23
August
2007
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00:00
Europe/Amsterdam

Growth of TMG operating result (Telegraaf Media Groep)

The semi annual figures for 2007 and those for 2006 are not fully comparable through changes in the product portfolio and by alterations in the reporting period and reclassifications. 

Sky Radio Group and Keesing Media Group were acquired in April and July 2006 respectively, and in June 2006 the activities in Limburg (regional newspapers, free local papers and printing company) were sold. TMG's reporting period has changed from four-weekly to monthly. As a consequence this half-year report deals with the first six months of 2007 instead of the first 28 weeks, as usual at TMG.  Certain revenue and expense items were reclassified in 2007 (see annex), which have been changed in the comparative figures 2006. For a uniform comparison of the half-year figures, this report also contains notes on the development in continued and autonomous activities. Continued activities  include Sky Radio Group and Keesing Group but exclude the Limburg activities. Autonomous activities  exclude Sky Radio Group, Keesing Group and  the Limburg activities.

 

The operating result of TMG's continued activities in 2007, excluding exceptional items, has risen from €10.2 million during the first six months of 2006 to €14 million during the same period of 2007. EBITA result increased from € 18.0 million to € 31.8 million. Autonomous activities showed an increase in the operating result of €5.9 million. Growth in the result was accomplished through cost reductions at the newspaper publishers and facilities management activities and the slight increase in advertising revenue at virtually all publishers.

Revenue for continued activities increased by €48.4 million, from €316.7 million in the first half of 2006 to €365.1 million in 2007. Autonomously, consolidated revenue increased by €13.9 million, of which €4.8 million was achieved through growth in advertising sales. Revenue from digital activities increased markedly. Including €21 million in exceptional charges, the operating result from continued activities for the first half of 2007  amounted in a loss of €7 million  compared to a loss of €29.8 million  during the first half of 2006, including €40 million in exceptional charges.

As was the case in 2006, the operating result for 2007 include product introduction costs amounting to approx. €9 million.

The € 21 million exceptional expenses, include approx. € 12 million  employee profit-share  related to the realised gain achieved on the sale of  the Wegener participation. In addition, amongst others, provisions have been made for restructuring (€2.3 million) and additional early retirement schemes (€2.1 million).

Net financial income and expenses increased  by € 24.4 million, mainly due to  the net realised gain of €45 million through the divestment of the interest in Wegener. A € 14.7 million revaluation of this interest, was recognised in the semi annual figures  of 2006. Together with €5.5 million higher income tax, the result from continued activities increased by €41.7 million. Including net gain on sale from the discontinued activities in the first half of 2006 of €50.9 million, net result decreased from €52.9 million to €39.7 million. Per share, earnings decreased from €1.02 (weighted average first half 2006: 52,033,228 ordinary shares issued) to €0.79 (2007: 50,000,000 shares).

The realised gain achieved on the sale of the participating interest in SBS Broadcasting S.à.r.l of approx. €350 million will be recognised in the second half of 2007, together with the realised gain of €2,5 million achieved at sale of the interest in ANP.

 

STRATEGY

TMG is active on an international level in the field of collecting, creating, publishing and cost-effective utilisation of information and entertainment (infotainment) on relevant media platforms. The strategy is focused upon the proactive monitoring and expansion of the company’s share in the amount of time consumers spend on media regardless of time, location and medium type, and in the advertising budgets of companies. TMG thereby make use of the following strategic lines of policy: investment in existing brands and products, utilisation of opportunities for synergy, cost savings, investment in multimedia, non-print products/companies in order to achieve portfolio spread and exporting publishing expertise to other countries for commercial purposes.

 

OBJECTIVES

As mentioned in the Annual Report 2006, TMG's corporate objective is to achieve an average net return on equity of at least 12% through the exploitation of media products.

In print media, TMG wants to realise a structural average return (ROS, return on sales; ebita/sales) of 15%.

Digital media, should result in a 15% share of TMG's total revenue for 2009 (for the whole of 2006 3.5%; first half 2007 4.7%) with an ROS of 30% on average.

Sky Radio Group has its own specific  objectives.

The weighted average ROS objectives of  print and digital media is  approx. 17% by 2009. For the first half of 2007, the ROS from printed and digital media overall was 9,8% (for the whole of 2006, 7,5%).

TMG has previously indicated, based on a maximum share in consumers media consumption,  to achieve a market share of 15% of the total media spend in the Netherlands in 2009 (market size in 2006 over €4 billion, TMG market share 12%). The 15% share includes the indirect interest (23.9%) in Wegener's advertising sales and the 20% indirect interest in SBS Nederland's advertising sales, through the participations in these companies. Because of the divestment  of these interests, TMG's market share for 2006 has been recalculated to 9%. By maintaining the growth to be achieved by TMG, the original objective of 15% market share has been recalculated to 10.4% for 2009.

By 2009 approx. 10% of TMG's total revenue should be achieved internationally (for the whole of 2006, on recalculated sales by Keesing Media Group to represent a full year, 5.8%; first half of 2007, 6.3%).

TELEGRAAF MEDIA NEDERLAND

A programme of organisational change for a substantial part of the activities in the Netherlands was introduced early  2007 named 'Focus'. The programme is aimed at achieving further synergy among the print media and also between print and digital media, and making improvements in expenditure and earnings. The activities of Uitgeversmaatschappij De Telegraaf, HDC Media, Holland Combinatie, BasisMedia, De Telegraaf Tijdschriften Groep and All Connected Media will be joined in the new organisational structure, while retaining the existing consumer brands.

The programme will be finalised in the second half of 2007, and a new organisation named Telegraaf Media Nederland will emerge. This will contribute to accelerated achievement in cost reductions, amongst others by centralising back office activities and improved exploration of opportunities in the field of digital media.

 

PRINT MEDIA

The results of Uitgeversmaatschappij De Telegraaf, HDC Media (regional newspapers) and BasisMedia (Sp!ts) improved compared to the previous year, thanks to further cost reductions and a slight rise in advertising sales. Despite the revival in the economy, the autonomous advertising revenue increased only by €4.8 million. The personnel advertisements sector, in which TMG in fact has a relatively limited share, showed an average growth of 11.7%, while the important sector of national brands and services declined on average with 3.7%. Circulation sales increased by  €20.4 million, including the €18.9 million from the acquired activities of Keesing Media Group. The circulation of paid newspapers was under pressure again, but the consequences were absorbed through a price increase.

As with other paid national newspapers, De Telegraaf also faced pressure on circulation and advertising revenue. The average paid circulation of  De Telegraaf newspaper fell by some 3.5% compared to the first half of 2006. Distribution costs rose because delivery staff is increasingly difficult to recruit in the present labour market. Other cost reductions resulted in an improved result for De Telegraaf.

Sp!tsdeveloped positively, reinforced its position on the labour market by, amongst other , acquiring Carp, a magazine and a website aimed at highly-qualified professionals aged up to 37.

The HDC Media regional daily newspapers benefited from growth in the personnel advertisements sector and the positive effects of implemented cost reductions. The circulation of the Noordhollands Dagblad remained at virtually the same level, while the HDC Media regional daily newspapers showed a fall of approx. 1.5%.

At Holland Combinatie, the publisher of free local papers, result fell slightly due to, in particular, pressure on prices in the advertising market, a lower result for weekend editions and the lag of the restructuring completed at the end of 2006.

De Telegraaf Tijdschriften Groep(TTG) achieved a higher result by publishing specials, the positive development of JAN, and lower costs. Privé is doing well in an essentially shrinking market. Vrouw, De Telegraaf’s weekend magazine, was introduced in March 2007. Publication of Starstyle stopped as a consequence of an insufficient return.

The result of Keesing Media Group (international publisher of mainly puzzle magazines) acquired in 2006, faced pressure through disappointing sales by the French publisher of hobby magazines. These activities will be discontinued. In June this year, the puzzle activities of Sanoma Uitgevers were taken over. The portfolio comprises Puzzelsport, Bingo! and 10 voor Taal.

The result of TMG’s foreign publishers (Sweden and Ukraine) fell by €2 million due to the costs of product introductions.

In Sweden, in the first half of the year amongst others, the magazine Plus was introduced and further steps were taken in the field of Internet.

The returns of the magazines portfolio originally acquired in Ukraine developed as expected. The publication frequency of the free daily Obzor was increased from 3 to 5 days a week. New magazines such as Glance and Lubimaya have yet to prove themselves in the market.

 

DIGITAL MEDIA

Digital media will increasingly contribute to the results of the Group, and will ensure greater attachment with the target groups. Relatieplanet.nl achieved a high revenue in 2007.

The increase in the Dutch market leader in the area   of narrowcasting  Media Librium from 40% to 84% in the second half of 2007, fits within TMG’s digital strategy.

Revenue in digital media rose from €16.1 million to €17,3 million, which includes a €0.8 million decline in SMS services.

 

RADIO AND TELEVISION

Sky Radio Group, acquired in April 2006, which includes the radio channels Sky Radio 101FM, Radio Veronica, Classic FM and TMF Radio (50%), achieved a revenue of €24.5 million during the first half of 2007, compared to €12.3 million in the period from 12 April to 30 June 2006. Stations achieved a higher market share in 2007. Cooperation was realised between the newspapers and the various radio stations by advertising sales and promotions and providing of, amongst others, financial news on Classic FM.

The Interim Act on Media Concentrations [Tijdelijke Wet Mediaconcentraties] took effect in June. The new law allows newspaper publishers to expand their interests in radio and television. Shortly after, TMG increased its interest in Sky Radio Group from 28% to 85%. TMG, in addition to Veronica Holding and the management, became full owner of Sky Radio Group. This step is of importance to TMG because radio occupies a consistent, solid position in consumers' media consumption and in media expenditure of companies.

TMG has acquired an option to purchase 12% of the voting shares (13,127,832 shares) of ProSiebenSat.1 Media AG (ProSiebenSat.1), the new international combination of ProSiebenSat.1 and SBS Broadcasting S.à.r.l., to be exercised by 1 June 2008 at a price of €34.71 per share less the dividend payable within the period of 6 March 2007 and the date of exercising the option. The dividend for the financial year of 2006, determined in the share holders’ meeting of 17 July last, was €0.87 per share.

TMG will fund the transaction through the sale of its 20% interest in SBS Broadcasting S.à.r.l (€ 433 million), the SBS Group's holding company. The estimated gain on sale amounts to some €350 million, which will be recognised in the second half of 2007.

TMG obtained two board seats in the Supervisory Board of ProSiebenSat.1.

 

OTHER ACTIVITIES

The revenue from  other activities, including printing and distribution of print media, the organisation of events and the operation of mobile telephone services, increased by approx. €12.1 million, of which €7.5 million autonomous activities. The majority is realised by the increase in sales caused by retaining the distribution order from the Limburg activities sold (previously intercompany revenue).

The joint venture Telegraaf Expo Media Events (TE2) has been terminatedended. TMG is continuing the successful and profitable part of the portfolio.

In the first half of 2007, the print facilities and distribution company again took considerable steps in making the cost structure and charge (the so-called tariff card) more transparent. In view of relevant market pricing, cost reductions remain an important focus. Various options are being considered, including the newspaper formats and outsourcing  parts of the distribution activities.

 

FINANCIAL DEVELOPMENTS

The development in result of continued activities is as follows.

Revenue

 

     Continued activities

x € 1 milioen                     2007                     2006

 

Advertisements              182,2                     166,3

Subscriptions and 

single-copy sales           139,0                     118,6

Third party printing             5,0                         3,4

Distribution                       23,6                       18,2

Other revenues                15,3                       10,2

Total                              365,1                     316,7

 

                                          Autonomous activities

x € 1 millioen                     2007                    2006

 

Advertisements              159,5                     154,7

Subscriptions and 

single-copy sales           120,2                     118,6

Third party printing             5,0                         3,4

Distribution                       23,6                       18,2

Other revenues                10,0                         9,5

Total                              318,3                     304,4

 

 

EXPENSES

The net cost of raw and auxiliary materials declined  with €0.5 million. The effect of the increase in paper prices was offset by a reduction in the number of printed pages.

Personnel costsinclude besides salaries and wages, social security contributions and pension premiums, also restructuring costs, profit sharing and the cost of temporary personnel.

Total personnel costs decreased with approx. €13 million; for autonomous activities, the fall was €23 million, which included €31.3 million attributable to lower restructuring expenses, approx. €8 million to a higher reserve for employee profit sharing, and €3.6 million to the higher cost of temporary staff. Compared to the annual collective agreement increase, further savings were made in the number of FTE as a result of restructuring and outsourcing. The number of FTE at the end of June 2007 was 3,672 compared to 3,869 at the end of June 2006.

The increase in depreciation and amortisation of €7.3 million consists of €2.8 million in reduced depreciation charges (especially outsourcing IT activities) and a €10.1 million increase in amortisation costs as a result of the purchase of Sky Radio Group and Keesing Media Group in 2006. The amortisation in 2007 includes the FM licences paid for Sky Radio and Radio Veronica of €4.9 million (2006 as from April €2.4 million).

Other operating expensesrose by €31.7 million, including €17.7 million from autonomous activities, consisting of amongst others €5 million increased outsourcing costs, €5 million higher external distribution costs (in connection with the sale of the Limburg newspapers), and €3 million of additional costs for work outsourced.

The share in the result of associated companies mainly relates to the share in the loss of SBS Broadcasting S.à.r.l. and Media Librium.

Financial income in 2007includes the gain made on the sale of the Wegener shares for €45 million, the Wegener dividend for 2006, the Wegener preferential dividend for the first half of 2007, and interest on the loans granted to SBS Broadcasting S.à.r.l. and from cash.

Financial expenses consist of the interest paid on funding obtained to acquire Sky Radio Group. The loans have now been repaid.

Income tax incorporates income from the carry-back of tax loss during the first half of the year.

 

OUTLOOK

Despite the favourable economic developments, it remains extremely difficult to make a firm forecast as to the development of the result in the second half of 2007.

Return from print media no longer followsthe upward curve of the economy, automatically as was the case in the past. Cost cutting therefore remains a high priority in improving returns from print media.

The personnel market excluded, the outlook for developments in the advertising market concerning revenue from print media is not positive. Both volumes and prices are under pressure. Revenue from readers will increase in the second half of this year thanks to seasonal influences on the single copy sales of De Telegraaf and puzzle magazines in particular.

Net media expenditure on online display advertising in the Netherlands increased significantly more slowly in the first quarter of 2007 (+9% compared with the first quarter of 2006) than in the previous quarters. This finding and the fact that the organisational adjustments in the Netherlands will not be completed earlier than the fourth quarter of 2007 means that growth in digital revenue is limited. This will be compensated for in the coming two years, so the objectives remain on course.

The radio market is developing positively.

The following items will undoubtedly have a favourable influence on the result in the second half of this year:

  • The sale of the interest in SBS Broadcasting S.à.r.l., resulting in a gain on sale of approx. €350 million;
  • Realised gain obtained of €2.5 million from the sale of the interest in ANP;
  • The higher financial income as a result of the sale of the interests referred to above and the repayment of the loans connected to Sky Radio Group;
  • The acquisition of the Sanoma puzzle magazines;
  • The continued effects of cost reductions.

 

The following items will have a negative effect:

  • The onward effect of the collective agreement increases on an average of 2.75%;
  • The cost of additional employee profit-sharing on account of realised gains made on the interests sold (approx. €2.5 million gross);
  • Possible additional costs in connection with restructuring;
  • The additional expenses,  estimated at €2.0 million, in connection with start-up problems in managing the customer relation management software implemented last March;
  • The share in Media Librium's start-up losses relating to the increase in interest to 84%.

 

Given the above, no concrete profit expectations are given for 2007. The expectations previously expressed as to an increased operating result compared with 2006 (before amortisation) will be maintained.