Business News

Axel Springer enters the second half in a strong position following the solid earnings growth in the first half of the year

Thursday 05. August 2010 - EBITDA margin rises to 19.1 percent / Earnings higher than previous year’s level in all segments / Group revenues grow by 8.7 percent / Digital media continues to grow dynamically / International share of Group revenues exceeds 25 percent for first time / Earnings forecast raised significantly

Axel Springer continued its positive business momentum in the second quarter and for the first six months of the year posted the highest half-year EBITDA in company history. The Group enjoyed an increase in profitability in all segments compared to the previous year. Axel Springer benefited from the growth of the digital business as well as from anticyclical investments in its brands, which, thanks to their strong market positions, were able to take advantage of the economic upswing in the domestic market as well as abroad. Continued cost discipline and lower raw material prices contributed significantly to the improvement of the earnings picture. Digital Media grew by approximately 66 percent through organic growth and consolidation effects, thereby making the segment the second-largest contributor to Group revenues again. For the first time Axel Springer generated every fourth euro abroad. Given the positive development of the business, the Management Board significantly revised upward its forecast for the full year on July 20, 2010.

The effects of the founding of Ringier Axel Springer Media AG were not yet included in the half-year financial statements. The new jointly owned company for the Eastern European business will be fully consolidated into the financial statements of Axel Springer AG as of July 1, 2010.

As previously announced on July 20, 2010, Axel Springer was able to achieve a 61 percent increase in earnings before interest, taxes, depreciation and amortization (EBITDA) adjusted for non-recurring effects and effects from purchase price allocations to EUR 261.2 million (previous year: EUR 162.3 million) in the first half of the year. The Group improved its EBITDA margin from 12.9 percent to 19.1 percent. Group revenues rose 8.7 percent to EUR 1,364.3 million (previous year: EUR 1,254.8 million). In addition to the inclusion of revenues generated by newly consolidated companies, the Group also recorded organic growth. Further to the strong growth in revenues achieved by Digital Media, also the segment Print International improved slightly. Due to these positive effects Axel Springer was able to more than compensate declining revenues in national print media.

Newspapers National reported a 20.1 percent increase in EBITDA with a slight rise in advertising revenues and with a decline in sales revenues. Magazines National were again able to increase their EBITDA margin to a new record level. International print media enjoyed an increase in revenues for the first time since the end of 2008 and achieved a double-digit EBITDA margin. Apart from the recovery in important markets, the cost-cutting measures implemented in 2009 significantly contributed to the strong increase in profitability. Digital Media not only enjoyed a considerable increase in revenues but also saw EBITDA more than double compared to the previous year’s figure.

Dr. Mathias Döpfner, Chief Executive Officer of Axel Springer AG, said: “Axel Springer achieved outstanding results in the first half-year with a strong growth in revenues. Our major print brands used their strong market positions to generate good returns despite substantial investments. This is also a result of the targeted strengthening of our journalistic quality and anticyclical investments in marketing activities. The half-year results also show that our long-term strategy of digitization is already paying off. Our digital activities remain the company’s most important growth driver and are generating double-digit yields. Based on this very strong performance in the first half of the year, we have again revised our expectations upward for 2010 in mid July. This is the second upgrade of the forecast within a period of only a few months.”

In view of the fact that earnings increased more than expected during the first half-year and the consolidation of revenues and earnings from the Eastern European joint venture with Ringier as of July 1, 2010, Axel Springer AG revised its outlook for the 2010 financial year as of July 20, 2010. If positive market developments continue during the second half of the year, the Management Board of Axel Springer sees an EBITDA in the range of the record financial year 2008 (EUR 486.2 million) as attainable. Axel Springer had previously only stated that the Group EBITDA would grow by significantly more than 10 percent compared to the previous year (EUR 333.7 million). The Management Board also anticipates a considerable revenue increase for the 2010 financial year to which the Eastern European joint venture with Ringier will also contribute in the second half of 2010.

Advertising revenues grow significantly – circulation revenues continue to decline

Circulation revenues for the first half-year amounted to EUR 556.4 million (previous year: EUR 580.4 million). This development also reflects the decline in circulation in the print titels. In contrast to the first half of last year, the current figures do not include revenues from the women’s and youth publications and the financial and business publications divested in 2009 and the current financial year respectively. Advertising revenues rose significantly by 18.7 percent to EUR 642.7 million (previous year: EUR 541.5 million). Digital Media constituted the largest driver of growth as earnings increased as the result of the consolidation of newly acquired companies as well as through organic growth. In addition, international print media and national newspapers enjoyed an increase in advertising revenues over the first half of the previous year. Axel Springer also reported a 24.4-percent increase in other revenues to EUR 165.3 million (previous year: EUR 132.9 million). This was primarily due to the consolidation of revenues from the software unit StepStone Solutions, which has since been sold off.

The international business continued to gain importance for Axel Springer during the reporting period. The foreign share of Group revenues rose from 19.9 percent to 25.8 percent. For the first time the Group generated every fourth euro in international markets. International revenues grew by 41.1 percent to EUR 352.3 million (previous year: EUR 249.6 million) primarily thanks to acquisitions in the digital segment. The revenue growth of international newspapers and magazines also contributed to this positive development.

Much like the same period of last year, consolidated net income for the first half-year was affected by diverse non-operating effects, however they had a stronger effect in the previous year. For the first six months of the current financial year Axel Springer reported a consolidated net income of EUR 170.3 million (previous year: EUR 267.3 million). Accordingly, earnings per share amounted to EUR 5.55 (previous year: EUR 8.84). Group net income and earnings per share adjusted for essential non-operating effects came to EUR 146.6 million (previous year: EUR 77.5 million) and EUR 4.90 (previous year: EUR 2.59) respectively.

Segments: earnings picture improved in all segments

The segment Newspapers National enjoyed a considerable increase in EBITDA and with revenues in the amount of EUR 584.4 million almost reached last year’s level (previous year: EUR 590.6 million). Advertising revenues rose to EUR 270.5 million (previous year: EUR 269.4 million) primarily due to the higher advertising volume of BILD and BILD am SONNTAG. A decline in circulation, however, led to a 2.3 percent decline in circulation revenues to EUR 300.1 million (previous year: EUR 307.2 million). Newspapers National were able to overcompensate for the moderate decline in revenues through lower expenditures and increased EBITDA by 20.1 percent to EUR 155.5 million (previous year: EUR 129.5 million). The EBITDA margin rose from 21.9 percent to 26.6 percent representing a very good level.

The segment Digital Media solidified its position as the second-largest contributor to revenues and as the Group’s growth engine. In the first half of the year the segment increased revenues by 66.3 percent to EUR 333.9 million (previous year: EUR 200.8 million). One of the main reasons for this were consolidation effects from StepStone and Digital Window (including buy.at). Both content portals and online marketplaces grew organically. Digital operations enjoyed a 72.1 percent increase in advertising revenues to EUR 250.1 million (previous year: EUR 145.4 million), other revenues grew 51.1 percent to EUR 83.8 million (previous year: EUR 55.5 million). The EBITDA for Digital Media more than doubled to EUR 40.2 million (previous year: EUR 16.9 million). The EBITDA margin rose from 8.4 percent to 12.0 percent.

The segment Magazines National generated an EBITDA margin of 23.8 percent (previous year: 12.1 percent) representing an all-time high. EBITDA improved by 81.8 percent to EUR 57.8 million (previous year: EUR 31.8 million). First of all cost-cutting measures introduced during the previous year and adjustments made to the publication portfolio contributed to this result. On the other hand, the sale of women’s and youth magazines together with financial and business publications were partly responsible for the 7.7 percent decline in revenues to EUR 243.0 million (previous year: EUR 263.3 million). Adjusted for consolidation effects, segment revenues declined only 1.9 percent. Magazines National generated circulation revenues of EUR 163.2 million (previous year: EUR 180.8 million) and advertising revenues of EUR 69.3 million (previous year: EUR 72.9 million). Adjusted for consolidation effects advertising revenues even rose by 1.5 percent.

The segment Print International benefited from an economic upswing during the second quarter with increases in both circulation and advertising revenues. During the first half of the year international newspapers and magazines achieved a 1.8 percent increase in revenues to EUR 154.3 million (previous year: EUR 151.6 million). Circulation revenues amounted to EUR 93.1 million (previous year: EUR 92.5 million); the advertising revenues of EUR 52.8 million were only slightly below the previous year’s figure (EUR 53.9 million). Especially the subsidiaries in Poland, Switzerland and Russia developed positively. The segment posted with an EBITDA of EUR 15.9 million (previous year: EUR 2.1 million) and an EBITDA margin of 10.3 percent (previous year: 1.4 percent) a significant increase in earnings.

The segment Services/Holding reported stable revenues of EUR 48.8 million (previous year: EUR 48.5 million) and an improved EBITDA of EUR -8.3 million (previous year: EUR -18.0 million).

Financial situation: net debt reduced

The cash flow from operating activities fell from EUR 115.8 million in the first half of the previous year to EUR 96.5 million. This was primarily due to the build-up of working capital (previous year: decline in working capital). The funds required for the founding of the Eastern European joint venture with Ringier are reflected in the increase in financial liabilities to EUR 485.2 million (December 31, 2009: EUR 390.3 million). Cash and cash equivalents rose from EUR 115.2 million at the end of 2009 to EUR 312.5 million. Net debt declined to EUR 172.8 million (December 31, 2009: EUR 193.0 million). The equity ratio of 40.7 percent remained at the same level as per the balance sheet date 2009. The number of employees increased to 11,025 (previous year: 10,749) primarily due to the inclusion of new companies.