OREANDA-NEWS. In the 1st quarter of this year, the Group earned a net profit of EUR 633 thousand as compared to EUR 179 thousand earned a year before. Sales totalled EUR 13.8 million and were 3% lower than last year. EBITDA was 7% lower than in the 1st quarter of 2012 and we ended the quarter with a profit of EUR 1.5 million. Sales and EBITDA expectations were 2% and 9% higher, respectively, but the quarterly net profit remained at the budgeted level.

The keywords that characterise the quarterly result are the unexpected weakness of export markets of printing services that started in the second week of February, the deferred income of different cooperation projects of Delfi Lithuania and allowance for old receivables. As we managed to offset the fall in EBITDA with lower interest expenses, we are satisfied with the net profit result.

A change in the breakdown of Group’s EBITDA between different segments in the 1st quarter reveals that against the backdrop of deferred income of online media and the temporary decline in printing services, the result of the periodicals segment improved from last year and the share of EBITDA of periodicals in the Group’s EBITDA increased from 1% last year to 12% this year.

The better-than-expected result of the periodicals’ segment was partly due to the DVD series ended in the first quarter of the year, which was sold together with daily Eesti Paevaleht and which improved the results of the book publisher Hea Lugu and that of AS Eesti Ajalehed. The segment was also supported by the better-than-expected result of Express Post, the home delivery service of periodicals. It was a challenging quarter for newspaper and magazine publishing. While Lithuania reduced the VAT on periodicals and staff cuts also helped to improve the company’s result as compared to the year before, in Estonia all periodicals suffered from the unexpected downturn of the advertising market. The Estonian publisher of magazines reached the advertising revenue of the previous year only in the last month of the quarter, and it was challenging also for daily and weekly newspapers. The revenue base was maintained by subscriptions that remain stable. Readership and advertising revenues of digital newspapers continue their stable growth.

In the online segment, Delfi Latvia managed to exceed last year’s profit. Despite 7% sales growth, the profit of Delfi Estonia remained below last year’s level. Taking into account the low sales and profit targets in the 1st quarter, the difference in absolute figures is actually insignificant. The result was primarily impacted by the charges related to the termination of some employment and service contracts, and the expansion of the editorial office in 2012 as a result of which on the other hand helped the weekly number of unique users of delfi.ee to exceed that of postimees.ee by more than 100 thousand since the final weeks of the quarter. The biggest impact factors behind the financial result of Delfi Lithuania were the deferral of income of some cooperation projects to the second quarter and allowance for old receivables derived from higher advertising revenues in the last quarter of 2012. Since the management considers both factors as a delay in collection of income and not default, it is expected that these setbacks will be offset over the next quarters of the year.

In the printing services segment, the company’s revenue base was impacted by the slowdown in the export markets in the middle of the quarter. The reaction to this has been problematic for the company due to the production capacity constraints that do not enable it to prepare for a sudden decline in the orders of regular customers. According to the company’s management, there are also price pressures in different export markets. Regardless of the shortfall in sales, the company managed to meet its EBITDA target in the final month of the quarter and is optimistic about the next quarter.

In the second quarter of the year 2013, we expect revenue to remain at the last year’s level, EBITDA to decrease by about 7% as compared to the year before, but net profit to increase by 30%. The most significant negative factor is the shortfall in advertising revenue of periodicals; moreover, until the launch of a new DVD series, the segment’s result will also be affected by the ending of the series in the first quarter. In the online segment, we expect to maintain EBITDA at last year’s level, but at a slightly lower margin due to the costs related to the launch of several new projects and content production costs incurred last year which we intend to optimise. In the printing services segment we expect the profit to remain at last year’s level. Significantly lower interest expenses than last year will contribute to net profit growth.