Management Commentary

Statement of the chairman of the management board

In its home markets of Estonia, Latvia and Lithuania, Ekspress Grupp is one of the key companies to mould public information space. We believe that our quality work will help create a better society today and tomorrow.

The year 2021 was successful for Ekspress Grupp. The prolonged Covid-19 pandemic and heightened attention to what was going on in the society increased the interest in classical journalism. The investments made in previous years in journalists and creation of high-quality content have brought us success. This primarily manifests itself in continued growth in the number of digital subscriptions.

By the end of the year, the various companies of Ekspress Grupp had almost 135 000 digital subscriptions. Estonia has the most subscriptions of digital content with Ekspress Meedia attaining the highest number of digital subscriptions. The number of digital subscriptions of Õhtuleht Kirjastus demonstrated very good growth in 2021. It is evident that readers in the market are keenly interested in periodicals with varied content which gives us courage to experiment with various formats in order to grow the number of digital subscriptions in coming years.

The effects of the pandemic were also present in 2021. The ticket sales businesses in Latvia and Estonia suffered the most under the restrictions. Using our knowledge and technological platform of the Latvian ticket business we launched a new platform under the name of Piletitasku in Estonia in spring 2021. Because of the pandemic, ticket sales started to pick up only in autumn. Nevertheless, our ticket sales platforms ended the year with good results due to their skill to adapt to the constantly changing circumstances and develop key technological solutions for theatres, concert halls and other event organisers. These developments helped disperse visitors during the restrictions or check, for example, customers’ vaccine passports.

In the advertising sector, digital outdoor screens were hit the hardest during the pandemic. However, in the second half of the year, there was a recovery of customer interest in outdoor media. We are on the path to growing digital screens both in Estonia and Latvia – at the beginning of the year, we acquired four digital outdoor screen companies in Riga. In addition, we participated in several procurements organised by Riga City Council, two of which we won. Due to the winning of the procurements, we will increase our footprint in the market of digital outdoor screens in Riga and going forward we will be able to offer various formats to our customers.

In June, Ekspress Grupp announced of the sale of the printing house AS Printall. This transaction in is line with the Group’s strategy that primarily focuses on the growth of its digital business. Since the share of print periodicals in the Group’s revenue continues to fall, owning a printing house is strategically unimportant for the Group over the long run.

In December, Ekspress Grupp acquired the media company Geenius Meedia in Estonia. Geenius Meedia is a media company focused on technology, car and business news that already has a significant number of digital subscriptions. It also represents a niche not regularly covered by the periodicals of Ekspress Grupp. After the acquisition, Geenius Meedia will continue as an independent media company. The online portals of Geenius have approximately 300 000 monthly readers and by the end of the year, it had more than 4 000 paying digital subscribers.

Overall, the year 2021 was successful for the Group: despite the ongoing pandemic and the economic uncertainty due to the coronavirus, the Group managed to reinforce its market position and significantly improve its profitability. As compared to 2020, the 12-month revenue increased by 20% to 53.5 million and the net profit increased by 61% to EUR 4.1 million. The share of the Group’s digital revenue was 76% of the total revenue at the end of December.

In addition to growth in digital subscriptions, growth in digital advertising in all countries also made a great contribution to the attainment of our outstanding results. This is primarily attributable to the digitalisation of the businesses due to the pandemic and therefore, making a greater contribution to digital advertising.

In 2020, Ekspress Grupp actively participated in the activities of the Estonian Association of Media Enterprises, the purpose of which is to enhance competition on the Estonian media landscape, fight market distortions and increase the availability of periodicals to the Estonian people. The same focus is also in Latvia and Lithuania, where we are actively participating in solving the industry’s problems through our local companies. The topics related to the equal treatment of companies represent long-term problems, such as the topics related to the taxation of global platforms and copyright-related topics. There is a similar situation in local markets where local national broadcasting companies make a contribution to digital products. From the point of view of evaluating the competitive situation, this does not represent a market failure that should be resolved with the taxpayers’ money.

Latvia and Lithuania can be outlined as progressive countries that in 2021 lowered their value-added tax rate on digital media products to 5%. Thus, Estonia remains one of the few countries in Europe with such a high value-added tax rate on digital media products (9%). A lower value-added tax rate will facilitate media companies’ digital transformation and place value on journalism and journalists as a whole. Strong journalism is the foundation of a strong democracy.

The results over the last couple of years demonstrate that we are on a right strategic path. The company’s revenue and profitability have grown, at the same time we have developed and evolved, implemented new technologies, launched new products and contributed to media companies in terms of their content. It is important for us to be trend setters and market leaders in the media field. This will ensure continued growth of digital revenue and profitability for us.

We thank our readers, viewers and listeners, shareholders and customers for their trust and support of our group companies!

Yours sincerely,
Mari-Liis Rüütsalu

The year 2021 was another year of rapid growth for digital media consumption as digitalisation continued to grow at full speed, fuelled by the impact of the pandemic.

The year was dominated by the following three trends:
- strong growth of paid digital content in all our key markets, i.e. Estonia, Latvia and Lithuania;
- continued impact of pandemic waves on the digital advertising market;
- adjustment of advertisers to the COVID-19 pandemic and transition of advertising budgets to digital advertising and e-commerce channels.

A year ago we were expecting to see in our key markets continued expansion of the subscription-based business model and growth in digital subscriptions, i.e. surge of consumer interest in high-quality journalism. We also expected to see growth in the segment of subscribers who have multiple active digital subscriptions from different content providers.
Today we can say that in 2021 the markets of Estonia, Latvia and Lithuania moved indeed in this direction. As the largest provider of digital subscriptions in news media in our target markets, Ekspress Grupp saw the number of digital subscriptions in our key markets to increase by a total of 62%. Paid digital subscriptions continued to grow rapidly also in Delfi Latvia and Delfi Lithuania, increasing by 57% and 164% year-over-year, respectively. Considering the number of total consumers of digital content and the current number of subscribers of paid digital content, we are confident that the business model of paid subscriptions will continue its widespread transformation for several years. News media is now in the position where more and more people subscribe to digital news media in order to keep up with current news and widen their horizon.
For the Baltic media houses, the biggest competitors in terms of financial resources in the digital advertising market are still global Internet platforms. In 2021, the activities of major tech companies fell under the scrutiny of legislators and competition regulators around the world. Although regulating global powerhouses is may still take years, regulators in several countries are expected to take more decisive steps already in the next few years to curb the market power and balance the social and economic impact of dominant global platforms. We are seeing the first signs of platforms getting interested in improving cooperation with media organisations also in our key markets.
In addition, global platforms have increased their contact price for digital advertising which in turn increases the value of advertising opportunities offered by local news media platforms. In 2021, there were several cases when during peak demand, Google and Facebook increased their advertising prices up to tenfold.
During the year, the activities of publicly funded broadcasting companies in the digital media market remained under intense scrutiny in our key markets. Since there is sufficiently intense competition between private media houses in the provision of online news and production of digital content and consumers are offered a wide choice of journalistic content, intervention of state media companies in these markets is by no means justified. In respect of the digital news media in Estonia, Latvia and Lithuania, there are no market distortions that the states should resolve through publicly owned media houses funded from growing budgets. The situation that the largest media organisation of every Baltic State is the local public broadcaster is unusual. In comparison, no Nordic country has a situation where the revenues of private media organisations are several times below those of public broadcasters. In this crucial issue related to the future of private media, the European Commission continues to handle complaints submitted by the Estonian and Lithuanian media companies.
We expect both the demand for and supply of high-quality digital content to continue their strong growth and readers to have a more abundant and better choice in the new year. As the subscription-based business model is set to continue expanding, we expect consumers to spend more on digital content, average subscription prices to grow and the number of digital subscribers to fluctuate less in the entire market. With regard to global platforms we expect regulators to act more decisively than until now, i.e. to ensure a level playing field for all market operators. In this context, in the new year platforms will focus increasingly on managing regulatory risks and developing cooperation opportunities in local markets.

Yours sincerely,
Kaspar Hanni

2021 concluded a strong and record high for Ekspress Grupp. A strong underlying revenue growth of 20% and an EBITDA of EUR 8.24 million, up by 39% as compared to last year. Net profit (from continuing operations) of EUR 4.13 million that is 61% higher compared to 2020.
The groups media businesses continued to perform very well and exceeded our expectations in digital advertising and digital subscriptions revenues. Ekspress Grupp provides a range of different digital brands, with world-class media houses in the Baltics and empowers thousands of people in their daily lives every day, with the goal to uphold a society built on trust and transparency.
During 2021 the group made a significant exit from its printing services business, AS Printall. The divestment, which gave EUR 6.3 million free cash and that eliminates the non-strategic need for the annual investments into printing house' assets going forward. It is key for the group to continue with its strategic focus and have sufficient resources to support its digital organic growth and new acquisitions. We are happy that Ekspress Grupp is becoming a digital leader with the 76% of its revenues already being digital. As to support our strategy the group acquired Geenius Meedia at the end of 2021. A niche media portal that will expand our reach to alternative readers and will diversify the content we can offer.
With the growth ambitions and the transformation towards digital media business will require investments, mainly related to product and technology as well as marketing spend. The cost of product and technology relates mainly to the people costs which have increased considerably and which we aim to keep in balance with the growth of the future revenues. As these costs occur, this will temporarily lead to limited operational leverage, regardless we are with an ambition to keep the profitability levels.
The group has placed great value on maintaining the balanced liquidity position during 2021. We amended the senior loan facility agreements with AS SEB Pank and refinanced the loan from AS Citadele banka, that in total improved our annual cash flow by EUR 1.7 million. The term of the loan was extended by 5 years till July 2026 and the margins of the loans reduced to a range of 1.75%-1.9% (previously up to 3.9%). We are keeping the overdraft facility of EUR 3 million that was not used at the end of the year and that secures an additional liquidity buffer for activities going forward.
As in the rest of the world, the COVID-19 pandemic has had a relevant impact on the Baltic economies, however there has been a strong rebound thanks to gradual reopening of societies and an acceleration of the digital transformation across industries which have brought new possibilities for many of our businesses. While some uncertainty remains during 2022, the development in our businesses over the last two years, and the forecasts for the Baltics, are encouraging.

Yours sincerely,
Signe Kukin