AS Ekspress Grupp: Consolidated Interim Report for the

Tallinn, Estonia, 2013-08-01 14:54 CEST (GLOBE NEWSWIRE) --  

In the 2 ^nd quarter of this year, Ekspress Grupp earned net profit of EUR 1.4 million as compared to EUR 972 thousand a year before which is 44% higher. EBITDA was 6% lower than last year, i.e. EUR 2.4 million as compared to EUR 2.5 million last year. We are satisfied with both results as they exceeded our forecasts published in the last quarter’s report. We expected net profit to increase by 30% and EBITDA to decrease by 7%. The EBITDA margin for the quarter fell by 0.2 percentage points as compared to the same period last year. 

In the first half of 2013, we earned net profit in the amount of EUR 2 million which is 76% higher than in the same period last year and EBITDA was 6% lower than last year, totalling EUR 3.9 million. The EBITDA margin in the first half of the year fell by 0.4 percentage points as compared to last year. 

By the end of the 2 ^nd quarter we have significantly lowered the company’s debt, and attained a total debt/EBITDA ratio of 3.4. The debt service coverage ratio has improved to 1.84 by the end of the quarter. 

The results in the quarter were marked by the decline of efficiency in the online segment, primarily related to the cost of launching various new projects, which hindered profit growth while sales were growing, as well as deficit in the advertising revenue of print media. In the printing services segment, our revenue has decreased but we have managed to maintain profit at last year’s level and hence increased profitability.

In the online segment Delfi Estonia and Delfi Lithuania have managed to maintain their profits on last year’s level in the 2 ^nd quarter. At the same time EBITDA of Latvia failed to meet last year’s result, unlike in the 1 ^st quarter when Latvia was the only one to improve its result as compared to last year. The reason for Delfi Latvia’s underperformance is the increase in costs related to the hiring of additional editors in the autumn of last year. While Delfi Lithuania managed to attain last year’s level, it failed to cover the shortfall of the 1 ^st quarter in the result for the half year. In the first months of the quarter, the position of overdue accounts receivable improved considerably, but we were forced to increase discounts again in June. Cooperation projects which moved from the 1 ^st quarter to the 2 ^nd quarter in Lithuania have been partially launched. 

In the online segment, we have laid great emphasis on the creation of new online verticals and growth of video production. New projects included the launch and further development of three online verticals in Lithuania in the first half of the year, using primarily our own magazine trademarks as the basis. In Estonia, we launched a travel portal Reisijuht.ee at the end of the quarter which we also plan to introduce in Latvian and Lithuanian markets. The travel portal cooperates with the publisher Telegraph Media Group of Great Britain. In all the countries we have continued with video live-streaming both in the fields of culture as well as sports.    

In May, we concluded an agreement for the acquisition of the company that operates the portal Calis.lv in Latvia. The transaction was completed in July this year. The portal is targeted at women, primarily at young mothers. We plan to strengthen the portal through different thematic content and for this reason we have acquired the Baltic content rights from the German publisher Grüne und Jahr. 

In summary, it can be said about the online segment that the launch of new projects and video production has temporarily lowered the efficiency of the segment but it should improve once the projects are launched.

As expected, the periodicals segment is under great pressure. The advertising sales of the segment declined by almost 5% and retail sales by almost 9% as compared to last year. We are happy that the sales generated by subscribers stayed at the same level as last year and the growth of digital subscribers was 50% as compared to the same period last year. As compared to the last quarter, we have increased the number of digital subscribers by approximately 10%. The decline in advertising sales is primarily attributable to the decline in the number of employment ads, as well as migration of retail ads to TV.  At the same time we are witnessing positive trends in the magazine advertising sales, where the year started off very slowly, but the 2 ^nd quarter was at the same level as last year. 

In the printing services segment, we have compensated the sales decline which started in the middle of the 1 ^st quarter by increasing efficiency in production process, due to which our profitability has not suffered. The reasons for the sales decline are related to the weakness in export markets and the situation at the printing works where the high utilisation of machines hindered sales growth. Compensation of lower customer orders which unexpectedly started at the beginning of the year by new clients has been delayed. However, due to our low market share in different export markets we are confident that we will also be able to compensate for the sales decline in the second half of the year. 

In the third quarter of the year we expect revenue to remain at last year’s level, EBITDA to increase by 5-10% and net profit to double. First and foremost, we expect better results in the online segment as compared to the same quarter last year, as well as higher profitability of magazine publishing as compared to last year which should compensate for the weakness of weekly and daily newspapers in the periodicals segment. With regard to the printing services segment, we expect to maintain last year’s level. Net profit growth will primarily be achieved through lower interest expenses as compared to last year.  

KEY FINANCIAL INDICATORS AND RATIOS

* The results exclude impairment of goodwill and trademarks, and the net extraordinary gain in relation to the acquisition of an additional ownership interest in Eesti Päevalehe AS (see below).

** In the 1 ^st quarter of 2011, an additional 50% ownership interest was acquired in Eesti Päevalehe AS. The transaction was accounted for in two parts: firstly, as the sale of the current 50% ownership interest on which the net extraordinary gain totalled EUR 1 540 thousand and secondly, as the acquisition of the wholly-owned subsidiary.

OVERVIEW OF THE SEGMENTS

The Group operates in the following operating segments:

-        online media

-        periodicals (newspapers, magazines and books)

-        printing services.

Cyclicality

All operating areas of the Group are characterised by cyclicality and fluctuation, related to the changes in the overall economic conditions and consumer confidence. The Group’s revenues can be adversely affected by an economic slowdown or recession. It can appear in lower advertising costs in retail and housing sectors, preference of other advertising channels and changes in consumption habits of retail consumers.

Seasonality

The revenue from the Group’s advertising sales as well as in the printing services segment is impacted by major seasonal fluctuations. The level of both types of revenue is the highest in the 2 ^nd and 4 ^th quarter of each year and the lowest in the 3 ^rd quarter. Revenue is higher in the 4 ^th quarter because of the higher consumer spending during the Christmas season, with the attendant peaks in advertising expenditure. Advertising expenditure is usually the lowest during the summer months, as well as during the first months of the year following Christmas and New Year’s celebrations.   

Key financial data of the segments Q2 2013/2012

Key financial data of the segments 1 ^st half year 2013/2012

The segments’ EBITDA does not include intragroup management fees, and impairment of goodwill and trademarks. Volume-based and other fees payable to advertising agencies have not been deducted from the advertising sales of segments, because the management monitors gross advertising sales. Discounts and rebates are reduced from the Group’s sales and are included in the combined line of eliminations.

News portals owned by the Group      

Classified portals owned by the Group

Online media segment

The online media segment includes Delfi operations in Estonia, Latvia, Lithuania and Ukraine as well as the Parent Company Delfi Holding.

In the 2 ^nd quarter, sales growth in the online segment continued at the same pace as at the beginning of the year; however, June was slower than expected. Sales growth is driven by several new products, such as video streaming etc, which require significant expenditure and due to which profitability suffers. However, these represent new trends in online media with good prospects. Additional editorial staff has helped to improve the quality of our content and attracted new unique users, although it has negatively impacted EBITDA. In all the countries, Delfi has reached new record highs both in terms of the number of users as well as pageviews. At the same time continuous optimisation of processes and costs is taking place.   

Delfi Estonia

·       Delfi Estonia continued its live broadcasts of sports events (broadcasts of basketball matches, etc.), followed by broadcasts of various cultural events, such as  Tallinn Music Week, Jazzkaar, etc.

·       A new business website Ärileht www.arileht.ee was launched in cooperation with Eesti Päevaleht.

·       New travel portal www.reisijuht.ee .

·       New baby-blog in cooperation with the clinic Fertilitas.

·       The subportals of Eesti Elu and Naisteka got a facelift.

Delfi continues to be the largest online environment in Estonia. In the 2 ^nd quarter of 2013, the gap between Delfi and Postimees widened considerably on a weekly basis, reaching 176 thousand users in favour of Delfi in week 20. In the same week, delfi.ee reached the highest ever number of users, with 1 109 305 users on a weekly basis. Delfi outperformed Postimees also in terms of the number of mobile users, reaching 190 thousand mobile users in week 23. The use of other internet environments has been stable and without any major changes in Estonia.

Delfi Latvia

·       A new home and garden portal was launched.

·       A new travel portal was launched with Delfi Estonia and Delfi Lithuania.

·       All Delfi channels and verticals received a facelift.

·       Other cooperation projects in various fields:

-        Media partner for Nordea Riga Marathon,

-        Official news portal for Rally of Champions,

-        Official cooperation partner of the advertising festival “Golden Hammer”.

·       Based on the survey by DDB, Delfi remains the most popular and influential brand in Latvian social media.

In the 2 ^nd quarter of 2013, there were no major changes in Latvian internet environments. Delfi.lv has widened the gap with the key competitor Tvnet.lv, which after the acquisition of spoki.lv in the 1 ^st quarter of 2013 increased the number of its users by 50 thousand on average. In the 2 ^nd quarter, Delfi Latvia acquired the portal calis.lv, primarily targeted at young mothers. The integration of its users with Delfi.lv will take place in the second half of 2013. Delfi.lv continues to be the news portal with the highest number of users in Latvia. The most popular webpages among Latvian Internet users continue to be the e-mail environment Inbox and the social network Draugiem.

Delfi Lithuania

·       Two new verticals were launched in the market  – one of which home-related and the other one with family and parenting.

·       May of this year turned out to be the best month ever for Delfi Lithuania.

Among Lithuanian internet users, Delfi Lithuania remains a clear market leader and continues to have more than one million unique users a month. From the second quarter of 2012, Delfi has increased the gap with other portals and Delfi has more than 200 thousand users more than its closest competitor. As compared to the 2 ^nd quarter of last year, Delfi has increased the number of regular users by ca. 6%. The use of smaller internet portals shows a modest downward trend, which refers to the fact that users prefer to receive all necessary information and entertainment from one source.

Delfi Ukraine                           

·       The company continues with the strategy launched last year to offer easier and more tabloid-like news and has increased its content production of news targeted at women due to the profile of users of Delfi.ua.

·       Marketing activities in social media and cooperation projects with radio and TV channels to improve Delfi’s visibility in the market.

The Ukrainian internet market operates in a significantly different manner than that of the Baltic States. As compared to the 1 ^st quarter last year, the number of users of Delfi.ua has increased by ca. 16 %. May was one of the best months for Delfi.ua unlike the overall trend in the internet market, Delfi.ua increased by 12% as compared to last month. The Ukrainian internet market is generally characterised by a constant change in various media publications. The market is not yet fully established, and providers and consumers alike are still developing their preferences. In the 2 ^nd quarter of 2013, one important change occurred among market participants, when the media group UMH changed ownership.  

Periodicals segment  

The periodicals segment includes the publishers of newspapers, magazines and books. This segment also includes AS Express Post, engaged in home delivery of periodicals.

*Proportionate share of joint ventures

Estonian newspaper circulation 2012-2013

Circulations of Estonian newspapers remain stable or are slightly decreasing. The circulation of daily newspapers has been falling more than that of weekly newspapers. The Estonian market is inevitably following the global trends of consumers migrating from printed newspapers to digital channels. As compared to 2012, only Maaleht has increased the average circulation in a quarter, by 100 copies. The circulation of other publications is slightly decreasing.

Estonian newspaper readership 2012-2013

Stable growth of the readers of Maaleht can be highlighted as positive news. As compared to the 2 ^nd quarter of last year, the number of readers of Maaleht has increased by 9 000 readers. The number of readers of other newspapers is relatively stable. The number of printed newspapers excludes the readers of digital newspapers, the development of which remains under the Group’s special focus.

Printing services segment  

All printing services of the Group are provided by AS Printall which is one of the largest printing companies in Estonia. Printall is able to print both newspapers (coldset) and magazines (heatset).

Due to operation of heatset machines at maximum production capacity levels during the peak season, sales growth is getting more difficult to attain. Decrease of circulations also has a negative impact, as compensating the decrease and obtaining new clients is due to specifics of printing industry a long term process. Despite the decline of the segment’s total sales by up to 7% in the first half of the year, the share of only printing services has decreased considerable less, i.e.  2.2%. The share of group companies in sales is decreasing. However, the sales in Estonia have increased as compared to the same period last year. The focus continues to be laid on making processes more efficient, as a consequence of which EBITDA has remained at the same level as last year despite falling sales.  

Printing services and the environment

In addition to its very strong financial position, Printall also focuses on environmentally conscious production. In 2012, Printall was granted ISO 9001 management and ISO 14001 environmental certificates.

The Minister of the Environment of the Republic of Estonia and the waste managing company AS Ragn-Sells awarded Printall with the title of the Top Recycler of the Year, because the company recycles 95% of its waste.

The Nordic Council of Ministers has awarded Printall with the environmental label “The Nordic Ecolabel”, used to acknowledge the companies in the Nordic countries that use environmentally efficient production. Printall also has FSC and PEFC Chain of Custody (COC) certificates, which the company uses to promote a green way of thinking in the printing industry. Both of those certificates indicate compliance with monitoring and product production process requirements which are issued to businesses that comply with the requirements established by the FSC (Forest Stewardship Council) and the PEFC (Programme for the Endorsement of Forest Certification). A business that is issued these certificates helps to support the environmentally friendly, socially fair and economically viable management of the world’s forests.

Printall cares about the environment and uses green energy. The POWERED BY GREEN certificate is a proof that the company buys electricity, 70% of which has been generated by renewable sources of energy.

Consolidated balance sheet (unaudited)

Consolidated statement of comprehensive income (unaudited)

Consolidated cash flow statement (unaudited)

         Additional information:          Gunnar Kobin          Chairman of the Management Board          GSM: +372 5188111          E-mail: gunnar@egrupp.ee