Guardian Media Group: Mr Marx's incredible shrinking cash cushion

So we learn that Guardian Media Group will report an overall operating loss for the 12 months to March 2009 — its first for several years.

How big is the loss? We’ll find out in early August, when GMG publishes its accounts. But based around reports of McCall’s presentation to staff yesterday, here’s what seems likely:

Guardian News & Media (home of GMG’s nationals): -£35m

GMG regional media: +£1m

GMG property: Unknown loss

GMG radio: Unknown loss

Clearly, the deficit will be more than £35m. In addition, we now know that GMG won’t be benefiting from its share of the profits generated by EMAP and Trader Media Group. These should look something like this:

Trader Media (50% owned by GMG): +£50m

EMAP (30% owned by GMG): +£30m

These profits will be ploughed back into reducing debts inside these two operations, which are co-owned with Apax Partners. In the words of Carolyn McCall, GMG has exchanged ‘short-term profit’for ‘long-term security”. The hope is that GMG will ‘make a good return’when it exits both of these investments.

No doubt it will – in or around 2011-2013.

Meanwhile, take a look at GMG’s cash position. At the moment, GMG probably possesses something like £150m in cash, plus £200m that has been placed into a long-term investment fund.

Compared to the losses being incurred at Guardian News & Media, these diminished cash holdings could rapidly start to look thin.

Psychologically, recycling profit into off-balance sheet debt and locking up £200m for the long term does something important: it strengthens the case for commercial aggression at the company’s national newspapers and

As its rivals never tire of pointing out, Guardian News & Media isn’t run like a normal business. Internally, however, it may be starting to feel like one.

Having successfully reduced the overall size of GMG’s cash cushion, Carolyn McCall now has the leeway to impose a challenging fitness regime on these prize assets. In the words of the old saying: ‘A recession is a terrible thing to waste.”

Around £20m in cost savings are already planned at Guardian News & Media. This may sound like a lot, but it only represents 7.5% of the division’s 2008 cost base.

If ad revenues don’t improve in the second half of this year, further cuts can be expected.



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