Guardian Media Group plc (GMG) announces full-year results for 09/10

GMG today announces its results for the financial year ended March 28 2010.

Highlights

• Turnover from GMG’s continuing businesses £280.0 million (2009 £310.9 million) – see note 1
• Turnover including share of joint venture companies Trader Media Group and Emap £476.2 million (2009 £543.4 million)
• EBITA including share of Trader Media Group and Emap £37.7 million (2009 £35.8 million)
• Operating loss of the wholly owned businesses before exceptional items £53.9 million (2009 £65.2 million)
• Loss before taxation £171.0 million (2009 £96.7 million) includes one-off, non-cash impairment charges – see note 2
• Combined cash and investment fund £260.8 million (2009 £267.7 million)
• Strong operating profit performance from joint venture companies Trader Media Group and Emap in difficult trading environments

Note 1: Excludes GMG Regional Media, which is classified as a discontinued activity.
Note 2: The pre-tax loss includes impairments of GMG’s investment in Emap (£96.5 million) and of GMG Radio (£63.9 million), which reflect the impact of current market conditions on trading. In addition to the pre-tax loss, the loss of £47.0 million on the sale of the regional media division is reported within discontinued activities.

Amelia Fawcett, chair of GMG, said:

“Guardian Media Group remains well positioned in terms of overall resources and general financial health, and has delivered a satisfactory performance in the most challenging of years.

“The pre-tax loss was driven primarily by non-cash adjustments relating to asset impairments, not cash outflow. During 2009/10, despite economic turmoil and continued upheaval in the creative industries, GMG’s combined cash balance and investment fund declined by less than 3%.

“The essence of our strategy in recent years has been to reduce risk by diversifying the Group’s portfolio, and to exchange short-term profit for financial security through investments from which we do not necessarily take an immediate return. Despite the impact of market conditions on current valuations across the industry, we continue to believe that a portfolio of assets enhances the long-term financial security of the Group.

“Due to the long-term approach taken by the Group and its sole shareholder, the value of our portfolio of assets and investments, and improving economic conditions, there is every reason to be confident about the future of GMG and, most importantly, its ongoing ability to support the Guardian’s journalism.”

Carolyn McCall, chief executive of GMG, said:

“The recession has driven steep declines in advertising revenues across the media industry, and has been a real test for all our businesses.

“However, steps taken to reposition the portfolio in the years before the downturn, and our actions over the last year in response to the economic crisis, meant that GMG ended 2009/10 in good shape.

“Significant cost savings during the year led to a fall in operating loss before exceptionals. In addition, there were important changes within our businesses and to the portfolio which strengthened the Group’s long-term financial position.

“The media industry faces continued uncertainty. Nonetheless, GMG can look ahead with cautious optimism, and with confidence in the future of the Guardian.”

Guardian News & Media
A comprehensive strategic review at GNM was followed by major restructuring and cost savings of £26.2 million during the year. There remains further work to do, but following these changes GNM’s cost base has been substantially reduced.

In the year ended 28 March 2010 GNM’s revenue fell by £32.6 million. Management action on costs held operating loss to £34.4 million (2009 £33.7 million) (before exceptional items and excluding non-statutory exceptional costs of £3.4 million in respect of bad debts). Statutory operating loss before exceptional items was £37.8 million (2009 £33.7 million).

We anticipate that the ongoing cost reduction programme will reduce GNM’s operating loss in the current financial year (2010/11), provided that revenues are stabilised.

GMG Regional Media
In the years since 2007, we have restructured and diversified our portfolio. In March 2010 we continued this process with the sale of GMG Regional Media – a very important and profitable part of the Group for many years, but more recently a loss-making business within a deeply structurally challenged sector.

The performance of GMG’s regional media division has reflected the struggles of the wider local and regional press, with profits declining each year since 2005. The recession has accelerated that decline, and in the last year GMG Regional Media incurred an operating loss of £0.1 million (2009 £0.5 million profit).

Success in this sector now increasingly depends on scale, and with less than 4% of the market, GMG was not in a position to develop its regional business. There were also major liabilities associated with continued ownership, including the fixed costs of a long-term printing contract with Trinity Mirror.

The business was sold to Trinity Mirror for a total consideration of £44.8 million, which comprises the release of a print contract valued at £37.4 million and £7.4 million in cash.

Emap
Emap delivered a total underlying operating profit of £90.1 million (2009 £98.2 million). Despite significant economic pressures, action to reduce the company’s cost base helped to offset revenue declines and operating margins decreased by only 1.7% to 32.8%.

This was a strong performance given the recession, but profitability was at a lower level than originally targeted by the shareholders (GMG and Apax Partners). A consequence is that the lower profit level required an impairment of our investment of £96.5 million.

During the year the shareholders decided to recapitalise Emap by buying back some of its debt from the lending banks. This resolved a bank covenant issue and has given Emap sufficient headroom to invest in growing the business, including – potentially – through acquisition.

Trader Media Group (TMG)
Auto Trader, the core brand of TMG (which like Emap is jointly owned by GMG and Apax Partners), has long been recognised as one of the most successful and profitable examples of print-to-online transition in the world. During 2009/10 it cemented this reputation, with profit contribution from digital approaching 90%, compared to 70% two years ago.

In the face of recession and a severe slowdown in the automotive sector in the UK and Ireland, TMG strengthened its market-leading position. Total operating profit before exceptional items was £104.8 million (2009 £110.8 million).

Outlook
The environment for news organisations will remain challenging due to economic and structural pressures. However, while we continuously monitor the situation, we believe we have positioned the portfolio well to deal with these pressures.

Also, as the economy emerges from recession we are seeing the beginning of a recovery in advertising revenues, with year-on-year declines slowing, and we expect this improving trend to continue.

As GMG’s pre-tax loss in 2009/10 was driven by large, one-off charges, we anticipate a substantial reduction in the pre-tax loss in the current financial year. We also expect an improvement in GNM’s performance due to the changes made during 2009/10, which will impact positively on GMG’s results.

Further information
Chris Wade 020 3353 4041
Colin Browne 07733 103 800

Full annual report available at www.gmgannualreview2010.co.uk

Notes for editors

Guardian Media Group’s portfolio includes:

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