Reach issues Full-Year financial results

As reported by Reach plc:

Jim Mullen Chief Executive: “Reach is continuing to deliver our Customer Value Strategy and is becoming a fundamentally different business; more efficient, more digitally capable and more focused on building the foundation for growing sustainable and data led digital revenues. Our award winning journalism and continued strategic investment is supporting a growing base of engaged and active customers. The improved depth and breadth of our content and businesswide focus on data is driving an increasing proportion of higher yielding digital revenue and a decreasing reliance on open market programmatically driven advertising.

We expect uncertain macroeconomic conditions to persist during 2023 but, as shown during the pandemic, we are effective at managing them, with an action plan in place to help mitigate the current headwinds. We will continue to invest in areas which support digital expansion, such as the US, where we’ll leverage our scale and apply the proven Customer Value Strategy playbook which is positioning us favourably to benefit when economic conditions improve.”

Data-led revenue improves digital mix; resilient circulation & cost efficiency mitigates inflation & advertising slowdown

• Growth of 56% in data-led revenues which are now 32% of total digital (FY21: 21%)
• Engagement up strongly; registrations 12.7m with 5.6m active up 30%, page views +4%, page views per user +7%
• Additional print cover price increases and resilient volume performance support strong circulation revenue
• Inflation impact on operating costs of c.£40 million during year; mitigating actions protect strategic investment
• Industry wide decline in open-market advertising yields holds back overall digital growth
• New dedicated US operation in 2023; expect growth from expansion of audience and data-led engagement

Outlook and current trading

The current trading environment remains challenging and we expect this to continue in 2023, with sustained inflation and suppressed market demand for digital advertising. Although input costs remain elevated, we are confident that our cost action plan will enable us to deliver a 5-6% like for like reduction in our operating cost base for FY23.

Trading for January and February has been in line with our expectations. As anticipated, we have continued to see a decline in demand for digital advertising, with open market yields and traffic down across the whole sector, against stronger prior year comparators, particularly during the earlier part of the year (digital revenue H1’22 up 5.4%; H2’22 down 2.7%). Circulation revenue continues to benefit from increased cover price activity during the second half of FY22, with print trends overall, similar to Q4’22 and in line with expectations. For the year to date; digital revenue year over year was down 11.9%, print down 3.6% and circulation up 1.8%. Total Group revenue was down 5.8%.

While external factors are affecting near term performance, consistent strategic delivery is supporting the growth of higher quality digital revenues, which with our US expansion, puts us in a strong position to grow when macro headwinds subside. Profit expectations for the full year are in line with the current market consensus.

Group revenue down 2.3% – robust print driven by circulation performance; yield pressure impacts digital

• Print revenue £448.6m (FY21: £465.1m) down 3.5%, circulation and advertising down 1.7% and 15.9% respectively
• Digital revenue of £149.8m (FY21: £148.3m) was up 1.0%; growth of 56% in data-led revenues offset by macro related decline in market yield for ad space sold programmatically in the open market, which was down c.33% during the year and c.40% in H2
• Circulation strengthened by cover price increases with minimal impact on long term trend in print volumes
• Decline in print advertising broadly in line with movement in print volumes; accelerated decline during H2 due to impact on the advertising market from The Queen’s death and lower ad demand during Black Friday and Christmas

Newsprint inflation impacts profit, mitigated through cost actions and increased cover prices

• Adjusted operating profit of £106.1m down £40.0m or 27.4% (FY21: £146.1m); reflecting decline in revenue and significant increase in input cost inflation, largely due to increase in the cost of newsprint, up c.40% on 2021
• Savings from changes to print production, including printed volumes and pagination (book size) help mitigate other inflationary pressures and support strategic investment
• Statutory operating profit of £71.3m (FY21: £79.3m) down 10.1%, with decline in adjusted profits, partly offset by a reduction in adjusted items to £34.8m (FY21: £66.8m); prior year charges relate to increases in the HLI provision and the move to flexible working model
• Statutory EPS of 16.8p (FY21: 0.9p) ahead due to the reflection of the future change to the UK corporation tax rate in last year’s comparator

Cash & Capital Allocation

• Lower adjusted operating cash flow of £64.8m (2021: £141.3m) reflects both lower in year profit and a negative movement in working capital, driven in part by an increase in newsprint inventories as part of increased hedging
• Net cash decreased by £40.3m to £25.4m, including payment of £9.0m related to historical legal issues and the penultimate payment of £17.1m for the Express & Star; final payment of £7.0m subsequently made in Feb 2023
• The IAS19 pension accounting deficit (net of deferred tax) at year end was £113.9m (FY21: £117.2m), with the increase in the discount rate and contributions offset by asset return decreases
• We continue to work with pension trustees of the one remaining scheme where we’ve yet to achieve resolution of the 2019 triennial review of pension commitments
• Final dividend proposed of 4.46 pence per share, flat with 2021, with full year dividend of 7.34p up 1.8%

Formalising our approach to business responsibility

• Formalised responsible business framework, following stakeholder consultation - aligns our purpose and strategy
• Set 5-year climate strategy roadmap as part of journey to net-zero; working towards full measurement of Scope 3 emissions and production of complete carbon footprint
• Introduced TCFD aligned reporting for 2022 Annual Report and Accounts
• Ranked number 29 (42 in 2021) in Inclusive Companies Top 50 listing and top rated in Sustainalytics ESG rankings

The full report can be seen here.