Reach Plc Regulatory News (RCH)

Reach plc - Interim Results - 26 weeks to 25 June 2023

25 July 2023

Customer Value Strategy driving stronger, more sustainable revenue

Cost actions support stronger H2 performance; full year profit expectations maintained

Jim Mullen Chief Executive

"We continue to execute on our Customer Value Strategy, which is driving higher quality, more sustainable digital revenues. Digital growth for the period has been materially affected by lower referral traffic across the sector, particularly following Facebook's deprioritisation of news content, which has driven page view declines for publishers.

In spite of this and continued macroeconomic uncertainty, our focus on customer data means we're driving more diversified, higher performing revenues, with greater exposure to directly sold, higher value advertising. Our scale audience and base of registered customers supports the growth of first party data, a key advantage in a market moving closer to a future without third party cookies.

The ongoing resilience and predictability of print underpins continued investment in a strong digital offering, with circulation revenue growing and newsprint costs starting to decline. Cash generation is supported by a focus on driving efficiencies, with cost reductions on plan and expected to support a stronger second half performance. We expect full year profits for 2023 to be in line with the current market consensus. The business has a strong balance sheet which supports long term growth, dividend and pension commitments. "

Business Highlights

Digital revenue impacted by sector decline in page views, data-led outperformance improves digital mix

Growing circulation revenue, cost action phasing supports stronger H2 profit delivery

Results Overview

Group revenue down 6.1% - strong circulation performance; page view decline impacting digital

Quarterly Year-on-Year Revenue Movements

Newsprint inflation easing, cost reduction running to plan - savings H2 weighted

Pensions

Cash & Capital Allocation

Full Year Outlook

We remain on track with expectations for the full year, despite macroeconomic uncertainty and the year on year decline in page views. Although external factors are impacting digital growth for 2023, our focus on customer engagement and diversifying digital revenues is helping to mitigate the impact and we expect to benefit from less demanding second half comparatives.

In print, while we annualise the uplift from last year's cover price changes during H2, revenues remain resilient and predictable, with lower newsprint prices supporting profitability.

Plans to reduce full year operating costs by 5-6% are on track with H2 weighted savings supporting profit expectations for 2023 which remain in-line with the current market consensus.(5)

The High Court trial around historic legal issues has now concluded - we expect a judgement on time limitation during the autumn. The balance sheet remains strong with full year cash conversion benefiting from an improved working capital position. We expect a small net debt position at the year end. Reach is well positioned to benefit when external conditions improve, with more diversified revenues, growing customer engagement and audience expansion supporting a stronger digital future.

Notes

Enquiries

Jim Mullen, Chief Executive Officer and Darren Fisher, Chief Financial Officer will be hosting a webcast at 9:00am (BST) on 25 July 2023. It will be followed by a live question and answer session.

The presentation slides will be available on www.reachplc.com from 7.00am (BST). An archive of all materials, including a Q&A transcript will also be available after the event.

You can join the webcast to watch the presentation or listen to the Q&A via the following weblink, which you can copy and paste into your browser: https://edge.media-server.com/mmc/p/9bcqwxcf

To participate in the Q&A session and register to ask a question, please access the following weblink and register your details https://register.vevent.com/register/BI4ad40d19b9cd48bbb4cf13a12c7d0ad4

Please try to allow at least 10 minutes prior to the start time to provide sufficient time to access the event.

Forward looking statements

This announcement has been prepared in relation to the financial results for the 26 weeks ended 25 June 2023. Certain information contained in this announcement may constitute 'forward-looking statements', which can be identified by the use of terms such as 'may', 'will', 'would', 'could', 'should', 'expect', 'seek, 'anticipate', 'project', 'estimate', 'intend', 'continue', 'target', 'plan', 'goal', 'aim', 'achieve' or 'believe' (or the negatives thereof) or words of similar meaning. Forward-looking statements can be made in writing but also may be made verbally by members of management of the Company (including, without limitation, during management presentations to financial analysts) in connection with this announcement. These forward-looking statements include all matters that are not historical facts and include statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Company's results of operations, financial condition, changes in global or regional trade conditions, changes in tax rates, liquidity, prospects, growth and strategies. By their nature, forward-looking statements involve risks, assumptions and uncertainties that could cause actual events or results or actual performance or other financial condition or performance measures of the Company to differ materially from those reflected or contemplated in such forward-looking statements. No representation or warranty is made as to the achievement or reasonableness of and no reliance should be placed on such forward-looking statements. The forward-looking statements reflect knowledge and information available at the date of this announcement and the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information or to reflect any change in circumstances or in the Company's expectations or otherwise.

Chief Executive's Review

Execution of strategy supports long term growth

We are executing our strategy and creating a platform for digitally led growth over the long term. While external market conditions have impacted our financial performance, limiting our near term growth potential, we are committed to strengthening and diversifying our digital offering, ensuring that we're well positioned to grow as the macro environment improves.

Our strategy is focused around 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. With a greater proportion of revenue now supported by first party data, we are diversifying digital revenues and generating more from higher value advertising while reducing our reliance on the open market. Since implementing the Customer Value Strategy in 2019, we have registered close to 30% of our UK audience, with just over 40% of digital revenue now 'data-driven' which will grow further as advertisers continue to seek alternatives to third party cookie based targeting.

Near term digital performance held back by external factors

In the near term, it's clear that performance reflects significant external headwinds, which have inflated operating costs and suppressed topline growth.

While group revenue continues to benefit from strong and predictable print circulation, digital has been held back by a decline in traffic which is affecting the sector more broadly. Following a three-year period in which the business generated around 10% annual growth in page views (from c.1.3bn per month to 1.7bn per month) recent changes to Facebook's news feed have driven a significant decrease in customers being referred to our sites. As a result, page views during H1 fell by 16% (2% excl. Facebook) to 1.4bn which was a material driver of digital revenue decline in the period.

Driving deeper engagement; growing new audiences

Despite this, we remain the UK's largest commercial publisher and sixth largest digital business with an audience equal to three quarters of the digital population1. We have 13.2 million registered customers, with 5.4 million active on a monthly basis (up 14%).

Engagement is central to our digital strategy and we're continually exploring new ways to build stronger relationships with our wider audience. During the period, this included both web push browser notifications and the use of WhatsApp Communities, in addition to our well established roster of newsletters, as part of a focus on broadening the ways we directly communicate with customers.

We continue to upgrade our machine learning tools to improve the site experience and extend customer time on site, with further upgrades in content recommendation tools. We're also continuing to drive a better on-site customer experience with the trial of a new front end platform which should improve page load speeds which is key to how our sites rank in search.

The expansion of our US business is progressing well with an editorial staff of more than 30 now up and running in our New York office. We're seeing a good pick up of our US content by aggregators like MSN and expect to drive a growing level of on site traffic during H2 following the recent launch of the Express US site and Mirror, which launches shortly.

Diversifying revenues

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. Our development of revenues from ecommerce, partnerships and affiliates in particular are all supporting the growing proportion of data-driven revenues.

We've made good progress on the development of curated marketplace revenues, signing new data partnerships with Google, Microsoft and Amazon. The Google Ad Exchange agreement is the first time that publisher data has been used to enrich the value of ad slots on the open market, while the Amazon deal makes Reach the first external partner hosting ads with first party data signals on behalf of the site's own ad sales operation. We're also exploring opportunities for direct customer revenues, testing a metered paywall on the M.E.N. app and introducing a series of paid for newsletters.

Exploring AI opportunities

We continue to explore the ways in which AI could benefit our business, with our ad tech, product and editorial teams working closely on several pilot initiatives as we test and learn. We are in the early stages, focusing on the ways that tools can improve efficiency, for example in interrogating data and information gathering, potentially freeing up time to produce more content. While we do this work, it's important we maintain trust with our audience and advertisers, which is why we've also been establishing editorial principles for transparency, for example, making clear to readers when AI tools have been used in creating a story.

Growth in circulation revenue supports strong print cashflow

The performance of our print business remains resilient. Circulation revenue grew during the period by just over 2%, volumes continue to be predictable and advertising has been robust, moving in-line with newspaper volumes and down c.18%. With over 70% of print revenue generated by circulation, revenue and cashflow are supported by the habitual nature of newspaper consumption - one in five UK adults read a Reach print title last month. Revenue growth in H1 has been driven by cover price increases, but also through the growing use of themed one-off specials. These one-off publications included 'Rising Dragons', a celebration of Wrexham's promotion to league two, 'Treble Winners' a Man City souvenir publication and 'Love TV', a celebration of the best of British television.

We continue to think creatively around maximising value from our print assets. 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 archival assets with over 200 million original photographs helping grow revenue through syndication and licensing.

Revenue management is also supported by detailed footfall and frequency modelling which means we align volume supplied and availability by outlet type. Since 2019 we have increased availability from c.80% to c.90% across key national and regional titles to support this. Continuous improvement of production and distribution ensures we maximise sales at lowest cost. We're reducing the cost of energy in print sites with the installation of solar panels, have lowered the cost of ink and printing plates and expect to benefit from reducing newsprint costs during H2.

Telling the stories of our communities

This year our local titles have done a tremendous job telling the stories of their communities, whether uncovering injustices or celebrating the happy moments. The Manchester Evening News has earned well-deserved recognition for their Awaab's Law investigation and campaign. Their exposé into the housing shortfalls in Rochdale and the tragic death of Awaab Ishak earned them Scoop of the Year at the Regional Press Awards, an Orwell Prize shortlisting and an INMA Global Media Award. SussexLive also dug deep into their own local housing crisis, with a special investigation, while Nottinghamshire Live sensitively led the way on the tragic university murders that have shaken the community.

Meanwhile, our national newsbrands continue to break the stories which rock the political landscape, notably this year the Sunday Mail in Scotland which first broke the story on the SNP membership scandal.

And so often our titles excel at bringing out the fun in life. WalesOnline have made the most of Wrexham FC becoming an unlikely celeb hotspot, the Liverpool Echo made themselves the trusted guide to all things Eurovision, and the Daily Star continue to turn heads with their irreverent front pages, whether covering politics or UFOs. Their world-famous Lizzie Lettuce continued her hot streak well into 2023, with the team taking home a bronze from the prestigious Cannes Lions International Festival of Creativity.

We also continue to tell stories in different ways, whether with the written word, snappy videos or with podcasts. Our increasingly popular Curiously TikTok channel has found particular success reaching a younger audience with wellness, pop culture and gaming content and these learnings have also proven useful in informing the video strategies of our more established newsbrands.

We've won several awards for our podcasts this year so far, including the Northern Agenda winning Best Local & Community Podcast at the Publisher Podcast Awards, and our commercial team winning in the branded content category at the Campaign Media Awards for their Let's Talk About Grief Podcast for Co-op, while our D&I team won Best New Podcast at the Quill Podcast Awards for their D&I Spy podcast.

Building our culture around sustainability

The challenges currently faced by businesses, their people, their customers and by society in general are significant. We've made real progress to ensure we're sustainable and able to grow as these challenges subside. The changes we're making are not always easy and I want to recognise the dedication of everyone at Reach and thank them for their hard work and professionalism as we continue to deliver our strategy and evolve.

Now that we have built a formalised ESG framework and strategy, we continue to gather the data we need to build a clearer picture of Scope 3 emissions - this essential work will inform our science based targets and net zero goals. Just to name one example of progress in this area, this summer our teams are working to install 9000m2 of solar panels at our print sites in Watford, Glasgow and Oldham, a project which will be not only environmentally friendly but both cost and energy efficient.

A key part of our sustainability roadmap is to better educate and engage all of our colleagues in our efforts, and our newest colleague network, called ReachSustainability, will play a crucial role in this work. Earlier this spring our gender equality network, ReachEquality, and the industry body Women in Journalism, worked together with our Online Safety Editor Dr Rebecca Whittington to deliver a groundbreaking piece of research, which received widespread industry praise and paved the way for further cross-industry cooperation to find solutions. Keeping our journalists safe remains one of our top priorities and we are proud to be leading the way in this area.

Continuing to drive efficiencies

Increased inflation had a significant impact on our profitability during 2022, particularly due to a 60% increase in the like for like cost of newsprint. To help mitigate the impact of external headwinds we announced plans to reduce our operating cost base by 5-6% for the year. We remain on track with those plans which are enabling continued investment in digital expansion and are expected to deliver stronger H2 profits.

Addressing future cashflows - HLI and pensions

The High Court trial relating to allegations of historical voicemail interception and other forms of unlawful information gathering which was heard in May and June, has now completed. We expect a judgement around time limitation during the Autumn.

We have concluded the 2019 triennial valuation review of pension commitments for five of the six Group's defined benefit pension schemes. We are continuing discussions with trustees of the MGN scheme. Discussions on the 2022 triennial valuation reviews are now underway for all of the groups' schemes.

Balance sheet strength underpins cash commitments

The reliability of our cash flows and strength of our balance sheet provides a strong base for the growth in the long term. It ensures we can continue to build our digital capabilities and support all ongoing commitments, to both pension holders and to investors.

Jim Mullen

Chief Executive Officer

25 July 2023

Finance Review

While we continue to deliver our Customer Value Strategy our first half digital performance reflects a significant reduction in page views from Facebook which is impacting the whole sector, and the impact of ongoing macroeconomic uncertainty. Print revenue has been robust, with growth in circulation revenues driven by cover price increases. The cost reduction plans we put in place at the start of the year have helped to mitigate the ongoing impact of inflation, with overall operating costs lower by around 3%, partly offsetting the impact of lower revenue on operating profit.

Our statutory performance reflects a period on period increase in adjusted items, which include the legal costs of the HLI trial and higher restructuring charges in relation to cost reduction plans. The Group has a strong balance sheet and liquidity with a closing cash balance of £11.5m and a £15.0m drawdown on the facilities resulting in a net debt position of £3.5m. The expiry date of the Group's revolving credit facility of £120.0m is November 2026.

Summary income statement

Group revenue fell by £18.0m or 6.1% with print down 2.7% and digital revenue down 16.1%.

Adjusted costs decreased by £7.0m or 2.8%, partially offsetting the decline in revenue. The H1 cost base benefitted from newsprint cost inflation easing and cost savings delivered through the ongoing cost programme. Statutory costs were higher by £5.3m or 2.0%, driven by the increase in operating adjusted items of £12.3m (£24.3m in 2023 versus £12.0m in 2022).

Adjusted operating profit declined £11.1m or 23.5%. The adjusted operating margin of 12.9% in 2023 compares to 15.9% for 2022. Statutory operating profit decreased by £23.4m or 67.8% primarily due to the increase in operating adjusted items.

Adjusted earnings per share decreased by 3.3p or 27.5% to 8.7p. Statutory earnings per share decreased by 6.6p to 1.5p, principally due to the decrease in operating profit.

Revenue

Revenue bridge

Print revenue decreased by £6.1m or 2.7% (2022: down 3.9%).

Strong circulation performance with revenue up 2.4% (2022: down 5.1%) for the period driven by cover price increases, which were above recent historical levels during the second half of 2022.

Print advertising revenue declined 18.3% (2022: down 9.9%). H122 benefited from elevated government spending on public health messaging during the period. Entertainment, media and retail were the biggest drivers on the year on year decline partially offset by growth in holidays and travel and a small decline in telecoms.

Print revenue also includes external or third-party printing revenues and other print-related revenues. Printing revenue decreased by 10.4% (2022: up 19.8%) impacted by the year end closure of one print plant which reduced spare capacity available for third-party printing. Other print revenue decreased marginally by 1.4% (2022: up 18.4%).

Digital revenue decreased by 16.1% to £60.8m (2022: £72.5m). Revenue has been impacted by lower advertising demand in a continued period of macroeconomic uncertainty and due to a material impact from reduced page views following Facebook's deprioritisation of news content which has driven a reduction in referral traffic for publishers across the sector. Strategically driven or 'data-led revenues' of £24.9m were down 1.2% and now represent 41% of digital (2022 35%, FY2019 24%).

Revised data-driven revenue definition

As explained in footnote 1 on page 3, the definition of 'data-driven' revenue has been revised to reflect the continued evolution of the Customer Value Strategy. This includes revenue from advertising activity which utilises data generated via registrations, audience behavioural or Mantis contextual. It also includes other strategically driven revenues, less dependent on audience volumes such as affiliates, partnerships and ecommerce. Comparatives have been restated to reflect this change. As previously disclosed, data-driven revenues were; £12.5m in H12021, £30.6m in FY2021, £22.5m in H12022, £47.7m in FY2022. Under revised definition those comparatives are; £16.6m in H12021, £37.8m in FY2021, £25.2m in H12022, £57.6m in FY2022.

Costs

Adjusted costs of £244.6m (2022: £251.6m) decreased by £7.0m or 2.8%. This was driven by reduction in circulation volumes, in addition to reduced labour costs as a result of our cost reduction programme. Other costs increased due to continued inflation on overheads. Statutory costs were higher by £5.3m or 2.0% primarily due to higher operating adjusted items which were £12.3m higher at £24.3m.

Operating adjusted items included in statutory costs related to the following:

The Group has incurred a £5.9m (2022: £5.9m) increase in the provision for historical legal issues relating to the costs associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering.

Restructuring charges of £10.2m (2022: £5.4m) incurred in respect of cost reduction measures are principally severance costs that relate to cost management actions taken in the period.

Pension costs of £2.6m (2022: £2.2m) comprise external pension administrative expenses.

Other adjusted items comprise the Group's legal fees in respect of historical legal issues (£4.6m), adviser costs in relation to the triennial funding valuations (£1.2m), internal pension administrative expenses (£0.3m) and corporate simplification costs (£0.2m), less a reduction in National Insurance costs relating to share awards (£0.4m) and the profit on sale of impaired assets (£0.3m).

In 2022 other adjusted items related to adviser costs in relation to pension valuation costs (£0.8m), less a reduction in National Insurance costs relating to share awards (£1.9m) and the profit on sale of an impaired asset (£0.4m).

Profit

Adjusted operating profit of £36.1m was down £11.1m or 23.5% reflecting the decline in revenue of 6.1% partially offset by a decrease in adjusted operating costs of 2.8%.

This is also reflected in our adjusted operating margin which decreased by 3.0 percentage points from 15.9% in 2022 to 12.9% in 2023.

Reconciliation of statutory to adjusted results

The Group excludes from the adjusted results: operating adjusted items and the pension finance charge. Adjusted items relate to costs or income that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group.

Items are adjusted on the basis that they distort the underlying performance of the business where they relate to material items that can recur (including impairment, restructuring and tax rate changes) or relate to historic liabilities (including historical legal and contractual issues, defined benefit pension schemes which are all closed to future accrual).

Other items may be included in adjusted items if they are not expected to recur in future years, such as the property rationalisation in the previous years and items such as transaction and restructuring costs incurred on acquisitions or the profit or loss on the sale of subsidiaries, associates or freehold buildings.

Management excludes these from the results that it uses to manage the business and on which bonuses are based to reflect the underlying performance of the business and believes that the adjusted results, presented alongside the statutory results, provide users with additional useful information. Further details on the items excluded from the adjusted results are set out in note 5.

Balance sheet and cash flows

Historical legal issues provision

The historical legal issues provision relates to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering. Payments of £3.5m have been made during the year and the provision has been increased by £5.9m. At the half year a provision of £45.4m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. Further details relating to the nature of the liability, the calculation basis and the expected timing of payments are set out in note 15.

Decrease in accounting pension deficit

The IAS 19 pension deficit (net of deferred tax) in respect of the Group's defined benefit pension schemes decreased by £7.5m from £113.9m at year end to £106.4m at the half year. The increase in the discount rate and Group contributions has been partially offset by reductions in asset values. The triennial valuations for funding of the defined benefit pension schemes as at 31 December 2019 have been agreed for five of the schemes, with one scheme outstanding. We continue to work with both the Trustees of the one remaining scheme and the Pensions Regulator. The process to determine the 31 December 2022 valutions has now commenced.

During 2022, the Trustees of the Express Newspapers Senior Managers Pension Fund purchased a bulk annuity (at no cost to the Group) and the scheme now has all pension liabilities covered by annuity policies. In 2021, the Trustees of the West Ferry scheme purchased a bulk annuity and the scheme now has all pension liabilities covered by annuity policies. Group contributions in respect of the remaining four defined benefit pension schemes in the first half were £23.3m (2022: £23.0m) under the current schedule of contributions. Contributions in 2023 are expected to be £55.8m under the current schedule of contributions for the four schemes.

Deferred consideration

Deferred consideration is attributable to the acquisition of the Express & Star. The third and final payment of £7.0m was made on 28 February 2023. There is no remaining liability in relation to deferred consideration.

Adjusted cash flow

Cash balances

Net debt at the half year is £3.5m, a result of a £28.9m reduction in cash balances during the year, from a net cash position of £25.4m at the end of 2022. The Group has £15.0m drawn down on the Group's revolving credit facility, with the overall total cash position of £11.5m at the half year. The Group has a revolving credit facility of £120.0m, which expires during November 2026.

Cash generated from operations on a statutory basis was £24.8m (2022: £47.5m). The Group presents an adjusted cash flow which reconciles the adjusted operating profit to the net change in cash and cash equivalents, which is set out in note 19. A reconciliation between the statutory and the adjusted cash flow is set out in note 20. The adjusted operating cash flow was £18.9m (2022: £39.2m).

Dividends

The Board paid a final dividend for 2022 of 4.46 pence per share in June 2023. An interim dividend for 2023 of 2.88 pence per share will be paid on 22 September 2023 to shareholders on the register on 11 August 2023.

In declaring interim dividend of 2.88 pence per share for 2023 (2022: 2.88 pence per share), the Board has considered all investment requirements and its funding commitments to the defined benefit pension schemes.

Principal risks and uncertainties

The Group recognises the importance of the effective understanding and management of risk in enabling us to identify factors, both externally and internally, that may materially affect our ability to achieve our goals. There is an ongoing process for the identification, evaluation and management of the principal risks faced by the Group, including emerging risks. Appropriate mitigating actions are in place to minimise the impact of the risks and uncertainties which are identified as part of the risk process. All risks are considered in the context of our strategic objectives, the changing regulatory and compliance landscape and enabling the continuity of our operations.

These principal risks and uncertainties, the risk appetite in relation to these and the resulting actions are set out in the Reach plc 2022 Annual Report which is available on our website at www.reachplc.com.

The principal risks and uncertainties continue to be: deterioration in macroeconomic conditions; print revenue decline acceleration; insufficient digital revenue growth; cyber security breach; data protection failure; supply chain failure; health and safety issue; lack of funding capability; inability to recruit and retain talent and brand reputation damage.

Going concern statement

The directors assessed the Group's prospects, both as a going concern and its longer term viability, at the time of approval of the Group's 2022 Annual Report. Further information is set out in the Reach plc 2022 Annual Report.

At the half year, the directors have reviewed the going concern assessment, specifically any potential impact of the downturn in pages views experienced in the digital market during 2023. The Group undertakes regular forecasts and projections of trading, identifying areas of focus for management to improve delivery of the Strategy and to continue to mitigate the current impact of macroeconomic headwinds. The Group has a strong balance sheet and liquidity with a cash balance of £11.5m. The Group has drawn £15.0m of its revolving credit facility which expires during 2026, with £105.0m remaining available.

Accordingly, the directors have adopted the going concern basis of accounting in the preparation of the Group's half-yearly financial report.

Statement of directors' responsibilities

The directors are responsible for preparing the half-yearly financial report in accordance with applicable laws and regulations. The directors confirm to the best of their knowledge:

By order of the Board of Directors

Darren Fisher

Chief Financial Officer 25 July 2023

Condensed interim consolidated financial statements

Consolidated income statement

for the 26 weeks ended 25 June 2023 (26 weeks ended 26 June 2022 and 52 weeks ended 25 December 2022)

The above results were derived from continuing operations. Set out in note 18 is the reconciliation between the statutory and adjusted results.

Consolidated statement of comprehensive income

for the 26 weeks ended 25 June 2023 (26 weeks ended 26 June 2022 and 52 weeks ended 25 December 2022)

Consolidated cash flow statement

for the 26 weeks ended 25 June 2023 (26 weeks ended 26 June 2022 and 52 weeks ended 25 December 2022)

Consolidated statement of changes in equity

for the 26 weeks ended 25 June 2023 (26 weeks ended 26 June 2022 and 52 weeks ended 25 December 2022)

Consolidated balance sheet

at 25 June 2023 (at 26 June 2022 and 25 December 2022)

Notes to the consolidated financial statements

for the 26 weeks ended 25 June 2023 (26 weeks ended 26 June 2022 and 52 weeks ended 25 December 2022)

1. General information

The financial information in respect of the 52 weeks ended 25 December 2022 does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. A copy of the statutory accounts for that period has been delivered to the Registrar of Companies and is available at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP and on the Company's website at www.reachplc.com. The auditors' report was unqualified, did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The financial information for the 26 weeks ended 25 June 2023 and the 26 weeks ended 26 June 2022 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been audited. No statutory accounts for these periods have been delivered to the Registrar of Companies. This half-yearly financial report constitutes a dissemination announcement in accordance with Section 6.3 of the Disclosure and Transparency Rules.

The auditors, PricewaterhouseCoopers LLP, have carried out a review of the condensed set of financial statements and their report is set out at the end of this announcement.

The half-yearly financial report was approved by the directors on 25 July 2023. This announcement is available at the Company's registered office at One Canada Square, Canary Wharf, London E14 5AP and on the Company's website at www.reachplc.com.

2. Accounting policies

Basis of preparation

The Group's annual consolidated financial statements are prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The condensed consolidated financial statements included in this half-yearly financial report have been prepared in accordance with the UK-adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. Taxes on income in the interim period are accrued using the tax rate that would be applicable to expected total annual profit or loss. There are no material changes to the nature and type of related party transactions since the 2022 Annual Report.

Going concern

The directors assessed the Group's prospects, both as a going concern and its longer term viability, at the time of approval of the Group's 2022 Annual Report. Further information is set out in the Reach plc 2022 Annual Report.

At the half year, the directors have reviewed the going concern assessment, specifically any potential impact of the downturn in pages views experienced in the digital market during 2023. The Group undertakes regular forecasts and projections of trading, identifying areas of focus for management to improve delivery of the Strategy and to continue to mitigate the current impact of macroeconomic headwinds. The Group has a strong balance sheet and liquidity with a cash balance of £11.5m. The Group has drawn £15.0m of its revolving credit facility which expires during 2026, with £105.0m remaining available.

Accordingly, the directors have adopted the going concern basis of accounting in the preparation of the Group's half-yearly financial report.

Changes in accounting policy

The same accounting policies, presentation and methods of computation are followed in the interim condensed consolidated financial statements as applied in the Group's latest annual consolidated financial statements.

In addition to the accounting policies disclosed in the Group's latest annual consolidated financial statements, the Group also opts to present cash flows relating to the use of its revolving credit facility net where the loans drawn down through use of the facility are repaid within 3 months of the initial draw down.

Alternative performance measures

The Company presents the results on a statutory and adjusted basis and revenue trends on a statutory and like-for-like basis. The Company believes that the adjusted basis and like-for-like trends will provide investors with useful supplemental information about the financial performance of the Group, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key performance indicators used by management in operating the Group and making decisions. Although management believes the adjusted basis is important in evaluating the Group, they are not intended to be considered in isolation or as a substitute for, or as superior to, financial information on a statutory basis. Revenue trends on an actual and like-for-like basis are the same for the 26 weeks ended 25 June 2023. The alternative performance measures are not recognised measures under IFRS and do not have standardised meanings prescribed by IFRS and may be different to those used by other companies, limiting the usefulness for comparison purposes. Note 18 sets out the reconciliation between the statutory and adjusted results. An adjusted cash flow is presented in note 19 which reconciles the adjusted operating profit to the net change in cash and cash equivalents. Set out in note 20 is the reconciliation between the statutory and adjusted cash flow.

Adjusted items

Adjusted items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group. The adjusted profit measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Details of adjusted items are set out in notes 5 and 18.

Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

Historical Legal Issues (note 15)

The historical legal issues provision relates to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering. There are three parts to the provision: known claims, potential future claims and common court costs. The key uncertainties in relation to this matter relate to how many claims will be received, how each claim progresses, the amount of any settlement and the associated legal costs. Our assumptions have been based on historical trends, our experience and the expected evolution of claims and costs.

During the first half of the year, the associated settlement costs have been ahead of historical trends and experience. This has resulted in a change to the provision estimate and a further charge of £5.9m in the year. At the period end, a provision of £45.4m remains outstanding and this represents the current best estimate of the amount required to resolve this historical matter. The majority of the provision is expected to be utilised within the next three years.

Our view on the range of outcomes at the reporting date for the provision, applying more and less favourable outcomes to all aspects of the provision is £35m to £64m (26 June 2022: £32m to £53m and 25 December 2022: £32m to £56m). However, it is unknown how long it will take to fully resolve this matter and despite making a best estimate of the provision, the timing of utilisation and possible range, the total universe of claims is unknown and there are both ongoing legal matters (including a trial which commenced in May 2023 and finished on 30 June 2023 where we expect a verdict from the trial at some point in the latter part of 2023) and the potential for new legal matters which could mean that the final outcome is outside of the range of outcomes. Due to these unquantifiable uncertainties, a contingent liability has been highlighted in note 17.

Taxation (note 8)

There is uncertainty as to the tax deductibility of expenditure relating to historical legal issues in the current year and additional tax liabilities that may fall due in relation to earlier years. At the reporting date, the maximum amount of the additional unprovided tax exposure relating to this uncertain tax item is £8.4m (26 June 2022: £7.7m and 25 December 2022: £8.1m). There is uncertainty as to the final outcome and timing of this item, with a possible range of outcomes for the potential tax exposure being nil to £28.6m (26 June 2022: nil to £26.2m and 25 December 2022: nil to £27.2m).

Retirement benefits (note 13)

Actuarial assumptions adopted and external factors can significantly impact the surplus or deficit of defined benefit pension schemes. Valuations for funding and accounting purposes are based on assumptions about future economic and demographic variables. These result in risk of a volatile valuation deficit and the risk that the ultimate cost of paying benefits is higher than the current assessed liability value. Advice is sourced from independent and qualified actuaries in selecting suitable assumptions at each reporting date.

Impairment review (note 12)

There is uncertainty in the value-in-use calculation. The most significant area of uncertainty relates to expected future cash flows for each cash-generating unit. Determining whether the carrying values of assets in a cash-generating unit are impaired requires an estimation of the value in use of the cash-generating unit to which these have been allocated. The value-in-use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Projections are based on both internal and external market information and reflect past experience. The discount rate reflects the weighted average cost of capital of the Group. The Group tests the carrying value of assets at the cash-generating unit level for impairment annually or more frequently if there are indicators that assets might be impaired. For the 26 weeks to 25 June 2023, there have been no indicators of impairment and therefore no review has been undertaken.

Restructuring and property provisions (note 15)

Provisions are measured at the best estimate of the expenditure required to settle the obligation based on the assessment of the related facts and circumstances at each reporting date. There is uncertainty in relation to the size and length of property related provisions.

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, described above, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements:

Indefinite life assumption in respect of publishing rights and titles (note 12)

There is judgement required in continuing to adopt an indefinite life assumption in respect of publishing rights and titles. The directors consider publishing rights and titles (with a carrying amount of £818.7m) have indefinite economic lives due to the longevity of the brands and the ability to evolve them in an ever-changing media landscape. The brands are central to the delivery of the Customer Value Strategy which is delivering digital revenue growth. At each reporting date management review the suitability of this assumption.

Identification of cash-generating units (note 12)

There is judgement required in determining the cash-generating unit relating to our Publishing brands. At each reporting date management review the interdependency of revenues across our portfolio of Publishing brands to determine the appropriate cash-generating unit. The Group operates its Publishing brands such that a majority of the revenues are interdependent and revenue would be materially lower if brands operated in isolation. As such, management do not consider that an impairment review at an individual brand level is appropriate or practical. As the Group continues to centralise revenue generating functions and has moved to a matrix operating structure over the past few years, all of the individual brands in Publishing have increased revenue interdependency and are assessed for impairment as a single Publishing cash-generating unit.

3. Segments

The performance of the Group is presented as a single reporting segment as this is the basis of internal reports regularly reviewed by the Board and chief operating decision maker (executive directors) to allocate resources and to assess performance. The Group's operations are primarily located in the UK and the Group is not subject to significant seasonality during the year.

4. Revenue

5. Operating adjusted items

Operating adjusted items relate to costs or incomes that derive from events or transactions that fall within the normal activities of the Group, but are excluded from the Group's adjusted profit measures, individually or, if of a similar type in aggregate, due to their size and/or nature in order to better reflect management's view of the performance of the Group. The adjusted profit measures are not recognised profit measures under IFRS and may not be directly comparable with adjusted profit measures used by other companies. Set out in note 18 is the reconciliation between the statutory and adjusted results which includes descriptions of the items included in adjusted items.

The Group has incurred a £5.9m (26 weeks ended 26 June 2022: £5.9m and 52 weeks ended 25 December 2022: £11.0m) increase in the provision for historical legal issues relating to the cost associated with dealing with and resolving civil claims in relation to historical phone hacking and unlawful information gathering (note 15).

Restructuring charges of £10.2m (26 weeks ended 26 June 2022: £5.4m and 52 weeks ended 25 December 2022: £15.5m) incurred in respect of cost reduction measures are principally severance costs that relate to cost management actions taken in the period.

Pension costs of £2.6m (26 weeks ended 26 June 2022: £2.2m and 52 weeks ended 25 December 2022: £14.8m) comprise pension administrative expenses of £2.6m (26 weeks ended 26 June 2022: pension administrative expenses of £2.2m and 52 weeks ended 25 December 2022: pension administrative expenses of £4.2m and past service costs relating to a Barber Window equalisation adjustment of £10.6m).

In the 52 weeks ended 25 December 2022, the sublet of the vacant print site which was closed in 2020 has resulted in the reversal of an impairment in right-of-use assets of £11.0m and previously onerous costs of the vacant print site of £5.6m. The impairment and onerous closure costs of the vacant print site were recognised in operating adjusted items in 2020.

Other adjusted items comprise the Group's legal fees in respect of historical legal issues (£4.6m), adviser costs in relation to the triennial funding valuations (£1.2m), internal pension administration expenses (£0.3m) and corporate simplification costs (£0.2m), less a reduction in National Insurance costs relating to share awards (£0.4m) and the profit on sale of impaired assets (£0.3m).

In the 26 weeks ended 26 June 2022, other adjusted items related to adviser costs in relation to triennial funding valuations (£0.8m), less a reduction in National Insurance costs relating to share awards (£1.9m) and the profit on sale of impaired assets (£0.4m).

In the 52 weeks ended 25 December 2022, other adjusted items comprise the Group's legal fees in respect of historical legal issues (£5.2m), adviser costs in relation to the triennial funding valuations (£1.6m), impairment of vacant freehold property (£4.2m) and plant and equipment (0.8m) less a reduction in National Insurance costs relating to share awards (£2.7m) and the profit on sale of impaired assets (£0.4m).

6. Interest income

7. Finance costs

8. Tax charge

The standard rate of corporation tax for the period is 23.5% (2022: 19%). The tax effect of items that are not deductible in determining taxable profit includes certain costs where there is uncertainty as to their deductibility. The current tax receivable amounted to £12.2m (26 June 2022: £13.1m receivable and 25 December 2022: £13.9m receivable). At the reporting date the maximum amount of the unprovided tax exposure relating to uncertain tax items is some £8.4m (26 June 2022: £7.7m and 25 December 2022: £8.1m). There is uncertainty as to the final outcome and timing of this item, with a possible range of outcomes for the potential tax exposure being nil to £28.6m (26 June 2022: nil to £26.2m and 25 December 2022: nil to £27.2m).

The tax on actuarial gains or losses on defined benefit pension schemes taken to the consolidated statement of comprehensive income is a deferred tax credit of £2.0m (26 weeks ended 26 June 2022: charge of £10.7m and 52 weeks ended 25 December 2022: credit of £7.4m).

9. Dividends

The Board has approved an interim dividend for 2023 of 2.88 pence per share.

On 3 May 2023, the final dividend proposed for 2022 of 4.46 pence per share was approved by shareholders at the Annual General Meeting and was paid on 2 June 2023. The total dividend payment amounted to £14.0m.

10. Earnings per share

Basic earnings per share is calculated by dividing profit for the period attributable to equity holders of the parent by the weighted average number of ordinary shares during the period and diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares.

The weighted average number of potentially dilutive ordinary shares not currently dilutive was 5,614,749 (26 June 2022: 4,414,629 and 25 December 2022: 5,406,814).

Set out in note 18 is the reconciliation between the statutory and adjusted results.

11. Cash flows from operating activities

12. Goodwill and other intangible assets

During the period, the Group has capitalised internally generated assets relating to software and website development costs of £6.0m (26 weeks ended 26 June 2022: £4.0m and 52 weeks ended 25 December 2022: £10.7m). These assets are amortised using the straight-line method over their estimated useful lives (3-5 years).

Publishing rights and titles are not amortised. There is judgement required in continuing to adopt an indefinite life assumption in respect of publishing rights and titles. The directors consider publishing rights and titles (with a carrying amount of £818.7m) have indefinite economic lives due to the longevity of the brands and the ability to evolve them in an ever-changing media landscape. The brands are central to the delivery of the Customer Value Strategy which is delivering digital revenue growth. This, combined with our inbuilt and relentless focus on maximising efficiency, gives confidence that the delivery of sustainable growth in revenue, profit and cash flow is achievable in the future.

There is judgement required in determining the cash-generating units. At each reporting date management review the interdependency of revenues across our Publishing brands to determine the appropriate cash-generating unit. The Group operates its Publishing brands such that a majority of the revenues are interdependent and revenue would be materially lower if brands operated in isolation. As such, management do not consider that an impairment review at an individual brand level is appropriate or practical. As the Group continues to centralise revenue generating functions and has moved to a matrix operating structure over the past few years all of the individual brands in Publishing have increased revenue interdependency and are assessed for impairment as a single Publishing cash-generating unit.

The Group tests the carrying value of assets at the cash-generating unit level for impairment annually or more frequently if there are indicators that assets might be impaired. The review is undertaken by assessing whether the carrying value of assets is supported by their value-in-use which is calculated as the net present value of future cash flows derived from those assets, using cash flow projections. If an impairment charge is required this is allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then to the other assets of the cash-generating unit but subject to not reducing any asset below its recoverable amount. No indicators have been identified as at 25 June 2023. The last annual impairment test was undertaken as at 25 December 2022. The details of the impairment assessment are included in note 16 of the 2022 Annual Report.

13. Retirement benefit schemes

Defined contribution pension schemes

The Group operates defined contribution pension schemes for qualifying employees, where the assets of the schemes are held separately from those of the Group in funds under the control of Trustees.

The current service cost charged to the consolidated income statement for the period of £8.7m (26 weeks ended 26 June 2022: £9.0m and 52 weeks ended 25 December 2022: £18.1m) represents contributions paid by the Group at rates specified in the scheme rules. All amounts that were due have been paid over to the schemes at all reporting dates.