Sanoma: Growing Sales And Operational Efficiency - Advertising Markets Picking Up

[Redactie Nederlands MediaNetwerk]

Second quarter

- Sanoma Group's net sales grew by 3%, amounting to EUR 715.4 million (2009: EUR 697.2 million).
- Operating profit excluding non-recurring items improved by 11% to EUR 80.3 million (2009: EUR 72.5 million).
- The transaction regarding the cable TV operator Welho was closed as of 30 June, leading to a non-recurring capital gain of EUR 179.4 million.
- Earnings per share were EUR 1.45 (2009: EUR 0.27).

First half

- Sanoma Group's net sales grew by 2%, amounting to EUR 1,353.3 million (2009: EUR 1,333.2 million).
- Operating profit excluding non-recurring items improved by 21% and totalled EUR 115.9 million (2009: EUR 95.8 million).
- Cash flow from operations improved to EUR 60.0 million (2009: EUR 7.5 million).
- Earnings per share were EUR 1.61 (2009: EUR 0.32).
- The outlook for the Group is unchanged, even though the Welho and Humo magazine transactions have a negative effect on the full-year operating profit excluding non-recurring items. Divisional outlooks have been adjusted for Magazines and Entertainment.

Hannu Syrjänen, President and CEO: "In the second quarter of 2010, the advertising market continued to recover in the Western European countries and Russia. Due to growing sales and operational efficiency, our operating profit excluding non-recurring items improved clearly in the second quarter. Especially our Dutch magazine and online operations excelled. However, the economic recovery in most of the Central Eastern European countries will take time. We will continue to focus on maintaining a strong cash flow and improving our efficiency. A key element of Sanoma's strategy is to focus our operations and balance our portfolio. In June, we divested the cable TV operator Welho and got a 21% share of the DNA telecommunication group. We gained a share in a very profitable and competitive company with great growth potential. Welho and DNA form a strong national telecommunication player that has the muscle for further development. This is a long-term strategic ownership for us as we believe that media and telecommunication businesses are converging further. Through this transaction we are able to participate in developing the industry. The future playing field of media companies will be fundamentally different to the one we compete in today. Media products and services will be much more customised and personal. Media consumption will increasingly be an active experience and services will play a much bigger role. This future demands an even higher and faster degree of innovation. It offers a lot of possibilities for us."

Outlook for 2010

Sanoma Group's outlook is unchanged. In 2010, Sanoma's net sales are expected to grow. The operating profit excluding non-recurring items is estimated to improve slightly. This outlook takes into account the effect of the weekly magazine Humo and the cable TV operator Welho transactions on 2010 figures. The estimated negative impact of these transactions on 2010 operating profit excluding non-recurring items is some EUR 12 million. In the comparable year 2009, operating profit excluding non-recurring items was EUR 229.5 million.

The outlook of Sanoma's net sales and operating profit in 2010 is affected by the development of advertising and private consumption in the Group's countries of operation. The current outlook is based on the assumption that the advertising markets in the Group's main operating countries grow slightly in 2010.

Net sales

Second quarter. In the second quarter of 2010, Sanoma's net sales grew by 3% and amounted to EUR 715.4 million (2009: EUR 697.2 million). Net sales increased in all divisions.

The Group's advertising sales showed positive signs in March and the good development continued in the second quarter, even though variations between months were high. In April-June, the Group's advertising sales grew by 9% and accounted for 23% (2009: 22%) of the Group's total net sales. Online advertising sales increased significantly, by 23%, with the biggest contributors, Sanoma Magazines Netherlands and Sanoma News, both showing clear growth.

The circulation sales were slightly below the comparable quarter. The Group's subscription sales remained stable, but single copy sales decreased slightly in most of the operating countries.

First half. In January-June, Sanoma's net sales grew by 2% and amounted to EUR 1,353.3 million (2009: EUR 1,333.2 million). Net sales increased in News, Entertainment as well as in Trade and were at the comparable period's level in Magazines as well as in Learning & Literature.

Sanoma has a target to double its consumer online sales by 2012 from 2008. In the first half of 2010, such sales grew by 17% to EUR 74 million (2009: EUR 63 million). Total digital sales, which also include items such as e-learning and access services, increased by 8% and amounted to 13% (2009: 12%) of net sales.

By country, Finland accounted for 52% (2009: 52%) of the cumulative net sales and the Netherlands 23% (2009: 23%). Net sales from other EU countries totalled 22% (2009: 22%) and non-EU countries accounted for 3% (2009: 3%).

Result

Second quarter. Sanoma's operating profit excluding non-recurring items in April-June improved by 11% and totalled EUR 80.3 million (2009: EUR 72.5 million). The result improved in Magazines, Entertainment and Learning & Literature. Operating profit excluding non-recurring items was 11.2% (2009: 10.4%) of net sales. The Group's result increased in particular due to improved efficiency of operations in all divisions and good performance of the Dutch magazine and online businesses. Additionally, advertising markets in the most important operating countries were recovering.

Sanoma initiated numerous efficiency improvement measures and structural changes in 2009. The effects of these can also be seen in 2010. In the second quarter, the Group's total expenses were at the comparable quarter's level, with employee benefit expenses decreasing by 1%. Also materials and services, particularly paper costs, continued to decrease. The Group had 391 employees less than at the year-end 2009, corresponding to a decrease of 2%. From the comparable quarter, the number of personnel has decreased by 6%. Sanoma continues to focus on improving its efficiency and in 2010 is paying special attention to its fixed cost base.

In April-June, the operating profit included a total of EUR 180.7 million (2009: EUR -7.4 million) in non-recurring items. These non-recurring items were related to the Welho and Humo transactions as well as the restructuring of general literature. In the comparable period, non-recurring expenses were related to the efficiency improvement programmes in magazine and newspaper operations.

First half. In January-June, Sanoma's operating profit excluding non-recurring items improved by 21% and totalled EUR 115.9 million (2009: EUR 95.8 million). Operating profit excluding non-recurring items improved in Magazines, News, Entertainment and Learning & Literature.

In January-June, Sanoma's net financial items totalled EUR -7.6 million (2009: EUR -13.8 million). Lower reference rates than in the comparable period decreased the Group's interest expenses clearly. Financial income amounted to EUR 4.6 million (2009: EUR 15.5 million), of which exchange rate gains were EUR 2.6 million (2009: EUR 10.4 million). Financial expenses amounted to EUR 12.3 million (2009: EUR 29.3 million). Interest expenses amounted to EUR 6.0 million (2009: EUR 16.9 million) and exchange rate losses to EUR 4.8 million (2009: EUR 11.2 million). The positive effects of lower interest rates will even out during 2010, since the reference rates came down in the second quarter of 2009.

The result before taxes amounted to EUR 293.1 million (EUR 72.0 million) and the effective tax rate was 11.5% (2009: 28.7%). Both the result and the effective tax rate were significantly affected by the divestment of Welho.

Balance sheet and financial position

At the end of June, Sanoma's consolidated balance sheet totalled EUR 3,345.4 million (2009: EUR 3,211.1 million). Efficient cash flow management continued to be a focus area, and in January-June, the Group's cash flow from operations amounted to EUR 60.0 million (2009: EUR 7.5 million). Cash flow from operations per share was EUR 0.37 (2009: EUR 0.05). In addition to a significantly better operational result, also lower interest costs and positive development of net working capital improved the cash flow.

Sanoma's financial position remained strong in the first half of 2010. Sanoma's equity ratio strengthened and was 42.3% (2009: 37.3%) at the end of June. Equity totalled EUR 1,340.1 million (2009: EUR 1,127.6 million). Interest-bearing liabilities continued to decrease and totalled EUR 1,136.8 million (2009: EUR 1,220.3 million) and interest-bearing net debt was EUR 1,060.0 million (2009: EUR 1,161.0 million). Sanoma's net debt/EBITDA ratio was 1.8 at the end of June.

Investments, acquisitions and divestments

Investments in tangible and intangible assets amounted to EUR 44.1 million (2009: EUR 41.8 million) in January-June. Investments were mainly related to ICT systems as well as replacements and renovations. Sanoma has a policy to keep annual capital expenditure, excluding M&A, below EUR 100 million. Sanoma's business acquisitions totalled EUR 17.3 million (2009: EUR 4.3 million).

In May, Sanoma Magazines Belgium sold 49% of its Humo magazine to Belgian De Vijver NV. As part of the transaction, Sanoma Magazines Belgium acquired 25% of Belgium's largest TV production company Woestijnvis, which is owned by De Vijver.

In June, Sanoma Entertainment divested its cable TV operator Welho to the DNA telecommunication group. The enterprise value of the Welho business was EUR 200 million, which Sanoma invested into DNA in a directed share issue and became DNA's second largest owner with an ownership share of 21% as of 30 June 2010. Sanoma recorded a non-recurring capital gain of EUR 179.4 million from the transaction, which will improve Sanoma's earnings per share by some EUR 1.11 in 2010.

As a part of the transaction, Sanoma acquired the remaining 4.73% share of Sanoma Television Ltd from TS-Yhtymä. The purchase price was EUR 7.3 million.

As a result of these transactions, Welho became part of DNA, which became an associated company, and Humo became a joint venture of Sanoma. Associated companies are accounted for using the equity method, that is, by consolidating one line only and are presented separately after the operating profit. Joint ventures are accounted for using the line-by-line proportionate consolidation method. Thus the transactions will have a negative effect on the Group's reported net sales and EBIT excluding non-recurring items in 2010.

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