General economic developments in 2011
Following the strong recovery of the global economy in 2010, growth slowed substantially over the course of fiscal year 2011. This was mainly due to uncertainty in connection with the euro crisis, high sovereign debt both within and outside of the eurozone, and slower growth in key emerging economies. This picture can also be seen in the global trade figures, which were flat in 2011 according to the Kiel Institute for the World Economy.
In Europe, too, growth dropped significantly at the end of the reporting period. According to the ifo Institute, the eurozone saw an increase in gross domestic product (GDP) of 1.5% for the full year; however, this was primarily thanks to growth in the first half of the year. Overall, there was wide variation in the performance of the eurozone economies. Our three core markets were all well above the European and OECD average in the reporting period.
Germany
The German economy remained robust in 2011, despite the fact that the international environment grew ever more difficult over the course of the year. Following strong GDP growth of 3.7% in the prior year, economic output increased by 3.0% in 2011. However, the growth rate dropped off towards the end of the year. According to the German Federal Statistical Office [“Statistisches Bundesamt”], the level of GDP achieved before the financial market crisis was exceeded in the second quarter of 2011.
The upturn was driven in particular by consumer spending and high demand for capital goods. Consumer spending was bolstered by a further recovery in the labor market. In December 2011, unemployment reached 6.6%, its lowest rate for many years. The number of employed persons is at the highest level since reunification – and is accompanied by increases in real incomes. However, the increase in net wages and salaries was offset in the reporting period by an approximate rise of 2.5% in consumer prices. Despite higher year-on-year inflation, consumers remained optimistic, as could be seen in the sustained high level of the GfK consumer confidence index.
The weakening of growth towards the end of the year was the result of the global uncertainties due to the financial crisis in the eurozone and its aftermath.
Turkey
In Turkey, the economic upturn continued in the reporting period. According to OECD estimates, GDP growth stood at around 7.4% in 2011, compared with 9.0% in 2010. This increase was much higher than in the rest of the OECD area (1.9%) and means that Turkey is still one of the fastest growing economies in the world.
This trend is due in large part to solid domestic demand, which accounts for approximately two thirds of Turkey’s GDP. Consumer spending benefited from a sharp rise in incomes and lower unemployment year on year. Exports also recorded double-digit growth.
BuSiNESS ENViRONmENT
3.0 7.4
4.2
Economic development Anticipated real change in GDP in the Ströer Group’s key regional markets (2011) in %
Germany Turkey Poland Source: OECD
After a strong first half of the year, with monthly growth rates of more than 10%, Turkey also began to show signs of a slowdown in the second half of the year in light of the currency and financial crisis in the eurozone. Economic development in Turkey is closely linked to the situation in the EU which, according to the Turkish Statistical Institute (TÜIK), accounted for almost half of Turkey’s exports in the first three quarters of 2011 (47.2%). However, dampening effects also came from more restrictive government economic and financial policies aimed at preventing the economy from overheating. The further slight increase in unemployment towards the end of the year was also taken as an indication of a weakening growth rate.
A key factor for the valuation of the Turkish lira on the currency markets is the current account deficit determined by credit-financed demand. As a result, the central bank has now significantly restricted the banks’ scope for lending.
In the first three quarters, prices merely increased by up to 7%. Towards the end of the year, however, there was a substantial hike, due in large part to the weakening of the Turkish lira.
Poland
Poland again recorded considerable GDP growth of 4.2% in 2011, which was well above the European Union average. This rate was even higher than in 2010, when the country saw growth of 3.8% according to the OECD. This trend was supported by relatively stable domestic demand and robust foreign trade. Extensive public-sector projects, such as infrastructure measures as part of the 2012 European football championship, which Poland is co-hosting, provided additional impetus. After a strong spring, however, growth slowed somewhat over the course of 2011, which was also seen in falling business climate indexes. Export activities, which had remained relatively strong until spring 2011, also slowed in the last few months of the year. The rate of inflation averaged at 4.2% for the year, which was higher than the government target of 2.5%. The weakening of the zloty contributed to the upsurge in prices. In October 2011, the re-elected government announced cuts in government spending to reduce the country’s budget deficit and meet the Maastricht criteria.
Development of the out-of-home advertising industry in 2011
Germany
After extremely dynamic growth in 2010, the German advertising market remained robust in fiscal year 2011. An indicator of this is the rise in gross advertising spending identified by Nielsen Media Research, which was 3.5% in 2011. Gross advertising spending in the poster segment, which is relevant for Ströer, climbed by as much as 11.4%, thereby exceeding the EUR 1b mark for the first time. In our view, the market data used by Nielsen indicate trends but can only be used to a limited extent to draw conclusions about net figures for the media market due to differing definitions and market territories. We currently believe that net spending in the German media market in 2011 remained on a par with the prior-year level. Changes in the market share of the individual media are much more meaningful for us than Nielsen’s absolute growth rates. Based on the Nielsen figures, out-of-home advertising increased substantially year on year by 30 basis points (bp) to 4.2%. From our perspective, this clearly underlines the structural shift towards out-of-home advertising driven by digitalization, mobility and urbanization. This positive development in the fiscal year is also confirmed by the media agencies organization OMG’s Herbstmonitor 2011 survey, in which 88% of respondents expect increased gross advertising spending for poster advertising.
The ZenithOptimedia report published in December 2011 expects the overall advertising market in Germany to grow by 2.7% (net) in 2011. At 4.0%, out-of-home recorded the strongest revenue growth among the relevant advertising media, after the internet (up 13.2%). The actual net media market spend for 2011 is expected to be published in May 2012 by the Central Association of the German Advertising Industry [“Zentralverband der deutschen Werbewirtschaft e.V.”: ZAW].
972 1,083
Gross adverting expenditure in the poster segment in EUR m
2010 2011 Source: Nielsen Media Research
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Business environment
The growing digitalization of out-of-home advertising is providing strong growth momentum for the out- of-home market although, this will only be reflected in the Nielsen figures from 2012 onwards. According to estimates in the “2011 global digital out of home handbook” by Kinetic, a global network of agencies for out-of-home advertising, the digital out-of-home advertising market in Germany increased by as much as 29%.
Turkey
Comprehensive information on the development of the Turkish out-of-home media market is not available. However, some indications can be gleaned from intra-year publications by the Turkish Association of Advertising Agencies (TAAA), which suggest trends in the out-of-home advertising industry. Although the association has not yet published its commentary on the performance of the media market in 2011 as a whole, it can be assumed that growth continued apace in the fiscal year, once again reaching double digits. The market share for TV (2010: 56%) is likely to have increased markedly in 2011 as a result of regulatory changes, at the expense of other media. Only the internet is expected to have recorded higher growth than TV. All other media (especially print) will have profited much less from the growth momentum in the advertising market and hence will account for smaller market shares.
Poland
The Polish out-of-home advertising market only benefited from the country’s positive economic trend to a limited extent and, according to the Polish Outdoor Advertising Chamber of Commerce, declined by 0.6% in 2011 to some PLN 0.6b. After a slow start to the year, out-of-home advertising showed a little more momentum in the second half of the year which, however, dived in the last two months. The recent drop in market volumes was mainly attributable to reduced campaign activities by customers from the food and telecommunications industries. The number of advertising media available overall fell slightly again in 2011, allowing the percentage of higher-quality products to increase. There is no information available at present on the performance of the media market as a whole. However, it can be assumed that only online media achieved above-average growth rates again in the fiscal year.
Regulatory environment
The content of advertising is subject to different legal restrictions in the countries in which we operate. In Turkey and (with the exception of beer) Poland, out-of-home advertising of tobacco and alcohol is prohibited, whereas in Germany, these products can be advertised in out-of-home campaigns. It is unlikely that prohibitions on advertising in Germany will be extended in the next few years. If, contrary to expectations, regulatory amendments are made, we will be able to mitigate the impact on our business volume thanks to the usual lead times applicable to changes in legislation by adapting our marketing and sales activities.
The Turkish out-of-home advertising industry was adversely affected in the reporting period by stricter regulation of the TV advertising market. This limited the minutes of advertising per hour, which in turn restricted the number of commercial breaks and caused TV advertising prices to shoot up. This has led to a temporary shift in media expenditure, with budgets for all other forms of media being reallocated to TV advertising. In the future, we expect this price increase to have a favorable impact on price levels in the overall advertising industry in Turkey.
In Germany’s neighboring country France, there was an initiative in the reporting period to change the legislation regulating out-of-home advertising in relation to the cityscape. In early February 2012, new legislation was passed which primarily provides for a reduction in the size of billboards from 16m² to 12m² in cities with more than 100,000 inhabitants. A similar development in Germany with potentially negative effects for out-of-home advertising is unrealistic, since a billboard size of 9m² has been established as the standard in urban areas there.
Market share of advertising media in Germany (2011) in % nTelevision nPrint n Internet nRadio nPosters nCinema 35.7 11.2 5.5 4.2 0.4 43.0
Development of the exchange rate
The development of the euro exchange rate against the Turkish lira, the Polish zloty and the pound sterling are primarily relevant for our business.
After being largely stable in 2010, the Turkish lira dropped by around 18% in value to EUR/TRY 2.44 as of December 2011. This development is mainly attributable to the interest rate policy of the Turkish central bank and the country’s high current account deficit. At the start of the year, the central bank had reduced its base rates several times, thereby contributing to the partial overheating of the Turkish economy and higher credit-financed imports.
In October 2011, the Turkish central bank committed to a stronger stability policy and gradually removed liquidity from the capital markets. This led to the desired stabilization of the exchange rates. The lira continued to recover in early 2012.
The Polish zloty was also characterized by a downward trajectory in the reporting period, especially in the second half of the year. In the first six months of 2011, the currency was quoted at an average rate of EUR/PLN 3.95, which was still up on the prior-year level (first half of 2010: EUR/PLN 4.00). By the end of the year, however, it had fallen to EUR/PLN 4.46, not least due to strained public finances and high inflation, thus losing a good 12% over the course of the year.
Unaffected by the general economic situation, the pound sterling remained relatively stable over the year. However, market observers tend to attribute this to the weakness of the euro rather than the underlying strength of the pound. The average exchange rate for 2011 of EUR/GBP 0.87 is only slightly higher than its prior-year level of EUR/GBP 0.86 (up 1.2%). The exchange rate increased slightly in the middle of the year by around 5%, but had fallen to GBP 0.84 by the end of the year – below its initial level.
Development of the exchange rate in 2011 indexed
EUR / PLN EUR / TRY EUR / GBP
*3 January 2011 = 100, exchange rates indexed Source: German Central Bank
130
120
110
100*
90
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