Sanoma’s Interim Report 1 January – 31 March 2014: Cost savings compensated decline in net sales

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| Source: Sanoma Oyj
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Sanoma Corporation, Stock Exchange Release, 30 April 2014 at 8:30 CET+1

First quarter

  • Net sales amounted to EUR 438.3 million (2013: 470.6).
  • Adjusted for changes in the Group structure, Sanoma’s net sales decreased by 6.3%.
  • Operating profit excluding non-recurring items was EUR -4.0 million (2013: -2.5).
  • Non-recurring items included in the operating profit amounted to EUR 166.0 million (2013: -37.2) mainly related to sales gains and restructuring expenses.
  • Earnings per share were EUR 0.77 (2013: -0.24).
  • Earnings per share excluding non-recurring items were EUR -0.09 (2013: -0.03).
  • Cash flow from operations was EUR -52.1 million (2013: -65.6).
  • The Annual General Meeting on 9 April 2014 decided to pay a dividend of EUR 0.10 (2012: 0.60) per share. The dividends were paid on 23 April 2014. In addition, the AGM authorised the Board of Directors to decide on the distribution of additional dividend of no more than EUR 0.20 per share. The distribution of additional dividend can be made in one or more instalments. The Board can also decide not to use this authorisation.

Change in reporting

Sanoma has adopted the new IFRS 11 Joint Arrangements as of 1 January 2014. The standard permits only the equity method in the consolidation of joint ventures, and the proportional consolidation method is no longer allowed. In the income statement the share of result in the joint ventures is presented as part of the operating profit and in the consolidated balance sheet as equity-accounted investees. The change primarily relates to Media Russia & CEE and Media Belgium.

Adoption of IFRS 11 reduced 2013 consolidated net sales by EUR 135.2 million. The impact on profitability is minor, 2013 operating profit excluding non-recurring items decreased by EUR 0.2 million. Balance sheet total on 31 December 2013 decreased by EUR 164.9 million and the total equity of the Sanoma Group reduced by EUR 59.1 million. Transition from the proportional consolidation method to the equity method also has impact on the cash flow statement.

In addition, as announced on 31 October 2013, Sanoma will consist of two segments: Consumer Media and Learning. Sanoma will report net sales and profitability for three strategic business units: Media Netherlands, Media Finland and Learning. Media Belgium and Media Russia & CEE will be reported in the category ‘Other’. The change is effective as of 1 January 2014. Sanoma's financial reporting for 2013 has been adjusted to account for the changes.

Key indicators*

 

    Restated   Restated
  1–3/ 1–3/ Change 1–12/
EUR million 2014 2013 % 2013
Net sales 438.3 470.6 -6.9 2,083.5
Operating profit excluding non-recurring items -4.0 -2.5   154.6
  % of net sales -0.9 -0.5   7.4
Operating profit 162.1 -39.8   -257.7
Result for the period 126.3 -51.3   -320.3
         
Capital expenditure ** 9.6 11.4 -15.4 65.6
  % of net sales 2.2 2.4   3.1
         
Return on equity (ROE), % *** -11.3 n.a.   -24.2
Return on investment (ROI), % *** -2.1 n.a.   -9.2
Equity ratio, % 42.3 40.5   37.2
Net gearing, % 71.3 90.1   95.7
         
Number of employees at the end of the period (FTE) 8,831 9,679 -8.8 9,035
Average number of employees (FTE) 8,889 9,769 -9.0 9,446
         
Earnings/share, EUR 0.77 -0.24   -1.89
Cash flow from operations/share, EUR -0.32 -0.40   0.73
         
Equity/share, EUR 6.11 7.13 -14.4 5.42

* Comparable figures have been restated due to a new IFRS11 ‘Joint Arrangements’.
** Including finance leases.
*** Rolling 12-month period.
   

Harri-Pekka Kaukonen, President and CEO

“During the first quarter, we were able to offset the decline in net sales by cost savings. Our transformation strategy is proceeding well. New media sales grew by close to 9% in the first three months.

Consumer media operations in the Netherlands had a good quarter due to cost control and lower spending on TV programmes. Consumer confidence in the Netherlands has picked up and that is slightly visible in the advertising market. On the other hand, Finnish media operations faced a continued downbeat advertising market and cautious consumer spending with no near-term improvement in sight. However, good growth in online & mobile sales and our cost efficiency measures are able to off-set the tough market environment. Profitability declined due to investments in Pay-TV. For Learning, the first quarter is seasonally very minor. We had pre-orders in the Netherlands this year but not to the same extent as in the previous year.

During the first quarter we finalised a number of divestments and sold certain real estate as communicated earlier, including the sale and leaseback of Sanoma House. The proceeds from the sale were used to pay off part of the existing debt and as such it improved our financial flexibility. The capital gain booked from the transaction also further strengthened our balance sheet.

In addition, we announced tough measures to streamline our operations, for example the reorganisation of shared services in finance functions and the closure of the logistics centre in the Netherlands. Improved competitiveness and agility is necessary in the on-going swift transformation of the media sector.

In the coming months we will continue investments towards the execution of the transformation strategy. We will speed up the pace of development of our products and services to consumers, advertisers and teachers as well as to pupils. The Group-wide cost savings programme will help Sanoma to finance the required growth investments.”

Group outlook (unchanged)

In 2014, Sanoma expects that the Group’s consolidated net sales adjusted for structural changes will decline somewhat compared to 2013. The operating profit margin excluding non-recurring items is estimated to be below the previous year’s level (2013: 7.4% of net sales).

Sanoma’s outlook is based on three major factors: 
(1) continued negative pressure on sales and operating profit due to declining print markets and weak economic development in Sanoma’s core operating countries,
(2) strong positive impact from the EUR 100 million cost savings programme, and
(3) increased investment levels to fund digital transformation and growth in Consumer Media and the expansion into tutoring and emerging markets in Learning.

Mid-term outlook (unchanged)

Based on the execution of the strategic redesign, Sanoma expects that from 2016 onwards, the Group’s consolidated net sales will return to organic growth. The operating profit margin excluding non-recurring items is targeted to be around 10% of net sales. Sanoma is targeting for a net debt to EBITDA ratio below 3.5.

January-March 2014 Interim Report webcast

The event for analysts and investors will be held in English by President and CEO Harri-Pekka Kaukonen and CFO Kim Ignatius at 11:00 Finnish time (9:00 UK time) at Nelonen studio, Sanomatalo, Töölönlahdenkatu 2, Helsinki. The live webcast can be viewed on Sanoma’s website at www.sanoma.com/en/investors and on demand after the event.

Please join by dialing
Finland: +358 (0)9 2313 9201 / Netherlands: +31 (0)20 7965 008 / UK: +44 (0)20 7162 0077 / US: +1 334 323 6201
Conference id: 943083

Financial reporting 2014

Sanoma will publish its Interim Reports in 2014 on a quarterly basis:

  • Interim Report January-June on 25 July 2014, at approx. 8:30 a.m.
  • Interim Report January-September on 29 October 2014, at approx. 8:30. a.m.

Additional information
Sanoma's Investor Relations, Olli Turunen, tel. +358 40 552 8907 or ir@sanoma.com

Sanoma.com

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Sanoma is a front running consumer media and learning company in Europe. In Finland and The Netherlands we are the market leading media company with a broad presence across multiple platforms. Our main markets in learning are Belgium, Finland, The Netherlands, Poland and Sweden. In 2013, Sanoma’s net sales totalled EUR 2.1 billion. Sanoma is listed on the NASDAQ OMX Helsinki stock exchange.