OREANDA-NEWS. The year 2014 was a successful year for Ekspress Group. In year-on-year comparison, the consolidated EBITDA of the Group increased by 22% to almost EUR 9 million. Consolidated net profit was 30% higher and amounted to EUR 4.6 million. The EBITDA margin was 14.5%. The actual results were also higher compared to our cautiously budgeted EBITDA of EUR 8 million and net profit of EUR 3.8 million.

The above figures include all our joint ventures (AS SL ?htuleht, AS Ajakirjade Kirjastus and AS Express Post) consolidated 50% line-by-line. Starting from 2014, in consolidated financial reports 50% joint ventures are recognised under the equity method, in compliance with new international financial reporting standards (IFRS). The change in this accounting policy does not affect the net profit, but decreases annual sales revenue approximately EUR 8.6 million and EBITDA approximately EUR 1.0 million. In its monthly reports, the management has continued to monitor the Group’s performance on a 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 50% as previously and the other where joint ventures are recognised under the equity method and their net result is presented as financial income in one line. In Note 2 of the financial statements, the impact of every joint venture on the respective line of the income statement and balance sheet is described in more detail.

The income statement includes financial income in the amount of EUR 1.9 million resulting from the acquisition of shares of AS Ajakirjade Kirjastus and AS SL ?htuleht from AS Eesti Meedia, their sale to O? Suits Meedia and subsequent restructuring. In essence, joint ventures with AS Eesti Meedia were sold and new joint ventures were acquired together with O? Suits Meedia. In addition, as a result of these transactions, trademarks, other intangible assets and goodwill in the acquired joint ventures are now recognised at their fair value in both the balance sheet of the joint ventures themselves and the Group (where joint ventures are 50% consolidated). In the income statement, the depreciation cost of these trademarks and other assets is recognised subsequently thus decreasing the net profit. 

In addition to the above, the net profit was influenced by the impairment of goodwill related to Delfi Latvia in the amount of EUR 1.4 million. It is partly attributable to the decision made in the first half of 2014 to invest in the strengthening of the editorial office of Delfi Latvia which has had an impact on the entity’s financial results and partly to the downturn of the economic climate, caused mainly by the events in Ukraine.

The Group’s financial leverage improved notably during the year. The Group’s total debt to EBITDA ratio (based on 50% proportional consolidation of joint ventures) decreased down to 2.57 by the end of the year and the debt service coverage ratio increased up to 1.90. Today our balance sheet allows us to look very aggressively towards new investment opportunities.

Media segment which includes 50% joint ventures achieved EBITDA growth of 44% compared to last year, totalling EUR 4.0 million. Starting from the third quarter when the Lithuanian magazine publisher UAB Ekspress Leidyba was merged with Delfi Lithuania, we no longer separate online media from periodicals, and talk about one media segment which represents both online and print media. The online revenue of Delfi Lithuania continues to be reported separately.

In the media segment, the biggest EBITDA growth was achieved by Delfi Estonia, exceeding last year’s result by 98% and amounting to EUR 0.6 million. The strong result of Delfi Estonia is due to excellent work of the editorial office in increasing the readership of the portal that has enabled the advertising sales team to increase the revenue faster than the market in average. The rapid growth of new products, especially online topical portals and video solutions played an important role in increasing the revenue.

Although Delfi Latvia saw the EBITDA decrease 32% compared to year ago, it still earned a profit of EUR 0.1 million. In all three Baltic States, the competition in Latvia is the toughest. Acquisitions made by competitors to increase their market share have essentially equalled the readership of the three largest portals in Latvia, although Delfi remains the country’s largest news portal and for a few months in the autumn was also Latvia’s largest internet environment. In such a tough competitive situation we decided not to invest in acquisitions, but in the development of our own product, increasing editorial office and opening new topical portals. For this reason, costs in Delfi Latvia in 2014 were higher than we had planned at the start of the year.

EBITDA of Delfi Lithuania increased 23% in a year to EUR 1.3 million. The result of Delfi Lithuania was most affected by the merger with other group company Ekspress Leidyba, the Lithuanian magazine publisher, as a result of which we managed to optimise the organisational structure, while creating possibilities for selling online and print advertising packages.

It was also a good year for publishers. Although advertising income was largely in a downward trend, subscription income increased. AS Eesti Ajalehed that publishes newspapers Eesti Ekspress, Eesti P?evaleht and Maaleht improved its result by 46% and earned EUR 0.5 million in EBITDA. Contribution to the result during the year came from the series of Estonian children’s films that were produced in cooperation with a group’s book publisher Hea Lugu, and a series of detective novels, a cooperation project with third party book publisher Varrak. Our book publishing company Hea Lugu provided a positive surprise by earning an annual profit of EUR 0.1 million which is an increase of 71% from a year earlier. The strong annual result was attributable to the series of children’s films in the first half and to several bestsellers published.

AS SL ?htuleht increased its EBITDA result by 61% in a year to EUR 0.7 million. The result of AS Ajakirjade Kirjastus also improved this year, increasing by 49% and totalling EUR 0.5 million by the end of the year. The result of both AS SL ?htuleht and AS Ajakirjade Kirjastus was influenced positively by smaller printing costs resulting from entering into new printing contracts with AS Kroonpress and AS Printall. Express Post, a home delivery service provider, grew 33% in a year, earning EUR 0.7 million in EBITDA.

Since only the net profit of our joint ventures is recognised in the Group’s consolidated income statement prepared in accordance with new IFRS, the direct positive impact on consolidated results will be smaller due to amortisation of the trademarks and customer relations which now appear in the balance sheet of the joint ventures of AS SL ?htuleht and AS Ajakirjade Kirjastus as a result of restructuring. However the positive impact is reflected in the EBITDA of the joint ventures themselves.

One of the most significant events in 2014 was the ending of the court dispute over the ownership of AS SL ?htuleht and AS Ajakirjade Kirjastus. As a result of the dispute, AS Suits Meedia replaced AS Eesti Meedia as a shareholder in those two joint ventures. The immediate positive impact of the change in ownership was a significant decrease in the cost of printing services. In addition to a direct economic effect, this decision also has a long-term positive impact on the companies which have now more possibilities to compete in the market.

Very important event for the media segment was the growth in the number of paid digital subscriptions which exceeded 10,000 subscribers at the end of the year both for newspaper Eesti Ekspress and Eesti P?evaleht. It is also worth mentioning that weekly newspaper Eesti Ekspress celebrated its 25th birthday in autumn and at the same time Delfi celebrated its 15th birthday.

For online media companies, one of the most significant projects in 2014 was the development of the discount price portal Zave. By the end of the year, approximately 150 different merchants in the three Baltic States participated in this project.

The printing services segment increased its results ca 1% year-on-year and earned approximately EUR 6 million in EBITDA. In 2014, the key event in the printing services segment was the decision to acquire a new printing machine and its arrival in the last month of the year. The new sheet fed machine started production at the beginning of 2015.

At the end of the year we decided to launch a new business line – arrangement of entertainment events. The first project will be an exhibition in Riga about RMS Titanic that sank on her maiden voyage. The exhibition will open in the first half of 2015. After the Titanic exhibitions we will decide our further steps in terms of developing the business line of entertainment events.

In 2015 we expect the Group’s business to gather pace and financial capability to increase. We expect to increase the consolidated revenue by 5% and the EBITDA by 8% at least. This includes 50% of the results of our joint ventures.

At the start of January we announced a merger between AS Eesti Ajalehed and AS Delfi into one entity. The objective of this step is to cut administrative bureaucracy in joint transactions between the two closely linked companies, to increase journalistic quality through the cooperation of editorial offices of both media entities and to provide paper and digital newspapers direct access to the marketing capacity of Estonian largest portal. For our advertising customers we wish to provide access to all our platforms from a single sales organisation.

We continue to develop the discount price portal Zave, a new innovative customer communication tool for retail merchants. We have also set a goal to increase the number of paid digital subscriptions up to 20 thousand by the end of the year.

We have also started the project in investing into Baltic startup companies with the objective of supporting young businesses that could develop their business with the help of the Group’s marketing power in Baltic states and prepare expanding to larger international markets.

Our mission remains to offer new and interesting experiences both on paper and in digital media, without ever compromising on news quality, choice of topics and journalistic objectivity.

Starting from 2014, in consolidated financial reports 50% joint ventures are recognised under the equity method, in compliance with new international financial reporting standards (IFRS). In its monthly reports, the management has continued to monitor the Group’s performance on a 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 50% as previously and the other where joint ventures are recognised under the equity method and their net result is presented as financial income in one line.