Even In The Nordic Area Newspaper Titans Are Being Slammed Because of Disappointing Results -- Schibsted Shares Down 36% In One Year, SanomaWSOY Down 25%, But Great Results From Privately Held Bonnier

Philip M. Stone February 19, 2008

If you were to think of two very well run publicly traded giant publishing houses where you just knew the profits would roll in quarter after quarter then most likely Schibsted in Norway and SanomaWSOY in Finland would spring to mind. But both this month came out with disappointing results and their shares have been hammered over the past year.

Schibsted is down 36% year-on-year and SanomaWSOY is down 25%. Both companies missed their Q4 forecasts for various reasons – something one is not used to hearing from them.

It’s not that these powerhouses did badly, most media houses around the world would love to have their figures, but for who they are, the results were disappointing.

Schibsted announced its Q4 EBITA earnings February 15 of 247 million Norwegian crowns (€31 million, $45.7 million) which was down 20% from a year earlier, and well below what analysts had targeted. Back on January 28 it gave word that the quarter’s profit would not meet expectations and the shares on that day suffered their biggest one-day fall in six years, finishing down 11% -- 30 crowns (€3.79, $5.55). They have continued the slide since and are now down 14% since that Q4 warning. 

Schibsted has some problems in its home market, Norway, and with its classified advertising business in Spain. In Norway it is still suffering from the dramatic swing away from print newspapers to the Internet. Take its tabloid best-selling Verdens Gang (VG) -- back in 2003 the newspaper reported a profit of 349 million crowns (€44 million, $60 million) with a circulation of around 420,000. By 2007 the profit was down to €241 million (€30.4 million, $44.6 million) with circulation at 309,000.

But although circulation dropped 26% in that period those readers were not lost; instead they and many others  flocked to VG’s web site in ever increasing numbers and the web site today is now Norway’s most read medium during the week, it saw a 21% revenue growth  last year with underlying advertising sales up 32%. The web site is now responsible for more than 30% of VG’s total revenue, a figure far ahead of other newspapers around the world.

With that trend continuing ever more each year, although the print newspaper  revenues and profits have been stabilized via price rises and cost cutting including job losses, the question is how much longer will it take before the web site revenues overtakes the print newspaper?  The company, meanwhile, has announced it has sold the VG building for 1.2 billion crowns (€152 million, $220 million) giving it an accounting gain of around 840 million crowns (€105 million, $160 million) of which about half will be tax-free.

And Schibsted has similar issues with Aftenposten, its “quality” newspaper that is suffering particularly from a drop in the growth of want-ads, and web sales were less than expected because of organizational changes. 

In Sweden it also suffering significant losses from its Punkt SE free newspaper in which the company says circulation growth is good, but sales have not yet caught up.

But where the company has run into some real problems is not on its freezing Nordic home turf but rather in sunny Spain. It has there, and in France and Italy, an investment in the hundreds of millions of Euros in the classified advertising business – print and web –and the outlook in Spain has been going from bad to worse.  "In Spain, Schibsted International Classifieds has experienced decreased demand for print advertisements and slightly decreased growth rate in the real estate online services in Q4 2007," the company said. Its Trader Classified business is being restructured, including job cuts and that alone will cost around 70 million crowns (€7.5 million, $11 million).

In its outlook the company said it expects VG and Aftenposten circulation to continue falling but noted 2008 has got off to a strong advertising start at VG. To boost shareholder value it says it is considering a continued share buyback and has proposed a 20% increase in the dividend to 6 crowns per share.

Over in Helsinki, SanomaWSOY  said increased marketing costs and new product launches were to blame for Q4 profits that came in 8.9% lower than a year earlier, and that disappointed analysts who had expected far better. Among its various businesses the company owns TV channels,  publishes newspapers including the Helsingin Sanomat, Nordic’s largest circulation newspaper, it owns newsstands,  publishes books,  runs movie theaters, and has a considerable European magazine business.

But even though its outlook was positive and it forecasts that 2008 will beat the 2007 operating earnings of €303.5 million ($440 million) – it expects sales to increase 6.7% -- the shares continued down until Monday when they picked up 1.7%. On the year they are down 25%. The company has recommended a 5% increase in the dividend to €1 a share.

Newspapers missed targets. “The units depending on traditional paper advertising performed pretty badly,” one analyst noted, and book sales were particularly bad. Finns are avid readers with near 100% literacy, yet CEO Hannu Syrjänen had to particularly note, “The only business issue that surprised and disappointed us was the books business. Book sales were sluggish.” 

The book publishing side of the business came from Sanoma’s buying WSOY (Werner Söderström Corporation) 10 years ago, but company officials have now decided that SanomaWSOY is just too difficult a name for international purposes and the company is reverting back to Sanoma. That immediately raised eyebrows that with the book publishing business not doing so well might Sanoma be planning to drop books? “There are no secret plans included in the name change,” Syrjänen insisted to a news conference.

But all is not rotten in the state of Nordic. Take Bonnier, Sweden’s premier international media company which is still privately controlled by the family. It’s primary business is publishing books, newspapers, magazines, and it produces and distributes film, music, radio and TV, and business information. In a very brief two-paragraph announcement its web site headlined, “A good year for Bonnier”. The report in total:  “This year was characterized by a few major acquisitions: the remaining portion of TV4 and MTV in Finland; purchase of Time4 Media and the Parenting Group in the US, and a consolidation of the publishing enterprises in the Nordic region: the merger between Cappelen and Damm in Norway and the sale of Bonnier Fortagene in Denmark.

“The Group’s sales reached 29.2 billion Swedish crowns (€3.13 billion, $4.6 billion) compared to 20.2 billion (€2.16 billion, $3.19 billion) last year and income before tax reached 2.4 billion (€257 million, $379 million) compared to 1.45 billion (€155 million, $230 million) last year.”

And that was it, no more details – compare that to the 65-page PowerPoint presentation on Schibsted’s site.

Anyway, if we have read the Bonnier statement correctly, sales rose 45% and income before tax rose 45% last year. Maybe remaining private has benefits for media companies!