Reach Plc · LSE:RCH
Reach — H1 2019 Earnings Presentation
55 slides from Reach's earnings presentation, Jul 29, 2019
Slide 1: 2019 Interim results
2019 Interim results 29 July 2019 Who we are. What we do.
Slide 2: Disclaimer
Disclaimer This presentation has been prepared by Reach plc (the "Company") in connection with This presentation may include statements, estimates, opinions and projections with the publication of the company's interim results for the 26 weeks ended 30 June 2019. respect to anticipated future perfor
Slide 3: Reach
Reach
Slide 4: Highlights
Highlights Simon Fox, Chief Executive
Slide 5: Summary
Summary • We have delivered a robust H1 performance • Our strong operating cash flows have significantly reduced our net debt, enabling investment for future growth • Our half year performance has supported our progressive dividend • Accelerated and monetised digital audience growth • We remain on t
Slide 6: Robust H1 2019
The numbers presented in the chart below and throughout this presentation are presented on an adjusted basis unless stated Robust H1 2019 otherwise. A reconciliation from statutory to adjusted basis is presented on page 48 in the Appendices. H1 19 £353m (-0.3%) H1 19 19.1p (+4.9%) H1 18 £354m (LFL:-
Slide 7: Our strategic pillars
Our 3 strategic pillars Optimise Grow Commercialise Maximise cash flow from print Accelerate digital audience and revenue • Enhance print brands • Grow digital reach • Improve revenue performance • Improve content quality and • Leverage technology, data operational efficiency and content • Seek new
Slide 8: Operational and strategic highlights
Operational and strategic highlights Optimise Grow Commercialise 8
Slide 9: Financial update
Financial update Simon Fuller, CFO
Slide 10: Group performance in line with expectations
Group performance in line with expectations Group adjusted results H1 18 H1 19 Var Var £m £m £m % • Total revenue broadly flat, annualising Revenue 353.8 352.6 (1.2) (0.3%) Express & Star (“E&S”) Costs (288.1) (282.3) 5.8 2.0% Associates 0.8 1.0 0.2 25.0% • Reduced costs and improved margin, Operati
Slide 11: Resilient Group revenue trend
Resilient Group revenue trend -0.3% £354m £353m (LFL -6.3%) 6 2 42 49 • Improved HY Group revenue trend: LFL - 6.3% (2018: -7.2%) • LFL drag of reduced Health lottery advertising c.1% 306 302 Other Digital Print H1 18 H1 19 Note: See page 41 in the Appendices for definition of Print, Digital and Oth
Slide 12: Print revenue helped by more resilient circulation revenue
Print revenue helped by more resilient circulation revenue -5% -5% -5% -4% -7% -6% -1.5% £306m £302m (LFL -8.2%) 18 19 -16% -17% -16% -17% 17 20 -20% -21% 95 78 2015 2016 2017 2018 H1 18 H1 19 Circulation Advertising • Higher mix of more resilient circulation revenue Other supported by cover price s
Slide 13: Increased dependency on circulation, partially through the E&S acquisition
Increased dependency on circulation, partially through the E&S acquisition Print revenue mix Optimisation plan 6% 5% 6% 6% 6% • Circulation – continue to maximise cash 8% 6% 6% 6% 7% generated from print circulation, with annual 35% 30% 26% cover price increases and increased 36% 40% availability •
Slide 14: Strong digital revenue and page view growth
Strong digital revenue and page view growth Digital revenue (£m) Average monthly PVs(1) 17.3% 32% • Digital revenue up (LFL +9.7%) (LFL +16%) 17.3% supported by 49 1,155 acquisition 42 877 • Strategy of increasing average monthly PVs delivering results H1 18 H1 19 H1 18 H1 19 Note: (1) Based on Adob
Slide 15: Multi-year digital growth trajectory
Multi-year digital growth trajectory 2015-18 CAGR: 91 +44% 69 58 49 42 • Digital revenue trebled in 30 past 4 years, benefiting from Local World and E&S acquisitions and also 2015 2016 2017 2018 H1 18 H1 19 development strategy • Across same time period, 2015-18 CAGR: +27% 1,155 yields improved (rev
Slide 16: Improving operating margin
Improving operating margin Operating costs 20.0% 20.1% 19.3% 18.5% £6m 19.6% 20.2% £288m £282m 18.4% 18.8% 2.0% 16.6% Full year Half year 119 109 2015 2016 2017 2018 2019 11 11 40 • Track record of improving operating margin through cost 38 optimisation and synergies Other • E&S now expected to deli
Slide 17: Continuing to drive cost efficiency
Continuing to drive cost efficiency Labour costs Newsprint costs Other costs(1) Newsprint prices Content creation Editorial 14% (Indexed) 18% 25% Printing & distribution 14% Commercial 52% 10% Sales and Promotion Production Property and Facilities 20% 13% 34% Support services Support Services 2015 2
Slide 18: Significant opportunities exists for continued cost efficiency
Significant opportunities exists for continued cost efficiency IT systems Regular print Sales efficiency investment title portfolio (Cost to serve) and platform review rationalisation Ongoing Optimisation of structure printing network review Common Variable Regional Rationalisation cost of operating
Slide 19: Strong cash flow generation supports deleveraging
Strong cash flow generation supports deleveraging Agreed schedule 82 (8) of contribution (8) (2) (2) 65 (11) Early repayment (25) of acquisition term loan £ million 28 (20) 2018 Final Dividend 8 Note: (1) See Appendices for further details 19
Slide 20: Strong operating cash flow track continues
Strong operating cash flow track continues Operating cash flow (£m)(1) • Business is highly cash generative with minimal working 151 133 capital seasonality 102 101 • Low levels of ongoing capital investment, maximising funds 60 65 available to support strategy 2015 2016 2017 2018 H1 18 H1 19 77% 94
Slide 21: Key balance sheet focus areas
Key balance sheet focus areas Net debt (£m) Net pensions deficit after deferred tax (£m) 310 290 270 250 230 41 210 284 285 190 13 170 150 2018 H1 19 2018 H1 19 • Leverage well below 0.5x FY adjusted EBITDA • 0.5% increase in the discount rate could reduce the deficit by £200m • Bank borrowings £40m
Slide 22: Capital allocation trends
Capital allocation trends 2015 2016 2017 2018 H1 18 H1 19 2015-2018 Average 137 95 90 £59m 5 Local World Express & Star £5m 4 4 8 5 7 2 £17m 13 17 23 18 11 11 41 39 49 £37m 20 24 25 0.7x 0.6x 0.2x 0.2x 0.3x 0.1x 0.1x Note: (1) Includes share buyback related pension contributions 22
Slide 23: Robust balance sheet provides flexibility for future growth
Robust balance sheet provides flexibility for future growth Optimise Grow Commercialise • Further work underway to • Disciplined investment to support digital growth optimise highly cash • Low debt levels open up opportunities for the Group which include: generative print business • E&S integration
Slide 24: Strategic update
Strategic update Simon Fox, Chief Executive
Slide 25: Our Vision
Our Vision “To reach more people, more often, more meaningfully” REACH Our strategic objective Deliver sustainable growth Our strategic pillars Optimise Grow Commercialise Our values Collaboration Imagination Determination 25
Slide 26: Optimising our print coverage
Strategy in action Optimising our print coverage Souvenir edition of National coverage Special edition of Liverpool Echo Sunday Echo (Sunday Mirror 25% sales uplift in published in Madrid (370%+ sales uplift) Liverpool) Note: % are week-on-week sales uplift 26
Slide 27: Growing our online audience
Strategy in action Growing our online audience Generated 17m PVs in 72 hours(1) 13 Blood Red podcasts generated 1m+ podcast streams(2) Note: (1) Based on Champions League Final / Liverpool FC related traffic across 1-3 Jun 2019 on Mirror, Express, Star, Liverpool Echo and Football.London websites 27
Slide 28: Commercialising the opportunity
Strategy in action Commercialising the opportunity 28
Slide 29: Initiatives to optimise print have improved circulation revenue trends
Optimise Initiatives to optimise print have improved circulation revenue trends(1) Improving our print assets to drive circulation…. Optimising the print cost base… Daily puzzle pull-out in Evolved OK! Bumper Express Pack Launch of MEN on Continuous portfolio Sunday review Giving voice to younger ge
Slide 30: Continued momentum in growing digital audience
Grow Continued momentum in growing digital audience Accelerating growth of existing sites (1) New sites launched Regionals 39% Jan 2019 Nationals 31% 25% Feb 2019 15% 16% 25% 13% 17% Jun 2019 2% 12% 8% 9% Jun 2019 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul 2019 Jul 2019 (1st US and international
Slide 31: Continued product development to optimise UX and drive engagement
Grow Continued product development to optimise UX and drive engagement AI driven personalised recommendation Upgrade to common platform (rollout in H2) Star in H2 31
Slide 32: A player of scale in the digital space
Grow A player of scale in the digital space 6th largest online property in the UK(1) Significant digital reach in big cities we serve(2) Google Sites Liverpool Facebook Hull Amazon sites Bristol Wales Microsoft Sites Manchester BBC sites Plymouth Reach Group 40m Nottinghamshire eBay Birmingham Veriz
Slide 33: Growing audience through diversified products and platforms
Grow Growing audience through diversified products and platforms Growing podcasts streams Strong growth of InYourArea 1.5m 4.7m (+186% YoY) (+300% YoY) Monthly UBs Monthly onboarded UBs 1.5m (+124% YoY) Jun-18 Jun-19 Jun-18 Jun-19 Note: (1) Acast (2) Google Analytics 33
Slide 34: Successfully commercialising our scale audience
Commercialise Successfully commercialising our scale audience Yield improvement New revenue streams on InYourArea Grow guaranteed yield transactions Ensure healthy competition from our demand partners Optimise flow of inventory, data and consent Grow high yielding revenue sources Featured property L
Slide 35: Strengthening our commercial partnerships
Commercialise Strengthening our commercial partnerships Ozone JV with other publishers JV with The Football Pools Refreshed branding + Continuously re-vamped app in time for improving run-rate new season Ongoing product development Editorial proving effective at acquiring and converting users 35
Slide 36: Shining a light on our diversified revenue streams
Commercialise Shining a light on our diversified revenue streams Book publishing Reach Sport 36
Slide 37: In summary
In summary 37
Slide 38: Summary
Summary ✓ Robust H1 performance ✓ Strong operating cash flows reduced our net debt ✓ Half year performance supports progressive dividend ✓ Accelerated and monetised digital audience growth ✓ On track to deliver market expectations 38
Slide 39: Thank you
THANK YOU Questions 39
Slide 40: Appendices
Appendices 40
Slide 41: 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 OTHER £
Slide 42: Income statement
Income statement H1 19 H1 18 H1 19 H1 18 (1) Statutory Statutory Adjusted Adjusted(1) £m £m £m £m Group revenue 352.6 353.8 352.6 353.8 Operating profit/(loss) 63.7 (107.3) 71.3 66.5 Adjusted operating profit 71.3 66.5 71.3 66.5 Operating adjusted items (7.6) (173.8) - - Profit/(loss) before taxatio
Slide 43: Group balance sheet
Group balance sheet H1 19 2018 £m £m Intangible assets 852.0 852.0 Property, plant and equipment 236.8 246.2 Investment in associates 25.8 25.3 Retirement benefit assets 19.8 10.2 Deferred tax assets 68.2 69.8 Non-current assets 1,202.6 1,203.5 Cash and cash equivalents 26.8 19.2 Short-term debt - (
Slide 44: Reconciliation of H1 2018 under new revenue classification
Reconciliation of H1 2018 under new revenue classification H1 18 Reclassification H1 18 2018 Categories £m £m £m 2019 Categories Print 282.0 24.4 306.4 Print Circulation 175.7 - 175.7 Circulation Advertising 88.5 6.9 95.4 Advertising Printing - 17.5 17.5 Printing Other 17.8 - 17.8 Other - Publishing
Slide 45: Reconciliation of statutory LFL revenue
Reconciliation of statutory LFL revenue H1 18 H1 18 (a) (b) (c) (LFL) £m £m £m £m £m Print 306.4 26.7 (4.5) - 328.6 Circulation 175.7 17.5 (0.5) - 192.7 Advertising 95.4 7.3 (3.9) - 98.8 Printing 17.5 0.5 18.0 Other 17.8 1.4 (0.1) - 19.1 Digital 41.5 3.2 (0.3) - 44.4 Other 5.9 - - (2.4) 3.5 Total re
Slide 46: Group revenue trends 2019
Group revenue trends 2019 H1 19 Q1 Q2 Jan/Feb Mar/Apr May/Jun Jun YTD Print 7.7% (9.3%) 20.7% (7.5%) (10.3%) (1.5%) Circulation 18.9% (5.3%) 33.4% (1.7%) (5.4%) 5.4% Advertising (14.1%) (22.3%) (3.4%) (22.6%) (24.6%) (18.2%) Printing 16.0% 9.3% 23.1% 7.3% 9.9% 12.6% Other 19.0% (2.1%) 33.6% 4.4% (7.
Slide 47: Group revenue trends 2018
Group revenue trends 2018 H1 18 Q1 Q2 Jan/Feb Mar/Apr May/Jun Jun YTD Print (1.3%) 19.9% (12.3%) 17.0% 20.9% 9.2% Circulation 6.0% 35.3% (5.6%) 29.0% 35.6% 20.6% Advertising (11.4%) (0.6%) (23.0%) 1.5% 1.7% (6.2%) Printing 0.6% 5.7% (4.8%) 6.7% 6.3% 3.2% Other (2.4%) 21.1% (10.8%) 19.0% 19.1% 10.5%
Slide 48: Reconciliation of statutory to adjusted results
Reconciliation of statutory to adjusted results Operating Pension adjusted finance Statutory items charges Adjusted results (a) (b) results £m £m £m £m H1 19 Revenue 352.6 - - 352.6 Operating profit 63.7 7.6 - 71.3 Profit before tax 58.2 7.6 4.1 69.9 Profit after tax 47.0 6.2 3.3 56.5 Basic earnings
Slide 49: Operating adjusted items
Operating adjusted items H1 19 H1 18 £m £m Impairment of goodwill and other intangible assets - (150.0) Pension administrative expenses (1.1) (1.6) Restructuring charges in repsect of cost reduction measures (6.1) (7.9) Provision for historical legal issues - (7.5) Other - (6.5) Operating adjusted i
Slide 50: Adjusted Cash flow
Adjusted Cash flow H1 19 H1 18 Var £m £m £m EBITDA 82.3 77.6 4.7 Working capital and other (7.8) (3.8) (4.0) Restructuring (7.7) (7.9) 0.2 Capital expenditure (1.6) (6.3) 4.7 Operating cash flow 65.2 59.6 5.6 Historical legal issues (1.6) (6.6) 5.0 Dividends paid (11.2) (10.5) (0.7) Pension funding
Slide 51: Financing
Financing H1 19 2018 Change £m £m £m Bank facility - - - Acquistion Term Loan (39.7) (60.0) 20.3 Cash balances 26.8 19.2 7.6 Net debt (12.9) (40.8) 27.9 Financial covenants Minimum Maximum Minimum Interest Cover Net Debt to EBITDA Cash Flow* Bank facilities Throughout term of facilities 5.0x 2.0x £2
Slide 52: Pensions
Pensions Pensions H1 19 2018 Change £m £m £m Fair value of scheme assets 2,342.6 2,146.7 195.9 Present value of scheme liabilities (2,690.8) (2,495.3) (195.5) Net scheme (deficit)/surplus (348.2) (348.6) 0.4 Net scheme (deficit)/surplus after deferred tax (284.8) (284.1) (0.7) Pension scheme assets
Slide 53: Reduced discount and higher inflation rates have been key driver of deficit increase
Reduced discount and higher inflation rates have been key driver of deficit increase since 2011 4.90% 800 5% 4.50% 4.40% 700 3.70% 4% 600 3.65% 3.20% 3.20% 3.21% 3.15% 500 3.35% 3% 3.05% 3.05% 2.65% 2.75% 3.05% 2.50% 400 2.80% 2.25% 300 2% 200 1% 100 230.1 297.7 252.2 301.2 305.2 466.0 377.6 348.6 3
Slide 54: Provisions and Associates
Provisions Share-based payments Property Restructuring Other Total £m £m £m £m £m At 30 December 2018 (0.1) (6.6) (4.3) (15.4) (26.4) Charged to income statement - - (6.1) (0.3) (6.4) Utilisation of provision - 2.1 7.7 2.6 12.4 At 30 June 2019 (0.1) (4.5) (2.7) (13.1) (20.4) Associates PA Group Bran
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