SanomaWSOY's Interim Report 1 January - 30 June 2004

SanomaWSOY's operating profit developed well and improved in January - June by 13.4%, to EUR 85.4 (75.3) million. Result before extraordinary items rose by 38.6%, to EUR 82.1 (59.2) million. Earnings per share increased to EUR 0.29 (0.24). In the second quarter, the net sales totalled EUR 602.0 (593.8) million. Operating profit, EUR 58.4 (60.5) million, included EUR 2.4 (12.3) million of the most substantial non-recurring gains on the sales of assets, clearly less than in 2003.

OUTLOOK FOR 2004

The economy within the Euro area will grow faster in 2004 than in the previous year. Research institutions estimate that GDP will grow in the Netherlands by roughly 1%, in Belgium by 2% and in Finland by slightly less than 3%. Media advertising traditionally grows more than GDP.

After adjustment for changes in Group structure, SanomaWSOY's net sales are expected to grow by some 3% in 2004 and comparable operating profit is expected to improve markedly. In 2003, operating profit included some EUR 43 million of non-recurring gains on the sales of assets. In 2004, the non-recurring gains on the sales of assets may remain below that. Nevertheless, net financing costs will be significantly lower than in 2003. Result before extraordinary items is thus estimated to be on the previous year's level. These estimates are based on the presumption that the advertising market will not weaken significantly towards the end of 2004 compared to the previous year. When completed, the effect of the Malmberg acquisition on the Group's result in 2004 will be minor due to the timing of the deal.

TARGETS AND KEY EVENTS

The operations of the SanomaWSOY Group developed very well in the review period. The divisions consistently continued to implement the set financial targets and strategic objectives. The main objectives were profitability, internationalisation, growth and development. Sanoma Magazines launched 16 magazines in total, and Sanoma acquired the publishing rights of the news publication Uutislehti 100. SWelcom improved its profitability and market share. WSOY invested in educational publishing and Rautakirja in expanding its international press distribution operations, among others. The Group continued to focus on the core businesses: Måndag and Milvus Förlags were sold in April, and a minority share in Savon Mediat was sold after the review period.

International expansion was boosted after the review period. In July, WSOY agreed on acquiring Malmberg Investments, an educational publisher operating in the Netherlands and Belgium. After the closing of the deal, WSOY will be the sixth largest publisher of educational materials in Europe. Rautakirja signed a preliminary agreement on acquiring the majority share in Hiparion Distribution, a Romanian press distributor. The Group's strong cash flow and reduced balance sheet will also facilitate growth and international expansion in future.

NET SALES

SanomaWSOY's net sales grew by 2.0% in January - June 2004, and amounted to EUR 1,171.1 (1,148.5) million. Growth was generated in Sanoma Magazines, SWelcom and Rautakirja. After adjustment for changes in Group structure, net sales grew by 2.5%. Advertising sales represented 21% (21%) of the Group's total net sales.

RESULT

SanomaWSOY's result development was good: the Group's operating profit grew by 13.4% and reached EUR 85.4 (75.3) million. The operating profit increased in Sanoma Magazines, Sanoma, and SWelcom. The most substantial non-recurring gains on the sales of assets totalled EUR 2.4 (12.3) million in the January - June period. Operating profit excluding these gains grew by 31.7%.

EBITA (operating profit before amortisation of goodwill, consolidated goodwill and immaterial rights) rose by 5.9% to EUR 148.2 (139.9) million. Result before extraordinary items improved by 38.6% to EUR 82.1 (59.2) million and earnings per share to EUR 0.29 (0.24).

The Group's net financial items amounted to EUR -3.3 (-16.1) million. Financial income grew to EUR 17.1 (11.5) million, and was mainly composed of gains on realising the share portfolio, EUR 7.0 million, and of dividends, EUR 6.0 million. Financial expenses, EUR 20.4 (27.6) million, mainly consisted of interest expenses on interest-bearing liabilities, EUR 15.8 (21.7) million. The Group's cash flow from operations was EUR 104.6 (73.8) million and cash flow per share EUR 0.68 (0.50).

BALANCE SHEET AND FINANCIAL POSITION

The consolidated balance sheet amounted to EUR 2,335.0 (2,526.3) million at the end of June. The Group's financial position remained strong. The equity ratio was 38.3% (36.4%) and, including capital notes, 46.0% (45.0%). Shareholders' equity, excluding capital notes, amounted to EUR 826.6 (862.5) million. Interest-bearing liabilities, including capital notes, reached EUR 814.9 (1,007.7) million and net debt EUR 752.7 (855.7) million.

The Group's share portfolio was realised in the first quarter. Securities and cash amounted to EUR 62.2 (152.0) million.

The equity ratio will temporarily decrease by some 3 percentage points due to the acquisition of Malmberg Investments B.V. but will recover fast during the rest of the year due to the Group's strong cash flow.

INVESTMENTS

SanomaWSOY continued to invest moderately in January - June, at EUR 44.8 (45.7) million. R&D expenditure recorded as expenses amounted to EUR 6.5 (3.3) million.

OPERATING ENVIRONMENT

The growth in media advertising in Finland speeded up in the second quarter. The growth in advertising in January - June was 4% according to TNS Gallup Adex. Advertising in newspapers grew by 3% and job advertising by 4%. Magazine advertising grew by 3% and TV advertising by 8%. According to advance information, magazine advertising continued to grow in Hungary and Belgium but declined in the Netherlands. According to the Finnish Food Marketing Association, retail trade was up in Finland by almost 1% in January - May.

IFRS REPORTING

SanomaWSOY will start reporting according to IFRS standards in 2005. The new accounting principles will have an impact on the Group's net sales. The most important changes relating to net sales took place at the beginning of 2004 in accordance with Finnish Accounting Standards. The most significant modifications related to press distribution, which is now treated as commission sales, and to harmonising the accounting practice regarding granted discounts and purchased services.

The comparable figures for 2003 have been adjusted according to the changes in accounting principles. According to the unaudited adjustments, SanomaWSOY's net sales decreased as a result of the changes by some EUR 38 million in 2003. Sanoma Magazines' net sales increased by approximately EUR 36 million. The changes within the division are significant: net sales from magazine operations increased by some EUR 106 million whereas net sales from magazine distribution decreased by approximately EUR 115 million. Sanoma's net sales decreased by about EUR 18 million due to the changes, and Rautakirja's net sales by some EUR 116 million. The changes did not affect the net sales of WSOY and SWelcom.

The IFRS standards and their interpretations will be further clarified, and the impact on the income statement and balance sheet specified, at a later stage. According to a preliminary, unaudited estimate, the defined benefit plan treatment of the disability element of the Finnish TEL pension system will increase pension liabilities, and the annual pension expenses are expected to increase. At the Group level, the annual expense increase is immaterial. As to the other countries where the Group operates, the IFRS impact related to the pension systems will be specified later.

According to the IFRS 3 standard (Business Combinations) issued in March, goodwill and immaterial rights with indefinite useful lives are no longer amortised according to plan but tested for impairment. According to a preliminary, unaudited estimate, this significantly improves the Group's operating profit according to IFRS. Amortisation of goodwill and consolidated goodwill amounted to EUR 81.4 million in 2003.

When preparing the local statutory accounts for 2003, it was evaluated whether there is any indication of impairment related to the most important goodwill items. The evaluations did not indicate any need for write-downs. The goodwill related to the acquisition of the magazine operations in 2001 has been evaluated in accordance with the accounting standards used in the Netherlands. The Dutch standards of impairment testing are mainly in line with the general IFRS principles.

ADMINISTRATION

SanomaWSOY's Annual General Meeting of 30 March 2004 elected Sirkka Hämäläinen, D.Sc. (Econ.), as a new member of the Board, and Seppo Kievari and Hannu Syrjänen were re-elected. In addition, the Board of Directors comprises Jaakko Rauramo, Chairman of the Board, Paavo Hohti, Vice Chairman, and Sari Baldauf, Robert Castrén, Jane Erkko, Robin Langenskiöld and Sakari Tamminen as members.

Mikael Pentikäinen, President of Sanoma Corporation, and Matti Salmi, Senior Vice President, Finance and Administration, of SanomaWSOY, started in their new positions and became members of the SanomaWSOY Management Group on 1 April 2004.

DIVIDEND

In line with the decision of the AGM, SanomaWSOY distributed a dividend of EUR 1.00 (0.40) per share for 2003. The record date for dividend payment was 2 April 2004, and the dividend was paid on 13 April 2004. SanomaWSOY does not intend to distribute any additional dividend in 2004.

SHARES

During the review period, SanomaWSOY Series A shares were traded at an average price of EUR 15.78 with a low of EUR 14.01 and a high of EUR 17.90. Series B shares were traded at an average price of EUR 15.34, with a low of EUR 13.70 and a high of EUR 17.77. The turnover of shares amounted to EUR 219.1 (42.0) million. Most of the shares traded were Series B, of which some 14.2 million were traded. SanomaWSOY's market capitalisation at the end of the review period, less shares held by the Group, was EUR 2,352.4 (1,575.7) million. At the end of June, through its subsidiary Tiikerijakelu Oy, SanomaWSOY owned a total of 7,187,276 Series B shares equivalent to 4.48% of shares and 1.19% of votes. The book counter-value of these shares was EUR 3,090,528.68.

After the review period, on 31 July 2004, Tiikerijakelu was merged into SanomaWSOY Corporation in accordance with the decision of the AGM and its shares were invalidated. As a result of the invalidation, the share capital of SanomaWSOY Corporation decreased from EUR 68,928,754.04 to EUR 65,838,225.36 and the number of Series B shares was reduced from 137,078,936 shares to 129,891,660 shares. The number of Series A shares remains at 23,220,492.

None of the convertible capital notes issued in 2001, the conversion period of which began on 2 January 2002, had been converted into shares by the end of the review period. The conversion price is EUR 15.91. In 2003 SanomaWSOY redeemed a total of 3,620 notes that were invalidated on 27 February 2004. In April, SanomaWSOY redeemed 121 notes, and after the review period 74 notes, that will be invalidated later.

AUTHORISATIONS OF THE BOARD

The AGM of 30 March 2004 authorised the Board to decide, within one year of the AGM, on an increase of share capital by one or more rights issues, issuance of one or more convertible bonds loans and/or issuance of option rights. The new shares subscribed under the rights issue and/or converted against the convertible bonds, and/or the new shares subscribed under the option rights, shall be of Series B, and their aggregate number may not exceed 30,622,430 shares. The total increase of share capital may not exceed EUR 13,167,644.90.

The AGM also authorised the Board to decide, within one year of the AGM, to acquire the company's own Series A and B shares. The acquisition will be made by using distributable funds. The aggregate book counter-value of the shares or the total votes conferred by such shares after the acquisition may not exceed 5% of the share capital or of the total votes of the company. The shares will be acquired in the existing proportion of the different share classes.

SANOMA MAGAZINES

Magazine publishing and distribution. Sanoma Magazines is among the five biggest magazine publishers in Europe. The division publishes some 230 titles and operates in nine different countries: Belgium, Bulgaria, Croatia, the Czech Republic, Finland, Hungary, the Netherlands, Romania, and Slovakia. Aldipress is the biggest magazine distributor in the Netherlands.

Sanoma Magazines' net sales grew to EUR 526.2 (507.2) million in the first half of 2004. Sanoma Uitgevers' net sales totalled EUR 249.6 (250.9) million. Net sales increased at Sanoma Magazines Belgium to EUR 97.1 (92.5) million and at Sanoma Magazines Finland to EUR 86.1 (81.5) million. Sanoma Magazines International's net sales grew to EUR 67.5 (61.8) million. Net sales at Aldipress increased to EUR 54.9 (50.3) million.

The division's advertising sales decreased by 1% in the January - June period. The weak development of the advertising market in the Netherlands decreased the advertising revenue of the Dutch-based Sanoma Uitgevers. Advertising sales grew in the other countries, mainly due to the launch of new titles and the new activities in Bulgaria. Advertising sales accounted for some 21% (22%) of Sanoma Magazines' total net sales.

Sanoma Magazines' circulation sales developed well in all markets and grew by some 2% in total. Sanoma Uitgevers' circulation sales were stable despite enhanced competition on the readers' market, in part due to recently launched magazines. In Sanoma Magazines Finland, the sales increased due to the good performance of major titles and newly launched magazines, and in Sanoma Magazines Belgium due to subscription sales in particular. Sanoma Magazines International's increase in circulation revenue came mainly from Hungary, Croatia, and the new activities in Bulgaria.

Sanoma Magazines' operating profit developed very well and grew to EUR 43.5 (32.0) million. Lower operational costs, mainly due to cost cutting programmes started last year as well as lower amortisation, contributed to the improved results. The Division's EBITA increased to EUR 80.6 (72.0) million. Sanoma Uitgevers' and Sanoma Magazines Finland's results improved whereas Sanoma Magazines Belgium and Sanoma Magazines International posted slightly weakened results. Investments in new launches impacted the result at Sanoma Magazines International. The result at Aldipress was above the previous year's level, mainly due to new business and cost efficiency.

In April, Sanoma Magazines Finland sold the shares of the Swedish Milvus Förlags AB. The divestment has a positive effect of EUR 2.4 million on Sanoma Magazines Finland's EBIT in 2004.

In 2004, the net sales of Sanoma Magazines are expected to grow. EBIT is also expected to increase despite significant investments in magazine launches and growth.

SANOMA

Newspaper publishing and printing. Sanoma publishes and prints Finland's leading newspapers, Helsingin Sanomat and Ilta-Sanomat. Sanoma's newspaper titles also include the business daily Taloussanomat, the sports and sport betting weekly IS Veikkaaja, the free ad publication Keltainen Pörssi, the news publication Uutislehti 100 and several regional papers in south-eastern Finland.

Sanoma's net sales amounted to EUR 213.7 (216.6) million in January - June. The Helsingin Sanomat Business Unit's net sales amounted to EUR 124.3 (123.9) million and those of the IS Business Unit to EUR 47.0 (46.8) million. The net sales of Kymen Lehtimedia were slightly down to EUR 25.7 (26.4) million. The figures for 2003 include Leijonajakelu, which was sold to Finland Post in September 2003. After adjustment for changes in Group structure, the division's net sales were up by 1.0%.

Advertising sales grew in the first half by 2% and accounted for 49% (48%) of Sanoma's net sales. In the second quarter, the growth was 6%. Helsingin Sanomat's advertising sales were on the previous year's level. Job advertising started to increase. The advertising sales of Kymen Lehtimedia and the IS Business Unit in particular increased. In 2003, Sanoma's advertising sales were boosted by parliamentary elections.

Circulation sales grew slightly and accounted for 43% (43%) of the division's net sales. Helsingin Sanomat increased its circulation sales by some 2%. Circulation remained almost at the previous year's level. Ilta-Sanomat's circulation and market share grew, in part due to new inserts. As for regional papers, circulation remained at the previous year's level.

Sanoma's operating profit increased to EUR 24.7 (21.7) million due to moderate cost development and profit on sales of fixed assets. The figure in 2003 included a EUR 1.0 million share of the result of Rautakirja from January - February. Sanoma's EBITA was EUR 28.0 (25.2) million in January - June. The Helsingin Sanomat Business Unit, the IS Business Unit and Kymen Lehtimedia posted improved results.

After the review period, Sanoma sold the rest of its holding in Savon Mediat Oy to the Ilkka Group. The selling price was about EUR 7.3 million.

In 2004, Sanoma's comparable net sales are expected to grow slightly. The operating profit from basic business operations is expected to improve more than net sales, due to long-term development measures. The division's operating profit will fall short of the previous year's figure, as non-recurring gains on the sales of assets are expected to be smaller than in 2003.

WSOY

Publishing, printing and calendar operations. WSOY is Finland's largest book publisher and the market leader in general literature, educational materials and several special publications. WSOY is also one of the largest book printers and the leading calendar publisher in the Nordic region.

WSOY's net sales totalled EUR 91.4 (97.0) million in January - June. After adjustment for changes in Group structure, net sales decreased by 1.2% compared to the previous year. Net sales in publishing amounted to EUR 69.4 (75.5) million. The figure includes the net sales of Young Digital Poland as of 1 March. The net sales in the comparable period included Genimap, sold in December 2003, and Everscreen AB, sold in April 2004. After adjustment for structural changes, net sales in publishing were down by 2.2%. The decrease was, in part, due to the delivery of some multi-volume books and school textbooks being postponed to the end of the year. Net sales in printing amounted to EUR 28.8 (28.5) million and in calendar operations to EUR 3.5 (4.2) million.

The period was successful for general literature. Sales to bookstores grew by 10% whereas sales through book clubs were slightly down compared to the previous year.

Operating profit from WSOY's own operations was EUR 3.1 (3.8) million. After adjustment for structural changes, operating profit was on the previous year's level. Total operating profit in January - June reached EUR 3.1 (5.3) million. In 2003, the figure included a EUR 1.4 million share of the result of Rautakirja from January-February. The division's EBITA was EUR 4.6 (6.7) million. Operating profit in publishing was slightly down compared to the previous year but other businesses improved their results.

After the review period, WSOY agreed on acquiring the Dutch-based educational publisher Malmberg Investments B.V. The acquisition is subject to the approval of the Dutch and Belgian competition authorities and Malmberg's works council. Educational publishing will be organised in a new unit, WSOY Educational. Due to the timing of the acquisition, the effect of the deal on WSOY's profit in 2004 will be minor.

WSOY's net sales in 2004 are expected to be on the previous year's level but, after adjustment for changes in Group structure, net sales will grow. Comparable operating profit is expected to increase compared to the previous year. This estimate does not include the effect of the Malmberg acquisition.

SWELCOM

Electronic media. The SWelcom-owned TV channel Nelonen is the third-largest advertising medium in Finland. HTV (Helsinki Television) is Finland's biggest cable TV company.

SWelcom's net sales continued their excellent growth in the first half of 2004, reaching EUR 60.3 (51.8) million. Both Nelonen and HTV continued to grow. Nelonen's advertising sales grew by almost 19% during the review period. Nelonen's net sales amounted to EUR 34.1 (28.7) million. The viewing shares, and the commercial viewing share in particular, increased strongly due to investments in programmes. Of the main Finnish TV channels, only Nelonen gained an increased number of viewers in the first half of the year. HTV's growth was driven by successful sales of HTV connections and broadband internet services. Advertising sales amounted to 57% (55%) of SWelcom's net sales.

SWelcom's development in results continued to be excellent due to increased sales: the operating profit totalled EUR 4.0 (0.7) million in January - June. EBITA was EUR 20.3 (14.8) million. Both HTV and Nelonen improved their results considerably.

In 2004, SWelcom's net sales are expected to grow substantially due to the increase in Nelonen's advertising sales, sales of HTV connections and the popularity of the broadband services. Operating profit is expected to improve further.

RAUTAKIRJA

Kiosk operations, press distribution, bookstores, movie theatre operations and restaurant operations. Rautakirja operates in the Czech Republic, Estonia, Finland, Latvia, and Lithuania. The division consists of Finland's leading chain of convenience outlets (R-kiosks), the country's principal press distributor (Lehtipiste), Finland's most extensive bookstore chain (Suomalainen Kirjakauppa), and Finland's largest movie theatre chain (Finnkino).

Rautakirja's net sales grew to EUR 305.0 (303.5) million in January - June. Net sales grew in Estonia, Lithuania and the Czech Republic but fell slightly in Finland and Latvia. Finland accounts for almost 90% of the net sales.

Kiosk operations generated net sales of EUR 167.8 (172.3) million in the first half. The beer price competition and the decrease in the sales of prepaid telephone cards reduced net sales in Finland; also, sales of ice cream and drinks were low at the beginning of the summer. Net sales from press distribution decreased to EUR 39.6 (42.4) million as the Latvian unit outsourced the logistics for own kiosk chains. In Finland, newsstand sales increased by 4.1%.

Net sales from bookstores increased to EUR 48.4 (45.3) million, boosted by the acquisitions in spring 2003. Also, the development in book sales was very positive. Net sales from movie theatre operations were EUR 26.1 (25.1) million. The number of movie theatre visits continued to grow strongly in Latvia and Lithuania but decreased in Estonia and Finland. In Finland, the number of visits started to increase in May. Growth in net sales was also due to the acquisition of V & K Holding, a video wholesaler based in Estonia, in April. Net sales from restaurant operations fell to EUR 28.8 (30.0) million, due to the decreased sales of Motorest and Pizza Hut restaurants. One sales unit in each chain was discontinued.

Rautakirja's operating profit decreased to EUR 11.5 (12.5) million. The result was influenced by the sluggish first half in movie theatre operations in Finland and the new periodisation of subscription sales at bookstores, which will not affect the annual result of Rautakirja. Rautakirja's EBITA totalled EUR 15.9 (17.5) million in January - June. The EBITA from kiosk operations and press distribution was on the previous year's level whereas other businesses declined. The accounting practice for rights relating to distribution of visual recordings was revised at the beginning of 2004, and the comparable figures have been adjusted accordingly. The change increased Rautakirja's EBITA for the first half of 2004 by EUR 2.4 million and the year-level impact was EUR 4.3 million. The change has no impact on the operating profit.

At the beginning of July, after the review period, Rautakirja signed a preliminary agreement on acquiring a 51% share in Hiparion Distribution SRL, a Romanian press distributor. The deal will become effective in the autumn.

2004 will be a challenging year for trade, and annual growth is likely to be smaller than in previous years. Rautakirja's comparable net sales are expected to grow in line with the growth in retail business. However, operating profit is expected to improve.

Helsinki, 10 August 2004

Board of Directors

SanomaWSOY Corporation

INTERIM REPORT TABLES

Figures are unaudited.

The accounting practice of net sales has been modified and comparative data has been adjusted as explained in the chapter IFRS reporting.

The classification of materials and services as well as operating expences has been harmonised, in particular regarding press distribution. Comparative data has been adjusted accordingly. The reclassifications have no impact on operating profit.

SANOMAWSOY CORPORATION

Raija Kariola
Vice President
Investor Relations and Group Communications

DISTRIBUTION
Helsinki Exchanges
Principal media