III. FORECAST, OPPORTUNITY AND RISK REPORT
1. Forecast report
In 2018, dpa developed largely in line with expectations, but with a result of just under 1.5 million euros, it noticeably exceeded the previous year’s forecast due to a number of one-off effects.
For the 2019 financial year, we expect a slight overall growth in revenues of between 1% and 1.5%, despite continuing circulation losses and the associated decline in revenues in our core services. Combined with declining costs due to the elimination of high one-off expenses, but also lower earnings contributions from subsidiaries and holdings, we expect to generate earnings of between 1.0 million euros and 1.3 million euros.
In addition to the positive development of newer activities such as Custom Content or dpa-Agenda, and the continuing strong performance of the non-media market segment, the restructuring of the Spanish service and the discontinuation of special distributions by the Swiss subsidiaries will have a particularly positive impact on earnings.
Looking ahead, we also anticipate a slight increase in total sales in 2020 and expect net income for the year to be similar to that of 2019.
2. Opportunity and risk report
In 2018, the German Press Agency successfully focused on the further development and expansion of the company. This ambitious path required far-reaching efforts and resources throughout the year.
All in all, the agency succeeded in shaping its business development positively once again. Market shares in the newspaper sector and the number of customers in Germany and abroad were maintained at a high level. While the print market continues to have to deal with declining circulation, dpa was able to expand its revenues, particularly in the digital news segment, in the business and communications solutions segment and in the area of individual content creation. This strategy of diversification has led to an overall positive result for the company and encourages the management to continue on this successful path.
Digital transformation with all its effects on the traditional media markets also presents a noticeable challenge for dpa. At the same time, however, it also opens up a wide range of opportunities. Digital products have been contributing to dpa's overall results for years. In particular, the extremely positive development of the subsidiary dpa-infocom GmbH should be mentioned, whose digital products have met with an excellent response on the market. The same applies to the subsidiaries Picture-Alliance GmbH and news aktuell GmbH, whose growth-driven business also makes a noticeable contribution to the agency's economic success. Further expansion and additional growth in these areas are among the primary goals of the dpa management.
Furthermore, dpa has worked on continuously increasing the utilizable value of its offers for customers and deepening their relationship with the agency. This includes in particular the intensified and long-term Profile Process, which takes into account the concrete expectations of the subscribers of the contents of the dpa services. The Performing Content development project should also be mentioned. In cooperation with dpa customers, it measures which content binds readers to digital offers and which contributions lead to more purchases and subscriptions. Performing Content can make dpa's concrete contribution to the value chain visible in the further course of the project and thus contribute to optimal customer loyalty.
With the restructuring of the Spanish-language service, dpa was also able to initiate a positive development in its international services. This step was necessary due to the difficult economic situation in Latin America as a whole and the enormous competitive pressure exerted by agencies, some of which have government contracts and operate at prices that are independent of the market. Despite painful cuts, especially for the affected employees in Spain and Latin America, the restructuring measures were followed by the successful launch of a promising new and visually strong offer for the Latin American market in cooperation with our partner Europa Press.
In addition, dpa has invested in future markets with the acquisition of further shares in news aktuell (Schweiz) AG and a seed investment in Contiago GmbH. dpa sees the transfer of the recipe for success of its German subsidiary news aktuell to the Swiss market as a great opportunity to achieve similar sales growth there. dpa acquired 50% of the shares in news aktuell (Schweiz) AG from Keystone-SDA. dpa also invested in the future with its purchase of a stake in Contiago GmbH. The company is building a content licensing platform that provides small and medium-sized companies with content for their websites.
A noticeable risk for dpa continues to be the continuous loss of circulation experience by the vast majority of newspapers. According to the existing pricing model, this development is linked to a continuous loss of revenue for the agency. In addition, an overall decline in advertising business is leading to increasing cost pressure in the entire media market.
It also shows, however, that chargeable digital services are accounting for an increasing share of the industry’s total revenues. It is an encouraging sign that newspaper publishers are pressing ahead with this development with great energy, willingness to invest and innovative offerings in order to expand digital products so that they become a key contributor to revenues.
In order to counter the default and liquidity risk of financial investments and the associated receivables, we pursue an active financial risk management. Liquidity surpluses are invested in the short and medium term in accordance with existing guidelines to maintain their value. By filling managerial positions at the affiliated companies and holdings with our own employees and by observing the principle of dual control, we can minimize risks and react at short notice to current developments at any time. Trade receivables (including those due from shareholders) are monitored promptly and reduced through consistent receivables management.
dpa is dependent on an IT infrastructure that is ready for use at all times. Risks exist due to technical system failures (power failures) or external interventions such as, for example, hacker attacks.
The extensive security structure includes emergency power generators, permanent data backup/mirroring and a comprehensive firewall and security architecture.
There are currently no identifiable risks that are likely to jeopardize the continued existence of the company.