Sly and the City: the fall-out<!-- m -->
http://web.archive.org/web/20080723040559/http://www.guardian.co.uk/business/2008/jul/20/trinitymirror.pressandpublishing<!-- m -->
Last week's tumbling share price has led some in the Square Mile to deliver a damning verdict on the leadership of chief executive Sly Bailey. They've got it wrong, she tells Mark Sweney. In fact, she has a strategy that will turn her company round: going digital
Mark Sweney The Observer, Sunday July 20, 2008 Article historySly Bailey, chief executive of Trinity Mirror, was told to prepare for a baptism of fire on joining in 2003. Five years on and her navigation of an annus horribilis has raised questions of leadership as the economy batters the publisher.
Tempers frayed at Trinity Mirror's headquarters earlier this week after an analyst's note, reported in the press, implied that the company was facing potential difficulties with its debt facilities and £1.5bn pension scheme.
Trinity Mirror's share price plunged to 41.5p; it was 370p when Bailey joined in February 2003. Bailey was incensed and group finance director Vijay Vaghela was said to be 'particularly angry' at the assertion that the company had withheld information about its financial situation from the market.
A discussion between senior management and Trinity Mirror's advisers ensued, with the option of taking legal action against the press considered. The result was a statement to the market which fuelled a share price rally to 91.5p in trading on Friday.
'It has been quite a week,' Bailey reflects. 'The market is the market and we dealt with it in the way we felt was appropriate and right.' But Bailey still has to prove that Trinity Mirror is prepared to weather the downturn and that she should keep her job.
A profits warning at the end of last month hasn't helped in the face of the 'whispering campaign' that one media source says has dogged her. Citigroup moved to downgrade its forecast for net profits at Trinity Mirror by 25.5 per cent this year, 36.4 per cent next and 40.5 per cent in 2010. It also downgraded Johnston Press and Daily Mail & General Trust, both of which have regional newspaper holdings particularly prone to the advertising downturn.
UK stocks such as ITV, which was trading at 135p when James Murdoch swooped to acquire a 17.9 per cent stake in the halcyon days of 2006, have also taken a battering from negative sentiment in the market over the outlook for media companies. 'The economic downturn we are seeing is widespread and not company- or sector-specific,' says Bailey. 'We have a clear long-term strategy to build a multi-platform media company but what is important right now is how to manage the business through a downturn to ensure we come out stronger.'
Bailey points to the goal of boosting digital revenues 'exponentially' from £45m to £150m in 'three to four years'.
She highlights the massive investment in full colour presses, amid a protracted decline in the circulation of the Daily Mirror, as another indicator of commitment to modernisation. 'I am not managing a business in decline just because volumes are in decline,' she says. 'It doesn't mean that we can't have a vibrant, growing, profitable business.'
Bailey says that she refuses to 'buy' circulation through short-term promotions at a 'level that is unprofitable. You can't keep looking in the rearview mirror.'
It is the past, however, that is causing Bailey her biggest headache. The gorilla in the room is Trinity Mirror's £1.5bn pension scheme, which has a deficit of around £125m. Many are concerned it could become a real problem if the downturn becomes severe.
'Sly has done as well as anyone else, and in some cases a damned sight better,' says one City source. 'She inherited a huge pension problem which isn't going away. To put the side effects of that on Sly is shooting the messenger.'
Market sources argue that the pension scheme is also a barrier to any potential takeover activity at what is considered to be a bargain price. 'At the current price level you would usually expect private equity interest,' says the source. 'But forget the market capitalisation. The reason there is no takeover is that no one wants to take on the pension liabilities.'
A strategic review in late 2006 raised options including selling off the more resilient national titles. Instead, the company disposed of some regional titles and the Racing Post and then came under fire for raising just £263m instead of the target £600m. 'We sold the weaker titles and don't those multiples look good now?' says Bailey. 'We de-leveraged, reduced the pension deficit and reduced costs.'
The board is generally supportive,' says one City source. 'I think that there is more pressure and flak from the press than from the marketplace.'
But not everyone is impressed. 'She hasn't been a success,' says one analyst. 'The company has been slow to capitalise online and - on measures of profitability, circulation and online migration - Bailey has not been successful in any of these areas.''
One city source argues that it's time for competition authorities to relax ownership regulations. 'We think there are grounds for further regional newspaper consolidation,' agrees Bailey. 'The old, narrow definitions of print markets and concerns over regional newspaper groups' dominant positions simply don't apply in a new media world. The competition authorities are stuck in a mindset of distinct and separate ad markets with very little overlap.'
She is also concerned about the BBC's ambitions in the provision of local news and content. 'There is no sensible rationale or market failure for the BBC to do this,' she says. 'If we allow [it] then regional newspaper publishers will not be able to invest in them.'
Of more immediate concern will be the inquisition when the company reports its half-year results at the end of the month. Pre-tax profits are expected to be down 35 per cent year-on-year to around £65m. Analysts put full-year operating profits at around £150m in 2008, down from £250m in 2005, with the caveat that there is huge uncertainty as to how bad the markets might get.
In fairness, Trinity Mirror's troubles were evident long before Bailey joined. The question is whether the company could be doing any better under different leadership. 'It is not clear that changing management would make any difference given the underlying structural issues,' says a City source. 'It is not self-evident that there is an obvious person to take over. How many chief executives would want to at this point in the
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Posted: Thu Jul 03, 2008 7:46 am 
