Consolidated Interim Report for the II Quarter and First Half Year of 2011 02.08

The key event for the Group in the 2nd quarter was the reorganisation process implemented after the acquisition of Eesti Päevalehe AS which concerned both the product as well as represented an organisational reform involving several entities.

In the 2nd quarter, the net profit of Ekspress Grupp totalled EUR 394 thousand. In the first half year, the Group’s net profit totalled EUR 1.78 million. The results of the both the 2nd quarter as well as the first half year were impacted by several extraordinary activities, with both positive and negative effects on the financial performance. The change in goodwill that was related to the acquisition of the shares of Eesti Päevalehe AS in the amount of EUR 1.54 million had a positive effect on the Group’s net profit. However, in the second quarter, the profit was reduced by the restructuring costs, accrual for a potential claim related to a court case and a full ownership of the currently unprofitable Eesti Päevalehe AS instead of the former 50% ownership as compared to last year.

In the 2nd quarter, the EBITDA totalled EUR 2.024 million, which is 7% lower than a year ago. After normalising the results with extraordinary one-off expenses in the amount of EUR 162 thousand, the normalised EBITDA was 2.186 million which is at the same level as in the same period of last year.

The Group’s EBITDA without profit from business combinations in the first half year totalled EUR 3.418 million which was 17% higher than last year.

The one-off expenses in the 2nd quarter were

  • accrual for a potential claim in the amount of a EUR 60 thousand that was related to the action filed against AS Eesti Ajalehed and AS Delfi and that was lost in the court of first instance. Group entities have decided to appeal the judgement of the court of first instance.
  • redundancy costs in the amount of EUR 100 thousand related to the reorganisation expenses at Eesti Päevalehe AS after the acquisition of ownership interest from the co-shareholder.
  • extraordinary relocation expenses in the amount of EUR 32 thousand related to the relocation of various units of AS Eesti Ajalehed and AS Delfi in conjunction with the reorganisation of the entities.

 

Most of the expenses related to the reorganisation have been incurred and the steps have been taken, but some expenses can still be incurred in the second half of the year.

It is also important to note that considering the loss of Eesti Päevalehe AS and the gross profit of AS Printall from the printing of Eesti Päevaleht, the Group incurred a loss of ca EUR 30 thousand from the publishing of Eesti Päevaleht in the first half year. The Management Board expects the publishing of Eesti Päevaleht to become profitable for the Group on the consolidated basis.

During the organisational reform, the editorial offices of the newspapers Eesti Ekspress, Eesti Päevaleht and Maaleht as well as that of the portal Delfi were relocated to premises in the former office space of Eesti Päevaleht. The support functions and administrative offices of the entities were relocated to the premises of Eesti Ekspress and Maaleht. During the aforementioned organisational reform, various duplicate positions were made redundant and the lease agreement at the former premises of AS Delfi was terminated. With the relocation of the editorial office into the same premises, the exchange of information between various publications and collaboration relating to the coverage of major events have significantly improved, leading to both cost savings as well as additional value in terms of content.

In addition to the relocation of editorial and administrative offices, the first step involved setting up a book publishing unit as a separate department of AS Eesti Ajalehed, which includes all book publishing operations of the Group’s wholly-owned publishing entities and the next step of which involves setting up a new book publishing entity in the autumn of the current year. A financial services unit was set up at the parent company, which will provide services to the Group’s subsidiaries operating in media business. The objective of both steps is to increase efficiency through cost optimisation and in case of the book publisher, also to increase its competitive advantage. As a structural reform, a separate E-media department was created at AS Eesti Ajalehed with the goal of coordinating digital publishing operations of all publishing entities.

The cost effects achieved during the reorganisation will be evident in the 3rd quarter, but the reorganisation process will likely last until the end of the year.

The newspaper Eesti Päevaleht underwent an important product upgrade in the 2nd quarter. Under the management of the new editor-in-chief Vallo Toomet who had previously been in charge of the editorial team of economic news, a renewed Eesti Päevaleht was developed and launched in a more magazine-like format. The first issue was printed on 4 July. The editor-in-chief of Eesti Ekspress was replaced, the former editor-in-chief of Kuku Raadio Janek Luts became its new editor-in-chief.

In the 2nd quarter, the joint campaign of digital newspapers of Eesti Päevaleht and Eesti Ekspress was launched. As the first step of the campaign, the subscribers of the digital versions of the two newspapers were offered an opportunity to purchase Apple iPad tablet PCs. The success of the campaign was significantly hindered by the availability of tablet PCs, as a result of which we decided to continue with the campaign after resolving the manufacturer’s supply issues. As the second step, the marketing of digital publications of Eesti Päevaleht and Eesti Ekspress for regular PCs was launched. For creation of a digital publication for PCs, AS Eesti Ajalehed has in collaboration with its IT partner developed a software solution which enables to use the product published in iPad also in regular desktop and laptop PCs. AS Eesti Ajalehed plans to market the same software solution to the publishing entities in other countries who use similar newspaper and magazine publishing platform for iPad and the first contacts have already been made.

With regard to the online media segment, the development at Delfi Ukraine is worthwhile mentioning. After the product reform that was conducted at the beginning of the year, during which Delfi Ukraine abandoned its former conservative information portal strategy and launched a concept of more entertaining, mostly tabloidish style social news, the readership of the portal has started to grow steadily and reached new highs in terms of user numbers and pageviews. The sale of advertisements has also been activating, which in the best month of May exceeded EUR 7 thousand. The current trends have made the Group’s Management Board hopeful in terms of continuing improvement of the financial results of Delfi Ukraine. Our objective is to become profitable on monhtly basis by next spring. The agreement between Delfi and the international company Deal24 offering discount deals is also worth mentioning, on the basis of which Delfi will offer vouchers under the trademark of Delfi Deal in all Baltic States in autumn. Delfi also launched an aggregation environment for vouchers in other countries, where advertisements to other companies offering vouchers are sold.  

In the 2nd quarter, as a major product development upgrade, Delfi launched the environments for collection and displaying of entertaining pictures, videos and jokes by users (in Estonia, under the trademark of Vimka.ee). The integration of Delfi with the environment of Facebook is also worth mentioning, whereby from June, it is possible to read the news posted by the company parallel with the news comments posted by one’s Facebook friends without leaving Delfi.  

With regard to organisational restructuring, AS Ekspress Grupp and AS Eesti Meedia decided to transfer jointly published AS Linnaleht into the ownership and under the management of the joint venture AS SL Õhtuleht. This step should lead to modest cost savings, but also improve the marketing capability.

In June, the joint venture AS Ajakirjade Kirjastus acquired  a 49% minority interest in Uniservice OÜ. This should help the integration of the portal toidumaailm.ee and the magazine Oma Maitse as well as lead to cost optimisation.

The sales process of AS Express Post to AS Eesti Post is still underway, the concerned parties have submitted the required information to the Estonian Competition Authority which is expected to make a decision during the 3rd quarter.

In conformity with the injunction of the Estonian Competition Authority, the Group has also submitted a concentration application in respect of the acquisition of the shares of Eesti Päevalehe AS. The concentration application was not submitted earlier because AS Ekspress Grupp did not acquire control over the other entity during a regular purchase and sales transaction, but through various financing decisions to prevent the Group’s insolvency in a situation in which the co-shareholders did not wish to continue providing financing.

In the next quarter, the Group’s focus will be on the completion of the organisational reform, and development and marketing of digital versions of published newspapers. The Group’s wide product range will provide us an excellent opportunity to offer our customers packages with miscellaneous products, both on paper and in a digital form. We also plan to renew the offer of tablet PCs in a package with the Group’s digital products and actively market the digital newspaper versions developed for PCs.

AS Ekspress Grupp Consolidated Interim Report for the II Quarter and First Half Year of 2011

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