) (0.6%) (6.2%) (3.5%) 9.1% 2.6% (2.0%) Printing 0.6% 5.7% 3.2% 15.3% 32.7% 23.8% 12.7% Other (2.4%) 21.1% 10.5% 19.7% 12.9% 16.0
Slide 57: Reconciliation of statutory to adjusted results
Reconciliation of statutory to adjusted results Operating Pension adjusted finance Statutory items charge Adjusted results (a) (b) results £m £m £m £m 2019 Revenue 702.5 - - 702.5 Operating profit 131.7 21.7 - 153.4 Profit before tax 120.9 21.7 8.0 150.6 Profit after tax 94.3 20.9 6.5 121.7 Basic ea
Slide 58: Operating adjusted items
Operating adjusted items 2019 2018 £m £m Impairment of goodwill, publishing rights and titles and freehold buildings - (200.0) Pension administrative expenses and past service costs for GMP equalisation (2.9) (18.8) Restructuring charges in respect of cost reduction measures (10.7) (20.0) Provision
Slide 59: Adjusted Cash flow
Adjusted Cash flow 2019 2018 Var £m £m £m Adjusted operating profit 153.4 145.6 7.8 Depreciation 21.5 22.3 (0.8) Adjusted EBITDA 174.9 167.9 7.0 Net interest paid (3.2) (3.7) 0.5 Income tax paid (11.7) (12.5) 0.8 Restructuring payments (13.6) (18.1) 4.5 Net capital expenditure (3.4) (4.6) 1.2 Workin
Slide 60: Financing
Financing 2019 2018 Change £m £m £m Acquistion Term Loan - (60.0) 60.0 Cash balances 20.4 19.2 1.2 Net cash/(debt) 20.4 (40.8) 61.2 Financial covenants Minimum Maximum Minimum Interest Cover Net Debt to EBITDA Cash Flow* Bank facilities Throughout term of facilities 5.0x 1.75x £25m * Cash flow befor
Slide 61: Pensions
Pensions Pensions 2019 2018 Change £m £m £m Fair value of scheme assets 2,400.8 2,146.7 254.1 Present value of scheme liabilities (2,696.7) (2,495.3) (201.4) Net scheme deficit (295.9) (348.6) 52.7 Net scheme deficit after deferred tax (242.9) (284.1) 41.2 Pension scheme assets 2019 % 2018 % £m of t
Slide 62: Reduced discount rate has been a key driver of deficit increase since 2011
Reduced discount rate has been a key driver of deficit increase since 2011 4.90% 800 5% 4.50% 4.40% 700 4% 3.70% 3.65% 600 3.20% 3.20% 3.15% 500 2.96% 3.35% 3% 3.05% 3.05% 2.65% 2.76% 3.05% 2.50% 400 2.80% 1.94% 2% 300 200 1% 100 230.1 297.7 252.2 301.2 305.2 466.0 377.6 348.6 295.9 - 0% 2011 2012 2
Slide 63: Provisions and Associates
Provisions Share-based Historical legal payments Property Restructuring issues Other Total £m £m £m £m £m £m At 30 December 2018 (0.1) (6.6) (4.3) (13.6) (1.8) (26.4) Charged to income statement (0.6) (1.7) (10.7) (11.0) (4.2) (28.2) Reclassification - (0.4) - - (2.8) (3.2) Utilisation of provision
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