Guardian Media Group plc (GMG) announces full-year results for 2008/09

“While not immune to difficult market conditions, Guardian Media Group is able to place long-term security before short-term profit.”
Amelia Fawcett, chair, GMG

GMG today announces its financial results for the year ended 29 March 2009.

Highlights

• Turnover from continuing operations £405.4m (2008 £502.1m) – see note (i)

• Group turnover including share of JV companies TMG and Emap £637.9m (2008 £625.7m, including share of JV company TMG)

• EBITA (before exceptional items and including share of JV companies TMG and Emap) £21.4m (2008 £52.8m, including share of JV company TMG)

• Loss before taxation of £89.8m (2008 £306.4m profit) includes several significant non-trading losses – see note (ii)

• Cash at year-end £83.2m

• Joint venture companies TMG and Emap perform strongly in a difficult market, with Emap increasing its operating profit year-on-year

• Steps taken to reduce costs across portfolio in light of very difficult trading conditions

Note (i) The 2008 turnover figure included a contribution of £63.3m from TMG for the part of the year when it was still a wholly-owned subsidiary. When this factor is removed revenue decline was 7.6%. TMG’s turnover is not included in Group turnover for 2009 as TMG is now accounted for separately as a joint venture, as is Emap.
Note (ii) The 2008 figure included the exceptional profit from the disposal of 49.9% of TMG. The 2009 figure includes £24.4 million of fair value losses on forward exchange contracts, £27.2 million of joint venture fair value losses on interest rate swaps and debt, and £26.4 million of subsidiary and associate company impairment of goodwill and intangibles.

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Amelia Fawcett, chair of GMG, said:
“2008/09 was a difficult year for most parts of the media industry, and our own Group is not immune to the combined effects of recession and longer-term structural change. We will need to re-examine and reshape many of our existing business models if we are to continue to be successful.

“The Company’s ownership structure, its unique ethos and purpose, and the recent diversification of its portfolio offer some protection from the current economic storm.

“While declining revenues were a factor in our financial performance, the reported loss is also due to the restructuring of the portfolio over the last two years – specifically the partial sale of Trader Media Group and investment of the proceeds in long-term assets.

“Scott Trust ownership, the lack of institutional investors and a far-sighted approach to investment have allowed the Group to place long-term security before short-term profit.”

Carolyn McCall, chief executive of GMG, said:
“GMG has continued to pursue its successful strategy of managing and investing in a broad range of businesses and assets in order to provide financial security and stability for the Guardian.

“The sharp decline in the advertising market had an impact on each of the wholly owned businesses. All are reducing costs to a more sustainable level in this harsh new environment.

“The two joint ventures with Apax Partners – Trader Media Group (TMG) and Emap – continued to perform strongly, delivering substantial profit despite adverse market conditions.

“The journalism of our flagship title continues to flourish in print and on the web, and as a Group we expect to emerge from recession with our market-leading positions not only intact but also strengthened.”

Guardian News & Media (GNM)
GNM, the Group’s core business, enjoyed a year of significant achievement in 2008/09.

It undertook a major structural reorganisation, expanded its multimedia coverage, acquired a new US business, introduced integrated editorial working and, with the growth of guardian.co.uk’s international audience, made further progress towards the Guardian’s long-term ambition to become the world’s leading liberal voice.

Despite these successes, GNM experienced the toughest trading conditions seen for many years, resulting in an increase in operating loss, before exceptional items, to £36.8m (2008 £26.4m) on turnover of £253.6m (2008 £261.9m).

Given the ongoing structural issues affecting the sector, compounded by the severe advertising downturn, GNM is in the process of reducing its cost base significantly, while continuing to invest in journalism and web development.

The carefully planned and successful relocation to Kings Place meant that GNM was able to implement fully its plans for integrated working between print and online teams.

During the year guardian.co.uk achieved a record audience of nearly 30m unique users. It is now not only the UK’s largest newspaper site but also one of the biggest in the world.

GNM’s aim is to emerge from the economic downturn a leaner and stronger organisation: leaner due to a bottom-up reappraisal of the cost base to ensure it is affordable; stronger because it will continue to invest in its journalism and in maintaining its market-leading positions.

GMG Regional Media
The past financial year was perhaps the most challenging in the history of the local and regional press. The underlying problems of the sector are predominantly structural and can be traced back at least ten years, but were masked by a long period of economic growth. The onset of recession revealed the full impact of online disruption to the traditional business model of local and regional papers.

GMG Regional Media’s operating profit declined to £0.5m (2008 £14.3m) on turnover of £94.5m (2008 £120.5m). This steep decline was driven by a 30% fall in classified advertising revenues. Recruitment fell by 34%, motors by 16% and property by 46%. Display revenues slipped by 7%.

In order to remain viable as a business GMG Regional Media was forced to reduce costs substantially, leading to the announcement in March and April 2009 of nearly 300 redundancies and a wider reorganisation across its portfolio.

Since the end of the 2008/09 financial year, conditions within the regional press have, if anything, worsened. GMG Regional Media has now been making a monthly trading loss for more than six months.

GMG Regional Media will continue to review its operations as it seeks a sustainable future for its businesses and titles.

GMG Radio
GMG’s commercial radio division outperformed its peers in 2008/09 in a difficult market environment. While the total radio advertising market dropped by more than 14%, GMG Radio limited its advertising decline to less than 5%.

This positive performance reflects the placement of the company’s national sales contract with GCap Media (now owned by Global Radio); the strength of the overall strategy to build national brands which are operated locally; and the progress made with the rapidly growing Smooth Radio stations. At the end of the financial year, the division achieved record reach with 5.1 million adult listeners, but followed an industry trend with slightly reduced average listening hours.

However, due to difficult trading conditions and continued brand investment the division moved into operating loss. Operating loss before exceptionals and amortisation of acquired intangibles was £6.6m (2008 £0.1m profit) on turnover of £46.6m (2008 £48.8m).

While visibility in terms of revenue remains low, with its strong networks and highly motivated people GMG Radio is well placed to take advantage of opportunities arising from the various current policy reviews affecting commercial radio, and to create value for the Group.

Trader Media Group (TMG) – joint venture
Despite challenging trading conditions, TMG finished 2008/09 in a position of strength. Total operating profit before exceptional items, restructuring costs and amortisation of intangible assets was £110.8m (2008 £119.8m) on turnover of £296.0m (2008 £309.9m).

The main brand, Auto Trader, continued its successful transition from print to online, with profit contribution from digital growing to more than 85% from 70% a year ago. Unique users of autotrader.co.uk were in the region of 10 million each month. The mobile platform saw a ten-fold increase in traffic, the overall Auto Trader brand audience grew by more than 14% and a still-successful magazine continued to be available through 40,000 retailers across the UK.

TMG as a whole reinforced its clear leadership of the UK automotive classified sector, with over 90% of UK car retailers doing business with the company.

As in other areas of the Group, restructuring led to a significant number of redundancies. As the rapid transition from print to online continued TMG reduced its publishing cost base accordingly.

Despite difficult motors and media markets, TMG remains on track to deliver sustainable, profitable growth. By all key measures Auto Trader beat the competition and gained market share in 2008/09.

Emap – joint venture
Emap traded very well in its first full year of joint ownership by GMG and Apax Partners. It enjoyed a particularly strong first six months, led by an excellent performance from the Cannes Lions advertising festival in June.

The post-summer slowdown in the economy heralded tougher trading conditions, but the business still delivered an improved operating profit (compared to the previous year), before exceptional items, restructuring costs and amortisation of intangible assets of £98.2m on turnover of £284.9m.

As is the case with TMG, there is strong shareholder alignment between GMG and Apax Partners, which allows Emap to pursue its strategic objectives with clarity and confidence.

Emap is not immune from the challenges facing the media sector. However, it is a strong and diverse business, with profit evenly distributed between its three prime formats of delivery: data, events and publishing.

Its 35% operating margin puts it at the forefront of the business-to-business sector and we expect Emap’s businesses to continue to outperform their peers in the industry.

Outlook
It is clear that the challenges of recession and accelerated structural change will have an impact on the Group’s revenues in the coming year and beyond. In addition to remodelling our businesses and reducing costs we will continue to engage with government and regulators to help shape the industries in which we operate. We will also review the structure of our portfolio on an ongoing basis.

We have the huge benefit of ownership by the Scott Trust and the consistency of its objectives. While this cannot shield us from the immediate financial effects of the downturn, it does allow us to look to the future with a degree of confidence, and to continue to invest in the long-term growth of our businesses. We expect to emerge from recession with our key market-leading positions not only intact but also strengthened.

Our investment in two successful, large-scale joint ventures (TMG and Emap), and in a long-term fund, gives further assurance. The fund spreads our investment globally and across different sectors and assets, thereby reducing risk. We also have the benefit at present of a cash cushion, in contrast to the many media companies with net debt.

We have a broad portfolio and a clear strategy both for the Group and each of its operating businesses. Industry challenges notwithstanding, we will continue to meet our central obligation to the Scott Trust and the Guardian.

Further information
Colin Browne, Maitland 020 7379 5151
Chris Wade, Guardian Media Group 020 3353 4041

The full annual report is available here

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 and Rock Radio brands.

• GMG Property Services: Vebra, Core Systems and CFP Software, providers of software to independent estate agents.

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

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

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