A&N Media: Northcliffe Media
KEY DEVELOPMENTS
- Key advertising categories badly affected by the effects of the worsening economic conditions
- Continued growth in digital revenues
- Growth of 6% from European publishing activities
UK regional advertising markets in 2008 were exceptionally challenging as the impact of the credit crunch spread across the wider economy. On a like-for-like basis, underlying† revenues declined 11%, with the last quarter down an unprecedented 23%. On the other hand, our European businesses continued to grow, mainly fuelled by further progress from their digital activities. Overall, Northcliffe’s operating profit* was down 30% on a like-for-like basis at £64 million. In addition, exceptional costs of £7 million were incurred to restructure UK activities in response to contracting markets.
KEY FIGURES††
UK
The first signs of advertising weakness appeared towards the start of the financial year when growth suddenly stopped and then went into a gentle decline. The rate of decline then accelerated almost on a monthly basis.
In the property category, estate agents reduced their advertising budgets in early spring in the face of an ailing property market. The cutbacks have been so severe that in the month of September, property advertising was only half of that achieved in the previous year. Such a decline came as no surprise, given the reports that mortgage approvals in late summer were down by 70% on the previous year. In 2008, property advertising overall was down 22%.
Recruitment advertising declined by 11% during the year. This category performed reasonably well in the first half, registering a decline of only 1%. However, the growing uncertainty in the economy resulted in steeper falls in the second half of the year as businesses reined back on recruitment plans. In September, recruitment advertising fell by 30% on a like-for-like basis.
Motors advertising fell by 12% in 2008. For many years, this sector has been in decline in print due to online migration and structural changes in the industry arising from consolidation amongst the major franchise holders and increasing numbers of used car dealers going out of business. These factors were present in 2008. In addition, new car sales posted significant reductions in the September quarter due to fewer private buyers.
Other advertising categories fell by just over 3%, mainly as a result of retail declining by 8% in the second half of the year as consumer confidence declined. Leisure revenues were down 4%.
On a more positive note, digital revenues grew on a like-for-like basis by 42% to £17 million, representing 6% of all advertising income. During the year, Northcliffe consolidated its relationships with AND’s digital pure play businesses – Jobsite, FindaProperty and Motors.co.uk. This was evidenced through a heavyweight and targeted marketing support programme which included rebranding all print supplements to align with the digital products; investment in local and digital marketing; and renewed focus on digital only propositions by our sales teams.
Our alliance with Jobsite has resulted in Northcliffe becoming the online market leader for recruitment in most of its local markets. Considerable progress has also been made in online property advertising. Many of our sites now carry a larger inventory of homes in their area than the main online competitor, Rightmove. Within the online motors market, we are gaining market share from the market leader Autotrader through motors.co.uk in print and online. Indeed in some regions our trade inventory now exceeds our main competitors’ stock levels.
The national and local sales teams reported growth of 94% in digital display revenues on the back of offering higher volumes of inventory to a range of local and corporate advertisers.
During the year, the 'this is' network of local sites was re-launched on a new operating platform. This has improved search engine optimisation and facilitated the launch of many new sites. In total, our digital network now exceeds 150 sites. We continue to invest in media content generation and publishing systems, both in terms of technology and people as we move towards becoming a truly multimedia publisher.
This activity, combined with growing user generated content and continued marketing in our newspapers and online, helped lift the number of visitors across our entire digital network to over 3.3 million in September, up 35% on the previous year. Encouragingly, the time spent on sites and the frequency of use are also increasing.
Newspaper circulation revenues fell on a like-for-like basis by 3% to £73 million. Some cover price increases were taken during the year but, for others, price increases were delayed to minimise any adverse impact on sale.
Last year, we reported concern about the sales trend of larger weekly titles. They underperformed the industry average by 1.9% for the January to June 2007 ABC period. Thus, we stepped up investment. The introduction of local promotions, improved marketing and brand promotion, combined with an enlivened merchandising activity, helped improve performance. For the January to June 2008 ABC period, our weeklies were down 4.5% compared to an industry decline of just over 5%.
In contrast, our daily titles underperformed the industry average in the January to June 2008 ABC period, down just over 6% compared to an industry decline of 5%. In part, this was due to the closure of the last remaining sports editions of certain titles. This news is now carried online. The decline in recruitment and property advertising also had an adverse impact on sale.
During 2008, we changed the publishing model of two of our publications. The Bath Chronicle was successfully converted from a daily title, with an average sale of less than 12,000 copies, to a weekly title with a sale of 20,000 copies. Recently, the free and paid for titles in East Grinstead were combined under the new East Grinstead Courier and Observer masthead on a part free, part paid model.
In the Midlands, we developed a new local free title under the Messenger brand. This is targeted at attractive rural communities which advertisers want to reach. Each edition is distributed to less than 10,000 homes. Thirteen editions were launched in 2008. More are planned during 2009. All are profitable.
Central Europe
Northcliffe’s portfolio of print and digital business in Central Europe performed well, delivering local currency profit* growth of 6%. In sterling terms, its operating profit* rose 15% to £8 million with revenues up 20% to £43 million. On a like-for-like basis, the underlying revenue† increase was 5%. The growth came from the digital activities in the business.
In Hungary, profits* from our two regional newspapers, Kisalföld and Délmagyarország, grew by 6%. However, our portfolio of classified publications recorded profits only in line with last year as readers continued the migration to online.
Profits* from our Slovakian activities declined by 7%. Profesia, the market leading Slovakian recruitment website, continued to grow strongly. Revenues were up by 29%, most of which was reinvested in the expansion of its digital network in the Czech Republic and Hungary. The national daily, Pravda, recorded profits* below last year due to increased staff costs. Avízo, a classified print publication, also fell behind 2007 due to lower revenues.
In Croatia, the market leading recruitment website, MojPosao, which was acquired in March 2007, continued to exceed expectations.
New press capacity in Hungary is now on stream and will provide the opportunity to introduce more colour to our titles. We will also seek to expand our third party customer base for contract printing.
Outlook
UK advertising revenue trends deteriorated further in October 2008, down 28%. The gloomy economic outlook points to extremely challenging conditions for our key advertising markets in the coming year. A new regional operating structure has been implemented which should allow us to benefit from our scale in the South West and in the Midlands and North. We have reviewed all areas of expenditure and are in the process of removing significant costs.
* Adjusted operating profit (before exceptional items and amortisation and impairment of tangible assets).
† Underlying revenue or profit* is revenue or profit* on a like-for-like basis, adjusted for acquisitions and disposals made in the current and prior year and at constant exchange rates.
†† Percentages are calculated on actual numbers to one decimal place.