President Jaakko Rauramo's Review in SanomaWSOY Annual Report 1999
Recent developments in the media world have only strengthened and supported the strategy and philosophy underpinning the merger that created SanomaWSOY. Technological progress and the increasing trend towards more international activities have been even faster than projected.
SanomaWSOY officially began operations on May 1, 1999. Before this, however, a lot of preparatory work had been done to develop the Group's structure and operational potential. The approach we adopted was based on independent subsidiary groups - monitored, coordinated, developed, and inspired by a central corporate team. Certain key functions, such as treasury, asset management, and real estate, have been centralised, together with the management of major development projects that impact the Group as a whole. Projects coming under the latter umbrella include SanomaWSOY's broad-based Internet project - virtual portal, the coordination of the Group's customer management, as well as mobile Internet and digital TV-related development work.
The world of communications is going through a period of major change as a result of developments in the technology underlying it, such as the Internet, digital-TV, and WAP. It is particularly important for the future of the Group that we understand the nature of these changes, and that we are able to react to them in the right way and make the right choices. I do not believe that the fundamentals underlying the communications business have ultimately changed, however: customers need and want quality content. And advertisers continue to pay to reach consumers, particularly the right audience for their products or services.
SanomaWSOY is Finland's largest media group. We have the best authors and journalists. And being by far the largest content provider, we have also the broadest and most loyal customer base of anyone in the business. Our operations are built on these strengths, and we are committed to using all the opportunities offered by new technology to serve our customers better, more efficiently, and more cost-effectively in the future. This is where the important Internet, mobile portal, customer management, and digital-TV projects come in. These projects will give us a unique, high-quality skill and resource base with a global market potential.
The most important region for us as we move ahead with our international expansion will be the Baltic Rim. The opportunities in magazines, the Internet, and mobile Internet, however, extend further afield, to Europe and the global stage. Our strategy will be, first to acquire sufficient presence and expertise in our key markets, and then to focus our activities on the basis of best practices and spearhead products. Growth and focus will run hand in hand.
Our goal is to double our net sales over the next five years. To achieve this level of growth and development, we are able to call on what is, even by European standards, extensive financial resources and strong cash flow. The nearly FIM 500 million investment, decided in 2000, for modernizing the printing facilities at our Sanomala unit, will be implemented between 2001 and 2003 - otherwise, we will devote virtually our resources to growing and developing the Group.
The structure and management of the Group provide a good foundation for our future development. Skilled people across the Group will be our most important resource - the growth and international expansion that we foresee for SanomaWSOY will require substantial new skills. A number of major human resource development and training programmes have been launched to meet this need.
Our net sales in 1999 totalled FIM 7.9 billion. This makes SanomaWSOY the Nordic region's second-largest media company immediately after Bonnier, and a middle-ranking company on the European scene. Our operating profit totalled FIM 426 million, and our profit before taxes and extraordinary items was significantly higher at FIM 656 million, thanks to our successful treasury operations. In the future, we expect our operating profit to grow, while our income from investments will decline as a result of the capital investments we plan to make.
Technological developments are seeing communications become increasingly global in nature, with countries finding it more and more difficult to maintain locally specific regulations. It is difficult to see that it will be possible for countries to continue to levy licence fees on television operations in the future when similar charges are not levied on satellite, Internet, mobile phone, or WAP services. It does not make sense to put terrestrial television in a weaker position compared to other modes of communication as the digital revolution gets under way. To put this issue in perspective, Channel Four Finland paid over FIM 40 million in licence fees during 1999.
I believe that communications in the future will be based less on generating added value through the simple transmission of information, but rather that competition will be based on price - and that added value will be leveraged through infrastructure, systems, customer base and, above all, by quality content.
Last year was an important and inspiring year for us. I would like to thank all of our people for the enthusiasm, positive attitude, and entrepreneurship that they have shown in building SanomaWSOY. Their contribution has been the single most positive factor for the Group over the past year, and the single factor that I personally have valued most. I have also been happy to note that our customers and other important partners have seen the creation of the Group as a positive development and believe, like us, that our ability to serve them will only improve in the future.
GROUP'S FINANCIAL TARGETS (2000 - 2003)
*) The ROE target is 4% above minimum-risk interest rate levels
**) The ROI target is 6% above minimum-risk interest rate levels
SanomaWSOY Annual Report for 1999 will be published April 7, 2000.
Investor Relations and Group Communications