TMG result less dependent on newspapers
- 2007 Revenues : € 738.8 million; + 8.9%.
- 2007 Operating result (EBIT): -/- € 27.8 million; -/- 27%.
- 2007 normalised EBITA result: € 53.3 million; + 12%.
- 2007 normalised EBITA margin: 7.2%.
- 2007 net result: € 400.1 million.
- 2007 Cash flow from operating activities: € 62.1 million; + 3.2%.
- Proposed dividend per share € 1.00; +100%.
Following years of major reorganisations, optimisation, portfolio changes and cost control improvements, 2007 was primarily characterised as a year in which previous acquisitions were streamlined and integrated. The strategic directions for internal production units were identified and – in part based on the reorganisation of publishing operations in the Netherlands – TMG is on track as an organisation to realise the enterprise’s ambitious financial objectives by the end of 2009.
In January 2008, TMG reported that the 2007 normalised EBITA result rose in comparison to 2006, but also that this only represents a 7% EBITA margin. To guarantee continuity and a meaningful operating result per share, this margin must increase significantly.
TMG’s enterprise objective is to achieve an average net return on equity of at least 12% on the basis of exploitation of media products. For the objectives by the end of 2009 this translates into achieving annual revenues of more than € 800 million with an adjusted EBITA margin (EBITA/revenues) of 15% (revenues in 2007: € 738.8 million, with a margin of just over 7%).
A significant portion of the improvement in margin is initially derived from cost reductions that also produce the greatest value for the enterprise. To a significant extent the growth in revenues is derived from digital media, including acquisitions and by cornering a ‘fair share’ of the advertising market.
Changes in the market
The market is changing rapidly but the importance of media and information is undiminished and the need for differentiating content will always remain. At the same time, the arrival of the new media world means that cost increases in traditional media can no longer, or only marginally, be passed on. A head start related to a specific concept can become lost ground within a very short period of time and that distribution forms will emerge that lie outside the primary expertise of the traditional publisher. This is why cost savings, realisation of synergy within the existing portfolio and multimedia use (or reuse) of content is more important than ever.
In principle, TMG’s business units are in the process of optimising, innovating and internationalising. TMG uses the following policy directions to address requirements and demands of stakeholders:
- cost efficiency;
- investment in existing brands and products (print and digital);
- exploitation of opportunities for synergy;
- investment in new products (print and digital);
- exploitation of new publishing knowledge abroad.
2007 Financial Results
TMG’s revenues rose by 8.9% from € 678.1 million in 2006 to € 738.8 million in 2007, primarily due to the consolidation in 2007 of the full annual revenues of enterprises acquired in 2006. TMG’s revenues dependence on newspaper products has consequently declined by about 20 percentage points over the past five years to about 60%.
The consolidated operating result declined by € 6.0 million to negative € 27.8 million. Adjusted for exceptional items and amortisation, the normalised EBITA result rose by 12% in relation to 2006, to € 53.3 million. This increase is due to a clear increase in normalised EBITA result of the acquired enterprises in 2006.
A net result (attributable to shareholders of TMG) of € 400.1 million was achieved during 2007, compared to a net profit of € 49.6 million in 2006. The sale of the interests in SBS Broadcasting S.à.r.l and Koninklijke Wegener N.V. in particular resulted in a gain of over € 405 million and resulted in the highest net profit ever earned by the company in its 115-year existence.
The consolidated operating result declined by € 6.0 million to negative € 27.8 million. Adjusted for exceptional items and amortisation, the consolidated operating result rose by € 5.7 million (12%) in relation to 2006, to € 53.3 million. This increase is due to a clear rise in the normalised EBITA result of the acquisitions in 2006 (€ 13.6 million). In contrast to this there was a decrease of about € 7.9 million in the EBITA result of organic activities. The decline primarily took place in the second half of 2007 and was due to disappointing revenues trends, but in particular incidental costs in the amount of € 8.0 million - including € 2 million for creating the Telegraaf Media Nederland organisation, € 2 million to establish the corporate procurement organisation which is not offset by any savings in 2007, € 1.0 million in transition costs for outsourcing the office automation and € 1.0 million for hiring temporary personnel to support the reorganisation of the distribution activities.
Total revenuesincreased by € 60.7 million to € 738.8 million in 2007, due to a € 19.2 million increase in advertising revenues, a € 32.8 million increase in circulation revenues (including the Keesing Media Group) and a slight net increase of € 1.2 million in production and distribution revenues. The significant increase in other revenues in the amount of € 7.5 million includes revenues from digital activities, such as Relatieplanet, HabboHotel and Pilarczyk Media Groep.
The sources of revenues can be broken down as follows: 49% from advertising, 40% from subscriptions and single-issue sales, 6% from distribution activities, 1% from printing activities for third parties, and 4% from other sources.
The revenues generated by the publishing segment rose by 6.5% in 2007 to € 621.0 million. Of this increase, 4.5% is attributable to the full consolidation of the Keesing Media Group B.V. (acquired in mid-2006) in 2007. Revenues from national dailies fell by 2.1% while revenues from regional dailies rose by 2.4%, free local papers rose 1.9%, magazines rose 13.8%, and puzzle magazine rose 113%. Radio revenues rose by 46.1%, also due to the full consolidation in 2007 of the Sky Radio Group (acquired in April 2006).
Of the company revenues in 2007, € 54.2 million (7.3%) was realised abroad. Foreign revenues amounted to € 34.2 million (5.0%) in 2006.
Total operating expenses increased by € 63.1 million from € 706.0 million to € 769.1 million. This increase includes € 16.1 million in amortisation and depreciation (due to acquisitions) which encompass impairments of € 13.0 mainly related to the Customer Relationship Management application (CRM application), as well as an increase of over € 42.7 million in other operating expenses. The increase in other operating expenses to € 326.2 million is primarily due to the transfer of the free local paper distribution branch and the outsourcing of office automation. Furthermore, the acquired companies contributed to the increase as a result of the outsourced work.
Personnel costsand associated social contributions include a provision for the 2007 employee profit sharing scheme in the amount of € 14.5 million as a result of realised book profits on sold participations. There was a significant increase in the cost of temporary personnel due to the implementation of the CRM application and the restructuring of distribution activities.
Restructuring expensesdropped significantly from € 41.1 million in 2006 to € 12.0 million in 2007.
The result from associates saw a net increase of € 364.2 million to € 352.6 million, primarily due to the sale of the shares in SBS Broadcasting S.à.r.l which resulted in a gain of € 349.5 million and the sale of the interest in ANP which resulted in a gain of approximately € 2.5 million.
Financial incomeincreased by € 47.2 million in relation to 2006 to € 76.2 million, including the € 57.0 million gain resulting from the sale of the Wegener shares. The interest on the shareholder loans extended to SBS Broadcasting S.à.r.l was received up to the date of the sale of SBS and amounted to € 6.5 million. The revenues related to the sale of SBS have been invested in term deposits that produced over € 7.7 million in interest revenues. Financial expenses increased slightly to € 8.4 million of which the major portion (approximately € 6.5 million) is directly or indirectly related to the financing of the Sky Radio Group and the expansion of the share in this participating interest from 28% to 85% in July 2007.
Similar to last year, there was a tax saving, although the amount decreased from € 7.2 million in 2006 to € 6.7 million in 2007. The record profits achieved by the enterprise are primarily due to the capital gain on the sale of participating interests that are exempt from taxes. The effective tax rate on the 2007 operating result was negative 1.7%. In 2006, this was negative 16.2%.
The 2007 cash flow amounted to € 430 million. € 62.1 million was derived from operating activities, fractionally higher than in 2006. € 192.7 million of the € 604.1 million in revenues derived from the sale of participating interests was used to redeem interest bearing loans, primarily that of the Sky Radio Group.
Including the result achieved in 2007, the distributed dividend in 2006 and repurchased company shares in 2007, shareholders’ equity increased sharply from € 498.0 million at the end of 2006 to € 866.8 million at the end of 2007. The dividend to be paid for 2007 has not yet been accounted for in equity. This represents an increase of € 9.96 to € 17.43 per share.
In 2007, 2,499,200 purchased ordinary shares were withdrawn. This has resulted in a change in the composition of the number of shares in relation to 2006. The number of shares consists of 50,000,000 ordinary shares (2006: 52,499,200) and 960 preferent shares of € 0.25 nominal value.
Of the ordinary shares, 31,676,029 were converted into depositary receipts as at 31 December 2007, i.e. 63.4% (end of 2006: 62.7%).
The total amount invested in 2007 in property, plant and equipment, and in intangible assets (excluding goodwill) amounts to € 17.7 million. These are investments in software (€ 7.1 million) as well as other tangible fixed assets (fleet, office fixtures and fittings, and investments in hardware): € 10.6 million. No decision on the possible changeover to another newspaper format, and the investments this entails, will be made in the first six months of 2008.
Share option arrangement regarding 12% of voting shares of ProSiebenSat.1 Media AG
Funds advised by Kohlberg Kravis Roberts & Co. (“KKR”) and funds advised by Permira LLP (“Permira”), hereafter KKR/Permira, acquired a majority stake in the leading German media group ProSiebenSat.1 Media AG (ProSiebenSat.1) by the end of 2006. In 2007 TMG’s 20% stake in SBS Broadcasting S.à.r.l. (SBS) was also acquired by KKR/Permira. After the acquisition ProSiebenSat.1 and SBS were integrated.
Together with the sale of the interest in SBS, TMG acquired a call option to purchase 12% (13,127,832) of the voting shares in ProSiebenSat.1 from KKR/Permira. The option price amounts € 34.71 per share minus dividends payable in the period between 6 March 2007 and the exercise date of the option. Over fiscal year 2006 a dividend of € 0,87 has been paid, over fiscal year 2007 a dividend of € 1,25 has been proposed. The call option can be exercised from 1 June through 15 June 2008.
Directly linked to this option is the right of KKR/Permira to, in case TMG does not exercise its call option, sell 12% of the voting shares to TMG at a put price of € 28.71 per share minus any distribution beyond the average dividends received in the period between 6 March 2007 and the exercise date of the option. The put option can potentially be exercised between 1 August through 15 August 2008.
The exercise of its option right provides TMG with an opportunity to participate in an international media combination with a strong market position and strong financial results. Furthermore, this way TMG also participates in the expected international growth and the exploitation of the opportunities for synergy that are created on the basis of the formation of the new ProSiebenSat.1 television combination. A move like this is also consistent with TMG’s international and multimedia strategy.
In addition to the option, TMG acquired two seats on ProSiebenSat.1’s Aufsichtsrat (Supervisory Board). Two TMG representatives have therefore participated in the deliberations of the Aufsichtsrat since July 2007.
The positive results achieved during 2007 and the expected further improvements in ProSiebenSat.1’s operating results, as well as a recent valuation completed for TMG by an independent third party, confirm TMG’s earlier expectations concerning ProSiebenSat.1.
TMG is currently considering various options with regard to the acquired ProSiebenSat.1 position.
A more specific decision will be taken during the second quarter of 2008.
The year 2007 closed with a normalised EBITA margin of 7.2% on revenues of € 738.8 million. The target for 2009 is to achieve a normalised EBITA margin of 15% on revenues of at least € 800 million. This margin is after deduction of overhead and employee profit sharing scheme. In concrete terms this represents an increase of approximately € 53 million to approximately € 120 million.
Approximately two thirds of this major increase will come from organic improvements in margin and approximately one third will come from acquisitions. The organic growth in margin is derived from the divestment of loss-making activities, an increased share in advertising revenues (digital) and further cost reduction by merging newspaper and magazine publishing operations, and lowering distribution and printing costs.
Last January’s press release following the New Year’s speech announced a significant increase in the operating results for 2008. In concrete terms this represents an expected increase in the adjusted EBITA margin of 9 to 10%, primarily to be achieved on the basis of cost reductions, divestment of loss-making activities and to a limited degree from acquisitions. The precondition communicated for achieving same was a slight increase in advertising and circulation revenues in comparison to 2007.
The first two months of 2008 show a less favourable trend in relation to advertising revenues in print, however, namely a slight decrease in revenues compared to the first two months of 2007. The circulation revenues and radio revenues showed a slight increase. If and insofar as this trend would turn out to be representative for all of 2008, this will of course affect the projections indicated for 2008. At this moment there is no need to adjust the targets.
Actions that further affect the development of the net profit per share include decisions related to the disbursement of liquid assets, the consequences related the ProSiebenSat.1 option agreement, the purchase of company shares and/or an extra dividend.
The dividend is normally set within a range of 15% to 30% of the cash flow, with cash flow being defined as the sum of the net profit and depreciation and amortisation, adjusted for the effects of revaluation and impairment included in the net result for the year
A dividend of € 1 per share is proposed to shareholders however, in the interest of reserving the investment resources required for 2008, potentially including the ProSiebenSat.1 option agreement. In addition, 2,163,553 company shares were bought in between 28 November 2007 and 13 March 2008, representing 4.3% of the issued capital, for an amount of just over € 51.5 million.