Telegraaf Reports Weak 2012 Results


Telegraaf Media Groep reported weak full-year 2012 results due to continued weakness in the firm’s core newspaper business. Print media deteriorated faster than expectations, so management suspended its unrealistic 2016 financial targets (which projected EUR 800 million- EUR 900 million of revenue, and EUR 120 million-EUR 135 million of EBITDA by 2016).

Telegraaf’s old media operations continued to lose share against increasingly popular cheap online alternatives, and weak economic conditions in Europe have served to accelerate existing structural headwinds.

Organic revenue fell 6% to EUR 577 million (flat on a reported basis), as print and radio advertising sales fell 11% and 1%, respectively. Consequently, the firm’s adjusted EBITDA margin declined 360 basis points to 7.2% due to significant sales deleverage. Management stressed that Telegraaf is continuing to implement significant costreduction initiatives, and will accelerate the pace of these efforts in 2013.

Still, the firm is facing considerable structural headwinds, so the Telegraaf is expected to still report profitability declines due to falling revenue. Management is diversifying away from newspapers through acquisitions, but print media still comprises about 80% of the firm’s total sales.

Additionally, investors are skeptical that an inorganic growth strategy will generate attractive shareholder returns. Telegraaf recorded a EUR 36.5 million goodwill impairment on its Hyve business, which it acquired to grow the firm’s social media operations, and future acquisitions could just as easily impair shareholder value. Prosieben continues to perform very well, and Telegraaf’s 6% stake in Prosieben has grown to represent over 60% of the firm’s total enterprise value.

Still, while shares may appear cheap on a sum-of-the parts basis, we caution investors that Telegraaf’s historical capital allocation has been poor, so asset value may be eroded if management dedicates too many resources to struggling media operations, or poor acquisitions.


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