Consolidated Interim Report for the Second Quarter and Half Year of 2013 01.08
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 2nd 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 2nd quarter. At the same time EBITDA of Latvia failed to meet last year’s result, unlike in the 1st 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 1st 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 1st quarter to the 2nd 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 2nd 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 1st 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.