Cost cutting softens decline in result | 07 jan 2010

Mr Swartjes, chairman of the Executive Board of TMG (Telegraaf Media Groep) stated in his New Year's speech this afternoon that the recession has had a significant impact on the financial results for 2009. The preliminary figures for the year indicate that, on the basis of the continued operations, revenues fell by almost € 75 million to over € 600 million. Especially the advertising income was hit hard. The normalised operating result (EBITA) is expected to amount to € 45 million, a decline of approximately a quarter compared to the previous year. The normalised EBITA margin declined from 9% in 2008 to approximately 7.5% in 2009. The early implementation of a programme to reduce costs by € 40 to € 50 million annually resulted in structurally lower costs in 2009. The programme, which consists of a reduction in the number of full-time jobs by almost 500, outsourcing of non-core activities, and the disposal of non-performing activities, is on track. The precise effects of the programme will be presented in March with the publication of the annual results.

The net results over 2009 will be influenced by taxes and other financial income, which among others includes the 6% TMG share in the net result of ProSiebenSat.1 Media AG. Finally, the net result may be impacted by restructuring charges and impairments.

The number of FTEs declined as of the end of December 2009 to less than 2,900 (compared to over 3,500 at the end of 2008).

Ad Swartjes stated that "the decline in revenue has been of unprecedented magnitude, obviously due to the recession. Scant consolation is that our three media companies: Telegraaf Media Nederland, Sky Radio Group and Keesing Media Group, have generally at least maintained their respective market shares, and have even increased them in a number of cases. Here I am talking about a broad range of market shares such as advertising volume, single-copy sales, listening data, and paid circulation, which also shows the breadth and therefore the strength of our portfolio. Another ray of hope is that digital revenues have risen, despite the recession, and that we are making visible progress in realising group synergies. The real consolation, since we cannot speak of satisfaction, is in the costs. Thanks to a closely steered implementation of the cost reduction programme, we were able to substantially lower costs. It is still a bit too early to make exact announcements on achieving the targets, but it is certain that we are on track."

Business units
“Telegraaf Media Nederland is situated in a turbulent media landscape with many movements by competing daily newspapers and increasingly perceptible competition from the Netherlands' public broadcasters”, Swartjes said.

Both Telegraaf Media Nederland's revenues and margins have decreased. As a result of price increases, circulation revenues rose and were, in absolute terms, also higher than advertising revenues in 2009. Revenues from digital media rose slightly. Cooperation between products is increasingly visible on the revenue side and efforts are being put into, among other things, cross-media propositions and multimedia reach packages. Despite a decline in the number of FTEs by more than 400, a number of important activities were started and/or further expanded within Telegraaf Media Nederland, including online videos, the start of the multimedia focus on local and regional information, the expansion of e-commerce and the establishment of the broadcasters WNL and PowNed.

In terms of journalism, the AIVD affair was a fundamental and significant issue at newspaper De Telegraaf, as was the difficult decision to stop the Sunday edition of the paper. Swartjes: "Fortunately, in terms of content, nearly all the sections of the Sunday edition have been incorporated in the Friday, Saturday and Monday editions."
The newspapers of HDC Media are doing better than the market in terms of circulation, but have had a difficult year in terms of advertising, as have the free local newspapers. BasisMedia, publisher of Sp!ts and other titles, has been especially hit by the decline in recruitment advertising.

Keesing Media Group showed an improvement in profitability despite relatively high costs incurred for the exploratory steps in the area of digital games.
Profitability at the traditional puzzle magazines grew thanks to improvements in the distribution of single-issue sales and lower printing costs. Further efforts were put into the platform of “Zigiz digital games” in 2009.

Sky Radio Group also faced declining advertising revenues. Nevertheless it retained its position as largest radio group in the Netherlands and the four radio stations of the group: Sky Radio, Radio Veronica, Classic FM and Hitradio each performed in line with expectations.
The decision by the Dutch government to extend the FM licences of Sky Radio and Radio Veronica in 2011 was taken in 2009. This provides the company with certainty and confidence to work on the digital future of radio.

Mobillion managed to retain its market share in a stabilising SMS services market.
One of Mobillion's focal points is so-called 'social media products' for third parties. Significant progress was made in this area in 2009.

At the internal production companies, adjustments in response to the changed demand and efforts to make costs more flexible were important attention points.
Of course the effects of the decline in circulation and scope and the stop to the Sunday edition are important issues at the printers both for employees and for the production planning. Structural maintenance of some of the presses took place in 2009.
The results of the reorganisation at the distribution company became visible in 2009. In April three of the five transport hubs closed down. This was accompanied by a reduction in employment which affected approximately 100 employees. The quality of newspaper delivery improved strongly in 2009 with lower (normalised) distribution costs. Distribution on Sundays stopped late December.

Consultation with the parties involved is taking place concerning the feasibility of establishing a single joint newspaper delivery organisation.

Strong pressure was put on costs at Telegraaf Media ICT and substantial savings were achieved both in personnel and outsourced activities.

ProSiebenSat.1 Media AG
TMG's most important participating interest is the 6% stake in ProSiebenSat.1 Media AG (ProSiebenSat.1). The ProSiebenSat.1 share price reached a historical low at € 0.90 per share in the spring of 2009 but now fluctuates between € 8 and € 10. Swartjes said with regard to this: “From the TMG perspective, it is far more important that ProSiebenSat.1 withstood 2007, 2008 and the first three quarters of 2009 excellently on both the viewers' and advertising market. Television, including the parallel development on the internet, is and remains an important phenomenon in the media landscape. And considering the fact that the government always prohibited us from independently entering this market until after the Dutch television market had been divided up, we highly value the stake in ProSiebenSat.1, including the indirect relationship this gives us with SBS Nederland."

Corporate Social Responsibility (CSR)
Swartjes: "The importance of CSR is growing by the day. For us as well, sustainability is taking a more prominent position on the agenda; sustainability with economic, social and environmental aspects. In addition to what we were already doing pursuant to legislation and regulations of course, we are starting projects in the area of production and the consumer and advertising market. Of course the social and environmental aspects will always have to be translatable, directly or indirectly, into a form of value creation. This will enable TMG to not only achieve cost savings and attract 'new revenues', but also better position itself as employer and encourage subscribers to feel more connected to us."

Challenges and risks
According to Swartjes, the three greatest challenges and at the same time greatest strategic risks are "the further development of the cost level, our ability to give the company a healthy place in the new, digital world, and competition from public broadcasters. With regard to the costs, we are on the right course, but the combination of finding a place in the digital world and public service broadcasting is an even more difficult and complex topic.
When the public service broadcasting only concerned radio and television and we were mainly concentrated on print, it was possible to have a reasonably comprehensive view of the situation and damage. But now there is structural pressure on print products, and the publishers on the one hand and public broadcasters on the other are moving fully in the direction of the digital world. There too, the great battle for consumer and advertiser will be fought out. And with their ever-rising budgets and lack of solid business plans, STER and the public broadcasters have the government's permission to compete with commercial publishers in the area of consumer time and advertising money. We support a public service broadcasting system, but under different conditions. The functions of public broadcasters must be defined more narrowly, and must include a control mechanism on the system; additionally, the manner of financing must be adjusted by abolishment of the STER. Without intervention, public service broadcasting will therefore pose more of a threat, and a more serious one, to the profitability of the commercial publishers; and as such to the multiformity of the press."

Prospects
With regard to the prospects, Swartjes said he "would not make any predictions for the 2010 results. This is due to, among other things, the uncertainty about economic developments. Are we out of the recession, or will it be W-shaped after all? The Netherlands also relies heavily on international developments and although a slight spirit of optimism prevails, there are still bleak expectations for the moment for construction, the automotive sector and exports."

Issues that will affect the operating result in 2010:

• The effects of the cost reduction measures taken in 2009, the outsourcing of activities and termination of the Sunday edition of De Telegraaf will all have a positive impact. Growth in circulation revenue and revenue from digital activities is also expected. Finally, paper prices are is expected to decline due to developments in the paper market.

• Further declining advertising revenue, the effects of the wage increases under collective labour agreements, and inflation are all expected to have a negative impact.

Swartjes: "What is remarkable, but certainly understandable, is that no sizeable acquisitions were made in 2009. Of course we remain alert to possible acquisitions that could reinforce our position on the various publishing markets. That also involves investments, while less popular measures are simultaneously being taken internally as well. In the right balance, that is the best guarantee for a successful future for TMG."