TMG new year speech 2006

On the occasion of the New Year, Ad Swartjes, CEO of Telegraaf Media Groep N.V. (TMG), gave the following presentation on behalf of the Executive Board.  

Results of 2005
The mid-year announcement for 2005 reported higher turnover and a higher profit compared to the previous year, namely €23.8 million profit for the first seven periods in 2005 versus €19 million in 2004. It was noted, however, that half of the extra turnover was generated by newly acquired activities and that regular advertising and circulation turnover was under pressure. No profit was forecasted for the full year in light of the depressed economy and low consumer confidence.   
In the second half of 2005, advertising and circulation income continued to be under pressure. Approximately 5% turnover growth was realised in 2005 compared to 2004, to an amount of approximately €725 million. This growth mainly came from new activities. Both circulation and advertising income dropped last year. Despite the cost cutting measures already taken, the operating results for this year are expected to be approximately 15% lower.The operating results do not include the extraordinary items, such as reorganisation costs. 
These figures are still provisional, and furthermore, the impact of the changeover to the IFRS accounting principles on the figures for 2005 has not fully been identified yet.  
Principal developments in 2005
In 2001 TMG had 4,900 FTE’s, at year end 2005 4,350. despite new activities such as the Sunday edition of De Telegraaf, Bongers door-to-door papers, TTG Ukraine and Speurders.nl. The net profits achieved in 2004 and 2005 also reflect the effects of several reorganisations and other measures that have been taken.   
A new staff reduction has recently been announced, this time of some 200 FTEs. To ensure the viability of the company for the long term, such measures are absolutely necessary in view of the ongoing weakness of the economy, the low financial result and the changing media usage of consumers and advertisers.
The newspaper publishers, printing operations and the logistical apparatus continue to account for the bulk of the turnover. Circulation is under pressure, just like the volume of advertising. The Sunday edition of De Telegraaf, on the other hand, is growing, and there are various new initiatives at the regional level. The printing activities and the distribution operations obviously follow these developments, but external orders provide the extra turnover.  
The latest HOI newspaper figures (Q3 2005 versus Q3 2004) continue to show a drop in print volumes. They do, however, start to show the growth of new subscription forms, and not to be ignored is the considerable increase in online contacts that are not yet reflected in the HOI data.  
Advertising turnover generated by the door-to-door publications is likewise depressed, with the exception of Trompetter/Bongers combination. Another positive exception is Spits. In a difficult market for daily papers, its figures for print volume, coverage and advertising turnover look excellent.  
The magazine market is likewise not escaping the pressure on circulation and advertising volume and thus on the result. Again we see more print volume in the Netherlands, but mainly owing to new titles. De Telegraaf Magazines Group is generally in line with this trend.
On a corporate-wide basis there have been substantial cost cuts. Activities or titles have been discontinued, but there are also many new initiatives, and new activities have been started. Advertising income from the internet has grown significantly but still represents a minor part of the total. Both at subsidiary and corporate level, companies have been acquired and interests taken or enlarged. Examples include Bohil Media, Relatieplanet, M-Media, SBS Internationaal and Expomedia. On the other hand, serious consideration is being given to disposing of the dailies in Limburg because of insufficient scale and low future synergy potential. A start has been made, though, with a magazine publishing firm in the Ukraine, and the combined activities of TMG on the internet now constitute one of the largest internet businesses in the Netherlands.   
Adjustments and the portfolio
It can hardly be denied that the value and relevance of print products, in particular of daily papers in their original function, are declining as a result of the many new possibilities to obtain information, some of which are even for free or at least being distributed across the market in novel ways. TMG has always earned its profit through the exploitation of media consumption: that is where the knowledge and added value lie. TMG wants and intends to stay in that area. It is where the know-how is and the passion. And in principle a good return can be earned there.  
But things will have to be done differently. With a focus on current products and in two directions. The first direction is the content aspect, meaning the media consumption side. The second direction is the cost aspect. Cost cuts and savings are not goals in themselves, however. They must be viewed in the context of looking ahead, of building a future. 
Considering the enormous flow of information, print products must be approached differently than in days past. Simply focusing on information volume does not seem wise, and current news has become a different concept due to radio, TV and especially the internet. TMG must therefore add different values. Next to another approach, information must be spread across various platforms, especially digital ones. TMG must get underneath the skin of the consumer, so as to be able to demonstrate the power of the TMG brands to the consumer through a variety of mediums. With the digital platforms too, TMG must search for new ways to create value.  
Aside from the content adjustment of the print product and the spread of information across various platforms, cost considerations are of prime importance. 
TMG has always enjoyed considerable success with a state-of-the-art approach. It has introduced many successful brands on the market with that approach. But the signals coming from the market cannot be ignored: TMG will have to operate at even lower cost and to enlarge its scale even more. This involves three aspects:
  1. The state-of-the-art level must go down, simply because the market is unwilling to pay the high price that it entails. 
  2. In relation to business volume (meaning the consequences of circulation and advertising developments) savings must be achieved on people and assets. 
  3. The “tariff chart”. This involves making all cost components of the internal facility companies (ICT, printing, and distribution) visible down to their details. Applying the tariff chart, publishers will link into new developments, will consider the value of current news, will consider the question whether everyone still wants to receive so much paper, etcetera.  
This translation exercise of the signals coming from the market will similarly impact the number of employees and the amount of assets, but it especially leads to current, optimal print products with a maximum return.   
Different and cheaper, that is the number one challenge. 
Within the operating companies and for the Executive Board there is one other task besides cooperating as much as possible within the total group, namely looking critically at the company portfolio. The structural signals lead to the measures described earlier. But those signals also call for a critical look at the current portfolio and for decisions to adjust that portfolio.  
The operating companies do this for their various business components, and the Executive Board does this at corporate level. De Trompetter, for example, has purchased Bongers, and De Telegraaf daily paper has purchased Relatieplanet. De Telegraaf Tijdschriften Groep is terminating Modern Country and launching the magazine Jan, and HDC Media is considering a strategic repositioning of its titles in Het Gooi and around Leiden. The group as a whole is investing in international radio and television, in national and international trade fairs and in narrowcasting. In addition, the total acquisition of Mobillion has meanwhile been completed, and in the Ukraine a newspaper product, in addition to the magazines, will soon get off the ground in line with the Sp!ts concept.
At corporate level we are also looking, in cooperation with the facility companies, at joint venture possibilities or at partial outsourcing of activities. Outsourcing specific ICT components and joint distribution with other parties are the most likely options. But we must also look into better and cheaper utilisation in some way of the joint printing capacity in the Netherlands.
It will not be possible to realise all this at short notice. However, in view of current developments (plus consider what happened in the past to other business sectors that involved heavy capital investments), we must look into further increase of scale in combination with colleagues and competitors.   
There are signals that the Dutch government is finally moving in the direction of granting publishers more multimedia room. Late, very late indeed, but better late than never.  
According to the experts, the Dutch economy is at the eve of renewed growth. 
Digital value creation around TMG products is being implemented. Much on the internet is free, we cannot deny that. But apart from advertising income, it is our conviction that when the distinctive values are found and made readily accessible, then the related business options will also be found.   
The cost-cutting measures in particular will have drastic consequences for our people. TMG will handle this in a very conscientious way. Honesty, clarity and clear communication will be key factors in this regard. The objective is to emerge stronger from this process, both jointly and as a company.   
The outlook
No economic recovery was experienced in 2005, and further cost cuts have been announced at TMG. More concretely than in past years, economic recovery has recently been forecasted. This is a positive signal, but one that cannot yet be quantified in terms of our outlook. 
The budgets for the current activities are not exuberant. Some of the new initiatives will contribute in a positive sense, while others will still involve start-up losses. Also, we will again face reorganisation costs.  
Tallying all this up, there are once again too many uncertainties to allow a profit forecast for 2006. On the other hand, there is more reason for optimism than last year, not yet based on actual results but on the ever clearer signals from the outside world, plus the potential of new projects, activities and investments.