Reach plc ("The Company") Half Year Results - Six months to 30 June 2024

31 July 2024  

 

Customer Value Strategy driving performance, on track to deliver full year expectations                 

 

Jim Mullen Chief Executive

 

"We are pleased to have delivered further operational progress this year, with our commercial and editorial teams making the most of the strong news agenda.

 

Our Customer Value Strategy continues to deliver long-term success, with an increasing share of data-driven digital revenue as well as digital growth returning in Q2. Alongside our expertise in managing our print product, we have traded our digital assets hard and delivered an operating margin improvement.

 

We continue to build a stronger, more resilient business and are on track with our plans for the year."

 

Results overview: Improved operating profit margin through effective cost management

 

Financial Summary(1)
6 months 30 June 24		Adjusted results(2)			Statutory results
		HY24	HY23	Change	HY24	HY23	Change
Revenue	£m	265.0	279.4	(5.2%)	265.0	279.4	(5.2%)
Operating profit	£m	44.5	36.1	23.1%	36.8	11.1	232.2%
Operating profit margin	%	16.8	12.9	3.9%	13.9	4.0	9.9%
Earnings per share	Pence	10.1	8.7		7.8	1.5
Net (debt)/cash (3)	£m	(12.3)	(3.5)		(12.3)	(3.5)
Dividend per share	Pence	2.88	2.88		2.88	2.88

 

·	Revenue declined 5.2% to £265.0m with digital revenue of £60.0m broadly in line with last year (HY23: £60.8m), and momentum improving across the period (Q124: (8.5)%, Q224: +6.7%).
·	Both print circulation revenue £149.9m (HY23: £155.4m) and print advertising revenue £32.7m (HY23: £37.0m) outperformed volume decline, which remains in line with historical trends.
·	Early and effective action on costs has delivered targeted cost savings. Total adjusted operating costs reduced by 9.3% to £221.8m (HY23: £244.6m).
·	Adjusted operating profit increased by 23.1%, and at an improved margin of 16.8% (HY23: 12.9%, FY23: 17.0%).
·	Continue to deliver returns for shareholders with the interim dividend maintained at 2.88p.

 

 

Further progress with our Customer Value Strategy

 

·	The Customer Value Strategy is driving data-driven revenue growth of 9% to £27.2m (HY23: £24.9m). These revenues now represent 45% of total digital revenues (HY23: 41%).
·	Strong trading of digital assets, along with continued diversification into non-advertising revenues, including partnerships, ecommerce and affiliates. As a direct result, yield (revenue per thousand page views) increased by 32%.
·	Growing secure audience by 4% year-on-year(5), including 9m customers receiving content directly to their devices.
·	Page view volumes declined 25% over the period due to ongoing impact of 2023's referrer deprioritisation of news. Trends are improving and open market prices for mass scale programmatic advertising have stabilised.

 

 

 

FY24 Outlook: On track to deliver market expectations

We remain focused on delivering our operational plans for the year as we build a more sustainable digital business. Our Customer Value Strategy is continuing to grow data-driven revenues and we expect our print performance to remain resilient despite the tough macro backdrop.

 

We are trending slightly ahead of a full year reduction in operating costs of 5-6%. The phasing of cost initiatives and inflation during 2023 and 2024 means that operating profits will be more equally weighted between the first and second half of the year.

 

At the end of the period, we saw elevated levels of advertising spend supported by events such as the European Football Championships. July is trading in line with our expectations.

 

We continue to work against the backdrop of the dominant tech platforms and their impact on search and referral traffic. As we have seen, this dynamic can create some volatility across our distribution, however, we are building more resilience through our Customer Value Strategy and we remain on track to deliver market expectations.⁽⁶⁾

 

Q2 Trading: Digital revenue back in growth

 

2024	Q1 YOY %	Q2 YOY %	HY YOY %
Digital revenue	(8.5)	6.7	(1.3)
Print revenue	(6.0)	(6.2)	(6.1)
circulation revenue	(3.4)	(3.7)	(3.6)
advertising revenue	(10.7)	(12.3)	(11.5)
Group revenue	(6.7)	(3.6)	(5.2)

 

The performance over the second quarter has been bolstered by strong multi-platform content around key events, including the European Football Championships, UK general election and Taylor Swift Eras tour. As expected, yield continued to improve, driving growth across the digital estate. We remain focused on optimising our digital inventory with the increase in yield more than compensating for the 16% decline in page views.

 

Data-driven revenues, which are higher value and enable more targeted advertising, now make up 45% of digital revenues. Across the quarter these revenues grew 13% (year-on-year) due to the strong growth in direct advertising revenues and non-advertising revenues, including partnerships, ecommerce and affiliates.

 

Mass-scale programmatic advertising market has benefitted from a stabilisation in open market prices. It is too early to characterise this as a recovery, but the early indicators are positive.

 

In Print, circulation revenues have proven again to be a reliable revenue stream and the teams have mitigated the circulation volume headwind with cover price increases, strong promotional activity and standalone products tying into popular events. Print advertising revenue performed well due to the continued demand for this ad format, particularly from the food retailers.

 

 

Notes:

(1)	The results have been prepared for the six months ending 30 June 2024 and the comparative period has been prepared for the 26-week period ending 25 June 2023.
(2)	Set out in note 18 is the reconciliation between the statutory and adjusted results.
(3)	Net debt balance comprises cash and cash equivalents of £12.7m (inclusive of £1.9m restricted cash) less bank borrowings of £25.0m, but excludes lease obligations (note 14).
(4)	An adjusted cash flow is presented in note 19 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Note 20 provides a reconciliation between the statutory and adjusted cash flows.
(5)	Average increase Q224 v Q223.
(6)	Market expectations compiled by the company are an average of analyst published forecasts - consensus adjusted operating profit for FY24 is £97.8m.

 

Enquiries

Reach plc
Jim Mullen, Chief Executive Officer Darren Fisher, Chief Financial Officer Lija Kresowaty, Head of External Communications Jo Britten, Investor Relations Director	communications@reachplc.com +44 (0)7557 557 447
Teneo	reachplc@teneo.com
Giles Kernick, David Allchurch	020 7353 4200

About Reach

We're Reach plc, the UK's and Ireland's largest commercial news publisher. We're home to more than 120 trusted brands, from national titles like the Mirror, Express, Daily Record and Daily Star, to local brands like MyLondon, BelfastLive and the Manchester Evening News, to our recently launched U.S. titles. Every month, 47 million people come to us, via print and online, for trusted news, entertainment and sport.

 

LEI: 213800GNI5XF3XOATR61

Classification: 1.2 Half yearly financial reports and audit reports/limited reviews

 

Jim Mullen, Chief Executive Officer and Darren Fisher, Chief Financial Officer will be hosting a webcast at 9:00am (UK) on 31 July 2024. It will be followed by a live question and answer session. The presentation slides will be available on www.reachplc.com from 7.00am (UK).

 

You can join the webcast to watch the presentation or listen to the Q&A via the following weblink, which you can copy and paste into your browser: https://edge.media-server.com/mmc/p/awqguxcw

 

To participate in the Q&A session and register to ask a question, please access the following web link and register your details: https://register.vevent.com/register/BIb35a6b46186841f496ca82974c6bf67f

 

Please try to allow at least 10 minutes prior to the start time to provide sufficient time to access the event.

 

Forward looking statements

This announcement has been prepared in relation to the financial results for the six months ended 30 June 2024. Certain information contained in this announcement may constitute 'forward-looking statements', which can be identified by the use of terms such as 'may', 'will', 'would', 'could', 'should', 'expect', 'seek, 'anticipate', 'project', 'estimate', 'intend', 'continue', 'target', 'plan', 'goal', 'aim', 'achieve' or 'believe' (or the negatives thereof) or words of similar meaning. Forward-looking statements can be made in writing but also may be made verbally by members of management of the Company (including, without limitation, during management presentations to financial analysts) in connection with this announcement. These forward-looking statements include all matters that are not historical facts and include statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Company's results of operations, financial condition, changes in global or regional trade conditions, changes in tax rates, liquidity, prospects, growth and strategies. By their nature, forward-looking statements involve risks, assumptions and uncertainties that could cause actual events or results or actual performance or other financial conditions or performance measures of the Company to differ materially from those reflected or contemplated in such forward-looking statements. No representation or warranty is made as to the achievement or reasonableness of and no reliance should be placed on such forward-looking statements. The forward-looking statements reflect knowledge and information available at the date of this announcement and the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information or to reflect any change in circumstances or in the Company's expectations or otherwise.

 

Chief Executive's Review

 

Steady performance and strong operational delivery

I am pleased with our overall performance in the first half, despite continuing industry headwinds. This is testament to the success of our Customer Value Strategy enabling strong trading of our digital inventory, as well as the ongoing resilience in our print circulation and advertising sales. Our digital revenue has returned to growth (Q224: 7%) and we have delivered an improved operating margin.

 

We continue to expertly manage print performance, with circulation revenue performing well (H124: (4)%) in the face of anticipated volume declines. Our teams have carefully implemented cover price increases while in turn, strengthening the customer proposition with additional content and strong promotional offers.

 

Print advertising also performed well, exceeding the volume trend. This was in part thanks to some strong advertiser opportunities in the first half of the year, as well as increased market competition in some sectors driving advertising spend, particularly in the food retail sector. Clearly, market trends are changeable, but this demonstrates the value that advertisers place on both our print and digital inventory.

 

I want to thank all of our teams for their efforts, talents and energy as we delivered against a continuing challenging backdrop.

 

Balance sheet benefitting from well-managed costs

Our proven track record in cost management continues to keep us competitive through market changes.

 

We took early and decisive cost action in 2023. While difficult, as a result of this action the business has benefitted from an improved operating margin during the half year.

 

We are also currently seeing the benefits of our expertise in controlling print costs, with a number of well-negotiated contracts creating more stability in our cost base.

 

As we have shown, we continue to manage cost issues responsibly and proactively.

 

Customer Value Strategy providing resilience and growth

In the face of declining audience volumes, and as the industry continues to evolve, our Customer Value Strategy has ensured that we can offer our commercial partners contextual and behavioural targeting, therefore increasing the value of our content. We continue to work with a large pool of rich customer and contextual data, which we have used to develop and refine our advertising technology platform, Mantis.

 

As we shared in March, these developments mean that we have been able to improve our yield over time so that, for every 1,000 page views, we now bring in over 30% more revenue year-on-year. Our operations are supported here by best-in-class digital traders who optimise the pricing and yield of our online pages.

 

Overall, our data-driven revenues have grown 9% over the first half of the year, with these higher value revenues now representing 45% of total digital revenues.

 

Further progress in diversifying digital revenues

Our Customer Value Strategy has also successfully diversified our revenue base, and we continue to see promising growth in some of these initiatives, particularly in ecommerce and affiliates.

 

Last month, we marked the 500,000^th OK! Beauty Box sold, with year-on-year revenue growth of 34%. Ecommerce will continue to be a focus in 2024 and, this month, we expanded our ecommerce proposition by soft launching Yimbly, a dedicated marketplace platform.

 

As we shared in March, we have invested further in our in-house advertising technology platform Mantis, to maximise B2B revenue. We now have a strong senior team in place, with a recently appointed managing director, and the expanded proposition has secured its first partners with deals to licence its contextual targeting tools.

 

Our large-scale and diverse audience continues to support our long-term sustainability, and our American expansion continues to progress according to plan as we steadily build our capability there.

 

Engaging audiences with impactful journalism

Our teams have delivered impactful content for their audiences this year, delivering on our purpose to enlighten, empower and entertain. Our local titles continue to hold power to account, for example the Liverpool Echo which doggedly pursued a story uncovering two local councillors who had received court summons over late or non-payment of council tax. As always, our titles continue to campaign for causes important to their readers, for example the Express's petition around the right to assisted dying, which sparked a Parliamentary debate on the issue, and the Mirror's Justice for our Daughters campaign, which led to then-Prime Minister, Rishi Sunak, agreeing to end the practice of shorter sentences for domestic murders.

 

With the election just behind us, the importance of this work is clearer than ever. Our editorial brands give millions of people a voice, providing free-to-access news for our audiences across the political spectrum. This is a responsibility we take very seriously.

 

We have also made changes to enable our teams to be more forward-thinking in how we get our content to our audiences, particularly in a more multiplatform way. We have seen good progress in H1, with the newly formed Studio team producing strong video content, with election-related vodcasts, including The Division Bell, Poll Position and Planet Holyrood. The team also secured its first exclusive sponsorship deal for a new production just last month for its Euros vodcast, Euro Thrash.

 

In order to meet growing audience demand for video, we will continue to focus on developing not only our video content, but our routes to monetising this output. This work is still in its early days, but audience engagement with our video content is growing with overall views up 20% year-on-year and TikTok views more than doubling. YouTube is a focus area for us, with revenues growing 14% year-on-year. For the time being, these represent a small part of our overall mix, but continue to be an important focus area for us to expand our reach by producing content for multiple platforms.

 

As previously mentioned, we have continued to carefully increase the use of AI in our newsrooms, led by our editorial teams. We have seen some clear efficiency wins in reducing time spent on repetitive tasks and, for example, estimate that we have doubled the speed at which an average story can be uploaded to our Content Management System. We continue to robustly test a number of AI opportunities to support both our editorial teams and the wider business.

 

Being a more responsible business

We have further implemented our formal sustainability framework this year and have continued to focus on progressing our environmental reporting, gathering the data that will guide us on our path to net zero. We have been undergoing a rigorous process in order to determine our Science Based Target (SBT), which we expect to submit later this year. In March, our technology team donated over 1,300 used devices to The National Device Bank, an initiative that supports individuals and communities in need through digital skills training and resources, while also reducing technology waste.

 

We continue to prioritise inclusion and last month, for the first time, the Mirror was the media partner for Pride in London. I am proud to say we have also boosted our efforts to increase social mobility in the industry and, this summer, launched a paid summer internship scheme with a focus on attracting people who may not have thought a career in journalism was open to them. 

 

Well positioned in a changing market

We continue to operate in a fluid market, impacted by the dominant tech platforms, and will continue to engage with Government and regulators on these issues. We have a solid record in navigating the evolving landscape and have made good progress in putting the business, our brands and our content in a strong position to face continued industry change. Our performance in the first six months of the year is testament to this work and we are confident in the outlook for the full year.

 

 

Jim Mullen,

Chief Executive Officer

31 July 2024

 

 

Finance Review

 

Delivering our financial plans

We delivered our plans in the first half, despite the challenging industry backdrop. This is due to the increasing resilience we have built across the business with our Customer Value Strategy, along with our operational expertise in driving yield in digital, managing the volume decline across the print business and controlling our cost base.

 

Our yield performance is driven by our Customer Value Strategy. Data-driven revenues grew 9% to £27.2m, and are more valuable to advertisers and higher yielding. Print continued to perform reliably, supported by an experienced team and strong news agenda. Print delivered £204.0m (HY23: £217.3m) of revenue, with a solid performance in both circulation and print advertising.

 

Maintaining strong cost discipline

We continue to focus on driving efficiencies and we took decisive and early actions to drive savings across our cost base. Our adjusted operating costs reduced by £22.8m or 9.3% year-on year, mainly attributable to the restructuring we undertook during 2023 alongside the reduction in newsprint costs. Together, these actions have meant that we delivered a 17% adjusted operating margin, which is an increase in adjusted operating profit of £8.4m.

 

Focus on cash

Cash management remains a priority. During the period, we completed two property disposals generating £13.1m of cash. The Group closed the period with net debt of £12.3m (inclusive of £1.9m restricted cash) which is made up of £12.7m of cash and the revolving credit facility was drawn at £25m. The Group's facility of £120.0m remains in place until November 2026.

 

Group cash conversion was strong at 130% benefitted from working capital inflows, most of which we expect to unwind in the second half of the year. Our key financial obligations are unchanged. As we previously communicated, we gained clarity on resolving our historical legal issues. This year, we have made further progress on settling outstanding claims with our financial estimates and timetable unchanged from those communicated at the full year. As we said then, we expect the majority of issued claims, if not all to be resolved by the end of 2025.

 

We continued to invest in our business, including Mantis, our advertising technology platform, as well as our US business. This month we soft launched Yimbly, an ecommerce marketplace which we expect to scale through the year. We are also rolling out a new platform for our websites to improve the user experience.

 

Looking ahead

Our financial priorities remain unchanged with a focus on profitability and cash management. We will continue to carefully manage our print business, grow our digital revenues prioritising our data-driven strategy and control costs.

 

At the start of the year, we committed to reducing total operating costs by 5-6%, and we are trending slightly ahead of this target. However, the relative level of savings will contract across the second half of the year and we expect profitability to be more equally weighted between the first and second half.

 

 

Summary income statement

 

	Adjusted HY 2024 £m	Adjusted HY 2023 £m	Statutory HY 2024 £m	Statutory HY 2023 £m
Revenue	265.0	279.4	265.0	279.4
Costs	(221.8)	(244.6)	(228.8)	(268.9)
Associates	1.3	1.3	0.6	0.6
Operating profit	44.5	36.1	36.8	11.1
Finance costs	(2.2)	(1.3)	(3.9)	(4.4)
Profit before tax	42.3	34.8	32.9	6.7
Tax charge	(10.5)	(7.6)	(8.3)	(2.1)
Profit after tax	31.8	27.2	24.6	4.6
Earnings per share - basic	10.1	8.7	7.8	1.5

 

The results have been prepared for the six months to 30 June 2024. The comparative period has been prepared for the 26-week period ending 25 June 2023.

Group revenue reduced by £14.4m or 5.2% with print down 6.1% and digital revenue down 1.3%.

Adjusted operating costs decreased by £22.8m or 9.3%, more than offsetting the decline in revenue. The cost base benefitted from the restructure implemented at the end of 2023, alongside lower volumes and prices, with inflation continuing to unwind.

Statutory operating costs were lower by £40.1m or 14.9%, driven by the decrease in operating adjusted items of £17.3m (£7.0m in HY24 versus £24.3m in HY23).

Adjusted operating profit increased £8.4m or 23.1%. The adjusted operating profit margin of 16.8% in HY24 compares to 12.9% for HY23. Statutory operating profit increased by £25.7m, primarily due to the decrease in operating adjusted items and cost savings delivered through the cost programme.

Adjusted earnings per share increased by 1.4p or 16.1% to 10.1p. Statutory earnings per share increased by 6.3p to 7.8p, principally due to the increase in operating profit.

 

Revenue

	HY 2024 Actual £m	HY 2023 Actual £m	YOY Change %
Digital	60.0	60.8	(1.3)
Print	204.0	217.3	(6.1)
Circulation	149.9	155.4	(3.6)
Advertising	32.7	37.0	(11.5)
Printing	8.8	10.3	(15.2)
Other	12.6	14.6	(13.1)
Other	1.0	1.3	(22.7)
Total revenue	265.0	279.4	(5.2)

 

	Actual Q1 2024 YOY %	Actual Q2 2024                YOY %	Actual HY 2024 YOY %	Actual HY 2023 YOY %
Digital revenue	(8.5)	6.7	(1.3)	(16.1)
Print revenue	(6.0)	(6.2)	(6.1)	(2.7)
Circulation	(3.4)	(3.7)	(3.6)	2.4
Advertising	(10.7)	(12.3)	(11.5)	(18.3)
Total Revenue	(6.7)	(3.6)	(5.2)	(6.1)

 

 

Revenue bridge

	Actual £m	YOY %
2023HY revenue	279
Digital	(1)	(1.3)
Circulation	(6)	(3.6)
Print advertising	(4)	(11.5)
Printing & print other	(3)	(14.0)
Other	-	(22.7)
2024HY revenue	265	(5.2)

 

Digital revenue decreased by 1.3% to £60.0m (HY23: £60.8m). The impact from the sector-wide decline in referral traffic from major platforms has started to normalise, with digital page views declining 25%. The volume impact is mitigated by actions to diversify digital revenues and trade digital assets more effectively. As a result, the yield, the amount we earn from each page view, increased by over 30% year-on-year. Mass-scale programmatic yield has also improved with a stabilisation in open market prices. It is too early to call this a recovery, but the early indicators are positive.

 

The print business continued to perform reliably, with print revenue declining by £13.3m to £204.0m (HY23: £217.3m). Solid circulation performance with revenue down 3.6% to £149.9m (HY23: up 2.4%) as the teams expertly managed the cover price increases to offset volume decline with strong promotional activity and strategic special editions around big news events.

 

Print advertising declined by £4.3m, or 11.5% year-on-year; this performance has continued to outperform volume trends which were down 17% year-on-year, supported by continued strong demand from food retailers.

 

Print revenue also includes third-party printing revenues and other print-related revenues. Printing revenue decreased by 15.2% (HY23: down 10.4%). Other print revenue decreased by 13.1% (HY23: down 1.4%). These revenues are largely contracted on a cost-plus basis, and reflect the external market demand for print.

 

 

Costs

	Adjusted HY 2024 £m	Adjusted HY 2023 £m	YOY Change %	Statutory HY 2024 £m	Statutory HY 2023 £m	YOY Change %
Labour	(105.9)	(114.5)	7.6	(105.9)	(114.5)	7.6
Newsprint	(22.2)	(33.4)	33.7	(22.2)	(33.4)	33.7
Depreciation and amortisation	(9.7)	(10.3)	5.8	(9.7)	(10.3)	5.8
Production and sales related costs	(32.6)	(35.0)	6.8	(32.6)	(35.0)	6.8
Other	(51.4)	(51.4)	(0.2)	(58.4)	(75.7)	22.9
Total costs	(221.8)	(244.6)	9.3	(228.8)	(268.9)	14.9

 

By taking early action to drive savings across the cost base, we were able to reduce adjusted operating costs by £22.8m or 9.3% to £221.8m (HY23: £244.6m). This reduction is mainly attributable to the restructure undertaken during 2023. As a result over the last 12 months headcount has reduced by 14%. Newsprint costs are also lower from reduced newsprint volumes alongside lower prices as inflation continues to unwind. Longer-term supply contracts have been negotiated to provide more stability and locked-in some of these savings.

 

Production and sales-related costs include production, distribution, marketing and sales related costs. Key components of 'Other' include: IT related costs £16.4m (HY23: £16.6m), Utilities, rates & other office costs £12.4m (HY23: £12.1m) and other editorial costs £9.8m (HY23: £11.4m).

 

Statutory costs were lower by £40.1m or 14.9% due to lower operating costs and lower adjusted items which were £17.3m lower at £7.0m.

 

Operating adjusted items included in statutory costs related to the following:

	Statutory HY 2024 £m	Statutory HY 2023 £m
Provision for historical legal issues	-	(5.9)
Restructuring charges in respect of cost reduction measures	(2.7)	(10.2)
Property-related items	2.0	0.3
Pension administrative expenses	(2.4)	(2.6)
Other items	(3.9)	(5.9)
Operating adjusted items in statutory costs	(7.0)	(24.3)

The Group estimates for historical legal issues are unchanged. As a result, there is no increase in the provision relating to the costs associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering (HY23: £5.9m).

Restructuring charges of £2.7m (HY23: £10.2m) principally relate to cost management actions taken in the period.

Pension costs of £2.4m (HY23: £2.6m) comprise external pension administrative expenses.

Property-related items comprise the profit on sale of assets of £4.1m (HY23: £0.3m), less vacant freehold property-related costs of £1.1m and onerous lease and related costs of £1.0m.

Other adjusted items comprise the Group's legal fees in respect of historical legal issues (£0.3m), adviser costs in relation to the defined benefit pension schemes (£1.7m), internal pension administrative expenses (£0.2m), corporate simplification costs (£0.3m), and other restructuring-related project costs (£1.4m).

In the first half of 2023, other adjusted items related to the Group's legal fees in respect of historical legal issues (£4.6m), adviser costs in relation to the triennial funding valuations (£1.2m), internal pension administrative expenses (£0.3m) and corporate simplification costs (£0.2m), less a reduction in National Insurance costs relating to share awards (£0.4m).

 

Adjusted operating profit bridge

			Adjusted £m
HY23			36
Revenue mix			(14)
Inflation & volume			4
Efficiencies			20
Investment			(3)
Other			1
HY24			44

 

Adjusted operating profit of £44.5m was up £8.4m or 23.1%, with the actions on costs resulting in a decrease in adjusted operating costs of 9.3% more than offsetting the decline in revenue of 5.2%. Efficiencies of £20m mainly related to labour costs which were lower following the cost reduction programmes along with further property savings. Investments were made into Mantis, our AI-powered ad tech, and our US operations alongside digital product development.

Together, this meant that adjusted operating margin increased by 3.9 percentage points from 12.9% in HY23 to 16.8% in HY24.

 

Reconciliation of statutory to adjusted results

HY2024	​ ​ Statutory results £m	Operating adjusted items £m	Pension finance charge £m	Adjusted results £m
Revenue	265.0	-	-	265.0
Operating profit	36.8	7.7	-	44.5
Profit before tax	32.9	7.7	1.7	42.3
Profit after tax	24.6	5.9	1.3	31.8
Basic earnings per share (p)	7.8	1.9	0.4	10.1

 

The Group excludes operating adjusted items and the pension finance charge from the adjusted results. Adjusted items relate to costs or income that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature, in order to better reflect management's view of the performance of the Group.

Items are adjusted on the basis that they distort the underlying performance of the business where they relate to material items that can recur (including impairment, restructuring and tax rate changes) or relate to historic liabilities (including historical legal and contractual issues and defined benefit pension schemes which are all closed to future accrual).

Other items may be included in adjusted items if they are not expected to recur in future years, such as property rationalisation, and items such as transaction and restructuring costs incurred on acquisitions, or the profit or loss on the sale of subsidiaries, associates or freehold buildings.

Management excludes these from the results that it uses to manage the business and on which bonuses are based to reflect the underlying performance of the business and believes that the adjusted results, presented alongside the statutory results, provide users with additional useful information. Further details on the items excluded from the adjusted results are set out in note 5.

Balance sheet and cash flows

Historical legal issues provision

The historical legal issues provision relates to the cost associated with resolving civil claims in relation to historical phone hacking and unlawful information gathering. Payments of £5.2m have been made during the period. At the half year, a provision of £13.0m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. Further details relating to the nature of the liability, the calculation basis and the expected timing of payments, are set out in note 16.

Decrease in accounting pension deficit

The IAS 19 pension deficit (net of deferred tax), in respect of the Group's defined benefit pension schemes, decreased by £42.6m from £77.1m at year end to £34.5m at the half year. The pension deficit has fallen primarily due to the £31.0m of contributions made during the period and an increase in the discount rate which has reduced the present value of the scheme liabilities, partially offset by the reduction in asset values. The triennial valuations for funding of the defined benefit pension schemes, as at 31 December 2022, have been agreed for all of the schemes.

Group contributions in respect of the remaining four defined benefit pension schemes in the first half were £31.0m (HY23: £23.3m) under the current schedule of contributions. Contributions paid to the schemes in 2024 are expected to be £61.1m under the current schedule of contributions for the four schemes.

   Profit to cash measure

This ratio is a measure of our effectiveness at working capital management. It is calculated as our adjusted operating cash flow as a proportion of adjusted operating profit.

In order to calculate this measure, adjusted operating cash flow was aligned to the definition of adjusted operating profit. The change was largely driven by the exclusion of the cash flow impact of restructuring payments and other items classified as adjusted items in the income statement. This has resulted in an increase in adjusted operating cash flow in HY23 of £19.3m to £38.2m.

	HY 2024 £m	HY 2023 £m
Adjusted operating profit	44.5	36.1
Depreciation and amortisation	9.7	10.3
Adjusted EBITDA	54.2	46.4
Working capital movement	14.1	1.3
Other	0.7	1.1
Associates	(1.3)	(1.3)
Adjusted cash generated from operations	67.7	47.5
Lease payments	(4.4)	(2.1)
Capital expenditure	(5.6)	(7.2)
Adjusted operating cash flow	57.7	38.2
Profit to cash ratio	130%	106%

During the period, adjusted operating profit was £44.5m (HY23: £36.1m) and the adjusted operating cash inflow was £57.7m (HY23: £38.2m) with a profit to cash ratio of 130% (HY23: 106%). There is an ongoing focus on cash and cash management. The improved working capital inflow is attributable to timing differences most of which we expect to unwind over the year.

The table below shows how the Group is using the cash generated from operations to meet its financial obligations. Adjusted cash generated from operations is adjusted operating cash flow, excluding the impact of net lease payments and capital expenditure.

 

 

	HY 2024 £m	HY 2023 £m
Adjusted cash generated from operations	67.7	47.5
Pension payments	(31.0)	(23.3)
Historical legal issues	(5.2)	(3.5)
Restructuring	(12.9)	(12.1)
Capital expenditure	(5.6)	(7.2)
Proceeds from disposal of property	13.1	-
Final payment on acquisition	-	(7.0)
Other	(14.2)	(9.3)
Cash flow before returns to shareholders	11.9	(14.9)
Dividends paid	(14.1)	(14.0)
Cash flow after returns to shareholders	(2.2)	(28.9)
Net debt	(12.3)	(3.5)

Material uses for cash include pension contributions totalling £31.0m (HY23: £23.3m) and restructuring payments of £12.9m (HY23: £12.1m) which mainly relate to 2023 cost reduction programmes. The final payment on acquisition in 2023 of £7.0m relates to the Express and the Daily Star. Other comprises professional fees in respect of historical legal issues and adviser costs in relation to the defined benefit pension schemes of £2.2m (HY23: £5.8m), net lease payments of £4.4m (HY23: £2.1m), net interest paid on borrowings of £1.5m (HY23: £0.6m) and other movements which account for the balance of cash flows.

The Group paid a dividend in the period of £14.1m (HY23: £14.0m).

Cash balances

Net debt at the half year is £12.3m (inclusive of £1.9m restricted cash), an increase of £2.2m from £10.1m at the end of 2023. The Group has £25.0m drawn down on its revolving credit facility, with the overall total cash position of £12.7m at the half year. The Group has a revolving credit facility of £120.0m, which expires during November 2026.

Cash generated from operations on a statutory basis was £43.1m (HY23: £24.8m). The Group presents an adjusted cash flow which reconciles the adjusted operating profit to the net change in cash and cash equivalents, which is set out in note 19. A reconciliation between the statutory and the adjusted cash flow is set out in note 20. The adjusted operating cash flow was £57.7m (HY23: £38.2m).

Dividends

The Board paid a final dividend for 2023 of 4.46 pence per share in May 2024. An interim dividend for 2024 of 2.88 pence per share will be paid on 20 September 2024 to shareholders on the register on 16 August 2024.

In declaring an interim dividend of 2.88 pence per share for 2024 (HY23: 2.88 pence per share), the Board has considered all investment requirements and its funding commitments to the defined benefit pension schemes.

Principal risks and uncertainties

The Group recognises the importance of the effective understanding and management of risk in enabling us to identify factors, both externally and internally, that may materially affect our ability to achieve our goals. There is an ongoing process for the identification, evaluation and management of the principal risks faced by the Group, including emerging risks. Appropriate mitigating actions are in place to minimise the impact of the risks and uncertainties which are identified as part of the risk process. All risks are considered in the context of our strategic objectives, the changing regulatory and compliance landscape and enabling the continuity of our operations.

These principal risks and uncertainties, the risk appetite in relation to these and the resulting actions are set out in the Reach plc 2023 Annual Report which is available on our website at www.reachplc.com.

The principal risks and uncertainties continue to be: deterioration in macroeconomic conditions; deceleration of digital growth alongside acceleration in decline of print revenues; cyber security breach; supply chain disruption; health and safety incident; lack of funding capability; inability to recruit and retain talent, damage to brand reputation, and data protection failure.

 

Going concern statement

The directors assessed the Group's prospects, both as a going concern and its longer term viability, at the time of approval of the Group's 2023 Annual Report. Further information is set out in the Reach plc 2023 Annual Report.

At the half year, the directors have reviewed the going concern assessment, specifically the continued reduction in print volumes, the impact of the sector-wide decline in referral traffic from major platforms experienced during 2023 and the benefit of stronger yields. The Group undertakes regular forecasts and projections of trading, identifying areas of focus for management to improve delivery of the Strategy. The Group has a strong balance sheet and liquidity with a cash balance of £12.7m and £25.0m drawn from its revolving credit facility which expires towards the end of 2026, with an additional £95.0m remaining available.

Accordingly, the directors have adopted the going concern basis of accounting in the preparation of the Group's half-yearly financial report.

Statement of directors' responsibilities

The directors are responsible for preparing the half-yearly financial report in accordance with applicable laws and regulations. The directors confirm to the best of their knowledge:

a)    that the condensed consolidated interim financial statements have been prepared in accordance with UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

i.      an indication of important events that have occurred during the first six months and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

ii.     material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.

By order of the Board of Directors

 

 

 

 

Darren Fisher

Chief Financial Officer 31 July 2024