The PLC’s share price slumped by more than 28% after the results announcement, descending to a new 52-week low.
In the 26 weeks to 26 June, overall sales slipped from £302.3m to £297.4m, but Reach’s adjusted operating profit fell by 31.5% to £47.2m.
The group’s newsprint bill increased by 54% from £25.2m to £38.8m.
“Adjusted costs increased by £16.7m or 7.1.%, reflecting the increase in the cost of newsprint,” Reach stated, and said the increase was due to “growing demand for packaging materials, reduced availability of recycled fibre, increasing costs of shipping and rising energy prices”.
The group had warned in March that print-related price inflation would hit its results.
Print sales were down 3.9%, print advertising was down nearly 10%, and circulation fell 5.1%.
However, Reach said that print “remains a large-scale, resilient business which provides the foundation for our investment in digital.”
At its contract printing and publishing wing, printing revenue increased by 19.8% to £11.5m “reflecting the increase in newsprint costs passed on to third parties”.
Other print revenue increased by 18.4% due to an increase in event-driven and sports printing revenues versus the prior year period that was still affected by Covid.
Digital advertising was impacted by the war in Ukraine, with “a broad doubling” in the amount of content deemed “brand unsafe” by many advertisers.
“While this ad space continues to be sold, it has been at a lower than expected rate, contributing to a lower average yield per page.”
Digital revenues increased by £4m, or 5.4%, to £72.5m.
Reach said it planned to achieve “significant efficiencies” in the second half of the financial year, through process changes that will reduce its newsprint bill.
“By reducing printed volumes or supply, without any significant impact on availability and by reducing pagination, both by around 5-6%, we expect to realise significant efficiencies during H2.”
The group has also increased cover prices. Circulation accounts for around 70% of its print revenues.
Print advertising was down 9.9% “broadly in line with the long-term trend”, and with a decrease in public health spending related to Covid compared with the prior year.
“This was in part offset by a recovery in both the travel and retail sectors, with a significant increase in the number of cover wraps in both regional and national titles,” the group stated.
CEO Jim Mullen said the whole sector was experiencing a slowdown in advertising demand, with “a growing number of delayed or pulled briefs from brands and agencies at a national level”.
“The regional business and the wider SME community is recovering from the effects of COVID and successive lockdowns and we continue to work hard as a trusted partner to support them in this difficult trading period.
“The growing cost of living crisis, declining consumer confidence, while presenting a challenging outlook for all businesses, only reaffirms our strategy to drive a higher and more predictable level of returns through investment in data. Although we find ourselves once again in an uncertain environment, we take confidence from our track record in facing the COVID crisis two years ago, firm in the knowledge that the investments we've made to date are making us stronger for the future,” Mullen stated.
Reach’s share price fell to 83.05p earlier today, and was down 28.12% at 83.3p at the time of writing (52-week high: 430p).
