AS Ekspress Grupp Consolidated Interim Report for the Third Quarter and 9 months of 2012 02.11
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 3rdquarter 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 3rd 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 3rd quarter last year.
In the printing services segment, the EBITDA of the printing company declined by 8% in the 3rd 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 3rd 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 3rd 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.