Cost cutting target increased
Record owner plunges to loss after slashing value of titles
The owner of the Daily record, Mirror and Express newspapers has plunged to a £113 million half-year loss after slashing the value of its regional publishing operations.
Reach, formerly known as Trinity Mirror, said the £150m charge reflected a “more challenging than expected outlook for our regional businesses” – which include the Record, Manchester Evening News and Liverpool Echo – and it will seek £3m more cost cuts this year than planned.
The results are the first since Reach completed its takeover of the Express & Star titles from Richard Desmond in February.
The company said it had achieved cost savings of £9m in the period and has increased the £15m target for the full year to £18m.
After payments of £90.1m in relation to the acquisition of Express & Star, net debt at the period end was £81m, an increase of £72m.
The provision for dealing with historical legal issues was increased by £7.5m during the period as costs associated with the settlement of civil claims, in particular the claimants legal costs, have been higher than expected. After utilising £6.6m, £11.6m of the provision remains outstanding at the period end.
The company has declared an interim dividend of 2.37 pence per share, an increase of 5.3% from the 2017 interim dividend of 2.25 pence per share.
Following regulatory clearance the company said it expects £2m of savings in 2018 from the acquisition of Express & Star newspapers with further savings being achieved in 2019 and is on track to deliver annualised savings of £20m by 2020.
Group revenue for the half year increased by 10.6% to £353.8 million reflecting the acquisition of Express & Star on 28 February, but on a like for like basis revenue fell by 7.2%.
Publishing print revenue fell by 9.3% while digital revenue rose 6.0% with digital display and transactional revenue growing by 11.5% partially offset by a fall in digital classified revenue of 19.8%.
Adjusted operating profit increased by 6.2% to £66.5m, but after the impairment charge on valuing the regional businesses, the company reported a pre-tax loss of £113.5m against a profit of £38.2m last time.
Simon Fox, Chief Executive, Reach, said: “We have delivered a positive financial performance in what remains a difficult trading environment for the industry, in particular the regional businesses.
“The benefit of improved performance from national print advertising coupled with further cost mitigation will support profits over the year despite a further increase in newsprint prices for the second half.
“We have started the process of integrating Express & Star in order to accelerate the benefits that our combined scale will deliver and have a clear strategy which fully reflects the changing shape of the Group.”
Reaching too far? Is the group ‘dying on its feet’?
Russ, Mould, AJ Bell investment director, says: “One of the worst mistakes that an investor can make is to over-reach for yield and run the risk of capital losses that offset the portfolio benefits of any dividends received. Newspaper publisher Reach looks to be a classic example of such dangers, although investors seem wise to the potential danger, judging by the cool reception to the interim results.
“After all, Reach comes with a dividend yield of 8.5%, based on consensus analysts’ forecasts, management’s goal of increasing the pay-out by 5% a year and a share price just above 70p.
“Yet the price/earnings ratio attributed to the stock is barely two times.
“When a stock’s dividend yield is higher than its forward price/earnings ratio (PE), this is usually the market’s way of politely telling analysts that their earnings and dividend forecasts are too optimistic – or of telling the company that it is dying on its feet.
“The company’s £210 million market capitalisation is less than the £220 million paid for 2015’s acquisition of Local World, let alone the additional £45 million handed over to buy Guardian Media Group’s local paper assets or the £122 million price tag that came with the deal to buy Northern & Shell.
“That tells you what investors think of the plan to consolidate the local newspaper industry and today’s £150 million write-down of the value of some of the group’s assets is a painful admission that the portfolio of local papers is not worth as much as management had thought.
“A further £7.5 million in provisions to cover legal bills relating to the phone hacking scandal takes the total to £70.5 million, no small sum compared to the market value or analysts’ estimates for a £133 million pre-tax profit (excluding the £150 million asset write-down).”