CEO's review

President and CEO Susan Duinhoven:

24 October 2018

”During the first nine months of 2018, our teams across the businesses have made good progress, and our overall profitability has improved. This is also reflected in our FY 2018 outlook for operational EBIT margin, which we raised from around 14% to above 14% on 11 October. The improvement has been due to good performance and profitability development in Media Netherlands and Learning, while development of Media Finland has been stable.

In Media Netherlands, we have been able to fully leverage the benefits of our streamlined organisation after the divestment of SBS in July last year. As a result, our profitability has improved significantly; a good achievement with slightly declining net sales. We did benefit from the success of the data-driven marketing and cashback service Scoupy, which has now been combined with our media sales unit focussing on FMCG customers. In early September, we announced the appointment of Rob Kolkman as the CEO of Sanoma Media Netherlands as of 1 January 2019. Rob is currently employed by RELX Group and has wide international experience both from the business-to-business data and publishing businesses.

In Learning, our net sales and profitability have developed well. The decline in sales that we expected in Poland – given the fact that 2017 was an exceptional year benefitting from two overlapping curriculum reforms – was much lower due to market share gains. We experienced very encouraging net sales growth along with curriculum renewal also in Finland. In profitability terms, Learning has already started to see the first benefits of the “High Five” business development programme launched to integrate the back-offices of our five Learning companies.

In Media Finland, the high season of the festival and events business, which we strengthened by an acquisition in March, was successful in terms of sales, number of visitors and customer satisfaction. The profitability was slightly lower than we expected due to some one-off integration costs and certain low-performing festivals. During the third quarter, we saw a continued increase in digital subscriptions of Ruutu and Helsingin Sanomat, while magazine subscriptions declined. Print advertising market continued to be under pressure.

The transformation of the media industry continues: there are several growing areas, but the revenues from more traditional media are declining. Both in our Dutch and Finnish media businesses, we are constantly adapting our organisation to the changes in the market. In Media Finland, this has led to the announcement of co-operation negotiations in certain parts of operations with an aim to keep our competitiveness and efficiency also in the future.

Our free cash flow improved significantly compared to last year. Somewhat lower financial expenses and capital expenditure, as well as good working capital management in many businesses, contributed positively to the cash flow. During the quarter, we had non-recurring costs related to the divestment of the women’s magazine portfolio in Belgium. These will be excluded from the operating cash flow when the Board will define its dividend proposal for the AGM 2019.

Going forward, we continue to focus on our customers and on managing our profitability and cash flow in order to increase the dividend. At the same time, we will review opportunities for synergetic, bolt-on acquisitions with a good strategic fit, which our strengthening balance sheet allows.”