Sanoma’s 2017 Full-Year Result: Solid operational EBIT improvement in 2017

Sanoma Corporation, Stock Exchange Release, 8 February 2018 at 8:30 CET+1

Sanoma’s 2017 Full-Year Result: Solid operational EBIT improvement in 2017

This release is a summary of Sanoma’s 2017 Full-Year Result. The complete report is attached to this release and is also available at sanoma.com.

Sanoma announced on 16 January 2018 an intention to divest its Belgian women’s magazine portfolio. Net sales of the divested business were EUR 80.5 million and operational EBIT EUR 6.5 million (EBIT margin 8.1%) in 2017. The divested business is consequently classified as Discontinued operations in this report. All key indicators and income statement related quarterly and FY figures presented in this report, including corresponding periods in 2016, cover Continuing operations only unless otherwise stated.

Fourth quarter

  • Net sales were EUR 301.5 million (2016: 375.6; adjusted for the SBS divestment 305.4).
  • Operational EBIT improved to EUR 1.6 million (2016: -0.4; adjusted for the SBS divestment -4.3).
  • Operating profit was EUR 18.4 million (2016: -22.4; adjusted for the SBS divestment -20.3) and included EUR 16.8 million (2016: -22.0) of items affecting comparability consisting of capital gains related to the sales of real estate in Finland and restructuring costs.
  • Operational earnings per share improved to EUR 0.00 (2016: -0.08) and earnings per share to EUR 0.09 (2016: -0.20).
  • Cash flow from operations was EUR 93.0 million (2016: 106.0) and capital expenditure was EUR 10.2 million (2016: 12.2).

2017

  • Net sales, adjusted for the SBS divestment, were stable and amounted to EUR 1,326.6 million (2016: 1,322.3). Net sales were EUR 1,433.4 million (2016: 1,554.4).
  • Operational EBIT, adjusted for the SBS divestment, improved by 21% to EUR 180.6 million (2016: 149.6), corresponding to an EBIT margin of 13.6%. Operational EBIT improved to EUR 178.2 million (2016: 164.9), corresponding to an EBIT margin of 12.4%.
  • Sanoma divested its Dutch FTA TV operations, SBS, in July for a net cash consideration of EUR 237 million.
  • Items affecting comparability included in the operating profit amounted to EUR -417.2 million (2016: 42.0) and mainly consisted of the capital loss from the divestment of SBS and capital gains related to the sales of real estate in Finland. In 2016, items affecting comparability included a EUR 74.6 million adjustment for a settlement of defined benefit pension plans in the Netherlands.
  • Operating profit, adjusted for the SBS divestment, was EUR 187.9 million (2016: 198.6). Operating profit was EUR -238.9 million (2016: 206.9).
  • Operational earnings per share improved by 42% to EUR 0.71 (2016: 0.50). Due to the capital loss related to the SBS divestment, earnings per share were EUR -1.01 (2016: 0.69) and EUR -0.99 (2016: 0.65) including Discontinued operations.
  • Cash flow from operations was EUR 141.2 million (2016: 158.1) and capital expenditure was EUR 38.2 million (2016: 34.9).
  • Interest-bearing net debt decreased by 50% and was EUR 391.8 million (2016: 786.2) at the end of the year.
  • Net debt/adj. EBITDA ratio strengthened following the decrease in net debt and improved profitability, and was 1.7 (2016: 3.2) at the end of the year.
  • Equity ratio was 38.5% (2016: 41.0%) at the end of the year.
  • The Board of Directors proposes a dividend of EUR 0.35 per share to be paid for the year 2017 in two instalments, EUR 0.20 on 4 April and EUR 0.15 on 1 November (estimated).

Outlook for 2018

In 2018, Sanoma expects that the Group’s consolidated net sales adjusted for structural changes will be slightly below 2017, and operational EBIT margin will be around 14%.

The outlook is based on an assumption of the consumer confidence and advertising markets in the Netherlands and Finland being in line with that of 2017.

Comparable key indicators, adjusted for the SBS divestment

EUR million   10–12/
2017
10–12/
2016
Change % 1–12/
2017
1–12/
2016
Change %
Net sales   301.5 305.4 -1.3 1,326.6 1,322.3 0.3
EBITDA   62.7 25.1 150.4 345.7 359.3 -3.8
Operational EBIT   1.6 -4.3 138.1 180.6 149.6 20.7
  % of net sales   0.5 -1.4   13.6 11.3  
Operating profit   18.4 -20.3 190.4 187.9 198.6 -5.4
Result for the period from continuing operations   14.0 -30.1 146.6 125.8 116.9 7.6
Result for the period *   12.9 -30.2 142.5 128.0 110.2 16.2
               
Cash flow from operations *   93.0 83.1 12.0 140.9 141.2 -0.2
               
Capital expenditure **   10.2 11.2 -9.6 36.4 30.5 19.3
  % of net sales   3.4 3.7   2.7 2.3  
               
Number of employees at the end of the period (FTE)         4,425 4,658 -5.0
Average number of employees (FTE)         4,562 4,792 -4.8
               
Earnings/share, EUR, continuing operations   0.09 -0.20 144.5 0.77 0.67 13.6
Earnings/share, EUR *   0.08 -0.20 140.6 0.78 0.63 23.3
Operational earnings/share, EUR, continuing operations   0.00 -0.09 96.8 0.72 0.46 55.8
Operational earnings/share, EUR *   0.00 -0.08 101.5 0.74 0.47 57.5
Cash flow from operations/share, EUR *   0.57 0.51 11.6 0.87 0.87 -0.3

* Includes both continued and discontinued operations.
** Including finance leases.

Key indicators

EUR million   10–12/
2017
10–12/
2016
Change % 1–12/
2017
1–12/
2016
Change %
Net sales   301.5 375.6 -19.7 1,433.4 1,554.4 -7.8
EBITDA   62.7 68.1 -7.9 -48.0 502.2  
Operational EBIT   1.6 -0.4   178.2 164.9 8.1
  % of net sales   0.5 -0.1   12.4 10.6  
Operating profit   18.4 -22.4   -238.9 206.9  
Result for the period from continuing operations   14.0 -31.9   -300.3 122.7  
Result for the period *   12.9 -32.1   -298.1 116.0  
Cash flow from operations *   93.0 106.0 -12.3 141.2 158.1 -10.7
Capital expenditure **   10.2 12.2 -16.5 38.2 34.9 9.3
% of net sales   3.4 3.2   2.7 2.2  
Return on equity (ROE), % * ‘ ***         -47.4 10.9  
Return on investment (ROI), % * ‘ ***         -17.3 9.9  
Equity ratio, % *         38.5 41.0  
Net gearing, % *         70.7 78.4  
Number of employees at the end of the period (FTE)         4,425 5,038 -12.2
Average number of employees (FTE)         4,746 5,171 -8.2
Earnings/share, EUR, continuing operations   0.09 -0.20   -1.01 0.69  
Earnings/share, EUR *   0.08 -0.20   -0.99 0.65  
Operational earnings/share, EUR, continuing operations   0.00 -0.08   0.71 0.50 41.7
Operational earnings/share, EUR *   0.00 -0.07   0.73 0.51 43.6
Cash flow from operations/share, EUR *   0.57 0.65 -12.5 0.87 0.97 -10.8
Equity/share, EUR *         3.39 4.39 -22.9
Dividend/share, EUR ****         0.35 0.20  
Dividend payout ratio, % ****         neg. 30.8  
Market capitalisation         1,774.5 1,338.4 32.6

* Includes continuing and discontinued operations.
** Including finance leases.

*** Rolling 12-month period.
**** Dividend for 2017 is a proposal by the Board of Directors.

Susan Duinhoven, President and CEO:

“We achieved solid profitability improvement in 2017 as our operational EBIT margin, adjusted for the SBS divestment, improved from 11.3% to 13.6%. Majority of the earnings improvement was due to increased efficiency in our media business in Finland, where our continued work with process and cost innovations is bearing fruit. We were also delighted to see the number of subscriptions of Helsingin Sanomat and Ruutu growing nicely during the year. The major restructuring of our business portfolio in Media BeNe led to a streamlined organisation and higher operational EBIT margin of 15.6%, adjusted for the SBS divestment. The Learning segment’s earnings were stable as the positive impact of well managed cost innovations and net sales growth was offset by higher development costs as well as increased depreciation and amortisation due to higher investments and certain acquired assets in Belgium. All three SBUs absorbed a significantly larger part of overall Group costs, earlier booked in Other.

During the year we finalised our portfolio restructuring by making major changes in our media business especially in Belgium and the Netherlands. In July, we successfully divested our Dutch FTA TV operations, SBS, and in January 2018 we announced our intention to divest the Belgian women’s magazine portfolio. The Belgian women’s magazine business was small, in a relatively small two language market, resulting in high fixed costs. Consequently, the net sales in our stronghold businesses amounted to EUR 1.3 billion, adjusted for the SBS divestment and excluding the Discontinued operations. Net sales growth was strong in the learning business whereas comparable net sales of our media businesses declined slightly in line with market.

Our financial position strengthened significantly during the year. Our net debt declined to EUR 391.8 million (2016: 786.2) as we paid back a large part of our debt with the proceeds of the SBS divestment and with income financing. With the lower debt and higher profitability, our net debt/adjusted EBITDA improved to 1.7 (2016: 3.2) and is now well below our long-term target level. During the year, the SBS divestment had an adverse impact on our equity ratio, but by the end of 2017 the equity ratio had recovered to 38.5%, being within our long-term target range of 35-45%. We are very satisfied with our much improved financial position, which will allow us to seek growth and expansion opportunities; both via our own innovations and investments as well as highly synergetic bolt-on acquisitions.

The Board proposes a dividend of EUR 0.35 (2016: 0.20) per share to be paid for 2017. The payment is proposed to be done in two instalments, EUR 0.20 on 4 April and EUR 0.15 on 1 November (estimated), aligned with the seasonality of our cash flow generation. The proposed dividend represents 55% of our operational cash flow less capex, in line with our dividend policy stating a payout target range of 40-60%.

With the changes we have made in recent years, we today have a strong media and learning business portfolio. With our solid financial position and ability to generate a good cash flow, we aim to provide our shareholders an increasing dividend.

For the year 2018, we expect our net sales to be slightly below 2017 and our operational EBIT margin to improve to around 14%.”

Dividend proposal

On 31 December 2017, Sanoma Corporation’s distributable funds were EUR 462.3 million, of which profit for the year made up EUR 156.9 million. Including the fund for non-restricted equity of EUR 209.8 million the distributable funds amounted to EUR 672.0 million.

The Board of Directors proposes to the Annual General Meeting that:

– A dividend of EUR 0.35 per share shall be paid for the year 2017. The dividend shall be paid in two instalments. The first instalment of EUR 0.20 per share shall be paid to a shareholder who is registered in the shareholders’ register of the company maintained by Euroclear Finland Ltd on the dividend record date 26 March 2018. The payment date for this instalment is 4 April 2018. The second instalment of EUR 0.15 per share is estimated to be paid on 1 November 2018.

– A sum of EUR 0.35 million shall be transferred to the donation reserve and used at the Board’s discretion.

– The amount left in equity shall be EUR 614,536,485.52 million.

The Annual General Meeting on 21 March 2017 decided to pay a dividend of EUR 0.20 for the year 2016 (2015: 0.10) per share. The dividends were paid on 30 March 2017.

According to its dividend policy from 2017 onwards, Sanoma aims to pay an increasing dividend, equal to 40–60% of annual cash flow from operations less capital expenditure.

When proposing a dividend to the AGM, the Board of Directors will look at the general macro-economic environment, Sanoma’s current and target capital structure, Sanoma’s future business plans and investment needs as well as both previous year’s cash flows and expected future cash flows affecting capital structure.

Analyst and investor conference

Full-Year 2017 Result and related materials are available on www.sanoma.com.

An analyst and investor conference with an audio webcast will be held in English by the President and CEO Susan Duinhoven and CFO and COO Markus Holm at 11:00 Finnish time (9:00 UK time) at Sanomatalo, Töölönlahdenkatu 2, Helsinki. To join the event at Sanomatalo, please register via email ir@sanoma.com.

The live audio webcast of the conference can be followed via www.sanoma.com/en/investors. To ask questions by phone during the live audio webcast, please register by email to ir@sanoma.com. Dial-in details will be sent for registered participants. An on-demand replay of the audio webcast will be available shortly after the end of the conference at www.sanoma.com/investors.

Interview opportunities for media are available after the conference. Media representatives are asked to book interviews via Communications Director Marcus Wiklund, markus.wiklund@sanoma.com.

Additional information
Investor Relations, Kaisa Uurasmaa, tel. +358 40 560 5601

Sanoma

Sanoma is a front running media and learning company impacting the lives of millions every day. We provide consumers with engaging content, offer unique marketing solutions to business partners and enable teachers to excel at developing the talents of every child.

With operations in Finland, the Netherlands, Poland, Belgium and Sweden, our net sales totalled EUR 1.4 billion and we employed more than 4,400 professionals in 2017. Sanoma shares are listed on Nasdaq Helsinki.