Reach Plc · LSE:RCH
Reach — H1 2010 Earnings Presentation
50 slides from Reach's earnings presentation, Jul 29, 2010
Slide 1: Interim Results 2010
29 July 2010 Interim Results 2010
Slide 2: Sly Bailey, Chief Executive
Sly Bailey Chief Executive
Slide 3: Overview
Overview • Compelling headline story for the Group • First half operating profits up by 26% • Earnings per share up 59% • Against fragile economic environment o low GDP growth o volatile advertising market • Strong first half performance reflects continued focus on three core areas o investing in la
Slide 4: Vijay Vaghela, Finance Director
Vijay Vaghela Finance Director
Slide 5: Overview
Overview 26 weeks to 4th July 2010 • Overview • Summary of Group and Divisional performance • Cost savings • Financing • Pensions • Non-recurring items • Current trading and outlook for 2010 4
Slide 6: Group performance - Overview
Group performance - Overview 26 weeks to 4th July 2010 Real benefits of our actions over the past 18 months:- • Group revenues broadly flat at £382.2m, including £18.2m from GMG Regional Media • Operating profit substantially up by 25.7%. Excluding GMG Regionals, operating profit up 20.2% • Underlyi
Slide 7: Group performance - Revenues
Group performance - Revenues 26 weeks to 4th July 2010 2010 2009 Change Change £m £m £m % Group Revenues including GMG Regional Media Advertising 176.0 168.4 7.6 4.5% Circulation 161.4 169.8 (8.4) (4.9)% Other 44.8 44.8 0.0 - Total 382.2 383.0 (0.8) (0.2)% Group Revenues excluding GMG Regional Media
Slide 8: Group performance - Revenues
Group performance - Revenues 26 weeks to 4th July 2010 2010 2009 Change Change £m £m £m % National Revenues Advertising 65.8 64.4 1.4 2.2% Circulation 125.0 133.3 (8.3) (6.2)% Other 29.0 29.9 (0.9) (3.0)% Total 219.8 227.6 (7.8) (3.4)% Regionals Revenues including GMG Regional Media Advertising 110.
Slide 9: Group performance – Profits
Group performance – Profits 26 weeks to 4th July 2010 2010 2009 Change Op profit* Op profit* Op profit* Change £m £m £m % Regionals Including GMG Regional Media 28.9 17.3 11.6 67.1% Excluding GMG Regional Media 26.2 17.3 8.9 51.4% Nationals 39.5 38.2 1.3 3.4% Central (6.9) (6.7) (0.2) (3.0)% Associa
Slide 10: Group Performance
Group Performance 26 weeks to 4th July 2010 Profit before tax(1) up 61.0% or £19.1m to £50.4m (2009: £31.3m) Earnings per share(1) up 58.6% or 5.1p to 13.8p (2009: 8.7p) No interim dividend • Progress towards re-instatement of dividends • Cash generation remains strong and net debt continues to fall
Slide 11: Cost savings
Cost savings 26 weeks to 4th July 2010 Impact of GMG Underlying Regional Cost 2010* 2009* Change Change Media reduction £m £m £m % £m £m Labour 128.7 129.9 1.2 0.9% 5.5 6.7 Newsprint 52.0 58.2 6.2 10.7% 2.1 8.3 Depreciation 16.3 18.0 1.7 9.4% 0.3 2.0 Other 123.7 128.1 4.4 3.4% 7.6 12.0 Total costs 3
Slide 12: Financing
Financing 26 weeks to 4th July 2010 Net debt on contracted basis (1) June Dec 2010 2009 Movement £m £m £m US private placement loan notes (382.1) (382.1) - Interest rate swaps (1.6) (3.1) 1.5 Gross debt (383.7) (385.2) 1.5 Cash balances 75.3 61.2 14.1 Net debt(1) (308.4) (324.0) 15.6 • On statutory
Slide 13: Pension costs
Pension costs 26 weeks to 4th July 2010 Annual Annual Interim Interim Forecast Actual 2010 2009 Change 2010 2009 Change £m £m £m £m £m £m Defined benefit scheme current service costs 4.4 8.2 3.8 4.4 14.6 10.2 Defined contribution scheme costs (incl other costs)* 3.7 0.6 (3.1) 10.6 1.1 (9.5) Total op
Slide 14: Defined benefit pension schemes
Defined benefit pension schemes 26 weeks to 4th July 2010 June Dec 2010 2009 Change £m £m £m Fair value of scheme assets 1,419.1 1,398.1 21.0 Present value of scheme liabilities (1,743.8) (1,683.1) (60.7) Effect of asset ceiling (0.0) (11.6) 11.6 Net scheme deficit (324.7) (296.6) (28.1) • IAS 19 va
Slide 15: Non-recurring items
Non-recurring items 26 weeks to 4th July 2010 2010 2009 £m £m Gain on acquisition of business 27.3 - Defined benefit scheme liabilities 9.0 - Restructuring charges (7.5) (8.3) Impairment of receivables - (7.0) Profit on disposal of land and buildings - 5.1 Loss on disposal of business - (2.4) Total
Slide 16: Current trading and outlook
Current trading and outlook 26 weeks to 4th July 2010 July 2010 revenues expected to increase by 3%. Excluding GMG Regionals expected July revenues: - Year on year Nationals Regionals Group Total Revenues (4)% (8)% (6)% Advertising - (9)% (6)% Circulation (6)% (6)% (6)% • Second half of 2010 o Adver
Slide 17: Sly Bailey, Chief Executive
Sly Bailey Chief Executive
Slide 18: Managing the business through recession
Managing the business through recession • Strong performance in face of continued challenging economic conditions • Continued investment in modernising our business • Successfully delivered new operating model • Investment in new IT systems is enabling us to re-engineer the publishing process across
Slide 19: Regionals
Regionals • Declines in regionals advertising revenue have moderated significantly • Display revenues up 2% representing 42% of advertising revenues, up from 38% last year • Reliance on recruitment and property has again decreased with significant proportion revenue coming from digital • Recruitment
Slide 20: Regionals Digital
Regionals Digital • Digital audience continued to grow • Average monthly unique users increased by 39% in first half year to 9 million per month • Continued strategy of growing and monetising local audiences • Aim to be first choice provider of local advertising • Combination of display and director
Slide 21: Regionals Digital
Regionals Digital • Increasing numbers of consumers turn to web to find local business services • LocalMole provides advertisers with year round online promotion, complementing display advertising in print • Launched last year, LocalMole is now generating annual revenues in excess of £1.2 million •
Slide 22: Regionals Digital
Regionals Digital • GMG Regionals ensured that digital revenues only marginally down by £0.2 million to £16.0 million • Underlying decline of 6% driven by recruitment and property • Growth seen in other categories 21
Slide 23: Acquisition of GMG Regional Media
Acquisition of GMG Regional Media • Perfect strategic fit • MEN Media completes our portfolio in North West o Manchester Evening News, Manchester Metro and a portfolio of strong weekly titles • Now occupy majority of UK’s key metropolitan cities • Publish six of nine Metro franchises • Acquisition o
Slide 24: Acquisition of GMG Regional Media
Acquisition of GMG Regional Media • Both businesses delivering ahead of expectations • First half (14 weeks of trading) delivered profits of £2.7 million at margin just below 15% • Clear about characteristics we value in regional media o businesses that operate in well defined geographical areas o s
Slide 25: Regionals
Regionals • Improved performance across our regionals business • Strong portfolio management • Investment in IT systems and new operating model are driving new efficient ways of publishing • Enabling big story coverage with unrivalled depth such as Raul Moat in North East o strong editorial coverage
Slide 26: Nationals
Nationals • Nationals performed strongly with profits and margin up • Advertising revenues have grown in the period, with UK nationals up every month this year • Advertising revenues show double digit increase for UK nationals in June • Scottish Nationals performed less well, with greater reliance o
Slide 27: Nationals
Nationals • Circulation volumes continue to decline across market • Competitors continue to discount cover prices to mask volume declines • Daily Star’s price cut to 10p in London only • Estimate Star’s uplift at 25K copies o coming from increased frequency and probably some dual purchase o very min
Slide 28: Nationals
Nationals • The Star and the Mirror are very different newspapers • Daily Star masthead– ‘Half the price of The Sun and twice as much fun’ • Clear who the Star’s competition is • Star only newspaper to lose sale during Cumbrian massacre in June • Daily Express and Daily Star worst performing titles
Slide 29: Nationals
Nationals • Nationals titles are as relevant and vital as ever • New IT content management system • Proposals to create more efficient multimedia newsrooms for UK nationals titles • New system eliminates outdated ways of working o enables production of high quality content across multiple channels o
Slide 30: Nationals Digital
Nationals Digital • Audience continues to grow • Average monthly unique users up by 29% to 10 million per month in first half year • Digital revenue down marginally driven by a decline in bingo • Advertising revenue up by 4% • Mirror football performed well during World Cup lifting audience to 3 mil
Slide 31: Results
Results • Delivered strong financial performance for the half year o operating profits up o earnings per share up o improved margins • Revenue declines are moderating • Net debt down, remain highly cash generative • Maintenance capex is low at around £15 million per annum • New operating model o ste
Slide 32: Conclusion
Conclusion • Remain cautious about economic outlook for 2010 • Seen improvement in financial position of the Group • Making progress towards re-instatement of dividends when trading environment improves • Maintained our focus through downturn • Continued to execute a clear and consistent strategy •
Slide 33: Appendices
Appendices
Slide 34: Financial Summary
Financial Summary Income statement 26 weeks to 4th July 2010 2010 2009 2010 2009 Statutory Statutory Adjusted(1) Adjusted(1) £m £m £m £m Group revenue 382.2 383.0 382.2 383.0 Operating profit 87.2 32.9 61.7 49.1 Adjusted operating profit 61.7 49.1 67.1 49.1 Non-recurring items 28.8 (12.6) - - Amorti
Slide 35: Financial Summary: Analysis of revenue by type and segment
Financial Summary Analysis of revenue by type and segment 26 weeks to 4th July 2010 Group total Incl GMG Reg % Regionals % Nationals % £m of total £m of total £m of total Circulation 161.4 42.2% 36.4 22.4% 125.0 56.9% Advertising 176.0 46.1% 110.2 67.9% 65.8 29.9% Other 44.8 11.7% 15.8 9.7% 29.0 13.
Slide 36: Financial Summary: Digital revenues
Financial Summary Digital revenues 26 weeks to 4th July 2010 2010 2009 Change £m £m % Regionals incl GMG Regionals Advertising 14.0 14.0 - Other 2.0 2.2 (9.1)% Total 16.0 16.2 (1.2)% Nationals Advertising 1.2 1.2 - Other 1.1 1.2 (8.3)% Total 2.3 2.4 (4.2)% Group incl GMG Regionals Advertising 15.2 1
Slide 37: Financial Summary: Revenue trends
Financial Summary Revenue trends – year on year change 26 weeks to 4th July 2010 Excluding GMG Regionals Jan/Feb Mar/Apr May/Jun Q1 Q2 June YTD Advertising (2.8)% (6.1)% (3.3)% (4.1)% (4.3)% (4.1)% Circulation (6.0)% (6.6)% (6.8)% (6.4)% (6.5)% (6.5)% Other (3.1)% 1.3% (4.8)% (0.9)% (3.3)% (2.5)% Gr
Slide 38: Financial Summary: Revenue, operating profit and margin by segment
Financial Summary Analysis of revenue, operating profit and margin by segment 26 weeks to 4th July 2010 2010 2009 Change £m £m % Regionals division incl GMG Regionals 162.4 155.4 4.5% Nationals division 219.8 227.6 (3.4)% Group revenue incl GMG Regionals 382.2 383.0 (0.2)% Regionals division incl GM
Slide 39: Financial Summary: Cost savings
Financial Summary Cost savings 26 weeks to 4th July 2010 Impact of 2010 H1 2009 2009 2010 GMG Underlying 53 weeks 53 weeks Impact of 52 weeks H1 H1 H1 Regional Cost 2009* 2008* Change 53rd week Change 2010* 2009* Change Media reduction £m £m £m £m £m £m £m £m £m £m Labour 255.6 293.5 37.9 0.1 38.0 1
Slide 40: Reconciliation of statutory results to adjusted results
Financial Summary Reconciliation of statutory results to adjusted results 26 weeks to 4th July 2010 Non- recurring Finance Statutory items Amortisation costs Adjusted results (a) (b) (c) results £m £m £m £m £m 2010 Revenue 382.2 - - - 382.2 Operating profit 87.2 (28.8) 3.3 - 61.7 Profit before tax 8
Slide 41: Financial Summary: Balance sheet
Financial Summary Balance sheet at 4th July 2010 04 Jul 03 Jan 2010 2010 Movement £m £m £m Retirement benefit assets 16.3 - 16.3 Derivative financial instruments 24.6 - 24.6 Other non-current assets 1,489.1 1,458.8 30.3 Current assets 187.8 162.7 25.1 Total assets 1,717.8 1,621.5 96.3 Non-current li
Slide 42: Net debt - statutory
Financial Summary Net debt - statutory 26 weeks to 4th July 2010 03 Jan Cash Income 04 Jul 2010 flow statement 2010 £m £m £m £m Non-current liabilities Loan notes (355.0) - (20.1) (375.1) Derivative financial instruments (2.9) - 2.9 - (357.9) - (17.2) (375.1) Current liabilities Derivative financial
Slide 43: Net debt – contracted
Financial Summary Net debt – contracted(1) 26 weeks to 4th July 2010 03 Jan Cash Income 04 Jul 2010 flow statement 2010 £m £m £m £m Non-current liabilities Loan notes (382.1) - - (382.1) (382.1) - - (382.1) Current liabilities Derivative financial instruments (3.1) - 1.5 (1.6) (3.1) - 1.5 (1.6) Curr
Slide 44: Reconciliation of statutory net debt to contracted net debt
Financial Summary Reconciliation of statutory net debt to contracted net debt at 4th July 2010 04 Jul 03 Jan 2010 2010 £m £m Statutory net debt (276.8) (299.8) Loan notes at period end exchange rate 375.1 355.0 Loan notes at swapped exchange rates (382.1) (382.1) Cross-currency interest rate swaps (
Slide 45: Financial covenants
Financial Summary Financial covenants 26 weeks to 4th July 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
Slide 46: Defined benefit pension schemes assets and liabilities
Financial Summary Defined benefit pension schemes assets and liabilities at 4th July 2010 04 Jul 03 Jan 2010 2010 Net scheme liabilities £m £m Present value of scheme liabilities (1,743.8) (1,683.1) Fair value of scheme assets 1,419.1 1,398.1 Effect of asset ceiling - (11.6) Net scheme deficits (324
Slide 47: Regionals Division: Analysis of advertising revenue
Regionals Division Analysis of advertising revenue 26 weeks to 4th July 2010 Excluding GMG Regional Media 2010 2009 Change yoy Advertising by category £m % of total £m % of total % Display 40.5 42.3% 39.7 38.2% 2.0% Recruitment 18.1 18.9% 22.6 21.7% (20.0)% Property 10.7 11.2% 11.9 11.5% (9.0)% Moto
Slide 48: Nationals Division performance
Nationals Division Nationals division performance 26 weeks to 4th July 2010 2010 2009 Change £m £m % Circulation 125.0 133.3 (6.2)% Advertising 65.8 64.4 2.2% Classified 11.3 11.1 1.8% Other 54.5 53.3 2.3% Other 29.0 29.9 (3.0)% Total revenue 219.8 227.6 (3.4)% Operating profit(1) 39.5 38.2 3.4% Mar
Slide 49: UK Nationals: Newspaper advertising market share
UK Nationals Newspaper advertising market share (volumes) 26 weeks to 4th July 2010 2010 2010 1 6 1 5 5 2 2 4 3 3 4 Dailies Sundays 2010 2009 2010 2009 1 Mirror 18.0% 17.9% 1 Sunday Mirror 15.2% 15.1% 2 Sun 23.7% 21.8% 2 People 8.9% 8.7% 3 Star 15.0% 15.0% 3 News of the World 18.1% 16.2% 4 Mail 21.8
Slide 50: Scottish Nationals: Newspaper advertising market share
Scottish Nationals Newspaper advertising market share (volumes)(1) 26 weeks to 4th July 2010 Dailies Sundays 2010 2009 2010 2009 % % % % Daily Record 12.1% 12.5% Sunday Mail 26.9% 32.0% The reduction in the year on year market share of our titles in Scotland is due to changes in the way the NMR data