Reach plc (RCH) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us for the half year results for Reach plc. I'm Jim Mullen, Chief Executive; and I'm joined by Simon Fuller, our CFO; and Lloyd Embley, our Editor-in-Chief, for this morning's results presentation. We will be presenting for around 40 minutes, and then we'll move to Q&A. The first half of 2021 has seen us continue our progress transforming the prospects for Reach plc. For the first time in many years, the company has a clear strategy and a clear pathway to sustainable growth. The progress since the challenges of lockdown have been dramatic, so much so that we are now employing more journalists than we did at the end of 2019. In fact, by the end of this year, we will employ more journalists than we have for a decade. There is no doubt that the core purpose of Reach as champions, campaigners and changemakers at the national, regional and local level is more vital than ever before in a digital era. Our audience remains at record levels and trends on engagement and loyalty are strong. The digital shift in the wider economy and our transformed business model leaves us in a strong position to continue to take advantage of the opportunities ahead of us. We continue to invest in journalism and content and also in the applied data technology that is key to unlocking the full value of our audience, which now is a clear path to long-term growth, and our news brands have a healthy future ahead of them. Here's a quick reminder of our unique scale and influence from our leading national and regional news brands to the regional digital network that will offer a news site in every county of England and Wales by the end of this year. In addition, we continue to expand in Scotland and Northern Ireland with more live sites and a new dedicated Scottish Daily Express website. We remain the fifth-largest digital property in the U.K. with only the global tech platform reaching a bigger monthly audience. With 42 million users in the U.K. each month, 80% of the country's internet audience use a Reach site. The number of stories we publish each year continues to grow as we respond to reader demand for content, and we have extended our leads in the key area of sports. This unmatched scale, reach and influence and our editorial strength across news, sports and entertainment provide the foundations for the Customer Value Strategy and are central to our progress. The engagement and loyalty we are able to drive from the registration of 6.7 million customers has helped us secure strong digital revenue growth of 43% this half. This now means that digital is 23% of our revenue base, up from just 17% in H1 2020, a seismic and ongoing shift. In terms of advertising, digital already accounts for more revenue than print advertising, and of course, it continues to grow at healthy double-digit rates. We continue to build on our strengths in areas like sports, investing to expand the team and broaden coverage and have seen our audience numbers and our lead over the competition grow. This is just one example of investment along with a significant expansion of regional news coverage, details of which we will come back to later. While digital is a key aspect of our strategy, it is a customer-focused strategy and many continue to choose to read our content in printed form. We have been encouraged by circulation trends in recent months and overall decline is stable on a 2-year view, trending back to historic norms. This will ensure we continue to generate strong cash flows to invest in our future. The transformation of our business model has seen us achieve a step change in operating margin, which now stands at 22.8%, up from 18.9% last year, and we believe there is more to come here over the long term. All of this is contributing to a strong financial performance and to generating the healthy cash flows that enable us to invest in the business and to deliver to all of our stakeholders. I will now hand over to Simon to detail our financial progress. Simon?

Thank you, Jim, and good morning, everyone. We appreciate you joining us for today's update. 2020 for Reach and many other corporates was a year of making tough choices as we worked to deliver that sustainable business model with which Jim opened, a model that's so crucial to our ongoing social purpose as prominent champions, campaigners and changemakers. 2021, while still a challenging macro context, has been a year of beginning to deliver on the promises we've made, it being a year when the business will rightly be judged by how a transforming Reach performed in a changed world. Well, today's above-expectations interim announcement demonstrates that we continue to make significant and measurable progress. Whilst the year-on-year comparatives are clearly strongly influenced by COVID and last year's Q2 drop-off in performance, nevertheless, it is noteworthy that the last time the business had organic year-on-year growth was 2007. Today's 4% total revenue growth, 2.6% like-for-like, is strongly influenced by another record digital performance, with the first half digital revenue equivalent to what we delivered in the entire year only 4 years ago. Overall business momentum has been accelerated through our group-wide transformation. And even with investment and prior year one-off credits, the cost base reduced year-on-year, delivering operating profit of GBP 68.9 million and a 22.8% margin, a bigger step-up achieved than when we acquired and combined scale businesses such as Local World or Express & Star. Operating cash flow was up 30.1% to GBP 82.6 million, providing the firepower, that is the flexibility and optionality, to deliver our strategy with net cash at almost GBP 55 million. Finally, we've announced a 2.75p per share dividend, up by 4.6% compared to the prior year interim bonus issue, which will be paid in September. This, set alongside our other capital allocation decisions and commitments, evidences our intention to deliver for all stakeholders. You will recall that we signaled in our 2020 year-end presentation a reducing level of adjustments as our transformation program completed. Of the half 1 items, approaching 3/5 of the charges related to our office transition to Home and Hub. This will see our office estate reduced to a smaller set of hubs with home or hybrid working for the majority of our colleagues. The related charge of GBP 23.7 million, over half of which is noncash, is the final stage of the COVID-accelerated change program that we announced last July. The remaining items are mainly historical, including the ongoing management of historical legal issues, which involved an additional charge of GBP 13 million. These charges are very manageable in the context of our cash generation and will continue to be professionally dealt with. Group revenue advanced year-on-year, particularly driven by Q2 at 16.8% like-for-like when both digital and overall print were in like-for-like growth. In fact, Q2 digital revenue was up by almost 2/3, accelerated by our Customer Value Strategy progress and building from weaker prior year yields. In our RNS, we've also shared combined 2-year like-for-like figures to help to remove some of the volatility caused by COVID. These demonstrate a consistent shape half 2 2020 into half 1 2021, both being just under minus 15% on a combined 2-year like-for-like basis and with both of these well ahead of half 1 2020, which was just over minus 22%. The numbers in the market anticipate that this improved performance will at least be maintained in half 2 2021. The chart on the left-hand side of this slide tells the compelling story of Reach's digital progress. In 2019 and 2020 half 1, digital revenue was consistently in the GBP 40 millions. In 2021, it is nigh on GBP 70 million. In fact, half 1 2021 in absolute terms is almost equal to half 2 2020, which was both a record performance and followed a strong seasonal shape, as is usual in our second half, with boosts from Black Friday and Christmas. Digital mix has accordingly increased and now stands at 23%, up from 2020's full year 20% and last year's half 1, which rounded up to 17%. This progress has been supported by strong underlying fundamentals. As such, whilst traffic stabilized versus half 1 last year, last year having been significantly enhanced by lockdown impacts and higher COVID content consumption, overall audience continued to advance, further extending our mass coverage. The digital revenue growth percentages captured in this chart show something of this evolution. You’ll remember the significant decline in yields in Q2 2020 despite strong traffic as advertising demand faltered. Yields have subsequently recovered, and we have seen a doubling of the percentage rate of growth comparing half 2 2020 to half 1 2021. Even after adjusting for volatility, using 2-year rates, it is evident that underlying performance has further strengthened. As an important aside, a compound annual growth rate, or CAGR, of circa 20% is about double the growth achieved pre-COVID and pre the February 2020 launch of the Customer Value Strategy. Now whilst this update is about a 6-month period, we wanted to step back and look at the print advertising and digital revenue mix trend over a far longer 6- to 7-year period. This slide does just that and demonstrates an 86-14 print advertising-led mix in 2015 has now evolved to a 58-42 digital-led mix in half 1 2021 and with a growing quantum of total print advertising plus digital. The acceleration of the past 18 months is absolutely measurable with 1.5 to 2x the rate of mix change compared to preceding years. There is no evidence to suggest this acceleration will modify or moderate in the near term. In fact, quite the contrary with the Customer Value Strategy supported by a macro consumer shift to online and consequent demand from advertisers for digital inventory. Print revenue is evidently still a material business and remains critical to our overall performance. As you will see on this slide, circulation revenue in half 1 was within GBP 4 million of being flat in absolute pound millions and advertising within GBP 3 million. Circulation in particular has shown remarkable resilience during COVID with loyal readers finding a way to get their Daily Mirror, Sunday Express or Manchester Evening News and with successful and recurring investment in availability, pagination and promotions. In terms of guidance, we expect to revert to a circulation revenue decline rate of around mid-single digits from half 2. As I've described before, but it's a point worth reemphasizing, the percentage decline in print advertising has historically been 3x that of circulation, the latter of which has been protected by cover price inflation. However, with print advertising now only just over 1/5 of print revenues, this drag is becoming far less pronounced. What COVID has unquestionably proved is that alongside digital acceleration, print revenue has been far more resilient than some commentators have predicted. In fact, print circulation, commercial printing and other print revenues were each well ahead of our internal business plans in half 1, contributing to the overall print like-for-like of minus 5.2%. The transformation that we announced on the 7th of July 2020 has been a vital component in our half 1 business delivery. Put another way, without it, the significant progress made in the last 6 months, as we're sharing today, just wouldn't have been possible. In half 1 2020, costs had been suppressed by furlough, pay cuts, bonus suspension, discretionary cost removal, lower revenues and other one-off items. In half 1 2021, with none of these mitigations, alongside a significant ramp-up in organic investment, we've been able to deliver a flat cost base, actually a slightly reducing one. The transformed operating margin, up year-on-year by an amount equal to the previous 5 years' progress combined, underpins our ability to meet our agreed obligations. More than this, however, it has given us the flexibility and optionality, as I said earlier, to invest more in the business and with more to come. This investment, as our next slide illustrates, has been under 2 main headings. Content, as you know, is the lifeblood of this business. As Jim powerfully demonstrated in his opening, our number of journalists is now growing, not declining with cross-England and Wales expansion on live, deeper local coverage and investment in other national content areas. If content is what we do, being a data-rich company is increasingly how we will do it. The Customer Value Strategy is leading to significant investment in data and analytics with CRM and data lake capabilities instrumental to our future. These platforms will provide the foundation for further developing our digital business, enabling us to monitor performance and manage customer journeys more effectively. What's more, they underpin us doubling digital revenue in the medium term. Our investment and returns disciplines will be maintained whilst also building a business fit for the future. As such, our commitment is both to increase our business efficiency whilst also developing its effectiveness through targeted investment. All of this is underpinned by a highly cash-generative operation, with half 1 EBITDA cash conversion into operating profit exceeding 100%. This was in part helped by working capital favorability, as is a common feature of half 1, due to month-end cutoffs and our shape of trade, a sizable proportion of which will reverse in half 2. Excluding this reversal, cash was stable versus year-end, having covered the additional costs of the West Ferry pension buy-in, the next Express & Star deferred payment and the year-end 2020 dividend. We expect on an underlying basis to accrete cash in half 2, but not necessarily at the rate and the conversion percentage of our reported half 1 given seasonal shape, a point that is reflected in analyst modeling. Managing our pensions deficit as a historical legacy continues to be a focus for the Board. Encouragingly, the IAS 19, that is accounting deficit, reduced in the 6 months to GBP 155 million, a more than halving compared to the end of 2020. This was largely driven by an increase in discount rate for the first time since 2018, alongside the continuing significant deficit repair contributions we pay, the core payments of which are GBP 55 million in 2021, excluding the West Ferry buy-in. The triennial review continues to be ongoing at this time, and we remind ourselves it starts with the actuarial position as at 31st of December 2019. We do observe though the post-valuation experience has followed the same sort of shape as the IAS 19 provision. We expect to provide further updates on pensions as we move into half 2, mindful of the somewhat complex context in which these negotiations are being completed. In conclusion for my section, the 2021 interim results of Reach prove how far the business has come since launching its new strategy just less than 18 months ago. The world has changed, we all know that, and so have we, transforming to continue to deliver for all of our stakeholders. In half 2, we expect momentum to continue with further digital progress, albeit on tougher comparatives, and underpinned by a sustainable business model with growing margins and consistently strong cash generation. Thanks very much for listening. Let me now hand back over to Jim.

Thank you, Simon. So turning to the progress in our strategy, here is a quick reminder of the 4 pillars of the Customer Value Strategy. All of our key activities come under these pillars. And together, they will ensure that the business continues to get closer to its customers and, as a result, is able to deliver the content they want when they want it. At the full year results in March, we had seen enough progress in the Customer Value Strategy to confirm our ambition to double digital revenue over the medium term from the 2020 full year base of GBP 118 million. In the first half of 2021, our strategic delivery has focused on these areas, continuing to drive the registration base that delivers the customer data and helps us increase consumption through newsletters and sites like In Your Area. We will use this data to help us drive engagement and loyalty. In short, as we better understand our customers, we can push more relevant personalized content to them. While I will give some content examples, Lloyd will come back to this in his section and detail how we are expanding the reach and depth of our content to continue to drive audience engagement. And of course, Lloyd will, as he always does, convey the passion and purpose of our editorial team. In terms of product development, I will detail how we are building value by beginning to offer clients more data-targeted advertising campaigns. This is just one of the ways we'll build the value of our digital business going forward and one where we've made good early progress since the start of the year. So how are we progressing? Registrations have grown 30% since the year-end of 2020 and are now at 6.7 million. In short, we are well on our way to our 10 million target by the end of 2022. We continue to make it easier for customers to sign up to us and recently launched one-touch registration for Google customers on a number of our sites, showing encouraging early signs. This half, newsletters and In Your Area have contributed to deliver the bulk of registrations, and I will provide some more color on this shortly. While newsletters represent the biggest share of registrations this half, In Your Area represents the single-biggest brand driving registrations overall and both continue to drive a growing source of page view referrals across our network. During the first lockdown in 2020, we saw historically high page view numbers as audiences sought out news and information about the virus and its impacts. In audience and engagement terms, therefore, Q2, in particular, was a tough comparator. Even so, against this peak period for news, we've retained our audience, and we have seen excellent progress on a 2-year basis with page views per visitor and time spent per visitor all growing significantly. We are particularly encouraged when we compare our engagement results to other publishers and Internet usage in general, where we're outperforming and attracting readers to our content. Overall, we have made material progress in attracting a larger and more engaged digital audience during the last 18 months. And reader loyalty is continuing to grow with an increase of over 30% in the last year and 50% growth since 2019. These figures predate our recent step-up in investment, and Lloyd will detail more about our content plans shortly. We continue to expand the breadth and depth of our newsletter content, and this has seen us grow page views from this source from 8 million in January 2020 to 22 million in January 2021 and now to over 47 million during May. Newsletter readers consume 3 to 6x more content than an unregistered customer. And moving forward, we will continue to drive newsletter growth with the introduction of daily briefings where content is issued to customers several times a day on fast-moving stories. We are also launching new titles based on common interest, such as the Northern Edge (sic) [ Northern Agenda ], our Northern politics newsletter. We are also delivering to the most current consumer trends with newsletters that capture the mood of the moment, whether it be the Euros, the Olympics, Call of Duty or the new Bond film with our editorial teams encouraged to suggest ideas for themes that reflect reader obsessions. So while our editorial teams have been focused on delivering an increasingly engaged and loyal audience, our commercial teams have been developing our advertising offer. One of the key focuses for us this half has been the development of the Reach Plus portfolio of targeted advertising products. Using the data from a registered customer base and the knowledge we have on their interest from usage across our sites, we are now able to offer advertisers more targeted and impactful campaigns. As you can see from these numbers on the slide, the results have been impressive across different product categories. So let me spend a bit more time detailing how these products deliver for our clients. Key to our new Plus portfolio has been the Reach ID, which is able to track user behavior across our sites. Our commercial team is now using these data sets, along with data on customer behavior and interest across our sites, to market a number of new products to brands and agencies. These products enable better targeting based on audience interest and can be filtered against the brand's client database using Customer+ to either exclude or exclusively focus on existing customers or be targeted geographically via Geo+. We are using data to develop new sites and content, but this half the progress with the Plus products has been ahead of expectations. Here is a case study showing why. In this particular case study example, we developed a campaign for property website onthemarket.com. This campaign was developed using first-party data unique to Reach-owned and operated properties. These include registered users overlaid with interest from data from other Reach sources like newsletters, surveys and competitions. We used Mantis, the Reach-developed contextual advertising tool, to overlay categories, concepts, sentiments and emotion to increase the performance of the Plus products. The aim of this campaign using Plus products was to attract this new advertiser to partner with us directly by showing them the power of data-driven campaigns. Ultimately, the process generated a refined customer cohort based on specific content and current users who relate directly to the target market. For OnTheMarket, we were able to segment customers by interest to enable better targeting of first-time buyers, new build customers or renovations as well as by geography. The campaign utilized the entire Plus portfolio and included sponsored newsletters, contextual advertising and content across our news brands and sites. The results: an increase of 300% in click-through rates and a very satisfied client. You may have read about the changes by the likes of Google in response to data privacy concerns. Our proactive strategy around capturing first-party data means we are able to build our own pools of data with readers' consent. And our proprietary platform, Mantis, also enables a more powerful and nuanced approach to contextual advertising, taking into account the sentiment and emotion, not just the subject relevance. Although Google has delayed its proposed privacy changes until 2023, the power of this rich first-party data gathered from across our entire portfolio and our rich contextual environments means Reach is well prepared for any future changes regarding the platforms and data privacy. As Reach rebuilds its value, it is key that we grow in a responsible and sustainable way. We've increased our focus on environment, social and governance actions and established a Board Sustainability Committee to formally frame our wider strategy, bringing the range of excellent initiatives already underway into a coherent framework. Central to this will be a continued focus on our core purpose, which is to serve our communities as champions, campaigners and changemakers. Every year, we celebrate ordinary people achieving extraordinary things through our Pride awards, and we are building on this positive approach to news through the Mirror hopeful campaign that saw the paper run 1,000 positive stories from lockdown recently. Our key titles play key roles in championing social causes, whether it be exposing and challenging the flawed plans of the European Super League to the successful Daily Express campaign to change the benefit system to ensure the terminally ill no longer have to wait weeks to receive help as well as the paper's Green Britain campaign. Online abuse towards journalists has become a concerning trend. So we've taken an industry-leading step to tackle it by appointing an online safety editor dedicated to supporting colleagues and working with the industry and social media platforms to find solutions. Well-being has continued to be a focus with both Sanctus mental health coaching and free access to the meditation app, Headspace, offered to all colleagues. We initiated a mental health well-being champions program last year, and this continues to be valuable in creating an environment where our people can talk openly about the challenges of lockdown or their personal mental health issues. We have also made big steps this year towards our goal of becoming a more inclusive company. We've established an inclusion strategy, and we're trying to better understand the makeup of our colleagues by asking them about their experiences and origins. This insight will continue to feed our strategy moving forward. We are developing forums for sharing experiences and information about inclusion issues, and we have established 6 groups and a network of inclusion champions. We've also signed The Valuable 500 pledge and Race at Work Charter, making ourselves more externally accountable to our promises. As this work continues, we have already begun to see some hugely positive steps, such as MyLondon hiring the first race and diversity correspondent. And across the titles, we have seen more journalists feeling empowered to sit up and take part in shaping a more inclusive editorial guideline. Importantly, as we seek to build a culture of innovation and growth, we've extended options for employee share ownership, building on the one-off award last year with a share save program for all colleagues. Key to that culture and at the center of our core purpose is our editorial team. And I'll now hand you over to Lloyd to talk about our investment in journalism and the wider changes at Reach. Lloyd?

Thanks, Jim, and thank you all for joining us today. Given that I've spent 35 years in journalism, I should know by now when I see a good story. Of course, I have skin in the game, but I believe that the picture we are painting for you today is pretty headline-grabbing. Working in this industry since the 1980s has not been without its challenges, just look at how gray my beard is. For us at Reach, things have sometimes felt even harder because, as I've mentioned a few times before, unlike some, we have had to run as an efficient profit-driving plc. Pressure on print revenues, combined with the conundrum of growing the digital side of the business against multiple headwinds, public expectation of free content, the dominance of the platforms and the state-funded national broadcaster becoming the largest publisher in the country, to name a few, have, of course, all ensured this has not been a smooth ride. In practical terms, this has meant that since first becoming a national editor in 2007 and then group Editor-in-Chief in 2013, I have spent more time than I care to remember reviewing, managing and ultimately cutting our editorial cost base. We've had to adapt, reprioritize, stop doing some things completely, find new ways of working and create the appropriate structures and change the culture in our newsrooms so that journalists can think beyond the masthead of the title they work for. It's been an ongoing process of optimization with the dual goals of maximizing our print performance while ensuring we power our digital growth and crucially establish a workable long-term business model. So at the beginning of 2020 and on the back of our Customer Value Strategy, we felt we had made some very serious progress. And thoughts and conversations started to turn to stability, growth and even opportunity. Then, of course, came COVID and a whole series of new challenges were thrown up. Unlike some, we were bold and decisive and, in the space of a couple of months, went through a radical transformation of our business, protecting ourselves from the short-term threat and creating the right structures and workflows to fully capitalize in the longer term. Please forgive the history lesson, but the background is crucial in understanding just how far we have come and the magnitude of what we can achieve in the future. As we speak to you today, our editorial and commercial vision and data-driven strategy are clear, and our ability to maximize the opportunities ahead are unrivaled in the industry. As Jim mentioned earlier, we now employ more journalists than we did in 2019. At the moment, we are recruiting across the country as we look to expand our editorial resource at both a regional and national level. This is the single-most ambitious recruitment drive I have been involved in during my 27 years at this company. By the end of 2021, we will have approximately 10% more journalists working for us than we did at the end of 2019. Whether we are expanding in Dublin or Devon, launching in East Anglia or Aberdeen or investing in journalists on the Mirror or Express, we are doing so using a model which will deliver sound business as well as journalistic returns. Investing in more journalists, of course, means we produce more content. And while I wisely tend to leave the numbers to Simon and Jim, I'd like to give you a little bit of detail. Data now sits at the heart of our newsrooms and is used by our desk and site editors to help both short-term and forward-planning editorial decision-making. So in the first 6 months of 2019, we published 528,000 stories across our network. I'm using 2019 because of COVID, of course. In the first half of this year, that number has risen by 62%, 856,000 stories across our network. We are writing more content than ever before and, using our internal wire service and a data-driven approach, we have also significantly increased the volume of stories we publish on more than one of our sites. This means we are publishing more of the content people want to read where they want to read it, while at the same time ensuring we maximize the effectiveness of our journalists. This growth means that we are now driving 1.6 billion page views a month and watch this space because that number is rising. Now of course, content comes in all shapes and sizes, and big national stories, particularly political ones, are often covered in very different ways, polar-opposite at times. I'd like to share a really good example of this with you today. You will all no doubt have watched or read about Dominic Cummings' appearance in front of a joint session of the Commons Health and Science and Technology Committees at the end of May. It was blockbuster stuff, but editorial and public reaction was hugely diverse. Here are the 3 front pages from our London-based national titles the following day. So did Cummings expose the Prime Minister's failings and their deadly consequences? The Mirror certainly thought so. Was this simply an act of blatant revenge by a man who had fallen out of favor? That was the view of the Express. Or was it a further example of utter incompetence coursing through our entire political hierarchy? Well, that was the Daily Star's verdict. One story, one publisher, 3 very different audiences and 3 very different treatments. Now as you know, we have a unique position in U.K. publishing, an enviable blend of award-winning national and regional print and digital titles. A major part of our expansion has seen further growth in the footprint of our regional live network. A regional Reach news brand will soon cover every single county in England and Wales, along with the vast majority of Scotland and Ireland. And because we have created a successful model, we have been able to launch multiple sites in areas where we don't have a legacy print title as well as investing in and expanding our existing sites. Across our network, we are continuing to grow our loyal audience and engagement levels. Our number of loyal users has gone up by 50% since 2019. And you've already heard that we now have 6.7 million registered customers, many of whom subscribe to one or more of our newsletters. This month alone, 225 million newsletter e-mails from Reach titles will land in inboxes. As a senior journalist in the company, my overriding desire has always been to help establish a sustainable and secure future for our news brands and a thriving company capable of expansion and diversification. While I'm definitely not going to sit here today and say, "Job done," I hope I've been able to impart a sense of the excitement we feel at the opportunities ahead. Whatever it is, wherever it is happening, we've got it covered. Thank you very much for your time.

Thank you, Lloyd. So Reach is continuing to invest in journalism with more sites, more journalists and more content than before. We are also investing in our data and CRM capabilities to ensure we have the insights that will drive content and advertising innovation. This progress means we are well positioned to continue to take advantage of the opportunities offered by the wider shift to digital by consumers and advertisers. This rich data will inform areas for further expansion through partnerships and niche content sites. We remain on track to double digital revenues over the medium term. Reach is now on a path to long-term sustainable growth. We are investing in national, regional and local journalism and content as well as in the data capabilities that will accelerate our progress. In doing so, we are supported by our efficient operating model that ensures strong cash flows. This gives us the flexibility to invest and grow the business. The prospects for Reach are transforming. We will now take your questions.

[Operator Instructions] Your first question today comes from the line of Gareth Davies from Numis.

Congratulations on a great set of results. Just a couple for me, just to kick off. You touched, in the presentation, on a sort of 25% margin as an aspiration looking forward. And obviously, you talked a lot throughout the presentation on the investment in journalists, et cetera. Can you just talk a little bit around the balancing act there in terms of how you're thinking about that going forward and how we should think of that margin trajectory? And also maybe in the context of the double digit -- doubling of digital revenue. Should we expect that doubling to occur and then the margin to sort of follow that through? I'm just trying to understand that balancing act you're playing there in terms of allowing operating leverage through versus investment in the business. And then secondly, I wonder if you can expand a little more on yield. Clearly, a very healthy trajectory again. I think at the full year, it was very much volume-driven. I just wonder if you can talk a little more on the pricing side and whether you're starting to see some improvements there as well.

Gareth, it's Jim here. I'll give an overview on both your questions, then I'll hand over to Simon just to give you the numbers that support and give you the evidence. Just on the margin, yes, we do have strong aspirations for our margin. And it's that old adage, you can't really track yourself to greatness. There is no point maintaining margin if your business is getting smaller. So our margin growth is essentially because we're investing most of it back into the business, which creates -- which provides greater supply. Now we couldn't do this, Gareth, if we did not have a supply of inventory to present to our customers, and that's where it comes back to the macro environment. There is a significant supply of inventory. Essentially, there's still inventory on the table. So that's why the investment that we get from the margin goes back into employing more journalists and more data specialists because we know if we create quality supply of content, then that demand for the content is there to satisfy that inventory supply. So we're not running out of inventory. We are employing more content, and we have this demand from our audience, which is why the margins will continue to be maintained. Simon, do you want to just give the evidence for that before I come onto the yields?

Of course, no problem. Gareth, I mean, the step-up that we saw in margin between 2020 and 2021 was particularly driven by the transformation. So that rate of change was significant. And what we expect going forward is a more steady progress on our margin. I mean the numbers in the market at the moment for the year we're in, for 2021, are suggesting that we will achieve a margin of around 24% in the year we're in. We expect to sort of steadily move forward from here onwards, particularly as digital becomes a bigger part of our mix and has a lot of operating leverage benefits, attracting, as it does, smaller associated variable costs. So it will be more of a natural progression from here. And we are very confident, as Jim just talked about, that we can manage that alongside the doubling of digital. So we're certainly not holding back investment. We are making sort of forward-looking investment decisions with good returns. And naturally, as the business shape evolves, that margin will push to 25% and we believe can go beyond that point as digital becomes an ever-increasing part of our business.

Thanks, Simon. And Gareth, just on the yield point, that's an excellent point and goes right to the crux of our strategy. We are not competing with the market. We are competing with everyone else for time. And the market has a standup with a floating yield for advertising. And the point of the Customer Value Strategy is that we will deliver marginal gains across 42 million customers for one particular reason is that we know what content they're interested in. And providing that content means there is a higher propensity for them to click through an advert which is relative to them. Now that delivers more effectiveness. And as soon as advertisers start to know that we can actually target the ads, they know the propensity to click through is higher, and therefore, the effectiveness grows, that allows us to charge a higher yield. Now that's the basis of the Plus products that we have to upgrade that yield. Now don't forget, we also have scale. So we have that machine that is producing all of this invention We're delivering a yield on it, but the uptick in yield is because we know what customers are interested in. Simon, do you want to just give some evidence for that as well, please?

No problems. Yes. I mean what we talked about through the course of last year was a recovery in yield, and that really fed into the 26% growth we had in digital in Q4. And we have continued to see that strong yield as we've come into the beginning of the new year, which has supported the 43% growth we had in digital in half 1. And the other thing I would just sort of draw out, which links with yield, is we are seeing a good step forward in our ARPU, our average revenue per user, as well. And one of the things that we have described as part of our Customer Value Strategy is as we see increased consumption of our product alongside the increasing value of our inventory, we would expect ARPU to increase. And you can really see that because whilst we've had some increase in our audience, a modest increase in our audience, it's only low single-digit percentages because of our mass coverage, whereas you can see that our digital revenue is growing well ahead of that. So another sign that we're capturing more value from the market is the growth in ARPU as well as yields, and I think that's another important stat.

Your next question comes from the line of Matilde Durazzano from Barclays.

[indiscernible] cash flow, do you have a pipeline of potential acquisitions or what kind of assets might you buy going forward?

Thanks, Matilde. I think your question was is there a list of potential acquisitions, et cetera. We are, at the moment, Matilde, we are sticking to delivering the strategy. And so we don't have any targets that we're looking at. But as we've said before, we keep a constant view of the market for either horizontal or vertical assets that might help expand and accelerate the strategy. So we have a team looking at that constantly. But there is nothing at the moment that we are focused on from an acquisition perspective. And also, I think it's important these operating margins in this growth level is due to our continuous focus on making our business far more efficient. So there's a British term is we're stepping to the netting at the moment, Matilde. Simon, do you want to add anything to that?

I mean all I would add is that having that net cash of circa GBP 55 million that we updated on earlier today does give us optionality. And we've shared in the past a fairly detailed capital allocation framework that looks across organic investment, acquisitive investment as well as our commitments. And that framework remains in place. And therefore, for us, having that cash is not just about scanning external opportunities, it's also thinking about our internal expansion. And we've done a lot -- as Jim has described, a lot on that through the course of the first half, particularly the further expansion of our live network, further investment in our broader content. So that cash underpins not just looking externally but also investment internally.

Your next question comes from the line of Caspar Erskine from Singer Capital.

Just a quick couple of questions from me. One is on advertising activity more in general. As we know, travel activity is still not back up to full volume yet. But outside of this vertical, would you say that normal activity has resumed yet? Or do you still see some underlying recovery to come here in terms of yield upward pressure going forward? And then just on the tech stack, do you see this as requiring still more investment? Or are you pretty happy with where it stands at the moment? I mean is there sort of potential opportunity around looking to explore behavior analytics capability or something along those lines?

Two good questions, Caspar, as always. Just on the ad market, yes, you're right about travel. It's clearly taken a blow. We've seen a small spike in activity when there was some confidence in the efficacy of the vaccine, which we think that we did -- we took a share of. But other areas of the ad market, food retailing, sort of fast foods and gaming, gambling, et cetera, media has spiked up slightly as people are at home. So we've been encouraged by that, but I do need to just basically say we don't know what's going to happen in Q4. The initial data on the delta variant is now that it's falling off, but we're obviously prepared for a spike again. So we just have to be careful of that. But overall, as you've seen from our numbers, the advertising market has been promising for us, supported by the first part of the data for our Plus products, and we gave you one case study there. Simon, do you want to add anything on the ad market in general?

I mean the only other thing I'd add, Jim, is just in terms of local advertising. So as we've -- Jim has given a sense of the different sectors, particularly the national advertising sectors, we are also seeing a step forward in terms of local advertising, which, if you remember back to Q2 2020, local advertising, in particular, had a very big percentage decline as a lot of small, medium enterprises weren't able to trade. So we have seen a recovery of our local advertising as well as the national. And I think one thing I would say about print advertising, and we've talked a lot about digital, perhaps in the first question, but on print advertising, it's still a scale business and still a very effective advertising medium. It's an over GBP 50 million business in the first half. And we think that there's -- we've got a lot to offer the market still on print advertising that sits as a complementary element alongside now our bigger digital advertising business.

And then just on your tech stack question, Caspar, that's an excellent question. That's the stuff in the background that supports these numbers. Simon and I have been really impressed by the progress of our tech team. And we partnered up with BlueVenn, who are our customer data platform, and their releases have came on schedule. So our national -- some of our national titles are on that platform. That is what allows us to capture and analyze the data. So really good progress has been made there. The Mantis tool that we had that came out of the tech and the commercial team is industry-leading, which allows us to give contextual advertising more effectiveness. That's been running for nearly a year now, and you're seeing that come through in the numbers. And just to finally answer your question, the tech development never stops. And what we are doing is now positioning Reach as a data-driven organization where engineers and data specialists can come and work here. So changing the narrative of our declining asset and proving it with evidence that we are an insightful data-led company attracts that -- more and more people, and we're starting to see that snowball again. People are now taking our calls because they're interested in what we're doing, and that's really been important. Thanks, Caspar.

[Operator Instructions] Your next question comes from Johnathan Barrett from Panmure Gordon.

It's Johnathan Barrett from Panmure Gordon. I've got a couple of questions left on my list here. The first one is around ARPU. I was wondering if you could talk us through the magnitude of change that you've seen in H1, whether or not there's any sort of sense in the delta there that you can give us. And then secondly, just on inventory. Obviously, with the disruption of the pandemic, changes in the business, I'm just wondering how much inventory goes unsold on the digital side. And perhaps if you could give us an idea of what you think you might be missing on the print side, albeit, of course, that's probably a variable question -- variable answer there. That would be quite helpful.

Okay Thanks, Johnathan. Johnathan, I'll take the inventory question first, and then I'll hand over to Simon for ARPU. Are you okay with that, Simon?

Yes.

The inventory question is a really good one. We are in a position at the moment in digital that we have more inventory that we can actually get out there in publishing, which is one of the reasons why we're driving the quality journalism drive. So we don't have a gap in inventory that we can sell. In fact, we know that if we produce the content, the scale element of our business can basically distribute that and get it to the right people. And that's really important because it supports our scale business. Now you could actually say, Johnathan, that there is money being left on the table. What -- the way we position it is we are basically saying, we have enough advertisers who now want to advertise with our national and regional business, which is a really promising place. And obviously, we won't share this, but we know the ascent where we can get to, and that comes back to the confidence in the medium-term doubling of digital revenue. We don't say it because it's an ambition. We say it because it's evidential. So that's the first part of the inventory. And the second part of the inventory is that we also have some very sophisticated advertisers who 2 years ago, would be far more sophisticated with us with regard to data management. So if you take the gambling companies, the loyalty card, retailers, et cetera, they wouldn't really engage with us with a data conversation because they knew they couldn't squeeze out the margin because we didn't have the data capability. Now that we have that, and one of the examples I showed you, we can now sit down and get data-led inventory, which was a whole market that we didn't have access to before. So now we're doing geographing customer crossover to only target customers who are maybe not matched in each other's consensual database. That inventory now becomes accessible to us. So the inventory point is actually one of the reasons why we're confident in the digital future. And with regard to newspaper inventory, you've seen print advertising now been overtaken by digital advertising. It is still a significant business. We still have a loyal readership who basically either decide what food offers to go through because it's in MEN or because it's in the Mirror or because it's in the Star. And those of you who engage with our content, which I know that you do, Johnathan, you'll have seen the number of [ wraps ] in front-of-book advertising. So even though it's been overtaken by digital, there's still significant demand from advertisers for newspaper inventory. Simon, do you want to talk about ARPU?

No problem. Thanks, Jim. Johnathan, so we don't, as you know, at the moment, include ARPU as a measure in our external releases, albeit it is part of our internal targets. And we will look to share more on ARPU externally in the future as that begins to evolve. But I guess probably the most helpful comment I could make is if you look at the digital performance we've achieved in half 1, that just shy of 43% growth, you'll see that the audience growth was more like 1% to 2%. So you can get a factor, therefore, in terms of how ARPU is progressing because it is -- the digital revenue that we're generating is progressing significantly ahead of the audience change. And therefore, you can see that we are getting a more and more valuable audience per member per unit, and we expect that to continue. And I think you'll remember that we described when we talked about doubling digital in the medium term, that would principally come through enhancing ARPU. It wasn't about significantly increasing our audience because we've actually got already over 80% of the digital population of this country. It will be more about driving increased value from each of those individuals, which is why we're registering people, which is why we're now at 2/3 of our registration target of 10 million. So ARPU is progressing well. We're pleased with the progress. We're on track with what we'd hoped, and we will share more about that going forward.

There are currently no further questions. I will hand back to Jim Mullen for any closing remarks.

No, I would just like to say to everyone, thank you for your time again, your interest and, those who have invested in our company, for your support. We do appreciate it. We don't take it for granted and are working really hard to deliver on our ambitions. And Simon, would you like to say something before we sign off?

No, just to agree, I think you can see the momentum we've built in the strategy through the course of half 1 and Jim has mentioned the investment in journalism. I mean those would be 2 of the key takeaways for me. We can see the strategy is delivering, and we are now a bigger journalistic force than we were pre pandemic. Thanks very much, everyone.

Thanks, Simon.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.