SanomaWSOYs net sales for the review period 1 January 31 August 1999 totalled FIM 4,884 (4,696 million in the previous corresponding period), or EUR 821 (790) million, +4 %. Profit before extraordinary items increased to FIM 380 (363) million or EUR 64 (61) million, +5 %. Earnings per share increased by 7 % and was FIM 7.53 (7.02), or EUR 1.27 (1.18). Equity per share increased by 7 % to FIM 129.28 (120.62), or EUR 21.74 (20.29). Average personnel (counted full-time) increased by 1 % to 9,725 (9,616).
SanomaWSOY; creation and trend
Sanoma-WSOY Oyj was created on 1 May 1999 following the merger of Werner Söderström Corporation - WSOY, Helsinki Media Company Oy, Sanoma Corporation, and Oy Devarda Ab which was a shareholder in the two last-mentioned companies. New sub-groups Helsinki Media Company Oy (hereafter Helsinki Media), Sanoma Corporation (Sanoma), and Werner Söderström Corporation (WSOY) were established by transfer of assets in connection with the merger, and organised largely on the basis of their existing operations. Rautakirja Oyj (Rautakirja) continues operation as an associated company of Sanoma and WSOY. In the merger Rautakirja became a subsidiary of the new Group which holds 54.7 % of its shares. It continues as an autonomous publicly listed company.
Trading in Werner Söderström Corporation WSOYs shares continued on the Helsinki Exchanges until 30 April 1999. Trading in Sanoma-WSOY Oyjs shares started on 3 May 1999.
The SanomaWSOY Group comprises about 100 companies that share the same objectives and operating principles. Corporate strategies and other important matters are prepared by the corporate management group and approved by the Board of Directors of Sanoma-WSOY Oyj. The decision-making power and control in the subsidiaries are exercised by their respective Boards.
The corporate administration is responsible for the statutory tasks pertaining to a publicly listed company, and co-ordinates the activities of the Group to ensure that the total value of the Group is higher than the sum of its constituent elements. The asset management and real estate operations are centralised units of the parent company with responsibility for their respective results.
The objective of the SanomaWSOY Group is to exceed the average growth rate of its industries; the growth will mainly come from media and publishing sector in the Nordic countries and other neighbouring regions. The directions of growth are scanned and led by the Group, while implementation is mainly the responsibility of the subsidiaries.
The task of the Corporate Development is to carry out extensive projects in new market segments. It is for instance currently working on projects connected with the Internet, digital TV and customer systems.
The media markets follow the overall economic trends. The GDP growth rate has slowed down during the year and is expected be about 3.5 %. The growth of media advertising, significant for the income formation of the SanomaWSOY Group, slowed down correspondingly. The value of advertising increased by merely 5.5 % in January August, whereas the growth rate was twice as strong at the beginning of the year. Especially the increase of TV advertising was modest.
In spite of the favourable consumption outlook, the year to date has been weaker than expected for the Groups industries. Demand has focused on purchases of consumer durables.
Several significant structural changes implemented in the companies of the SanomaWSOY Group in 1998 1999 impact the comparability of the different operations. A major part of the Groups assets transferred to the parent company as a result of the merger, and the balance sheet structures and income formation of the subsidiaries changed accordingly.
Other material changes impacting comparison include the transfer of WSOYs magazine printing operations on 1 May 1998 to Acta Print Oy 50-50 owned with Otava publishing company, as well as the sale of all WSOYs holdings in their 50-50 jointly owned companies to Otava on 31 August 1998. Helsinki Media sold all its printing operations to its new associated company Hansaprint Oy on 1 January 1999. Also Rautakirjas net sales for the comparison year include four months of sales income from the Tiimari chain.
The Group has acquired several new subsidiaries during this year. In the spring, Sanoma acquired Kymen Lehtimedia Oy and Esmerk Oy, WSOY acquired Tummavuoren Kirjapaino Oy, and AS MPDE was acquired by Rautakirja. The structural arrangements are described in greater detail in the separate reports of the sub-groups.
Overall organic net sales growth was slow in all of the industries of the Group. The group companies were successful in their respective fields and retained or strengthened their market positions. SanomaWSOY Groups total net sales for the review period increased by 4 % from FIM 4,696 million in the previous corresponding period to FIM 4,884 million. Sanoma increased its net sales while the sales by other sub-groups declined as a result of the structural arrangements. Most of the Groups net sales growth is attributable to the new subsidiary Kymen Lehtimedia, the positive trend of Helsingin Sanomats advertising revenues, Ilta-Sanomats circulation revenues, and the strong growth of advertising sales on Channel Four Finland.
Operating profit amounted to FIM 218 (287) million for the review period. Consolidated operating profit declined by 24 % from the comparison year primarily due to structural arrangements and capital expenditure relating to the new operations. The proceeds from divestments of operations were reinvested. The Groups financial income increased and financial expenses decreased, contributing to the 5 % growth in profit before extraordinary items which was FIM 380 (363) million. Earnings per share amounted to FIM 7.53 (7.02). The Groups profit for the period was FIM 253 (802) million.
The consolidated balance sheet total increased by FIM 248 million from August 1998 to FIM 7,533 million. Consolidated equity was FIM 4,471 (4,124) million at the end of the review period, and equity per share was FIM 129.28 (120.62). Consolidated equity ratio increased to 71 (65) % due to divestments previous year.
Capital expenditure; financing
The SanomaWSOY Groups gross investments during the review period totalled FIM 1,165 (509) million. More than half of this related to Sanoma projects, the recently completed Sanoma House, and acquisitions of Kymen Lehtimedia and other companies operating in the same industry. Some investments were directed to the currently ongoing upgrading of production equipment in mailing and expansion of four-colour production in the newspaper printing. Investments were made also in other parts of the Group to acquire holdings in companies active in the Groups operating sectors and to carry out normal replacements of non-current assets. The Groups participation in the Norwegian A-pressen ASA increased to 27.5 % during the summer.
The Groups financial position is stable. The book value of securities under financial assets, cash and bank at the end of the period was FIM 2,047 (1,420) million. During the same period, the market value of investment operations exceeded their book value by approximately FIM 500 million. Interest-bearing liabilities totalled FIM 562 (399) million at the end of the review period.
Decisions of the Groups general meetings and shareholders meetings
The general meetings held in the spring approved the financial statements for the previous financial year and discharged from liability to the administrative bodies. The previous administrative bodies were re-elected to continue in their duties until the implementation of the merger. The merging companies decided to distribute a total dividend of FIM 232 million, excluding Rautakirjas dividends, to parties not belonging to the Group.
The shareholders meetings of the merged companies, i.e. Oy Devarda Ab, Helsinki Media Company Oy, Sanoma Corporation and Werner Söderström Corporation WSOY, were held on 2 August 1999. The meetings approved the final accounts of the companies and granted release from liability to the members of the Supervisory Board and the Boards of Directors as well as to the Presidents for the period 1 January to 30 April 1999. The merger arrangements were thus finalised in all respects.
The average total number of personnel in the various companies of the Group was 12,614 (12,043). Translated into full-time employees, the average number of the total workforce was 9,725 (9,616).
TV operating licenses
On 11 March 1999, the Council of State granted a new license, valid until 31 December 2006, to Oy Ruutunelonen Ab to operate an analogue TV channel. On 23 June 1999, the Council of State granted a digital TV license to Channel Four Finland, a digital movie channel to Helsinki Media, and a digital TV license to WSOY to operate an educational channel. Another digital operating license was granted to Helsinki Medias associated company Suomen Urheilutelevisio Oy (sport TV). The validity of these digital licenses is ten years.
A program was started in all Group companies already in 1996 to analyse and identify potential Y2K problems in their information systems. Some of the companies have ensured compliance by their purchase contracts since 1997. All the essential modifications of software and equipment required due to the change of the millennium had been completed by the end of the review period. According to the estimate of our experts, the change of the millennium is not expected to have adverse effects on SanomaWSOYs operations.
The total number of SanomaWSOYs shares is 36,380,399; of this figure, 6,001,895 are A-shares and 30,378,504 are B-shares. The Group holds 1,796,819 of its B-shares, which represent 4.94 % of the shares and 1.19 % of the votes.
Trading in WSOYs shares on the Helsinki Exchanges continued until 30 April 1999. Altogether 5,350 WSOY A-shares were traded for the average price of EUR 64.67 (FIM 394.50) per share and 820,865 B-shares for the average price of EUR 55.59 (FIM 330.50) per share. The total trading volume of WSOYs shares in the first four months was EUR 46 million (FIM 273 million).
SanomaWSOYs shares are listed on the Helsinki Exchanges since 3 May 1999. Altogether 82,666 A-shares were traded for the average price of EUR 69.17 (FIM 411.27) per share and 799,906 B-shares for the average price of EUR 56.78 (FIM 337.63) per share, and their total trading during the second third of the year was EUR 51 million (FIM 304 million). SanomaWSOYs market capitalisation, excluding the shares held by the Group, at the end of the review period was EUR 1,716 million (FIM 10,205 million).
The composition of Sanoma-WSOY Oyjs Board of Directors is: Mr. Aatos Erkko, Chairman; Mr. Esko Koivusalo, Vice Chairman; and members Ms. Jane Erkko, Ms. Marjukka af Heurlin, Mr. Paavo Hohti, Mr. L.J. Jouhki, Mr. Kyösti Järvinen, Mr. Robin Langenskiöld, Ms. Rafaela Noyer, Mr. Jaakko Rauramo and Mr. Antero Siljola. Mr. Jaakko Rauramo is the Chairman of the Management Group and Mr. Antero Siljola is the Vice Chairman. The other members are Mr. Aarno Heinonen, Mr. Nils Ittonen, Mr. Tapio Kallioja, Mr. Seppo Kievari, Ms. Kerstin Rinne and Mr. Hannu Syrjänen.
Outlook for the latter part of the year
The rate of inflation has remained low in 1999. Although the growth of consumer demand has slowed down, confidence in a positive development of the national economy is high among consumers. A failure to reach a broad-based concentrated labour market agreement will create uncertainties which may be reflected in national economy and hamper development in the industries of the company.
The unstable development in exports to Russia that started last year, structural changes within the Group, investments in new operations and a general shift in consumer consumption towards consumer durables can be seen in the trend of net sales and performance in the first part of the year.
Our operations were influenced by the establishment of the SanomaWSOY Group, development of new activities, identification of expansion potential and new initiatives. We have reached a phase where we can utilise the strong content, branding and market expertise of our Group. We intend to step up our commitment to the development of new media.
Our operations will retain or strengthen their market positions in 1999. If no unexpected changes occur in the market situation, we estimate that SanomaWSOY will reach net sales of approximately FIM 7,800 million, and operating profit will be about at the previous year's level. Asset management revenues have a significant role for our performance. Financial income was good at the beginning of the year and is expected to remain good also for the year although it will decline in relative terms in the latter part of the year. The consolidated profit before extraordinary items is expected to improve slightly over the previous year.
Helsinki, 20 October 1999
SANOMA-WSOY OYJ Board of Directors
Jaakko Rauramo President and CEO
Distribution: HEX Helsinki Stock Exchange, principal media
INFORMATION ON SANOMAWSOYS SUB-GROUPS
Some structural changes took place in the Helsinki Media Group as a result of the merger and a new operational focus. The Groups printing operations were transferred at the year-end to the associated company, Hansaprint Oy, where Helsinki Media has a 40 % stake. At the same time, Helsinki Televisio Oys AV production was transferred to WSOYs new subsidiary Tuotantotalo Werne Oy. The Norwegian based A-pressen ASA became Helsinki Medias associated company at the beginning of the year but was transferred to the parent company Sanoma-WSOY Oyj in connection with the merger.
During the review period, Helsinki Media launched three new magazines, one childrens magazine and a new childrens book club. The first issue of mens lifestyle magazine MG appeared at the end of 1998. A new travel magazine, Matkaopas, appeared for the first time in January and the international womens magazine Cosmopolitan in April. The first issue of a childrens magazine, Prinsessa, was published in August. A new IT weekly, called ITviikko will start appearing in November. Under an agreement between the Finnish Information Processing Association and Helsinki Media Company Oy on 20 August 1999, the Association will subscribe to the magazine to all its members from the beginning of 2000. The Sisters Club was launched during the summer.
The magazines increased their volumes, and advertising sales developed positively; also the advance booking situation improved from the previous year. The sales growth of Channel Four Finland (Nelonen) clearly exceeded market growth, with an increase of 50 % over the previous corresponding period, and the channels share of the total number of viewers is steadily growing. The number of subscribers adhered to HTVs cable TV network exceeds 200,000.
Helsinki Medias net sales for the review period declined by 3 % to FIM 734 (759) million. The strong growth in Nelonens sales was not sufficient to compensate for the transfer of printing operations to Hansaprint.
Helsinki Medias result is encumbered by investment of resources to launches of new magazines, the development of Nelonen and a considerable increase in operating license charges. The operating loss for the review period was FIM 78 (84) million.
Helsinki Medias net sales for 1999 are expected to remain flat with the previous year in spite of the transfer of its printing operations to the associated company. Magazine circulation volumes are expected to increase to some extent and the trend of advertising sales is expected to be positive. Most of the net sales growth will be generated by Nelonens operations. However, the weaker trend of TV advertising in relation to other media will create uncertainties for latter part of the year. Helsinki Medias comparable net sales are expected to remain largely unchanged.
The Sanoma Group grew during the review period. Kymen Lehtimedia Oy and Esmerk Oy became Sanomas wholly owned subsidiaries. Kymen Lehtimedia publishes daily papers, such as Kymen Sanomat, Kouvolan Sanomat and Etelä-Saimaa. An essential part of its net sales of FIM 489 million in 1998 was generated by printing exports to the Russian market. The companys net sales for 1998 will decline from the previous year due to a significant decrease in exports of printing work to Russia. Esmerk which produces economic data and follow-up services according to customers profiles, had net sales of FIM 29 million in 1998.
Sanomas 60 % owned subsidiary Arnedo Oy acquired about 34 % of the shares representing 9 % of the votes in Ilkka-Yhtymä Oyj. The transaction is a phase in the development of co-operation between the paper publishing companies of the central regions of Finland, and Sanoma intends to reduce its holding in the company in pace with the progress of the development program. The Swedish financial news and data producer, Ecovision AB became Startel Oys associated company in May. Startel owns 25 % of the shares and 30 % of the votes in the company. Ecovisions net sales for 1998 totalled SEK 28 million.
Sanomas capital expenditure totalled FIM 628 million; the majority of the sum related to the construction of the Sanoma House and the above-mentioned holdings in companies operating in the media industry. The company made a decision during the review period to upgrade the production equipment in the mailing departments of Sanomala printing plants at Vantaa and Varkaus, and to increase four-colour printing with the printing machines at Forssa. The estimated cost of these renewal and extension projects is about FIM 210 million, some of them already included in the capital expenditure of the review period.
Sanomas net sales increased by FIM 305 million to FIM 1,677 (1,372) million. The growth was partly attributable to the acquisition of Kymen Lehtimedia and the positive trend of advertising and circulation revenues. Helsingin Sanomat increased its advertising revenues but its net sales improved only slightly from the previous year, following a disruption of printing exports to Russia. Ilta-Sanomat increased its net sales as a result of higher circulation and advertising revenues. Also Startel, which publishes Taloussanomat, increased its net sales.
Operating profit was FIM 199 (161) million; share of associated companies' result included in the operating profit, decreased from FIM 37 million to FIM 22 million due to a change in Group structure. The FIM 26 (14) million pay-out to the employee profit-sharing fund is included in personnel expenses. Kymen Lehtimedia and the good performance of Ilta-Sanomat were the most significant factors contributing to the growth of operating profit. Startel posted an unprofitable result in accordance with estimates.
After a sluggish start of the autumn period, media sales are expected to recover towards the end of the year. Sanoma's net sales are expected to continue growing at the same pace as during the review period. While Startel's operations are still in an investment phase, Sanoma's operating profit will increase and profitability will remain good.
WSOYs activities both during the review period and the previous year were characterised by structural changes. On 1 May 1998, its magazine printing operations were transferred to Acta Print Oy where WSOY was a shareholder with a 50 % holding. The companies 50-50 jointly owned with Otava, Yhtyneet Kuvalehdet Oy, Suuri Suomalainen Kirjakerho Oy and Acta Print Oy were sold to Otava publishing company on 31 August 1998. After the ownership change, business with these companies has significantly declined.
At the turn of the year, Tuotantotalo Werne Oy acquired HTVs TV and video production assets and the entire company was transferred to Helsinki Media in connection with the merger. In late May, WSOY acquired Tummavuoren Kirjapaino, a digital printing company; WSOYs participation in the new subsidiary is 80 %. In the beginning of August, WSOYs premedia service company Kiviranta Oy was sold to Kauppakaari Oyj.
After the end of the review period on 5 October 1999, WSOY announced that it will subscribe to 27.8 of the shares and 24.9 % of the votes in Young Digital Poland S.A. under a private placement. The leading multimedia publisher in Poland, YDP is growing fast and its net sales in 1998 amounted to FIM 13 million.
WSOYs net sales for the period totalled FIM 667 (750) million, and its comparable net sales remained unchanged from the previous year. Operating profit was FIM 57 (173) million. Net sales and operating profit from publishing developed satisfactorily. The organisational changes are reflected in the key indicators of production. WSOYs result includes a share of FIM 26 (71) million of Rautakirjas result. Investments in book club sales, New Media and mapping operations encumber the result. The result from calendar operations was weaker than anticipated due to the unsatisfactory trend of the Norwegian subsidiary and the FIM 2 million sanction imposed by the Finnish competition authority. The decision of the authority is being appealed.
WSOYs educational TV channel was granted a digital TV operating license in June. The company has made extensive studies covering the entire educational sector, especially digital learning environments. Decisions on further action are expected during this year.
At the beginning of the autumn season, books and authors have received wide publicity, and WSOYs new titles head the best-selling lists. The prospects for Christmas sales are promising. Because of changes in the operational structure, WSOYs total sales and the operating profit for the year will decline compared to the previous year.
Rautakirja launched a large number of new initiatives during the review period. In the first part of the year, the company focused on extending its operations in the Baltic region and made investments that supported its domestic core business. In April, Rautakirja started co-operation with Norwegian Narvesen ASA in kiosk trade and cosmetics retailing as well as in cafeteria operations in Riga, Latvia. Rautakirja owns 35 % of Narvesen Baltija SIA. Rautakirjas holding in the logistics and book wholesaling company Kirjavälitys Oy exceeded the statutory 20 % limit of an associated company in April. Kirjavälitys posted net sales of FIM 233 million for last financial period.
Finnkino penetrated the Estonian movie market in May by acquiring 90 % of a movie distribution and theatre company, AS MPDE. The company has a market share of 60 % in its operating area and its net sales totalled EEK 33 million in 1998.
In the first part of the year, Rautakirja entered as a shareholder with a 21 % stake in Jokerit HC Oyj whose net sales totalled FIM 87 million in the past financial year. In September Suomalainen Kirjakauppa Oy opened an Internet bookstore (www.suomalainen.com) which offers the widest choice of domestic titles in Finland.
Rautakirjas net sales totalled FIM 2,172 (2,209) million. After eliminating the sales of the wholesaling company Tukkutiimi (Tiimari chain), the comparable net sales increased by some 1 %.
Operating profit was FIM 104 (122) million, and result before extraordinary items FIM 117 (133) million.
Due to the program initiated earlier in the year to improve productivity and control costs, Rautakirjas result in the second four months of the year remained unchanged from the previous corresponding period. In particular, bookstores and movie operations are critical for the result of the entire year. Marketing efforts and campaigns have been intensified and other costs have been reduced in all chains. These measures are aimed to improve the performance in the last part of the year. The operative result for the year is expected to remain on the level of the previous year.
Rautakirja published its interim report on 13 October 1999.
PUBLICATION OF FINANCIAL RESULTS IN 2000
Sanoma-WSOY Oyjs result for 1999 will be published on 15 March 2000.
Sanoma-WSOY Oyj will publish three interim reports, one for each three months. The publication dates are 17 May, 16 August and 15 November 2000.
SanomaWSOY pursues an active dividend policy and distributes at least one third of its net result in dividends to ensure a stable growth of dividend income for its shareholders.
The shareholders agreement executed in connection with the merger includes a clause that extra dividend per year of approximately FIM 5.00 per share in excess of WSOYs profit distribution for 1997 will be distributed for 1999 - 2001. In practice this means that the minimum dividend payment of FIM 10 - 11 per share for each of these three years.