Agora Group report for 2Q 2009
13-08-2009
Press release
| PLN million | 2Q 2009 | 2Q 2008 | yoy % change | 1-2Q 2009 | -2Q 2008 | yoy % change |
| Revenue | 297.8 | 343.7 | (13.4%) | 572.2 | 657.1 | (12.9%) |
| Net profit | 11.8 | 21.6 | (45.4%) | 12.8 | 40.1 | (68.1%) |
| Operating EBITDA (1) | 38.7 | 62 | (37.6%) | 68 | 116.3 | (41.5%) |
| Net cash from operating activities | 26.2 | 28.4 | (7.7%) | 65.8 | 82.2 | (20%) |
Figures for 1-2Q 2009 (yoy comparison):
• According to Agora's estimates, advertising spending for all media amounted to PLN 3.5 billion (down 13%).
• Revenues of the Group amounted to PLN 572.2 million (down 12.9%). Advertising sales reached PLN 372.9 million (down 21.2%), revenues from copy sales PLN 97 million (down 5.6%) and Special Projects, including book sales, brought PLN 52.1 million (up 56.5%).
• Gazeta's advertising sales reached PLN 174.8 million (down 33.7%) and its copy sales generated PLN 75.4 million (down 4.8%). Gazeta sold 388 thou. copies on average and its share in total newspaper advertising expenditure reached ca 39% (down 4pp). Once the influence of the drop in the recruitment ads is factored out, Gazeta's share in ad expenditure in dailies in 1h2009 remains on the same level as in 1h2008.
• Ad revenues of free daily Metro amounted to PLN 16.3 million (down 10.9%). The lower than the market rate (down 28%) dynamics of advertising revenue decrease in Metro resulted in the increase of the title's share in advertising expenditure in dailies by almost 1pp to 4%.
• Revenues from the Group's Internet operations grew to PLN 38.6 million (up 13.9%), including PLN 8.3 million from the operations of Trader.com (Polska). In May 2009 total reach of online services from
Gazeta.pl Group increased to 59.5%. (2)
Revenues of AMS amounted to PLN 86.4 million (down 7.5% while the advertising expenditure in outdoor dropped by 9%). The company increased its share in outdoor advertising expenditure to 26.8% (up 1.4%).
• Revenues of Magazines reached PLN 47.6 million (down 16%) and segment's operating EBITDA (1) stood at PLN 8.9 million.
• Revenues of Radio stations amounted to PLN 40.4 million (down 4.9%) and segment posted positive operating EBITDA1 of PLN 1.4 million.
• Total net operating cost of the Group in 1h2009 declined to PLN 551.6 million (down 8.7%) while in 2q2009 it dropped by 9.8% to PLN 282.9 million. This was mainly caused by the implementation of the operating efficiency improvement plan since December 2008, which included, i.a. reduction of marketing expense (down 32.6% in comparison to 1h2008), reduction of staff costs (down 3.2% in comparison to 1h 2008, excluding non-cash expense relating to share-based payments) and decrease of cost of printing services (by 9.1%).
• In line with the operating efficiency improvement plan announced in December 2008, the Group on the daily basis undertakes cost curtailment measures, including staff cost reductions. The headcount of the Group as of June 30, 2009 amounted to 3.317 FTE (down 188 FTEs in comparison to the end of 1q 2009 and down by 356 FTEs in comparison to the end of 4q 2008). Total number of people who already received dismissal notices in 1h 2009 amounted to 337 employees. The employment reduction process carried out in the Group since January 1, 2009 was prolonged and shall be executed till October 31, 2009 and shall concern about 400 people (about 10.4% of employees in the Group as at November 30, 2008). Due to the fact that in May 2009 the Company decided to increase the initially declared amount of employees, a provision of PLN 2.3 million was created, which influenced the Company's results in 2q 2009. The effects of the plan should be visible partly in the Company's financial results published in 2h 2009, but for the full effect one must wait till 2010.
• Operating EBITDA (1) of the Group stood at PLN 68 million (down 41.5%) while its operating EBITDA margin reached 11.9%. In 2q 2009 Operating EBITDA (1) of the Group stood at PLN 38.7 million (up 9.4% as compared to 1q 2009) and its operating EBITDA margin reached 13% (up 2.3% as compared to 1q 2009). The Group's net profit attributable to the equity holders of the parent amounted in 1h2009 to PLN 13.3 million.
• At the end of June 2009, the Group's cash and short-term monetary assets amounted to PLN 246.6 million, out of which PLN 155.1 million in cash and cash equivalents and PLN 91.5 million in secure short-term securities. The Group's debt amounted to PLN 131.8 million and accessible credit line for further drawing down was PLN 200 million.
2q2009 market performance and financial results of Agora's major lines of business (yoy comparison):
NEWSPAPER MARKET / GAZETA WYBORCZA
Gazeta Wyborcza maintained its leadership position among quality newspapers. It sold 379 thou. copies on average (down 6.7%) and decreased copy sales revenues by 2.9%. Copy sales of Dziennik declined by 4% to 140 thou. copies, Rzeczpospolita sold 143 thou. copies (down 12%) and Fakt sold 462 thou. copies (down 6%). Super Express decreased paid circulation by 6% to 189 thou. copies. Since March 2009 the number of titles under Polska brand was reduced from 18 to 9 titles. The average paid circulation of all local dailies published by Polskapresse under Polska brand in 2q 2009 amounted to 304 thou. copies (3). On June 1, 2009, Axel Springer Polska Sp. z o.o., publisher of Dziennik Polska Europa Świat, and Infor PL SA, publisher of Gazeta Prawna, signed an agreement giving Axel Springer 49% stake in the company INFOR Biznes Sp. z o.o. Axel Springer will contribute, inter alia, its title Dziennik Polska Europa Świat. The publishers declare that from the blend of the two titles a new daily will appear on the Polish newspaper market in autumn this year. In comparison to 2008, the prices of dailies changed. Due to price increases, Dziennik currently sells for PLN 2 on weekdays and for PLN 2.5 on Fridays and Saturdays. The titles published under Polska brand cost from PLN 1.4 to PLN 1.7, while Rzeczpospolita sells for PLN 3.4. Gazeta changed its price twice in 1h 2009: currently Gazeta costs PLN 2 on weekdays and PLN 2.5 on Fridays and Saturdays. In kiosk subscription Gazeta sells for PLN 1.6. Despite these price changes, Gazeta has the same price as Dziennik and still costs significantly less than Rzeczpospolita (which costs PLN 3.4) and Gazeta Prawna (which costs PLN 3.5). In 2q 2009 ca 44% of Dziennik's paid circulation and 19% of Rzeczpospolita's was sold through "other paid forms of distribution" (i.a. bartering or the like methods that can neither be described as paid copy sales nor the subscriptions). "Other paid forms of distribution" constituted only ca 11% of Gazeta's total copy sales. In 2q 2009 Gazeta Wyborcza was the most read quality daily and reached nearly 4.3 million readers (14.2% reach, CCS - weekly readership index), which is almost 4 times more that the number of the readers of Rzeczpospolita or Dziennik. Gazeta's advertising revenues (4) amounted to PLN 88.7 million (down 36.4%), while the title's share in dailies ad expenditure reached 38% (down 3.5 pp in comparison to 2q 2008). The decline of Gazeta's share in dailies ad expenditure resulted mainly from the significant decrease of the number of recruitment ads in which Gazeta holds a leader position. Shares of Fakt and Dziennik in total newspaper advertising spending stood at ca 7%.
INTERNET (5)
Agora's listing sales in classified vortals6 increased by 20% to PLN 5.4 million and Internet ad revenues (7) of Agora reached PLN 11 million (down 19.1%). The decrease of ad revenues was influenced by significant decline in number of promotional campaigns settled in barters. Ad sales settled in cash decreased in 2q 2009 by 5%. In May 2009 the reach of online services from
Gazeta.pl Group among Polish users grew to 59.5%, while the number of users increased to 9.9 million (up 47.8%) (2). In 2q 2009, Agora signed an agreement with Microsoft Inc., to operate the
Msn.Gazeta.pl portal as well as sell and develop online advertising offer. Agora also commenced cooperation with At Media Sp. z o.o. to offer joint ad opportunities in Agora's online media and TV stations represented by At Media.
METRO
Total ad revenues of Metro amounted to PLN 7.9 million (down 17.7%), while its revenues from display ads decreased by 19%. Since the dailies ad market dropped by almost 31% in 2q 2009, Agora's free daily increased its share in total ad expenditures for dailies by 0.5pp to over 3.5%, while the titles share in Warsaw grew to over 11% (up 4pp in comparison to 2q 2008). Metro recorded a negative operating EBITDA (1) of PLN 0.7 million. In the described period Agora's free daily reached nearly 2.3 million readers (7.6 reach, CCS index - weekly readership), which is 2 times more that the number of readers of Rzeczpospolita or Dziennik. In 2q 2009 the title developed its ad offer and online operations, i.a. by launching the Internet service of mTarget - the ambient media and BTL activities offer for advertisers. Agora's free daily was honored by the jury of the international contest World Young Reader Prize organized by WAN-IFRA (World Association of Newspapers and News Publishers) for the Round Table 2009 campaign. In June 2009, Metro received for the second year in a row the title of High Reputation Brand in the Media category from the Independent Ranking of Brand Reputation in Poland - Premium Brand.
SPECIAL PROJECTS
Total revenues of Special Projects grew to PLN 29.4 million (up 169.7%). Agora ran 3 collections and 8 one-off projects. The Company sold ca 1.8 million books and books with DVDs and CDs, i.a. books from 16-volume book series Dzieła Stanisława Lema (Stanisław Lem's Masterpieces), books with CDs and DVDs from 20-volume collection Wielkie Opery (Great Operas) as well as books from series of travel guides Miasta marzeń (Cities of Dreams), from series Święte księgi (Holy Books) and from collection Religie Świata (World Religions).
OUTDOOR
Ad revenues of AMS amounted to PLN 47 million and decreased by 11.2%, while the decline in ad sales for external clients (outside the Agora Group) was lower than the decline of the whole outodoor advertising market (down 10%). As a result, an estimated share of AMS in spending on outdoor advertising increased to 26.1% (up 0.6pp). The decline in ad sales of AMS stems mainly from significant reduction in printing services connected with advertising campaigns. The decrease of operating cost of AMS group (by 0.7%) reflects the lower cost of campaign execution resulting from fewer orders on printing services from external clients, the decline in staff cost as the effect of optimalisation activities within the Agora Group companies. The company controls the increase in the maintenance cost of AMS's panel system caused by increasing number of the Premium and Superpremium panels by restructuring activities aimed at optimalisation of the panel system.
MAGAZINES (8)
Operating EBITDA (1) of Magazines reached PLN 5.8 million, while segment's revenues amounted to PLN 24.2 million (down 20.9%). The decline of revenues from ad sales (9) (by 27% to PLN 14.3 million) and copy sales (by 11.7% to PLN 9.8 million) reflects general market slowdown. Paid circulation of magazines declined by 10.4%. Agora's magazines occupied over 7% share of advertising expenditure in national magazines and 12.9% share of advertising spending in monthlies (according to rate card data). Operating costs of the segment, including costs of Agora Press Ltd., dropped by 16.6%.
RADIO (10)
Ad revenues of radio stations (11) of Agora amounted to PLN 21.2 million (down 11.3% while total spending for radio advertising dropped by 18%). The segment reported negative operating EBITDA (1) of PLN 0.2 million. In 2q 2009 the financial result of the Radio segment (both on the revenues and cost side) was influenced by barter settlements connected with first edition of Smooth Festival Złote Przeboje (Golden Oldies Smooth Festival) in Bydgoszcz. In described period the audience share of Agora's music radio stations reached 6.6% (down 1.8pp). Radio TOK FM reached 6.2% share of the Warsaw radio audience (in its target group) as compared to 6.9% reach in 2q 2008 while in all cities of broadcasting the station's audience ratings reached 4% (4.3% in 2q 2008).
PROSPECTS
COSTS IN 2009
Due to additional employment reductions in the Group as compared to those announced in December 2008, the Company created additional provision for the cost of lay-offs execution in the amount of about PLN 2.3 million, which affected Group's consolidated financial result for 2q 2009.
The level of promotion and marketing expense depends on the growth dynamics of particular businesses as well as the market activities and projects of the competition planned for autumn 2009.
Cost of raw materials and energy is, by and large, dependent on EUR/PLN exchange rate, the production volume and cost of energy.
ADVERTISING MARKET IN 2009
In the first half of 2009, the effects of the slowdown did not spare any segments of ad spend market. Ad market performance in the second half of 2009 and estimates for consecutive years depend, by and large, on GDP forecasts for Poland which, despite positive signals regarding GDP, are still inconsistent. Therefore, the Company cannot, in a responsible way, estimate the development of ad market situation in 2009. Bearing in mind the sensitivity of ad market performance to GDP changes, as well as the high volatility of the correlation change between the two and unpredictability of that change in the crisis time, any estimates of the ad spend market value would bear a significant margin of error. In Company's view no signs of improvement on the Polish ad market can be visible yet.
NOTICE: The above financial data comes from Management Discussion and Analysis of the Group's results for 2q 2009. As IFRS 8 Operating segments has become effective, the Group has adjusted its operating segments presentation in MD&A and financial statements to the requirements of this standard. Due to this change, the amounts concerning major business lines presented in the quarterly reports for previous reporting periods may not be comparable in full with the present data prepared under the management approach.
Notes:
(1) operating EBITDA = EBITDA + non-cash expenses relating to share-based payments. Operating EBITDA of Magazines is calculated on the basis of cost directly attributable to the appropriate operating segment of the Agora Group and excludes allocations of all Company's overheads (such as: cost of Agora's Management Board and a majority of cost of the supporting divisions), which are included in matching positions,
(2) the Gazeta.pl Group include online services (including partnership services), which domains are subscribed by Agora. The research methodology of Megapanel PBI/Gemius has changed from May 2009. It has caused an increase by several percentage points as for range and number of users of online services and websites in the Polish Internet. According to Agora's estimates, for the comparison of May 2009 versus May 2008, the mentioned change increased the number of real users of the Gazeta.pl Group by almost a half and Agora's portal reach by two-thirds,
(3) average number of copies sold of dailies associated under a common title Polska = a sum of all copies sold of the dailies /number of days of publishing,
(4) the data refers to only a portion of total revenues from the dual media offers (published both in Gazeta Wyborcza, as well as on GazetaPraca.pl, GazetaDom.pl and Komunikaty.pl verticals), which are allocated to print edition of Gazeta,
(5) the Internet segment includes the pro-forma consolidated financials of Agora's Internet Department, LLC Agora Ukraine and Trader.com (Polska) Sp. z o.o. The comparable data for the first quarter of 2008 do not include financials of Trader.com (Polska) Sp. z o.o., because the company was incorporated into the Agora Group in June 2008,
(6) the data includes, among others, allocated revenues from the dual media offer (i.e. published both in Gazeta Wyborcza, as well as on GazetaPraca.pl, GazetaDom.pl and Komunikaty.pl verticals) and revenues of Trader.com (Polska) Sp. z o.o. From 2009 ad sales defined as Power Page advertising (ads published within standing fees) in Trader.com (Polska) Sp. z o.o. are presented in ad sales of verticals, not in display ad sale,
(7) the data do not include total revenues from cross-promotion of Agora's different media if such promotion is executed without prior reservation, as well as inter-company sales between Agora's Internet Department, LLC Agora Ukraine and Trader.com (Polska) Sp. z o.o. From 2009, e-commerce ad sales (performance advertising) are presented as display ad sales not in other revenues; the comparable data were restated thereupon,
(8) the Magazines segment presents the pro-forma consolidated financials of Agora's Magazines and Agora Press Ltd. (Ukraine),
(9) the data do not include revenues of cross-promotion of Agora's different media if such promotion is executed without prior reservation,
(10) the Radio segment includes the pro-forma consolidated financials of Agora's Radio Department, all local radiostations and a superregional radio TOK FM, being parts of the Agora Group. This includes: 18 Golden Oldies (Zlote Przeboje) radio stations, 7 local radio stations (Radio Roxy FM), a superregional news radio TOK FM broadcasting in nine cities and one AC format (Adult Contemporary) local station,
(11) advertising revenues include revenues from brokerage services of the proprietary and the third-party air time. The data do not include revenues of cross-promotion of Agora's different media if such a promotion was executed without prior reservation.
Sources:
Advertising market: the data refer to advertising expenditures in five media (print, radio, TV, outdoor, Internet). In this press release Agora has corrected the advertising figures for 2008 and the previous years. TV and Internet figures for the 1h 2009 and the previous periods are based on Starlink media house estimates. Print and radio advertising market data referred to herein are based on Agora's estimates adjusted for average discount rate and are stated in current prices. Given the discount pressure and advertising time and space sell-offs, these figures may not be fully reliable and will be adjusted in the consecutive reporting periods. In case of print, the data do not include classifieds, inserts and obituaries. The estimates are based on rate card data obtained from the following sources: Expert Monitor monitoring, Agora SA monitoring. Outdoor advertising figures are based on Izba Gospodarcza Reklamy Zewnetrznej estimates.
Copy sales of dailies: the data on the number of copies sold of daily newspapers are derived from the National Circulation Audit Office (ZKDP). The term "copy sales" used in this press release is consistent with the sales declarations of publishers to the National Circulation Audit Office.
Readership of dailies: the data on dailies readership are based on PBC General, research carried out by MillwardBrown SMG/KRC on a random, nationwide sample of Poles over 15 years of age. The following indices were used: CCS index (weekly readership index) - percentage of respondents reading at least one edition of the title within 7 days of the week and CPW index (average issue readership index). Size of the sample: nationwide PBC General for 2q 2009: n=12.254,
Internet offer reach: real users, page views and spent time on the basis of Megapanel PBI/Gemius, cover Internet users age 7 years and above, connecting to Internet from the territory of Poland and include only Internet domains registered on Agora SA. Real users data of Agora's Internet services are audited by Gemius SA.
Outdoor: report on sales of outdoor companies prepared by Izba Gospodarcza Reklamy Zewnetrznej (IGRZ) which include: AMS SA, Cityboard Media, Clear Channel Poland, Stroer Out of Home Media, News Outdoor Poland, Gigaboard Polska, Mini Media/Publiprox, Business Consulting, CAM Media, Defi Poland and from 2009 also BP Media, Warexpo and Żak. The report is prepared on the basis of the financials provided by member companies of IGRZ. From the beginning of 2009, the reports for the outdoor market (defined by IGRZ as 'the out-of-home market'), include immovable (traditional), mobile and digital outdoor advertising. Market data in this press release are based on a new IGRZ definition of the outdoor market.
Copy sales of magazines: average paid circulation of monthlies is based on the Agora's own data. Rate card data on magazines obtained from Expert Monitor monitoring; commercial brand advertising, excluding specialized monthlies; accounted for 125 titles.
Radio audience: data based on Radio Track surveys carried out by MillwardBrown SMG/KRC (all places, all days and all quarters); for local radiostations: in cities of broadcasting of Agora'a radiostations, the age group 15+, 1q 2q2008: n=22.797, 2q2009: n=21.907; for TOK FM: in Warsaw, the age group 15+,2q2008: n=3.020, 2q2009: n=2.748; in cities of broadcasting, the age group 15+, 2q2008: n=16.202, 2q2009: n=15.863.
