Financial review

This review covers the year to 29 March 2009 and provides an overview of the Group’s financial performance and position and incorporates joint ventures, associates and the investment fund.

The financial statements on pages 54 to 86 have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

Financial highlights

The financial highlights on page 3 detail total turnover and earnings before interest, tax and amortisation of intangibles (EBITA) and exceptional items for the Group, including the Group’s share of its joint venture interests in Trader Media Group and Emap. This non-statutory disclosure has been expanded in the tables below and provides the scale of Group operations and the EBITA before exceptional items contribution from the significant joint venture interests.

Financial highlights

2009

GMG
£m

Share of
TMG
£m

Share of
Emap
£m

Total
£m

Group turnover

405.4

148.3

84.2

637.9

EBITA (before exceptional items)

(51.0)

51.3

21.1

21.4

 

Financial highlights

2008

GMG
£m

Share of
TMG
£m

Share of
Emap
£m

Total
£m

Group turnover

502.1

123.6

-

625.7

EBITA (before exceptional items)

(13.8)

66.6

-

52.8

Analysis of Group results

During the 2007/08 financial year there were two significant transactions which transformed the Group. On 8 June 2007 the Group sold 49.9% of its interest in its wholly owned subsidiary Trader Media Investments Limited (TMG), a wholly owned subsidiary of Trader Media Group Limited. From this date, TMG has been treated as a joint venture. On 20 March 2008, the Group acquired a 29.54% share in Emap. In the 2008/09 financial year, the Group has equity accounted for its share of Emap’s result.

As reported last year, these transactions impact Group reporting, particularly when comparing the Group’s financial performance with the previous year. In addition in 2008/09 the Group took further steps to enact its strategy to broaden its asset base by establishing an externally managed investment fund.

In the tables below, analysis has been provided to give further explanation of the impact these transactions and the creation of the investment fund have had on the Group results. Turnover and loss before taxation have been analysed to provide:

(a)

a like-for-like comparison of turnover for continuing GMG businesses

(b)

a like-for-like comparison of loss before taxation for continuing GMG businesses

(c)

details of total income and share of results of TMG, with 2008 comparatives on a proforma basis

(d)

details of total income and share of results of Emap. There are no comparatives for 2008; Emap has been included in the Group as a joint venture from the start of the 2008/09 financial year

(e)

the income, less the fair value losses on forward exchange contracts, for the investment fund, and its balance sheet value at 29 March 2009.

(a) Turnover

In the table below, turnover has been split between continuing GMG businesses and TMG (when it was a subsidiary) to allow for a like-for-like comparison.

(a) Turnover

 

2009
£m

2008
£m

Continuing GMG businesses

405.4

438.8

TMG businesses

-

63.3*

Turnover

405.4

502.1

* Being 100% of turnover until 8 June 2007, the date of part disposal.

Turnover for the continuing GMG businesses was £405.4 million, a decrease of 7.6% (2008 £438.8 million). This was primarily due to a decrease in advertising and new media revenues of £38.3 million, 12.8% year on year, to £260.6 million. Circulation revenues increased marginally by £0.5 million, 0.5% year on year, to £105.6 million, and other revenues increased by 12.6% to £39.2 million.

(b) Loss before taxation

In the table below, the results have been split between continuing GMG businesses and TMG (when it was a subsidiary) to allow for a like-for-like comparison of operating loss before exceptional items. The information in the profit and loss account on page 54 has then been presented in an alternative format to show the total element of GMG’s results attributable to TMG, Emap and the investment fund.

(b) Loss before taxation

 

2009
£m

2008
£m

Continuing GMG businesses

(67.8)

(24.8)

TMG businesses

-

21.1*

Group operating loss before exceptional items

(67.8)

(3.7)

Operating exceptional items

(21.0)

(59.5)

Operating loss after exceptional items

(88.8)

(63.2)


Income from other financial assets

0.2

0.1

Interest payable and similar charges (excluding fair value losses on forward exchange contracts)

(5.6)

(4.9)

Interest receivable and similar income (excluding TMG and Emap)

11.3

31.1

TMG (see page 39)

40.2

8.0

Emap (see page 40)

(23.9)

-

Share of post tax (loss)/profit of other joint ventures and associates (including exceptional items)

(2.8)

0.1

Investment fund (see page 40)

(20.4)

-

Profit on disposal of subsidiaries

-

335.2

(Loss)/profit before taxation

(89.8)

306.4

* Being 100% results up to 8 June 2007, the date of part disposal.

The continuing GMG businesses made an operating loss before exceptional items of £67.8 million in the year (2008 loss £24.8 million). The increase in loss of £43.0 million year on year largely reflects a reduction in overall revenues of £33.4 million and an increase in amortisation of intangible assets of £4.8 million, mainly due to the annualisation of amortisation on recently acquired intangibles compared with 2008. The Group also incurred costs of restructuring amounting to £11.5 million (2008 £10.2 million) across continuing GMG businesses which, in the Group accounts, are not treated as exceptional.

Operating exceptional items

Operating exceptional items of £21.0 million have been charged in the year. These include a charge for the impairment of goodwill and intangibles of £23.1 million and the costs associated with Guardian News & Media’s move to Kings Place of £8.0 million, less the release of a provision for an onerous contract of £7.2 million and negative goodwill arising from an acquisition during the year of £2.9 million. These items have been separately disclosed in the notes to the accounts due to their size and non-recurring nature.

Interest receivable and similar income (excluding TMG and Emap)

The decrease in interest receivable reflects investment of the proceeds from part disposal of TMG in the acquisition of Emap during 2008/09 and the creation of the investment fund.

(c) TMG

The profit and loss account extract set out below compares 2008/09 share of results with 2007/08 proforma results for TMG by using 50.1% of the results for the period up to 8 June 2007 when it was a subsidiary and 50.1% post 8 June 2007 when it was accounted for as a joint venture. Interest receivable and similar income due to GMG is then included to show in total the element of TMG’s results attributable to GMG.

(c) TMG

 

2009
£m
Total

2008
£m
Total

2008
£m
^

2008
£m
*

Share of:

Turnover

148.3

155.3

123.6

31.7

Operating profit before exceptional items, restructuring costs
and amortisation of intangible assets

55.5

60.0

48.1

11.9

Operating profit after exceptional items, restructuring costs
and amortisation of intangible assets

48.9

52.4

41.8

10.6#

Net interest payable and similar charges (excluding gain on debt buy-back)

(84.7)

(70.3)

(67.3)

(3.0)

Gain on debt buy-back and profit on disposal of subsidiary

19.6

-

-

-

(Loss)/profit before taxation

(16.2)

(17.9)

(25.5)

7.6

Taxation

7.0

(5.4)

(2.0)

(3.4)

(Loss)/profit after taxation (see note 13(a))

(9.2)

(23.3)

(27.5)

4.2

Interest receivable and similar income by GMG

49.4

38.5

35.5

3.0

Element of TMG’s result attributable to GMG (see page 38)

40.2

15.2

8.0

7.2

^ Being 50.1% of results from 8 June 2007, the date of part disposal.
* Being 50.1% of results up to 8 June 2007, the date of part disposal.
# Being 50.1% of TMG operating profit before exceptionals of £21.1 million prior to part disposal on 8 June 2007 (see loss before taxation table on page 38).

(d) Emap

The profit and loss account extract set out below shows 2008/09 share of results for Emap (29.54%). Emap has been equity accounted for from 31 March 2008; therefore there are no comparatives for 2007/08. Interest receivable and similar income due to GMG is then included to show in total the element of Emap’s results attributable to GMG.

(d) Emap

 

2009
£m
Total

2008
£m
Total

Share of:

Turnover

84.2

-

Operating profit before exceptional items, restructuring costs
and amortisation of intangible assets

29.0

-

Operating profit after exceptional items, restructuring costs
and amortisation of intangible assets

9.9

-

Other non-recurring credits

1.0

-

Net interest payable and similar charges

(39.5)

-

Fair value loss on interest rate swap and debt

(29.5)

-

Loss before taxation (see note 13(a))

(58.1)

-

Taxation

(0.4)

-

Loss after taxation

(58.5)

-

Interest receivable and similar income by GMG

34.6

-

Element of Emap’s results attributable to GMG (see page 38)

(23.9)

-

(e) Investment fund

The profit and loss account, statement of recognised income and expense and balance sheet extracts set out below show 2008/09 information for the investment fund. The fund was established in June 2008; therefore there are no comparatives for 2007/08.

(e) Investment fund

 

2009
£m

2008
£m

Profit and loss account:

Profit on disposal of investments

4.0

-

Fair value losses on forward exchange contracts

(24.4)

-

Investment fund loss reported (see page 38)

(20.4)

-

Statement of recognised income and expense:

Net fair value loss on investments

(0.5)

-

 

(20.9)

-

Balance sheet:

Non-current other financial assets – available for sale (see note 9(a) in the financial statements)

184.5

-

The portfolio of assets comprising the investment fund is designed to spread Group asset risk over a wider base than GMG’s historical UK media sector focus.

Investments are in a diversified range of assets, which are managed by a number of specialist fund managers, including global and emerging market equity, fixed income, real assets and hedge funds. The investments are denominated in Sterling and overseas currencies, principally the US Dollar.

The Board has approved a currency hedging policy for the investment fund which is reviewed on a regular basis and takes account of the investment performance of the portfolio. In 2008/09 the predominant hedging policy was to currency hedge 75% in value of the hedge fund component of the portfolio. The significant strengthening of the US Dollar against Sterling during the year resulted in fair value losses on the forward contracts of £24.4 million, with a corresponding greater increase in the Sterling value of the US Dollar denominated investment fund assets.

Loss before tax

Group loss before tax for the year was £89.8 million (2008 profit £306.4 million). In 2008 the result included the profit on the sale of subsidiary companies, primarily the part disposal of TMG, of £335.2 million.

Taxation

The tax credit for the year on losses before exceptional items of £65.5 million is £13.4 million (2008 charge £15.3 million). The effective rate of tax on these losses of 20.5% (2008 46% on profits) represents a lower tax credit than the standard rate of 28% would produce (2008 higher charge than the standard rate of 30%). This is in part attributable to not being able to recognise deferred tax assets of £4.7 million in respect of losses incurred in the year because their future utilisation against profits cannot be reasonably foreseen.

The deferred tax liability in the balance sheet of £11.4 million (2008 £21.7 million) includes a liability of £2.2 million arising on acquisitions made by the Group during the year, as well as an asset of £6 million relating to foreign exchange losses arising on the investment fund. The deferred tax asset not recognised has increased from £1.8 million to £6.1 million and represents unrelieved trading losses carried forward at the year end. Trader Media Group and Emap are accounted for as joint ventures and therefore their post-taxation results are included in the profit and loss account.

Cash flow

The Group consumed cash of £494.3 million in the year (2008 generated £542.2 million). This includes deferred consideration in respect of the acquisition of Emap of £209.0 million and the gross investment of £212.6 million into a long-term investment fund). Net cash outflow from operating activities was £45.0 million (2007 £5.1 million).

Other cash outflows include acquisition of subsidiaries £5.0 million (2008 £26.8 million), purchase of tangible and intangible fixed assets £40.1 million (2008 £20.0 million) and net cash used in financing activities £27.0 million (2008 £84.0 million).

Cash inflows include net interest receivable of £7.9 million (2008 £59.1 million) and tax of £4.5 million (2008 outflow £23.2 million).

Cash balances

At year end the Group held cash balances totalling £83.2 million.

 Capital structure and liquidity management

The Group had net assets of £753.9 million as at 29 March 2009 (2008 £836.3 million), a decrease of £82.4 million.

Leasing facilities totalling £79.6 million are in place, the majority of which relate to the Guardian News & Media and GMG Regional Media printing projects. All leases have a fixed interest rate for their entire life with the exception of one which totals £2.2 million and has a variable rate. During the year the Group acquired the remaining 50% of Trafford Park Printers Limited (TPP) which was previously accounted of as a joint venture. TPP is now accounted for as a subsidiary and its finance leases of £19.5 million are included within liabilities in the balance sheet.

The Group maintains a mixture of assets, liquid in both the short and medium term and largely represented by cash and the investment fund. The Group can draw on this pool of assets to fund both current and future strategies as required.

The Group does not currently have any other debt.

Tax strategy policy

The Board believes it is the Group’s corporate and social responsibility to pay the appropriate amount of taxes in accordance with UK and overseas tax legislation. The Board also believes that it has a commercial responsibility to manage the Group’s affairs in a tax-efficient manner within those rules as well as to manage the Group’s exposure to tax.

The Group adopts a conservative tax strategy and is transparent in its dealings with tax authorities, providing information when required, in a clear and open style and on a timely basis. HMRC have deemed the Group to be low risk.

Treasury policy

The Group maintains a centralised treasury function which operates in accordance with Board-approved policies. Its principal objectives are to minimise financial risk whilst maximising returns on cash deposits.

Deposits of funds are made with banks and financial institutions approved by the Board and within set credit limits. Variable rates of return are earned on these deposits.

Prompt payment policy

In May 2009, the Group committed to the Prompt Payment Code. The Group’s policy on the payment of its suppliers is to agree terms of payment in advance and, provided a supplier fulfils the agreement, to pay promptly in accordance with those terms.