CEO’s review of operations
The media sector continued to face major challenges in 2010/11, of which the greatest was the ongoing transition from traditional to digital media. The development of new business models to meet these challenges remained the key issue for the industry.
Against this background, we have begun to implement a new strategy, including a restructuring of senior management, a new approach to managing our portfolio of investments and the transformation of our core business GNM, with the aim of ensuring the Guardian’s long-term economic sustainability.
During the year under review, GMG continued to provide GNM with a stable financial foundation, allowing the Guardian and Observer to focus on producing outstanding journalism. It was a year of huge journalistic success that culminated with the Guardian winning Newspaper of the Year at the British Press Awards.
The purpose of GMG and the Scott Trust is to secure the financial and editorial independence of the Guardian. Central to this task are investments in wholly owned businesses, joint ventures and an externally managed investment fund.
The value of our net assets increased slightly to £592.0 million (2010 £585.9 million) and debt reduced from £72.5 million to £64.9 million.
Group pre-tax profit was sharply improved at £9.0 million compared to a loss of £171.0 million in the previous year, which had been strongly influenced by a number of exceptional items including impairments relating to Emap and GMG Radio. EBITA before exceptional items and including share of joint ventures was £49.6 million (2010 £37.7 million).
Revenue was £255.1 million (2010 £280.0 million), and operating loss before exceptional items was £54.5 million (2010 £53.9 million). The combined value of cash and the investment fund declined to £197.4 million (2010 £260.8 million), which included non-operating cash outflows in respect of provisions of £22.6 million and settlement of a loan to a joint venture of £10.8 million. The investment fund itself performed strongly.
From a financial perspective, GNM had another challenging year. A firm grip was maintained on costs following savings of £26.8 million from restructuring in the previous year, but revenue declined from £221.0 million to £198.2 million. While display advertising revenues were resilient, the Guardian saw a sharp decline in recruitment advertising as a result of the difficult economic environment and unprecedented cuts to public sector spending.
Digital revenues continued to grow, though not at a sufficient rate to offset the decline in print revenues – reflecting the challenge facing our industry as a whole. Thanks to its programme of cost savings and efficiency improvements, GNM was able to limit its operating loss before exceptional items to £38.3 million (2010 £37.8 million), despite the decline in revenues.
The Guardian is sustained by the overall strength of GMG and our portfolio of investments. Nevertheless, GNM will continue to work hard to ensure that its costs and structure properly reflect projected revenues.
Journalistically, it was a landmark year for GNM. The Guardian consistently set the news agenda and pushed back the boundaries of conventional reporting. Its pioneering of open, collaborative, mutualised journalism was the driving force behind this success.
The partnership with Wikileaks – which involved carefully selecting and editing stories from a huge cache of classified information – produced what commentators described as “one of the greatest journalistic scoops of the last 30 years.” This unique project, which saw journalists and non-journalists collaborate across continents, combined the Guardian’s investigative tradition, instinct for innovation and global ambition to extraordinary effect. The worldwide impact of the story showed how far we have come as a news organisation.
Another example of the Guardian’s commitment to investigative journalism was its determined and fearless pursuit, often alone among the UK’s news media, of the News of the World phone hacking story.
On naming the Guardian Newspaper of the Year, one British Press Awards judge said the paper was “completely unafraid to take on the powers that be.” Another commented: “What an infuriating paper it is, but it does continue to try to take journalism into the future.”
A freedom to take risks has long fostered a spirit of innovation at GNM, placing it at the forefront of digital journalism. “Hack Days” brought together journalists and developers for the first time to create new ways of communicating. Experimentation with new digital ideas resulted in the best concepts being tried and tested by the Guardian at the iconic South by Southwest festival in Texas. The Guardian’s championing of live blogging was recognised when Andy Sparrow was named Political Journalist of the Year.
The Observer had another strong year journalistically, with a string of exclusive stories and interviews that chronicled 12 months of political and economic upheaval around the world. The financial year began with an exclusive interview recording Gordon Brown’s last days in office. It ended with widespread acclaim for the first ever TEDx Observer festival, an event which sold out in just 48 hours and placed the Observer at the heart of the movement for new ideas.
The strong performance of guardian.co.uk reflected the high standard of our journalism and its increased profile. In March 2011 the site had a daily average of 2.7 million unique browsers, a year-on-year increase of 47%. Monthly unique browsers stood at 49.2 million, also an increase of 47% year-on-year. The Guardian’s journalism has never been more widely read.
The launch of version two of the Guardian’s iPhone app in January 2011 has been a success, with 322,000 downloads to the end of March. The Guardian is looking ahead to further digital launches, in particular its app for the iPad, and most importantly a major expansion in the US with a new digital-only operation based in New York.
The same structural changes in consumer behaviour supporting online growth drove continued decline in the Guardian’s print circulation, which fell by 8% during the year, broadly in line with the sector. The Observer fell by 11% during the same period.
The Guardian’s digital expansion and journalistic success has been underpinned by its open approach to publishing on the web. While GNM continues to have an open mind about the principle of charging for editorial content on the fixed internet, there is no evidence to date of a paywall model that would be either commercially or editorially attractive to the Guardian.
There was strong performance from the assets within GMG’s investment portfolio. Trader Media Group (TMG) performed extremely well, producing a record operating profit before exceptional items of £120.1 million (2010 £111.7 million), of which 85% was generated by its digital operations (2010 75%).
TMG remains one of the most successful and profitable examples of print-to-online transition in the world.
In its core UK market, served by the Auto Trader brand, TMG advertised more than 350,000 used cars and other vehicles at any given time during the year. Of these, around 300,000 were advertised by approximately 13,000 dealers, representing around 90% of UK dealerships.
Auto Trader maintained its position as the UK’s leading motoring website. In March 2011 the site attracted 10.8 million unique users, up over a million year-on-year and driving more than a billion page impressions for the month.
Auto Trader’s mobile site reached a million unique users in March and the Auto Trader iPhone app is one of the UK’s most popular downloads, installed on more than a million handsets.
In challenging economic conditions, Emap grew both revenue and profit in its two major divisions: Emap Insight, which delivers online intelligence; and Emap Connect, which focuses on exhibitions and festivals. It also saw strong growth in its smaller Emap Middle East regional business.
These gains were offset by reductions elsewhere relating to public sector spending cuts in the UK, especially in health and local government. These impacted trading in the company’s publishing division, Emap Inform, and in its conference unit, Emap Networks. Recruitment advertising was particularly affected.
However, growth in the rest of the business brought total revenues to £243.0 million (2010 £238.8 million). Continuing investment in new products across Emap’s divisions, mainly in digital development, led to a decline in underlying operating profit to £76.3 million (2010 £78.3 million). This was a solid performance given market conditions, and the business is forecasting a return to profit growth in 2011/12.
Emap continued to reduce its exposure to advertising revenues and grow internationally. Subscription revenues from its pure digital products contributed 30% of its total sales in the year. Advertising online and in hard copy products accounted for less than 13% of overall revenues, while 40% of total revenues came from customers located outside the UK.
After the year-end, David Gilbertson stepped down from his role as chief executive officer of Emap. GMG is very grateful for his valuable contribution and assured leadership during his three years with the business.
Despite economic uncertainty and a 90% reduction in spending by the Central Office of Information (COI) – the radio sector’s largest advertiser – GMG Radio increased its operating profit before exceptional items and amortisation to £0.9 million (2010 £0.6 million). Revenue fell to £47.1 million (2010 £50.1 million).
During the year Smooth Radio’s five regional stations were transformed into a national service, making it the UK’s third largest national commercial music station. Real Radio, Rock Radio and Smooth Radio saw their combined weekly audience of adult listeners increase by 8% during the year.
GMG Radio’s national airtime revenue increased 15%, excluding COI, reflecting the strength of the relationship with Global Radio, which is contracted to sell national airtime for the Real Radio and Smooth Radio brands.
The local sales teams performed well in a sector that fell during the year. Revenue from sponsorship and promotions, regional agencies and digital grew ahead of the market. This outperformance, combined with a near 7% reduction in costs, enabled GMG Radio to increase margins.
GMG Property Services continues to operate in one of the UK’s most difficult markets. However, both the residential and property management divisions traded strongly, aided by a focused sales and marketing effort and further developments in digital product offerings. Revenue increased to £9.6 million (2010 £8.9 million) and operating profit before exceptional items and amortisation was £1.4 million (2010 £0.5 million loss).
Following the sale of GMG Regional Media in 2010, we were disappointed not to be able to find a buyer for the Woking News & Mail and Woking Review, our only remaining local newspapers, despite strenuous efforts to do so. The papers were closed in March.
Our investment fund performed well during the year, in line with our expectations. Its lower value at the year-end reflected the need to draw down some of the funds as part of our overall management of cash within the Group. Providing flexibility of this kind is of course the purpose of the fund.
At Group level, we undertook a reshaping of the management structure to ensure that the strategies and interests of GMG are fully aligned with those of GNM, our core business. I took direct managerial responsibility for the corporate and commercial operations of GNM, and the separate role of managing director of GNM ceased to exist, with Tim Brooks leaving the Company. I would like to pay tribute to Tim’s dedicated stewardship of GNM through a period of great change and challenge over the last four years.
In the year ahead we will accelerate GNM’s digital transformation. The changes we have seen to date in our business and in the wider industry will be exceeded by those ahead of us. As print circulation and revenues decline, digital expansion continues and the Guardian’s open journalism grows in reach and influence, GNM is transforming itself into a digital-first organisation.
We are building a culture, organisational structure and business model that will support our journalistic ambitions and responsibilities for many years to come. And while reshaping GNM’s cost base will be a critical element of the strategy, we will also invest further and draw upon our resources in order to achieve this transformation. This will have an impact on our cash position in the coming year.
I feel very privileged to have been appointed chief executive officer of GMG at a time of such journalistic success and exciting change. We face significant challenges as we continue to manage the transition from an analogue to a digital world. GMG has been at the forefront of digital innovation in our sector, but the task of reflecting editorial and brand success in a sustainable financial model for the digital age is a demanding one. GNM has shown great determination in coming to terms with and often excelling in the new environment; but this remains work in progress, with much still to be done.
The underlying strength of our portfolio of assets gives me great confidence that we will be able to carry through the changes necessary to fulfil our primary function: securing the financial and editorial independence of the Guardian.
Chief executive officer, Guardian Media Group