III. FORECAST, OPPORTUNITY AND RISK REPORT
1. Forecast report
dpa’s performance in 2019 was largely in line with expectations and, with earnings of just under 1.3 million euros, the forecast figure from the previous year was at the upper end of the target corridor.
For the 2020 financial year, we anticipate a slight increase in revenue despite continuing circulation losses and the associated revenue declines in our core services. Influenced by declining costs due to the elimination of high one-off expenses, but also slightly lower earnings contributions from subsidiaries and holdings, we expect to generate earnings of just over 1.0 million euros.
A favourable impact on earnings derives from the strong development of newer activities such as Custom Content or dpa-Agenda as well as the continued robust performance of the non-media market segment, the restructuring of the Spanish service, the expansion of central input in Berlin and again a cyclically lower allocation of funds to the dpa benevolent fund.
At the end of the first quarter of 2020, the effects of the corona pandemic hit the entire economy in an unprecedented way. In view of the repercussions, the consequences for dpa have not been included in the planning. At the present time, in mid-March, we are unable to make any reliable statements about the development of sales and earnings. It can however be assumed that the planned figures will not be achieved under these circumstances.
For 2021 we have also assumed a slight rise in total sales. The extent to which we will be able to live up to this expectation will depend on how long the crisis situation lasts and on its aftermath. Whatever happens, the situation will have to be reassessed in autumn 2020.
2. Opportunity and risk report
The German Press Agency can look back on an overall successful year, with a solid profit of more than one million euros. The year under review also highlights numerous entrepreneurial and editorial decisions whose aim is to make Germany’s largest news agency fit for the future and continue on its successful path.
Once again, the diversification strategy has paid off. Subsidiaries such as dpa-infocom GmbH, news aktuell GmbH and dpa Picture-Alliance GmbH have made a significant contribution to the overall success of the dpa group. It can be seen that there are still great growth opportunities in the market for digital news services, in the area of PR and communication services and in the secondary sale of picture material. The management of dpa will devote maximum attention to this development and will continue to push forward with the expansion of these business areas.
A major challenge for dpa is the development of newspaper circulation in Germany, on which the prices charged for the Basic Services have so far been based. dpa’s management has presented a new pricing model which takes greater account of online reach and places this in relation to newspaper circulation, thus ensuring greater transparency and overall traceability. The introduction of the model is initially scheduled to take place over five years. In an intensive dialogue with customers, dpa will work to establish the new basis of assessment as a generally applicable standard, taking into account different individual client interests.
The new pricing model will be the basis for economic development in the coming years. Nevertheless, the new regulations cannot protect against a loss of sales if individual titles reduce the number of publication dates or possibly even cease operations altogether.
A further aspect of strategic corporate development is the dpa ID and its allied marketplace concept. In the year under review, the corresponding digital platform was expanded to such an extent that the majority of dpa products are linked via the dpa ID. In addition, the first external partner is offering products there. The use of the dpa ID in large numbers by our customers and efforts to acquire further platform partners both represent important challenges for the agency.
dpa is working intensively to boost the utilizable value of the agency on the customer side and thus to provide publishers, broadcasters and online media with a product that is regarded as a key resource in the daily creation of media products. For this reason, the editorial team has continued to invest in the possibilities of data-informed news services. In the first half of the year, a deputy editor-in-chief and head of Innovation and Product Development took up her duties and is presently assembling a team of data and digital experts whose findings will play a key role in ongoing product development and optimization.
In addition to its high-growth subsidiaries, dpa has succeeded in increasing turnover in various areas under the umbrella of the core company. The activities under the Custom Content brand deserve a special mention here. Operating separately from the central editorial office in Berlin, the company produces customized publications, briefings, newsletters and other formats for customers from the business and governance sectors. The management sees great potential for sustained and pronounced growth in this area.
The unsatisfactory development of investments in Contiago GmbH must also be mentioned in this context. The content licensing platform, which was intended to provide small and medium-sized companies with content for their websites, has unfortunately achieved little in the way of positive response from the market. Contiago is now in the process of adapting its business model. As a result, dpa wrote off a large part of its investment in the year under review.
In order to counter the default and liquidity risk of financial assets and the associated receivables, we pursue an active financial risk management system. Liquidity surpluses are invested in the short and medium term in accordance with the existing guidelines in order to maintain their value. By filling board positions at affiliated companies and participations 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 from technical system failures (power failure) or external interventions such as hacker attacks. The security structure includes emergency power generators, permanent data backup and mirroring, along with extensive firewall and security architecture.
In 2019, dpa’s management paid special attention to this part of the company and, in close consultation with the Chief Technology Officer (CTO), launched a group-wide programme to sound out the possibilities for closer cooperation between the individual IT departments. This proposal comprises joint data centres, comprehensive cloud solutions and standardized IT equipment at the workplace. This process will be extended over the coming years and is bound to have a valuable impact on the efficiency and performance of dpa’s IT infrastructure.
There are currently no discernible risks that are likely to jeopardize the continued existence of the company.
Nevertheless, the arrival of the coronavirus pandemic has given rise to a new scenario that must be taken into account when future assessments are made. First of all, this is likely to boost demand for dpa’s services since people’s need for information is increasing at a rapid rate. At the same time, the purchasing power of some of our customers will fall sharply, owing to economic standstill in other sectors. Such a scenario must include measures on how to deal with short-term slumps in sales and earnings.