Chairman's Statement
The Viscount Rothermere, Chairman
I would like to thank our employees for their magnificent response to the torrid market conditions.
Even more challenging year than last year
The Viscount Rothermere
Chairman
This has been a most challenging year, and I would like to start by thanking all the Group's employees for their magnificent response to torrid market conditions for all of our businesses. When the world's financial system faced melt-down in October 2008, it was clear that we had to act fast to reduce our cost base, particularly in our newspaper divisions. As a result of this, we sadly had to release over 2,500 employees across our businesses.
But I've been very impressed at the speed with which all our businesses reacted in their own way to rapidly changing circumstances. A number have had to cut their cost base sharply; others, more fortunate, have only had to scale back their growth ambitions; a lucky few have actually continued to grow well.
In the circumstances, I am very pleased that we are reporting operating profit* down only 12% on last year's result, and that it actually increased in the second half of the year.
An interesting time for a new Chief Executive to take over!
Martin Morgan took over as Chief Executive on 1st October, 2008. He cannot have expected, or wanted, such a baptism of fire, and much of the credit for the resilience shown in our results for the year belongs to him.
Under his leadership, we have sold, restructured or closed a number of businesses around the Group that were loss making. But we have continued to invest in organic growth and continued to make a small number of bolt-on type acquisitions.
Martin has also started to put in place initiatives around talent and communications that will bear fruit over many years. We have been able to take advantage of the market downturn to bring in a number of very able senior executives.
The Group's financial structure
With the benefit of hindsight, we went into this downturn with too much debt on our balance sheet, given the speed with which, we now know, the profitability of some consumer businesses can decline. However, the structure of our debt financing was sound, significantly due to some very timely facility extensions in 2008, and proved equal to all the uncertainty that was thrown at it this year. While we are now well placed in terms of availability and length of financing, I do want us to bring our debt back to our desired level as fast as possible. That way, we will better be able to take advantage of the opportunities that are surely going to arise.
Diversification
My father made a decision some 15 years ago to diversify the Group away from the U.K. newspaper market into other media less dependent on newspapers, advertising and the U.K. Given what has happened in the last year, that decision has proved to have been inspired. From next to nothing then, our B2B businesses have this year contributed nearly three quarters of the Group's profit, with over 60% of our profits* coming from outside the U.K. While some of the diversification has been more successful than others, in total it has been a well executed expansion, largely into the United States, graveyard of so many U.K. company expansion plans.
Are newspapers dying?
To paraphrase Mark Twain, I think that rumours of their death are much exaggerated! The Daily Mail maintained its profitability this year, the second highest in its history. The combination of a formidable brand strength, a loyal audience very desirable to retail advertisers particularly, and less dependence on classified advertising, make it a wonderful business which, I believe, will be around for many years to come
Our regional titles have not fared so well this year, with their key classified advertising categories badly hit this year by the recession, rather than by structural challenges. While I do believe they will recover, I still expect regional media to look radically different in a decade, and we need to identify the winning business model to garner local revenues.
Changes in the online world
I am delighted to see so many online innovations and product developments around the Group, both in our B2B and our B2C companies. Ours is an increasingly digital world and, as a leading media company, we have no choice but to embrace it fully.
I welcome all initiatives around the world to encourage charging for good journalism and other products online. We continue to develop our classified advertising sites and the specialist sites linked to our newspaper titles, such as ThisisMoney, recently named Personal Finance Website of the Year in the U.K. We have recently launched a series of 'hyperlocal' websites, aimed at smallish communities around the U.K., building on user generated content; early response from users is very encouraging.
Board changes
The year has seen further change on the Board, to which I referred in last year's report. In February, we said goodbye to Ian Park, who had served the Group since 1984, first as Managing Director of Northcliffe until 1995, and latterly as an excellent non-executive Director. Then, in July, Marius Gray stood down from the Board after a remarkable 24 years, including many years as Chairman of the Audit Committee. His contribution to the Board's deliberations and to the Group's success over the period of his tenure has been great, and he gives the lie to those who say that non-executive directors should serve for no longer than nine years. In Marius' place, we welcomed to the Board David Nelson, senior partner of Dixon Wilson, Chartered Accountants. I am also grateful to David Verey, who has taken on the onerous role of Chairman of the Audit Committee.
The year ahead
The world appears to be a lot more stable than it was earlier this year, which is encouraging, and should enable our businesses outside the U.K. to return towards their historic growth rates. However, the U.K. economy, and particularly the U.K. consumer, looks likely to remain under pressure from tax rises, which seems likely in turn to restrain consumer advertising.
Rothermere
Chairman
* Adjusted operating profit (before exceptional items and amortisation and impairment of intangible assets).