Consolidated Interim Report for the Fourth Quarter and Twelve Months of 2011 07.03

The year 2011 was a year of restored growth for Ekspress Group. The improved economic environment helped the company to earn a net profit for the first time since the beginning of the economic crisis. Our net profit totalled EUR 1.7 million as compared to the loss of EUR 0.1 million in 2010. Our EBITDA growth was 28% as compared to last year, totalling EUR 7.8 million as compared to EUR 6.0 million in 2010. The company’s sales increased by 11%, totalling EUR 57.4 million as compared to EUR 51.8 last year. In 2011, sales exceeded the budget by 2%.

The operating results of 2011 were impacted by several extraordinary activities.

-          The net extraordinary gain arising from the revaluation profit of additional 50% ownership in  Eesti Päevalehe AS and the impairment loss recognised for goodwill of Eesti Päevaleht, Lithuanian magazine publisher Ekspress Leidyba and Delfi Latvia in  amount  EUR 790 thousand;

-          Information technology developments  made previously at Eesti Päevalehe AS were written down in the amount of EUR 270 thousand;

-          We incurred extraordinary one-off expenses in the amount of ca EUR 150 thousand related to the merger and relocation of the editorial offices of Eesti Päevalehe AS and AS Eesti Ajalehed.

Excluding the net result attributable to revaluation gain and change in goodwill, we earned normalised  EBITDA in the amount of EUR 7.0 million which is 15% higher than last year and net profit from continuing operations in the amount of EUR 0.9 million, which is EUR 1.5 million higher than last year. The EBITDA margin increased by 0.6% in 2011. 

In 2011, the company’s restructuring process which had already been launched two years ago, continued.

In the periodicals segment, the most significant event was the acquisition of an additional 50% ownership interest in Eesti Päevalehe AS at the beginning of the year.  This acquisition was a cash-free transaction. The former co-shareholder Jaan Manitski’s company OÜ Vivarone acquired the real estate property previously in the ownership of Eesti Päevalehe AS (also current premises used by the editorial office) and AS Ekspress Grupp acquired the shares of Eesti Päevalehe AS from OÜ Vivarone previously held by the latter. As a consequence of the merger of Eesti Päevalehe AS and AS Eesti Ajalehed in the second half of the year, we managed to stabilise the economic activities of the newspaper Eesti Päevaleht and considerably improve the organisational efficiency of these two companies due to their merger. The estimated net gain from the acquisition of Eesti Päevalehe AS and its merger with AS Eesti Ajalehed is almost EUR 0.4 million for the year, manifested primarily in the improvement of efficiency. In addition to attainment of organisational efficiency, the merger enabled us to launch joint marketing packages both in the sale of advertisements as well as newspaper subscriptions, which had previously been independent of each other. More specifically, this manifests itself in cross-marketing of the newspapers published by AS Eesti Ajalehed as well as in preparation of joint product packages, the best example of which is the joint subscription packages of digital newspapers of Eesti Päevaleht and Eesti Ekspress.

In 2011, the second most important focus in the operations of the periodicals segment was development of digital newspapers. The digital products in our product portfolio include pay-per-read articles, the access to which can be bought through the newspapers’ online pages, digital newspapers of Eesti Ekspress and Eesti Päevaleht which can be accessed through web browsers to be read in personal computers and the applications of Eesti Ekspress, Eesti Päevaleht and Ärileht for tablet computers. Based on the results of operations for the year 2011, we can state that Ekspress Grupp is the pioneer of digital publishing of periodicals. A significant acknowledgement of our digital product development was the ninth place won by Eesti Ekspress iPad application in the global digital publications contest WAN-IFRA XMA Cross Media Awards 2011, where our competitors were large, globally well-known publications. We also consider development of the time-based paywall for consumption of the digital content which we have created and the marketing chain based thereon to be unique in the world. However, the contribution of  digital publishing revenue to the total periodicals segment is still insignificant.

During the restructuring of the periodicals segment, we decided to combine the separate book-publishing operations of newspapers into one entity, for the purpose of which we set up a new private limited company Hea Lugu. For the purpose of comparability, we shall treat this company as well as Eesti Päevalehe AS together with AS Eesti Ajalehed.

In the online segment, the key event was the recovery of EBITDA  growth of Delfi Latvia. The sales of Delfi Latvia increased by 20% as compared last year, but while Delfi Latvia still incurred a EBITDA loss of EUR 107 thousand in 2010, it ended the year 2011 with a EBITDA profit of EUR 230 thousand. We consider the change in the concept of Delfi Ukraine as another important development, which has created an opportunity for a stable increase in the number of portal users, especially in the last months of the year. Advertising sales are also slowly picking up. The launching of Delfi digital book store at Delfi Estonia is also worth mentioning. During the first four months of its operation, Delfi Digiraamat achieved the third place in the terms of the number of books sold in the e-book market. In 2012, the plan calls for launching digital book stores also in Latvia and Lithuania. The sales in the online segment as a whole increased by 14% and EBITDA more than doubled. 

In the printing services segment, AS Printall’s success in the export markets continued. Both the company’s sales as well as EBITDA increased by 15% as compared to last year. The key to Printall’s successful results of operations lies in its high-quality export products, which the efficiently managed company is able to sell at competitive prices. Sales increased in all export markets. The largest markets continued to be Scandinavia and Russia, while the Netherlands and France have also become important markets. In the last quarter, exports made up 72% of the company’s sales and the contribution made by group companies was 15%. The sales and net profit of Printall contribute significantly to the Group’s total results of operations.  

With regard to the cost structure of group companies, the greatest changes were related to the amendment of the Lithuanian tax laws, which increased Delfi Lithuania’s liabilities in the form of the social tax, as well as the addition of the local news portal Eesti Elu acquired by Delfi Estonia to the cost base and the addition of rental expenses to the expenses of AS Eesti Ajalehed (Eesti Päevalehe AS used to be located on its own premises and did not incur any rental expenses). The other changes occurred in the expenses were primarily related to the growth of business; no major growth of in the number of employees or their wages occurred in 2011.

In 2012, we expect conservative sales growth in the periodicals and online segments. Sales of periodicals are expected to increase due the recovery of advertising sales in the second half of the year just ended, which should also continue modestly this year. In the printing services segment, we do not expect any major growth due to the printing companies operating nearly at full capacity in peak periods. However, we expect the Group’s EBITDA margin to grow by 1-2 percentage points this year, because we do not see any major sources of expense growth. Our objective in 2012 is to increase the efficiency of the online segment, continue the development of Delfi Ukraine and improve the efficiency of its advertising sales, increase the number of subscribers of digital publications and grow revenue in the periodicals segment, and take the united  editorial offices to the next level on the basis of our media brands.

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