Considerably better TMG operating result

This afternoon, during his New Year’s speech, Ad Swartjes, CEO of TMG, indicated that, despite an approximately 4% decrease in revenues, TMG expects the recurring operating result (recurring EBITA) for 2010 to be considerably higher than last year.

Circulation revenues dropped modestly due to a combination of the discontinuation of the Sunday edition of De Telegraaf, price increases, and extra sales during the FIFA World Cup.

Both newspaper and radio advertising revenues were under pressure. Online revenue growth partly compensated the fall in advertising revenues.

The improvement in the recurring operating result was primarily realised by cost adjustments including the discontinuation of the Sunday edition of De Telegraaf, the outsourcing of activities and the impact of previous reorganisations. In addition, lower prices for paper contributed to the improved result.

On balance, the recurring operating result for 2010 is expected to be in excess of € 60 million, given revenues of approximately € 590 million. In 2009, a recurring operating result of more than € 49 million was achieved on revenues of € 612 million. Consequently, the margin increased from 8.1% in 2009 to more than 10% in 2010.

Business units
Despite economic trends and the growth of digital media, Telegraaf Media Nederland’s paid subscriptions to daily papers remained stable. The pressure on the advertising revenues from printed media was primarily due to the price factor. Revenues from digital activities rose.

In the past year, this business unit was, among other things, actively involved in the further development of the digital market with focus on local markets and E-commerce and the realisation of its own video media unit. The attention paid to regional and local markets was also strengthened organisationally.

Keesing Media Group felt only a mild impact from the economic climate in its traditional puzzles, as it operates almost exclusively in the consumer market. Further investments have been made in digital games.

Sky Radio Group felt pressure on advertising revenues. Sky Radio Groep paid, and continues to pay, extra attention to the forthcoming extension of the FM radio licenses in September 2011 and to the future of digital radio. The expectations surrounding license fee and extension conditions are positive.

Swartjes: “The three media companies have maintained a good position in a difficult environment, an achievement partly due to tight cost control. And in the meantime we have added Hyves. We expect a great deal from this extremely large (in membership terms) and successful Dutch social media company, both from the company itself and from cooperation with TMG’s other media. Hereby I would explicitly like to mention the importance of Mobillion.”

As a final point of attention in respect of the media companies Swartjes referred to “cooperation, and group synergies. In this area demonstrable progress was made in 2010 and an organisational basis was laid for the future.”

Within the production companies: printing, distribution, ICT and the Shared Service Centre, further progress was made in respect of both cost control and quality. Three important developments took place: the closure of the transport company; the start of the joint newspaper distribution; and preparations for the modernisation of the printing presses in Amsterdam.

Participating interests
ProSiebenSat.1 Media AG, the international TV and radio group, in which TMG has a strategic interest of 6% and one supervisory board seat, showed strong results thanks to positive developments in the German economy. In the first three quarters of 2010 revenues rose by almost 9% to slightly more than € 2 billion and the operating result (recurring EBITDA) rose by more than 40% to € 547 million. The preference share price followed these developments, rising from € 12.50 in 2009 to € 22.50 at the end of 2010.

There is currently a real chance that the business unit SBS Nederland will be put up for sale. TMG is interested in acquiring it.

Public broadcasters
Swartjes: “It is becoming increasingly clear how much media time and, therefore, money this inefficient, costly government organisation drains away from total media consumption. This completely distorts the media playing field, in which the commercial publishers, which not only wish to serve both the consumers and the advertisers but also have to guard the continuity of their companies, face blatantly unfair competition.”

However, there is one bright spot according to Swartjes and that is the attitude of the current cabinet to public broadcasters and the demonstration of its decisiveness by the repeal, as of January 2011, of the temporary Media Concentrations Act (Tijdelijke Wet Mediaconcentraties). “However, further actions are necessary:

  • In outline, the government should redefine the function and objectives of public broadcasters, including, of course, the role of the STER.
  • The government should at least halve the budgets, which would quickly reduce the enormous inefficiency and expansion drive.
  • Finally, the legislative restrictions concerning the growth of commercial publishers, concerning advertising, databases and subscription systems should be abolished.”

Only these steps will create a level playing field, which would, moreover, ensure that individual daily newspapers can survive; a situation which benefits pluralism.

Swartjes indicated that his view of the future is diffuse, with numerous uncertainties: “instability in several countries in the world; limited economic growth in West European countries. The banking crisis, having spread to the economies several countries, is currently causing great uncertainty about the Euro and the financial stability of a number of countries.

As an exporting country the Netherlands cannot remain unaffected. However, its close links with Germany, where the economy is faring relatively well, is obviously a positive factor. The Netherlands is facing public spending cuts, the consequences of which cannot, as yet, be grasped. Consumer confidence dropped again recently.

The combined uncertainties, which are perceptible and tangible among consumers and advertisers, impose significant pressure on the revenues of companies sensitive to the economic climate such as Telegraaf Media Groep. Not all types of media feel the same pressure. Besides newspapers, television has, and continues to have, a very strong position in the Netherlands, both in the consumer and advertising markets; while the consumption of and expenditure on digital media is also growing significantly. Adapting the company to accommodate these trends is, therefore, the greatest challenge facing TMG; a challenge which is even greater than the one posed by political and economic developments.”

The outlook
TMG expects stable circulation revenues in 2011. An important question is whether advertising revenues will recover from the decline experienced in the recent years. For the moment, TMG is assuming a modest fall in the level of newspaper advertising. However, digital revenues are expected to continue their increase, strengthened, of course, by the activities of Hyves, which was acquired in November 2010. A slight increase in revenues from radio advertising is anticipated.

On the cost side, TMG will, apart from inflation, be confronted by the impact of previous Collective Labour Agreement increases, higher paper prices and higher pension costs. But, on the other hand, further cost reductions will be gained from among others, the joint newspaper distribution with Wegener and NDC.

In summary, the expectation for 2011 is that, including the full-year effect of the Hyves results, margins will continue to improve on the basis of slightly higher revenues. While the greatest uncertainties faced by the group are the trends in the advertising market and the consequences of the spending cuts made by the Dutch government.