CEO's review

President and CEO Susan Duinhoven:

24 July 2018

”The second quarter was good for Sanoma with a satisfactory momentum in all our businesses. Especially the Learning business performed well and its net sales and earnings grew. In the Netherlands, we received the traditional spring orders that had been shifted from the first quarter, while in Belgium and Finland second quarter performance was boosted by orders coming in already in June instead of July-August. Overall, we are pleased with the performance of the Learning business. For the full year comparison, one should keep in mind the exceptionally strong market growth with two simultaneous curriculum reforms in Poland in H2 2017, which is not going to be repeated this year.

In the second quarter, our operational EBIT improved significantly thanks to net sales growth in Learning. Declining underlying net sales have had an adverse impact on Media Finland’s profitability throughout the first half of the year. Compared to earlier years, this year we expect our performance in Finland to be weighted more towards the second half of the year due to e.g. ending of the Liiga contract (no write-off in Q3), the acquisition of the festival and events business N.C.D. Production and certain marketing and development investments made in Q4 2017. Even with lower net sales, Media Netherlands maintained its profitability thanks to the actions we have taken to reduce the complexity and adjust the scale of our operations after last year’s divestments.

We made good progress on our long-term strategy of selective growth through M&A during the quarter. The acquisition of N.C.D. Production and increase of ownership in the Finnish News Agency (STT) were completed in Finland. In the Netherlands, we increased our ownership in the data-driven marketing and cashback service Scoupy to 95%. Lastly, the sale of the Belgian women’s magazine portfolio was completed according to plan at the end of the second quarter. All transaction costs are now included in earnings, while the restructuring costs will be paid, and the majority of the cash consideration received, during the coming quarters.

In Learning, we have started an internal business transformation programme called ”High Five” to harmonise processes and capture synergies in all parts of the value chain across our operating countries and to create lean and efficient operations for future growth. We will be investing modestly in systems and management support during the coming months with a relatively short pay-back.

During the second half of 2018, we continue to focus on our long-term strategy. We will focus on our customers as well as on improving our profitability and cash flow for increasing dividends. In addition, we aim as well as for selective growth through M&A with equity ratio and leverage within long-term targets. Our FY 2018 outlook remains unchanged and we are comfortable with the development in the first half of the year.”