Hachette Distribution Services
INVESTOR DAY PARIS FEBRUARY 2, 2004
Agenda
■ Presentation of Hachette Distribution Services (HDS) ■ Strategic positioning by segment ■ Strategic orientations for 2004 - 2007
2
Overview of HDS (I)
➔ HDS is a 4,5 B€ company active in press distribution and retail ■ Retail is now half of HDS’ sales, and growing faster than distribution ■ HDS is truly international (2/3 sales outside France) ■ More than 13 000 people in 19 countries
➔ Since 1999, HDS growth of sales is over 14% p.a. ■ 1/3 of this growth has been external (Virgin, DFA) ■ HDS created 45 M€ value in 2002
3
Overview of HDS (II)
➔ HDS has 2 main activities : Retail and Press Distribution ➔ HDS is tightly linked to printed media industry ■ Press-driven activities provide 80% of HDS’s EBIT ■ Diversification is under way
➔ HDS is the retail arm of Lagardère Group ■ Retail network is extended over 14 countries (with 3 600 stores) ■ Retail sales are concentrated in France, in travel locations and in press stores
4
3 segments in Retail
➔ Travel retail: press and specialty stores in travel locations
➔ Newsstands : press stores in high street and shopping mall
➔ Media entertainment products: high street and shopping mall retailing of books, music and video
5
2 segments in Press Distribution Publisher A
Publisher B Publisher C
National distributor: sales promotion, relationship with publishers, monitoring of wholesalers Press wholesalers: reliable and cost-effective distribution of press, monitoring of retail network Wholesaler X
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Wholesaler Z
HDS has shown strong growth
Sales
(1)
(B €)
Operating income (M€)
1999
2000
2001
2002
Annual Growth
2,96
3,30
3,85
4,46
14,6%
48
61
81
88
22,4%
(1) : 1/3 of this growth of sales has been external
7
Retail is growing faster than Distribution
3.3 B€
4,5 B€
100% 90% 80% 70%
55%
50%
12% 3%
11% 9%
Distribution: + 11% p.a.
60% 50% 40% 30%
+23% p.a.
20% 10%
30%
30%
2000
2002
0%
Travel retail 8
Retail:
Media entertainment Newsstands
Distribution
68% of HDS sales are made outside France Belgium: 14%
France : 32%
Hungary: 5%
Iberia: 11% North America: 26 % Other Europe: 3% 9
Switzerland: 9%
Australia / Singapore / China: 0,3%
HDS is a people business
➔ Over 13 000 employees in 19 countries ■ 9 000 employees in retail ■ 4 000 employees in distribution
➔ HDS businesses are labor-intensive ■ Labor cost in retail is 43 % of gross margin, and 53 % in distribution
➔ A multi-cultural organization ■ 70% of people are outside France ■ International workgroups to promote experience sharing
10
Product mix evolution shows adaptation of HDS to market needs
2002 sales mix
2000 sales mix
Book 8%
Music & Video 5% Other (1) 26%
Press 66%
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(1) « Other » includes confectionary, phone cards, perfume & tobacco, …
Book 7%
Press 54%
Other (1) 34%
HDS Retail activities are concentrated in France and in travel locations (2002) HDS Travel Retail Sales
HDS Retail Sales 100%
100%
Non-
90% 80%
90%
Press
35%
Stores
36%
Other
36%
Non
Other
Other
70%
57%
60%
60%
Rail
50%
50%
40%
40%
70%
30% 20%
travel
65%
64%
France
PressDriven
10%
64%
30%
Travel
20%
locations
0%
Subway
74%
71%
News France
10%
& Gift
43% Airports
0%
By geography
12
80%
27% 26%
By product
By location
By geography
By product
By location
HDS operates several brands under license
13
HDS has developed a large portfolio of own banners
14
Agenda
■ Presentation of Hachette Distribution Services (HDS) ■ Strategic positioning by segment ● Travel retail ● Retail of media entertainment products ● Newsstands ● Distribution (national & wholesale)
■ Strategic orientations for 2004 - 2007
15
Travel Retail is a core activity of HDS Strengths
Weaknesses
➔ Strong traffic growth anticipated in the long term ➔ Very strong positions
➔ More than 70% of travel retail activity is in France and in News & Gifts ➔ No positions in Food & Beverage
■ ■
➔ ➔ ➔
France n°1 World n° 1 in News & Gifts
Large banners portfolio Knowledge of travelling customer Relationships with landlords ■
over 95% renewal rate
Threats ➔ Large conceded food operators start retail operations ➔ Potential ban on tobacco sales ➔ Traffic is less and less predictable in the short term
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Opportunities ➔ Travel platforms are evolving, with more private operators and more retail space ➔ Consolidation of European players is likely to happen
HDS is one of world top 5 travel retailers 2002 Sales(M€)
3500
3000
Food & Beverage Travel Retail Specialty Travel Retail N&G Travel Retail
2500
2000
1500
1000
500
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Source : annual reports, HDS estimates – Only travel retail sales are shown here
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Relay: in 80 airports all over the world
18
Frankfurt Airport
Toronto Airport
Paris CDG Airport
TimesNewslink - Singapore Airport
Relay has initiated territory extension + Books
+
+
Toys
Food Products
0
+ Gifts-Souvenirs
Relay Relay umbrella Relay+ other banner Music 19
+
Luggage
+
Relay is already an umbrella brand
20
Virgin in Travel Retail
Lyon (Train station)
Paris (CDG Airport)
21
Virgin Newark
Other Travel Retail specialty concepts (I)
22
Other Travel Retail specialty concepts (II)
23
Agenda
■ Presentation of Hachette Distribution Services (HDS) ■ Strategic positioning by segment ● Travel retail ● Retail of media entertainment products ● Newsstands ● Distribution (national & wholesale)
■ Strategic orientations for 2004 - 2007
24
HDS is a challenger in French retail of media entertainment products Strengths
Weaknesses ➔ Uncertainties in the market ■ ■
➔ Network has reached critical mass ■ ■ ■
➔
32 stores in France for Virgin 11 in France for Le Furet du Nord 11 in Switzerland for Payot
➔
Music performing poorly Question mark on multimedia
Very competitive markets ■
Pressure on margins
Great brands ■ Payot and Le Furet du Nord are regional leaders ■ Virgin has huge brand equity
➔
VirginMega.fr: only French legal digital offer including every majors and independent labels
Threats ➔ Music and video piracy not under control
25
Opportunities ➔ Product mix evolution away from music has been initiated ➔ Some product show very strong growth (DVD)
Music is less than one third of media entertainment product mix (2002) Media Entertainment Product Mix 430 M€ sales
MultiMedia 10%
Books 36% 26
Others 9%
Music 28%
Video 17%
Agenda
■ Presentation of Hachette Distribution Services (HDS) ■ Strategic positioning by segment ● Travel retail ● Retail of media entertainment products ● Newsstands ● Distribution (national & wholesale)
■ Strategic orientations for 2004 - 2007
27
HDS has reached a strong position in high street newsstands Strengths ➔ Presence of HDS either with travel retail or with distribution in many attractive countries
Weaknesses ➔
Low market share in some countries
➔
No strong international brand
➔ Efficient, modern store concept
Opportunities ➔ Attractive opportunities with good margin arise in some Central European countries ■
New shopping malls
Threats ➔ Business is getting competitive in some regions ■
➔
Some core products are declining or at risk ■
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Rautakirja, Valora, Narvesen
Tobacco, phone cards
Local newsstands banners Budapest Madrid
Warsaw
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International development of high street press stores #press stores high street
250
➔ 43 % of HDS press stores are outside travel locations ➔ 800 kiosks in central Europe are not shown below
200
150
100
50
0 Belgium
Spain
Switzerland
Order of countries : opening date of first store 30
North America
Poland
Hungary
Czech Republic
Romania
Agenda
■ Presentation of Hachette Distribution Services (HDS) ■ Strategic positioning by segment ● Travel retail ● Retail of media entertainment products ● Newsstands ● Distribution (national & wholesale)
■ Strategic orientations for 2004 - 2007
31
Where present, HDS has a leading position in Press Distribution and Wholesale Strengths ➔ Very strong position in countries where active ■ Belgium, Switzerland, Hungary ■ USA, Spain
International best-practices sharing to keep high operational standards ➔ No other international player
➔
Weaknesses ➔ Labor-intensive industry with little automation perspective ➔ Flat press market and strong market share induce pressure for diversification ➔ Not active in France
Opportunities
Threats ➔ Retail press market shows slight decline in some countries ➔ Concentration of retail chains (supermarket) could lead to by-pass of wholesale
➔ Create more value-added service for publishers and retailers ➔ Some privatizations might create growth opportunities ➔ HDS already has a network of 10 international press importing structures ■
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Attractive niche
Most Press Distribution companies are only local
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Distribution
Geographic
Sales
presence
Comments
Tohan
4,3 B€
Japan
Very large, integrated player. Active in magazine and books
Nippan
4,0 B€
Japan
Very large, integrated player. Active in magazine and books
NMPP
2,9 B€
France, plus some African countries
HDS
2,5 B€
B. , Switz., Hungary, Sp., Germ., US, Can.
WHSmith
1,5 B€
United Kingdom
Other main activity is retail
Menzies
1,4 B€
United Kingdom
Other main activity is aviation services
Valora
1,3 B€
Switzerland, Luxembourg
Strong integration with retail activities.
AnCo
1,1 B€
US
Part of a highly diversified service group
NewsGroup
1,0 B€
US, Canada
Part of a highly diversified service group
Source: HDS estimates
Agenda
■ Presentation of Hachette Distribution Services (HDS) ■ Strategic positioning by segment ■ Strategic orientations for 2004 - 2007
34
HDS Mission Statement
Hachette Distribution Services (HDS) is a company dedicated to marketing media products and convenience services to its customers all over the world Our mission is to facilitate access to the diversity of ideas and cultures
35
HDS Values ➔ Innovation: to anticipate consumer trends, we are constantly striving to innovate with the continual introduction of new concepts and services ➔ Initiative: in their daily work, our team members must foster a keen sense of initiative and responsibility in order to provide top-quality service to their customers ➔ Professionalism: we work to establish a reputation for expertise amongst our clients and partners ➔ Team spirit: our goals will be achieved through teamwork. Our progress as a team will advance the cause of the Group as a whole ➔ Ethics: we are committed to work in respect with strong ethical standards 36
A vision for HDS
➔ HDS vision is to : ■ Consolidate our strategic position in press distribution ■ Be recognized as an innovative high street retailer of media products and convenience services ■ Strengthen our leading travel retailer position
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Consolidate our strategic position in Press Distribution
➔ National distribution: grow market share and focus on core business ■ Attract new titles through added value services
➔ Wholesale: maintain operational excellence and continue diversification ■ Maintain competitiveness through continuous change programs ■ Diversify by bringing new products and services to retail networks
➔ Be opportunistic in the development
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Be recognized as an innovative high street retailer of media products and convenience services
➔ Selectively develop press retail in high street ■ Focus on most profitable locations and local synergies ■ Innovate with distinctive concepts
➔ Consolidate current media entertainment retail network ■ Innovate in store lay-out and product mix ■ Leverage on Virgin brand equity
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Strengthen our leading Travel Retailer position
➔ Relay: develop network worldwide while strengthening image ■ Develop network where present and open new countries ■ Continue concept evolution ■ Strengthen image and awareness
➔ Specialty Travel Retail: develop actively ■ Enhance portfolio of brands and store concepts ■ Bid for new concessions ■ Participate in the consolidation of European market
40
Conclusion: HDS Vision
➔ Consolidate our strategic position in press distribution ➔ Be recognized as an innovative high street retailer of media products and convenience services ➔ Strengthen our leading travel retailer position
Innovation
41
Initiative
Professionalism Team spirit
Ethics