Editoria e Media
AS Ekspress Grupp: Consolidated unaudited interim report for the third quarter and 9 months of 2019
The revenue of AS Ekspress Grupp totalled EUR 16.8 million in the 3 quarter and EUR 53.6 million in the first nine months of 2019. Revenue growth continued to be strong and it increased by 8% in the 3 quarter as compared to last year. Growth was primarily driven by digital revenue which increased by 17% as compared to last year and made up already 58% of the Group's media segment revenue at the end of September.
The revenue of the Group's media companies increased by over 12% in the first 9 months of the year. In the 3 quarter, most media companies were successful in advertising sale. In Estonia, the share of digital subscriptions also continued to increase. As an important innovation, Delfi Lithuania launched the sale of paid content in the 3 quarter under the name of "DELFI plius". The launch of DELFI's own linear television channel in collaboration with Telia was also important in the Lithuanian market. The sale of paid content launched in Latvia in the 2 quarter has been well received in the market, meeting our expectations. It should be kept in mind that the sale of paid content is a long-term process and it takes time to change consumer habits, primarily in Latvia and Lithuania where consumers have previously had no experience with paid content of local media.
The Group's earnings before interest, tax, depreciation and amortisation (EBITDA) totalled EUR 1.41 million in the 3 quarter and EUR 3.88 million in the first 9 months of the year. The 3 quarter's EBITDA increased by 117% as compared to the same period last year and by 30% in the first 9 months of the year. Despite strong EBITDA growth, the Group still incurred a consolidated loss in the amount of EUR 0.24 million in the first 9 months of the year due to two previous weak quarters. In the 3 quarter, the Group earned a profit in the amount of EUR 0.02 million.
At the beginning of October, the wholly-owned Latvian subsidiary of AS Ekspress Grupp, i.e. A/S Delfi, concluded a contract to acquire 25.5% of the shares SIA Altero, that operates a comparison and brokerage portal for financial products in Latvia and Lithuania ( Altero.lv and Altero.lt ). More than 90,000 Altero clients have compared financial offers of consumer loans, car loans and other products since the launch in June 2016, which makes the company a leading provider of financial comparison services in Latvia and Lithuania. The aim of the acquisition is to increase the share of Group's digital revenues and develop its diversified digital business. Altero activity has clear synergies with our media business where movement of the final consumer has a similar pattern.
At the beginning of October, the Group issued 5000 notes with the nominal value of 1000 euros, interest rate of 6% per year and the maturity date on 7 October 2027 in a private placement for the pension funds managed by AS LHV Varahaldus. The notes were subscribed in the total amount of EUR 5 million. The Group used the proceeds from the issuance of the notes for stable long-term refinancing of the latest major capital expenditures and further expansion of the activities to foster the Group in its implementation of a digital change.
In collaboration with other media organisations and the Association of Media Companies, the Group has started to increase the awareness in Estonia regarding on the topic of fairer taxation, with the goal of establishing a tax for provision of digital services in Estonia.
Explosive growth of digital services (social media networks, sharing platforms, various mobile applications, online advertising, etc.) over the last ten years has significantly impacted the structure of traditional economy, providing completely new ways for making virtual transactions. On the other hand, this has led to major changes in the economy: reducing the tax base and transferring the profits of large information technology groups to the countries with a low tax rate.
In Estonia, the fast development of digital economy has created the similar problems as elsewhere in the European Union and the world: large digital services companies are capable of generating significant revenue from digital services targeted at Estonian users without a permanent place of operation in Estonia, but such digital revenue is generally not taxed in Estonia. Both the Group and other media organisations are of opinion that it is unilaterally possible to legally establish a digital services tax.
SUMMARY OF THE RESULTS OF THE THIRD QUARTER AND NINE MONTHS
In the Group's reporting, the management monitors the performance on the basis of proportional consolidation of joint ventures. The loan contract also determines the calculation of some loan covenants while taking into account proportional consolidation.
REVENUE
The consolidated revenue for the 3 quarter of 2019 totalled EUR 16.8 million (3 quarter 2018: EUR 15.6 million) and for the first 9 months of the year, it totalled EUR 53.6 million (9 months 2018: EUR 49.6 million). In the 3 quarter revenue increased by 8% as compared to the previous year. Revenue growth is primarily attributable to the advertising revenue growth both in Estonia and Lithuania. The share of the Group's digital revenue made up 40% of total revenue and 58% of media segment revenue at the end of the 3 quarter. In the first 9 months of 2019, the Group's digital revenue increased by 17% as compared to the same period last year.
PROFITABILITY
In the 3 quarter of 2019, consolidated EBITDA totalled EUR 1.41 million (3 quarter 2018: EUR 0.65 million) and in the first 9 months of 2019, it totalled EUR 3.88 million (9 months 2018: EUR 2.99 million). EBITDA increased by 30% as compared to the previous year, of which EUR +0.64 million was related to the effect of the new accounting standard IFRS 16 Leases entered into force on 1 January 2019 on EBITDA. The EBITDA margin increased to 7.2% (9 months 2018: 6.0%). In the 3 quarter, the Group earned a profit in the amount of EUR 0.02 million. In the first 9 months of 2019, the consolidated net loss was EUR -0.24 million (9 months 2018: profit EUR 0.27 million). The decline in profitability was primarily related to the intensifying competition in the printing services segment and the increase in input prices. In addition, it was related to the decline in the revenue of print media as well as higher home delivery and labour costs. In the first 9 months of 2019, the additional loss of EUR 0.1 million was related to the interests in associates and other financial investments.
From 1 January 2019, the Group has applied the new mandatory accounting standard IFRS 16 Leases . Due to this, the leased assets and lease liabilities are recognised at the present value of lease payments in the balance sheet. Depreciation on leased assets and the estimated interest expense on lease liabilities are recognised in the income statement.
The effect of IFRS 16 on the consolidated balance sheet and income statement as at 30 September 2019 is disclosed on page 18 of the financial statements.
CASH POSITION
At the end of the reporting period, the Group had available cash by proportional consolidation in the amount of EUR 3.4 million and equity in the amount of EUR 49.9 million (54% of total assets, without taking into account the effect of IFRS 16 - 56%). The comparative figures as of 30 September 2018 were EUR 2.2 million and EUR 50.4 million (64% of total assets), respectively. As of 30 September 2019, the Group's net debt totalled EUR 16.4 million. Without taking into account the effect of IFRS 16, the Group's net debt totalled EUR 13.4 million (30 September 2018: EUR 13.3 million).
In the consolidated financial reports 50% joint ventures are recognised under the equity method, in compliance with International Financial Reporting Standards (IFRS) . In its monthly reports, the management monitors the Group's performance on the basis of proportional consolidation of joint ventures and the syndicated loan contract also determines the calculation of some loan covenants by proportional consolidation.
For the purpose of clarity, the management report shows two sets of indicators: one where joint ventures are consolidated line-by-line and the other where joint ventures are recognised under the equity method and their net result is presented as financial income in one line.
The effect of the new standard IFRS 16 "Leases" that entered into force on 1 January 2019 is described on page 18 and in Note 1 of the financial statements.
The Group's activities are divided into two large segments - media segment and printing services segment
The media segment includes the Group's activities in Estonia, Latvia and Lithuania. It comprises the operations of online portal Delfi, several other news portal providing online advertising network and programmatic sales solutions, digital outdoor advertising in Estonia and Latvia, publishing of the Estonian weekly newspapers Maaleht, Eesti Ekspress and LP, publishing of the daily newspaper Päevaleht and tabloid Õhtuleht, publishing of the freesheet Linnaleht, publishing of books and magazines in Estonia and providing home delivery services. The media segment also includes organisation of the technology and innovation conference Login in Lithuania (since March 2019), operation of the electronic ticket sales platform ( bilesuparadize.lv ), ticket sales sites in Latvia (since June 2019), selling through them tickets to various entertainment events on behalf of event organisers and production studio for content creation.
The printing services segment includes AS Printall which one of the largest is printing companies in Estonia. We are able to print high-quality magazines, newspapers, advertising materials, product and service catalogues, yearbooks, paperback books and other publications in our printing plant.
Segment EBITDA does not include one-off write-downs for goodwill and trademarks. Volume-based fees and other fees payable to agencies have been deducted from the segment's advertising revenue.
The effect of the new standard IFRS 16 Leases entered into effect on 1 January 2019 on the income statement is described on page 18 and Note 1 to the financial statements.
Key financial indicators for segments
ONLINE MEDIA
Important progress and significant accomplishments per country are listed below.
Estonia
Latvia
Lithuania
PRINT MEDIA
Based on the data of the Estonian Newspaper Association, the daily newspaper with the largest circulation in Estonia for the last 12 months continues to be Õhtuleht. In January and December, the newspaper with the largest circulation was Maaleht.
In the 3 quarter of 2019, media segment revenue totalled EUR 11.9 million (3 quarter 2018: EUR 10.6 million) and in the first nine months of 2019, it totalled EUR 37.1 million (first nine months of 2018: EUR 33.2 million). Revenue increased by 12% as compared to the previous year. Revenue growth is primarily attributable to the advertising revenue growth both in Estonia and Lithuania.
Digital media keeps growing and despite tough competition, we have not lost market share and our revenue is increasing. By the end of the 3 quarter, the Group's digital revenue made up 40% of total revenue and 58% of media segment revenue. The Group's digital revenue in the first 9 months of 2019 increased by 17% as compared to the same period last year.
The EBITDA of the media segment in the 3 quarter of 2019 totalled EUR 1.3 million (3 quarter 2018: EUR 0.6 million) and in the first 9 months of 2019, it totalled EUR 3.3 million (first 9 months of 2018: EUR 2.1 million). As compared to the previous year, EBITDA increased by 56%, of which EUR +0.57 million was the effect of the new accounting standard IFRS 16 Leases entered into force on 1 January 2019 on EBITDA.
REAL ESTATE PORTAL
According to the survey on the recognition of real estate companies that was conducted by Turu-uuringute AS in the 2nd quarter of 2019, the recognition of Kinnisvara24.ee that was launched just one year ago has reached almost the same level as that of the market leaders kv.ee and City24. In just one year, Kinnisvara24.ee has become the most popular real estate search channel for 39% of the respondents.
In the 3 quarter of 2019, the portal Kinnisvara24.ee laid a great emphasis on branding - in addition to regular advertising channels, ads ran also on TV, radio, outdoor billboards, magazines and newspapers and thus, the organic growth in the number of visits reached 25% in the 3 quarter.
A new portal subsite was completed which today has more than 170 new real estate development projects. Close cooperation was launched with Inbank in order to provide repair and interior decoration loans to visitors that can be conveniently applied for through the real estate portal.
As of 30 September 2019, the portal Kinnisvara24.ee had 506 active real estate companies and 560 regular users with active ads. The number of brokers who had joined the portal was 1716.
In the 3 quarter of 2019, the revenue increased by 7% as compared to the 2nd quarter.
The Group continues to actively develop the portal to attain the leadership position in the market. The first-class search engine developed for Kinnisvara24.ee enables to search real estate properties by such criteria as "house with a pool" and "pets allowed" (rental apartments).
At the competition "Real Estate Deal of the Year 2018", the Estonian Real Estate Agents' Association awarded the first prize to the development of the real estate portal Kinnisvara24.ee .
In the 3 quarter of 2019, the revenue of AS Printall totalled EUR 5.6 million (3 quarter 2018: EUR 5.6 million) and in the first 9 months of 2019, it totalled EUR 18.8 million (first 9 months of 2018: EUR 18.2 million). Revenue increased by 3% as compared to the previous year and it was primarily impacted by higher paper prices. The revenue of printing services has declined in Estonia due to the decline of the share of print media and advertising brochures of large store chains. In the 3 quarter of 2019, EBITDA totalled EUR 0.4 million (3 quarter 2018: EUR 0.4 million) and in the first nine months of 2019, it totalled EUR 1.5 million (first nine months of 2018: EUR 1.9 million). EBITDA decreased by 24% as compared to the previous year. This was primarily impacted by higher input prices (paper, labour, electricity, natural gas, etc.) as well as stronger competition which put negative pressure on sales margins.
For several consecutive years, the printing services segment has been under pressure due to continued digitalisation of regular journalism and increasing popularity of Internet as compared to printed products. Competition concerning sales prices continues to be intense. The sales volumes of print circulations have declined which in turn leads to higher printing costs. In addition, appreciation of input prices (incl. labour, paper and electricity) is another major challenge.
In the first 9 months of the year, the share of revenue of AS Printall in other countries was 62% (9 months 2018: 60%).
Financial indicators and profitability ratios by proportional consolidation are disclosed on page 11 of the financial statements.
The effect of the new standard IFRS 16 "Leases" that entered into effect on 1 January 2019 on the income statement and balance sheet is described on page 18 and Note 1 of the financial statements.
From 1 January 2019, the Group applied the new mandatory accounting standard IFRS 16 "Leases" to recognise rental expenses. Due to this, the leased assets and lease liabilities are recognised at the present value of lease payments and depredation on leased assets and the estimates interest expenses on lease liabilities is recognised in the income statement.
As of 30.09.2019, the effect of IFRS 16 on the consolidated balance sheet and income statement is as follows:
Signe Kukin
Group CFO
AS Ekspress Grupp
+372 669 8381
signe.kukin@egrupp.ee
AS Ekspress Grupp is the leading media group in the Baltic States whose key activities include web media content production, publishing of newspapers and magazines and provision of printing services in Estonia, Latvia and Lithuania. Ekspress Grupp that launched its operations in 1989 employs 1700 people, owns leading web media portals in the Baltic States and publishes the most popular daily and weekly newspapers as well as the majority of the most popular magazines in Estonia.
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