Reach Plc · LSE:RCH
Reach — FY2018 Earnings Presentation
53 slides from Reach's earnings presentation, Feb 25, 2019
Slide 1: 2018 Annual Results
2018 Annual Results 25 February 2019
Slide 2: Today's agenda
Today’s agenda Highlights Simon Fox Financial update Vijay Vaghela Strategic and operational update Simon Fox 2
Slide 3: Financial highlights
Financial highlights • Adjusted operating profit increased by 16.8% to £145.6m – ahead of market expectations • Generated cash in the year of £80.8m − After pension funding but before distributions to shareholders and acquisitions − Net debt of just £40.8m after expending £95m in relation to the Exp
Slide 4: Operational and strategic highlights
Operational and strategic highlights Optimise Express & Star acquisition Grow Digital audience growth • Editorial skills and geographic expansion • Product development and diversification of traffic sources Commercialise Digital revenue growth • Creation of Reach Solutions • Development of proprieta
Slide 5: Vijay Vaghela
Vijay Vaghela Group Finance Director
Slide 6: Prior year comparison
Prior year comparison • Results are presented on an adjusted basis(1) • 2018 revenue trends are shown on a LFL basis which: − Assumes Express & Star was owned from the beginning of 2017 − Excludes the two Metros handed back to DMGT in December 2017 − Excludes other portfolio changes in 2017 − Exclud
Slide 7: Group performance
Group performance Group summary 2018 2017 Var Var £m £m £m % Revenue 723.9 623.2 100.7 16.2% Costs (579.4) (499.3) (80.1) (16.0%) Associates 1.1 0.8 0.3 37.5% Adjusted operating profit 145.6 124.7 20.9 16.8% Adjusted operating margin 20.1% 20.0% 0.1pp n/a Adjusted EBITDA 167.9 145.1 22.8 15.7% Adjus
Slide 8: Publishing
Publishing Publishing revenue Publishing operating profit (£m) £679.0m Revenue Express & Star 170.0 156.2 post +17.4% acquisition (LFL: ‐6.9%) 150.0 130.0 110.0 578.5 522.8 153.8 90.0 133.2 70.0 50.0 2017 2018 2017 2018 • Since completion, Express & Star contributed an • Operating profit increased b
Slide 9: Publishing print
Publishing print 2018 Publishing print revenue mix (£m) • Circulation represents 63% (2017: 58%) of print revenue +13.3% • Advertising represents 31% (2017: 36%) of print revenue. (LFL: ‐5.0%) Advertising trends impacted by: − Challenging local advertising market for our regional 36.6 newspapers and
Slide 10: Publishing digital
Publishing digital Publishing digital revenue mix (£m) Publishing digital display and transactional revenue (£m) ‐19.1% Total revenue +32.9% £91.3m (LFL: ‐19.1%) (LFL: +9.6%) Express & £103.6m Star post (2017: £83.9m) 17.4 acquisition 12.3 +32.9% (LFL: +9.6%) +23.5% (LFL: +5.3%) 68.7 73.9 Display an
Slide 11: Printing
Printing Printing 2018 2017 Var Var £m £m £m % Contract printing 24.6 21.3 3.3 15.5% Newsprint supply 8.4 7.6 0.8 10.5% Other revenue 2.6 2.7 (0.1) (3.7%) Revenue 35.6 31.6 4.0 12.7% External costs (157.2) (131.2) (26.0) (19.8%) Publishing division recharge 121.6 99.6 22.0 (22.1%) Operating result ‐
Slide 12: Group costs
Group costs 700 £499.3m £579.4m £80.1m • Increase in operating costs driven by the acquisition of Express & Star 600 16.0% • Delivered structural cost savings of £20m (£5m ahead of target) and £3m of synergy savings from Express & Star 500 − Mitigated impact of double digit % point increase in the p
Slide 13: Acquisition of Express & Star
Acquisition of Express & Star Express & Star performance since completion 2018 Purchase price £m £m 2018 2019 2020 2021 2022 2023 Total Publishing print 138.8 Cash consideration 47.6 (1) ‐ 18.9 16.0 17.1 7.0 106.6 Publishing digital 17.4 Equity issued 20.0 ‐ ‐ ‐ ‐ ‐ 20.0 Printing 3.3 Total 67.6 ‐ 18
Slide 14: Operating adjusted items
Operating adjusted items Operating adjusted items 2018 2017 £m £m Impairment of goodwill, intangible assets and freehold buildings (200.0) ‐ Restructuring charges in respect of cost reduction measures (20.0) (12.6) Provision for historical legal issues (12.5) (10.5) Pension past service costs for GM
Slide 15: Cash flow
Cash flow Cash flow 2018 2017 Var • Strong cash flow generation £m £m £m • Pension funding of £48.9m EBITDA 167.9 145.1 22.8 reflects the new schedule of Capital expenditure (11.2) (8.9) (2.3) contributions but excludes Restructuring (18.1) (13.6) (4.5) Express & Star acquisition Pension funding (1)
Slide 16: Financial flexibility
Financial flexibility Financing Dec‐18 Dec‐17 Var Jun‐18 Var £m £m £m £m £m Revolving Credit Facility ‐ (25.0) 25.0 (35.0) 35.0 Acquisition Term Loan (60.0) ‐ (60.0) (70.0) 10.0 Cash balances 19.2 16.0 3.2 24.0 (4.8) Net debt (40.8) (9.0) (31.8) (81.0) 40.2 • Net debt only increased by £31.8m to £40
Slide 17: Pensions
Pensions Pensions Dec‐18 Dec‐17 Var Dec‐18 Dec‐18 excl. E&S excl. E&S excl. E&S E&S only incl. E&S £m £m £m £m £m Fair value of scheme assets 1,460.7 1,551.6 (90.9) 686.0 2,146.7 Present value of scheme liabilities (1,813.5) (1,929.2) 115.7 (681.8) (2,495.3) Net scheme (deficit)/surplus (352.8) (377
Slide 18: Simon Fox
Simon Fox Chief Executive
Slide 19: Our strategy
Our strategy Enhance our print brands and improve their longevity Optimise through quality journalism and content, delivered as Our Strategic efficiently as possible Objective Grow Use technology, data and content from across all of our To deliver sustainable brands to grow our digital reach growth
Slide 20: Improving content at a lower cost…
Impact of the acquisition of Express & Star Optimise Improving content at a lower cost… • Real life example from 29 Oct 2018 • One reporter, one story • Treated and presented in different ways to preserve the brand identity and style of each paper 20
Slide 21: … whilst still preserving brand and political independence
Impact of the acquisition of Express & Star Optimise …whilst still preserving brand and political independence • Real life example from 13 December 2018 • Two reporters, two different stories • Treated and presented in different ways to preserve the voice of each paper 21
Slide 22: On track to deliver at least £20m of annualised synergy savings in 2020
Impact of the acquisition of Express & Star Optimise On track to deliver at least £20m of annualised synergy savings in 2020 Delivered to date Still to come • Editorial and Commercial restructuring • Benefits from shared systems across multiple functions e.g. Editorial, Commercial, Digital, • Integr
Slide 23: We are a player of scale in the print and digital news publishing industry
Grow We are a player of scale in the print and digital news publishing industry Daily paid for circulation (000s)(1) Monthly unique users (m)(2) • Enables us to produce improved 1,726 content at lower 1,635 cost Reach 386 The Regionals 336 Times 1,244 • Provides revenue upside opportunities Reach Th
Slide 24: We are a player of scale in the digital space
Grow We are a player of scale in the digital space Monthly unique users (m)(1) Source: ComScore UK Top 100 Properties multi-platform (Jan 19) 24
Slide 25: We have profound digital reach in the big cities that we serve
Grow We have profound digital reach in the big cities that we serve Average weekly local audience reach (%) Hull Live Wales Online Liverpool Echo Bristol Live MEN Birmingham Live Nottinghamshire Live Chronicle Live Plymouth Live Leicestershire Live 0% 10% 20% 30% 40% 50% 60% 70% Source: Google Analy
Slide 26: Driving audience growth in a digital-first world through editorial
Grow Driving audience growth in a digital-first world through editorial Live roll‐out to non print‐markets • Live sites in non-print markets now accounts for 10% of total Regional PVs(1) Existing pre 2018 • Continue to re-brand sites in our existing print markets with 25 sites having been re- brande
Slide 27: Driving audience growth through product development
Grow Driving audience growth in a digital-first world through product development Focus on improving reader experience through: • Moving to ‘flow state’ browsing • Using AI to improve suggestions on what to read next • Using content from across our network • Optimising for Search and other traffic s
Slide 28: A more attractive national sales proposition
Commercialise A more attractive national sales proposition 28
Slide 29: Converse
Contextual AI to drive digital revenue Commercialise Converse • Real-time automated analysis of content and injection of relevant, contextual transactional widgets • Rolled out across the whole Reach network • Widgets can be tailored to branding partners 29
Slide 30: Diversifying revenue sources to drive digital revenue
Commercialise Diversifying revenue sources to drive digital revenue Podcasts 30
Slide 31: In summary
In summary 31
Slide 32: Summary
Summary • Strong financial performance in 2018 • Pleased with the integration of Express & Star and delivering the anticipated synergy savings • Continue to make progress on the 3 pillars of our strategy – Optimise, Grow, Commercialise • Revenue in January and February 2019 expected to fall by 7% on
Slide 33: Thank you
THANK YOU Questions 33
Slide 34: Appendices
Appendices 34
Slide 35: Income statement
Income statement 2018 2017 2018 2017 Statutory Statutory Adjusted* Adjusted* £m £m £m £m Group revenue 723.9 623.2 723.9 623.2 Operating (loss)/profit (107.6) 97.9 145.6 124.7 Adjusted operating profit 145.6 124.7 145.6 124.7 Operating adjusted items (253.2) (26.8) ‐ ‐ (Loss)/Profit before taxation
Slide 36: Revenue, operating profit and margin by division
Revenue, operating profit and margin by division 2018 2017 Change Change £m £m £m % Publishing 679.0 578.5 100.5 17.4% Printing 35.6 31.6 4.0 12.7% Specialist Digital 8.0 9.6 (1.6) (16.7%) Central 1.3 3.5 (2.2) (62.9%) Revenue 723.9 623.2 100.7 16.2% Publishing 153.8 133.2 20.6 15.5% Printing ‐ ‐ ‐
Slide 37: Publishing and Printing
Publishing 2018 2017 Change Change £m £m £m % Print 575.4 494.6 80.8 16.3% Digital 103.6 83.9 19.7 23.5% Revenue 679.0 578.5 100.5 17.4% Costs (525.2) (445.3) (79.9) (17.9%) Adjusted operating profit 153.8 133.2 20.6 15.5% Adjusted operating margin 22.7% 23.0% (0.3%) n/a Printing 2018 2017 Change Ch
Slide 38: Express & Star acquisition balance sheet
Express & Star acquisition balance sheet 28 February 2018 Provisional £m Other intangible assets 106.1 Fixed assets 28.0 Retirement benefit obligations (38.3) Deferred tax assets 18.3 Deferred tax liabilities (18.0) Provisions (2.7) Working capital (7.7) Net cash 1.4 Fair value of net assets 87.1 Go
Slide 39: Group balance sheet
Group balance sheet Dec‐18 Dec‐17 £m £m Intangible assets 852.0 901.2 Property, plant and equipment 246.2 247.7 Investment in associates 25.3 16.8 Retirement benefit assets 10.2 ‐ Deferred tax assets 69.8 66.4 Non‐current assets 1,203.5 1,232.1 Cash and cash equivalents 19.2 16.0 Short‐term debt (20
Slide 40: Reconciliation of statutory LFL revenue
Reconciliation of statutory LFL revenue 52 weeks ended 52 weeks ended 52 weeks ended 30 December 2018 52 weeks ended 31 December 2017 30 December 2018 (a) (b) (LFL) 31 December 2017 (a) (b) (c) (LFL) £m £m £m £m £m £m £m £m £m Publishing print 575.4 26.2 ‐ 601.6 494.6 172.1 ‐ (7.5) 659.2 Circulation
Slide 41: Group revenue trends 2018
Group revenue trends 2018 2018 Q1 Q2 H1 Q3 Q4 H2 FY Publishing 0.8% 22.4% 11.5% 22.3% 24.8% 23.6% 17.4% Print (0.7%) 22.1% 10.6% 21.0% 23.9% 22.5% 16.3% Digital 10.2% 24.2% 16.9% 30.0% 29.6% 29.8% 23.5% Printing 0.6% 5.7% 3.6% 15.3% 32.7% 23.8% 12.8% Specialist Digital (4.2) ‐ (2.1%) (6.8%) (55.5%)
Slide 42: Group revenue trends 2017
Group revenue trends 2017 2017 Q1 Q2 H1 Q3 Q4 H2 FY Publishing (16.3%) (12.0%) (14.2%) (10.4%) (10.2%) (10.3%) (12.3%) Print (18.9%) (14.1%) (16.6%) (12.5%) (13.4%) (13.0%) (14.9%) Digital 4.5% 3.7% 4.3% 4.3% 12.4% 8.3% 6.2% Printing (19.2%) (6.4%) (13.3%) (11.0%) (13.5%) (12.2%) (12.7%) Specialist
Slide 43: Publishing revenue trends 2018
Publishing revenue trends 2018 2018 Q1 Q2 H1 Q3 Q4 H2 FY Publishing Print (0.7%) 22.1% 10.6% 22.3% 25.0% 23.7% 17.4% Circulation 6.0% 35.3% 20.6% 34.9% 33.9% 34.4% 27.3% Advertising (10.7%) 1.0% (4.9%) (1.7%) 10.7% 4.4% (0.5%) Other (2.4%) 21.1% 9.9% 19.6% 12.9% 16.0% 13.2% Publishing Digital 10.2%
Slide 44: Publishing revenue trends 2017
Publishing revenue trends 2017 2017 Q1 Q2 H1 Q3 Q4 H2 FY Publishing Print (18.9%) (14.1%) (16.6%) (12.5%) (13.4%) (13.0%) (14.9%) Circulation (13.1%) (6.4%) (9.9%) (6.7%) (6.7%) (6.7%) (8.3%) Advertising (27.3%) (26.2%) (26.8%) (21.6%) (23.9%) (22.8%) (24.9%) Other (10.7%) 2.3% (4.1%) (6.1%) (3.8%)
Slide 45: Publishing – digital revenue
Publishing – digital revenue (1) 2018 2017 Var LFL £m £m £m Var % Var % Publishing ‐ digital revenue 103.6 83.9 19.7 23.5% 5.3% Display and transactional 91.3 68.7 22.6 32.9% 9.6% Classified 12.3 15.2 (2.9) (19.1%) (19.1%) Recruitment 4.8 7.4 (2.6) (36.1%) (36.1%) Other 7.5 7.8 (0.3) (3.4%) (3.4%) N
Slide 46: Reconciliation of statutory to adjusted results
Reconciliation of statutory to adjusted results Operating adjusted Finance Pension finance Tax Statutory items costs charges items Adjusted results (a) (b) (c) (d) results £m £m £m £m £m £m 2018 Revenue 723.9 ‐ ‐ ‐ ‐ 723.9 Operating profit (107.6) 253.2 ‐ ‐ ‐ 145.6 Profit before tax (119.9) 253.2 ‐
Slide 47: Cash flow
Cash flow 2018 2017 £m £m Statutory operating profit (107.6) 97.9 Depreciation 22.3 20.4 Pension deficit funding (net of pension GMP equalisation and administrative expenses) (71.3) (37.7) Share of associates results (0.8) (0.4) Impairment of goodwill and intangibles 200.0 ‐ Other (including movemen
Slide 48: Financial covenants and Financing
Financial covenants Minimum Maximum Minimum Interest Cover Net Debt to EBITDA Cash Flow* Bank facility Throughout term of facility 5.0x 2.0x £25m * Cash flow before interest, debt repayment, acquisitions and dividends Financing Dec‐18 Dec‐17 Change £m £m £m Bank facility ‐ (25.0) 25.0 Acquisition Te
Slide 49: Pension scheme assets
Pension scheme assets 2018 % 2017 % £m of total £m of total UK equities 37.4 1.7% 66.1 4.3% US equities 99.5 4.6% 218.3 14.1% Other overseas equities 275.8 12.9% 279.1 18.0% Total equities 412.7 19.2% 563.5 36.4% Property 37.5 1.7% 24.6 1.6% Corporate bonds 287.8 13.4% 240.5 15.5% Fixed interest gil
Slide 50: Net scheme deficit (£m)
Reduced discount and higher inflation rates have been key driver of deficit increase since 2011 4.90% 800 5% 4.50% 4.40% 700 Net scheme deficit (£m) 3.70% 4% 600 3.65% 3.20% 3.20% 3.15% 500 3.35% 3% 3.05% 3.05% 2.65% 2.75% 3.05% 2.50% 400 2.80% 300 2% 200 1% 100 230.1 297.7 252.2 301.2 305.2 466.0 3
Slide 51: Provisions and Associates
Provisions Share‐based payments Property Restructuring Other Total £m £m £m £m £m At 31 December 2017 (0.2) (6.2) (2.4) (11.5) (20.3) Acquired upon acquisition of Subsidiary ‐ (2.3) ‐ (0.4) (2.7) Charged to income statement ‐ (0.4) (20.0) (14.4) (34.8) Utilisation of provision 0.1 2.3 18.1 10.9 31.4
Slide 52: National newspaper advertising market share (volumes)
National newspaper advertising market share (volumes) 2018 UK Dailies UK Dailies 2018 2017 Reach UK Nationals 54.9% 56.8% Sun 18.4% 18.4% Daily Mail 26.7% 24.8% Sundays 2018 2017 Reach UK Nationals 58.0% 55.6% Sun on Sunday 14.5% 12.8% Mail on Sunday 27.5% 31.6% 2018 UK Sundays Scottish* Dailies 201
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