Reach plc (RCH) Earnings Call Transcript & Summary

Good morning, and thank you for standing by. Welcome to the Reach plc Annual General Meeting. [Operator Instructions] After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference is being recorded, Thursday, the 6th of May 2021. I would now like to hand over to your first speaker for today, Simon Fuller. Please go ahead.

Good morning, everyone, and welcome to the Reach plc Annual General Meeting for 2021. It is 10:30, and as there is a quorum present, I declare the meeting open. Many thanks for joining us for today's webcast. As a result of COVID-19 restrictions, we are, as with last year, holding this meeting without shareholders attending. We very much hope, however, that we will once again be able to welcome many of you in person to our AGM next year. I'm Simon Fuller, Chief Financial Officer for Reach, and I've been appointed Chair of the meeting, and I will take you through today's business. Let me start by providing an overview of the format for this year's AGM. 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 our listen-only webcast and to submit questions in advance, a selection of which we will read out during the meeting together with the company's responses. Answers to all pre-submitted questions which were received by Friday, the 23rd of April, were posted on our website by the following Wednesday, the 28th of April, to allow shareholders to consider their responses when making their voting decisions. Any submitted questions received after this date will be posted on our website, reachplc.com, as soon as practicable after the conclusion of today's meeting. 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 registrars, Equiniti; and our auditors, PwC. On our listen-only webcast, we are also pleased to welcome many of our shareholders. To open the meeting, Jim Mullen, our Chief Executive, will provide a short summary reviewing the performance of the business during 2020 and update on our trading statement released this morning, which provided an overview of company performance during the first 4 months of 2021.

Good morning, everyone, and thank you, Simon. 2020 represented a year of significant achievement for Reach plc against the backdrop of COVID-19 lockdowns, which in the initial months impacted circulation sales and caused significant declines in advertising. At Reach, we took the view that a long-term response to the crisis was required to ensure that we emerge as a stronger business. As a result, we took radical steps to ensure we had the platform to accelerate our Customer Value Strategy. Having taken a number of short-term cost reductions in April 2020 that was shared across our stakeholder groups, by June, we were ready to announce our long-term transformation plan. These changes made the business more efficient and enabled an acceleration of the Customer Value Strategy. The changes included a radical restructuring of our editorial, advertising sales and central operations. By September 2020, the changes have been materially delivered, establishing a stable platform for the business to accelerate the strategy going forward. The Reach team showed real resilience in responding to the challenges of COVID-19, embracing business transformation and in taking advantage of opportunities to take our business forward. Central to this has been our core purpose, which is to serve our communities as prominent champions, campaigners and change makers. Throughout the pandemic, our award-winning journalists continue to engage our readers with market-leading coverage of news, sport and entertainment, from the Mirror story on Dominic Cummings' lockdown trip to Barnard Castle, which was joint winner of Scoop of the Year, to the Express Campaign of the Year Award for its Time To End Cystic Fibrosis Scandal campaign. In Scotland, the Daily Record set the agenda in campaigning against the government's use of algorithms to determine exam results. And in Ireland, the Irish Mirror won Headline of the Year for its Parting Glass front page. The Irish Daily Star also won the Campaigning Journalism Award for its relentless coverage of organized crime in Dublin. WalesOnline, Liverpool Echo and Manchester Evening News also led the way with a number of regional awards. And just last week, we saw another example of successful campaigning by one of our titles to change our country for the better. The Daily Express campaign to reform the family law courts saw a new legislation received Royal Assent, where justice Minister Alex Chalk said that the Express had campaigned effectively and emotively on an issue and added that the Express deserves huge credit for the spotlight it has shown on the family court system. We are, therefore, extremely proud of our titles and our journalists how they continue to cover the pandemic and how they have embraced the Customer Value Strategy in offering over 280 newsletters to our readers on the subject areas they are passionate about. This has helped us to drive registrations to record levels, way above our initial target, with over 6.2 million customers now registered with us. As the U.K.'s leading publisher by monthly digital audience, we continue to get closer to our customers through delivering the content they want through targeted newsletters. We also continue to build on the success of our digital, local and regional live branded news sites. That will very soon offer complete coverage of England and Wales as well as sites covering Glasgow, Edinburgh, Belfast, Dublin and Cork. Our hyperlocal app InYourArea provides another level of interaction with readers at postcode levels. And this app is the third most downloaded news app in the country and now has over 2.3 million registrations. In the second half of 2020, our digital business continued to see strong growth momentum, growing by a record 26% in the final quarter of the year. Digital growth during the first 4 months of 2021 was 35%. Now while this is somewhat flatter by a soft comparator last year, the business is also starting to benefit from the launch of our 'plus' range of data-targeted advertising products, which we detailed at the full year results on March 1. We continue to see good progress with these products. And while it is early days, we are encouraged by their potential. Our print titles too have seen a steady recovery since the early months of lockdown. And we were pleased to announce that the trend has also continued into the early months of 2021. While a decline of 10.4% in print during the first 4 months of the year does benefit from a comparative with the worst of the lockdown last year, it nevertheless indicates that the rate of decline is moderating. Since the start of the year, we completed the transformation of our print operations with the closure of 2 of our printing plants, reducing costs and further improving efficiency. We continue to focus on delivering our strategy through our 4 key pillars. These are: to improve customer engagement and loyalty; to achieve a single view of our customer; to diversify revenues; and to develop our talent, promote well-being and encourage diversity. As the current lockdown comes to conclusion, we continue to keep well-being and health and safety at the forefront of our approach across all of our operations. We have had an encouraging start to 2021 and continue to see the benefits of the transformation flowing through to the bottom line with an improved operating margin. With digital now accounting for more of our advertising revenue than print and growing strongly, we are well placed to make further progress during 2021. We continue to invest in the key areas of our strategy to ensure the progress we have made to date continues at a pace. And we have a strong balance sheet and are now increasing investment to accelerate the delivery of the Customer Value Strategy, focusing on the use of enhanced customer insight to drive engagement and supports our medium-term objective of doubling digital revenues. I'll now hand you over to Simon to talk you through the financials for the period.

Thank you, Jim. As already noted, this morning's meeting is accompanied by a trading update covering the first 19 weeks of the year, which was released to the market this morning. Jim touched on some of the content in his overview just now. Let me also pull out a few key points by way of financial summary. The business has continued to perform well across both digital and print following our last market update on March 1, with overall group revenue for the period down by only 3.1%. As Jim mentioned, this year-on-year movement is partially flattered by the negative impact the pandemic had on revenue last year, in particular, from the start of lockdown measures from late March. For this reason, in line with many other companies, we have also provided 2-year growth rates. These show our performance for the period versus the same period in 2019, with digital revenue up by 41.3% and print declining by 24.3%. By removing the COVID impact from the comparatives, we can more clearly see the strong underlying progress we continue to make, particularly in growing our digital revenue, which is the core strategic focus for the business. We're continuing to make strong inroads against all of our strategic objectives. A growing mix of digital revenues and cost savings from last year's transformation program will support a growing profit margin in 2021. Furthermore, our continued strong generation is supported -- has supported increased strategic investments, which will be important for 2022 and beyond. In terms of outlook, we've confirmed that we're now expecting full year operating profit to be slightly ahead of previous market expectations. Finally, the Board would like to thank our outstanding colleagues for their ongoing support and dedication during these challenging and uncertain times for us all. I would 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.

Okay. The first question, Jim, with print sales now entering a period of relatively soft comparatives, are you confident you can reduce the long -- trend of long-term decline?

Thanks, Lorraine. Print remains an important area of focus for us, delivering a significant proportion of our revenues. And while we are seeing strong growth in digital, it's also important that we continue to produce the strongest possible content across traditional formats to appeal to all of our readers and to use the strength of our network to cross-promote our titles and deliver value. We're seeing positive signs in recent periods, and we will continue to do all we can to support our editorial and print teams in delivering news and content that our readers continue to demand.

Okay. Thank you. Next question, for Jim again. Revenue diversification is one of your key pillars. Can you give some examples of how you plan to do this?

Thanks, Lorraine. While we're progressing on all 4 pillars, there is no doubt that much of the digital growth we are seeing to date has come from increased engagement and loyalty. During Q1, we launched a portfolio of 'plus' targeted advertising products that have a really good initial uptake, and we're encouraged by their potential for the future. As we build our CRM and data skills, we believe that there is much more potential here. And one aspect of this that we'll be developing in H2 will be targeting niche content for our readers.

Okay. With over 6 million registered customers in the bag, shouldn't you be increasing your relative customer target of 10 million by the end of 2022? Jim?

Thanks, Lorraine. Well, we've made strong progress in registrations and are currently ahead of our end-of-2022 targets. However, as we continue to grow registrations, our focus will actually not just be in sign-ups but also retention and churn as our customer insight becomes increasingly more sophisticated. So we'll continue to monitor our progress as we go through this year and continue to assess this target as we progress.

Thanks, Jim. We've got a question for you, Simon. You have set a target of doubling digital revenues over the medium term. Is that realistic? And do you think that you can maintain current growth rates?

Thanks, Lorraine. Well, look, we do believe that doubling digital revenue over the medium term is a realistic ambition, and we're absolutely focused on delivering it. We're seeing strong digital momentum in the business. And while some of that in the coming months will be against soft comparatives, we have been growing at rates of 20% plus in terms of compound growth per annum for 2 years. We believe we can continue to see strong digital growth. And with our digital advertising business now bigger than our print advertising business, we are absolutely in a strong position to make good headway in 2021 towards our target of doubling digital revenues in the medium term.

Thank you. Right. Another one for you. Have you reached a settlement on the triennial review of your pension contribution?

Thanks, Lorraine. We remain in discussions with our pension schemes about the triennial review. We've always taken our obligations in this area seriously, and we will continue to meet our obligations whilst investing in the future growth that will ensure we can continue to deliver for all of our stakeholders. And that's the focus of our capital allocation policy, which is about developing a long-term sustainable business model for Reach.

Thank you, Simon. We have posted a Q&A summary with answers on our website, reachplc.com, should people wish to access these. I'm now going to hand over to Simon to conduct the formal business section of the AGM.

Thanks, Lorraine. Thanks, Jim. I will now move on to the formal business of the meeting. And as the Notice of Meeting was sent to shareholders on the 26th of March 2021, may I take this as read? Thank you. The most democratic way to assess how shareholders wish to vote on the proposed resolutions is regarded as conducting a poll, and this will also allow our shareholders' proxy votes that are properly registered to be counted. For those shareholders listening in, all proxy votes received by 10:30 a.m. on the 4th of May 2021 will be counted within the voting. I now formally call for each of the resolutions set out in the Notice of Meeting to be decided by a vote of all shareholders through a poll. Thank you. [Voting]

We will publish the results of the poll this afternoon in an announcement to the London Stock Exchange. And they will also be posted on the company's website at the same time. Ladies and gentlemen, this does conclude the business of the meeting for today, and I now declare the meeting closed. Thank you for listening into the proceedings of the meeting and for your continued support of and interest in the business in these extraordinary and challenging times. On behalf of myself and the Board, please do keep safe and well, and we look forward to our next scheduled update on the 28th of July.

Thank you, sir. That does conclude the call. Thank you, everyone, for joining. You may now disconnect.