AS Ekspress Grupp: Consolidated Interim Report for the Second Quarter and Half Year of 2012

Tallinn, Estonia, 2012-08-02 09:23 CEST (GLOBE NEWSWIRE) --  

The following report presents the consolidated financial information of AS Ekspress Grupp, the related market developments and management decisions. The financial indicators and ratios show the outcome of the Group’s continuing operations, i.e. they express the consolidated operating results of online media, periodicals and printing services segments.

Key financial indicators and financial ratios

* excluding the net extraordinary gain in relation to the acquisition of Eesti Päevalehe AS. 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 (see Note 4 to the interim financial statements).

* excluding the net extraordinary gain in relation to the acquisition of Eesti Päevalehe AS (see above)

Formulas used to calculate the financial ratios:

* excluding the net extraordinary gain in relation to the acquisition of Eesti Päevalehe AS.

Formulas used to calculate the financial ratios:

In the 2^nd quarter, AS Ekspress Grupp’s consolidated net profit was 147% higher than a year ago, i.e. EUR 972 thousand. The net profit for the first half of the year (excluding the net extraordinary gain in relation to the acquisition of Eesti Päevalehe AS) increased by 381% and totalled EUR 1.2 million. In the 2^nd quarter, EBITDA increased by 25% as compared to last year and totalled EUR 2.5 million, and in the first half of the year, it increased by 21% and totalled EUR 4.1 million. In the 2^nd quarter, the company’s sales amounted to EUR 15.7 million, which is 5% higher than last year. In the first half of the year, the company’s sales amounted to EUR 29.9 million, which is 7% higher than last year. The group’s EBITDA margin was 16% in the 2nd quarter and 14% in the first half of the year. As compared to the budget for 2012, the Group exceeded its sales forecasts by 2% and EBITDA forecasts by 10%.

Sale of the online media segment increased the most, by 16% in the 2nd quarter and 17% in the first half of the year. With regard to EBITDA growth, the periodicals segment showed the best results in the 2^nd quarter with its 150% growth rate. However, the online media segment improved its results the most, increasing its EBITDA by 97%. 

The most successful company in the online media segment in terms of its sales growth was Delfi Lithuania both in the 2^nd quarter and in the first half of the year. Its EBITDA growth was also the highest in absolute terms. Yet, in percentage terms, sales growth was more or less similar in all Baltic States in the 2^nd quarter but Delfi Lithuania grew a little faster in the first half of the year. The key reason behind Delfi Lithuania’s growth was reorganised sales activities as a result of a change of management. Advertising sales growth in mobile platforms as compared to previous periods is worth mentioning in the online media segment, where sales were 6.4 times higher in the 2^nd quarter and 4.6 times higher in the first half of the year. Advertising sales growth in Ukraine has continued, but it failed to meet the expectations of the Group’s management. 

In online media, business was conducted as usual without any major changes. In Lithuania and Estonia, a new frontpage design targeted at younger readers was introduced in the market. The alternative frontpage is called Delfi Easy in Lithuania and Delfi2 in Estonia. The aim of this change is to offer Delfi’s news to younger readers through a more visually oriented, image-heavy layout. The plan also calls for introduction of a frontpage with a lot of pictures in Latvia. In addition, new weather forecast pages were launched in Latvia and Lithuania which have become unexpectedly popular since their launch.

The company’s management expects the growth of the online media segment to continue and in order to achieve this goal, we are in the process of introducing new products in the market and we consider increasing our market share through development or acquisition of various possible niche products.

In the periodicals segment, both on the 2^nd quarter and the entire first half of the year were a period of contradictory trends. While in the magazine market, the problem has been retail and subscription sales of magazines both in Estonia and Lithuania, whereas retail and subscription sales of newspapers have been more successful than in previous periods. It has also been possible to raise the average subscription price. The retail sales of Eesti Päevaleht have been greatly supported by the DVD series of Estonian classic films launched in spring. It has also impacted the readership survey figures of Eesti Päevaleht, guaranteeing 50% newspaper readership growth in Tallinn and over 25% growth in entire Estonia. Advertising sales have been challenging and the print advertising market has not shown a significant increase in the first half of the year. Yet the situation varies from newspaper to newspaper. Maaleht and Eesti Ekspress have managed to outperform the market and grow their advertising revenue in the first six months of the year. The advertising revenue of Eesti Päevaleht has continued to shrink as compared to last year.

As a new product, we acquired a license to publish the magazine GEO in Lithuania and its first issue was published in June. Next year, the operating results of Lithuanian magazines will be positively impacted by an amendment to the VAT law to be entered into force on 1 January which lowers VAT on periodicals from current 21% to 9%. 

The largest development in terms of the operating results of the periodicals segment has occurred at AS Eesti Ajalehed, the company which publishes Eesti Päevaleht, Maaleht and Eesti Ekspress, where the improvement of the operating results is attributable to the organisational structural changes implemented earlier. In conjunction with the establishment of a new editorial office of daily new on the basis of the editorial offices of Eesti Päevaleht and Delfi, the operations of the entire editorial office of Delfi was transferred from AS Delfi to AS Eesti Ajalehed on 1 May 2012.  

In the printing services segment, business was conducted as usual within the boundaries of current production capacity. The company is unable to replicate its drastic revenue growth achieved in prior years due to its limited capacity and attention will primarily be paid to fulfill production caps. In the printing services segment, the effect of an extraordinary expense (EUR 100 thousand) on the company’s operating results is worth mentioning separately, since it will affect the segment’s profitability. By normalising the company’s results, the printing services segment has managed to preserve its high EBITDA margin on the level of last year. 

The key event which occurred after the balance sheet date was related to refinancing of all group’s loan liabilities by a new syndicate. On 12 July 2012, Ekspress Grupp entered into a new syndicate contract and refinanced all Group’s current loan and finance lease obligations towards banks and leasing companies. The refinancing transaction was completed on 23 July 2012. The parties to the new syndicate are SEB Pank and Nordea Bank Estonia branch.

The most significant conditions as compared to the previous contract include a 1% lower interest margin, extension of the maturity until 25 July 2017 and monthly instalments based on average 7.8 years annuity payment schedule. Upon expiry of the loan contract, the bullet amount is approximately EUR 11 million. The maturity date of the previous loan contract was 25 January 2015 and repayments from 2013 would have occurred under a five year annuity.

The amendments to the new syndicated loan entered into are going to have an immediate effect on the company’s operating results. The new contract will lead to lower monthly loan principal and interest payments, and the costs related to the existing collateral will also fall. The effect of the contract amendments on the company’s net profit will be approximately EUR 200 thousand per year. While the previous loan contract limited the payment of dividends to shareholders, it is allowed under the new contract. The company will incur an expense in the approximate amount of EUR 60 thousand related to contract and collateral set-up fees.

As a result of the amendment to the syndicated loan contract, the amount of available cash will increase, which we plan to invest in growing the business through acquisition and launch of new entities or revenue-generating assets. 

As the refinancing of loans constitutes a post balance sheet event, the liabilities and their allocation between current and non-current liabilities is reported in accordance with the contract in force at the balance sheet date and not based on the conditions as set  in the new loan contract. Please also refer to Notes 13 and 14 to the interim financial statements.

The Group’s management has a neutral view on the second half of the year. The key reason for this is the macroeconomic background in Europe, the effect of which on the operating results of Estonia and the Baltic States is neutral rather than pessimistic. We expect online media to continue to grow while the goal for the periodicals segment is to preserve the last year’s level. We will continue to develop digital publications of Eesti Ekspress and Eesti Päevaleht. We have also started to more actively search for opportunities to increase the Group’s market share with acquisitions primarily in the area of online media.

Overview of the Group’s segments

Key financial data of the segments in Q2 2011/2012

* excluding the net extraordinary gain in relation to the acquisition of Eesti Päevalehe AS.

Key financial data of the segments in the first half of the year 2011/2012

* excluding the net extraordinary gain in relation to the acquisition of Eesti Päevalehe AS.

The segments’ EBITDA does not include goodwill impairment. This is included within the corporate function. Neither does include the segment results intragroup management fees. Volume-based and other fees payable to advertising agencies have not been deducted from the advertising sales of segments, because the Group’s management monitors the gross income of companies and segments. Discounts and volume rebates are reported as a reduction of the Group’s sales and are shown among eliminations.

News 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 of 2012, all Delfi companies managed to show uniformly strong results, significantly exceeding the result for the same period last year.

Delfi Estonia

·         Delfi Estonia completed a new picture-rich frontpage –Delfi2.ee

·         A separate Olümpia 2012 section was launched

·         A Russian language e-store was opened

·         A separate soccer category in Delfi Estonian and Russian versions as well as mobile applications

·         New categories in the sections of Publik, Sport, Noorte Hääl as well as on Delfi’s Russian page

·         A new Facebook wall in Noorte Hääl

·         Reisileidja (Travel finder) is now also on Facebook

·         Delfi archive received a facelift

·         Administration of Delfi stories and photos was upgraded and improved

In the 2^nd quarter of 2012, there were no major changes in the Estonian Internet market. Two media portals - Delfi and Postimees – dominate the market. The reach of Delfi Estonia is 66% on average among Estonian Internet users. According to the data by TNS EMOR, the number of Delfi users has increased by 3-4% in a year. The online environment of Eesti Päevaleht www.epl.ee is steadily increasing its number of users.

At the end of June, the TNS EMOR replaced the software for monitoring online environments and from the 3^nd quarter of 2012, new data will be published which is not directly comparable with previous quarters.

Delfi Latvia

·         Project “Road reporter“, where videos were made of the Latvian roads from Delfi advertising vehicle during 12 weeks

·         A new weather section was launched, which received positive feedback and attracted many new users

·         New sections for ice hockey, European Football Championships and London Olympics were launched

·         Media partner in the international advertising festival Golden Hammer and in the largest classical music festival “Riga     Festival”

The most popular websites among the Latvian Internet users continue to be the e-mail environment Inbox and the social network Draugiem. Delfi Latvia (delfi.lv) continues to be the most popular news portal. A change of ownership of competing portals (apollo.lv and tvnet.lv) in the 4^th quarter of 2011 has not changed reader preferences and also no major changes have occurred in the preferences of Russian readers.

In April 2012, the total number of Internet users published by the research company Gemius was corrected and hence, there is also a noticeable decline in the number of users in April.

Delfi Lithuania

·         Similarly to Estonia, a picture-rich frontpage Delfi Easy was launched

·         A new weather section and “Mano litai“ targeted at consumers were launched

·         A separate category for London Olympics

·         Delfi game section was upgraded

·         Official communications partner at Lithuanian Internet conference LOGIN

Delfi continues to be the uncontested market leader among Lithuanian Internet users with biggest reach among internet users. Schibsted Group continues its aggressive expansion in Lithuania, it acquired the TV-schedule portal tv.lt and the weather portal orai.lt in the 2^nd quarter of 2012. With these investments, 15min.lt has significantly increased its readership over the last year and has reached the second place among Lithuanian portals in terms of its readership numbers.

Delfi Ukraine

·         Marketing actions in social media and collaboration 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. The number of users of Delfi.ua has increased by ca. 15% as compared to the 2^nd quarter of 2011. Higher general activity of Internet users in June is primarily related to the organisation of the European Football Championships in Ukraine. According to the data by Gemius, the total number of Ukrainian Internet users was 14.5 million in June.

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.

On 1 October 2011, Eesti Päevalehe AS and AS Eesti Ajalehed were merged. At the same date, the book publishing department of the merged company was spun off as a separate legal entity under the name of OÜ Hea Lugu that remained as the subsidiary of AS Eesti Ajalehed. On 1 November 2011, the joint ventures AS SL Õhtuleht and AS Linnaleht were merged, and from 1 January 2012, Uniservice OÜ and AS Ajakirjade Kirjastus were merged.

* Proportionate share of joint ventures

** For the purpose of comparability, AS Eesti Ajalehed combines the data for AS Eesti Ajalehed, Eesti Päevalehe AS (100% in both years) with that of OÜ Hea Lugu.

*** Intra-segment eliminations in sales and EBITDA for the first half of 2011 include the elimination of the 50% ownership interest in Eesti Päevalehe AS in January and February.

In the 2^nd quarter of 2012, the revenue of the periodicals segment grew and primarily due to additional sales from Linnaleht and a successful DVD series of Estonian classic films. The segment’s advertising and periodicals sales have stayed more or less stable. In the 2^nd quarter, revenue from book publishing increased, but primarily due to sales campaigns which unfortunately did not significantly increase the profit.

The joint project of OÜ Hea Lugu and Eesti Päevaleht to celebrate the 100^th anniversary of Estonian film industry, in the framework of which a series of 30 Estonian classic films will be issued, has received a very warm reception and helped to increase single copy sales of Eesti Päevaleht as well as offset modest revenues of book publishing in the first half of the year.

Estonian newspaper circulation 2011-2012

In the 2^nd quarter of 2012, no major changes occurred in the circulation of newspapers. It is worth mentioning that only Äripäev has increased its circulation and namely in June 2012. As compared to the 1^st quarter of 2012, Eesti Päevaleht has also increased its circulation. Other publications of the Group, Eesti Ekspress and Maaleht have maintained their stable position. The publication of Schibsted Group, Postimees has slightly lost its circulation in the 2^nd quarter of 2012. As a long-term trend, the circulation of newspapers continues to fall slightly similarly to other countries.

Estonian newspaper readership 2011-2012

Due to the selection of a new partner for printed newspaper readership surveys, it is not statistically correct to compare the data for 2011 and 2012 in absolute terms but for the purpose of comparability, they are shown in the same chart. Eesti Päevaleht has increased significantly the number of its users, by 25% as compared to the 1^st quarter of 2012. The number of users of Eesti Päevaleht has increased for two consecutive quarters. The Group continues to focus on development of digital versions of its newspapers, the readers of which are not included in the graph above.

Printing services segment

All printing services of AS Ekspress Grupp 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).

The printing company Printall continues to exceed the previous year’s results and it managed to increase its sales by 7% in the 2^nd quarter. Growth has primarily come from exports. The EBITDA of Printall this year will be negatively impacted by a one-off expense in the amount of EUR 100 thousand. Most of the volume growth is generated by printing on heatset machines.

Geographical break-down of printing services

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