DMGT: Revenues down, profits up, Tigger goes AWOL

Here’s an odd one: Daily Mail & General Trust reports a 10% YOY decline in revenues but operating profits rise by 20%.

How come?

The answer is simple: at the end of every downturn, there comes a point when cost cutting starts to outpace revenue declines.

Traditionally, this is the point at which media companies and their shareholders congratulate themselves on a job well done. After sustained cost-cutting, they’ve lowered the bar so far that even declining revenues rush in over it, creating additional profit on the bottom line.

DMGT’s latest results cover the six months to early April. The entire group experienced the end-of-recession effect. But nowhere was the effect more marked than at Associated Newspapers and Northcliffe Media.

At Associated — home to the Daily Mail –- revenues came in at £427m, down by 6% against the same period last year.

Back then, recession looked like an unstoppable forest fire, consuming everything in its path. Now, however, you can see the true scale of the response, which included selling off the loss-making Evening Standard.

Yet even though revenues fell, operating profit more than doubled –- from £18m last year to £42m this year.

At Northcliffe, the regional newspaper publisher, the picture is similar. Revenues were down by 9% to £150m. But operating profits (once again) more than doubled, from a paltry £6m to £14m.

Delve a little deeper, and the end-of-recession effect looms larger. Northcliffe generates slightly more than one-tenth of its revenues overseas. If we disregard these, and focus only only local newspapers published in the UK, the profit growth story looks even more impressive. Northcliffe’s UK newspapers generated £12m in operating profits between October and March, which represents a fourfold YOY increase. (You’ll find the numbers here, on slide 48.)

More often than not, media companies come powering out recessions, gushing profits in a way that seems counter-intuitive after so much misery. Overnight, the tone of management turns Tiggerish, with much discussion of how a flattened organisational structure can ‘take advantage’of markets that are ‘bouncing back”.

Look, though, at DMGT’s language this time around. Tigger has gone AWOL. Operating margins at both Associated and Northcliffe might have doubled to around 9%, but both divisions ‘remain focused on cost control”. Even as profits increased, DMGT’s newspapers shed 680 employees between October and March.

The message is mixed and grim. The combination of continuing job losses and increasing profits will confuse employees. What we’re hearing is the voice of a company that has little or no confidence in our economy’s anaemic recovery.

The numbers might be improving, but the mentality isn’t. DMGT is one company that will not need to change course if a double-dip recession materialises between now and Christmas.

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