annual r e p o r t

Transcription

1 annual r e p o r t 2005

2

3 annual r e p o r t 2005

4

5 CONTENTS LETTER FROM THE CEO LETTER FROM THE CHAIRMAN OF THE SUPERVISORY BOARD AGORA IN 2005 OUR STANDARDS PRO PUBLICO BONO ADVERTISING MARKET IN 2005 GAZETA WYBORCZA BOOK COLLECTIONS METRO INTERNET OUTDOOR ADVERTISING MAGAZINES RADIO 2005 FINANACIAL STATEMENTS

6 4 AGORA ANNUAL REPORT 2005 LETTER FROM the CEO Dear Shareholders, This annual letter is an occasion to take stock of the external and internal factors which affect Agora both the 2005 results, of which we are very proud, and the landscape ahead. First, the external environment. The Polish economy is showing a consistent and strong recovery pattern. In 2005, GDP growth accelerated as the year unfolded and generated a 12% increase in advertising spending. While this past expansion was primarily driven by exports, we now see increasing strength in the domestic leg of the economy: both company investments and consumer spending are growing. These are particularly good auguries for the advertising market. They lead us to expect that 2006 will be another year of two-digit growth of spending on media. How the different media segments will benefit from this increased pool of money depends on whether there will be changes in the media law regulating public television, which today dominates the market and holds the decisive pricing power. The Management Board of Agora is not sanguine about such changes happening in the current political environment. The current administration in Poland appears to be hostile to free media in general, and to Agora and Gazeta Wyborcza in particular. The media-unfriendly rhetoric of public officials includes calls for curtailment of many media freedoms, demediatization of politics, repolonization of media ownership, curbing of unfair and unjust criticism of politicians, and limiting ownership and decision powers of publishers. Alas, the rhetoric has begun to translate into legislative and administrative actions, adverse to both public and private media enterprises. Although the negative political atmosphere undoubtedly makes for a tougher operating environment, we in Agora have come to treat it as business as usual in this respect the new government is not that different from the one we faced in the post 2001 period. We expect skirmishes to continue; yet we are confident that the Polish independent media will again prevail over political duress. Poland is an attractive market and the level of competition is relentless, particularly from German publishers who face market and regulatory limits on domestic growth. After the fiasco of the ProSieben acquisition in Germany, Axel Springer is now focusing its resources on expansion in the CEE region and plans to launch a quality newspaper in Poland. As the space in the quality segment of the newspaper market is limited, the new title will aim to compete with the incumbents, among them Gazeta Wyborcza, the entrenched leader. The Management Board of Agora is not in the habit of taking competition lightly, particularly when it comes from a large publisher with deep pockets. The measure of our seriousness is how well we prepare for such eventualities. At the same time, competition in our market is, too, business as usual. Our team has dealt with it in the past and is prepared to face it again. The Agora team is our magic weapon. The team is uncommonly cohesive and dedicated. It also has the courage and wherewithald to develop innovative ideas and to implement them in a disciplined and fiscally responsible manner. New promotional strategies for Gazeta helped grow its paid circulation while that of virtually all other Polish newspapers declined. The unique editorial format of our free newspaper Metro made it, in a few months since it went national, #2 in readership in large cities and #4 nationally. Book collections which leverage Gazeta s brand became a very substantial and profitable business, our second largest, within a year of its inception. Thanks to successful launches of innovative magazine titles we now own the shopping magazine segment in Poland. The turn-around of the outdoor acquisition and the subsequent development of new business in outdoor is yet another example. Of course not all ideas work. Last year we launched a new mid-market newspaper. It did

7 Agora LETTER FROM the CEO 5 not gain the massive following necessary to meet business targets and was shut down in February. This, again, is business as usual in media. When new ideas succeed, we are pleased. When they fail, we react quickly, get over the disappointment and go on to the next thing. These qualities of the Agora team are key in dealing with competitive challenges. They are also an important foundation for the future for growing our company, for ensuring it has top quality leadership and for dealing with the most important challenge of all, i.e. successfully transforming our business for the brave new world of digital technology. Over the last few years we have grown our business via both acquisitions and de novo projects. We have the financial resources to continue the process, to invest in greenfields and to acquire media assets both in Poland and abroad. In Poland, our policy is to evaluate every opportunity. Abroad, we remain more selective on the size of assets, but have broadened our geographic horizons we are now ready to start looking beyond the CEE markets, to the West. In accordance with the policy announced last year, we will once a year evaluate the scope of investment opportunities over the next 12 month horizon against our financial position, and on this basis we will recommend the amount of cash to be returned to shareholders in any given year. In June we will say our fond farewells to the President of our Supervisory Board, Professor Sołtysiński. He has been our critical guide, staunch friend and sounding board-cum-helpmate for the past eight years; Agora owes him an immense debt of gratitude. Add to it the December 2005 departure of Professor Anna Fornalczyk and you will observe that the company has taken the first steps in the gradual succession within its governing bodies. The process of orderly transition will stretch over a number of years. Its goal is to ensure that Agora has in place the most talented, energetic and dynamic team possible to take it into the future. Because dealing with current business challenges is not enough. Agora s shareholders do not need reminding that the longer term success of media companies, and particularly publishers, rests on their ability to successfully reinvent their businesses for the digital era. The challenge for the industry is enormous. Meeting it requires a thorough understanding of constant customer needs and of new ways of meeting them; distinguishing unique value-added aspects of our products from commodities which can be more cheaply delivered by others; knowing what assets will be the key to success in the new reality and having the resources to amass them. Our job is also to wisely sort substance from hype. Since Poland is somewhat behind the curve in the adoption of new technologies, paradoxically we are in a privileged position we learn from our own work and receive the bonus of experience of our Western colleagues. When Agora became a listed company, it made a steadfast commitment to good governance, transparency, and investor relations. The investment community has repaid us handsomely by being a responsive partner. I would like to take this opportunity to thank you all for the ongoing dialogue, feedback and support. And please join me in warmly welcoming to the Supervisory Board of Agora two distinguished new members, Mr. Sławomir Sikora and Mr. Andrzej Szlęzak. Wanda Rapaczyńska President of Agora April 2006 Wanda Rapaczyńska Piotr Niemczycki Zbigniew Bąk Jarosław Szaliński President Deputy President Deputy President Chief Financial Officer

8 6 AGORA ANNUAL REPORT 2005 LETTER FROM THE CHAIRMAN OF THE SUPERVISORY BOARD Dear Shareholders, June of this year is the date of the expiration of my term on the Supervisory Board of Agora, on which I served from April 1998 and which I have had the honour to chair since June When I tendered my resignation at Agora s Annual General Meeting on June 22, 2005, I, in fact agreed to extend my service, in response to a request from the shareholders and the Supervisory Board who wanted me to participate for several more months in the preparation for succession in the Supervisory and Management Boards. It is with satisfaction that I am able to inform you that the market and financial position of Agora is strong and the company is recognized as one of the most trustworthy entities on the Warsaw Stock Exchange. Agora s shareholders and its governing bodies should derive particular satisfaction from the fact that this year Agora again received the highest ranking in corporate governance, The Grand Prix Corporate Governance title and the award for the best investor relations in Poland. We should also bear in mind that Agora pioneered many corporate governance standards, ahead of binding recommendations from the Stock Exchange and regulations. Since the company was listed at the Warsaw Stock Exchange, its Supervisory Board included independent members, the company has been publishing information on sales of shares by the members of the Management Board, and soon afterwards we put in place rules and regulations aimed at eliminating conflicts of interest. The Supervisory Board set up audit and compensation committees. Agora along with other media companies in Poland faces significant challenges. The presence of and competition from powerful foreign media groups is growing. Agora s exposure may be even higher, should these foreign entities receive support from the prevailing political factors in the country. The price Gazeta Wyborcza and TOK FM radio are paying for their independence and criticism are the attacks from both the left and the right of the political spectrum. The fact that Agora, the owner of the largest Polish quality newspaper, was deprived of the chance to acquire a television station resulted directly from Gazeta Wyborcza s critical publications. Still, conformity is not the prescription for how to deal with threats. As shown by the results of a poll conducted among Gazeta Wyborcza readers criticism, professionalism, objectivity and openness to a wide range of opinions are the way to go. Next to unquestioned successes, we have also recently recorded a failure. Despite thorough preparation and the optimistic results of market research conducted before Nowy Dzień was introduced, the launch of the new daily was not successful. That, however, does not mean we should abandon investments into new businesses. And, as the success of investment in AMS proves, there are opportunities to increase Agora s shareholder value in segments other than the press and radio. Currently, Agora must address several challenges. How should it react to the increasing capital concentration and competition from stronger foreign entities in the Polish press market, especially from Axel Springer? What should be Agora s market strategy in the light of the denial of access to the television market? A gradual but systematic preparation for the succession in the company constitutes the third challenge. The last task is undoubtedly very difficult, taking into account the achievements and prestige of the President of the Management Board, Mrs. Wanda Rapaczyńska. I am confident that the Management Board and the rejuvenated Supervisory Board are capable of handling these tasks. Agora faced difficult challenges on many past occasions and came out stronger, with expanded number of readers and listeners. I would like to take this opportunity to express my gratitude for your trust in me. I would also like to thank the members of the Management Board and the Supervisory Board for partner-like, professional and friendly cooperation. Stanisław Sołtysiński Chairman of the Supervisory Board April 2006

9 Agora LETTER FROM THE CHAIRMAN OF THE SUPERVISORY board 7 Stanisław Sołtysiński President Founding partner in the Sołtysiński, Kawecki & Szlęzak law firm. Member of the Civil Law Codification Committee Anna Fornalczyk Member Principal of Competition Development Center consulting, Member of the Committee on Competition and Consumer Protection In the Antimonopoly Office, professor of economics resigned on December 19, 2005 Sławomir S. Sikora Member President of the Management Board of Bank Handlowy w Warszawie S.A., Chief Executive Officer and Citigroup Country Officer for Poland appointed on December 19, 2005 Tomasz Sielicki Member President of the Management Board of ComputerLand S.A. Vice President of Polish Business Roundtable Louis G. Zachary Member Managing Director of Lazard Freres Sanford Schwartz Member Vice President of Business Development of Cox Enterprises, Inc.

10 8 AGORA annual report 2005 Agora in 2005 Highlights The launch of the Encyclopedia of Gazeta Wyborcza the largest collection in 2005 AMS broadens its offer Avanti The Debut of the Year, Media Trendy 2005 Agora Company with the Highest Standards of Corporate Governance awarded by Parkiet newspaper The launch of the campaign Having a Baby in Poland? sponsored jointly by the monthly Dziecko and the Foundation for Humane Birth 1 st quarter Justyna Dąbrowska of the monthly Dziecko awarded the Editorin-Chief of the Year in the Media & Marketing Polska ranking New Employment supplement Agora named the Publisher of the Year in the competition Partner of the Year 2005 sponsored by Ruch SA Gazeta Wyborcza s Yellow Pages start in Warsaw New collections: travel books and fairy tales 3 rd quarter

11 AGORA in Agora 2005 in figures Revenues Advertising sales Operating EBITDA Operating EBITDA margin Net profit Operating cash flow Free cash flow Employment at the end of year PLN 1.2 billion PLN 712 million PLN 253 million 21 percent PLN 127 million PLN 230 million PLN 186 million 3.6 thousand employees Metro broadens its coverage and increases circulation The debut of the quarterly Logo The collection Our Pope starts Javier Solana Gazeta Wyborcza s Man of the Year Agora receives ACCA certificate 2 nd quarter Andrzej Stasiuk wins the Nike Literary Prize 2005 for Jadąc do Babadag The start of Papal collection Gazeta Wyborcza The Daily of the Year Media & Marketing Polska The launch of Roxy FM radio Agora named the best in investors relations in Poland by IR Magazine Continental Europe Awards 4 th quarter

12 OUR STANDARDS Best pr ac tices

13

14 12 AGORA annual report 2005 Best practices Every year Agora receives recognition and awards for transparent and fair business practices. The company strives to ensure the highest standards of relations with investors, partners and employees. Corporate governance In 2005 Agora again received the title of Grand Prix in Corporate Governance. The Polish Institute of Directors grants this title upon the recommendations of Polish institutional investors. They evaluate public companies on the following criteria: transparency of capital structure, conduct of shareholders meetings, financial transparency, access to company information, the effectiveness of the Supervisory Board, as well as compensation of the Management Board. The company received the highest grade, A, in the corporate governance ranking conducted by the Polish Corporate Governance Forum ( in cooperation with Rzeczpospolita, and was one of the three highest rated companies. The ranking conducted by the PENTOR Institute and published in the daily Puls Biznesu, placed Agora at the top of Polish listed companies in categories: general and Management Board s competence. Investor relations Agora is appreciated for high standards of communications and cooperation with investors and analysts. The year 2005 brought more awards and distinctions. Once again the company received the prize for the best investor relations in Poland in the IR Magazine competition in the category IR Magazine Continental Europe Awards. The IR Magazine competition is regarded worldwide as a reliable measure of the quality of investor relations among publicly traded companies. Also for the second consecutive year, Agora was ranked the best in investor relations in Poland by the WarsawScan report prepared by NBS Public Relations. Agora was highly praised for the quality of information provided, credibility and transparency. The IR contents of Agora s corporate site, also received high marks. IR Magazine diploma Credible and trustworthy partner In the Partner of the Year 2005 competition organized by Ruch SA, the largest press distributor in Poland, Agora received the Publisher of the Year Award The competition s objective is to select the best salesmen and business partners. Persons running retail sales points which are either owned by Ruch or belong to its partner network, publishers and other contractors of Ruch participate in the competition. The Print Department of Agora is managed according to the Integrated Management System based on EN-ISO 9001:2000, EN-ISO 14001:2004 norms and OHSAS 18001:1999 specification. In 2005 Agora completed the transformation process in order to comply with the new environment norm EN-ISO 14001:2004 and obtained BSI certificate.

15 Agora OUR STANDARDS 13 Setting store by employees In June 2005 Agora was the first Polish company from a non-financial sector to be honored with the ACCA (Association of Chartered Certified Accountants) Certificate. ACCA accreditation is one of the most prestigious distinctions to be received by an employer. It confirms the quality of professional excellence and development programs offered to the company s employees. The ACCA Certificate has been awarded to only five companies in Poland. Agora appreciates the commitment and achievements of its employees and expresses this appreciation by granting employees distinctions and financial rewards. Since 2005 employees participate in a new incentive program. Distinguished employees are entitled to purchase Agora s investment certificates. ACCA certificate Agora s printing plant; The Publisher of the Year 2005 statuette Ruch award

16 PRO PUBLICO BONO Media with mission

17

18 16 AGORA annual report 2005 Media with mission We initiate and take part in national and local social and charitable campaigns. As media sponsor, we support the most interesting cultural projects and events. The Agora Foundation Since 2004 the Agora Foundation has centered and developed the pro bono activities of Agora and Agora-Holding. The objectives of the Foundation is to help gravely ill and handicapped children, co-sponsor stipend programs and support social campaigns run by Gazeta Wyborcza and Agora s other media. The Agora Foundation also co-funds third party organizations and programs, such as the Gutenberg Brotherhood or the Bishop Jan Chrapek Trace Award (Ślad). In March 2005 the Foundation received the status of a public benefit organization and opened a special subaccount for collection of 1% in tax deductions from both individuals and companies. The funds accumulated in 2005 in the amount of PLN were used to finance medical treatment of Polish children from Ukraine, ill with tuberculosis and scholarships for the most talented children in difficult economic conditions from the regions with the highest unemployment rate. In 2005 The Agora Foundation together with the Second Hand Bank Association managed the distribution of more than 700 used computers which the company donated to after-school programs, children s homes, educational institutions for blind children and organizations which publish books for the young. The program continues in Regional Campaigns Agora s media are eager to initiate and to join social and charity programmes aimed at helping the youngest and the neediest. Gazeta Stołeczna, Metro, AMS and Gazeta.pl participated in the Cow Parade program, the funds from which went for such purposes. AMS introduced a business social responsibility project AMS for Integration aimed to activate disabled people. The project was distinguished during Media Trendy 2006 contest. Golden Oldies Radio organized Holiday Golden Hearts Campaign and collected donations which were allocated to the neediest identified by the listeners of the station. Katowice editorial office of Gazeta organized the following campaigns in 2005: Chairs for Scholarships the auction of decorated chairs brought more than PLN 50 thousand for scholarships for the most talented and neediest Silesian students and campaign Light in School thanks to which more than 1000 Silesian children had their eyesight tested. Łódź editorial office of Gazeta collected funds from an auction of the non-standard advertising space in the Łódź edition of Gazeta and from the sale of mugs designed by Gazeta s readers. The money was presented to the Gajusz Foundation and ear-marked for the purchase of a car for the volunteers visiting patients in the Łódź Region Children s Hospice. Gazeta in Wrocław joined in preparation of Christmas presents for two thousand poorest children in Wrocław The laureate of a Brick from Gazeta collection for the Janosch Prize 2005 was Irek Dudek. The prize is awarded for significant contribution to shaping of Silesian identity

19 Agora PRO PUBLICO BONO 17 Culture Agora s media and the Agora Foundation are active in promoting the most interesting Polish cultural events. Gazeta Wyborcza is the co-founder of Nike Literary Prize. This annual prestigious award for the book of the year, has been granted for almost ten years. Nike was founded to promote Polish literature. Among the laureates of the Prize were: Andrzej Stasiuk, Wojciech Kuczok, Jarosław Marek Rymkiewicz, Joanna Olczak-Roniker, Jerzy Pilch, Tadeusz Różewicz, Stanisław Barańczak, Czesław Miłosz, Wiesław Myśliwski. The Agora Foundation finances the publishing of Zeszyty Literackie, a literary quarterly which for the past 20 years has popularized Polish émigré literature and promoted the most interesting Polish literary debuts. AMS contributed its panels to exhibit posters with a two-week repertoire of Warsaw theatres. Radio TOK FM was again the media patron of the well-known Warsaw theatre TR Warszawa (former Rozmaitości) and XV International Theatre Festival MALTA in Poznań. Local editions of Gazeta Wyborcza support cultural activity in their regions organizing rankings and plebiscites such as Best in Culture in Częstochowa, Inhalations in Warsaw and The Storm of the Year 2005 in the Gdańsk Tri City Region. Gazeta Wyborcza and other Agora s media support regional cultural events by media sponsorships of many institutions and events. Transparent Poland we have seen a difference The aim of the campaign was to promote transparency and improve standards of public life. The campaign was initiated in 2004 by Gazeta Wyborcza and conducted with a support of The Polish-American Freedom Foundation, the Anti-Corruption Program of the Stefan Batory Foundation, the Foundation of the Development of Local Democracy, Center for Civic Education and the World Bank. The audiences of the campaign were local governments, supported by the citizens and non-government organizations, who strive to improve governing and administrating by reducing corruption and other pathologies. Transparent Poland was a great success over 700 local governments applied. Having fulfilled the obligatory and additional tasks, more than a half of the submitters completed the program. The tasks reflected six principles of good government: transparency, predictability, accountability, professionalism, zero tolerance for corruption, civic participation. The success of the campaign paved the way for similar programs in Ukraine, Georgia, Azerbaijan and Bosnia. It is also likely such programs will soon start in Moldavia and Lithuania. Andrzej Stasiuk was the winner of 2005 Nike Prize for his novel Jadąc do Babadag At the beginning of 2006, representatives of 403 Polish local authorities received in Agora s Warsaw headquarters certificates of completion of the Transparent Poland campaign 2005

20 Advertising market in 2005 HIGHER SPENDING ON MEDIA

21

22 20 AGORA annual report 2005 HIGHER SPENDING ON MEDIA Another year of growth in the advertising market in Poland. According to Agora s estimates total spending on advertising in 2005 increased by 12% and amounted to ca PLN 5.6 billion. Spending on all media increased, with TV leading the way. TV took 48% of all advertising budgets for the period, 11% more than the year before. As a result, by the end of the year, TV stations were operating at very high inventory sell-out rates. Outdoor advertising segment experienced record expansion due to high spending on autumn election campaigns. Revenues grew by 26% in comparison with the previous year. Spending on radio advertising increased in 2005 by 12%, mainly thanks to the local radio stations. Last year, especially its early part, was very good for press advertising. Advertising sales of dailies grew by 11% and amounted to 17% of all advertising spending for the period, while the advertising sales of magazines amounted to almost 18%. Improvement in advertising sales of dailies was a consequence of the dynamic growth of revenues in the national dailies (16%). National dailies benefited from the increased advertising activity of supermarkets and other retail chains, telecommunications campaigns, as well as the growing number of recruitment ads and official tender announcements. However, in the fourth quarter of 2006 the growth of advertising spending on dailies rapidly lost momentum (growth of 4.5%). This worrisome trend in the daily paper market was a result of an almost 20% decline in the largest categories automotive and finance. In the

23 Agora Advertising market in case of the automotive sector, the crisis reflected a serious decline in sales of new cars, while financial sector was focused on reaching mass audience with mortgage loan offers, and thus decided to switch their budgets to television. In consequence of the increased demand for advertising, television virtually sold out its prime time. The increase in demand led to real rate increases in most TV stations, which together with the growth of TV audiences boosted the advertising appeal of the medium Prospects According to Agora s estimates, the growth of advertising spending will continue in The total spending on advertising in the period will increase by ca 10%. Spending for TV advertising will grow by ca 13%, reflecting changes in rate card structures, the rise of real advertising rates and the growing audiences of some TV stations. Due to lower than expected spending for advertising in the dailies in the fourth quarter of 2005, Agora estimates that the revenues from dailies in 2006 will underperform the total advertising market (growth of 7%). This is a particularly soft estimate as the advertising spending on dailies depends on the number of titles and their rate strategies. Outdoor advertising spending will grow by ca 9% in The lower growth rate in this sector is a result of a very high 2005 basis. We expect radio stations to increase their revenues from advertising by ca 10%. ad marekt structure in TV 48% magazines 18% newspapers 17% radio 9% outdoor 8.5% % share 0% 10% 20% 30% 40% 50% 2005 advertising spending growth by segment yoy% change outdoor 26% radio 12% newspapers 11% TV 11% magazines 8% % change 0% 5% 10% 15% 20% 25% 30% Source: Agora s estimates corrected for average discount rate (data in current prices). The estimates refer to advertising expenditures in four media (TV, print, radio and outdoor). The estimates are based on rate card data of AGB Polska monitoring, CR Media monitoring, Expert Monitor monitoring, Agora monitoring and IGRZ monitoring

24 GAZETA WYBORCZA OPINION-LEADER, STRONG AND CREDIBLE

25

26 24 AGORA ANNUAL REPORT 2005 OPINION-LEADER, STRONG AND CREDIBLE For the past 17 years Gazeta Wyborcza has been one of the animators of the public debate in Poland and remains the most widely read quality newspaper. The continued trust of its readers Gazeta owes to the high quality journalism, as well as to dynamic promotion and the attractive advertising offer. Copy sales grows 1 The readers confidence in Gazeta is best reflected in the results of its copy sales. In 2005 the average sales of Gazeta increased by 2.7 % and amounted to 448 thousand copies, while the total paid circulation of all dailies declined by 2.4 % (excluding Nowy Dzień). Sales of important national and nearly all regional dailies decreased. Gazeta is the leader in newspaper advertising 2 In 2005 Gazeta Wyborcza continued to be the most popular newspaper with advertisers and maintained its leading position in the daily advertising market. Gazeta s share in the display advertising market in national, Warsaw and local dailies amounted to ca 41% and was down by 1 pp compared to The growth in share of tabloid newspapers in the national advertising market and the national offer of free dailies, primarily of Agora s Metro, led to a decline of share of the quality newspapers. In the local dailies market (excluding Warsaw), for the past two years, Gazeta Wyborcza has recorded the highest growth rate of advertising sales. In the fourth quarter of 2005 Gazeta increased its share in this market by ca 2 pp. In 2005 Gazeta worked on the enhancement of its advertising offer. The project was implemented in the beginning of It was modeled after the sales methods of the bigger international publishers. Gazeta s share in newspaper advertising market Gazeta Wyborcza offers its clients novel forms of advertising Gazeta Wyborcza 41% Rzeczpospolita 9% Fakt 6% Super Express 4% Metro 1% others 39% Source: Agora, estimated data corrected for average discount rate based on the monitoring of Agora, ZKDP (Circulation Audit Office), paid circulation 2 Agora, estimated data corrected for average discount rate based on the monitoring of Agora