CEO's review

President and CEO Susan Duinhoven:

30 April 2019

”Sanoma had a solid start to the year 2019. Typically, the first quarter is seasonally the smallest for us both in the media and in particular in the learning business. The learning business has, by nature, an annual cycle with the majority of earnings generated in Q2 and Q3, around the time when the new school year starts.

During the past years, we have persistently worked in line with our strategy to increase the share of more stable subscription and learning businesses of the Group’s net sales. After the first quarter, our Learning SBU is in a good position preparing for its high season in all its markets. Regarding our intention to acquire Iddink, the Dutch Authority for Consumers and Markets (ACM) is, as part of its standard procedure, currently assessing the transaction. We are looking forward to proceeding with the acquisition once their assessment is finalised, and expect closing by the end of the third quarter.

Both in Finland and in the Netherlands, the development in advertising markets continued to be weak, and our advertising sales declined. Overall, our exposure to advertising has decreased from 36% of the Group’s net sales in 2016 to 26% in 2018, out of which less than one-third is print advertising.

In Media Finland, good development of both HS and Ruutu+ subscription businesses continued. The number of subscriptions of Ruutu+ grew by 25% – an excellent achievement especially when keeping in mind that in 2018 we still had Liiga (the Finnish national ice-hockey league) in our portfolio.

Net sales of Media Netherlands decreased, half of this due to divestments. In February, we sold Mood for Magazines, publisher of LINDA. magazine to its founder, Linda de Mol, and Talpa. We are satisfied with the EV/EBIT multiple of 7.9x, especially as LINDA. had a higher dependency on single copy and advertising sales than the rest of our titles in Media Netherlands. The increase in the VAT of magazines in the Netherlands from 6% to 9% came into force in the beginning of this year and impacted our pricing capacity and thus the subscription revenues of the quarter. During the quarter, our advertising sales were impacted by changes in Scoupy’s product portfolio. As a result of lower net sales our profitability decreased, though being significantly mitigated by prudent cost management.

In the first quarter, we saw the impact of the IFRS 16 Leases standard implementation on our financials. While the underlying financial development was favourable, our reported net debt and net debt to adjusted EBITDA increased and equity ratio weakened due to this accounting change. Implementation of the standard also improved our free cash flow, but a similar size decrease in cash flow from financing neutralised the impact on net cash flow.

Our Outlook for 2019 remains unchanged, and we continue to focus on our long-term strategic cornerstones: growth through synergetic acquisitions and increasing dividend.”