Reach reports half-year revenue down by £62m – but says digital recovery has begun

Reach CEO Jim Mullen — Reach chief executive Jim Mullen. Picture: Reach

The UK’s biggest newspaper publisher Reach says digital revenues have begun to recover from the Covid-19 slump with 13% year-on-year growth in the third quarter of 2020.

It said overall group revenue fell by 15% year on year between July and September but the publisher said this was a “significant improvement” on losses felt earlier in the year. Print fell by 20% in the same period.

In its half-year results for the six months to the end of June 2020 Reach revealed revenue of £290.8m compared to £352.6m in the first half of 2019 – a drop of 17.5%.

It reported pre-tax profit of £25.2m, down from £58.2m the year before, and operating profit of £28.9m, down from £63.7m.

Profits were hit by a £5m increase in the cost of settling phone-hacking claims, now totalling more than £75m.

The figures were also hit by a charge of £15.5m relating to a joint venture project turning the former home of the Liverpool Echo into a luxury hotel. As a result of Covid-19, Reach said the project has hit significant time delays and cost over-runs.

But net cash reserves increased by £21.5m to £41.9m at the end of June, after steps to preserve cash during the short-term of the pandemic.

These steps included the use of the Government’s job retention scheme to furlough 20% of all Reach staff, taking £4.5m.

The company also introduced a 10% pay cut for most employees and a 20% for the most senior, the suspension of all annual bonuses for 2020, a deferral of pension fund contributions for three months, the removal of discretionary spend and renegotiations with suppliers.

The company said it is now “performing materially ahead of market expectations” for the full year, leading the board to recommend an issue of bonus shares to shareholders as the final 2019 cash dividend was cancelled. But it noted Covid-19 “still represents a significant macro-economic challenge to the UK economy”.

Since it was announced in July, the company has completed a “transformation programme” with more than 500 expected job losses in its editorial, commercial and central departments.

This is expected to save £35m per year, with a one-off cost of £20m, after the company decided “more radical” changes beyond the short-term were needed to thrive in the new market conditions.

The publisher will next review its print capacity requirements by the end of the year due to “ongoing uncertainty over third-party contract renewals and future volumes”.

Print vs digital revenues

Reach said April was the month most impacted by by Covid-19, with group revenue down 30.5%, including print down by 31.8% and digital down 22.5%.

By comparison, June saw an overall decline of 23.9% – 26.7% in print and 4.9% in digital – with improvement continuing since.

Overall in the first half of the year, print revenues fell by 20.1% and digital by just 1%.

Regional print advertising was hit harder than nationals, with 80% of advertisers withdrawing from the market.

Chief executive Jim Mullen (pictured) said: “We have seen a strong recovery in the digital advertising market since the worst impacts of Covid-19 in April which has driven a return to healthy digital revenue growth since July, assisted by increased customer engagement and loyalty.

“This illustrates the significant potential of the customer value strategy as our websites, apps and newsletters attract increased page views from our scale audience, helping to drive forward digital revenues. Circulation sales have also stabilised and shown a gradual recovery during Q2 and Q3.

“Following the implementation of the major parts of the transformation programme, Reach now has a strong foundation to drive the next phase of the customer value strategy with increased efficiency and agility in our advertising and editorial operations.”

Reach launched a strategy to drive up its digital revenues by pushing reader registrations in February.

Since then, it has beaten its target to reach 2m registrations by the end of the year, instead marking the milestone by the middle of the year. It now has 3.5m registered readers.

It said it increased the percentage of its audience that is registered from about 2% in February to 8% within six months.

Adjusted operating profits were £54.9m, down from £71.3m in the first half of 2019, and adjusted pre-tax profits were £53.5m down from £69.9m. The adjusted figures include restructuring costs and provision for historic legal issues such as phone-hacking.

Read Reach Plc’s first half financial results in full.

Picture: Reach