WSOY Group's operative result declined to FIM 200.7 million (229.9) but was the second best in the company's history. Boosted by the profits from the sales of assets, the profit for the period increased to FIM 624.7 million (186.2). The proposed dividend per share is FIM 10.25. According to the pro forma financials, Sanoma-WSOY Oyj's net sales totalled FIM 7,443 million (FIM 7,077) and profit before extraordinary items was FIM 581 million (770).

WERNER SÖDERSTRÖM CORPORATION - WSOY

Corporate structure

The corporate structure underwent several changes in 1998 impacting the trend of consolidated net sales and results.

On 1 May 1998, WSOY's magazine printing operations were transferred to Acta Print Oy, owned on a 50-50 basis by Otava publishing company and WSOY.

WSOY's wholly owned subsidiaries Teknolit Oy and Geodata were organised as Group units at the beginning of the review period. Also Ajasto Osakeyhtiö's wholly owned subsidiaries, the Swedish Chrono AB and the Norwegian Emil Moestue as, have been operating as Group units since the beginning of the period. In addition, the consolidated financial statements include the figures of Måndag Oy which became organisationally Tuotantotalo Werne Oy's subsidiary in early April.

On 31 August 1998, Otava redeemed the shares owned by WSOY in their 50-50 joint ventures Yhtyneet Kuvalehdet Oy, Suuri Suomalainen Kirjakerho Oy and Acta Print.

Net sales

WSOY Group's consolidated net sales for 1998 totalled FIM 1,256.3 million (1,127.8 in 1997). The parent company's net sales decreased to FIM 618.7 million (700.2). Due to the structural changes, the net sales of magazine printing operations declined from the previous year's FIM 186,8 million to FIM 61,8 million in 1998; these figures include the intra-Group net sales. Of the subsidiaries, Ajasto Group increased its net sales to FIM 254 million (118.4), Weilin+Göös Group's net sales totalled FIM 204.9 million (204.2), and Lönnberg Painot Oy's net sales totalled FIM 114.6 million (104.3). Werne Group's net sales amounted to FIM 49.0 million.

The net sales from WSOY Group's publishing totalled FIM 677.1 million (656.8), the net sales from production operations FIM 686.7 million (601.2) and the net sales from investment operations and other operations FIM 32,2 (67,2) million. These figures include intra-Group net sales.

Result

WSOY Group's result declined from the previous years due to divestments of associated companies and WSOY's magazine printing unit as well as due to investments necessary to refocus operations. Profitability was further impacted by the weaker than anticipated result trend of the acquired companies, and exceptionally high depreciation on obsolete book inventories. Proceeds from the sales of associated companies boosted the profit for the period which was excellent.

WSOY Group's operating profit before depreciation totalled FIM 217.9 million (249.6) and represented 17.3 % (22.1) of net sales. The parent company's operating profit before depreciation declined to FIM 116.0 million (155.3) and was 18.8 % (22.2) of net sales.

Consolidated depreciation according to plan totalled FIM 92.6 million (77.4); FIM 12.5 million (4.5) of the figure related to consolidated goodwill. The parent company's depreciation decreased by FIM 5.0 million to FIM 38.7 million mainly as a result of the sale of the magazine printing operation.

Consolidated operating profit was FIM 125.3 million (172.2) and the parent company's operating profit FIM 77.3 million (111.6). The consolidated operating profit from publishing totalled FIM 78.0 million (83.4), from production FIM 57.9 million (51.3) and from investment operations and other operations FIM 41.4 (45.5) million.

Consolidated profit before extraordinary items, appropriations and taxes was FIM 200.7 million (229.8) and the parent company's corresponding figure was FIM 144.5 million (176.1).

WSOY Group's interest in the results of associated companies was FIM 84.7 million (49.7). The parent company's dividend income together with the corporate tax credit totalled FIM 71.2 million (58.0). The net impact of financing on WSOY Group's result was FIM 75.4 million (57.6) and on the parent company's result FIM 67.2 million (64.5).

WSOY Group's extraordinary income and expenses totalled FIM 651.1 million (0.0) and the parent company's corresponding figure was FIM 671.1 million (FIM -11.5). The profit on the sales of associated companies was FIM 677.7 million.

Consolidated direct taxes totalled FIM 227.0 million (FIM 43.5); FIM 191.0 million of the figure related to extraordinary income.

WSOY Group's profit for the period was FIM 624.7 million (186.2) and the parent company's profit for the period totalled FIM 612.9 million (159.8).

Balance sheet

The consolidated balance sheet total of WSOY Group was FIM 2,239.1 million (1,666.9). Consolidated fixed assets amounted to FIM 935.1 million (976.2); the share of the associated companies' net wealth and the non-depreciated portion of goodwill accounted for FIM 393.9 million (FIM 410.5) million of this figure.

Consolidated equity was FIM 1,696.3 million (FIM 1,140.8) and liabilities totalled FIM 541.4 million (524.5). Consolidated non-restricted equity was FIM 1,494.2 million (938.7) and the parent company's non-restricted equity was FIM 1,065.7 million (515.9).

Consolidated interest-bearing liabilities totalled FIM 222.8 million (FIM 239.9) and deferred tax liability was FIM 45.6 million (56.2).

Consolidated ROI was 13.8 % (18.5) and ROE 11.6 % (17.4). Gearing was -34.0 (-0.9) and equity ratio 76.4 % (69.4). Earnings per share amounted to FIM 13.70 (15.50) and the market capitalisation of WSOY's shares at the end of the review period was FIM 3,969.2 million (2,552.8).

Capital expenditure; financing

The Group's gross investments totalled FIM 149.3 million (92.5); most of this figure related to acquisitions. The parent company's gross investments were FIM 63.2 million (62.9).

The Group's strong financial position at the end of the review period was partly attributable to the proceeds from the sales of associated companies' shares. Liquid assets at the end of the period were FIM 598.1 million (233.0).

Personnel

The average number of the Group's personnel in 1998 was 1,824 (1,792) and the parent company's personnel was 836 (975) on average.

Administration

The annual general meeting of shareholders determined that the number of the supervisory board members is 8. Marjukka af Heurlin and Esko Koivusalo of the resigning members were re-elected.

Tauno Haataja, APA, and Björn Renlund, APA, were appointed auditors and SVH Pricewaterhouse Coopers Oy, corporation of auditors, was appointed deputy auditor with Jouko Malinen, APA, and Markku Marjomaa, APA, as its responsible auditors.

Esko Koivusalo was the chairman and Paavo Hohti the vice chairman of the supervisory board.

Aarno Heinonen was appointed the executive vice president of Werner Söderström Oyj - WSOY as from 1 June.

After being appointed president of Acta Print Oy, Sven Meinander resigned as member of WSOY's board of directors on 30 April 1998. On 27 August 1998, Heikki Kokkonen resigned from the board of directors and from his post as vice president, Educational Materials, due to health reasons.

General meetings

The annual general meeting held on 28 April 1998 decided to change the legal form of the company to a publicly listed limited company. The parent company's and the consolidated financial statements were adopted, and the proposal of WSOY's board of directors for distribution of profits was approved. The annual general meeting granted release from liability to the members of the board of directors and the supervisory board as well as to the president and CEO.

The extraordinary general meeting held on 8 June 1998 approved the amendment of the articles of association by which the name of the company was changed to Werner Söderström Oyj - WSOY, with the parallel name of Werner Söderström Corporation - WSOY. The articles of association were also amended by adding a conversion clause stipulating that A-shares can at the request of shareholders be converted to B-shares within the minimum and maximum limits of each share category. Some changes warranted by the reform of the Companies Act were also introduced in the articles of association in this connection.

The extraordinary general meeting held on 29 June 1998 dealt with the merger plan by which Werner Söderström Corporation - WSOY, Sanoma Corporation, Helsinki Media Company Oy as well as Oy Devarda AB which is a shareholder in the two last-mentioned companies, will merge to form a new company, Sanoma-WSOY Oyj. The extraordinary general meeting held on 10 August 1998 approved the merger plan unanimously.

Shares

Altogether 19,728 WSOY A-shares (82,099) were traded during the review period for an average price of FIM 363.93 (207.07) per share and 1,551,741 B-shares (1,420,059) for an average price of FIM 311.83 (172.59) per share. The total value of the share trading was FIM 491.1 million (262.1) and the market capitalisation of the company at the end of the review period was FIM 3,969.2 million (2,552.8).

At the end of the period, the members of the board of directors and the supervisory board owned in aggregate 27,339 WSOY shares (26,623), representing 0.2 % (0.2) of the shares and 0.6 % (0.6) of the votes.

The shareholders' rights under the articles of association to convert A-shares to B-shares were not exercised during the period.

The board of directors has no currently valid authorisations to determine on issuance of new shares or option rights or to raise bonds loans.

Dividend for 1998

The board of directors proposes that the annual general meeting declare a dividend of FIM 10.25 (5.25) per share, i.e. a total dividend of FIM 123 million (63). The proposed distribution of profits includes an extra dividend of FIM 4.83 per share in accordance with the merger plan.

The annual general meeting of WSOY's shareholders will be held on 16 April 1999. The record date of the distribution of dividends is 21 April 1999, and the board of directors proposes to the annual general meeting that the dividend be paid on 28 April 1999.

Merger to form Sanoma-WSOY Oyj

According to the merger plan, Werner Söderström Corporation - WSOY, Sanoma Corporation, Helsinki Media Company Oy and Oy Devarda Ab will merge to form a new company, Sanoma-WSOY Oyj, as from 1 May 1999. The merger and its terms as well as the new Group formed as a result of the merger are described in greater detail in the Merger Memorandum published on 18 June 1998.

Sanoma-WSOY Oyj's pro forma financial statements are published as part of WSOY's information on the financial statements.

Events after the financial period

Tuotantotalo Werne Oy acquired the television and video operations of Helsinki Televisio Oy (HTV) as from 1 January 1999. Werne paid the consideration for the transfer of business by a directed share issue. After the transaction, WSOY owns 76 % and HTV 24 % of Werne's shares.

On 1 February 1999, WSOY submitted an application for a license to operate a nation-wide digital education TV channel to the Council of State.

On 28 February 1999, WSOY received the remaining sum of FIM 200 million of the total consideration for the sales of the shares of the associated companies.

Outlook for 1999

WSOY will increase its investment both in traditional book publishing and new media. Development of the Group's recent acquisitions continues and the direction and objectives for their growth will be specified. The Ajasto Group has introduced profitability improvement measures.

WSOY will transfer its book publishing and printing operations as a transfer of assets to the new Werner Söderström Osakeyhtiö to be formed before the merger. Real estate investment company Kirjatuki Oy and Tuotantotalo Werne which provides technical production services as well as certain investment securities and some of the liquid assets will remain in Sanoma-WSOY Oyj which is the receiving company in the merger. Due to this arrangement, the balance sheet structure of the new Werner Söderström Osakeyhtiö and the corresponding sub-group will differ from the balance sheets of the present WSOY Group and parent company.

The arrangements connected with associated companies and the resolutions concerning work division within the Sanoma-WSOY Group will mean that the net sales of the new Werner Söderström Osakeyhtiö Group will decline to some extent from the present level, and the higher investments in marketing as well as other corporate arrangements will reduce the result. Profitability will, however, remain good, and the market positions will continue to be strong.

SANOMA-WSOY OYJ FINANCIAL STATEMENTS (PRO FORMA)

The Sanoma-WSOY Group financial statements (pro forma) have been drawn up by consolidating the official accounts of Sanoma Corporation (hereafter Sanoma), Helsinki Media Company Oy (HMC), Werner Söderström Oyj - WSOY (WSOY), Rautakirja Oyj (Rautakirja) and Oy Devarda Ab.

Sanoma Corporation and Helsinki Media Company Oy have published their annual reports which can be ordered from Katariina Raikunen, tel. + 358 9 122 4624. Rautakirja Oyj published its information on financial statements on 12 March 1999.

Net sales

In 1998 Sanoma-WSOY Oyj had net sales of FIM 7,443 million (7,077 million in 1997). Net sales grew by over five percent on the previous year. The trend in net sales differed at the various group companies because of structural changes, corporate acquisitions and divestments.

Sanoma's net sales grew by seven percent to FIM 2,076 (1,949) million mainly due to good advertising sales. The circulations of Helsingin Sanomat and Ilta=Sanomat were slightly lower than in the previous year. The circulation and net sales of Taloussanomat grew strongly, but more slowly than predicted.

The net sales of HMC were FIM 1,227 (1,102) million, up 11 percent. The new television channel Nelonen, which was started up in June 1997, achieved net sales of FIM 133 million in its first full year of operations and had the most significant impact on growth of HMC's net sales. The net sales of WSOY also grew 11 percent to FIM 1,249 (1,119) million. The transfer of the company's printing operations to an associated company at the beginning of May reduced net sales by over FIM 100 million. Nonetheless, net sales rose because of new subsidiaries acquired at the end of the previous year. Rautakirja's net sales of FIM 3,423 (3,408) million were steady at the previous year's level even though the Tiimari chain of paper supplies stores was sold in April.

Earnings

Consolidated earnings for the financial year grew by over a third on the previous year because of gains from sales of business operations. The profit for the year was FIM 1,005 (746) million.

In November, HMC sold its remaining shares in Norwegian Janco Multicom A/S. As stipulated by partnership agreements and articles of association, WSOY in August sold its shares in its half-owned magazine publisher Yhtyneet Kuvalehdet Oy, book club Suuri Suomalainen Kirjakerho Oy and printing house Acta-Print Oy. In April, Rautakirja sold its shares in Tukkutiimi Oy, which owned the chain of Tiimari paper supplies stores. The significant gains on these divestments have been treated as extraordinary income.

The operating profit of Sanoma-WSOY was FIM 424 (590) million. Operating profit fell on the previous year because of the above-mentioned sales of business operations and investment in new operations and companies.

Consolidated profit before extraordinary items was FIM 581 (770) million. Sanoma's profit before extraordinary items was 373 (432) million and it declined mainly due to the costs of starting up Taloussanomat and lower financial income. HMC's earnings before extraordinary items fell to a loss of 58 million (6 million profit) mainly due to start-up costs of the new television channel Nelonen. WSOY's corresponding profit was FIM 201 (230) million. Earnings weakened because of associated companies and sale of printing operations and due to investment in new business operations. Profit before extraordinary items at Rautakirja fell slightly on the previous year because of the sale of the Tiimari chain and changes in depreciation schedules to 204 (221) million.

Earnings per share were FIM 11 (16).

Balance sheet

The balance sheet total of the Sanoma-WSOY Group was FIM 7,370 (6,473) million, including shareholders' equity of FIM 4,326 (3,456) million.

Equity per share at the end of the financial year was FIM 126 (101). The return on investment was 12.3 (19.0) percent and the return equity was 9.2 (16.0) percent.The group's equity ratio was 70 (64) percent.

Investment and financing

Consolidated gross investment during the year under review was FIM 884 (935) million. Sanoma's investments totaled FIM 409 (586) million and they were mainly for the construction of the new corporate headquarters and the purchase of shares in Janton Oyj and Infosto Oy. HMC invested FIM 138 (118) million during the year, and the biggest single item was the purchase of shares in Norwegian publishing company A-pressen ASA. Most of WSOY's investment of FIM 149 (93) million was on acquisitions of new subsidiaries. Rautakirja invested FIM 188 (139) million. The most significant investments were acquisitions of new business operations for book retailer Suomalainen Kirjakauppa and outlays for Finnkino's new movie theater complexes. All group investments were funded with proceeds from sales of business operations and shares.

The financial position of the Sanoma-WSOY Group is strong. Total cash and bank receivables and money market instruments at the end of the financial year were FIM 1,928 (1,413) million.

Personnel

The group's workforce on average during the year was 11,576 (11,371) employees, including 1,693 (1,585) newspaper delivery personnel.

EVENTS SINCE THE END OF THE FINANCIAL YEAR

The structural rearrangement of the new group involves transferring certain small subsidiary business operations to the subsidiaries to which they are most suited.

On February 1, 1999, Sanoma-WSOY Group companies Sanoma Corporation, Werner Söderström Oyj-WSOY and Oy Ruutunelonen Ab filed applications with the government for four operating licenses for digital television channels. In addition, Sanoma applied for a license to operate a local analog TV channel.

Last year, HMC signed an agreement with the newspaper publisher TS-Yhtymä Oy on merging Helsinki Media's printing operations with Hansaprint Oy. The business operations were transferred on January 1, 1999, at which time HMC took a 40 percent stake in the company. In February, HMC increased its stake in Norwegian A-pressen ASA to 20 percent of the shares and voting rights.

In January, Sanoma acquired a 14.9 percent stake in customized software producer Tietovalta Oy.

In March, Sanoma made an agreement on the purchase of the shares of Kymen Lehtimedia Oy. After the deal Kymen Lehtimedia Oy will become a wholly-owned subsidiary of Sanoma. Kymen Lehtimedia Oy publishes regional newspapers including Kymen Sanomat, Kouvolan Sanomat and Etelä-Saimaa. The group's net sales last year were FIM 489 million and the profit before extraordinary items was 66 million.

In March, Rautakirja aquired a 21.1 percent holding in Jokerit HC Oyj.

Outlook for 1999

When the merger is implemented, the business operations of Sanoma, HMC and WSOY will be transferred to the Sanoma-WSOY Group's new wholly-owned subsidiaries of the same names. The new independent subsidiaries will continue carrying out the business operations of their predecessors in their current extent. In connection with the merger, a considerable portion of the group's real estate, equity portfolio and other financial assets will be transferred to the parent company. So the earnings and balance sheet data for the subsidiaries are not entirely comparable with figures for previous years.

Confidence in continued economic growth will be preserved even though growth is slowing. The pace of growth in exports is also slowing down, but domestic demand remains buoyant. Inflation pressures are negligible, and consumers' purchasing power continues to grow. The performance of the communications industry reflects general domestic economic trends. Uncertainty about the future is increasing as some industries have had to resort to job cuts and layoffs. The instability of some crucial export sectors is also fuelling the uncertainty faced by the communications industry.

Sanoma's consolidated net sales will grow and profitability is estimated to remain good even though growth in the advertising sales of Helsingin Sanomat is slowing and circulation is declining slightly due to fewer discount-priced promotional offers. The advertising sales of Ilta=Sanomat are expected to grow and the circulation to stay at the current level. Taloussanomat will continue to grow vigorously.

HMC's net sales are expected to remain on the previous year's level even though printing operations have been transferred to an associated company. Most of the growth in net sales will come from Nelonen's TV operations, which will grow clearly faster than the market. Start-up costs continue to weigh on HMC earnings, which nevertheless will improve slightly on the previous year.

WSOY will increase its investment both in conventional book publishing and in new media. The companies acquired for the group will continue to be developed and growth opportunities and objectives clarified. The arrangements of the associated companies and the organization of operations within the Sanoma-WSOY Group will mean a slight decline in the net sales of WSOY. Profitability will remain good and the company's market positions will stay strong.

Rautakirja expects its net sales to grow with the trend of the economy and the operating profit is forecast to stay at the previous year's level, which was good.

Implementing the merger and creating a functional group structure are among the main tasks for the current year at the Sanoma-WSOY Group. The long-established business operations will continue in their current extent within the group's autonomous corporations. At the same time, the group and its subsidiaries will explore opportunities for expansion from a new perspective. Sanoma-WSOY Group's net sales in 1999 will grow about 10 percent. Extraordinary sales gains will decline considerably. Owing to investment in business operations, the operating profit will decline, but profit before extraordinary items is estimated to grow slightly.

WERNER SÖDERSTRÖM CORPORATION - WSOY


Antero Siljola
President and CEO

Additional information: Mr. Antero Siljola, President and CEO; tel. +358 9 6168 200, or GSM +358 40 5808 280; Mr. Aarno Heinonen, Executive Vice President; tel. + 358 9 6168 219; or GSM +358 400 408 938. Sanoma Corporation's and Helsinki Media Company Oy's Annual Reports can be ordered from Katariina Raikunen, tel. +358 9 122 4624.

DISTRIBUTION: HEX Helsinki Stock Exchange; principal media

(The figures in the advance financials are unaudited)

WERNER SÖDERSTRÖM CORPORATION - WSOY