Growth opportunities are identified as part of the Group’s opportunity management and are specified in the planning process. The Group anticipates revenue growth in the mid single-digit percentage range over the next five years (CAGR). Further portfolio measures and in particular larger bolt-on acquisitions offer additional potential.
Opportunity Management
Our opportunity management is part of the intragroup management system. The objective is to identify and seize opportunities as soon as possible using suitable measures. At ProSiebenSat.1 Group, the management of opportunities is decentrally organized in the business units and is supported and coordinated by the “Group Strategy & Operations” department. The department is in close contact with the individual operational units. This allows the department to gain detailed insight into the business situation. In addition, market and competition analyses and sharing experiences with external experts are important sources to identify growth opportunities for ProSiebenSat.1 Group. Defined opportunities are reported in the strategy plan. Relevant growth opportunities are prioritized, specific objectives are derived, and measures and resources for operational target attainment are determined. (Fig. 108) Strategy and Management System
108 / Opportunity Management
Explanatory Notes on Key Opportunities
We have incorporated opportunities that we consider to be likely in our forecast for 2018 and in our planning until 2022. In addition, economic performance-related factors such as cost awareness and efficient process management are key requirements for further strengthening ProSiebenSat.1 Group’s market position. We report on these growth opportunities in the Company Outlook. In addition, there is potential that has not yet been or not fully been budgeted for. In particular, this potential may arise from strategic measures or a change in general conditions. In the section below, we report on these opportunities if they are material and important for the planning period until 2022. Company Outlook
Additional Opportunities from Corporate Strategy Decisions
Social, technological and economic areas have significantly changed as a result of digitalization. This trend will continue in the years to come. The media industry was one of the first industries to be shaped by the effects of digitalization. Television content can be accessed at any time and be placed on TV screens and other devices, such as smartphones or tablets. ProSiebenSat.1 Group is consistently pushing ahead with its transformation from a traditional TV company into a digital group with a diversified business portfolio. The Group is developing new business models, using digital technologies and tapping into additional markets with acquisitions or strategic partnerships.
Leveraging synergies by networking business areas. ProSiebenSat.1 is the first media company to implement a combination of traditional TV, digital entertainment, e-commerce as well as content production, and consistently utilize the resulting synergies. This is the basis of the Group which has bundled its segments on the basis of a three-pillar strategy since 2018. In this context, the Group anticipates achieving net savings potential exceeding EUR 50 million by 2019/2020. An important step is bringing together the linear TV business with the digital entertainment segment so as to advance universal marketing and the platform-independent dissimenation of program content. At the same time, with the integration of Studio71 into the Content Production & Global Sales segment, the Group is reinforcing its digital production expertise. Strategy and Objectives
In January 2018, ProSiebenSat.1 merged Red Arrow Entertainment Group with Studio71 under the Red Arrow Studios umbrella and integrated digital video offerings in both its traditional production business and its international distribution networks. Through Studio71, the production business gains direct access to a new talent pool and other growing digital channels. The Content Production division is thereby addressing the increasing demand for content on all channels, branded content, and influencer marketing. Bundling the existing production companies (Red Arrow), talent pools and digital channels (Studio71) with the distribution (Red Arrow International, Gravitas) results in synergies which have not yet been been budgeted.
By networking its investments and producing or bundling successful formats for use on various platforms from one source, the Group increases the efficiency of its investments and creates additional growth opportunities. ProSiebenSat.1 is also examining options for accelerating the growth momentum of Red Arrow Studios on the basis of cooperations with and co-investments from partners.
Data-based business models and digitization of TV advertising. ProSiebenSat.1 Group is consistently linking its television business to digital entertainment media and expanding its reach in this way. Together with its subsidiaries, SevenOne Media and SevenOne AdFactory, the Group is Germany’s most innovative TV marketer and offers its customers coordinated campaigns on all platforms, including TV, online, mobile and social media. ProSiebenSat.1 is also focusing on new technologies. For instance, we were the first TV group in Germany to broadcast addressable TV campaigns with the hybrid broadcast broadband TV (HbbTV) technological standard. These advertisements combine the high reach of traditional television with the opportunities provided by digital advertising, including target-group-based advertisements individualized to devices.
Within the limits of what is legally possible, we aspire to increasingly use data on our digital platforms and online TV use in order to target recipients in a more personalized way. We see high potential here in the field of ad-technology, as new marketing techniques help us integrate advertising on an automated basis and with even greater target group focus. For this reason, the Group expanded its AdTech portfolio in January 2018 and acquired Kairion, an e-commerce marketer that aggregates the advertising environments and data of more than 80 online shops. In addition to this high reach for digital advertising offers, the company provides valuable target group insights – for example, with regard to specific purchasing interests: Using real-time targeting, advertising messages can be displayed as soon as the consumer signals an interest in purchasing something. Kairion can also help extend branding campaigns from TV into retail. ProSiebenSat.1 is thereby responding to changes in consumer behavior: Different media and channels are being used simultaneously, with the effect that TV, digital entertainment and commerce are increasingly complementing and converging with each other. Strategy and Objectives, Strategic Brand Portfolio of ProSiebenSat.1 Group
Entry into business areas with strong growth by expanding the portfolio. The successful M&A strategy has sustainably strengthened the Group’s growth. In recent years, the Company particularly expanded its portfolio with smaller investments and media-for-equity or media-for-revenue-share investments and collaborated with strategic partners. Since the second half of 2015, larger acquisitions have also been made. One focus of the investments was e-commerce, which is experiencing dynamic growth. Market Environment of the Commerce Business
Portfolio measures offer additional opportunities. In November 2016, ProSiebenSat.1 increased its financial headroom for future acquisitions with a capital increase. It is continuously examining whether attractive opportunities for acquisitions or collaborations exist. Products and services that add value via the main medium of TV are particularly relevant for ProSiebenSat.1 from a strategic point of view. With TV advertising, the Group can quickly and efficiently increase the revenues of its investments without high cash investments. These are key pillars of our M&A strategy. In addition, new investments must link in particularly well with the existing digital portfolio. This results in revenue and cost synergies.
In 2017, the commerce portfolio was the Group’s most significant revenue driver. Starting from January 1, 2018, ProSiebenSat.1 operates in the Commerce business with the name NCG – NuCom Group and bundles its subsidiaries in thematic categories. The objective is to expand the portfolio and further accelerate growth, this also includes partnerships.
Additional Opportunities from the Development of General Conditions
The German economy continued to grow moderately in 2017. We also expect macroeconomic conditions to develop positively in the future. The TV advertising market is benefiting from the digitalization and new technologies such as HbbTV, prompting advertisers to shift their budgets from print to video advertising. ProSiebenSat.1 has identified market growth of around EUR 660 million (net) by 2022 in this context. Against this backdrop, we anticipate average growth rates in our core market Germany of up to 2% to 3% in our budget planning for the German TV advertising market for the next five years. Economic Development, Future Business and Industry Environment
Positive deviations from these key planning assumptions could accelerate profitable growth for the Group as a whole. In addition, regulatory changes could have a positive impact on revenue performance. Additional revenues for private providers could result from a reduction of advertising offered by public stations in particular. In this context, ProSiebenSat.1 expects an additional market volume of more than EUR 300 million per year. As the leading sales company, the Group would significantly benefit from a ban on advertising for public broadcasters.
109 / Overall Assessment of the Risk and Opportunity Situation — Management View
We are growing in a dynamic way as we are able to recognize and to benefit from market changes at an early stage. By 2022, we anticipate revenues to increase by a mid single-digit percentage range (CAGR), with additional potential coming from further portfolio measures and in particular larger acquisitions. The digital development opens up new growth markets for all of our segments. But there are also risks. Therefore, the identification and management of potential opportunities is just as important for our Group as the recognition and controlling of potential risks.
We estimate that there are no risks that, individually or in combination with other risks, could have a material or lasting adverse effect on the earnings, financial position and performance. The identified risks pose no threat to the Company as a going concern, even looking into the future. As a result as of the date this report was prepared, the Executive Board still considers the overall risk situation as limited, even if the risk situation has increased slightly. The opportunity situation has not changed. Acquisitions are part of our strategy for advancing the transformation from a TV to a digital company.