Results of TMG in the first half of 2016

Key figures

Key points

• Focus on 24/7 strategy and new partnerships lead to stronger brands and better reach;
• Growth in digital subscriptions of De Telegraaf (16% increase compared to the end of 2015);
• Decline in revenues (normalised for portfolio rationalisations) equal to the same period last year: -4%;
• Decline in circulation revenues from print stabilises: -0.6% (first half of 2015: -2.8%);
• Advertising revenues from print show strong decline: -21.8% (first half of 2015: -15.9%);
• Sky Radio Group activities classified as discontinued in connection with the announced strategic collaboration with Talpa;
• In line with 24/7 strategy, TMG is further adjusting its organisational model and structure.

In the first half of 2016, TMG continued to pursue the direction of its 24/7 strategy with an ever sharper focus. TMG focuses on creating relevant content that is available to consumers anywhere and anytime, and on further strengthening the reach of its main brands. This reach is enhanced, for example, by developing apps (together with Apple and IBM) and by improving or launching websites. TMG has also managed to expand its reach by strategic collaborations with companies such as Talpa. In addition, the introduction of new marketing models that replace traditional advertising rates ensure that TMG is able to develop increasingly personal and cross-media offers to advertisers, and that it can make optimum use of all existing and new touch points. Finally, in order to make content available to consumers anywhere and anytime, TMG continues to invest in the development of existing and new distribution possibilities, as well as in related technologies.

The result of the direction taken is reflected in the growing digital reach of TMG, the fact that De Telegraaf, Metro, VROUW and Dumpert are leaders in brand reach in their market segments, and the fact that TMG’s regional brands are also seeing their reach grow further. The number of digital subscribers of De Telegraaf (combined and digital-only) rose by 16% in the first half of 2016. In line with the direction of the 24/7 strategy, further necessary organisational changes will now follow, so that synergy and efficiency benefits can be realised.

The steps taken by TMG contributed to the stabilisation of the decline in revenues (normalised for portfolio rationalisations), which was equal to the decline in the first half of 2015 (-4%). The effect of the positive development of the brands was also visible in circulation revenues, which stabilised in a market in which shrinking circulation revenues are the norm. Advertising revenues from print, on the other hand, dropped sharply (-21.8%), a trend that is also visible in the rest of the Dutch market. TMG’s fixed costs have not yet been lowered sufficiently to offset the declining advertising revenues, as a result of which the EBITDA result decreased to € 8.1 million (compared to € 16.2 million in the same period last year).

To ensure that TMG maintains a future-proof position in the Dutch market, in the second half of 2016, the following organisational changes will be implemented in order to structurally lower costs:

• The centralisation of essential TMG activities in Amsterdam will be maximised in order to reduce the number of locations;
• The activities of Holland Media Combinatie (HMC) and Telegraaf Landelijke Media (TLM) will be combined in Amsterdam: the HMC head office will move from Alkmaar to Amsterdam, and the office in Alkmaar will be closed;
• The weekly portfolio will be reconsidered;
• Sourcing and outsourcing of non-core actitivities (including support activities) will be researched and options considered;
• New competencies will be acquired and developed to speed up the transition to new business models. 

The lower advertising revenues are taking their toll on the semi-annual results. Following on to previous reorganisations, TMG will further adjust the organisation in order to structurally lower fixed costs. The organisational changes will affect the total number of jobs at TMG. The sales organisation will be aligned with the needs of the market, and the fixed costs within this department will be lowered and brought in line with advertising revenues. The reorganisation of the sales organisation is expected to result in the loss of approximately 75 jobs.  

With the organisational changes now announced, TMG is taking a first step, with the ultimate aim of reducing the cost base by at least 20% in 2018 (compared to 2015). The works councils involved will be asked today to prepare their advice on the proposed restructuring and its consequences for employees. In the coming weeks, the measures announced will be worked out in more detail. During the next Investor Relations Day at the end of September, the proposed organisational changes will be elaborated on further.

Financial developments

In the first six months of 2016, Telegraaf Media Groep saw its revenues decline by 7.0% (€ 15.7 million) compared to the same period last year. This is due to two developments. First, it is the result of various product rationalisations, such as the discontinuation of the Sunday papers, the discontinuation of external print jobs due to the downsizing of the printing plants, the partial discontinuation of the activities of Dichtbij.nl, the discontinuation of a number of TV productions for third parties, and the downsizing of activities of HMC in Utrecht and Rotterdam. Normalised for these product rationalisations, the revenues declined by 4%, or almost € 9 million. This decline is largely due to the second development, i.e., declining print advertising revenues, a market-wide development that hits TMG particularly hard in parts due to the strong presence in sectors (e.g., telecom) in which advertising spend has dropped more than average.

Due to the fact that there are hardly any variable costs that could be adjusted to offset the lower advertising revenues, the decline almost directly translates into a lower EBITDA. As a result, EBITDA decreased from € 16.2 million last year to € 8.1 million this year.

Revenues

Revenues from subscriptions and single-copy sales

The decline in circulation revenues stabilised further in the first six months and, on balance, was 0.6% (€ 0.8 million). The limited decline was mainly thanks to an increase in sales at Keesing Media Group of € 2.7 million, partly thanks to the popularity of the colouring books for adults, which were launched in the course of 2015.

Advertising revenues

As mentioned earlier, advertising revenues from print dropped sharply by € 9.9 million, a decline of 21.8%. Just as in previous years, the decline in advertising revenues is continuing relentlessly, and is visible with respect to almost all products. Particularly Metro and De Telegraaf have been hit hard by cost savings and shifts to other media within specific sectors.

BtB digital revenues

The decline in BtB digital revenues is due to the reorganisation at Dichtbij.nl and the partial discontinuation of its operations. Corrected for this, BtB digital revenues rose by 2.4%, mainly thanks to an increase in revenues at TMG Digital (Gaspedaal).

Consumer digital revenues

The decline in consumer digital revenues, consisting of revenues from subscriptions for digital access to products, is mainly due to a decline at Relatieplanet, caused by the lowering of subscription fees to attract new members, and to a decrease in revenue at online games. The online subscription revenues of De Telegraaf increased by 23%, driven by an increase in the number of digital-only and combined subscriptions (print and digital) by 16% in the first half of 2016.

E-commerce revenues

E-commerce revenues showed very strong growth of 22.0%. This is due to strong growth at Groupdeal, partially thanks to the addition of various digital activities in a separate TMG Digital business unit as of 1 January 2016. This has led to an enhanced focus on these activities.

Revenues from printing and distribution activities for third parties

The decline in revenues from printing for third parties is due to the reorganisation at the printing plants, as a result of which no print jobs have been carried out for third parties since the beginning of his year.

Other revenues

The decline in other revenues is mainly due to product rationalisations (including fewer TV productions for third parties) and lower revenues from tablet subscriptions.

Operating expenses

1. Operating expenses before depreciation, amortisation and impairment losses

In the first half of 2016, operating expenses excluding depreciation, amortisation and impairment losses decreased by € 7.6 million to € 198.9 million. This decrease is mainly thanks to cost savings resulting from the implementation of reorganisations and the related discontinuation of commercial print jobs at the printing plants.

Raw and auxiliary materials

The costs of raw and auxiliary materials decreased by € 4.7 million, mainly due to the discontinuation of commercial printing services and a decline in volume at the newspapers.

Transport and distribution costs

The decline in transport and distribution costs by € 1.7 million is mainly due to lower volumes and the implementation of restructuring.

Subcontracted work and technical production costs

The costs of subcontracted work and technical production increased by € 3.5 million, mainly due to the shut-down of six printing presses. As a result, part of the print run is now printed externally. This has led to savings on personnel costs.

Personnel costs

Personnel costs declined by € 3.6 million. These are the sum of lower salary costs resulting from the reorganisations and a rise in the costs of temporary staff. Because the outflow of editors and printing plant staff took place during the first quarter, the full effect of these reorganisations was not yet visible in the first half year. The cost savings resulting from these reorganisations will become clearer in the course of the year. The increase in costs of temporary staff is the result of various new projects that were started.

In the first six months, the average number of FTEs fell from 2,068 FTEs in 2015 to 1,803 FTEs in 2016. Due to the reorganisations, this decline is mainly visible at TMG Landelijke Media and Facilitating Services.

Sales costs

Sales costs declined by € 1.0 million, mainly due to fewer marketing partnerships and lower recruitment costs at De Telegraaf.

Other operating expenses

Other operating expenses declined slightly compared to last year. Housing costs in particular were lower, due to the reorganisation of the printing plants.

EBITDA Business Units

In the first six months, EBITDA decreased from € 16.2 million in 2015 to € 8.1 million in 2016. This decrease is mainly due to the aforementioned decline in advertising revenues, particularly visible at TMG Landelijke Media and Holland Media Combinatie, which virtually directly translates into declining EBITDA.

EBITDA at TMG Landelijke Media decreased by € 7.6 million. The decrease in revenues of € 12.1 million (mainly due to lower advertising revenues, lower circulation revenues and lower revenues from TV productions) could only be partly offset by cost savings.

At TMG Digital, EBITDA rose by € 0.6 million compared to last year. This increase is mainly attributable to Groupdeal, partly because of the successful centralisation of the digital activities and the focus on these activities.

EBITDA at Holland Media Combinatie fell by € 2.7 million. This is due to a decrease in revenues by € 5.2 million (as a result of lower advertising revenues from print and the downsizing of the activities at Dichtbij). The cost reduction of € 2.5 million, mainly relating to personnel costs and volume-related costs, partly offsets the decrease in revenues.

In the first six months, Keesing Media Group saw EBITDA grow further to € 10.1 million, compared to € 8.7 million in the first half of 2015. This increase is mainly due to an increase in revenues thanks to more editions and the sales of colouring books for adults, which were launched in the course of 2015.

EBITDA of Facilitating Services amounted to € 16.6 million negative, compared to € 18.3 million negative in the first half of 2015. On the one hand, there was a strong decrease in personnel costs and housing costs, while on the other hand, the costs of contracted work rose. These movements are the result of the reorganisation at the printing plants.

The increase in the costs of Head Office, which includes the central IT department, is mainly due to the higher costs of temporary staff, particularly as a result of restructuring at HR, which accounted for reorganisation charges of € 0.5 million.

Depreciation, amortisation and impairments

The costs of depreciation, amortisation and impairments decreased from € 16.5 million in the first six months last year to € 7.5 million this year. This decrease is mainly due to the fact that the result last year included an impairment on the printing presses of € 6.9 million following the planned decision to reduce printing capacity, as well as a catch-up amortisation expense of € 1.5 million for Relatieplanet, as a result of its reclassification from assets and liabilities held for sale to continued operations.

Financial income and expenses

Financial income and expenses amounted to € 0.5 million negative in the first six months, compared to € 0.2 million negative last year. This year, the balance includes a negative result relating to the settlement of a financial liability of € 0.2 million.

Income tax

In the first six months of both 2016 and 2015, the variance between the effective tax burden and the nominal tax burden of 25% is due to higher tax rates abroad (on average 31.5%) and some non-deductible costs.

Result from discontinued operations, after taxation

The result from discontinued operations concerns the radio entities (the Sky Radio and Radio Veronica stations), which will be transferred to a new radio company, together with the radio activities of Talpa. The result of these activities amounts to a net profit of € 3.7 million compared to a loss of € 2.4 million in the same period last year. The increase in the result is mainly due to the discontinuation of depreciation of fixed assets as of the moment of classification as held for sale (effect +€ 5.5 million ) and a € 2.0 million higher EBITDA result. The improvement in EBITDA results from slightly lower revenues, which were more than offset by lower costs, particularly marketing costs.

Cash flow development

Cash flow from operating activities

In line with expectations, in the first half year, net cash flow from operating activities was strongly negative, amounting to € 24.1 million. This is the result of severance costs to the amount of € 27.9 million in connection with the reorganisation provisions made at the end of 2015. In addition, in line with the seasonal pattern, the movement in working capital was approximately € 5 million negative in the first half year. Compared to last year, operating cash flow was € 22.4 million lower, which was mainly due to an additional € 14.6 million in severance costs and EBITDA that was € 6.1 million lower (including EBITDA from discontinued operations).

Cash flow from investing activities

In the first six months, cash flow from investing activities was € 1.3 million negative, compared to € 5.1 million negative in the same period last year. The difference is due to the receipt of € 4.4 million in early 2016 from the sale of two buildings at the end of 2015. Regular investments mainly included investments in software for business applications and IT infrastructure.

Cash flow from financing activities

Cash flow from financing activities was € 9.8 million negative (2014: € 0.8 million negative), which mainly relates to the dividend payment of € 7.4 million (last year, no dividend was paid) and the acquisition of the remaining 10% interest in Sienna Holding B.V. On the other hand, there was a receipt of € 5.0 million, drawn from the revolving credit facility.

On balance, the cash flow was € 35.3 million negative, resulting in a liquidity position of € 7.7 million as at 30 June 2016 (31 December 2015: € 42.9 million).

Financing

In the first half of 2016, € 5 million was drawn from the revolving credit facility of € 70 million. The conditions imposed by the banks were met as at 30 June 2016.

Outlook

For the second half of 2016, expectations are that advertising and circulation revenues will continue to be under pressure, while the effects of cost savings will not be able to offset the expected decline in revenues. Once the required procedures have been completed, the organisational changes will lead to a reorganisation charge. The amounts involved will be determined in the third quarter.

The announced transaction with Talpa, as a result of which TMG's radio activities, together with Talpa’s radio activities, will be transferred to a new radio company, is expected to be completed in the third quarter.

Statement of Responsibility

In compliance with Section 5:25d, subsection 2c of the Financial Supervision Act (Wft), the Executive Board declares that, to the best of its knowledge:

1. The 2016 semi-annual accounts reliably reflect the assets, liabilities, financial position and the profit and/or loss of Telegraaf Media Groep N.V. and the companies jointly included in the consolidation; and
2. The semi-annual report reliably reflects the financial position as at 30 June 2016, Telegraaf Media Groep N.V.’s performance during the first half of 2016, and that of its affiliated companies, whose information has been included in the semi-annual report, as well as the trends expected for the second half of 2016.

Amsterdam, 28 July 2016

Executive Board, Telegraaf Media Groep N.V.

Geert-Jan van der Snoek, CEO

Leo Epskamp, CFO