Consolidated Interim Report for the Fourth Quarter and Twelve Months of 2010 28.02
The 2010 12 months were a breakthrough time for the Group. The decline in revenue in the first half of the year as compared to the previous period reversed in mid-year, growing more than 10% in the better-performing months as compared to the same months last year. The Group achieved better results for EBITDA and the margin than expected at the beginning of the year. EBITDA grew by 98% as compared to last year and the EBITDA margin more than doubled, reaching 12%. The key reason for improved results included growth in the segments of printing services and online media. In the 2nd quarter of 2010, the online media segment grew by almost 20% as compared to the same period last year. After the volatile summer, the revenue in the online media segment increased by 41% as compared to the same period last year. From the beginning of the year, profitability in the printing services increased as a result of the use of various cost control mechanisms. However, from the second half of the year, revenue also increased which was 23% higher in the better-performing months as compared to the same period last year. In 2010, the periodicals segment continued to be under pressure, but at the year-end, the revenue almost reached the level of the previous year. In 2011, we expect growth to continue in the online media segment in all Baltic States. We also strive at evaluating the sustainability of operations of Delfi Ukraine on an ongoing basis after product upgrading and stepping up of sales activities. In 2011, we expect revenue to remain at the same level as last year in the periodicals segment. We expect EBITDA to turn positive at the Lithuanian publisher of magazines, Express Leidyba, and considerable profit growth at Eesti Ajakirjade Kirjastus as compared to the year 2010. With regard to the Group's printing company, we expect moderate revenue and profit growth in 2011, currently inhibited by the high utilisation rate of the equipment park. Therefore, we have started to consider the necessity of acquisition of additional equipment. The Group implemented most of its efficiency enhancing measures in 2009, as a result, no other major restructuring steps were taken in 2010 other than at Eesti Päevaleht where aggressive reduction in salary costs was implemented in spring. The EBITDA margin of Ekspress Group was the strongest in successful advertising months in spring and autumn. In the 4th quarter, the EBITDA margin was lower due to accumulation of volume rebates arising from contracts entered into with advertising agencies in the last quarter. With regard to efficiency, it should be noted that if the average ratio of personnel expenses to revenue was 37.7% in 2009, then it was 34.5% in 2010. In addition to the improvement in the results of operations, the Group also managed to stabilise its fiscal position due to additional raising of capital in spring, new loan agreements entered into with the banks providing financing for the Group and two completed disposals of subsidiaries. We can state that against the backdrop of the results of operations for 2010 as well as the loan restructuring and new capital raised that were mentioned about, the Group has successfully come out of the economic recession and the Management Board is optimistic about the upcoming years. Unlike 2009, the results of operations for 2010 do not include any major extraordinary expenses, and likewise, there has been no need to write down the Group's assets. In 2010, the revenue trends in the online media segment have supported our previous estimates regarding the value of companies and the Group's conservative policy regarding debtors has also been successful, ensuring write-down of doubtful receivables on an ongoing basis and preventing unpleasant surprises during the preparation of the financial statements. With regard to its strategy, the Group is gradually moving more towards digital media. If the revenue in the online media segment made up 12.5% of the Group's revenue at the beginning of 2009, then the share had increased to 14.4% at the end of 2010. In the revenue structure for 2011, the share of the online media segment should increase to 16.3%. The Group intends to continue focusing on digital media through development of its subsidiaries currently included in the portfolio as well as possible acquisition of new companies in all countries in which the Group has presence. In addition to continuing development of the online media segment, we are optimistic about the digitalisation process of periodicals and we believe that the popularity of various portable information devices will accelerate the digitalisation process which in turn will create opportunities for significant improvement of efficiency in the periodicals sector. In 2011, we expect the Group to achieve moderate growth in revenue and margins. We strive at increasing the Group's revenue by 10% and the EBITDA margin to 14%, primarily through improvement in the margins of the online media segment and hopefully, also in the periodicals segment. Online media segment By the year-end 2010, the number of unique users of the news portals of Ekspress Group reached 3.9 million per month, which is 12% more than in December 2009. Delfi Group continues to be the only new media publication operating in all Baltic States and also in Ukraine. Two factors could be mentioned that characterise the Internet usage in 2010. Firstly, it is the emergence of a more important role of social media in daily activities of an Internet user. Despite this, the usage figures of Delfi have not declined both in terms of the number of users and length of sessions. Secondly, the growth in the sales of smart phones should be mentioned, which primarily means that the access to the Internet will become frequently more mobile. Delfi Lithuania contributed the most to the growth in the online media segment. Although Delfi Latvia incurred a loss for the year, the economic environment in Latvia started to significantly improve in the last quarter, propelling Latvia's revenue growth and ensuring positive results of operations for Delfi Latvia next year. In Ukraine, Delfi remained in the investment phase in the year ended. The number of users of Delfi Estonia increased by 18.9% at the year-end as compared to December 2009. Delfi continues to be the most visited news portal in Estonia. However, the most visited Internet environment continues to be neti.ee, the total number of users of which is regularly over one million users a week. The e-mail environment Inbox.lv and the social network draugiem.lv continue to be the most popular web pages among the Latvian Internet users. Throughout the year, the advertising portal ss.lv has remained in the 4th place in Latvia on a yearly basis. Delfi Latvia continues to be the most visited news portal. Of the competitors, tvnet.lv and apollo.lv have almost a third fewer visitors than Delfi.lt. Latvia Delfi is the only company of Delfi Group, the number of users of which has not increased as compared to December 2009 but has practically stayed at the same level (-0.2%). In 2010, Delfi Lithuania continued to be the most popular Internet environment in Lithuania, increasing by 17.2% year-over-year. The number of Delfi users increased sharply in the second half of the year and reached over 1.1 million users per month over the last months of the year. The Ukrainian Internet market functions differently from that of the Baltic States. In Ukraine, the environments with the largest user base are such content aggregators that do not produce content themselves. Therefore, the numbers of users of the environments oriented towards content production fluctuate greatly. The goal of Delfi in Ukraine has not been to increase visitors' numbers by purchasing traffic from the aggregators but to develop organically and raise a loyal user base for itself. During 2010, the number of users of Ukraine Delfi has increased by 28.8%, which places it 42th in the overall ranking of Internet environments. Periodicals segment The periodicals segment includes publishers of newspapers and magazines, the operations of which also include publishing of books. This segment also includes AS Express Post, engaged in home delivery of periodicals. Postimees continues to be the newspaper with the highest circulation. The circulation of other newspapers has been relative stable and stayed at the same level. Eesti Päevaleht, with the circulation loss of by ca 10% on yearly basis, has experienced the largest decrease in the Group. No newspaper has been saved from the decline in the reader base. However, the decline in the reader base of all publications has been of the same magnitude - 14-17%. Similarly to the reader base of newspapers, the decline in the number of readers has also continued in the market of magazines. However, in the last quarter of 2010, signs of stabilisation are visible both in single copy sales as well as advertising revenue, both in Estonia and Lithuania. As of the year-end 2010, the most popular magazine in Estonia is Kroonika, the reader base of which has stabilised after a decline at the beginning of the year. With regard to other magazines, the market shares have not changed. With regards to the Lithuanian magazines of Ekspress Group, the readership numbers have been similar to those of Estonia. At the beginning of the year, the number of readers declined but stabilised in the second half of the year. It gives us pleasure to state that the readership numbers of the magazine Cosmo acquired at the beginning of the year have increased over the last three quarters. Printing services segment All printing services of Ekspress Group are provided by AS Printall which is the largest printing company in Estonia. Printall is able to print both newspapers (coldest) and magazines (heatset). In the printing segment, aggressive development occurred in the export markets which generated almost 2/3 of revenue. The most important customers for the Company are in Sweden, Norway, Finland and Russia. Also, work was launched for customers in Germany, Netherlands and France. In most cases, this represents production of periodicals or product catalogues. The printing company Printall has reached high efficiency through well-managed costs and an optimum equipment part, and it has ensure a leading position thanks to its flexible labour policy and high-quality production. The key event in 2010 was receipt of several environmental certificates as acknowledgement of the environmentally friendly production cycle of the Company.