Monday 25 February 2019 4:50 pm

Mirror publisher Reach expects to benefit from Facebook's fake news fight as it blames Brexit uncertainty for £200m writedown

Mirror and Express publisher Reach expects to benefit from Facebook’s fake news controversy in 2019 as it looks to its digital revenues for growth.

The results

Revenue rose 16.2 per cent year on year to £723.9m in 2018 following the purchase of the Daily Express, Daily Star and OK! Magazine publisher, Express & Star.

But like-for-like sales slipped 6.6 per cent as the publisher continued to experience waning demand for its own print products, and excluding the deal revenue fell by £59m.

Reach also fell to a pre-tax loss of £120m, after suffering a £200m blow to the value of its goodwill, publishing rights and titles from historic acquisitions, down from a pre-tax profit of £82m in 2017.

"This reflects the more challenging than expected trading environment for advertising revenue generated locally and the short term uncertainty arising from the UK’s exit from the European Union," Reach said.

Adjusted operating profit grew 16.8 per cent to £145.6m, beating analyst expectations of £140m.

Despite its purchase of the Express, Reach managed to slash net debt in half by £40.2m from its half-year point to end 2018 with a debt pile of £40.8m.

Basic earnings per share plunged to minus 41p, compared to 23p last year, while Reach paid investors a dividend of 6.14p per share, up from 5.80p in 2017.

Shares rose five per cent to 60.5p on the news.

Why it’s interesting

While print revenue declined 8.7 per cent, Reach – formerly Trinity Mirror – managed to grow digital revenue 5.3 per cent.

Average monthly page views over the year increased six per cent to over 1bn despite the blow of Facebook and Google algorithm changes early in the year.

And chief executive Simon Fox told City A.M. that rather than preparing for another algorithm hit in 2019, Reach predicts its titles will benefit from Facebook's battle to clamp down on the fake news that has plagued its platform.

“If I were them and thinking about fake news I would make sure I was surfacing professionally produced news rather than news from sources where I couldn't guarantee authenticity,” he said.

“The mood music has changed and we will see more of a focus on regulated, trusted news brands.”

Reach partly blamed Brexit for its 2018 losses, adding the UK’s departure from the EU “has increased our overall risk profile in the short term due to the potential implications on several areas of our business”.

Those include possible hits to revenue from economic uncertainty and data transfer issues, pension deficits, supply chain issues and cost pressures from a further drop in the value of sterling, as well as employment challenges for EU nationals.

“If there's a no-deal Brexit the biggest single impact [for us] will be advertisers' confidence,” Fox added. “It's an uncertainty and hopefully it's not something that will come to pass but it's a risk.”

Nevertheless, both Peel Hunt and Numis maintained 'Buy' recommendations for Reach's stock, with the former telling investors: “Brexit looms, but in the context of a company valued on a price-to-earnings ratio of 1.6x, is hardly noteworthy.”

Reach said its integration of Express & Star is on track to deliver at least £20m of annualised cost savings by 2020, after saving £3m in synergies last year.

Reach’s cost-cutting also helped it save £20m last year – £5m ahead of schedule – as it cuts into its debt pile, something that Independent publisher Johnston Press was unable to do as it fell into administration owing creditors £220m late last year.

The publisher also set aside £15.8m to settle gender pension pay gap claims and another £12.5m on settling historic phone hacking claims, bringing the total spent on the scandal to £75.5m.

What Reach said

Chief executive Simon Fox said: “I am pleased with the performance we have delivered in 2018 and encouraged by the stronger finish to the year. We have begun 2019 in a strong financial position with good momentum on the integration of Express & Star and with clear plans for digital growth.”