Reach plc (RCH) Earnings Call Transcript & Summary

Well, good morning, everyone. And welcome to the Reach plc Annual General Meeting for 2020. As many have remarked, these are unprecedented times in which we live, and therefore I'd like to thank you for being able to join today's webcast. It is 10:30, and as there is a quorum present, I declare the meeting open. I'm Simon Fuller, Chief Financial Officer, and I've been appointed Chair of the meeting today and I will take you through today's business. Let me start by providing an overview of the format for this year's AGM. You all be aware that the government introduced mandatory stay-at-home measures on the 23rd of March 2020 requiring people to stay at home, except in very limited circumstances, and stopping all public gatherings of more than 2 people. Now since these restrictions are currently still in place, we are unfortunately unable to invite you all to attend today's meeting in person. Therefore, in order to conduct the formal business of the meeting, we are holding a physical meeting with only a minimum quorum of shareholders present. We have, however, invited shareholders to join via a listen-only webcast; and to submit questions in advance of the meeting, a selection of which we will read out during the meeting together with the company's responses. Answers to all pre-submitted questions will be posted on our website, reachplc.com, as soon as practicable after the conclusion of today's meeting. So let me introduce who I'm here with today. I'm joined in the room by Jim Mullen, Chief Executive Officer and shareholder; as well as Lorraine Clover, Group Company Secretary and shareholder. We're also joined on the phone by the rest of the Reach plc Board; our legal advisers, Norton Rose Fulbright; our registrar, Equiniti; and our auditors, PwC. On our listen-only webcast, we're also pleased to welcome many of our shareholders. As you'll be aware, the COVID-19 pandemic has meant that we've had to make a number of changes to our normal business operations. However, we are endeavoring to provide all of our stakeholders, including shareholders, colleagues and also customers, with the best possible support that we can in these uncertain times. In particular, our colleagues are working tirelessly to maintain our leading position as a trusted source of content, recognizing our responsibilities at this time as the U.K.'s largest commercial, national and regional news publisher. So to provide some further business context, I'd now like to hand over to Jim Mullen, our Chief Executive, to provide a verbal update.

Thank you, Simon. Good morning, everyone. I was delighted to join Reach in August 2019, and I'm even more proud, today, having seen the team rise to the challenges posed by the COVID-19 crisis in recent weeks. Our business has continued to deliver its award-winning news and content throughout this crisis, and we have continued to focus on a key priority of maintaining distribution scale as the fifth largest online property in the United Kingdom. I would like to thank all my colleagues for the contributions made across the company in achieving this. 2019 saw good operational and financial progress with record growth in audience numbers, good cash generation and the establishment of a strong balance sheet. At our strategy presentation in February of this year, we outlined how we would build on the solid foundation of our position as the largest commercial and national regional news publisher in the U.K. to take the business forward. At that presentation, we detailed how our distribution scale provided an opportunity to invest and innovate, to ensure a sustainable future for our trusted news brands. The business continues to drive to build an intelligent, relevant and trusted content business for the long term. Our unmatched reach in United Kingdom continues to grow, and we continue to deepen our relationships via increased customer engagement. While the COVID-19 crisis has brought many challenges, there is no doubt that it has also brought our strategy even more sharper into focus. We have seen rapid growth in page views and app usage and registrations, with services such as InYourArea surpassing 650,000 registered users, significantly ahead of target. 42 million unique users accessed our services in March, with page views approaching 2 billion across the group. Content is at the heart of our strategy. And our titles continue to set the agenda during this crisis, with recent front pages grabbing the attention of the broadcast media. This resulting interest is helping to drive and maintain our digital audience. Now while we do, face revenue challenges resulting from the crisis, we should not lose sight of the fact that we continue to progress our strategy. We will also accelerate our plans to drive digital engagement and capture the customer data and insight that will drive future revenues. As Simon will detail, the revenue impact of the crisis has been swift and dramatic, and there is a great deal of uncertainty about how long it would last and how deep the economic impact would be. We had to move quickly to reduce costs and conserve cash, to protect the business, acting on the best information that was available. We took several decisions we never would have wanted to make under normal circumstances, and we were forced to take them quickly by the unprecedented nature of the crisis. We sought to balance the impacts across stakeholder groups, and all have contributed to ensuring the business is in the strongest possible position moving forward. Therefore, I would like to thank our colleagues, shareholders, pension funds and suppliers for recognizing and supporting the long-term interests of the firm. If we do see an improvement in the situation, then we will review our actions and adjust accordingly. Our objectives are aligned with all of these groups, and we are clear that our long-term growth and success is based on meeting the expectations of these stakeholders. As we anticipate forthcoming government announcements, detailing the next stage of tackling the crisis, you can take confidence that your business is in the best shape possible to respond. In the short term, that means maintaining our production and distribution scale, continuing to generate relevant news and content and operating as efficiently as we possibly can. It also means that, when we do emerge from the current crisis, Reach will be in a strong position to deal with any long-term impacts on the wider economy and the sector and, as importantly, take advantage of any potential opportunities that may result. I'll now hand you over to Simon, who will take you through the financials.

Thanks very much, Jim. Well, you will have seen that we released the trading update to the market earlier today, some of the content of which Jim has already referenced in his overview, but let me pull out a few of the key points by the way of financial summary. As we described in our early COVID-19 update on the 26th of March, the first 12 weeks of the year traded in line with our expectations, and this included the continuation of the positive traction that we've seen in our digital business in 2019 as well as improving print trends. However, as we have subsequently described in our further COVID-19 update on the 6th of April and also in today's trading release, the impacts of the current pandemic has been far reaching in our business. It's for this reason that we took early and decisive actions to protect Reach, with a wide-ranging set of measures to reduce costs and preserve cash, with defined element of this, the 3 months deferral of pension contribution, confirmed in our release today. These broad actions, as Jim has suggested, were not ones that we took lightly. And we are very grateful for the continued support and understanding of all of our stakeholders, who have each contributed to building the resilience of the business during these challenging times. As such, whilst total revenues in the period were 13.1% negative and in April were 30.5% negative, April comprising a full month of closed-lockdown trading, nevertheless, the liquidity of the business has been maintained. Additionally, whilst our digital business is currently impacted by reduced advertising demand and therefore, lower page yields, with growth at 4.7% in the year-to-date, reflecting the impact in the second half of March and into April of demand, we have nevertheless seen operational KPIs in digital, improving across the board. Jim has already referred to this, but whether we look at page views, audience levels, app usage or indeed, customer registration, which is at the heart of our customer value strategy. These improvements provide a good foundation for our future plans, as we continue to implement the next stage of our strategy. Now in terms of outlook, we have confirmed today that we came into this crisis with a robust financial position, and we will continue to apply disciplined cost control and strong cash management. For those who are familiar with the business, it will be recognized that both of these attributes are absolutely in our DNA, and they will be especially important in the current uncertain trading environment. Finally and on behalf of the Board, I'd like to thank our outstanding colleagues for the dedication and resilience that they have shown in these testing times and we've -- as we've worked hard to continue to inform and engage our customers both in print and online. And so I'd now like to hand over to our Group Company Secretary, Lorraine Clover, who will ask a number of pre-submitted questions on behalf of shareholders.

Thanks, Simon. So the first question is, does the Board accept that it should not cut jobs or pay, having received such massive government support in the COVID-19 crisis, to maintain an operating margin as high as 21.8% in future years?

Thanks, Lorraine. As already suggested when I gave the trading update a moment ago, our actions in response to the COVID-19 have sought to balance out the impacts across all of our stakeholder groups, whether that be shareholders, pension schemes or our colleagues. The current crisis has had a dramatic impact not only on our business but on our industry, and whilst so much uncertainty remains around its duration and long-term impact, it certainly wouldn't be sensible to make significant future commitments to any stakeholder group at this present time. What we can commit to, however, is continuing to work hard to be proportionate in our responses.

Thanks, Simon. All right, next question. What has happened to advertising rates in the last 2 months? And how is the company dealing with this issue?

Thanks, Lorraine. Well, again as referenced in our trading update today, the group has been impacted by a reduction in advertising at both the national and particularly at a regional level. I've also already noted that we've been affected by the reduced yields on digital advertising caused, for example, by a significant reduction in the active advertisers bidding for slots. Now our commercial teams are working very hard to secure those advertises that remain active in the marketplace and are also prepared for forthcoming announcements on any potential lifting of restrictions, with the plans that each advertiser segment as we emerge from this crisis. In terms of digital yields, we may start to see some recovery as advertisers return, depending on the speed of any relaxation in the lockdown. Overall, however, we would note, that where there's an impact economically of this scale, there will inevitably be a reduction in overall advertising spend. What will continue to be important is that we leverage our scale as a business and our breadth as the U.K.'s largest commercial, national and regional news publisher.

Thanks, Simon. Now I have a remuneration-related question. How could you pay out 2019 bonus when you cut dividends for 2019, are looking to defer pension scheme contributions and you are furloughing staff?

Thanks, Lorraine. I'll take this one. Things moved very fast in February and March, and that should be kept in mind. For example, we announced results on the 24th of February 2020 and communicated bonus outcomes to individuals shortly after that. And payroll procedures were immediately initiated for payment of bonuses in March 2020. The COVID-19 impacts began in mid-March and steadily worsened over the following weeks. We didn't reach a decision on dividends until the 6th of April 2020, by which point we have begun to see significant impacts on revenues from falling circulation, reduced advertising, lower digital yields and impacts from event deferrals and cancellations. We have acted in ways which we believe are appropriate to reflect the impacts of the COVID-19 on our business and to spread the burden across all stakeholder groups. Our most senior employees, including our nonexecutive Board, have taken a 20% cut in salaries, with most of our colleagues' pay reduced by 10%. The executive annual management bonus for 2020 is suspended, and any local bonus is suspended from Q2. And LTIPs to senior executives in 2020 remain subject to Remco discretion. Now, although we have furloughed some staff, we are continuing to operate with circa 80% of our normal workforce. It's also worth noting that part of the executive 2019 bonus was delivered in deferred shares. These shares have declined in value significantly, since they were awarded, so the impact of the COVID crisis will impact on those final rewards.

Thanks, Jim. All right, final question: Is the company strategy outlined in February still relevant, given the impacts of the COVID-19 crisis?

Thanks, Lorraine. The strategy that we outlined in February is now even more relevant than it was before the crisis. We have actually maintained our position as the fifth largest online property in the U.K., and the crisis has emphasized the value of our trusted news brands and we have seen strong growth in unique users and active app usage. Our InYourArea hyperlocal platform, noticed almost 650,000 registrations, which really shows the opportunity in that space. We're already accelerating our plans for gaining customer data and insight to increase customer value. And while in the current environment digital yields are suppressed, we will ensure Reach is in stronger position as it can be across all of our operations to benefit from the recovery in the marketplace as and when it comes. We'll detail more of the progress at the half year.

Simon?

Well, thanks, Jim. And thanks to all those shareholders who submitted questions for today. As we described earlier, we will post a Q&A summary with answers on our website at reachplc.com, as soon as practicable, following the end of this meeting. So we will now move to the formal business of the meeting. And as the notice of the meeting we sent to shareholders on the 7th of April 2020, may I take this as read? Thank you. While I regard the most democratic way to assess our shareholders' wish to vote on the proposed resolutions is to conduct a poll. This will also allow our shareholders' proxy votes that are properly registered to be counted. For those shareholders who are listening in: All proxy votes received by 10:30 on the 5th of May 2020 will be counted within the voting. For clarity, I'll just note again that resolution #4, which relates to the dividend, has been withdrawn. As we formally announced on Monday, the 6th of April, and Jim just referred to, the Board decided to take this mitigating action in light of the unprecedented crisis and the fundamental uncertainties it produced. Any votes therefore made in favor of this resolution will be discounted. I now formally call for each of the resolutions set out in the notice of the meeting to be decided on, by a vote of all shareholders through a poll. [Voting]

Thank you. We will publish the results of this poll this afternoon in an announcement to the London Stock Exchange, and they will be posted on the company's website at the same time. So ladies and gentlemen, that concludes the formal business of this meeting. And we now declare the meeting closed. But I'd just like to finish by thanking you for listening to the proceedings of the meeting and for your continued cooperation and understanding in these extraordinary and challenging times. On behalf of myself and the Board, please do keep safe. Thank you very much.