Trinity Mirror

How do you solve a problem like Trinity Mirror? It is all very well to call for radical action at the UK media group, but selling the national newspaper titles at a reasonable price does not seem to have been a viable option.

A glance at Thursday’s trading statement, which shows a 9.6 per cent year-on-year decline in advertising revenues for the group and 10.7 per cent for the UK nationals for the 11 months to November 2006, helps explain why. There would have been little logic in selling the nationals at the end of a period of investment and in a weak advertising market.

Under the circumstances, chief executive Sly Bailey’s decision to sell just the sports titles and those regional titles suffering from lack of critical mass – those in London, the south-east and Midlands – seems sensible. Assuming a multiple of about 9-10 times 2006 earnings before interest and tax, the disposals could bring in about £500m. After pension contributions and tax, as much as half of this would be available to return to shareholders. The plan then is to focus on improving the integration and performance of the digital business, which currently enjoys operating profit margins of more than 20 per cent, but represents less than
5 per cent of current revenues.

The new strategy still has plenty of risks. First, while, the sports titles look attractive, there are not likely to be queues of buyers for the regional titles. DMGT’s decision earlier this year to retain its regional titles, after it failed to get the price it wanted, is not encouraging. Second, the gap between coming up with a clever plan to increase profits from digital media and delivering can be a large one. The 5 per cent decline in the group’s share price yesterday morning suggests that investors were disappointed, but the reality is that the desired break-up of Trinity was not a credible option.