Consolidated Interim Report for the Second Quarter and Half Year of 2012 02.08
In the 2nd 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 2nd 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 2nd 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 2nd 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 2nd 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 2nd 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 2nd 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 2nd 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.