Guardian Media Group: How City fund managers and cost-cutting saved Mr Marx's cash cushion

Tomorrow, when Guardian Media Group publishes its annual accounts for the year to March 2010, those who regard The Guardian as a perverse charity that distorts competition will argue that not much has changed.

They might even point to an increased pre-tax loss at GMG — courtesy of paper-based write-offs — as evidence of deterioration.

The truth, of course, is that things are slowly improving (at GMG and everywhere else).

At first glance, this might seem hard to credit. After all, we already know that this year’s operating losses at Guardian News & Media (home to The Guardian, The Observer and guardian.co.uk) are going to be similar to last year’s £33.7m.

Inside King’s Place, they’re describing this as ‘heroic’given a 13% YOY decline in revenues.

You’d have to be a loyalist to swallow that. GMG was late waking up to the impact of recession. In the words of one executive, its national newspapers “veered off course” in terms of sustainable losses during the second half of the Blair-Brown boom. (Last year’s operating loss wasn’t an exception: in 07-08, GNM lost £25m at the operating level.)

Internally, GMG executives talk about how these losses reflect “necessary” investments in digital publishing. No doubt that’s partly true. But by this time last year, it seemed legitimate to ask whether the company might run out of ready cash. If the recession had gone on long enough, and if GNM had taken no action, it could have panned out that way.

Tomorrow, however, GMG will reveal a balance sheet containing £261m of cash (including GMG’s investment fund). That’s down only marginally on last year’s £268m. At a company where cash lubricates cross-subsidy, this really matters.

This year, like last year, GMG raided its savings to pay for those chunky losses at GNM. Yet GMG’s investment fund delivered a stellar return of 15% or so during the 12 months to March. The losses and gains more or less cancelled each other out, leaving GMG’s cash holdings much the same as they were last year.

Guardian journalists might feel sickly raising a glass to the fund managers who invested £200m on GMG’s behalf. Yet without the help of Carolyn McCall’s friends in the City, things would have been a whole lot worse.

Of course, GMG hasn’t given itself over entirely to rentier-style capitalism –- not yet, anyway. GNM alone has seen £26m-worth of cost-cutting during the past year.

Some of the benefits of cost-cutting will only emerge in next year’s accounts. Revenues have started growing again. Both of these factors should narrow next year’s losses at GNM. The road may be starting to rise in front of Alan Rusbridger.

More broadly, GMG is under less strain. Next year, it won’t need to bear the losses generated by local newspapers (£6.7m in 2008-2009, and almost certainly more in the 2009-2010 accounts that will be released tomorrow). It also looks as if GMG Radio generated a small profit in 2009-2010, compared with last year’s operating loss of £6.6m.

The group’s cash cows are also looking better than they did this time last year. Internally, for example, there’s optimism about the prospects for selling GMG’s 50.1% stake in Trade Media Group in two years’ time.

In 2007, the last time Trader Media Group was valued in a transaction, it was worth some £1.3bn. At GMG, they’re hoping that the business will be worth more in 2012 than it was in 2007.

EMAP has been stabilized, too. On debt, the banks have been placated. This, it seems, has been achieved without diluting GMG’s holding in the business. Here, the mood music suggests a sale or flotation by 2015. Before then, EMAP could grow by acquisition, although a further cash injection could be required if the company wants to play a major role in consolidating B2B publishing markets.

There’s still plenty of red ink sloshing around. Yet Mr Marx’s cash cushion feels plumper than it did a year ago. Assuming that we don’t descend into a 1980s-style perma-slump, GMG appears to have passed the point of maximum danger.

This, in turn, provokes a question. Who will GMG appoint to succeed Carolyn McCall as chief executive?

The big tasks facing the new boss include steering through the sale of Trade Media Group and bulking up EMAP.

On this basis, I suspect that GMG and The Scott Trust don’t need a web entrepreneur, a bureaucrat or a technocrat.

What they really need is a financial brain. After a year in which City fund managers played such a big role in calming frayed nerves at King’s Place, that would be entirely appropriate.

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