Presentation Krakow G.Schmitt 01.10.2010


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Presentation Krakow G.Schmitt 01.10.2010

  1. 1. How to Overcome the Crisis: Survival of the Fittest Turnaround Transformation of Segodnya Multimedia CJSC from Value Destruction to Value Creation Guillermo Schmitt CEO – Editor-in-Chief – Publisher Krakow, October 1, 2010
  2. 2. Ukraine <ul><li>Area: 603,700 sq km, (France – 547, 000 sq km) </li></ul><ul><li>Population: of 47 million </li></ul><ul><li>Capital: Kyiv, 3,5 million inhabitants </li></ul><ul><li>5 cities with population over 5 million people </li></ul><ul><li>Average temperature: in winter -20°C and in summer 35°C </li></ul><ul><li>Average monthly salary in Ukraine: $ 310 </li></ul><ul><li>Circulation per thousand 17, Russia 24, Hungary 171, Czech 175 </li></ul>A Land Of Opportunities
  3. 3. Daily Newspaper Audience-TNS
  4. 4. Growth GDP UAH-USD Consumer Price Index Key Macroeconomic Indicators
  5. 5. <ul><li>2006 The Internal Crisis </li></ul><ul><li>2007 – 2008 Turnaround Actions </li></ul><ul><li>End of 2008 The External Crisis </li></ul><ul><li>2009 – 2010 Turnaround Actions </li></ul><ul><li>2006-2011 Crisis Produced by Technology </li></ul><ul><li>Sharing Ideas. Inspiring Change </li></ul>Which Crisis?
  6. 6. The Internal Crisis 2006
  7. 7. <ul><li>No clear corporate strategy, mission, vision, nor values </li></ul><ul><li>Yellow tabloid, no clear differentiation with competitors except for full color </li></ul><ul><li>No edition on the Internet </li></ul><ul><li>Only one product, no local news in regions </li></ul>The Internal Crisis 2006 In this year Segodnya, a young 12 year old newspaper, presented a series of internal situations that together were destroying value and putting at risk its survival:
  8. 8. <ul><li>Low cost pricing strategy because no differentiation in content, 15% to 30% less cover price than competitors </li></ul><ul><li>Disperse organization of affiliated companies with no central direction and control </li></ul><ul><li>Negative profitability. EBITDA of - 57% over sales, clear indication of value destruction </li></ul>The Internal Crisis 2006
  9. 9. EBITDA 2006
  10. 10. <ul><li>No training programs </li></ul><ul><li>HR function did not exist, because insufficient importance assigned to HR in management process </li></ul>The Internal Crisis 2006 <ul><li>Autocratic, and inexperienced leadership </li></ul><ul><li>Lack of adequate management in key positions, and top heavy structure </li></ul><ul><li>No management team </li></ul><ul><li>Low salaries, unlinked to performance </li></ul><ul><li>No management by objectives (MBA) </li></ul><ul><li>Generalized de-motivation </li></ul><ul><li>Widespread use of alcohol during working hours </li></ul>
  11. 11. <ul><li>Lack of understanding of customers and preferences, no market surveys </li></ul><ul><li>No comprehensive Advertising policy nor tools for selling advertising </li></ul><ul><li>Scant amount of advertising, 1 page per edition, most of it in black and white </li></ul><ul><li>No marketing activities </li></ul><ul><li>Insufficient points of sale in principal cities for distribution </li></ul><ul><li>Insufficient subscription for daily and TV supplement editions </li></ul>The Internal Crisis 2006
  12. 12. <ul><li>Dilapidated office building with 1/3 of space not used and 3 different newsrooms </li></ul><ul><li>Enormous technical problems in start up of second hand KBA Commander due to destruction of key control systems, and lack of skilled staff </li></ul><ul><li>In house development of IT Content Management System which was not effective nor efficient </li></ul><ul><li>Poor internal control and lack of Management Reports with dynamics of key performance indicators </li></ul>The Internal Crisis 2006 REPLACE IT!!!!!!!
  13. 13. <ul><li>Lack of confidence of investors in parent company regarding Segodnya </li></ul>The Internal Crisis 2006
  14. 14. Turnaround Actions 2007-2008
  15. 15. <ul><li>Implementation started to convert Segodnya from “yellow” tabloid to mid market, quality, family oriented newspaper </li></ul><ul><li>Newsroom team enhanced Sports, Politics, and “how to” section. Also included subjects related to CSR </li></ul><ul><li>We started to become a market driven company </li></ul>Turnaround Actions 2007-2008 <ul><li>Team produced first strategic plan 2006 – 2010 which was approved by Supervisory Board </li></ul><ul><li>Hired Innovation Consulting to help: </li></ul><ul><ul><li>- Eliminate yellow heritage </li></ul></ul><ul><ul><li>- Adapt content to readers needs </li></ul></ul><ul><ul><li>- Differentiate from competitors </li></ul></ul>
  16. 16. We defined Mission and Values that differentiates us from our competitors
  17. 17. Turnaround Actions 2007-2008
  18. 18. Turnaround Actions 2007-2008
  19. 19. <ul><li>Holding company was established to harbor affiliated companies, and to provide strategic management, and control </li></ul>Turnaround Actions 2007-2008
  20. 20. Turnaround Actions 2007-2008
  21. 21. Our MBA Team E ditor-in-Chief Circulation Director Financial D irector Director of Printing Plan Advertising D irector Business D evelopment D irector P urchasing and T enders Manager E ditor-in-Chief in New Media Director of New Media Deputy E ditor-in-Chief Marketing Director
  22. 22. <ul><li>Conferences, Exhibitions </li></ul><ul><li>Newsroom </li></ul><ul><li>Design </li></ul><ul><li>Marketing </li></ul><ul><li>HRM </li></ul><ul><li>Workshops on Soft Use </li></ul><ul><li>Sales of Circulation </li></ul><ul><li>Sales of Advertising </li></ul><ul><li>Languages (English) </li></ul><ul><li>Manager Skills and Leadership </li></ul><ul><li>MBA </li></ul>Educational Programs 2007-2010, (person/hours) Total (’07-’10) 46.525 MBA 14.112 Local progr. 29.627 Conferences 2.756
  23. 23. <ul><li>Training programs were implemented in Printing Plant </li></ul><ul><li>Retrofit of control system </li></ul><ul><li>Printing Plant Team was formed </li></ul><ul><li>Third party printing was implemented </li></ul><ul><li>Special program to reduce newsprint waste was implemented </li></ul><ul><li>Newsprint and staff productivity increased significantly </li></ul>Turnaround Actions 2007-2008
  24. 24. Average Newsprint Waste Kiev Edition Manufacture 50%
  25. 25. Newsprint Productivity Revenue per ton of Newsprint
  26. 26. <ul><li>Productivity of staff increased by 12% in between 2008 – 2009 </li></ul>Turnaround Actions 2009-2010 Productivity of Personnel 2006-2010
  27. 27. Turnaround Actions 2007-2008
  28. 28. Paid Pages of Advertising per Issue 2005-2010 (on the average)
  29. 29. <ul><li>Segodnya </li></ul>Share by Income 2006-2009, (%) Komsomolskaya pravda Facty Source: Adex monitoring 25 43 32 2006 2007 36 38 26 2008 42 35 23 2009 51 28 21
  30. 30. <ul><li>Distribution channels were revised, and “street sellers” hired to improve number of points of sale. These now comprise 7% of our circulation </li></ul><ul><li>Important improvements in logistics originated a reduction in unreturned copies from 13% in 2007 to 8% in 2009 </li></ul><ul><li>Circulation Team designed new aggressive subscription campaign which increased circulation significantly </li></ul>Turnaround Actions 2007-2008
  31. 31. Daily Subscription September 2010 (copies)
  32. 32. TV Subscription September 2010 (copies)
  33. 33. Turnaround Actions 2007-2008 Market Share of Sold Circulation in Principal Cities of Ukraine 2006 – May 2010 Segodnya Komsomolskaya pravda Facty 40,5 36,5 23,0 2006 54,8 21,9 23,3 May 2010
  34. 34. Turnaround Actions 2007-2008
  35. 35. <ul><li>Cutting edge technology for Editorial Content Management System was acquired from Atex and implemented </li></ul>Turnaround Actions 2007-2008
  36. 36. <ul><li>As a result of all these measures our total income increased by 153% in between 2006 and 2008 </li></ul><ul><li>Advertising – 160% </li></ul><ul><li>Printing – 1.133% </li></ul><ul><li>Newspaper sales – 58% </li></ul>Turnaround Actions 2007-2008 Comparison Of Income 2006-2009 Newspaper Sales Printing Services Advertising Other
  37. 37. The External Crisis – End of 2008
  38. 38. <ul><li>In the month of October 2008, when advertising revenue was at its peak, we decided to restructure the company, in anticipation of the consequences of the crisis </li></ul>The External Crisis – End of 2008 Advertising Revenue 2006-2009
  39. 39. <ul><li>The world financial crisis hit Ukraine in 2009, and GDP fell by 15,1 </li></ul><ul><li>The only other country affected more was Latvia with 18% </li></ul>The External Crisis – End of 2008 Latvia -18.0 Ukraine -15.1 Lithania -15.0 Armenia -14.4 Estonia -14.1 Russia -7.9 Romania -7.1 Hungary -6.3 United Kingdom -4.9 Slovac Republic -4.7 Austria -3.6 Belgium -3.0 United States -2.4 France -2.2 Poland 1.7 Real GDP Growth 2009 (Annual percent change) Source: IMF
  40. 40. <ul><li>The real economy of the country was hit with lightning force </li></ul><ul><li>Unemployment rose sharply </li></ul><ul><li>Construction from 10 .496 .000 sq.mts to 6 .400. 000 in 2009, 37% decrease </li></ul><ul><li>Auto production from 400 .000 units to 65. 000, down 84% </li></ul><ul><li>Auto sales from 654.000 units to 175.000, a 68% drop </li></ul><ul><li>Retail turnover dropped 17% </li></ul>The External Crisis – End of 2008
  41. 41. <ul><li>The crisis had a devastating effect on the printed advertising market, on average it dropped 36% </li></ul><ul><li>Circulation of all printed media dropped by 45% </li></ul><ul><li>Numerous publications were unable to survive crisis and closed, including Telegraph Media Group and other foreign publications </li></ul>The External Crisis – End of 2008 DROP Car editions -63% Analytical editions -52% Business editions -15.0 Woman’s editions -14.4 Daily and weekly national editions -23% TV guides -15% Sport editions -13% Average -36% Advertising Market in the Period of Recession 2009 Source: Adex monitoring
  42. 42. <ul><li>In October 2008 the Segodnya team designed a “Survival Scenario” </li></ul><ul><li>Survival Scenario had objective of minimizing cash drain and had 3 components: </li></ul><ul><ul><li>Revenue increases </li></ul></ul><ul><ul><li>Cost cuts </li></ul></ul><ul><ul><li>Investment cuts </li></ul></ul><ul><li>Revenue increases included </li></ul><ul><ul><li>Increasing copy prices by 75% </li></ul></ul><ul><ul><li>Increasing advertising prices by 10% </li></ul></ul><ul><ul><li>Defining a vigorous plan of attracting New Clients, which in 2009 accounted for 23% of advertising income </li></ul></ul>Turnaround Actions 2009-2010
  43. 43. Turnaround Actions 2009-2010 <ul><li>Cost cutting </li></ul><ul><ul><li>Pagination was decreased by 25% </li></ul></ul><ul><ul><li>We downsized our staff by 35% </li></ul></ul><ul><ul><li>Branches were downsized and smaller offices rented </li></ul></ul><ul><ul><li>We closed Vechercom and Yours </li></ul></ul><ul><ul><li>We changed formats from broad sheet to tabloid in one of our affiliated companies </li></ul></ul><ul><ul><li>New suppliers were developed for newsprint </li></ul></ul><ul><ul><li>We started to use newsprint of 42 grams in a proportion of 50%, which reduced our costs </li></ul></ul>
  44. 44. <ul><ul><li>We cut practically all marketing costs </li></ul></ul><ul><ul><li>Training costs were minimized by eliminating outside trainers and replacing them by members of our own staff </li></ul></ul><ul><ul><li>We rationalized our distribution costs </li></ul></ul><ul><ul><li>We reduced circulation in unprofitable regions </li></ul></ul><ul><li>Investment cuts </li></ul><ul><ul><li>Cancelled US%16 Million project of installing a new KBA printing plant </li></ul></ul>Turnaround Actions 2009-2010
  45. 45. <ul><li>As a result of these actions, in between 2008 and 2009: </li></ul>Turnaround Actions 2009-2010 <ul><ul><li>Total revenue decreased only by 6% </li></ul></ul><ul><ul><ul><li>Advertising…. -21% </li></ul></ul></ul><ul><ul><ul><li>Printing……… -29% </li></ul></ul></ul><ul><ul><ul><li>Paper sales… +17% </li></ul></ul></ul><ul><ul><li>Total costs decreased by 36% </li></ul></ul><ul><ul><ul><ul><ul><li>Direct . . . . . . . 31% </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Staff . . . . . . . . 20% </li></ul></ul></ul><ul><ul><ul><li>Marketing . . . . 93% </li></ul></ul></ul><ul><ul><ul><li>Other .. . . . . . . 37% </li></ul></ul></ul>
  46. 46. Turnaround Actions 2009-2010 <ul><li>Circulation revenue is up by 12% </li></ul><ul><li>Advertising – by 10% </li></ul><ul><li>Printing – by 10% </li></ul><ul><li>We continued to control and reduce some minor costs </li></ul><ul><li>We will break even by the end of year 2010 in our paper operations </li></ul><ul><li>We continued to invest in our digital operations </li></ul><ul><li>During 2010 there has been a weak recovery: </li></ul>
  47. 47. <ul><li>Segodnya was able to change in time to survive the Internal Crisis, and be flexible to adapt to the External Crisis, coming out of them creating value </li></ul><ul><li>On paper from -57% EBITDA, to about +10 in 2011 </li></ul>Turnaround Actions 2009-2010 EBITDTA 2006-VALUE DESTRUCTION EBITDA 2011-VALUE CREATION
  48. 48. Crisis Produced by Technology 2006-2011
  49. 49. Crisis Produced by Technology 2006-2011 <ul><li>In April 2007 was launched </li></ul><ul><li>Our ambitions were modest then: “We had to have an Internet edition” </li></ul><ul><li>First Internet news site had been launched 9 years earlier,, which formed part of a portal Bigmir </li></ul><ul><li>Late 2008 we studied market seriously – our competitors, market, and ourselves in order to have a New Media Strategy, which was adopted </li></ul><ul><li>Our objective now was to “beat in 3 years and become market leader” </li></ul><ul><li>An integrated Newsroom was implemented, journalists who work both for print and digital version, we assigned new Management to the site, and we outsourced our Advertising </li></ul>
  50. 50. Crisis Produced by Technology 2006-2011 <ul><li>We have complied with our objective of becoming market leader in news sites 18 months before expected </li></ul><ul><li>According to independent market research agency, Gemius, in the month of May we became the Number 1 news site of Ukraine </li></ul>Ranking of Unique Users, Gemius. January – July 2010
  51. 51. Crisis Produced by Technology 2006-2011 <ul><li>We have increases of over 100% in the first 8 months of this year in comparison to 2009 (Google Analytics), superior to those of </li></ul>Number of Users Number of Visits Page view
  52. 52. Sharing Ideas. Inspiring Change
  53. 53. Sharing Ideas. Inspiring Change – Peter Drucker INMA Conferences are about Sharing Ideas and Inspiring Change I thought maybe a bit presumptuous that you could have learned something up to this point of my talk I decided that Peter Drucker had more of a chance of inspiring you than me So in this final part of my talk I will try to tell you what ideas I took from him
  54. 54. Sharing Ideas. Inspiring Change – Peter Drucker <ul><li>Leadership is doing the right things and Management is doing things right </li></ul><ul><li>A Mission statement should fit on a T-shirt and be inspiring </li></ul>
  55. 55. Sharing Ideas. Inspiring Change – Peter Drucker <ul><li>Management is about human beings . Its task is to make people capable of joint performance , to make their strengths effective and weaknesses irrelevant </li></ul><ul><li>People will respond to a set of values and proven ideas and principles to produce unbelievable results </li></ul><ul><li>What differentiates organizations is whether they can make common people perform uncommon things </li></ul>
  56. 56. Sharing Ideas. Inspiring Change – Peter Drucker <ul><li>Results depend on the customer who decides whether the efforts of the business become economic results or waste </li></ul>
  57. 57. Sharing Ideas. Inspiring Change – Peter Drucker <ul><li>Profits are rewards for making a unique or distinct contribution in a meaningful area </li></ul><ul><li>Economic results are earned by leadership not merely competence </li></ul>EBITDA 2011
  58. 58. Sharing Ideas. Inspiring Change – Peter Drucker <ul><li>The CEO has to live the purpose, values and principles of the organization </li></ul><ul><li>The CEO nurtures and forms the organization’s personality </li></ul><ul><li>The CEO must do 3 things: </li></ul><ul><ul><ul><li>1. Make the present business effective </li></ul></ul></ul><ul><ul><ul><li>2. Identify and realize it’s potential, and </li></ul></ul></ul><ul><ul><ul><li>3. Make it into a different business for a different future </li></ul></ul></ul>
  59. 59. A Land of Opportunities For Print and Digital Media Ukraine
  60. 60. Segodnya’s Management Team