Guardian Media Group plc (‘GMG’) announces full year results for 2007/08

“An exceptional year; GMG has never been in a stronger position”
– Paul Myners, Chairman

Guardian Media Group plc today announces its financial results for the year ended 30 March 2008.

Highlights

• Turnover (excluding Trader Media Group) up 8.7% at £438.8m
• Group turnover of £502.1m (proforma £758.6m¹, against £716.1m in 2007)
• Profit before tax of £306.4m (2007 £97.7m)
• Operating profit of £5.1m from continuing operations²
• Digital revenues up by 36% to £85.1m³
• Investment portfolio strengthened and broadened through three major initiatives:
– Sale of 49.9% of Trader Media Group to Apax Partners
– Purchase of Emap’s B2B arm in partnership with Apax
– Creation of an externally managed, long-term investment fund
• The Guardian – unprecedented financial security and reaching record audiences
• Economic downturn will impact on revenue streams in coming year

¹ Turnover including Trader Media Group, as if TMG had been 100% owned throughout the year
² Before exceptional items and amortisation of acquired intangibles
³ Including 50.1% of Trader Media Group

Paul Myners, Chairman of Guardian Media Group, said:
“It has been an exceptional year for Guardian Media Group, which, as it passes its centenary, has never been in a stronger position. The steps we have taken to strengthen and diversify our business portfolio mean that we are well placed to fulfil our core purpose: securing the financial and thereby editorial independence of the Guardian.

“GMG now has a much broader range of asset classes and revenue streams, and has reduced its exposure to the risks associated with print media, classified advertising and the UK economy. At the same time, the Guardian’s journalism is reaching record audiences due to the global expansion of its online presence and its continued editorial excellence.

“The media industry will continue to confront disruption to its traditional sources of revenue. We expect the uncertainty within the UK economy to have an impact on a number of the Group’s revenue streams in the coming year. Nonetheless, we end this financial year and look ahead to the next with confidence.”

Carolyn McCall, Chief Executive of GMG, said:
“As the media landscape has continued to reshape itself, we have built ever more solid foundations for our company. We have also maintained high levels of investment in our core businesses and flagship brands.

“Guardian News & Media has continued to invest in the growth of the Guardian and Observer newspapers and guardian.co.uk. It has made great progress in its transition from a UK newspaper operation to a 24/7 international print and digital publisher.

“Across the Group, a consistent theme has been the growth of our online businesses, with Group-wide digital revenues increasing rapidly.

“Our businesses operate in an intensely competitive, fast-changing media environment. In this context, we are very pleased with our performance and the progress we have made.”

Financial summary
For the year ended 30 March 2008, turnover (excluding contribution from Trader Media Group up to date of part-disposal) was £438.8m (up 8.7%). Group turnover of £502.1m, against £716.1m in 2007, reflects the sale of 49.9% of Trader Media Group. The proforma turnover figure, as if TMG had been 100% owned throughout the financial year, would be £758.6m.

Profit figures are also affected by the part disposal of TMG. Pre-tax profit at £306.4m (2007 £97.7m) includes £334.8m profit on the part disposal of Trader Media. Statutory profit, after taxation and exceptional items, was £307.2m (2007 £64.2m). Operating profit on continuing operations, before exceptional items and amortisation of acquired intangibles, was £5.1m.

Net assets increased from £533.3m to £836.3m; debt reduced to £65.9m from £151.7m.

Investment portfolio strategy
GMG now has a clear investment portfolio strategy based on four asset classes. This comprises continued investment in our core division, Guardian News & Media; investment in “safe-haven” assets such as Trader Media Group and Emap, which have characteristics of low volatility with strong cash generation; growth assets where the focus is more on capital growth than short-term cash generation; and, finally, a long-term, externally managed investment fund.

This approach spreads risk and reduces the Group’s exposure to the UK economy, classified advertising revenue streams and print media, and places the Guardian in a position of unprecedented financial security.

Guardian News & Media (GNM)
Turnover increased to £261.9m from £245.7m. Increased investment and restructuring costs led to an increase in operating loss before exceptional items and the amortisation of acquired intangibles from £15.9m to £24.9m. Underlying profit performance improved, with operating losses (excluding restructuring costs, Kings Place investment and rent on sold properties) falling from £15.9m to £13.9m.

The Guardian and the Observer both enjoyed circulation success and increased their market share. They lead their markets in terms of the percentage of full-price sales, and the Observer was the only title in its market to consistently increase sales. Both titles have continued to see the benefits of the full-colour Berliner presses.

During the year, the Guardian Unlimited website was relaunched as guardian.co.uk, supported by a £19m investment programme in the site, improving its design, functionality and usability. The online audience continued to grow strongly during the year. In January 2008, guardian.co.uk set a new record by attracting 19.7 million unique users and serving 182 million pages, year-on-year increases of 26% and 18% respectively. Two thirds of the Guardian’s reach is now outside the UK.

This was GNM’s best year for revenue growth since 2001. Newspaper display advertising revenues grew by 6.6% and both digital display and recruitment by 49%. Journalistically, the increasing breadth of GNM’s editorial activity was reflected in the range of awards held during the year across all media, including UK newspaper of the year 2007 for the Observer; the world’s best designed newspaper 2008 for the Guardian; an International Emmy for Guardian Films; and a third successive Webby award for the world’s best online newspaper (2007).

GMG Regional Media
The regional division grew its reputation as the leading innovator in the regional press with its ground-breaking convergence strategy, a series of online launches and the ongoing circulation success of the part-paid, part-free Manchester Evening News.

Nonetheless, of GMG’s divisions it was the most seriously affected by the difficult advertising market conditions and the migration of revenues – particularly in classified advertising – from print to online. Despite these difficult conditions, the business continued to deliver substantial profits. Operating profit was £14.3m (2007 £19.4m) on broadly flat turnover of £120.5m (2007 £122.2m).

Display advertising revenues were strong, outperforming the market and rising 1% year-on-year, but classified advertising fell by 8.1%. Operating margin for those businesses which traded throughout the financial year declined only slightly to 16%, reflecting sound cost management and improved operating efficiencies coupled with organic growth from non-traditional activities such as digital media. Across the division, there was strong growth in unique users of digital services, up 16.9% year-on-year.

GMG Regional Media continues to be a leader in its markets. While trading conditions have suppressed financial performance, the business has the potential for future growth and remains a strong, profitable asset within the portfolio.

GMG Radio
The radio division enjoyed another positive year of growth and development. Two new stations were launched, others relocated to new premises, the new Smooth Radio network saw significant investment and there was a major review of branding and positioning. A further new station – Rock Radio in Manchester – was launched in May 2008.

The division achieved record audiences and turnover. High levels of brand investment, the cost of integrating the Saga stations acquired in February 2007 and a soft national advertising market resulted in a decline in operating profit (excluding exceptional items and amortisation of acquired intangibles) to £0.1m (2007 £3.5m). Turnover was up 36.7% at £48.8m, reflecting the addition of new stations through acquisition and organic growth from existing operations. In audience terms, the division performed well, with total listening hours of 48 million per week at the end of the financial year.

The radio sector is experiencing rapid and substantial change, most notably in the form of large-scale consolidation. While this presents a number of challenges, GMG Radio is now a major player within the industry and we are well placed to take advantage of any opportunities that arise.

GMG Property Services
The property services division was formed in June 2007 when GMG retained full ownership of software provider Vebra Solutions and consumer portal thinkproperty.com, following the sale of a minority stake in Trader Media Group. Due to acquisitions and organic development it has grown substantially and its range of activity now encompasses software provision to property management and lettings businesses as well as residential estate agencies, alongside the consumer operation.

The division made an operating loss of £2.1m, on turnover of £7.7m, due to investment in marketing for thinkproperty and amortisation of acquired intangibles. Despite uncertainty in the UK housing market, our property division is well placed to continue its expansion.

Trader Media Group (TMG)
In its first year under the joint ownership of GMG and Apax Partners, Trader Media Group has again performed strongly. Turnover increased to £319.8m (2007 £312.5m). Operating profit declined to £90.7m from £104.6m due to restructuring costs and substantial investment in marketing.

Auto Trader, the division’s flagship, remains by far the leading automotive classifieds brand in the UK and Ireland. The magazine and website now carry over 400,000 vehicles, with up to 10m unique users a month and nearly 1.5m readers each week. TMG continued successfully and profitably to manage the transition from print to online. For the second year in succession TMG’s digital business contributed the greater proportion of profit. Profit from Auto Trader’s digital business increased 30% year-on-year.

The year saw the introduction of a new sales structure unifying the digital and publishing teams and the launch of a redesigned Auto Trader website and magazine, supported by the brand’s biggest ever marketing campaign. TMG has reinforced its clear leadership of its markets, with over 90% of UK car retailers doing business with the company. With a clear strategy in place, it is on track to deliver sustainable growth and increased value for both GMG and Apax.

Emap
GMG acquired Emap jointly with funds advised by Apax Partners in March 2008. The acquisition is central to GMG’s diversification strategy – 60% of Emap’s revenues are from non-print activities such as information and events. Emap is a very good business, from which GMG expects continued growth.

Group outlook
These remain challenging times for all media businesses and the continuing economic downturn will have a significant impact on important revenue streams for the Group in the coming financial year. However, ownership by the Scott Trust and the strength of our portfolio allow us to make plans for the future with greater certainty than many of our competitors.

The further diversification of the Group’s assets has substantially reduced our reliance on print media, classified advertising and the UK economy, and our aim is to emerge from the downturn an even stronger organisation.

We will need to be ever more efficient in the management of our businesses, and we look ahead with a degree of caution. Nonetheless, we enter the new financial year with confidence in the health of the Group and with enthusiasm as we pursue ambitious new goals for the Guardian.

(ends)

Download full GMG annual report 2007/08 as a pdf (3.5MB)

Further information:
Colin Browne, Maitland 020 7379 5151
Chris Wade, Head of Communications, Guardian Media Group 020 7713 4041
Carolyn McCall, Chief Executive, Guardian Media Group 020 7278 2332

Notes for editors
Guardian Media Group plc is one of the UK’s leading multimedia companies. Its diverse portfolio includes:

• Guardian News & Media: the Guardian and Observer newspapers and guardian.co.uk.

• GMG Regional Media: the Manchester Evening News and its website, other regional newspapers in the North West and South, and the Channel M city TV station.

• GMG Radio: regional radio stations across the UK under the Real Radio, Smooth Radio, Century Radio and Rock Radio brands.

• GMG Property Services: Vebra, Core Systems and CFP, providers of software to independent estate agents, and thinkproperty.com, the consumer-facing portal.

• Trader Media Group: one of Europe’s largest specialist print and online media companies, and publisher of the Auto Trader magazine and website. Trader Media Group is jointly owned by GMG and Apax Partners.

• Emap Communications: the B2B publishing, events and information business, also jointly owned by GMG and Apax Partners.

GMG is wholly owned by the Scott Trust, which was created in 1936 to secure the financial and editorial independence of the Guardian in perpetuity. For further information visit www.gmgplc.co.uk.