Guardian Media Group Guardian Media Group The Guardian & The Observer Guardian MediaGroupplc Registered Office Head Office 119 Farringdon Road Guardian Media Group plc Annual Report and Accounts 2006 164 Deansgate 75 Farringdon Road London EC1R 3ER Manchester M3 3GG London EC1M 3JY Tel: 020 7278 2332 Tel: 0161 832 7200 Tel: 020 7239 9711 www.gmgplc.co.uk Learnthings Greater Manchester Newspapers Surrey Advertiser and 119 Farringdon Road 164 Deansgate Berkshire Newspapers London EC1R 3ER Manchester M3 3GG Stoke Mill Tel: 020 7713 4050 Tel: 0161 832 7200 Woking Road Guildford Trader Media GMG Radio Surrey GU1 1QA 6 Thatcham Business Village Sterling Court Tel: 01483 508700 Colthrop Lane Capitol Park Thatcham Leeds WF3 1EL Berkshire RG19 4LW Tel: 0113 238 1114 Tel: 01635 588500 Annual ReportandAccounts2006 www.gmgplc.co.uk Company number 94531 1 Introduction Guardian Media Group plc is a UK media 2 Guardian Media Group plc operational structure business with interests in national newspapers, 3 Chairman’s statement 5 Chief Executive’s review of operations regional newspapers, magazines, radio 12 Guardian Media Group plc Board of directors 14 The Scott Trust and internet businesses. The Company is 16 Corporate social responsibility 22 Financial review wholly-owned by the Scott Trust. 24 Corporate governance 28 Report of the directors 30 Directors’ remuneration report 33 Independent auditors’ report The Scott Trust was created in 1936 to 34 Profit and loss account 34 Statement of recognised secure the financial and editorial income and expense 35 Balance sheet 36 Cash flow statement independence of the Guardian in perpetuity. 37 Notes relating to the 2006 financial statements 70 Group five year review Financial highlights 71 Separate financial statements of Guardian Media Group plc The financial highlights for 2006 and 2005 have been drawn up in accordance with 84 Advisers International Financial Reporting Standards (IFRS). For 2004, 2003 and 2002 the figures shown are as originally reported under UK GAAP, the principal adjustments in order for these figures to comply with IFRS comprise goodwill amortisation and defined benefit pension funds liabilities. 66.4 705.0 700.3 127.2 53.7 116.4 43.6 517.8 37.0 355.6 335.5 60.1 8.5 1.3 2002 2003 2004 2005 2006 2002 204 003 2050 2060 20 Turnover. £m (16.9) P£mrofit before taxation. 203002 2040 2050 2060 20 Operating profit/(loss) before amortisation and exceptional items. £m 462.3 467.3 171.5 168.1 412.2 394.4 424.9 389.6 356.7 332.8 85.2 75.4 67.3 7.2 7.1 203002 2040 2050 2060 20 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Net assets. £m Cash and cash equivalents. £m Debt (net of costs). £m 1 Guardian Media Group plc operational structure National Newspapers Regional Newspapers Trader Media GMG Radio Division Division Division Division Publishers of The Publishers of the A multi-media publishing Operates regional Guardian, The Observer, Manchester Evening News, company. radio stations under the The Guardian Weekly, Reading Evening Post Real Radio brand in Money Observer and and co-publishers with Print titles include Auto South Wales, South and Public. Associated Newspapers of Trader, Top Marques, Bike West Yorkshire and Metro (Greater Manchester). Trader, Truck and Plant Central Scotland, and Electronic publishers of Trader, Motorhome and under the smooth fm Guardian Unlimited and Publishers of 41 weekly Caravan Trader, Farmers brand in London and the online education content newspapers throughout Trader, Fast and Modified, North West. provider Learnthings. Greater Manchester, Boats and Yachts, Buy a Cheshire, Lancashire, Boat, Auto Freeway, Ad MXR Surrey, Berkshire and Trader, TNT Magazine, (24.3%) Hampshire. TNT Midweek, Fusion, A company that holds Classic American and regional digital multiplex Electronic publishers of Dealer Update. licences. manchesteronline.co.uk and other sites relating to the Electronic publishers Digital News Network weekly newspapers. of autotrader.co.uk, (22%) adtrader.co.uk and A company that provides Channel M carzone.ie, as well as news services. A television station for sites for most other Manchester broadcasting UK print titles. free to air and on digital, cable and satellite. Additional digital services including customer Fish4 relationship management (25.1%) and vehicle manufacturer A company that provides related websites. electronic classified advertising services. Publishing subsidiaries in The Netherlands, Italy, South Africa and associated websites. Printers include Apple Web Offset, Acorn Web Offset and Wiltshire. Other Interests Seven Publishing Trafford Park Printers Paper Purchase & (35.5%) (50%) Management Publisher of consumer Prints The Guardian, (50%) magazines – delicious., The Observer, Provider of newsprint Sainsbury’s magazine The Daily Telegraph and and magazine paper to and puzzle magazines. The Sunday Telegraph. the National and Regional Newspapers divisions’, Trader Media division, The Daily Telegraph and The Sunday Telegraph. 2 Chairman’s statement n the year ending 2 April 2006, turnover from continuing operations decreased by 0.7% to £700.3 million with pre-tax profits from continuing Ioperations rising to £66.4 million from £53.7 million last year. Operating profit for the year, excluding exceptional items, was £116.4 million compared with £127.2 million last year. As the Group accounts have been prepared on an International Financial Reporting Standards (IFRS) basis for the first time, prior year comparative numbers have been restated. Net interest payable and other investment income for the year was £17.4 million compared with £30.0 million last year which also included refinancing charges. The statutory profit after taxation, exceptional items and discontinued operations was £45.9 million, up from £44.1 million last year. Total borrowing fell from £412.2 million in 2005 to £394.4 million at year-end 2006. These are a very satisfactory set of financial results in what has been difficult trading conditions across the media sector in general, and the national and regional press in particular. It has also been a year of very considerable investment in both our traditional publishing activities and in the digital/electronic publishing future. This is a tangible manifestation of the Paul Myners Group’s long-term vision, creativity, innovation and courage. Chairman Many newspapers driven by the quest for shareholder value, identified cost- cutting as their solution to a tough market complicated by the impact of the internet and mobile products. Some, opting instead for a change of format, took the view that since younger people were said to prefer tabloids and since the same broadsheet presses could deliver the new format (at limited extra expense), the socio-economic solution was both obvious and unarguable. It is in circumstances like these where the particular ownership structure of GMG confers great advantage. The requirements of our shareholders are expressed in terms broader than pure financial return, enabling us to pursue strategic ideas primarily designed to maintain the independence of the Guardian, Observer and Guardian Unlimited. This underpinning gives us confidence to take courses of action which keep faith with our heritage. The stunningly successful launches of the Guardian and Observer in the full- colour ‘Berliner’ format were the significant fruits of that confidence in the provision of a new platform for the vital liberal voices of both titles; the delivery of a format and design for the genuine benefit of readers and advertisers and the creation of a modern space for the best journalism around. Successive awards and positive circulation returns mark an achievement engineered by original thinking, backed with an £80 million investment in new presses, undertaken three years ahead of a pre-planned investment in the replacement of old presses, and delivered to the highest standards of professionalism across the organisation. The vitality of our Group has been well demonstrated during the course of the last year. As the Chief Executive reports, our Regional Newspapers are engaged in a thorough and on-going reorganisation to secure their position in the new multi-media environment; Trader Media has facilitated the acceleration of its online businesses, launched the transformation of its UK and Ireland publishing operations, together with a programme of new business development and strategic acquisitions, while GMG Radio’s year has produced increases in revenue, audience and profit. On 5 May 2006, the Board announced its intention to rebalance the Group’s portfolio of businesses by selling a minority shareholding in Trader Media Group through an initial public offering on the London Stock Exchange at some stage during the 2006/07 financial year, subject to market conditions. 3 Chairman’s statement continued This will allow the Group to continue to benefit from the ownership of this successful business whilst reducing debt and freeing up capital to support existing and new businesses. No significant new investment from the proceeds of the proposed public offering is currently under contemplation. During the year, the Board appointed two new executive directors. Mark Dodson, the Chief Executive of Regional Newspapers division, joined the Board in October 2005, in anticipation of the retirement of Ian Ashcroft on 2 December 2005. Ian had been with the Company since 1972 in a variety of roles at both National and Regional Newspapers divisions. I take this opportunity to record the sincere appreciation of my colleagues and myself for his long service and contribution to the work of the GMG Board. On 31 January 2006, the Chief Executive of GMG Radio division, John Myers, also joined the Board as an executive director. On 13 January 2006, Sir Robert Phillis announced that because he was to undergo a bone marrow transplant later in the year, he had decided to stand down as GMG Chief Executive and as a member of the Scott Trust at the end of July 2006. Sir Robert joined the Group in December 1997 from the BBC, where he had been Deputy Director-General.