AS Ekspress Grupp: Consolidated Interim Report for the First Quarter of 2013

Tallinn, Estonia, 2013-05-03 14:53 CEST (GLOBE NEWSWIRE) --  

In the 1st quarter of this year, the Group earned a net profit of EUR 633 thousand as compared to EUR 179 thousand earned a year before. Sales totalled EUR 13.8 million and were 3% lower than last year. EBITDA was 7% lower than in the 1st quarter of 2012 and we ended the quarter with a profit of EUR 1.5 million. Sales and EBITDA expectations were 2% and 9% higher, respectively, but the quarterly net profit remained at the budgeted level.

The keywords that characterise the quarterly result are the unexpected weakness of export markets of printing services that started in the second week of February, the deferred income of different cooperation projects of Delfi Lithuania and allowance for old receivables.  As we managed to offset the fall in EBITDA with lower interest expenses, we are satisfied with the net profit result.

A change in the breakdown of Group’s EBITDA between different segments in the 1^st quarter reveals that against the backdrop of deferred income of online media and the temporary decline in printing services, the result of the periodicals segment improved from last year and the share of EBITDA of periodicals in the Group’s EBITDA increased from 1% last year to 12% this year.

The better-than-expected result of the periodicals’ segment was partly due to the DVD series ended in the first quarter of the year, which was sold together with daily Eesti Päevaleht and which improved the results of the book publisher Hea Lugu and that of AS Eesti Ajalehed. The segment was also supported by the better-than-expected result of Express Post, the home delivery service of periodicals. It was a challenging quarter for newspaper and magazine publishing. While Lithuania reduced the VAT on periodicals and staff cuts also helped to improve the company’s result as compared to the year before, in Estonia all periodicals suffered from the unexpected downturn of the advertising market. The Estonian publisher of magazines reached the advertising revenue of the previous year only in the last month of the quarter, and it was challenging also for daily and weekly newspapers. The revenue base was maintained by subscriptions that remain stable. Readership and advertising revenues of digital newspapers continue their stable growth.

In the online segment, Delfi Latvia managed to exceed last year’s profit. Despite 7% sales growth, the profit of Delfi Estonia remained below last year’s level. Taking into account the low sales and profit targets in the 1st quarter, the difference in absolute figures is actually insignificant. The result was primarily impacted by the charges related to the termination of some employment and service contracts, and the expansion of the editorial office in 2012 as a result of which on the other hand helped the weekly number of unique users of delfi.ee to exceed that of postimees.ee by more than 100 thousand since the final weeks of the quarter. The biggest impact factors behind the financial result of Delfi Lithuania were the deferral of income of some cooperation projects to the second quarter and allowance for old receivables derived from higher advertising revenues in the last quarter of 2012. Since the management considers both factors as a delay in collection of income and not default, it is expected that these setbacks will be offset over the next quarters of the year.

In the printing services segment, the company’s revenue base was impacted by the slowdown in the export markets in the middle of the quarter. The reaction to this has been problematic for the company due to the production capacity constraints that do not enable it to prepare for a sudden decline in the orders of regular customers. According to the company’s management, there are also price pressures in different export markets. Regardless of the shortfall in sales, the company managed to meet its EBITDA target in the final month of the quarter and is optimistic about the next quarter.

In the second quarter of the year 2013, we expect revenue to remain at the last year’s level, EBITDA to decrease by about 7% as compared to the year before, but net profit to increase by 30%. The most significant negative factor is the shortfall in advertising revenue of periodicals; moreover, until the launch of a new DVD series, the segment’s result will also be affected by the ending of the series in the first quarter. In the online segment, we expect to maintain EBITDA at last year’s level, but at a slightly lower margin due to the costs related to the launch of several new projects and content production costs incurred last year which we intend to optimise. In the printing services segment we expect the profit to remain at last year’s level. Significantly lower interest expenses than last year will contribute to net profit growth.

 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 in Eesti Päevalehe AS was acquired. 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

In 2013 and 2012, the Group operated in the following segments:

-          online media,

-          periodicals (newspapers, magazines and books),

-          printing services.

Key financial data of the segments Q1 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.

The sales growth in the online segment has been strong in the 1st quarter; however, the focus remains on improving profitability. EBITDA for the 1st quarter was negatively impacted by the increase in editorial staff, but it has also improved the quality of our content and attracted unique users.

In the 1st quarter of 2013, all Delfi portals continued with face-lifts of their various sections, creation of  new categories and launching cooperation projects with different partners.

Delfi Estonia

•        Delfi Eesti continued live broadcasts of sports events (broadcasts of basketball matches, tennis tournament SEB Tallink Open 2013, etc.) The largest project was the full-day programme of events dedicated to the 95th anniversary of the Republic of Estonia.

•        New categories and sites in the Estonian language version of Delfi, such as Eesti Laul 2013 (Estonian Song 2013), Eesti Vabariik 95 (Republic of Estonia 95), Priiuse Põlistamine (Lasting Liberty), Tallinn Music Week 2013, Spordimelu (Sports World), Motoexotic, Cirque du Soleil, Su nägu kõlab tuttavalt (Your Face Sounds Familiar), Moodne Kodu (Modern Home).

•        New photo gallery.

•        New mobile app version mDelfi 5.0.

•        Cooperation projects with TV stations of TV3, Sky Media and Fox.

•        Cooperation project with the Estonian Athletic Association, Estonian Ski Association, Theatre NO99, Tallinn Music Week, etc.

In the 1st quarter of 2013, there were no significant changes in the Estonian internet market. The number of users continues to grow in the autumn and winter, as in previous years. The market is dominated by two media portals: Delfi and Postimees. Delfi.ee remains the internet portal with the highest number of users in Estonia. During the 1st quarter, Delfi increased its gap with postimees.ee that has been more than 100 thousand weekly users. The number of users of the online environment of Eesti Päevaleht www.epl.ee is also growing steadily and is approaching 250 thousand users a week. In connection with the launch of the new mobile version by www.delfi.ee, the number of mobile users has doubled in the last six months, although it is still only a tenth of the total readership.

Delfi Latvia

•        Launch of a new local news channel, Regional News.

•        Cooperation project with the e-school portal e-klase.lv to attract younger audience.

•        Cooperation with women’s portal kasjauns.lv.

•        Launch of a new mobile application version including an upgraded navigation system and design.

•        According to the survey carried out by the advertising agency DDB, Delfi has been the most popular and powerful online brand in Latvia for several months.

•        Other cooperation projects:

-     Media partner for the Latvian music awards “The Great Music Award”,

-     Main media partner of European rally championships held in Latvia.

The most significant change in the 1st quarter of 2013 was the acquisition of www.spoki.lv portal by Schibsted Group and its integration into the news portal www.tvnet.lv. As a result, the number of users of tvnet.lv increased on average by 50 thousand a month. In terms of the overall internet use, Latvia’s most popular websites are the e-mail environment Inbox and the social network Draugiem. Delfi remains the most popular news site in Latvia with the largest number of users. 

Delfi Lithuania

•        Cooperation project with Nubo TV that allows readers to watch different TV channels online from a computer.

•        New e-bookstore got a very good reception.

•        Launch of the English-language version of Delfi Lithuania. Russian and Polish language portals have been launched some time ago.

•        Completion of illustrated design of classified ads portal Alio.

Among Lithuanian internet users, Delfi Lithuania remains a clear market leader and continues to have more than a 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. In January 2012, research company Gemius adjusted the overall number of Lithuanian internet users that reduced the number of users of all internet portals.

Delfi Ukraine

•        The company continues with the strategy launched last year to offer easier and more tabloid-like news.

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

•        From September 2012 has increased content production of news targeted at women due to the profile of users of Delfi.ua.

The Ukrainian internet market operates in a significantly different manner than that of the Baltic States. As compared to the 1st quarter last year, the number of users of Delfi.ua has increased by ca 30%. The Ukrainian internet market is primarily characterised by a constant change of different media publications and a change of concepts. The market is not yet fully established, and providers and consumers alike are still developing their preferences.

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

The 1st quarter of 2013 is characterised by the continued downturn in the print advertising market. Whereas advertising revenue of magazines returned to the expected level in March, the situation remains complicated for newspapers, despite the relatively stable level of circulations and readerships.

In February the final film in the additional DVD series of 15 films published by OÜ Hea Lugu for the 100th anniversary of the Estonian film industry came out. The entire project was very successful for the company and also helped to increase single-copy sales of Eesti Päevaleht and LP. The number of users of our digital products continues to grow.

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.

Estonian newspaper readership 2012-2013

Despite of decreasing circulations there are positive news about the increased number of readers of printed newspapers by 50 thousand readers in comparison with the 1st quarter of 2012. The number of readers of Eesti Päevaleht has increased the most, i.e. 17 thousand readers as compared to the same period last year. The Group continues to focus on developing digital newspapers, the number of which is not included in the table above. 

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 (cold-set) and magazines (heat-set).

Due to operation of heat-set machines at maximum production capacity levels during the peak seasons, sales growth is getting more difficult to attain. Lower circulation of newspapers also has a negative impact, as it is getting more difficult to compensate for the decline in the print volume of cold-set machines. In the 1^st quarter of 2013, total sales fell by 10%; however, the decline in the sale of printing services excluding the sale of paper was considerably lower, i.e. 2.3%. The share of group companies in sales is decreasing and the share of exports is increasing. Most of the volume growth is generated by printing on heat-set machines, which makes up ca. 85% of total 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