SanomaWSOY's net sales totalled FIM 2,056.9 million (1999: FIM 1,884.7 million) or EUR 345.9 million (FIM 310.3 million), up 11.5%. The Group's profit before extraordinary items totalled FIM 305.8 million (FIM 138.7 million) or EUR 51.4 million (EUR 23.3 million), up 120.4%. Earnings per share were FIM 6.26 (FIM 2.84) or EUR 1.05 (EUR 0.48), also up 120.4%. Equity per share was FIM 141.50 (FIM 129.66) or EUR 23.80 (EUR 21.81), up 9.1%. The equity ratio was 72% (69.7%).
OUTLOOK FOR THE FUTURE
SanomaWSOY's goal is to seek growth through international expansion and new media. The Group has set itself the target of doubling its net sales by 2005.
SanomaWSOY's net sales are projected to rise to FIM 8,500 million this year. The Group's operating profit is also expected to improve. Profit expectations are linked to the assumption that newspaper advertising revenue will increase as forecast and that the strong growth at Channel Four Finland will continue. The positive profit development in Startel's new media activities and at Taloussanomat is also expected to continue. The profit generated by the Group's treasury and asset management function is expected to further improve on 1999, although relative income will decline towards the end of the year. The Group's profit before extraordinary items will be clearly better than in 1999.
A larger-than-projected level of acquisitions and growth and development projects could change the projection for the Group's full-year result, however.
SanomaWSOY's net sales between January and March 2000 totalled FIM 2,056.9 million (FIM 1,844.7 million), nearly 12% up on the equivalent period last year. The largest growth was seen at Helsinki Media and Rautakirja. Sanoma's net sales rose slightly, while WSOY's remained at 1999 levels. The effects of corporate restructuring limit the comparability of net sales for the Group's sub-groups with last year's figures.
SanomaWSOY recorded a profit before exceptional items of FIM 305.8 million (FIM 138.7 million). This increase of more than 100% was largely the result of an exceptionally good book result recorded by treasury and asset management activities. Rautakirja and Helsinki Media turned in a clearly better performance compared to last year. The Group's operating profit totalled FIM 78.7 million (FIM 77.8 million). Depreciation was FIM 15 million higher than last year, and a total of FIM 23 million (FIM 21 million) was booked as development expenses. Earnings per share rose to FIM 6.26 (FIM 2.84).
The Finnish economy continued to grow during the first part of the year and forecasts indicate that GDP will rise by some 5% for the year as a whole. Consumer confidence continued to be strong, although some slight fall-off was seen in March compared to February. The positive trend in the retail sector that began at the end of 1999 has continued.
The growth of media advertising, a significant factor in SanomaWSOY's income, rose by 6.3% compared to the equivalent period last year. Newspaper advertising saw the largest growth, 7.1%. Television and magazine advertising both rose by 4.3%.
CHANGES IN CORPORATE STRUCTURE
The second phase of SanomaWSOY's new media strategy was launched with the decision to expand the Group's service offering developed for Internet applications to mobile users. A new company, Swwap Oy, was set up in March to develop an operator-independent mobile portal. Swwap, which aims to rapidly expand its activities internationally, will trial the first phase of the new portal in June 2000.
In March, WSOY acquired the Swedish IT publishing and training company Docendo Läromedel AB, which had net sales of SEK 84 million in 1999 and employs 60 people.
SanomaWSOY's holding in Norwegian-based A-pressen ASA rose to 29.1% after the end of the period under review.
The consolidated balance sheet total rose by FIM 602.1 million compared to the end of March 1999, to FIM 8,266.9 million. Consolidated shareholders' equity totalled FIM 4,894 million (FIM 4,433.2 million). The Group's equity ratio rose to 72% (69.7%).
The Group's gross investments totalled FIM 153.4 million (FIM 491.6 million). A major part of this sum went on WSOY's acquisition of Docendo Läromedel.
The Group's financial position continues to be strong. The book value of financial asset securities, cash, and bank at the end of the first quarter was FIM 2,203.3 million (FIM 2,396.9 million), and their market value FIM 2,789.4 million. Interest-bearing liabilities totalled FIM 840.7 million (FIM 847.1 million).
The level of financial income for the first quarter was excellent, and resulted from successful trading and a reduction in the proportion of technology stocks in the Group's investment portfolio.
The number of SanomaWSOY shares at the end of March totalled 36,380,399, of which 6,001,895 were Series A shares and 30,378,504 Series B shares. Through its Tiikerijakelu Oy subsidiary, the Group holds 1,796,819 Series B Company shares, representing 4.94% of the share total and 1.19% of votes. The number of shares on the market was 34,583,580.
The Articles of Association contain a clause under which Series A shares can be converted into Series B shares. In line with the shareholder agreement signed at the time of the merger and shareholders' desire to reduce the voting power of traditional owners in Sanoma Corporation, Oy Asipex Ab (Aatos Erkko's investment company), Rafaela Seppälä, and Robin Langenskiöld converted their Series A shares into Series B shares, which entitle owners to less votes, in April.
Following the conversion, Series A shares totalled 5,805,123 and Series B shares 30,575,276. The share conversion was registered on April 4. In March, Patricia Seppälä donated 63,437 Series A shares and four Series B shares to a foundation that she established but does not control.
A total of 40,969 Series A shares were traded during the first quarter at an average price of EUR 73.77 (FIM 438.62), and 816,202 Series B shares at an average price of EUR 68.54 (FIM 407.52). Total share turnover was EUR 59 million (FIM 350.8 million). SanomaWSOY's market value as of the end of March, minus Company shares held by the Group, stood at EUR 2,717.8 million (FIM 16,159.4 million).
DECISIONS TAKEN AT THE AGM
The Annual General Meeting (AGM) held on April 18, 2000 decided to distribute a dividend of FIM 10.75 (EUR 1.81) per share for 1999. A total of FIM 391,089,289.25 was distributed as dividend, equivalent to 89% of the 1999 result.
The AGM also decided to increase the number of Company shares through a four for one split. This came into force on May 10, when the number of Company shares rose from 36,380,399 to 145,521,596, of which 23,220,492 are Series A shares and 122,301,104 are Series B shares. The Group holds 7,187,276 Series B shares through its Tiikerijakelu Oy subsidiary.
The AGM also decided to redenominate the Company's share capital in Euro, abandon the use of nominal values for Company shares, and increase the Company's share capital through a EUR 1,386,847.56 bonus issue to EUR 62,574,286.28. A sum equivalent to the latter increase has been transferred to the Company's share capital from the premium fund, and no new shares have been issued. Following these changes, the book counter-value of the Company's share is now EUR 0.43.
The AGM also decided to change the Company's Articles of Association. The Company's business name has been changed to SanomaWSOY Oyj in Finnish, SanomaWSOY Abp in Swedish, and SanomaWSOY Corporation in English. The Company's minimum share capital has been adjusted to a minimum of EUR 50 million and a maximum of EUR 200 million, within which boundaries share capital can be increased or reduced without amending the Articles of Association. The maximum number of Series A shares has been set at 80,000,000, and the minimum number of Series B shares at 100,202,620 and the maximum number at 480,000,000.
As the term of office of SanomaWSOY's Board of Directors is three years, the Board elected in 1999 remains unchanged.
The average number of people employed by the Group's various companies totalled 12,834 (12,115) during the first quarter. Converted into full-time positions, this figure was 10,132 (9,437).
Finland's largest communications group, SanomaWSOY, began operations on May 1, 1999. It is the second largest group in the field in the Nordic region and a medium-sized European company in terms of net sales. SanomaWSOY comprises four sub-groups: Helsinki Media, Sanoma, WSOY, and Rautakirja. SanomaWSOY owns 54.7% of Rautakirja, which is listed on the HEX Helsinki Exchanges.
Magazine publishing and television and network communications.
The net sales of the Helsinki Media Group rose by 26% to FIM 345.7 million (FIM 275.2 million); fully comparative growth was 21%. The largest growth, an increase of 50%, came from Channel Four Finland, where sales of advertising time rose considerably faster than the market average. Channel Four's national viewing share has also continued to rise. The Network Media Unit also recorded a clear increase in net sales.
Helsinki Media's operating loss decreased to FIM 17.9 million (FIM 25.4 million), thanks to improved profitability at Channel Four.
The restructuring implemented as part of the SanomaWSOY merger needs to be taken into account when comparing this quarter's figures with those for 1999. Tuotantotalo Werne Oy was transferred to Helsinki Media from WSOY in its entirety on May 1, 1999; while Helsinki Media's Norwegian-based associated company, A-pressen ASA, has been transferred to SanomaWSOY Corporation.
Magazine subscription revenue and advertising sales developed positively during the first quarter; book sales rose and printing operations developed in line with expectations.
Investments continued to be made in the various new titles launched in 1999 that are still in their first phase of development. These include what has become Finland's largest IT news publication, ITviikko, and Cosmopolitan, which has recorded particularly good circulation performance. The men's lifestyle magazine, MG, a line extension for the Gloria family of magazines, the gourmet magazine Gloria ruoka&viini, and the Sisters Club book club for young girls, are also in the initial stage of their development.
Helsinki Media's investments totalled FIM 10.1 million (FIM 142.3 million). The largest single investments were made in Helsinki Television's cable network and set-top decoders. As of the end of March, 205,000 households were connected to the HTV network, of which 139,000 were digital connections. Cable-TV-based Internet services have been started, and 3,600 cable modem customers were connected as of the end of March.
Helsinki Media will continue to develop its magazines and preparations for launching digital TV. Net sales for the full year are projected to rise by over 10% compared to 1999. Operating profit is also expected to improve clearly. A large part of this growth and improved profit performance is linked to Channel Four being able to continue the positive trend recorded during the first quarter. The greater susceptibility of TV advertising to market fluctuations compared to other types of media, however, brings some degree of uncertainty to projecting developments for the rest of the year. Net sales from publishing are expected to rise by around 8%, as a result of the group's new magazines and other developments; publishing profitability is also expected to improve over 1999.
Newspaper publishing and printing, business information publishing, and new media.
The Sanoma Group recorded first-quarter net sales of FIM 667.6 million (FIM 641.8 million). This 4% increase was generated by higher advertising sales at Helsingin Sanomat, and positive developments at Taloussanomat and Esmerk Oy. Operating profit remained at 1999 levels, FIM 73.5 million (FIM 75.6 million). Sanoma's associated company, Rautakirja, accounted for FIM 9.8 million of the operating profit total. The operating profit figure for 1999 includes FIM 4.7 million of profits from sales of shares, while rental income was FIM 3 million higher than this year.
Sanoma's gross investments totalled FIM 35.4 million (FIM 254.1 million); this figure includes development projects and investments in postal systems. In February, Sanoma decided to modernise two printing machines at its Sanomala facility. This project is valued at FIM 456 million and forms part of a larger project to be implemented between 1999 and 2003 designed to completely modernise all of Sanoma's production chain.
Net sales at Helsingin Sanomat, the largest part of the group's Newspaper Publishing and Printing business, rose, while operating profit remained virtually unchanged. The paper's net advertising sales continued to grow at a faster rate than the market generally. In line with the strategic realignment of Helsingin Sanomat's circulation marketing effort carried out in 1999, building the paper's base of loyal customers continued to be the focus of attention; the impact of other circulation-related enhancement measures was slower to filter through than expected, however. A visual redesign of the paper was introduced, and distribution-related large machine use and labelling operations were outsourced.
The strong growth in net sales and operating profit typical of Ilta-Sanomat in recent years levelled off in the first quarter, with a slight drop in circulation and advertising sales. Development work on the paper's content also cut operating profit. Part of the paper's printing was switched to Kaleva Kustannus Oy in Oulu to bring sales forward earlier in the day in northern Finland; this is expected to have a positive impact on circulation development.
Net sales and operating profit at Kymen Lehtimedia both dropped, largely as a result of a fall-off in print sales on the Russian market.
Net sales at Financial and New Media Products almost doubled, mainly as a result of growth at Taloussanomat and new businesses. The unit's operating loss was slightly less than last year.
Esmerk, part of the Startel Group, signed a cooperative agreement with Siste Nytt Gruppen AS of Norway to secure fast and comprehensive news monitoring coverage for Esmerk on the Norwegian market. Startel's holding in Swedish-based Ecovision AB rose to 39.9% following a share purchase in March.
Following the conclusion of the period under review, Esmerk set up a subsidiary in Miami to enhance its news monitoring coverage of the Central and South American markets. In May, the Esa Group, which publishes Etelä-Suomen Sanomat, strengthened its cooperation with Sanoma by making a share issue to a Sanoma subsidiary entitling holders to 1.7% of the votes in the group. At the same time, Sanoma sold two local papers to Esan Kirjapaino Oy. Also in May, the Sanoma Group acquired 72% of the votes and 75% of the shares in Uutisvuoksi, a local paper based in and around Imatra.
Sanoma's full-year net sales are expected to grow by around 5%, and its operating profit by slightly more. This increase in net sales is based on the projected development of advertising revenue at Helsingin Sanomat in particular and on the growth forecast in financial information and new media publishing. Kymen Lehtimedia's exports to Russia are expected to fall slightly compared to 1999.
Publishing, printing, and calendars.
Net sales at the WSOY Group totalled FIM 234.0 million (FIM 236.3 million) and were at 1999 levels. Comparative net sales, accounting for the impact of acquisitions and divestments, rose by around 5%. Operating profit fell back to FIM 0.5 million (FIM 5.1 million). Acquisitions and divestments cut net sales by FIM 14 million and operating profit by FIM 1 million compared to 1999. The group's operating profit was also impacted by the development costs incurred in book club and electronic map operations. WSOY's associated company Rautakirja contributed FIM 13 million (FIM 12 million) to the group's operating profit.
WSOY's gross investments totalled FIM 78.2 million (FIM 29.7 million); acquisitions accounted for FIM 65 million (FIM 20 million) of this figure.
In its publishing business, WSOY concentrated on developing its book clubs, electronic content production, and international expansion, in line with its strategy. WSOY set up Finland's first Internet book club, Bookmark, in January. Geodata Oy completed development of an electronic map server covering all of Europe. In March, WSOY acquired Docendo Läromedel AB of Sweden. The latter's digital learning environments developed for IT training are well-placed for international growth. The upswing in book demand seen at the end of 1999 continued into the first quarter. Publishing sales developed favourably, but development costs had a negative impact on the result compared to last year.
The business plan of WSOY Koulukanava Oy, which is developing a range of digital TV- and Web-based learning products, was fine-tuned, and the company will start pilot operations of an open learning portal in autumn 2000.
The spin-off of the WSOY Printing Unit into a separate company, WS Bookwell Oy, was completed, and the new company started operations on April 1, 2000. In addition to WS Bookwell, WSOY's Printing Sector includes offset printer Lönnberg Painot Oy and digital printer, Tummavuoren Kirjapaino Oy. Collaboration across the sector increased during the first quarter, which developed favourably for the companies involved. WS Bookwell in particular recorded a good result.
In its calendar business, WSOY concentrated on turning around its Norwegian unit; progress on this has gone according to plan. Calendar Operations as a whole recorded a loss, however, as a result of the cyclical nature of the business.
Following the end of the period under review, WSOY acquired a 25% holding in Everscreen Mediateam Oy, a designer of multimedia products and content concepts. WSOY signed a strategic partnership agreement with TietoEnator Corporation covering the development of its electronic learning materials in April.
WSOY's full-year net sales are projected to increase by some 9% as a result of acquisitions made to date. The group's operating profit is also expected to rise, despite continued development-related investments.
Kiosk-based retailing, newspaper and magazine distribution, bookshops, cinemas, and restaurants.
Rautakirja's net sales totalled FIM 938.3 million (FIM 820.2 million), an increase of over 14% on the equivalent period last year. If the impact of new businesses is eliminated, net sales rose by some 10%. All of the group's businesses increased their net sales, with the largest increase, 21%, being recorded by kiosk operations.
The group's operating profit totalled FIM 47.9 million (FIM 34.8 million), up nearly 38%. The largest contribution to this was made by the R-kiosk chain in Finland, where operating profit rose nearly 150%. In Estonia, operating profit performance was held back by costs associated with the integration of business activities acquired at the end of last year; and Estonian operations recorded a small operating loss.
Press distribution profit performance rose at a clearly faster rate than net sales. The profit recorded by bookstore operations increased by around a third compared to 1999. Performance of cinema operations in both Finland and Latvia was also up on 1999. Performance of highway service areas operations was at 1999 levels, while that of the Pizza Hut chain was held back by marketing-related costs, and the chain's operations recorded a loss.
Rautakirja's profit before extraordinary items totalled FIM 60.4 million (FIM 35.6 million), an increase of some 70% on 1999. Earnings per share also improved significantly and reached FIM 6.56 (FIM 3.90).
The early part of the year was largely devoted to consolidating the new businesses acquired in 1999 and introducing the chain-based operating model. The largest single investment was the multiplex cinema project started by Finnkino Oy's Estonian subsidiary, AS MPDE, in Tallinn. The first film and entertainment centre of its type in the Baltic countries, this is due to completed in spring 2001 at a total cost of some EEK 160 million. Rautakirja's investments during the first quarter totalled FIM 29 million, or about one-third of 1999 levels.
Rautakirja's ownership base changed at the beginning of January when Kesko Corporation became Rautakirja's third-largest shareholder as measured in terms of votes. Following a share purchase, mainly of shares previously owned by the publisher Otava, which has now sold almost all its Rautakirja shares, Kesko now owns 9.99% of Rautakirja's shares and 11.87% of votes.
In May, after the end of the period under review, Eurostrada Oy signed an agreement with Neste Markkinointi Oy covering the latter's Motorest chain of highway service areas. The two companies have agreed to set up a joint company to take over all 24 Motorest outlets over a three-year transition period.
The pace of growth of Rautakirja's net sales is expected to slow as the year progresses. Comparison with last year's figures is complicated by the fact that net sales grew exceptionally strongly at the end of 1999 as a result of acquisitions and the positive development of retail operations sales. Net sales for the year as a whole are expected to rise by over 6% to nearly FIM 3,700 million. Revenue from treasury and asset management activities is expected to be held back by uncertainty over market developments. The group's result is expected to remain at 1999 levels.
Rautakirja published its own interim statement on May 8, 2000.
CHANGE IN CORPORATE STRUCTURE
SanomaWSOY decided on May 17, 2000 to form two new sub-groups out of it existing businesses, one of which will concentrate on electronic media and the other on magazine publishing. The objective of the reorganisation is to strengthen the growth and international expansion potential of both sub-groups and to make efficient use of internal synergies. It will also enable important development investments to be better coordinated and key human resources in both areas to be more closely focused on strategic development projects.
Helsinki Media's TV activities (Channel Four), cable-TV activities (HTV), and digital-TV activities will be transferred to the new electronic media group. In addition, SanomaWSOY's Internet portal and mobile portal development projects will also be transferred; as well as the video and audio services provider Tuotantotalo Werne, the video duplication and CD producer Måndag, and iMedia, a producer of Internet solutions, all from Helsinki Media.
By establishing a separate business entity for its strategically key electronic media and new media activities and related development projects, SanomaWSOY will create a major player in the field with good market potential, both domestically and internationally.
The reorganisation will strengthen the potential of Helsinki Media to concentrate on its core business of magazine publishing and to direct its resources more effectively towards international expansion and new development projects. The new Helsinki Media will be Finland's largest magazine publisher in terms of net sales and leading targeted-market publisher.
Both new organisations will begin operations on July 1, 2000.
Helsinki, May 17, 2000
SANOMAWSOY CORPORATION Board of Directors