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Edited Transcript of TNI.L earnings conference call or presentation 29-Jul-19 8:30am GMT

Half Year 2019 Reach PLC Earnings Call

London Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Reach PLC earnings conference call or presentation Monday, July 29, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Simon Fuller

Reach plc - CFO, Company Secretary & Director

* Simon Richard Fox

Reach plc - CEO & Executive Director

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Conference Call Participants

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* Gareth Rhys Davies

Numis Securities Limited, Research Division - Director of Media Equity Research

* Natasha Brilliant

Citigroup Inc, Research Division - VP

* Nicholas Michael Edward Dempsey

Barclays Bank PLC, Research Division - Research Analyst

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Presentation

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Simon Richard Fox, Reach plc - CEO & Executive Director [1]

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We are ready to go. Okay. Good morning, everybody. Thank you for joining us. So before we start, let me just play you a short video.

(presentation)

So before I start, you will have seen that I will soon be stepping down from Reach and handing over to my successor, Jim Mullen. Whilst there's never an ideal time to leave an organization, if there was, it would be now. I'm very proud of what we've achieved over the past 7 years, and as today's results demonstrate, I leave the company in very good health. The strategy that you'll hear about today is being developed by the whole Board, and I'm confident that the transition to Jim will be a seamless one.

So let me move on now to our results announcement. And we had a robust first half. Our strong cash flow has reduced our net debt significantly, enabling investment to future growth. We've also, once again, increased our interim dividend. We accelerated our digital audience growth, establishing ourselves as a digital player of true scale. And we continue to effectively monetize this reach. There are a series of digital initiatives underway to ensure continued momentum. We remain confident in our strategy and expect trading for the year to be in line with market expectations.

As you've seen, total revenue was broadly flat, reflecting the fact that we purchased Northern & Shell on the 28th of February last year. Like-for-like revenue was down 6.3%, an improvement on the minus 7.2% delivered in the first half of last year. Digital revenue grew by 9.7% on a like-for-like basis to GBP 49 million, accelerating to 13.6% growth in the second quarter. Thanks to the delivery of synergies from the Express & Star acquisition as well as ongoing cost management, our operating profit grew by 7.2% to GBP 71 million.

Earnings per share are up 4.9%, and the Board has proposed a dividend of 2.5p, an increase of 5.5%. I'm particularly pleased with our ongoing strong cash flows, with net debt at the half year down to just GBP 13 million. This performance is down to the ongoing delivery of our 3 strategic pillars: Optimize, grow and commercialize.

We continue to optimize our print brands. We're very focused on maximizing the cash flow from these brands and protecting their readership through continuous improvement. The future growth in our business will come from growing our digital audience and commercializing that audience ever more effectively. We've seen accelerating growth over the half year, and I'll speak later about the many ongoing initiatives we have in place to build on this momentum.

I will not dwell long on this slide other than to highlight that we have been very busy. Many individuals with coordinated initiatives have contributed to our robust trading performance, and our strategic and operational progress. I would expand on each of these elements later on in the strategic update. But for now, let me hand over to Simon, who will update you in more detail on our first half results.

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Simon Fuller, Reach plc - CFO, Company Secretary & Director [2]

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Well, thanks, Simon, and good morning, everyone. I'm pleased to be here for the first time, presenting the financial update as CFO. I've just been with the business now for 5 months, and it's certainly been a busy period, as Simon just described. Reach is a business with very many financial strengths, and I hope to share those by way of an update, looking at our historical performance, but also to think about the future, some of the key elements of our future strategy and to help clarify some of our ongoing priorities as a business.

Just a final introductory comment on this opening slide, as you'll shortly see, we've taken the opportunity to refresh and hone the way that we describe the business. This will include such things as looking at the longer-term trends on our prints business, understanding some of the key metrics for digital, looking at further cost efficiency opportunities for the future, and also thinking about our capital allocation priority. So we'll touch on those a little later on in the presentation.

As Simon has already described, we are very pleased to report an on-track performance for the Half 1. Total revenue was broadly flat at GBP 352.6 million, and as Simon's described, that was helped by 2 more months year-on-year of our Express & Star acquisition. The acquisition has been a really successful one. We've been very pleased with it, and alongside our existing structural programs has helped to reduce our costs; it's helped us to increase our operating margins, which were up 140 basis points; and also progress, as you'll see from the slide, has been made across all of our profit measures, for example, GBP 71.3 million adjusted operating profit delivered in Half 1.

This strong Half 1 performance has enabled us to approve a 2.5p dividend, which is up 5.5% and very much in line with our stated policy of a progressive dividend. In fact, this is the fifth consecutive increase in our half year dividend. So again, it testifies to the way in which the business is performing.

And then finally, Simon has already called it out, but just to reinforce the point, we've been very pleased with the operating cash flow performance and debt reduction in the business and that's the real cool out from the first half performance, with net debt down by 2/3 to just under GBP 13 million. Group revenue's been resilient and robust, like-for-like at negative 6.3% is 0.9 percentage points better than the equivalent stage last year. And you'll remember, this is in spite of the fact that we have a revenue drag from the reduced spend on health lottery year-on-year that had to do, as you'll remember, with the acquisition of Express & Star and the change of ownership and that's worth just less than 1% in terms of like-for-like.

Now across this slide and then the 4 following slides, we're going to talk about revenue in some more detail, and we'll cover both our print and digital performance. And what we're going to use is a simplified revenue structure that we first introduced in early May with our AGM trading update. And we're going to do that in order that we can hope to share some more around the trends and help people to understand a little bit more clearly the direction of travel. So going forward, we will just talk about total print revenue, which comprises circulation; advertising, including all of classified; [soft] printing and other connected revenue streams. And really, that aligns with our optimized part of our company strategy. And alongside that, we'll talk about digital or total digital revenue, and that comprises our display and transactional advertising, and that very much aligns with the growth and commercialized part of our strategy. So there's a very clear connection between the way which we describe the business and the strategic imperatives.

So without further ado, let's move on to talking through that in a little bit more detail. Total print revenue reduced by 1.5% to GBP 302 million, and all components of that revenue stream benefited from the recent acquisition. Only advertising was down in absolute terms. On a like-for-like basis, total print revenue was down by 8.2% compared to being down by 9.1% at the equivalent point last year. So again, an improving trend. You can see some of the reasons behind that improving trend on the multiyear trend graph on the slide, and it has to do with the way in which circulation has improved and that's a robust revenue stream for us. And you can see that, that has improved in Half 1 to being just slightly better than 4%.

Advertising has been slightly weaker than trend. However, it should be noted that, that has been impacted by the health lottery adjustment that I mentioned a moment ago. We also note on the slide and we described this at year-end as well, that nationally-sourced advertising continues to outperform locally-sourced advertising, and that really is a trend that, I think, the whole sector is seeing.

Just to help, again, to illustrate the evolving mix of our print business, we've included this area chart. And what it shows, as you'll see, is a reduced dependency on some of the most structurally-challenged elements, particularly advertising. With resilient circulation now over 3/5 of our total print revenue, just over 60%, you can see it on the slide, whereas, if you go back 4 years, you can see it was only roughly half of that revenue. Importantly, that's been helped by our acquisition of the Express & Star, which was just over 2/3 print circulation.

Our annual cover price strategy helps to protect circulation revenue and sets alongside the increased benefit from our scale, which, obviously, helps both advertising, but also printing efficiency. This together, gives us a clear plan of how we are to optimize this part of the business. Simon will talk a little bit more about it at the end of his section, but just to touch for a moment on Other, Reach Sports. I mean, it's a multimillion pound business within its own right, and we have connections with premiership teams and some of the worldwide organizations, whether it be football or rugby, and really, that's an example of diversification within a vertical.

Now on to total digital performance. Again, as described within our announcement, you note that this comprises purely display and transactional digital revenue, excludes anything related to classified, and that's because that is principally upsold with Print. So this really is what we would see as the pure digital performance. In the first 6 months, total digital revenue was up over 17% with more than half of this being like-for-like performance or organic growth. This took us, as Simon described a little earlier, to a GBP 49 million digital revenue for the half year. Encouragingly, Q2 performance was stronger at 13.6% like-for-like, and that was a good step-up in the run rate from mid-single digits in Q1 and it approached our stated corporate target of 15%.

What is particularly pleasing on this slide is the encouraging performance on page views. Page views, as you know, are a good indicator to us about engaging audiences. And you can see the page view is up 32% or 16% on a like-for-like basis, does suggest that, that part of our strategy is very much moving forward, an engaged larger audience who want to consume our content. It's perhaps easy to forget where we've come from in digital. So I'll take you to this next slide, which includes some multiyear trending information. And it illustrates our progress, both on digital revenue and on page views, which I was just touching on. Four years ago, as this slide shows, we had a GBP 30 million annual digital business, with less than 0.5 billion average monthly page views. Extrapolating Half 1 trends for the full year, we confidently expect that 2019 will exceed GBP 100 million worth of revenue, more than 3x the size, and to be consistently over 1.1 billion page views. In fact, we're already breaking 1.2 billion and approaching 1.3 billion page views. So it's certain that acquisition and organic growth has taken us a very long way, but there's still more to do in the future, and Simon will talk about that in the strategy update shortly.

It's in the organization's DNA to professionally manage costs and to continually optimize the business. The synergies of 2 major acquisitions, alongside our ongoing focus on structural cost programs, have helped us to grow our Half 1 operating margin to 20.2%. That's up 3.6 percentage points compared to 2015. And in fact, that's the highest half year operating margin since 2007, that shows you how well this optimized part of our strategy is working. We now take note of what you'll have seen a little earlier that we expect the synergies from our Express & Star acquisition to exceed what we previously described. We'd said we expected $20 million, we're now expecting $22 million at maturity in 2020. Similarly, we signaled in our update earlier today that we're very much on track with the year's structural cost programs.

You'll see from the bar chart a description of our costs at the half year-on-year. And really, what we've been able to do is deliver more with a broadly-similar cost base. For example, labor costs have remained broadly consistent year-on-year, despite the fact that we've annualized the publishing of 2 more national titles on a daily basis as well as Sunday titles and 2 magazines. We'll just talk a little bit more about cost efficiency. The next slide provides more detail on 3 key tranches of our cost base: those being labor, newsprint and other costs, and it breaks those down and provides a little bit more detail.

Firstly, when considering labor costs, we note that we are going to continue to focus on efficiency, but also paramount will be preserving quality. Next, as you may recall, on newsprint, we've had to endure around 4 years of cost inflation. However, a number of factors, such as global supply and demand, currency and also raw materials, such as energy, these factors have become more benign more recently, and that's improving the trend. And we expect a significant headwind that we've suffered for about 4 years to turn into a modest tailwind. Other costs have also continued to benefit from the economies of our larger business. And literally, any part of that pie you pick, whether it be content, distribution, printing or property, all of those are helped by a larger scale business.

The executives and senior management team at Reach have an absolute ongoing objective to drive efficiency in our operations. Much of our cost base can be made variable, at least in the medium term, and there continue to be legacy systems and assets that can be decommissioned and rationalized. Additionally, we regularly review our printing network, our title portfolio, our organizational structures, all of which, we will continue to adapt to the changing needs of the business and to our evolving sector.

In summary, there certainly are many more ideas that will continue to build upon our reputation for best-in-class cost management. Now it's well-known to you all, I'm sure that Reach is a highly cash-generative business, and our Half 1 results, again, ably demonstrate this. We had a 4/5 conversion of cash profit, that is EBITDA into operating cash flow, and that takes into account working capital movements, restructuring and CapEx. In the half, we paid the 2018 final dividend, which was about GBP 11 million, and half of our GBP 49 million annual pension contribution. And yet even with those outflows, as you'll see from the chart, we were able to early repay GBP 20 million of our acquisition term loan, which now stands at just under GBP 40 million. As we said earlier, this operating cash flow performance is certainly one of the major call outs from our first half update. And yet, it will come as no real surprise to those who have been following Reach in recent years because it is a consistent trend.

Since 2015, cash conversion has averaged out to approximately 80%, with minimal seasonal volatility and high predictability on a week-to-week basis. That strong, that consistently strong trend has and will, in the future, give us the confidence to deploy funds to create value for shareholders and stakeholders at large.

Bank debt and our pension's deficit, if I move you onto the next slide, require careful management and have understandably been a key focus area for the business. At the half year, we are very pleased to report that net debt has reduced by 2/3 compared to year-end, and our aspiration to become debt-free in the coming months applying current trends is very much on track. The net pension deficit, which is using, as you know, the IAS 19 accounting estimate, was broadly flat, adjusting for deferred tax. That stable position is mainly explained by weaker bond yields, being offset by strong asset returns alongside our broader review of assumptions, which we carry out, as you know, regularly.

In Half 2, we will build out our plans for the next pension valuation, which is struck as at the 31st of December, 2019. And as previously described, we intend to complete that ahead of the year-end 2020. The trends on historical capital allocation are set out on this slide, and it could be described as a framework for helping us to consider our future options as a business. And it's worth just spending a minute or 2 running through this together, there's quite a lot of detail on it. As you know, in the past 5 years, we've successfully made 2 transformational acquisitions, Local World in 2015, and Express & Star in 2018. Together, they have proved to be beneficial, both in terms of our scale and also improving our economies as a business. Clearly, that's been an important part of our journey. We have a policy, as you'll remember, of expensing our digital development, and therefore, CapEx has actually averaged out at less than 1% of Group revenue, that mainly comprises investment in enterprise and back office systems. But there's further investment, organic investment outside of that number, which we expense through the P&L.

Our dividend policy is a progressive one, targeted, at least, 5% annual increase, and you can see that on the slide. Alongside this, we have a committed schedule of pension contributions as we recognize our obligations to colleagues, past and present. And this is part, as you'll remember, of a 10-year recovery plan.

Finally, taking into account all of the above, all these different factors, all of these different allocation priorities, even at peak, our leverage has been low, under 0.5x on average. We intend to continue to use this explanatory framework to provide regular updates in the future, but also, of course, we'll be listening to feedbacks from all of our stakeholders.

Let me summarize where we are. Our Half 1 performance provides a solid platform for the full year and it very much aligns with our expectations. Our optimize, grow and commercialize strategy is demonstrably bearing fruit, but equally, it will of necessity, of course, continue to evolve.

Cost management and efficiency is a core competence through the organization, whether this be synergy realization or structural change. However, importantly, this will provide the fuel to invest in a disciplined way for future growth, particularly in digital. We'll talk more in the future about our capital allocation priorities, which can be summarized as invest, acquire or return to our various stakeholders. But what's important to note, and this is my final point, what's important to note is that with our 0.1x net debt as we find ourselves with now, we have the firepower to continue to transform Reach to a long-term sustainable business, with digital as it's beating heart, which is a good point upon which to hand back to Simon.

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Simon Richard Fox, Reach plc - CEO & Executive Director [3]

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Thank you very much, indeed, Simon. So this slide summarizes our strategic objective of delivering sustainable growth in revenue, cash flow and profits through delivering on our 3 strategic pillars, underpinned by our values, collaboration, imagination and determination. Now although our 3 pillars of optimize, grow and commercialize are generally understood as being entirely separate from one another, they are, in fact, strongly interlinked. And to bring this to life for you, let me use the example of the Champions League final on the 1st of June between Liverpool and Tottenham. Apparently there's a Tottenham fan here.

Now this was an event where we were able to truly optimize our portfolio of print titles. The team at the Liverpool Echo showed extraordinary publishing creativity by printing special editions of the Echo in Madrid for fans to enjoy ahead of the game, delivering fantastic pre-match coverage. On Sunday, following Liverpool's win, we sold more than 4x as many newspapers as the previous week. And on Monday, the extensive coverage of the victory parade led to a further 93% week-on-week uplift. Our print coverage was not confined to the Echo. Indeed, our team in Madrid filed content for all [7] of Reach's national print titles, and we saw sales uplifts across our portfolio, particularly in the Merseyside area.

But it wasn't just about print, our extensive digital coverage enabled us to enjoy record football traffic across our National's network, the Echo Online, and Football London. Over the 72 hours of the event, Champions League and Liverpool Football Club-related page views totaled some 17 million. Our extensive coverage illustrated that this was about far more than simply 90 minutes and a trophy. Our reporters live blogged at the airports, we were on the parade bus taking in the atmosphere as fans lined the streets of Liverpool, and our podcasting team created 13 editions of Blood Red with over 1 million streams during a 4-week period straddling the day of the Champions League final. And advertisers were keen to capitalize on this feel good moment with BT, Ladbrokes Coral, Paddy Power and Lidl, amongst the highest spenders. We enjoyed a market-leading advertising share over the semifinal and final, whilst also promoting our joint venture with thepools.com to drive new registrations. All in all, a great example of the 3 pillars of our strategy coming together around a single event. And this is just one example of many, where digital, print and commercial come together across all our brands to really maximize the audience and revenue impact of big news or sporting events.

But let me turn now briefly to each of the pillars and bring to life for you some of the other activities underpinning each of them, starting with optimize. Once again, we continue to work hard to improve our circulation revenue trends, which, as you saw earlier, declined by 4% in the first half of 2019 compared to 6% last year. We've continued to make significant editorial improvements to the Daily Express. We've also increased its pagination by 8 pages per day, including 4 pages of puzzles. Following the success of the Sunday edition of the Liverpool Echo, we launched the Manchester Evening News on Sunday on the 10th of February. We operate a 7-day digital newsroom in Manchester, and therefore, using this content, along with existing pages from our shared content unit, meant that we were able to launch this Sunday edition with negligible increased resources. And the Mirror has continued to innovate under its editor Alison Phillips. For example, in May, we published an edition written entirely by young people from schools across the country, providing a platform for their voices to be heard more clearly and highlighting the issues that they felt passionate about.

The issue proved particularly popular amongst our advertisers, including (inaudible), who sponsored the entire edition. And we've continued to innovatively reduce our print cost base. Examples that were included replacing Star Magazine, which forms part of the OK! Bumper Pack with a rebranded version of We Love TV, which is a 7-day TV listings magazine, which appears in the Daily Mirror on Saturday. And we've continued to review our portfolio of regional titles and closed 3 that had no reasonable prospect of delivering our required returns. We continue to enjoy strong growth in our digital audience, with growth in page views accelerating for both our national and regional sites over the first half of 2019, as you can see from the graph presented here.

In addition to this organic growth, we've continued to open new digital-only sites, unsupported by print products. The most recent of these include CorkBeo, which means life in Gaelic; and BusinessLive, which brings together all of our regional business coverage onto a single site. Liverpool.com has been recently launched to cater for a growing U.S. fan base of Liverpool FC. The model we've developed is that for a modest investment, underpinned by our scalable digital systems, we can open in new markets quickly and cost effectively. We're in the process of upgrading the former Express & Star titles onto our scenic digital platform. We successfully upgraded the OK! site, with Star being the next to go over the next few weeks. And in addition, in the second half of this year, we'll be launching a new front-end to our mobile sites, including an AI-driven personalized recommendation engine, which, we hope, will keep people on our sites for longer as they find further articles to read that are of particular interest to them.

As you know, we are a player of real scale in the digital space, reaching 40 million unique users across the U.K., which makes us the sixth largest online property. And we reach over 50% of the population in the big cities that we serve on a weekly basis, as the graph on the right-hand of this slide illustrates.

Sorry. In addition to our sites, we have a range of, sorry, press again, there we go. In addition to our sites, we have a range of podcasts with monthly listings growing steadily. More recent podcast launches covered topics such as mental health and parenting. And I remain particularly encouraged about our hyper local site InYourArea, which has now reached almost 5 million monthly unique browses.

However, growing our digital audience is insufficient unless we can grow digital revenue alongside it, and I'm pleased to report that we've done just that. We remain totally focused on optimizing the advertising yield to each impression and each page. We're doing this through growing our private marketplace and guaranteed yields volume, whilst ensuring healthy competition from our demand partners within the advertising ecosystem to ensure big density in the auction. We're also focused on building our client-direct business, both nationally and regionally, and growing our branded content solutions. Alongside the audience growth on InYourArea, which I showed you on the last slide, we're also seeing good revenue growth, where we've built a number of self-serve products, of small local advertisers, including for estate agents, jobs, local deals as well as a business membership and directory product. We also see opportunities to grow digital revenue through our Ozone partnership, which is a joint venture with News UK, The Telegraph and The Guardian. Commercial agreements are now in place with some of the biggest holding companies and independent agencies. And Ozone continues to build up direct client relationships. And we are very excited about our joint venture with The Football Pools. We've refreshed the branding and the new Footie5 app has just launched with best-in-class usability and functionality.

We've had over 10 million page views to thepools.com since launching late last year, and we're now gearing up to the start of the new football season. Beyond digital revenue, we continue to look to diversify our revenue in the areas of events and publishing beyond news. This year marks the 20th anniversary of Pride of Britain, a flagship national event that has gone from strength to strength. Also growing strongly is Pub in the Park an event arising from our joint venture with Brand Events and Tom Kerridge, which will operate 8 festivals this year, selling over 100,000 tickets.

Our book publishing business continues to grow with 30 books expected to be published this year. And our sports media business will be the official publishers for the rugby world cup in Japan this September as well as to the UEFA EURO next year.

So in summary, we delivered a robust half year performance. Our low net debt levels mean that we can invest for future growth. Our strong Half 1 performance has enabled an increase in our interim dividend, we've increased our digital audience growth and established ourselves as a digital player of true scale. And we have a series of initiatives underway to maintain this momentum.

We remain confident in our strategy and expect trading for the year to be in line with market expectations. Thank you for listening, and we'd be very happy to take any questions. Gareth, you on today?

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Questions and Answers

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Gareth Rhys Davies, Numis Securities Limited, Research Division - Director of Media Equity Research [1]

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Gareth Davies from Numis. Just kick off with a couple for me. The first, obviously, big step-up in terms of Q2 digital revenue growth, and you've obviously highlighted the initiatives in place. Can you give a little bit more granularity in terms of that monetization? And what's gone particularly well? And how sustainable you think that sort of 13.5% type growth is as we look into H2? And then secondly, the circulation. I think, we've got used to thinking of circulation revenues as a minus 6% being the norm. You've, obviously, posted minus 4% here. There's some specific sort of factors around the Express that have probably helped. Can you talk about circulation volumes across the portfolio? And how volumes have been performing sort of almost ex the Express? And what self-help there is that you feel you can do to sustain that minus 4% looking forward?

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Simon Richard Fox, Reach plc - CEO & Executive Director [2]

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Sure. Should I take -- let me take that. So if we talk about why Q2 digital revenue has accelerated, the first thing to point out is this is closely linked to the page view growth that you saw the graph, where you saw that our page view growth is -- we've actually had a better year-on-year performance for every single month over the 6 months. Why is that? Well, in the first half, we were still having a lot -- sorry, in the first quarter, we were still suffering slightly from the effects of the Facebook algorithm change of a year ago. We got through that at the end of February. And really there was no single factor. It's just been the ongoing changes that are -- newsrooms have been making really responding to the analytics that we now have in our newsrooms to make sure that we are focusing on the news that the people are really interested in. There have been a number of standout events that have driven page view growth, obviously, the football, Champions League, Love Island, and a number of other things. Our page views are split about 60% national, 40% regional, and as you also saw on the chart, both have been growing, but our regional growth has obviously been particularly strong.

In terms of monetization, again, it's really kind of more of the same, focusing on the higher-yielding aspects where we can, such as outstreamed video, pre-rolled video, directly sold campaigns. And in the second half, we certainly hope to benefit from the new front-end, as I mentioned, albeit, frankly, that will be rolled out very slowly so we launch the first pilot in a couple of weeks' time in Birmingham that will roll out slowly, across the half, with the full effect, I think, being felt next year.

But yes, there are a whole series of initiatives driving that.

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Simon Fuller, Reach plc - CFO, Company Secretary & Director [3]

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To answer the question on circulation. So just in terms of the factors behind circulation, there are a number of self-help initiatives that Simon described in his strategy update. So for example, we have been -- continue to evolve the product in the case of Express through additional pagination, but also through experimenting with different things like the next-generation edition on The Mirror. We invested in availability. So as you'll know, we have a choice about how many copies we put out into the marketplace and certain units, certain news agents or retailers, at the end of the day, may have sold out. And it's a judgment as to how many copies we put out and what level of returned back we get, and we have been continually working to optimize that. And we've done some further experiments in Half 1, which has meant that we pushed out some more copy, which has been economic for us to do and has actually led to improvements in circulation on The Mirror. So that is a good example of where we are taking the initiative to look at how do we get the optimal balance and that has been helped by a slightly higher cover price, which means that the economics move more in our favor in terms of the ratios of unsold to sold copies. So there are specific things we are doing. But in general terms, we have seen that improving trend, which we're clearly pleased about. And the point I made in my update is the core circulation is a bigger proportion of our business now, that improving trend feeds through to a top line improvement.

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Simon Richard Fox, Reach plc - CEO & Executive Director [4]

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In certain terms of regional volumes, we haven't seen any difference in the trends.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [5]

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Nick Dempsey from Barclays. I've got 2 questions. One actually on circulation just a follow-up. I mean, if you buy all the copies of The Mirror now, it's averaging out at about GBP 1 a day, everyone -- 85% of adults have smartphones, I mean, I'm not expecting people to shift if you put the cover price up from The Mirror to The Sun because of different political affiliation, et cetera. But why won't people increasingly start shifting to reading exactly the same content on their phone, which presumably ends up with a revenue -- a net revenue dilution for you? That's question one. Second one, organic growth doesn't include the Metro going off to the DMGT, and -- to the DMGT and any other titles that are being closed. Do we need to kind of build into our models, going forward, some title closures on top of organic forever?

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Simon Richard Fox, Reach plc - CEO & Executive Director [6]

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So the price of The Mirror isn't yet a pound, as you know, it's 80p. We...

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Simon Fuller, Reach plc - CFO, Company Secretary & Director [7]

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Average cost depending on where you are.

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Simon Richard Fox, Reach plc - CEO & Executive Director [8]

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Okay. And we still think it presents great value. The point though is that the digital content and the print content are not the same. They are not the same product, and it's not the same experience. And the people who are buying The Mirror are buying the Mirror for a 40-minute read. And that read is -- contains a whole mix of news and lifestyle and sport that is a completely different experience to the mobile or desktop experience, and of course, which has been around for 10 years. So we're not -- we don't believe that by making our online product better we're somehow accelerating the decline of the print product. They are often different consumers. And the people who are buying the paper are doing so for a particular set of reasons, and people who are reading our website are doing so also for a particular set of reasons tend to read 1 or 2 articles at a time, very different. And so 80p or GBP 1 a day for 40 minutes of great content, we think that continues to represent excellent value, and we have a spectrum of prices with our products in The Mirror, which is premium priced relative to The Sun. We think it's premium product. We have The Daily Star, which is less expensive; and The Daily Express, which is also, I'd say, very competitively priced. And certainly, we haven't seen any different reaction as we put our 5p increases through the same 1.5% impact that we've talked about before is what we continue to see.

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Simon Fuller, Reach plc - CFO, Company Secretary & Director [9]

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Let me talk to the second question on organic growth. I mean, that -- each year, we carry out portfolio reviews. We're not expecting a significant shift in the gradient of the graph on that. We continue to review. As you know, sometimes, that means moving a daily title in the regions to a weekly title. We've got a series of different options. One of the things that is a factor that clearly will help these things is what we talked about around newsprint prices because, clearly, the cost of production coming down, will change some of the economics on that so that will help preserve the longevity of some of those titles.

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Simon Richard Fox, Reach plc - CEO & Executive Director [10]

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But I don't think you need to change your models because the impact of any closure will be so negligible because by the -- they will not be contributing meaningfully when we take that decision.

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Natasha Brilliant, Citigroup Inc, Research Division - VP [11]

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Natasha Brilliant from Citi. Three questions. Firstly, just going back to Gareth's question about the digital growth. Should we assume that, that 15% is sort of medium-term sustainable level? Or would you expect it to accelerate further as we move into next year and beyond? Second question is on your traffic and the proportion of indirect versus direct. If you could just remind us on that? And sort of how exposed you are to changes in algorithms in Facebook or Google? And then, finally, you've talked about early stage discussions with the JPIMedia assets. I appreciate you probably can't say too much, but if you could just give us some color on why that sort of a deal would make sense? And maybe an update on timing of when we might hear them?

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Simon Richard Fox, Reach plc - CEO & Executive Director [12]

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Okay. So we're not planning to upgrade our KPI 15%. We haven't actually achieved it yet. So we're very much focused on making sure that we do, but we believe we've got the initiatives in place to ensure that we do and that is very much front of mind and the focus.

Traffic sources, we work very hard to try and becomes less dependent on any one single platform. We took a big hit, January, a year ago, when Facebook changed their algorithm, and we really worked hard to try and diversify our sources of traffic. However we, like everybody else, are dependent on Google, in particular, Facebook, Instagram, Twitter and others. And that is the way people want to use the web, and our approach is that we need to embrace those platforms, we do need to be -- we want our content to be easily found. So we are happy when we surface high in Google, but inevitably, there is also a vulnerability around that. But the main thing, I think, is to make sure our sources of traffic are as diversified as they can be. And the reason why we're very focused on this project around that second page view is, once we do get people in through whatever mechanism, we don't want them ideally just to read one story, we want them to stay and read a second and a third. And that's why this particular personalization engine and the new front-end is very important, very much part of that strategy around diversifying traffic. You want to comment on... ?

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Simon Fuller, Reach plc - CFO, Company Secretary & Director [13]

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To answer the question on JPIMedia. So you'll know that on the 18th of July, we issued a short update to the market, addressing the media speculation. And that did confirm we're in early stages of discussions. I think that would have come as no surprise to people who understand the industry and understand our business. If you look over the last 5 years with the acquisitions of Local World and then more recently Express & Star, we've driven over GBP 30 million of the synergies through acquiring those 2 businesses, and we've become a larger scale, broader reach business as a result. And so I think it is very early stages. We don't have any other detailed comment to make at this point. But it very much aligns with the company's strategy, which is to drive efficiency, to optimize, whether that be in terms of the physical production, printing, whether it be the distribution of product, whether it be about shared content and efficiency, all of those factors clearly are benefited by a larger scale business.

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Simon Richard Fox, Reach plc - CEO & Executive Director [14]

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Are there any other questions? No, nothing on the phones. Very good. Well, thank you very much, indeed. Thank you for coming, and Simon will see you next time.

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Simon Fuller, Reach plc - CFO, Company Secretary & Director [15]

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Thank you, again.