Sanoma must streamline its operations, according to chief executive Harri-Pekka Kaukonen.Sanoma has admitted in its second-quarter interim report that it has yet to overcome the challenges in its media operations in Finland.

The net sales of the media conglomerate fell by 6.6 per cent from the corresponding period last year to 468.8 million euros and operating profits, excluding non-recurring items, by 25 per cent to 49.4 million euros. The profit margin, in turn, shrank by 1.9 percentage points year-on-year to 10.5 per cent between April and June.

Harri-Pekka Kaukonen, the chief executive at Sanoma, points out that two of the three strategic business units of Sanoma are nevertheless on track.

Sanoma reported on Thursday that its consumer media unit in Belgium and the Netherlands showed a profit margin of 10 per cent and its learning materials unit a profit margin of over 15 per cent for the first half of the year. The profitability of media operations in Finland has contrastively deteriorated.

The media conglomerate is expected to announce a new adjustment programme later this year.

Kaukonen estimates that Sanoma has been over-optimistic about the outlook for the advertising market in Finland. The advertising revenues of media companies have dwindled for 13 consecutive quarters, falling by 8 per cent year-on-year in June, he highlights.

“June is the least significant month in terms of sales, but that's part of the trend.”

Sanoma continues to face two challenges in its television operations: The significance of domestic productions is growing as foreign productions that appeal to viewers are being transferred to subscription-based channels. Meanwhile, international television companies are increasingly reluctant to grant distribution rights for their productions.

The inflated price Sanoma agreed to pay for the SM-Liiga broadcasting rights in 2012 is another factor taking a toll on the company. “The whole industry invested excessively in the rights,” reminds Kaukonen.

The challenges in Finland are according to him attributable to the decline in advertising revenues rather than products or contents.

Reader satisfaction with Helsingin Sanomat has improved over the past 18 months and enabled the daily to fare well in terms of circulation revenues amid difficult market conditions. Ilta-Sanomat, in turn, has fared well across platforms, while radio channels have performed superbly, Kaukonen lists.

Sanoma is nevertheless vulnerable to economic fluctuations as advertising revenues account for over half of the net sales of its consumer media operations.

Kaukonen predicts that advertisers will continue to redirect their spending from legacy to digital as circulation declines.

He also concedes that both A-lehdet and Otava have adapted to changes in the magazine market more successfully than Sanomat. “We haven't been as flexible as our competitors to adapt to change, even though a lot has been done.”

He reminds that half of the savings carried out as part of the recently-completed 100 million euro cost-cutting programme were generated in Finland. Sanoma is in need of “family business-like cost-efficiency” and “more streamlined operations,” analyses Kaukonen.

“The culture of dialogue has slowed down decision-making,” he says.

The executive management group of domestic media operations has been drawing up the upcoming adjustment programme since last spring. Kaukonen refrains from shedding light on the details of the programme due to it still being on the drawing board.

The media conglomerate may launch another round of consultative negotiations, he says.

The objective is to continue consolidating business areas and shedding unnecessary offshoots. “With these figures, we have no choice but to weigh up every alternative to improve the customer experience and cost structure.”

Helsingin Sanomat is part of Sanoma.

Juha-Pekka Raeste – HS
Aleksi Teivainen – HT
Photo: Laura Mendelin / HS