Ekspress Grupp
Quarterly report

AS Ekspress Grupp Consolidated Interim Report for the Third Quarter and 9 months of 2012

Tallinn, Estonia, 2012-11-02 17:25 CET --  

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 first nine months of the current year, the consolidated net profit of AS Ekspress Grupp totalled EUR 1.4 million which almost fourfolded as compared to last year. In a year, EBITDA increased by 13% and totalled EUR 5.6 million. In the 3^rd quarter, the Group’s net profit totalled EUR 263 thousand and EBITDA totalled EUR 1.5 million. We were able to offset a few percentage point drop in EBITDA by lower finance costs, as a result of which the net profit increased by 123% in the 3^rd quarter as compared to the same period last year.

Over the last nine months, almost all segments demonstrated profit (EBITDA) growth. The ability of the printing services segment to generate profit growth has essentially remained at the same level as last year after normalising the result by a one-off extraordinary expense in the second quarter. The ability of online media to generate a profit has improved by 63% in a year, and that of periodicals by 21%. In the online media segment, Delfi Estonia has increased its profit the most, i.e. by 350% in the first nine months of the year while Delfi Latvia has stayed at the same level and Delfi Lithuania has increased its profit by 132%. In the periodicals segment, AS Eesti Ajalehed and OÜ Hea Lugu have been able to become profitable and earn a profit of EUR 398 thousand in the first nine months of the year as compared to the previous loss of EUR 18 thousand. AS SL Õhtuleht has also increased its profit. Magazine publishers both in Lithuania and Estonia have not reached previous year’s levels. 

In the online media segment, Delfi Lithuania managed to improve its EBITDA result in the 3^rd quarter as compared to last year while the reference base of Delfi Latvia was impacted by election advertising which lifted sales last September. The results of all companies in the online media segment have been impacted by higher impairment losses related to overdue invoices. For Delfi Estonia, the result has also been impacted by one-off redundancy compensations which were related to the reorganisation of the Company’s finance function and higher business trip expenses related to the coverage of the Olympic Games. For Delfi Estonia, the EBITDA result is also impacted by the depreciation expense which had previously been included among depreciation and amortisation cost. However in conjunction with the relocation of the editorial staff and the transfer of the related assets to the Daily news department in AS Eesti Ajalehed depreciation charge now makes up a part of the content production service of AS Eesti Ajalehed that is provided to AS Delfi. In collaboration with the magazine publisher UAB Ekspress Leidyba, Delfi Lithuania successfully launched two new online portals www.cosmopolitan.lt and www.moteris.lt. We are very positive about the competitiveness of both of them. Despite relatively weak September, we are cautiously optimistic about the last quarter and believe that the weakness in the advertising market which prevailed in the online media segment in the summer will not be carried forward to the last quarter of the year.  

In the periodicals segment, Estonian and Lithuanian magazine publishers incurred a loss in the third quarter. The advertising revenue of both companies was lower than last year, the result of the Estonian publisher was also impacted by higher book discounts. Retail and subscription sales of both magazine publishers were also lower than last year. We are currently making some rearrangements to our product portfolio in order to improve the operating results of AS Ajakirjade Kirjastus. We combined two weekly magazines Kroonika and Nädal. We will also discontinue the publishing of some smaller-scale projects with a lower publication frequency. We have also started negotiations to amend the lease agreement of offices in order to lower annual rental costs. In addition to the effect from the combination of two magazines, we also hope to improve the company’s operating results already in the last quarter of the current year with the help of these steps. The management of the Lithuanian magazine publisher also has the task of optimisation of the product portfolio.  

In the 3^rd quarter, AS Eesti Ajalehed demonstrated solid results despite the weak situation in the advertising market in the summer. The company’s sales were boosted by the DVD project of the book publishing company OÜ Hea Lugu and Eesti Päevaleht concerning the best Estonian films, which has helped to cover the shortfall in sales and profits related to advertising and newspaper sales. However, when analysing the behavioural pattern of the Group’s entire portfolio of periodicals, then despite the difficult market situation, we have managed to limit the decline in advertising, newspaper and subscription sales to a few percentage points in the segment as a whole as compared to the 3^rd quarter last year. 

In the printing services segment, the EBITDA of the printing company declined by 8% in the 3^rd quarter, but the result for the 9 months of the year essentially remained at the same level as last year. The company’s client structure has not significantly changed; however, the share of exports has increased further, making up nearly 70% of sales.

The key event in the 3^rd quarter was appointment of the new Chairman of the Management Board of  Delfi Estonia. The current chairman of the Management Board has been offered to continue as the member of the Management Board of AS Eesti Ajalehed responsible for the content production unit of the company. A new Chairman of the Management Board also took office at the Group’s book-publishing company OÜ Hea Lugu.

In the 3^rd quarter, the refinancing of all Group’s loans by the new syndicate was completed. On 12 July 2012, Ekspress Grupp entered into a new syndicated loan contract and refinanced all Group’s current loan and finance lease obligations to 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. As a result of this transaction, the Group will have significant savings of interest expenses and there will more cash available to be used for new investments.  

Overview of the Group’s segments

Key financial data of the segments in Q3 2011/2012

Key financial data of the segments for the first 9 months 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. Segment results also exclude 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 in the aggregate line of 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.

Delfi Estonia

·         Delfi had  its highest number of users ever, i.e. almost  1 million weekly users which represents ca. 80% of all Estonian Internet users. This result reinforces Delfi’s position as the most popular website in Estonia while also widening the gap with its closest competitors.

·         The number of people who use Delfi via their mobile phones has increased at a fast pace.  Successful coverage of the Olympic Games has increased the number of people using Delfi via mobile phones to 100 000 users per week.

·         Delfi launched a new location-based weather forecast section, where it is possible to view the weather forecast for more than 5 000 different locations in Estonia.

·         The weather forecast is now also available in Delfi’s mobile version

·         New  categories and subsites such as Eesti otsib superstaari (Estonia is Searching for a Superstar), Tähed jääl (Stars on Ice), Spordimeditsiin (Sports medicine, news feed to EOK page), Kuldne mask (Golden Mask), Puhka Eestis (Visit Estonia), Purjetamine (Sailing), Kirev maailm (Colourful World), Suvetüdruk (Summer Girl), Kuldrula (Golden Skateboard), Viru Folk, etc.

·         Functionality to share the news in social networks in Russian-language Delfi.

In the 3^nd quarter of 2012, there were no major changes in the Estonian Internet market. The user trend follows a pattern of growth similarly to last year. Two media portals - Delfi and Postimees – dominate the market.  Delfi.ee continues to be the online environment with the highest number of users in Estonia. The online version of Eesti Päevaleht www.epl.ee is steadily increasing its number of users, which is about to exceed 200 thousand users on a weekly basis.

Delfi Latvia

·         Fast and widespread coverage of summer events in Delfi attracted many new readers. The coverage of Positivus Festival in Delfi was especially popular among readers.

·         Launch of a renewed version of Delfi Easy page.

·         Content and functional development of subsections (Auto, Woman, Technology).

·         Reorganisation of the editorial staff to ensure better news coverage on weekends.

·         Delfi launched a new location-based weather forecast section.

• The weather forecast is now also available in Delfi’s mobile version.

After the statistical reduction of the total number of Latvian internet users in April, the total number of Latvian internet users has grown modestly. 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. In the 3^rd quarter, the number of readers of apollo.lv grew at the fastest pace.

Delfi Lithuania

·         In collaboration with Ekspress Leidyba, a Cosmopolitan portal www.cosmopolitan.lt was launched at the beginning of August and the portal www.moteris.lt was launched in October.

·         Preparations are underway to launch the portal www.panele.lt.

·         Delfi launched a new location-based weather forecast section.

·         The weather forecast is now also available in Delfi’s mobile version.

Delfi continues to be the uncontested market leader among Lithuanian internet users with more than one million unique users. Similarly to Latvia, the total statistical number of internet users was restated in the summer of 2012, which reduced the number of users of all internet portals. Thereafter, Delfi has increased its number of users in September to the highest level this year. Despite aggressive expansion of Schibsted in Lithuania, the gap between Delfi and 15min has increased over the last few months for the benefit of Delfi and in September 2012, Delfi.lt had almost 200 thousand users more than 15min.lt.

Delfi Ukraine

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

·         Delfi.ua has increased production of women oriented news content due to the profile of portal readers.

For the moment there is no usership data available for September – the graph for September is based on august data.

In Ukraine the internet portals are still looking for the right business model. The biggest portals are changing their strategies and have been rejecting traffic buying from each other. It has been also affected their usership figures and in Q3 main portals have lost mentionable amount of users. Delfi.ua has not using this king of methods and in opposite growing it’s userbase organically.

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.

Despite a poor summer, the revenue of the periodicals segment increased by 2% in the 3^rd quarter of 2012. However, EBITDA failed to grow as compared to last year. Higher sales were still attributable to additional sales from Linnaleht and a successful DVD series of Estonian film classics.

Estonian newspaper circulation 2011-2012

In the 3rd quarter of 2012, no major changes occurred in the circulation of newspapers. In the 3^rd quarter, the market of daily newspapers experienced a decline in circulation which is characteristic of summer months. Eesti Päevaleht demonstrated the best results, increasing its circulation by 1600 as compared to August 2012. As compared to the same period last year, the circulation of all publications has fallen -  that of Eesti Päevaleht the least (-300 copies) and that of Postimees the most (-1200 copies). 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. The readership of daily newspapers of all publications has significantly fluctuated throughout the year. However, the readership of weekly newspapers (Maaleht, Eesti Ekspress)  has remained stable and in terms of Maaleht, is steadily increasing. The Group continues to focus on development of digital versions of its newspapers, the readers of which are not included in the table 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).

Due to reaching maximum production capacity in the peak months, the printing company finds it increasingly difficult to maintain its growth as compared to last years. Ongoing increase of the prices of  input has impacted EBITDA, but the margin continues to be high. The reference base in the 3^rd quarter of 2011 was high due to recognition of income from the client’s long-term paper savings. Growth has primarily come from exports. In the 3^rd quarter, Printall was granted ISO 9001 management certificate and ISO 14001 environmental certificate.

 Geographical break-down of printing services

Printing services and the environment

In addition to its very strong financial position, Printall AS also focuses on environmentally conscious production.

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

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 produce environmentally efficiently.

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 indicates compliance with monitoring and product production process requirements which is issued to businesses that comply with the requirements established by FSC (Forest Stewardship Council) and PEFC (Programme for the Endorsement of Forest Certification). A business that is issued those certificates helps to support the environmentally friendly, socially fair and economically viable management of the world’s forests.

Printall AS cares about the environment and uses green energy. The POWERED BY GREEN certificate is a proof that the company buys electricity which has been 70% 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