31
August
2005
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00:00
Europe/Amsterdam

Semi-annual report 2005

Under still difficult market circumstances, the Telegraaf Media Groep N.V. (TMG) has achieved a net profit of € 23.8 million over the period of 1 January 2005 up to and including 17 July 2005 (comparable period in 2004: € 19.0 million). The increase in profit of 25% was achieved with a realized turnover in 2005 of € 385.3 million (2004: € 367.2 million). Per share of € 0.25, the net profit increased from € 0.36 to € 0.45.

 
General
In the published annual report over 2004, it was doubted whether the generally expected economic recovery would emerge in 2005. By now, it is clear that this appears not to be likely, as is, for instance, being confirmed by the decrease in consumer confidence. Half the growth in turnover realized in the first six months of 2005 as compared to the same period in 2004, is in fact due to newly acquired activities. The turnover from advertising and circulation of printed media in the first six months of the year, was slightly higher compared with last year. The year 2005 started well for Sp!ts; a considerably higher advertising turnover was achieved, compared with last year.
 
TMG applies a strategy which is aimed at growth by the acquisition of a larger share in the time devoted to media by consumers at home and abroad. However, an improvement in results can, now that the turnover side is not structurally improving, as yet not be realized in any other way than by greater interventions on the side of costs and fixed costs. As far as employees are concerned, further reorganizations cannot be ruled out in that context. The first effects of measures in the area of costs are already visible. By means of a further use of market-conforming detailed print and distribution tariffs, publishers will be able to control costs even more sharply. 
 
At the regional newspapers and daily newspapers, continuing pressure remains on the circulation and advertising market, especially the classified advertising market. Specifically for the Sunday newspaper of De Telegraaf (weekend subscriptions), a positive development in the circulation market and a disappointing development in the advertising market can be seen. The regional daily newspapers saw a slight growth in advertising volume. Advertising turnover of Sp!ts developed in a particularly positive way. 
 
At the magazines, the advertising market is weak, and, in the circulation market there is particular pressure on single-copy sales. Local advertising markets of the free door-to-door papers developed in a positive way, but in particular through the included consolidation of ‘new’ turnover of acquisitions. The position of TMG in the exploitation of teletext-services has been exchanged for a greater share in the exploitation of telephone services and mobile telephone services.The magazine publishing company in the Ukraine has started up and TMG has acquired a 10% interest in an international exhibitions and events organizer. 
 
Financial
The semi-annual figures of both 2005 and 2004 have been drawn up in accordance with the (currently applicable) IFRS principles. IAS 34 has not yet been applied. For information purposes, in the annex of the press release, the semi-annual figures for 2004 have been drafted in accordance with both the IFRS principles and the Dutch GAAP principles, which were published last year. The reported increase in the net profit by € 4.8 million to € 23.8 million can be clarified as follows.
 
Operating profits increased by more than € 12.8 million from € 7.7 million over the first 28 weeks of 2004 to € 20.5 million over almost the same period of 2005. Excluding the influence of incidental income and expenditure, among which is € 9 million in lower reorganization costs and about € 2.5 million in incidental income, operating profits increased by € 1.2 million. 
 
Net turnover increased from € 367.2 million to € 385.3 million. Autonomously, that is to say excluding the turnover from the activities of Bongers Beheer B.V. and BoHil Media B.V. which were acquired in 2005, net turnover increased by € 10.9 million, consisting of € 3.0 million in greater advertising turnover, € 0.8 million in higher circulation income and € 7.1 million in higher income from other activities, including printing and distribution for third parties.
 
Among other matters, under remaining operating proceeds, the share in profits connected to the sale of bureau BBC (supplier of information regarding advertising spending) by the NUV, (Dutch Publishers Association) is accounted for.
 
Costs of raw and auxiliary materials increased, influenced by the acquired activities on the one hand, and an increase in the price of newsprint on the other hand. Personnel costs also increased as a result of new activities (Bongers Beheer B.V., BoHil Media B.V., Sunday newspaper, Speurders.nl and exhibitions). 
 
The number of FTEs was 4,360 halfway through 2005, compared with 4,388 halfway through 2004. Other operating costs rose on balance by € 2.2 million: € 9 million in lower costs for reorganization measures was offset by higher costs as a result of new activities.
 
Under income from participating interests, a book profit was included with regard to the sale of the 45% share in two teletext firms to SBS Broadcasting B.V. On the other hand, the TMG share in Mobillion, development and exploitation of added value services for mobile phone owners was extended to a majority participation. Last year, income from participating interests included the book profit from the sale of an interest of about 20% in B.V. Algemeen Nederlands Persbureau ANP, and the interest in the Brouwer Groep B.V.
 
Newspapers
Income from circulation increased slightly with a decrease in paid circulation of an average of 4.1% at dagblad De Telegraaf and by 4% at the regional daily newspapers. At De Telegraaf, singly copy sales in particular came under pressure. The tariff increases practically compensated for the effect of the decrease in circulation; in addition there were extra publication days compared with the previous six months of 2004.
 
On balance, advertising turnover developed in a positive way at the national daily newspapers De Telegraaf (1.8 %) and Sp!ts (31.4 %). The growth at the door-to-door papers (12.8 %) is mainly due to the acquisition of publishing company Bongers Beheer B.V. in Limburg. On balance, there was a stabilization of advertising turnover at the regional daily newspapers, a slight decrease at the newspapers of Media Groep Limburg B.V. was compensated by an increase at the newspapers of HDC Media B.V. 
 
At dagblad De Telegraaf advertising volume decreased on balance by 5%. There was a considerable growth of advertising volume for the local brands and services (26%) and the recruitment advertisements (32%). However, the volume of the national brands and services which are of importance to De Telegraaf, decreased by about 2% after an earlier growth of 1% in the first quarter, compared with the first quarter of 2004. The volume of classified advertisements decreased further (22%).
 
Advertising turnover of the Sunday newspaper of De Telegraaf still falls behind expectations. For this year as well, a substantial initial loss will therefore have to be taken into account. Advertising income from banners and buttons is developing in a positive way. 
 
Sp!ts could rejoice in an increase of the advertising volume in the segment of national brands and services, which are important to Sp!ts (31%). The volume of local brands and services increased by 48%, while recruitment advertisements showed a plus of 39%. On balance, the advertising volume of Sp!ts increased by more than 35%. The market share of Sp!ts within the national daily newspaper market thus increased to 6.8%.
 
At the regional daily newspapers there was, on balance, an increase in advertising volume of more than 3%. Facing an increase of about 10% in national brands and services, was a decrease of more than 18% in classified advertisements. New initiatives in the areas of living, exhibitions and merchandising generated extra turnover in an economically weak market.
 
Speurders.nl is developing in excess of expectations: both with regard to supply (there are by now more than 1.25 million advertisements on the site) and the number of visitors.
 
Magazines
The Dutch magazine sector showed a decrease in both income from circulation (on average 7.6%) and income from advertising (on average 9.9%). In particular, the single-copy sales of almost all titles were under pressure, however without loss of market share. An increasing number of titles and consumer economizing are the cause of this. For the Swedish magazines, however, income from the readership and advertising market developed in a positive way. The activities in the Ukraine, at present comprising five magazines, will not be included in consolidation until the second half of this year.
 
Prospects
Because the long awaited economic recovery has failed to materialize and considering the uncertainty with regard to turnover development of the current product portfolio of TMG, even more attention will be devoted to cost reductions. In the second half of this year, further reorganizations cannot be ruled out.
 
At the same time attention continues to be focused on (international) expansion. In the present multi-media age, TMG continues to run up against the restrictions contained in the current media legislation in the Netherlands. This means that further growth of the group in radio and television in the Netherlands is still being limited. Therefore, next to our 27% share in the Dutch SBS Broadcasting B.V., it has been decided to also accrue an interest in the international parent company SBS S.A. With regard to this, somewhat less than € 29 million has been invested in shares of SBS S.A. during the first half of 2005. TMG is considering its position now that, according to the latest reports, SBS S.A. will be sold to a combination of financial parties. 
 
In addition, there is the Netherlands Competition Authority (NMa), which impedes the realization of further cost reductions at the regional daily newspapers in Limburg. Discussions with the NMa about easing the imposed constraints, are under way. The permission of “Brussels” for the merger of the regional daily newspapers in the Randstad within the joint venture of Wegener and PcM is a hopeful development in this matter.
 
The combination of the pressure on turnover and an unknown size of further reorganization measures once again prevent us from making a statement about a profit expectation for 2005. When the economy actually improves, the income from advertising and circulation of both printed and other media will improve with it.
 
Amsterdam, 31 August 2005.