Editoria e Media
AS Ekspress Grupp: Consolidated unaudited interim report for the Firts Quarter of 2019
The revenue of AS Ekspress Grupp totalled EUR 17.3 million in the 1st quarter of 2019. The Group's revenue for the 1st quarter increased by 6% as compared to the previous year. Digital revenue increased by 11% and made up 37% of the total revenue.
Digital revenue growth is also one of the key objectives of the media business of Ekspress Group that the management has set for the company.
In the 1st quarter, the Group's EBITDA reached EUR 0.68 million and stayed at the same level as in the same period last year. In the 1st quarter, the Estonian and Lithuanian companies posted strong results both in the sales of subscriptions as well as advertisements. The growth of digital subscriptions was a positive development in Estonia.
In Estonia, both the sales of articles as well as purchasing of digital subscriptions have exceeded the previously set targets. The beginning of the year with plenty of news helped us achieve good results, creating favourable conditions for production of quality content which the readers are willing to pay for.
The beginning of the year also proved that if there is a lot of news in a certain period, the number of visitors in Delfi environment grows faster than at the competitors. This demonstrates that we have been able to create a news environment which the readers trust and prefer.
The Latvian advertising market which was at a standstill in the 1st quarter had a negative impact on the quarterly results. This trend characterised both the entire Latvian market as well as the results of Delfi Latvia.
As compared to the previous year, the volumes of the Group's printing house increased by approximately 6% whereby all production operated at full capacity in the 1st quarter. However, the volumes of printing batches have decreased which in turn has increased production costs and put pressure on profit margins. While in the media segment the Group posted higher profits in the 1st quarter, then in the printing services segment profits fell by approximately 22%. In a situation where the business volumes are falling in the printing services segment in Estonia, we have managed to grow exports and as of the end of the 1st quarter, exports made up 63% of the total portfolio of the printing services.
In the 1st quarter, the Group acquired an additional 50% ownership interest in Linna Ekraanid OÜ that is engaged in the sale of digital outdoor advertising in Estonia. AS Ekspress Grupp now owns 100% of the entity. The long-term goal of the Group is to continue developing the business line of digital outdoor advertising and assume a leadership position in this market. According to the contract entered into in 2016, Ekspress Group was under the obligation to acquire the remaining 50% of the entity in 2018. Linna Ekraanid has been growing steadily and has helped to increase the digital advertising revenue.
In the 1st quarter, the Group's largest media entity AS Ekspress Meedia organised several events, for example: Game of the Stars in Tartu and the annual e-commerce conference of the Baltic States. Delfi Latvia was the key media partner in such events as: ice skating show "Disney on ice", Tom Odell's concert, Ewert and the 2 dragons's concert, Techchill (Baltic start-up conference), Miit&Links Baltic PR Awards conferences, Jēkabs, Mimmi un runājošie suņi (Latvian animated movie), 1906 (Latvian movie) and fashion week Riga Fashion Week. Delfi Lithuania together with its partners arranged the first ever festival in the winter - Delfi music festival "Snowstorm". In the 4th quarter of 2018, Delfi Lithuania published a book related to "Pravieniskiu Mafija" project that reached the TOP3 bestseller list in Lithuania. In connection with the same project, the team of the Lithuanian DELFI TV made a unique 45-minute documentary "Pravieniskese Mafija" in the 1st quarter of this year. For the second time, Delfi Lithuania organised a major event targeted at schoolchildren where the children are offered the best (outdoor) lessons in the course of a day. This time, 14 000 students from various schools in Lithuania participated in the event "The Day of the Best Lessons". Interactive lessons were given to students in biology, robotics, etc.
Despite bigger business volumes, the profitability of the Group continues to be under pressure, primarily due to the intensifying competition in the printing services segment. In the upcoming periods, the management will pay attention to and will look for additional opportunities to improve profitability and increase efficiency.
SUMMARY OF THE RESULTS FOR THE 1ST QUARTER
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 1st quarter of 2019 totalled EUR 17.3 million (1st quarter 2018: EUR 16.4 million). Revenue increased by 6% 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 37% of total revenue. In the 1st quarter 2019, the Group's digital revenue increased by 11% as compared to the same period last year.
PROFITABILITY
In the 1st quarter of 2019, consolidated EBITDA totalled EUR 0.68 million (1st quarter 2018: EUR 0.67 million). EBITDA increased by 1% as compared to the previous year, of which EUR +0,2 million was related to the effect of the new accounting standard IFRS 16 "Leases" on EBITDA that entered into force on 1 January 2019. The EBITDA margin declined to 3.9% (1st quarter 2018: 4.1%). In the 1st quarter of 2019, the consolidated net loss totalled EUR -0.61 million (1st quarter 2018: EUR -0.24 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 and higher home delivery and labour costs. In the first quarter, the additional loss in amount of EUR 0.1 EUR came from 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 consolidated balance sheet and income statement as at 31.03.2019 is disclosed on page 17 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 1.6 million and equity in the amount of EUR 49.5 million (61% of total assets, without taking into account the effect of IFRS 16 - 63%). The comparative figures as of 31 March 2018 were EUR 2.4 million and EUR 52.3 million (66% of total assets), respectively. As of 31 March 2019, the Group's net debt totalled EUR 18.1 million, without taking into account the effect of IFRS 16, the Group's net debt totalled EUR 13.1 million (31 March 2018: EUR 13.2 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 17 and in Note 1 of the financial statements.
Financial indicators and ratios under the equity method are disclosed on pages 16-17 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, digital outdoor advertising in Estonia and Latvia, publishing of the Estonian weekly newspapers Maaleht, Eesti Ekspress and LP, the daily newspaper Päevaleht, tabloid Õhtuleht, freesheet Linnaleht, publishing of books and magazines in Estonia and providing home delivery services.
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" that entered into effect on 1 January 2019 is described on page 17 and Note 1 of 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 Estonian Newspaper Association data, the daily newspaper with the largest circulation in Estonia for last 12 months continues to be Õhtuleht. For January and December, the largest newspaper was Maaleht. During the last 12 months, 5 largest newspapers have declined in circulation in total by ca 8 000 copies.
In the 1st quarter of 2019, the revenue in the media segment totalled EUR 11.5 million (1st quarter 2018: EUR 10.7 million). Sales increased by 8% as compared to the previous year. Sales growth is primarily attributable to the advertising revenue growth in Estonia and Lithuania.
Digital media keeps growing and despite tough competition, the Group has not lost market share and our revenue is increasing. By the end of the 1st quarter, the Group's digital revenue reached 37% of total revenue. The Group's digital revenue in the 1st quarter of 2019 increased by 11% as compared to the same period last year.
The EBITDA of the media segment in the first quarter of 2019 totalled EUR 0.5 million (1st quarter 2018: EUR 0.3 million). As compared to the previous year, EBITDA increased by 71%, of which +0.2 million was the effect of the new accounting standard IFRS 16 "Leases" that entered into force on 1 January 2019 on EBITDA.
REAL ESTATE PORTAL
Due to the sales and marketing activities, the real estate portal Kinnisvara24.ee managed to surpass its key competitor city24.ee both in terms of the number of advertisements and visitors by the end of last quarter of 2018.
Kinnisvara24.ee ranked second among real estate portals. From the last week of February 2019, city24.ee and kv.ee do not publish their data on the number of people visiting their portals anymore. The Group will continue to actively develop the portal to achieve a higher position in te market.
Kinnisvara24.ee has developed a first-class search engine where one can, for example, look up properties using such criteria as "house with a pool" and "pets allowed" (rental apartments).
At the competition "Real estate deed of the year", the Estonian Real Estate Agents' Association selected the development of the real estate portal Kinnisvara24.ee as the winner.
In the 1st quarter of 2019, the revenue of AS Printall totalled EUR 6.6 million (1st quarter 2018: EUR 6.2 million). Revenue increased by 6% 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 printed media and advertising brochures of large store chains. In the 1st quarter of 2019, EBITDA totalled EUR 0.6 million (1st quarter 2018: EUR 0.7 million). EBITDA decreased by 22% as compared to the previous year. This was primarily impacted by higher input prices (paper, labour, electricity, natural gas, etc.) as well as tighter 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.
The revenue of AS Printall in the 1st quarter of 2019 outside Estonia is 63% (1st quarter 2018: 62%).
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 17 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 31.03.2019, the effect of IFRS 16 on the consolidated balance sheet and income statement is as follows:
Additional information:
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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