We continue our TheTicketingBusiness finance insights series with the latest accounts of Deutsche Entertainment AG (DEAG):
Deutsche Entertainment AG (DEAG) was founded by Prof. Peter Schwenkow in 1978 in Berlin, listed on the Deutsche Börse since 1998, and is a live entertainment business operating within the Arts-Exhibitions, Classical & Jazz, Family Entertainment & Rock-Pop sectors, with a growing in-house ticketing division mytic MyTicket AG.
With over 40 years in the business the group has developed a foundation of events and shows on which to build. Core operating territories were initially focussed on Germany and Switzerland, but following the (51%) majority acquisition of Kilimanjaro Live in 2014 the United Kingdom has been a key focus and growth opportunity.
Interestingly, DEAG in 2018 derived 56% of its revenues from operations in the German-speaking markets (Germany & Switzerland), with 44% from the U.K. A copy of its latest (2018) accounts can be downloaded here. Its web site offers a view of what it calls its “core markets”.
DEAG’s recent strategy has been to consolidate its number of operating divisions and to reduce the number of minority shareholders within its core businesses of classical promotions and ticketing in a series of transactions.
In June 2018 it disposed of it’s shareholding in Raymond Gubbay Live to Sony Music Entertainment International whilst acquiring the minority shareholding of DEAG Classics AG from Sony Music Entertainment Germany, and then in October 2018 consolidated its ownership of the Swiss-subsidiary Classical Company buying the minority shareholding from Ringier.
Additionally over the last two years DEAG expanded its UK operations with the acquisition of Flying Music in August 2017, the Belladrum Tartan Heart Festival in June 2018 and most recently announced the formation of Kilimanjaro Theatricals, a J-V with Joshua Andrews theatrical producer.
The Pipeline: Shows + Tickets
With regards to ticketing, DEAG has been involved with a number of technology service partners and differing J-V shareholders during its history including Ticketmaster, wLeC (White-Label eCommerce GmbH), Axel Springer, Starwatch Entertainment and, most recently, the announcement of a ticketing partnership with SaaS provider Secutix.
In 2005 as Ticketmaster entered the German market with the acquisition of Kartenhaus (Hamburg-Based retail agency), DEAG initially assigned its ticketing rights to the distribution platform for an undisclosed minority stake in the Ticketmaster.DE company, an agreement subsequently terminated.
Following the establishment of wLeC by Arndt Scheffler (previously VP Of Sales at Eventim) in 2012, DEAG then established the ticketing portal myticket.de utilising the white-label solution to offer in-house ticketing and merchandise up sales.
In August 2015 DEAG then sold two ‘media-for-equity’ (initially 20% rising to 24.9%) minority shareholdings in MyTicket to media partners Starwatch Entertainment (part of the ProSiebenSat.1 Group) and BILD (Axel Springer SE) to aid further growth and development of the ticketing solution.
These partnerships were however eventually dissolved, in July 2018 with Starwatch Entertainment, and in January 2019 with Axel Springer, when DEAG took back full control of its ticketing subsidiary and then announced its partnership with Secutix to start in Q2 2019.
MyTicket CEO Moritz Schwenkow stated that the partnership with Secutix would enable adoption of the latest ticketing developments such as Blockchain technologies and dynamic pricing, expansion of the MyTicket domains beyond Germany and Austria, whilst also act as an encouragement for non DEAG promoters to join the ‘leading electronic ticket platform’.
In the UK, until recently Kilimanjaro Live has historically utilised SeeTickets as its main retail ticketing distribution partner albeit non-exclusively. The market expectation is that the U.K. operations will eventually combine its ticketing to the DEAG-Secutix agreement and the MyTicket brand and destination will become more consistently applied.
Overall of the 5 million tickets sold by DEAG in 2018, a small proportion were sold directly by MyTicket and the first task will be to increase that channel sales penetration before then attracting others to similarly work alongside it.
A Tangled Web: Subsidiaries and Affiliates
The complicated ownership structure within DEAG Holding reveals 39 affiliated companies across seven locations in Germany, Switzerland and the U.K.
The company also reports its business within two divisions: ‘Live Touring’ and ‘Entertainment Services’ (fixed location) with the group overall promoting approx. 4,000 events generating over 5 million ticket sales in 2018.
Combined 2018 revenues were €200.2M, up 25% from €159.8M the previous year, which includes a €40M increase via Kilimanjaro Live operations and a €16M decrease as a result of the Raymond Gubbay deconsolidation.
DEAG Live Touring was up 23% driven by strong performance by music and in particular by Ed Sheeran whom played 31 Kilimanjaro Live promoted and/or co-promoted dates in 2017 (with 21 shows in G-A-S, UK & Ireland) and 47 DEAG dates in 2018 (with 37 in G-A-S, UK & Ireland).
Ticketing Ed: Protecting Revenues. Educating Fans
The Ed Sheeran ÷ Stadium Tour Fan Engagement Campaign coordinated by Kilimanjaro Live / DHP / AEG / FanFairAlliance / Victim of Viagogo was recently nominated in the annual TheTicketingBusiness Awards ‘Campaign of the Year’ category. The campaign was designed to protect fans from fraudulent tickets sold in breach of the strict event T&C’s. Exhaustive communications and marketing by the event promoters and support agencies messaged that only authorised primary agencies and officially resold tickets would be valid and allowed entry to the concerts.
Kilimanjaro Live worked in conjunction with Victim of Viagogo to assist fans in reclaiming back the inflated cost of tickets bought on Viagogo (with over £300K reclaimed before the beginning of the tour, ultimately saving in excess of £1M in 2018) whilst enabling the sale of new tickets at face value to fans.
DEAG promoter revenue is recognised upon event maturity. However, cash from ticket sales is booked when the tickets are sold. As such, a significant amount of the Ed Sheeran cash would have been collected in 2017 for 2017 and 2018 events, and assuming most were sold-out shows, few tickets were then actually sold in 2018 for 2018 events.
DEAG therefore reported 2018 cash flow from operations was -€13.3M compared to +€16.7M in 2017.
Contract liabilities (guarantee payments and deferred revenue for tickets sold to future events) also declined by 49% to €34.7M year-on-year.
Other strong acts for DEAG in 2018 included concerts by Iron Maiden, Die Toten Hosen and the Foo Fighters with artist guarantees totalling €20.3M in 2018, up from €14.6M in 2017.
DEAG Entertainment Services was up 19% largely derived from the Jahrunderthalle Frankfurt acquisition.
Flat Without Ed
A snapshot of its turnover and EBIT over the last four years is provided in this image from its own web site:
Upon further examination, €9M of the €40M increase in DEAG revenues were derived from acquisitions and excluding Kilimanjaro Live results the overall DEAG position was flat year-on-year at €114M.
DEAG EBIT (Earnings Before Interest & Tax) was €10.6M, up 110% from the previous year result of €5.5M. This includes the impact of the Raymond Gubbay share sale (€5.2M) and Ben Wyvis Live (Belladrum) (€1.4M) acquisition, with Kilimanjaro Live representing just over half of the overall improvement.
DEAG Bank loans were paid down by €6.8M to €10.1M.
The DEAG Balance Sheet revealed that current assets declined from €83.4M to €63.9M, including a €13.3M decrease from Kilimanjaro Live. Cash and Trade Receivables were both down 13% and 60%, respectively, mainly from Kilimanjaro Live impact.
Other intangible assets increased 51% to €13.2M driven by the Belladrum acquisition.
Tangible fixed assets increased to €19.4M, up €17.0M which included €15.0M resulting from the first-time application of IFRS 16 [see note below].
Total assets were flat year-on-year.
In October 2018 DEAG raised €20M in 6% bonds to fund continued growth via acquisition whilst not diluting equity: DEAG successfully places EUR 20 million debut bond 2018/2023. This follows on from a €5.7M convertible bond issue undertaken in 2016, and the DEAG Board also approved buy-back of up to 10% of existing share capital to treasury stock.
DEAG: New Tech in Old Markets
The group is increasingly look at new, technology-driven entertainment offerings. For example it acquired a 8% stake in TimeRide – a time-travel VR experience in 2017. It’s not alone. Other live entertainment companies whom have investigated opportunities with new technologies include: Live Nation partnered with HULU for a VR documentary series and NextVR to stream VR concerts; Warner Music partnered with VFX studio Digital Domain; and Universal agreed a deal with VRLive to produce VR content.
- DEAG claims it is targeting less competitive, attractive niche markets within Germany and Switzerland and then positioning in these markets with strong, profitable content from the Arts-Exhibitions, Classical & Jazz, and Family Entertainment sectors.
- But DEAG has (recently) been far more successful outside of Germany – with Kilimanjaro Live, the promotion of the Ed Sheeran ÷ Stadium Tour, and other UK activities.
- Operationally, DEAG is focussed on its core German, Swiss and UK markets, which helps to drive cost savings and operational efficiencies and avoids the risks of developing new markets.
- Strategically, its has developed a cross-section of genres and is intent on further consolidation of those sectors.
- On the financing side, in addition to the €25M cash generated from Kilimanjaro Live activities, its has issued relatively low-cost bonds which will lower its overall cost of capital. This will result in a more optimal capital structure and give it the opportunity to finance more events and execute on its strategy to further reduce the number of minority shareholders and to acquire new partnerships whether promoter, festival, or venue.
Whether it is its stated objective or not, it would appear that the group is positioning itself well as an attractive acquisition target or investment for a strategic partner.
Footnote: IFRS16 is an accounting standard change effective with reporting periods beginning 1 January 2019. In summary, the new standard requires companies to report operating leases previously reported as an expense on the income statement to now classify them on the balance sheet as an asset and associated liability, and the company will record the interest costs and depreciation of the asset. For example, Leases used to be classified as an operating or finance lease. Operating leases were simply expensed as a period cost on the income statement with no balance sheet impact. Finance leases were recorded as an asset and depreciated with the interest costs recorded as interest expense. Under IFRS 16, operating leases are treated the same way as finance leases.
Other articles in our Finance Insights series:
- INSIGHTS (22nd March 2019): CTS Eventim’s dividends and performance
- INSIGHTS (4th April 2019): Eventbrite’s stock performance since IPO
*ABOUT THIS ANALYSIS: This series of financial insights is provided by the The FP&A Team at TheTicketingBusiness. The FP&A Team comprises a group of industry finance experts who volunteer their expertise to provide ad hoc analysis of key industry financial, M&A, funding and investment news. All in an effort to better-inform the market and support the industry’s long term development. Any questions or feedback welcome to [email protected]
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