We left behind another tough year.

Transcription

1 T H E A D V E R T I S I N G M A R K E T 14 We left behind another tough year. Advertising recession and the price war, led by public TV, severely affected the newspaper market. home (down 27.6%) and employment (down 24.2%). The least affected were FMCG (up 6.4%) which tend to advertise on TV. TELEVISION GROWS MARKET SHARE n Aggressive competition among media led to a discount war. The RECESSION n During the past two years advertising spending in Poland declined level of discounts, which we estimate at an average of 65% in 2002, was set by public TV, subsidized by license fees. by 16%, while the print marked decreased by 24.8% and its daily newspaper segment by 30%. n Within the last three years, public TV gained 8 pp of share in the TV market and 9 pp of share in the total advertising spending. n The decline of the advertising market was much steeper than economic slowdown. It may be that Polish companies, less n TV advertising became very cheap and attracted typical experienced in dealing with poor economic environment, reacted newspaper advertising categories (i.e. retail and construction). more strongly than the economy would warrant. n Hence, spending for print media declined more strongly than for n The largest declines were seen in the advertising categories which reflect the health of the economy, i.e., automotive (down 15.8%), TV. In 2002, spending for print shrunk by 19.1% and for its newspaper segment by 22.2%.

2 15 T H E A D V E R T I S I N G M A R K E T n Magazines were less affected (down 14.8%) mainly thanks to better performance of their key advertising categories such as food, entertainment and home decorating. n Cheap TV ads combined with a ban on outdoor beer advertising hurt the outdoor market PROSPECTS On the assumption of the 2.5% GDP growth, we forecast that in nominal terms, total advertising spending will be flat to 2002.

3 A G O R A T O D A Y G A Z E T A W Y B O R C Z A 16 Gazeta Wyborcza is 14 years old. With over 5 million readers, it is the leading opinion making daily in Poland and a significant business. Stanisław Turnau, Deputy Head of Publishing Division STRONG POSITION IN THE TOUGH MARKET In 2002 Gazeta continued implementing its recession appropriate strategy. We did not participate in the price war. We maintained advertising rates, allowing advertising volume to decline. The strategy paid off: n Gazeta s share in the paid daily newspaper market increased by 0.6 pp to 47.8%. n The newspaper s advertising revenue per page remained flat on n Gazeta s share in copy sales of general interest national dailies was up by 0.7 pp and reached 43.3%. n Gazeta s newsprint and printing cost before D&A amounted to PLN million and was down by 19.3% over last year. n EBITDA margin stood at a satisfying level of 30.1%. A NEWSPAPER FOR THE YOUNG, THE ENTREPRENEURIAL AND THE OPEN-MINDED Gazeta Wyborcza has 5.2 million readers all over Poland. We ceaselessly work on improving the newspaper as the needs of our readers and advertisers evolve. n In May 2002 our color magazine metamorphosed into Duży Format (Large Format). Together with a new title we changed the formula and content of the magazine. n In September Gazeta s thematic supplement Kujon Polski (Polish Swot) was expanded to include local pages, which allow for coverage targeted at local communities. The Swot is a vehicle for Gazeta s interaction with its youngest readers. n On 4 October redesigned Gazeta Telewizyjna (TV Guide) hit the newsstands. We decreased its format from A3 to close to A4. We also introduced some content innovations. Our readers like the format. The average copy sales of the Friday edition increased from ca 600 to 670 thousands copies. n Practical guides, maps and free gifts were effective support of

4 GAZETA WYBORCZA REVEALED AN ATTEMPT TO EXTORT A BRIBE FROM AGORA IN EXCHANGE FOR A FAVOURABLE MEDIA LAW. THE THIRD DAY OF ADAM MICHNIK S TESTIMONY IN FRONT OF THE INVESTIGATIVE COMMITTEE OF THE PARLIAMNENT. PHOTO BY MICHAŁ MUTOR / AGENCJA GAZETA

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6 A G O R A T O D A Y G A Z E T A W Y B O R C Z A 18 Gazeta s copy sales. The Easter edition with the attached CD with Arka Noego songs sold 1.2 million copies (82% more than the previous Friday). n In 2002 we completed a year with a new business section in Gazeta. The first anniversary was celebrated with a special issue containing a 24-page economic forecast for Poland. n The Gazeta Wyborcza unique and dynamic formula gives the paper the highest reach among young, well-educated and more affluent people. authors of this article Tomasz Patora and Marcin Stelmasiak from Łódź branch of Gazeta, as well as Przemysław Witkowski from Radio Łódź who revealed a major scandal in Łódź medical emergency service, received Kurt Schork Award in International Journalism. The contest was organized by the prestigious School of Journalism at Columbia University in New York, Reuters and the Kurt Schork Foundation. n In December 2002 Gazeta Wyborcza revealed an attempt to extort from Agora a bribe of USD 17.5 million in exchange for a favourable media law. The public prosecutor is investigating the JOURNALISM THAT MATTERS n 2002 was the year of Poland s negotiations with the European Union. Gazeta Wyborcza attentively followed the process. The coverage included two critical reports, which summarized the progress of Polish negotiators. matter, while a special investigative committee of the Parliament is conducting its own hearings. We hope that these inquiries will help to unveil the whole truth about the background of this scandal. We hope that our publication will have served to improve the standards of business conduct in Poland. n Gazeta Wyborcza s journalists investigated and publicized major public scandals of The most famous among investigative pieces, entitled Łowcy skór (Skin Trade), echoed beyond Poland. The

7 GAZETA WYBORCZA ATTENTIVELY FOLLOWED POLAND S NEGOTIATIONS WITH THE EUROPEAN UNION. POLISH NEGOTIATORS RETURN FROM THE COPENHAGEN SUMMIT. PHOTO BY WOJCIECH OLKUŚNIK / AGENCJA GAZETA

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9 A G O R A T O D A Y F R E E N E W S P A P E R S 20 In response to a competitive threat, in October 2001 Agora entered the free newspaper market. Our goal was to strengthen Gazeta s readership and advertising position in local markets. Jarosław Matuszewski, Marketing Director of Gazeta Wyborcza METRO In 2002 our free newspaper Metro was distributed in Warsaw, Wrocław; starting from April, also in Katowice agglomeration. n Our Warsaw Metro did well. In April 2002 we increased its circulation three fold to 150 thousand copies. In the last quarter of 2002 Metro s advertising revenue in Warsaw free newspaper market more than doubled compared to the fourth quarter of n As of April 2003 we have been publishing the Warsaw Metro in the circulation of 150 thousand copies. For that period, Metro s revenue exceeded its production, distribution and editorial cost. n In Wrocław Metro suspended publication following poor goal was to attract new readers via broadening the reach of Gazeta Wyborcza and to enrich our advertising offer. n We also publish the free-of-charge weeklies: Gazeta Wyborcza Tydzień w Bydgoszczy (Gazeta Wyborcza A Week in Bydgoszcz), since April 2002, Gazeta Wyborcza Tydzień w Toruniu (Gazeta Wyborcza A Week in Toruń), since March 2003 and Gazeta Wyborcza Tydzień w Białymstoku (Gazeta Wyborcza A Week in Białystok), since April performance. FREE GAZETA WYBORCZA n In line with its marketing strategy, until December 2002, Agora published Bezpłatna Gazeta Wyborcza (Free Gazeta Wyborcza) in five Polish cities: Łódź, Gdańsk, Kraków, Poznań and Szczecin. Our

10 IN 2002 JOSCHKA FISHER, MINISTER OF FOREIGN AFFAIRS AND VICE-CHANCELLOR OF GERMANY RECEIVED GAZETA S MAN OF THE YEAR AWARD. THE LAUREATE IN THE EDITORIAL OFFICE OF GAZETA WYBORCZA. PHOTO BY SŁAWOMIR KAMIŃSKI / AGENCJA GAZETA

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12 A G O R A T O D A Y R A D I O 22 In 1996 we made the strategic decision to invest in local radio stations. Today we are the third largest commercial radio operation in Poland. Marek Michalski, Deputy Head of Radio Division STRONG POSITION IN THE RADIO MARKET We are the leading local radio player and the third largest commercial radio enterprise in Poland both in terms of ad revenue and audience share. n In 2002 ad revenue of our local radio group increased by 17.2%, while the radio advertising market declined by 2.8%, and its local segment by 13.8%. n Our local stations command 12.2% share in the total radio advertising market and was up 2.0 pp over last year. to our new station Twoje Radio from Zielona Góra. We increased our stake in Radio Mazowsze, Radio Echo and Radio Pomoże. n In 2002 several of our radio stations went through re-licensing process. The first five were granted new licenses. n The National Broadcast Council refused to renew the license of Twoje Radio Wałbrzych, despite the protest of the employees and listeners of the radio. Once all the possibilities to appeal had been exhausted, we turned off the transmitter. We sued the decision of the Council in the Supreme Administrative Court. We are waiting for its ruling. NEW FORMATS THE RADIO GROUP IS GROWING The local radio business needs adequate scale. Hence, Agora continues to invest in radio stations. We started 2002 with 19 stations. Today the group comprises 28 local stations (including 2 associated). n In 2002 Agora purchased stakes in Radio Wielkopolska, Radio Top, Radio Klakson and Radio Plus. The license was granted Agora is spearheading the modernization of the Polish radio market. Our strategy of formatting radio stations based on research is now widely emulated. n We use precise market research to find a program format which best meets the listeners needs in the competitive framework of the local market.

13 23 R A D I O A G O R A T O D A Y n We discover and fill market niches. In 2002 Agora introduced three new formats in 10 stations: n 6 stations started broadcasting Hot Adult Contemporary music under a common name Blue FM. n 3 stations are playing rock music. n In Poznań we launched Kiss FM radio in the Rhythmic Contemporary Hit Radio format. EFFECTIVE ORGANIZATION Our new organizational structure helps effectively manage growing number of stations with over 420 employees. n In 2002 we put in place a regional structure. We also appointed coordinators for each format. n We built a national sales department. It represents our radio group to national radio brokers and advertising agencies.

14 A G O R A T O D A Y M A G A Z I N E S 24 Our entry into color magazines is an important step in our publishing expansion strategy. We enriched our readership and advertising offer by acquiring a group of well known and well liked magazines. Marek Jackiewicz, Head of Magazine Division ACQUISITION n In April 2002 we signed an investment agreement to purchase the enterprise of Proszynski i S-ka Czasopisma Sp. z o. o. We acquired 12 magazines. n In October 2002 we acquired 4 additional automotive titles. We also incorporated into Agora City Magazine Sp. z o.o., the publisher of free-of-charge monthlies City Magazine. SIGNIFICANT GROWTH POTENTIAL The advertising share of Agora s magazines does not reflect its readership reach. It means that our titles have significant ad revenue growth potential. n In 2002 the total revenue of Agora s magazines amounted to PLN 67.4 million, split evenly between copy sales and advertising. n The average monthly circulation of our magazines was 1.5 million copies. n Every fifth adult Pole reads one of our magazines. According to Seasonal Circle Readership survey, our magazines reach in 2002 was 21%. n Agora s share in the magazine advertising revenue amounted to 4.4%. INTEGRATING NEW BUSINESS Before the transaction with Prószyński i S-ka was completed we created a Magazine Division of Agora, which is responsible for City Magazine and for the 15 other titles. We have taken advantage of our publishing structure to optimize cost of new operations. Savings will be used for promotion. n We set up publishing groups comprising 3 to 6 titles and appointed publishers. n We created a marketing department which includes market research. n We created shared graphic studio and a joint production coordination department.

15 25 M A G A Z I N E S A G O R A T O D A Y n Gazeta s distribution department team is responsible for the n In March 2003, a face-lifted Poradnik Domowy (Good Agora's magazines distribution of magazines, while Gazeta s photo department will provide photographic services. n Accounting, finance, production and technology services are provided by appropriate Agora departments. n Since June 2002 our magazines have been actively promoted in Gazeta Wyborcza and Agora s radio stations and, since 2003, on AMS billboards. Gazeta and internet portal place ads in our magazines. OUR GOALS FOR 2003 Our goal is to grow revenue by 20% in 2003 and to reach EBITDA break-even in The main tasks include improving editorial and graphic quality of all the titles. We will actively promote our magazines introducing a new client communication strategy. We have already made a significant headway toward these goals. n On February 28, 2003 Agora launched Auto+, a new magazine which replaced Motomagazyn. The first two issues of Auto+ each Housekeeping) hit the newsstands. The monthly has a new layout, new logo, larger format and is printed on better paper. The first issue sold 500 thousand copies. n In April 2003 Wiedza i Życie magazine (Science and Life) received a new layout and logo. The preliminary data on copy sales are promising: 90 thousand copies sold during the first five days. 12 monthlies: Poradnik Domowy, Cztery Kąty, Ładny Dom, Dziecko, Kuchnia, Lubię Gotować, Kwietnik, Ogrody, Wiedza i Życie, Auto+, Świat Motocykli, City Magazine (free-of-charge) 1 quarterly: Bukiety 3 annuals: Motocykle Świata, Świat Skuterów, Biblioteka Świata Motocykli. sold 80 thousand copies.

16 A G O R A T O D A Y O U T D O O R A D V E R T I S I N G 26 In the fourth quarter of 2002 Agora acquired AMS the leader of the Polish outdoor market. We now have a strong position in another advertising segment. Piotr Parnowski, President of AMS ACQUISITION n On August 27, 2002, in off-session block transaction, Agora purchased 11.89% of AMS share capital representing 9.99% of total votes. n Three days later, Agora acquired further 4.74% of share capital of AMS, representing 19.93% of all votes. n On September 20, 2002 Agora announced a public tender to subscribe for AMS shares at the price of PLN 44 per share. n After the settlement of the second tender, Agora holds 99.48% of AMS share capital. AMS THE LARGEST OUTDOOR COMPANY IN POLAND n In 2002 rate card share of AMS in outdoor advertising reached 28.6% (the data covers 12 largest cities). n The AMS share of all panels sold was 35.5%. n Total 2002 revenue of AMS group was PLN million. AMS IN AGORA GROUP Agora provided AMS with financing while the new Management Board of AMS appointed in September 2002, has been implementing a set of restructuring measures. n We integrated the sales team which now offers all types of panels and beefed up the team with experienced sales professionals. n We introduced changes in the sales policy and began building client relationships. n We reviewed and strengthened the Warsaw panel system. In December we purchased from Rainbows sp. z o.o. 39 faces of high quality backlight panels located in the best areas of Warsaw. n We set up 13 restructuring teams. We are reviewing all cost categories to optimize cost structure. n We are reviewing suppliers offers via tender process and renegotiating lease contracts. We are seeing the first encouraging results. n We restructured the AMS debt and improved its balance sheet. In the first quarter 2003, AMS paid off its loans from Agora in the

17 IN 2002 AGORA ACQUIRED AMS, POLAND S LEADER IN OUTDOOR ADVERTISING. AMS BILLBOARD CAMPAIGN POZNAŃ YOURS TO DISCOVER. PHOTO BY ŁUKASZ CYNALEWSKI / AGENCJA GAZETA

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19 A G O R A T O D A Y O U T D O O R A D V E R T I S I N G 28 amount of PLN 35 million and decreased the balance of loans due to the Agora Group to PLN 30 million. Agora increased AMS s share capital by PLN 30 million GOALS AMS has built a strong position in the high quality panels. We continue this strategy. Our goal is to reach EBITDA break-even in n Since fixed cost represent a majority of cost in the outdoor business, the outdoor companies are more affected by advertising slumps. We expect the company to quickly regain profitability when the market turns around. It will take time to generate net profit, but we remain patient, since AMS is a long-term investment. n We will be active participants in consolidation of the outdoor market if attractive opportunities arise.

20 THE ACQUISITION OF AMS ENRICHED AGORA S ADVERTISING OFFER. LARGE FORMAT SUPPLEMENT TO GAZETA ADVERTISES ON AMS BILLBOARDS. PHOTO BY ALBERT ZAWADA / AGENCJA GAZETA

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22 A G O R A T O D A Y I N T E R N E T P O R T A L 30 The Internet know-how and the technological platform built for the portal serve all of Agora s businesses. Jan Jaworowski, Head of Internet Project PORTAL OF DEMANDING USERS Gazet.pl has the fourth largest number of users among Polish portals. Visitors are relatively older, better educated and have higher incomes. We continue to enhance our service to meet their needs. An attractive target combined with a rich advertising offer helps grow revenues. n We have built one of the best information services in the Polish Internet. In addition to news, we provide access to newspaper s archives, comments and photos, animations, sound and interactive tools. n We are enhancing our advertising offer Gazeta.pl is one of the best on-line classified services in Poland. n We are constantly improving the quality and functioning of our TECHNOLOGICAL PLATFORM Gazeta.pl helps enhance advertising and content offerings of our other media segments. It serves as the technological base, a promotional space and a platform for reader interactions. It supports Agora's social campaigns. n Portal technology is closely related to Gazeta s editorial system. Editorial materials go simultaneously to both paper and on-line edition of Gazeta. n The portal's technology is used by service, the corporate pages of Gazeta Wyborcza and magazines. n The portal also hosts the pages of The school with class social campaign. service. In 2002 we restructured the portal, while maintaining its uniqueness and positioning. n We keep adding new services. Last year we launched: Centrum Finansowe (Financial Center), Co Jest Grane (What's up), DVD, Unia Europejska (European Union) and newsletters. AWARDS n Readers of Komputer Świat (Computer World) weekly named our World Cup service The Event of the Year. n Media & Marketing Polska monthly named Gazeta Wyborcza Online The Website of the Year 2002.

23 WE CONTINUE TO ENHANCE OUR INTERNET SERVICE TO MEET THE NEEDS OF OUR USERS. CHAT WITH GRZEGORZ JARZYNA, A THEATRE DIRECTOR. PHOTO BY WOJCIECH OLKUŚNIK / AGENCJA GAZETA

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25 A G O R A T O D A Y T E C H N O L O G Y 32 Growth of the company means changes. Growth of technology makes them happen. The technology division consists of seven closely cooperating departments (areas) which provide system support for production of Gazeta, as well as all the processes in the Company. n For 2003 we plan to introduce electronic document circulation and e-signature in the finance and HR divisions, and to complete the integration of printing cost calculation. TELECOMMUNICATIONS SYSTEMS AREA is responsible for We select advanced PRODUCTION SYSTEMS AREA provides IT production developing and maintaining Agora's Wide Area Networks. system solutions management in the printing plants. n Agora s Wide Area Network is more than 4300 km long and connects which will support our growth in years to come. Michał Przewłocki, Head of Technology Division n Automation of print planning allows for better print capacity utilization and distribution optimization. The system collects production information which facilitates analysis of production costs and materials consumption. n In 2002 we implemented Print 4 system which automatically presets the printing presses. The system is in place in the Warsaw printing plant. We are getting ready for its implementation in Piła and Tychy. FINANCIAL AND HR SYSTEMS AREA supports finance and human resources functions. n Last year we implemented integrated financial (ERP) and payroll (HRMS) systems in Agora and selected subsidiaries. all branches, printing plants and radio stations. It is used to transmit information, advertisements and newspaper pages to printing plants. n A specialized system allows us to data transmissions based on their business value and technological requirements. In all of Agora s locations and in most of the subsidiaries we employ Voice over IP technology. n Last year, in our new Warsaw building, we built one of the most advanced and largest Local Area Networks in Poland. PUBLISHING SYSTEMS AREA consists of several specialized administrator groups managing different systems. n The Advertising Sales System of Gazeta Wyborcza is used by around 600 people. In 2002 it was made available to the

26 33 T E C H N O L O G Y A G O R A T O D A Y Magazine Division. The system serves Agora s sales forces, as well as licensed advertising offices. It registers up to 17 thousand orders and issues up to 3 thousand invoices daily. n In 2002 the group of programmers created general systems, including the program for on-line advertising space booking and management and the Central Invoicing System. ANALITICAL AND REPORTING SYSTEMS AREA supports controlling publishing and printing processes. Agora has one of the most advanced controlling systems in Poland. n In 2002 we completed the implementation of the budgeting system. The new system allows the management to access budget and actuals at any level of aggregation. SERVICES AND SUPPORT AREA consists of helpdesk, IT and exchanges, the corporate billing system (4500 users) and 1200 company mobile phones. n As a backup to the main server room in Agora's premises, we built a remote server room. In case of failure of the main location, the backup location is prepared to serve all operations of Gazeta. EDITORIAL AND PREPRESS SYSTEMS AREA supports editorial process at all stages, from creation of a news story to preparation of materials for print. n In 2002 we switched production of Gazeta Wyborcza to PDF format. The change improved the speed of data transmission, reduced servers workload and enabled staff to intervene in the editorial material at every stage of production. In 2002 Agora and Agora-Poligrafia were granted the International Color Quality Club 2002 membership. 156 printing plants from all over the world participated. The best 50 were certified. telecommunications support services. n The scope of helpdesk s activities is best illustrated with figures: 1450 users, on average 1800 interventions monthly, s received quarterly, 300 calls answered daily. n Telecommunications support service manages 26 telephone