Business News

Axel Springer AG grows profitably in print and online segments

Thursday 13. March 2008 - Fourth record EBITA in a row / EBITA margin of 16.4 percent / Share of foreign revenues rises to 20.8 percent / Pro forma online revenues grow 38.6 percent / Charges incurred from PIN Group digested in 2007

During the 2007 financial year Axel Springer AG continued its strategy of market leadership in the core business, internationalization and digitization. These efforts led to the fourth record result in a row. Chief executive officer Dr. Mathias Döpfner presented the major operating and business successes of the 2007 financial year at the annual press conference in Berlin. At the same time shareholders can look forward to a record dividend. In a media sector characterized by structural challenges, Axel Springer continues to stand out as one of the most dynamic companies. Axel Springer saw revenues grow – in some cases significantly – in the segments of newspapers, magazines and digital media with earnings increasing significantly across the board.

Axel Springer saw Group revenues – as already reported on March 3, 2008 – rise by 8.5 percent to EUR 2,577.9 million (previous year: EUR 2,375.9 million). Adjusted for acquisitions, Group revenues rose 1.2 percent. Advertising revenues increased significantly by 14.6 percent over the previous year with circulation revenues growing by 1.8 percent. Pro forma online revenues rose by 38.6 percent to approximately EUR 221.7 million, thereby accounting for 8.6 percent of Group revenues. International activities generated 20.8 percent of total revenues (previous year: 16.1 percent), thereby accounting for more than one-fifth of Group sales for the first time.

On the earnings side Axel Springer enjoyed record results for the fourth consecutive year. Earnings before interest, taxes and amortization (EBITA) adjusted for non-recurring effects rose by 12.5 percent from EUR 375.0 million for the previous year to EUR 421.7 million. The Group was again able to strengthen its earnings power as is evidenced by the EBITA margin of 16.4 percent (previous year: 15.8 percent). The Group EBITDA also increased by 8.3 percent from EUR 433.9 million to EUR 470.0 million. Contributing significantly to this growth in earnings were the WELT Group / BERLINER MORGENPOST, which in 2007 recorded a profit for the first time in history, the HAMBURGER ABENDBLATT, the newspapers in Poland and the consolidation of Jean Frey AG (now Axel Springer Schweiz). Axel Springer saw its earnings grow significantly despite major investments in new launches and relaunches of its digital activities. The consistent focus on cost management also had a positive effect on the Group.

Axel Springer generated an income from continuing operations in the amount of EUR 284.0 million (previous year: 294.6 million). The decision to discontinue the expansion of activities in the postal service market led to income from discontinued operations of EUR -572.4 million. This in turn led to a Group net loss of EUR 288.4 million (previous year: Group net income of 290.8 million). Earnings per share amounted to EUR -9.78 compared to EUR 9.20 for the previous year.

CEO Dr. Mathias Döpfner said: “Axel Springer is stronger than ever in its core business. Our print business grew strongly and earnings increased again. The positive earnings contribution of WELT Group / BERLINER MORGENPOST is a very special milestone for us. The very encouraging development of newly acquired companies and certain existing digital operations prove that the structural change of the media sector offers us genuine opportunities. We want to achieve a new dimension in the development of the company through the digitization of our operations. For Axel Springer, digitization is already a real business and not just a future vision.”

In reference to the write-off of PIN Group, Döpfner said: “The decision to stop expanding into the postal services market was unavoidable due to the fundamental changes in the regulatory environment. But thanks to the strength of our core business, we were able to cope well with the necessary exit.”

The Management Board expects that 2008 will be better than the previous year with respect to EBITA und EBITDA following adjustment for the Kirch insolvency and dividends from the stake in ProSiebenSat.1 Media AG, which has been divested in 2007. The Management Board also forecasts another increase in consolidated revenues over the previous year. As is the usual practice in the capital markets, Axel Springer will focus on the EBITDA during the 2008 financial year as the key earnings indicator.

With regard to the business outlook, Döpfner said: “In 2007 we made significant progress in transforming our company from a print publishing house to an integrated multimedia company. auFeminin.com, zanox.de and wallstreet:online were important acquisitions that will contribute to sustainable growth in the digitized world. In 2008 we will again devote special attention to the successful digitization of our brands. From today’s perspective the focus here will be on the further development of existing assets.”

Sharp rise in advertising revenues – slight increase in circulation revenues

Combined circulation and advertising revenues rose by 7.8 percent during the past financial year to EUR 2,398.1 million compared to EUR 2,223.9 million for the previous year. Axel Springer saw advertising revenues rise sharply by 14.6 percent to EUR 1,207.5 million (previous year: 1,053.9 million). WELT GROUP/BERLINER MORGENPOST, the Polish daily DZIENNIK and publications in Russia were the biggest contributors to this increase. The first-time consolidation of zanox.de, Jean Frey, auFeminin.com, idealo.de, Smarthouse and wallstreet:online also had a positive effect. The advertising revenues grew organically by 1.2 percent.

The rise in circulation revenues of 1.8 percent to EUR 1,190.6 million (previous year: 1,170.0 million) was driven primarily by the acquisition of Jean Frey AG as well as the organic growth of DZIENNIK in Poland and the publications in Russia and Hungary. When adjusted for acquisitions revenues were slightly below the previous year’s figure. Other revenues increased by 18.3 percent to EUR 179.8 million (previous year: 152.0 million) due mainly to an increase in merchandise revenues at home and abroad.

The pro forma online revenues reported for the first time in 2007 reflect the success and strong growth potential of Axel Springer’s digitized operations. They contain the revenues of all online activities in all segments of the Group based on unaudited financial information. In 2007 pro forma revenues from online activities rose by 38.6 percent to approximately EUR 221.7 million. They accounted for 8.6 percent of consolidated revenues.

More than one-fifth of revenues generated abroad

During the 2007 financial year Axel Springer continued on its course of internationalization through acquisitions and organic growth. Group revenues generated abroad increased 40.2 percent to EUR 537.2 million compared to EUR 383.2 million for the previous year. The share of international revenues rose from 16.1 to 20.8 percent, thereby accounting for more than one-fifth of Group revenues for the first time as based on a full year. The main contributing factors to this growth were the first-time consolidation of Jean Frey, zanox.de and auFeminin.com as well as the increase in revenues in the growth markets of Poland, Russia and Hungary.

Print and digital media: significant increase in revenues and earnings

Axel Springer saw revenues and results rise in part significantly in the newspaper and magazine segments as well as in the new segment of digital media.

Revenues in the Newspaper segment during the 2007 financial year rose by 2.5 percent to EUR 1,493.1 million (previous year: 1,457.0 million). This segment accounted for 57.9 percent of consolidated revenues. Circulation and advertising revenues rose slightly with other revenues also increasing, thanks in part to the high level of merchandise revenues and the success of the BILD mobile portal. Despite a one-time expenditure for the discontinued preparation for the launch of a daily newspaper in France, the newspaper segment saw its EBITA improve by 10.5 percent to EUR 331.7 million (previous year: 300.3 million). The EBITA margin improved to 22.2 percent (previous year: 20.6 percent).

In the Magazines segment Axel Springer registered a 4.0-percent increase in revenues to EUR 814.1 million (previous year: 783.0 million). This segment accounted for 31.6 percent of Group revenues. Advertising revenues rose by 4.7 while circulation revenues grew by 2.9 percent. The EBITA in this segment grew by more than one-fifth from EUR 66.2 million to EUR 80.2 million with the EBITA margin rising to nearly 10 percent.

The new segment of Digital Media, which comprises the online activities without print brand affiliation and the Group’s radio and TV stakes, achieved the strongest year-on-year growth. Axel Springer enjoyed a six-fold increase in revenues here to EUR 152.3 million mainly due to acquisitions. The segment thus accounted for 5.9 percent of consolidated revenues (previous year: 1.0 percent). The biggest contributors were the acquisitions of zanox.de, idealo.de, auFeminin.com and Smarthouse as well as a significant increase in revenues registered by immonet.de. The segment’s EBITA rose to EUR 44.7 million (previous year: 22.1 million)

In the Printing segment external revenues from contract printing activities rose by 3.9 percent to EUR 45.1 million (previous year: 43.4 million). The EBITA from participations declined to EUR -3.2 million (previous year: 6.0 million).

The Logistics/Services/Holding segment saw external revues rise by 7.0 percent to EUR 73.3 million (previous year: 68.5 million). The EBITA declined significantly from EUR -19.5 million to EUR -31.7 million as a result of the decline in Kirch revenues.

Financial situation: high capital expenditures for acquisitions and organic growth

The equity ratio of Axel Springer as of December 31, 2007 remained at a solid level of 31.7 percent (previous year: 57.5 percent). The balance sheet total rose 22.5 percent to EUR 3,826.9 million compared to EUR 3,124.0 million at the end of the previous year. The Group finished the financial year with net debt of EUR 743.0 million compared to net liquidity of EUR 477.4 million at the end of the previous year. The main reason behind this change was an acquisition-related increase in financial liabilities to EUR 941.1 million (previous year: 111.3 million).

Cash and cash equivalents declined by EUR 390.6 million at the end of the year to EUR 198.1 million. Opposing tendencies were at work here. While the cashflow from operating activities rose to EUR 283.1 million (previous year: 253.5 million), the cash flow from investing activities in the amount of EUR 1,392.4 million (previous year: 47.2 million) was fueled by investment in organic and acquisition-related growth. With total capital expenditures of EUR 1,431.9 million, Axel Springer invested a total of EUR 926.7 million in consolidated subsidiaries, primarily in acquiring stakes in PIN Group AG, ZANOX.de AG, auFeminin.com S.A. and Jean Frey AG. By drawing down on existing credit lines the company generated EUR 747.1 million from financing activities (previous year: cash outflow of 202.5 million).

Milestones: WELT Group profitable

For the first time WELT Group / BERLINER MORGENPOST generated a positive result. Higher advertising revenues, strict cost management and a 4.4-percent increase in circulation of WELT / WELT KOMPAKT all contributed to this successful development. Following the relaunch in the first quarter WELT ONLINE exceeded all expectations with a 130 percent increase in page impressions and a 42 percent rise in visits. With 99.1 million page impressions per month (IVW), WELT ONLINE advanced to the no. 1 spot among premium newspaper portals in Germany, thereby outdistancing competitors Sueddeutsche.de and FAZ.net.

Within the BILD Group, Axel Springer succeeded in acquiring all stakes in Bild.T-Online.de, thereby increasing the range of strategic options available for positioning the core brand BILD on the Internet. Following organizational changes, the implementation of a product innovation process and the development of new marketing activities, bild.de was relaunched in December as a totally modernized portal. In 2007 bild.de further expanded its leading position among media portals in Germany.

In Poland Axel Springer ranked number one in the national daily newspaper market achieving a market share of 42 percent with FAKT and DZIENNIK. With DZIENNIK ONLINE, which was relaunched with an all-new look in November 2007, Axel Springer also operates one of Poland’s leading news portals.

TV DIGITAL, Europe’s leading TV guide for digital television, further strengthened its market leadership. With 1.9 million copies sold, the magazine is the second-largest publication in the TV guide segment in Germany.

In the digital media segment Axel Springer achieved the profitable market leadership among online offerings for women in France, Germany, Spain, Italy, Belgium and Switzerland with the acquisition of auFeminin.com. In December auFeminin registered 25.9 million unique users and 545 million page impressions worldwide. Zanox.de, a leading provider of performance-based online marketing, saw its revenues rise sharply in 2007, thereby further expanding its strong market position. Idealo.de, one of the leading price and product search engines, enjoyed a 91-percent increase in the number of listings with the number of generated transactions also increasing significantly.