Reach plc

Good morning, everyone, and welcome to the Reach PLC interim results presentation for 2023. I'll assume that you've already read our disclaimer. Now, joining me this morning is our CFO, Darren Fisher, who will guide you through the financials after I've taken you through our strategic update. The customer value strategy is continuing to create a strong foundation for sustainable long-term growth. Our data-led approach and invest in digital capabilities continues to bring us closer every day to a more engaged online audience. We are focused on getting to know our customers better using data-led insights to create more relevant content and a more engaging customer experience. And we are delivering. We continue to operate in an uncertain macroeconomic environment with rising costs for businesses and consumers alike. And since our last update at the start of May, we've seen a continuation of the page view slowdown affecting publishers across the sector, more of which shortly. Now, these external factors are impacting growth in the near term. However, our focus on direct customer relationships and more diverse revenues is supporting higher quality digital earnings. This gives us more control and makes us more adaptable to change. And this is clearly reflected in our mix of digital revenues, with a consistently growing percentage generated by data-driven, higher value, better performing advertising. Since the start of the strategy in 2019, we have registered almost 30% of our UK audience and grown digital revenue by over 40%. Just over 40% of that revenue is now data-driven, with a declining proportion driven by the open market where we are the price taker. And we fully expect this to grow further as advertisers continue to seek alternatives to third-party cookie-based targeting. Circulation revenue up over 2% in the period has now grown over four consecutive quarters. And the habitual nature of newspaper consumption and our expertise at evolving production to manage volume decline means that print remains a resilient and predictable business, generating significant cash flows. From a cost perspective, last year's headwind from rising newsprint prices is beginning to subside, and we're firmly on plan to deliver a 5-6% reduction in full-year operating costs. The bulk of those savings land during H2, supporting a much stronger second-half performance and unchanged profit expectations for the year. The single biggest issue impacting our digital performance has been the loss of page view traffic from platforms. Referrals from tech and social platforms are an important source of page view traffic for news publishers. The growing popularity of digital audio and video has brought new platforms like TikTok into play with incumbents moving to respond. For example, over the period, Facebook has made significant changes to its feed, firstly, removing the instant articles platform, but also deprioritizing news more broadly and instead seeks to promote its Reels content. The impact of this has been widespread and industry data shows that many in the sector are seeing a decline in page views. Over the first half of the year, we have seen a decline of 16%, which as you can see from this chart, has overwhelmingly been driven by the changes, excluding which page views are down only 2%. Facebook-driven page views declined by around 60% in Q2, roughly double the rate of decline we saw for the first three months of the year. Our forecasts for the year to go are broadly based on our current run rate, making no assumption for any material recovery in page views. However, the performance of our digital business is increasingly driven by areas which are less volume dependent. As we continue to diversify our revenues and focus on connecting directly with our audience to drive the level of engagement and average revenue per user. And that audience means we are the UK and Ireland's largest commercial news publisher, the UK's sixth largest digital asset by audience and customer base. It means we're plugged into roughly 75% of the UK's online population, with a little under 30% of them registered with one of our digital products. We now have over 13 million registered customers, with our 28-day actives and registered page views up between 10% and 15%, despite the overall page view decline during the half. With our brands already reaching a large majority of the UK's digital audience, encouraging existing customers to consume more represents our biggest opportunity to grow. Increasing engagement has therefore always been central to our strategy, and we're continually exploring new ways to build stronger relationships in addition to growing new ones. As well as using data to grow engagement and differentiate our ad supply, we're continuing to focus on revenues that are less dependent on direct customer volumes. The development of e-commerce, partnerships and affiliates in particular are all supporting our growing proportion of data-driven revenues. Being a regular part of our customers' lives means the interactions and insights that they generate are more recent, more relevant and more valuable to advertisers. Our focus remains on acquiring quality, engaged customers that keep coming back to our brands. Interactive content is a part of that. And I spoke in March about the ways in which we're using polls and surveys to gather insights and enrich customer profiles. We're also broadening the touchpoints we have, providing more ways for customers to access our content. Our newsletter portfolio continues to go from strength to strength, with 1.2 million customers now opening one of 600 titles every single day. The switch to a more sophisticated email service provider during H2 will give us the capability to step this up further with a more automated and dynamic approach. As well as contacting a registered audience via email, we've also begun building relationships via the phones. The first publisher to use the WhatsApp communities feature to message customers directly. Although we only started in April, growth has been rapid. We already have 40,000 subscribers who are on track to generate a million page views this month. WhatsApp is already generating the level of loyalty seen in email newsletters, but with higher open rates at around 90% and with a click-through rate that's four to five times higher. It's an exciting opportunity for growth, which in addition to the development of direct web push notifications, gives us more ways to interact. We continue to develop our use of recommender tools to encourage greater dwell time. We're using machine learning tools to make personalized article suggestions based on reader and article data. Recommenders are now driving over 10% of our paid views by recirculating users on our sites. We are an unashamedly commercial news organisation, and as such, we adopt an ad-funded model at scale, which funds our brilliant journalism whilst delivering on our financial obligations. We need to therefore balance our commercial ad distribution at scale with an engaging reader and customer experience. Our product and engineering team have been working on our systems architecture to improve the on-site experience, ensuring great content, but also in a format which makes customers want to stay and to come back. A cleaner feel and faster load speeds will support our search rankings, meaning our brands are easier to find. The Liverpool Echo will be the first of our titles to relaunch on this new platform during the second half. While enhancing the experience for our existing audience, we're also reaching out to create new ones. The expansion of our U.S. business, although also partly reliant on referred traffic, is progressing well. We now have U.S.-based journalists writing U.S. content for U.S. customers, with an editorial team of around 30 now up and running in our New York office. The ExpressUS.com website launched in the past few weeks, with the Mirror going live in August. I mentioned earlier the important role that social platforms are now playing in bringing news content to a younger generation. Our new youth-orientated brand Curiously is up and running, with posts on celebrity news, wellness trends and hoodie bans, all clocking over one million views on TikTok. Video is a key development area and a big growth opportunity for us. Across our total network during the first half, we had 175 million monetized views of video content across Facebook, Twitter, and YouTube. We now have over 70 production heads working full-time on video creation, and in June, we posted 4,343 Facebook videos. As well as using data to grow engagement and differentiate our ad supply, we've continued to focus on areas less dependent on direct customer volumes and obviously open market pricing, which we do not control. The development of e-commerce and affiliates are supporting the performance of data-driven revenue, and we're excited by the growing opportunities in data partnerships from direct customer revenues. I've spoken before about growing expertise in ad tech and the growth potential for leveraging and licensing our data. Over the period, we've made good progress, signing new data partnerships with Google, Amazon, and Zander, which is Microsoft's curated platform. The details of these three agreements vary, but in different ways, they allow us to plug our data into an open market, enriching our inventory with contextual targeting. We are also exploring opportunities for direct customer revenues. Last month, launching an MEN premium app with a metered paywall, which allowed customers to read a limited number of articles per week for free with a charge applied after that unlimited access. The MEN app will be the first in a series of tests into direct reader revenues, which will then include the trial of a paywall on the Liverpool Echo and the Express, as well as a series of paid-for newsletters. We've continued developing our e-commerce capabilities. Our OK Magazine Beauty Box subscriptions business has grown rapidly. with 80,000 subscribers, very low churn, and sales of over 300,000 limited edition beauty boxes, which currently include a limited edition from the high-profile makeup artist Hannah Martin. Although coming from a relatively low base, our affiliate business is also expanding at pace. The introduction of a clever piece of auto-linking tech is allowing more of our journalists to write affiliate content, and we're expanding our team. As a scale news publisher with over 150 brands, we have a lot of editorial content which can be monetized and we're making great strides. Over the recent Amazon Prime Day, we increased affiliate articles, page views on those articles and affiliate revenue all between 300 and 400%. So we are confident of building strongly on this success moving forward. Before moving on to print, it would be remiss of me not to say something about the topic the whole industry, along with the rest of the world, has been busy discussing, AI. We were early to begin exploring the opportunities and risks and continue to explore the ways in which AI can benefit our business. While it's undeniably a complex area, we're clear about what we want from this emerging technology. Our carefully monitored trials have therefore had very practical focus. Our teams ask themselves if the output serves the audience and supports our journalists in their working lives. We're focusing on the ways that tools could improve efficiency, for example, interrogating data and information gathering, potentially freeing up time to produce more content. On Derbyshire Live, we ran an article exploring hare hunters and unclaimed estates. For this, we used AI to extract and compile a list of relevant properties, saving our journalists valuable time that would have been spent wading through dense spreadsheets. Similarly, an article exploring Croydon's cheapest three-bedroom houses used a plugin to the land registry, which returned information in seconds. We're continuing to explore the possibilities, but are taking our time here, generating around 100 to 150 articles a week, with the focus on enhancing the kind of storytelling that we already do best. Our print business continues to be resilient, underpinning our investment in digital growth. One in five UK adults read a Reach print title last month, with close to a million copies still sold daily. With over 70% of print revenue generated by circulation, revenue and cash flow are supported by a largely predictable consumption trajectory, which remains pretty inelastic. Circulation revenue grew during the period by just over 2%, and while price increases played a large part in this, they're not the whole story. Active revenue management is supported by detailed footfall and frequency modelling, which means we're able to closely match volume supplied and availability by outlet type. Since 2019, we have increased availability from 80% to 90% across key national and regional titles, ensuring that we maximise copies sold while, of course, minimising returns. As part of maximising the value from our print assets, we've increased the use of themed specials. Souvenir or one-off publications which have included Rising Dragons, a celebration of Wrexham's promotion to League Two. Treble Winners, commemorating Man City's recent success. And Love TV, a celebration of the best of British telly. The REACH sport business continues to grow revenue from programme production and sales for Premier League clubs with the Rugby World Cup to come during H2. We're also consolidating our archives with over 200 million original photographs, helping to grow revenue through syndication and licensing. And of course, we have a long history of actively managing volume decline through the process of continuous improvement as we optimize distribution, lower the cost of ink, and reduce the cost of energy with installation of solar panels across our print sites during H2. We've also worked hard over the past 12 months to diversify our newsprint sourcing and ensure more flexible supply, with prices now coming off the highs we saw in 2022 and set to fall further during the second half. Our expertise in evolving the print business, ensuring editorial integrity at the lowest cost, means it remains a reliable business with multiple years of strong cash generation to come.

Thank you, Jim. Good morning, and thank you all for joining us for this morning's presentation. I'm going to take you through the financial results for the six month period ended 25th of June, before sharing our thoughts on the outlook for the rest of the year ahead. At a headline level, our results clearly reflect the continued economic uncertainty faced by the business and consumers alike, and the impact of a decline in referral traffic across the sector. From a revenue perspective, we moved back in the period by 18 million pounds, or 6.1%.

Driven predominantly by external pressures in digital, with the overall decline partially offset by growth in print circulation.

Operating costs of $245 million were just under 3% lower than last year. This has been driven by a much reduced inflation headwind and our plan to reduce group operating costs by between 5% and 6% being firmly on track. Operating cash flow for the period reduced to $18.9 million, reflecting the lower operating profits. It also reflects higher restructuring charges associated with operating cost reduction and the legal costs from the recently concluded HLI trial. We ended the period with a small net debt balance, which is after pension payments, the payment of last year's final dividend and the last remaining payment for the Express and Star acquisition. Finally, we have maintained our dividend at 2.88 pence per share, reflecting the board's continued confidence in the resilience of our business model and in recognition of the importance of dividends to our shareholders. Now, turning to the main drivers of the 6.1% decline in revenue year on year. I will start with total print revenue, which was 2.7% lower. Print, which comprises circulation, print advertising, and other print revenues, remains resilient and predictable. Performance in the period is slightly ahead of the rate of decline we've seen over the past couple of years. Circulation, which is now around 70% of total print revenues overall, grew by 2.4%, continuing to benefit from the additional cover price increases we put in place during the second half of last year. Circulation volumes for the period were down 20%, continuing the trend we saw during half two last year and in line with our expectations. Advertising revenue has performed better than our initial expectations, down at 18.3%, slightly better than the movement in newspaper volumes, and ahead of the decline we saw in half two last year. Elsewhere within the print business, third party printing revenues, which are largely contracted on a cost plus basis, were slightly lower, reflecting the fact that newsprint prices are declining from last year's highs. Other print revenue is flat for the period. Digital revenue declined by 16.1%, with a decline in paid views, which accelerated during the second quarter, adding to general macro softness in the market. Total revenue of $279 million was down by just over 6%. Moving on to the profit bridge, I've already covered the revenue movements. So the first thing to note on this slide is that we have seen a significant easing in the level of year-on-year inflation, which, as a reminder, was just under $40 million for 2022.