We have frequently commented on the trials of Reach Plc, the UKs largest news group. Some of the difficulties have been self-inflicted (ie the £450mn acquisition of yet more print newspapers during 2015-18). Others have been the expensive legacies of previous mismanagement including pension deficits and phone hacking criminality by journalists.
The problems inherited by five-year CEO Jim Mullen have been eased and/or exacerbated by relatively generous dividend payouts. The 9-10% yields to investors have delivered some level of support for the listed company’s shares (albeit with intermittent fears about the future). But the shareholder bribes (currently funded by borrowings) have, arguably, also been at the expense of much-needed investment in a business seeking to achieve digital transformation.
Its been an almost impossible balancing act for Mullen. But his ho-hum financials for 2023 were this week spiced with much more certainty – and lower costs – of the pension and legal issues. A deal with the pension scheme trustees would eventually reduce the company’s annual payments by some £40mn and the courts’ limitation on phone hacking legal claims could reduce potential exposure by about £20mn in total (ie this amount has been released from its provisions). Some good news at last.
The end of the long nightmare for Reach (formerly Trinity Mirror) – which had begun when the late Robert Maxwell plundered its pension funds more than 30 years ago – may be in sight. Or is it?
The 2023 results were largely overshadowed by the good news on long-term liabilities. But there were still plenty of questions for a news company whose digital-centric CEO – and most of its shareholder reports – have been almost exclusively concerned with the digitalisation of what is one of the UK’s oldest newspaper publishers.
You can imagine the surprise, therefore, that the company’s performance last year relied on a virtual standstill in print revenues to offset a 15% digital decline (yes). That might have been only slightly less alarming than confirmation that – even after five years of apparent ‘transformation’ – print still accounts for 76% of revenue and that digital has increased by only 16% since 2019, albeit with a familiar, short-term covid surge in 2021-22:
| Reach Plc £mn SnapShot | 2024* | 2023 | 2022 | 2021 | 2020 | 2019 |
| Revenue | 536 | 569 | 601 | 616 | 600 | 703 |
| 76% | 75% | 76% | 76% | 80% | 85% | |
| Digital | 24% | 25% | 24% | 24% | 20% | 15% |
| Costs | 438 | 472 | 495 | 470 | 466 | 550 |
| Op profit | 98 | 97 | 106 | 146 | 134 | 153 |
| Margin | 18% | 17% | 18% | 24% | 22% | 22% |
| Net cash (debt) | 25 | (10) | 25 | 66 | 42 | 20 |
| Headcount | 3,700 | 4,305 | 4,671 | 4,184 | 4,573 |
Operating profit has decreased by more than 30% in the last five years. But the striking feature of 2023 was the 14% reduction in headcount after a few years during which Reach has appeared to be the outlier among traditional news companies most of which had long been focussed on the need to reduce fixed costs. Indeed, Reach has sometimes boasted about the number of new jobs it has created. The more or less constant level of costs (while disguising post-covid spikes in newsprint and fuel) has been perplexing. But 2024 is likely to see the benefit of the belated 600+ people reductions in the past year or so.
The Reach shares reacted positively to news of the settlement of historic liabilities, pushing the price up by more than 20% almost to the highest for a year. But it is easy to sense some apprehension about the way that modest forecasts for 2024 had been bolstered by an improvement in operating profit margins that might continue to restrict investment spending.
The investor presentations – for the past few years – have been dominated by claims of strong digital progress, even though print newspapers have continued to account for a large majority of it revenue. Imagine our surprise (after years in which print was scarcely mentioned) to see a slide deck this week where “Print Circulation Resilient” was top of the list – but followed by the immortal words “Overall Print volumes declined by 17%”. A resilient decline?
The listed company continues to shroud the performance of its newspapers (and their 76% of revenue) by reporting its diverse portfolio of 120+ national and regional dailies and weeklies as a single profit centre. But, while the unrivalled network of UK regional dailies help to drive digital revenue, it is the national daily newspapers that: provide a large chunk of the whole audience, give access to national advertisers and comprise the company’s best-known brands. Whether Reach chooses to explain it or not, legendary brands like the Daily Mirror, Daily Record and Daily Express are the core business of the company
That’s when it starts to get worrying.
Beyond the contradictions of whether Reach’s print circulation is “resilient” while continuing to fall by double-digits, there are clear signs that the company’s four national daily news brands have been ‘milked’ for short-term profit. Taking just the weekday editions, we can see that the paid circulations of these newspapers declined by 30%+ between January 2022 and January 2024 and that average cover prices were increased by more than 50% during the two years.
It is notable that the largest fall in circulation (33%) was the Daily Express which also increased its cover price by the most (75%) during 2022-24. That one brand has lost almost 60% of its copy sales in the last five years. But the two-year figures for these national dailies tell a consistent story about this top end of the Reach newspaper portfolio whose brands have been among the worst-performing in the UK:
| Reach Plc national dailies Average paid circulation January | 2024 | 2022 | Circ change | Price change |
| Daily Mirror | 219k | 311k | -30% | +50% |
| Daily Express | 139k | 207k | -33% | +75% |
| Daily Record | 50k | 73k | -32% | +47% |
| Daily Star | 132k | 195k | -32% | +50% |
| Total | 540k | 786k | -31% | +57% |
Over the last few years, we have commented on the oddity of the newspaper group commenting almost exclusively on its (lacklustre, as it turns out) digital progress. It’s not just that Reach still depends on print copy sales but that it seemed intent on turning its paid-for print into free digital. It seemed only to be concerned with digital.
By contrast, traditional media and digital-only companies almost everywhere would relish the opportunity to use paid-for print to build digital subscriptions and membership – to reduce the dependance on ad yields driven down by Meta-Google-Instagram. But Reach hasn’t listened to the doubters and the usual critics of suffering companies (investment analysts) have been placated by those generous dividends.
But that could now change.
This is an opportunity for Reach to re-energise its strategy. Indeed, with the ‘poison pills’ being dissolved, the company might again become a target for predators hungry to exploit its regular audience of more than 70% of the UK population.
The trouble is that the Reach CEO has an under-pressure track record of chopping and changing. That’s why a decision to combine digital and print teams – and thus reduce the headcount substantially – was made only during 2023. And it’s only now that print is seen, inescapably, as a core business again.
On that basis, Mullen might just be ready to revise his whole strategy. We suggest that his 2024-26 approach needs to shore up existing print revenues – at the same time as developing the digital runway. Simple stuff but it may depend on reversing the earlier “one Reach” strategy and establishing at least three semi-autonomous businesses, with or without external partners. The strategy might be on the following lines:
- Daily news brands: Establish a daily newspaper group (nationals and regionals) completely separate from the weeklies, to maximise medium-term profits
- Digital network: Build a national, separately-branded digital network. It would have data and profit sharing relationships with the daily newspapers, and would build on existing digital advertising and eCommerce. Scope for a joint venture or collaboration with existing media, broadcast or digital groups?
- Newsletters: Establish a group of Reach’s existing and prospective low-cost newsletters, both regionally and by subjects including, for example, Sports, Health, Travel, Entertainment and Money. Revenue variously from sponsorship, ads, membership and subscriptions
- Investments: Create a venture fund to enable participation in (and learning from) UK startups, especially outside the well-funded London and the South East of England…
Whether or not Reach Plc uses its hard-won opportunity to create a fresh digital future, the company must develop organically and through M&A by 1) Strengthening its legacy daily brands and 2) Creating new media which may, inevitably, compete with the existing portfolio.
Over to you, Jim.
