Sanoma Corp Unsp/Adr

Good morning all and welcome to Sanoma's first quarter 2024 results presentation. My name is Kaisa Urasma. I'm heading investor relations and sustainability at Sanoma. Our performance improved during the first quarter, which is seasonally small in the learning business. And we have the president and CEO Rob Kolkman and CFO Alex Green here today to tell you more about the quarter. After the presentation, we will have a Q&A session. We will first take questions from here at Sanoma House. Please wait for the microphone. And after that, we will hand over to the telephone line. You can also use the chat function in the webcast platform for questions. And this event, including the Q&A session, will be recorded, and the recording will become available on our website shortly after the end of the event. With this short welcome, I would like to hand over to Rob to start the presentation. Please.

Thank you, and good morning, everyone. It's my pleasure to present the quarter one results for this year and give some more color to the performance of both businesses. Let me start by looking at the overall performance, which really was driven by operational improvements across both businesses, clearly in a seasonally small quarter. And that's also particularly, of course, true on the learning side. If you look at what's driving the 5% organic growth, then that is very much also driven by learning, partly as a result of the earlier ordering. And I'll touch on that in a minute as well. And solid stable performance on the sales side in Media Finland. That, of course, has its impact in a positive way on the operational EBIT. And there you also see that there are lower operating expenses, especially on the paper side, in both businesses. And higher sales, of course, in learning has that impact as well. All that works its way through to the cash flow as well, driven by the higher earnings again, but also the continuous active working capital management. And Alex will touch on that later as well. Result of that leaves us with the leverage now improved to 2.9, which, as you know, then meets our long-term target level of below 3.0. Also, our efficiency program, Solar, continues to be on track. A lot of actions being taken there, and I'll touch on a few in a minute or two. It's been a good start to the year. At the same time, it's, of course, always important to realize this is a small quarter for us. So that's also why the outlook is unchanged, because the key elements there around the economy in Finland, but also the lower curriculum cycle in Spain is, of course, still having its impact more in quarter three and quarter four, so in the second half of the year, than necessarily now. So let me zoom in first on learning and then on Media Finland. If you look at the learning side, then you saw the net sales grow in most of our markets. And there is some early ordering here to highlight, most notably in the Netherlands and also in Belgium. And that's, of course, very much how this business can work in the small quarters. You can have some earlier ordering, but also likewise some late delivery of orders. So between quarter one, quarter two, you can always see that. And you can also see it even from quarter two to quarter three. So that's always a bit to keep in mind on the learning side. The other point here to note is, of course, that in the like-for-like comparison with last year, we now have the divestment of stock flowing through the numbers, which has a minus 4 million impact on the net sales in the first quarter, and for the full year will have an impact of about 14 million. If you then look at the operational EBIT, which is, of course, driven by the season, a negative one, but an improved performance there. Again, driven by the higher net sales, but also continuous cost management, very active cost management. And also the paper and printing in learning as well, of course, is at a lower level now than it was last year. If you look at the full year margin expectation, you now see it in quarter one go to the 19.3%. We really expect that to come back down to around last year's number of 18.7% for the full year. And that's partly driven by these fluctuations between the quarters. But underlying, we expect that one to be relatively stable for the full year. And a key component to mention here is if you look at Spain performance, that is slightly better now in quarter one compared to last year. It's a very small quarter, but it is driven by the fact that there is still some positive effect from last year's curriculum change also in quarter one. That will not be the case in quarter three, where you will really see that lower end of the cycle happening. So that's also why we see the percentage being roughly the same compared to last year for the full year. Let's now zoom in a little bit on Solar and the performance there and the continued performance there. If you look at all the actions we've taken and the impact on our run rates for 2026 savings, we are slightly ahead of our planning, but very much reconfirm that for the full year, the 80% of run date savings with all the actions we take will have taken place. And you see still a lot of that happening in the second half of the year. which is true for all the core components, but especially also around organisational optimisation and the harmonising of our digital platforms. Those are, of course, continuing to take place and also again significantly in the second half of next year. So that 80% is still very much where we see that being towards the end of the year with some phasing between the quarters. On the four streams, we see good continued performance. So that's on the organizational optimization, especially the effects of Spain and Poland, but also if you look at the publishing process improvements, and especially the harmonization of our digital platforms. So that continued move to lower-cost countries, center of excellences, tech hubs in Poland and Spain is nothing new, but the execution of it is continuing to perform well, which is, of course, important for our longer-term profitability. And then also on the other optimizations, you see good continued progress there. Let me now go to the media part. And in media, we saw the net sales being around 140 million compared to 142 last year. There, the trends very much continue. So the digital growth is very much continuing there, offsetting the decline in print advertising in particular. If you look at the cost side, then we very much, of course, see the lower paper costs now having a significant impact, relatively speaking, in this quarter, both price and volume. And that is the real driver behind the improved operational EBIT that you see here. It's good to highlight that that, of course, in a year-to-year comparison, is more significant in the first half of the year than in the second half. In other words, the pricing of paper has come down already in the second half of last year, and Alex will touch on that a bit as well. If you look at the advertising sales, that trend, as I mentioned, is just continuing also in line with our expectations. On the subscription side, we see continued good growth in digital, especially Route 2+, which is now for the first time above 370,000 subscribers. And also here, it's good to highlight that on the sales side, the impact of the portfolio changes, most notably also Netwheels, is 3 million negative for the quarter, and we expect that to be 16 million for the full year. And on the operational EBIT, I mentioned the core components already around the paper, but also the continued growth in digital subscription, of course, has that longer term positive effect if that continues. And a few words on the outlook, which is unchanged. And that has all to do with the fact that the core drivers there in both businesses, we continue to look at in a similar way as we did for the full year guidance, which is the advertising market in Finland to decline slightly. for the full year, and that's still our expectation. And that is, of course, on the back of the Finnish economy also being relatively stable and not much better performance. And the same applies for the economies of the other operating countries. And then specifically on the learning side, as I highlighted already, in quarter three, you really will see the flow through of the lower curriculum in Spain, which is driving also part of this outlook. So with that said, I would like to hand over to Alex to dive a bit more into the financials.

Thank you, Rob. And great to be with you here this morning for the Q1 presentation. So let's go into the financials, starting with the Q1 operational EBIT numbers and the improvement versus last year. And there's a lot of timing impacts in this. So if we look at learning first, Higher net sales with earlier ordering, with particularly in the Netherlands about 3 million of sales coming in from April into Q1, which flows down to the bottom line. And that, together with continued active cost management and some lower paper and printing costs, led to the 6 million improvement in learning. In Media Finland, the key driver here was the lower paper costs, which was 3 million lower year-on-year, of which about two-thirds of that is to do with the price, because the prices were still high in Q1 last year, and a third to do with volumes. And so, as Rob mentioned, the prices kind of came down through last year, so that impact year-on-year will be front-loaded to Q1 and a bit in Q2 as well. That, together with growth in digital subscription sales, and particularly Root2+, March year-on-year was 29% increase in subscriptions in Root2+. So that had a positive impact, offsetting some lower external printing sales to get to a 3 million improvement in EBIT for Mediafinion. In the other elimination line, some higher personnel and technology costs came in to show this delta. Now, this is relatively normal at this time of the year. It's a timing thing across the year, and it includes some long-term incentive bookings as well. Overall, full year, the other elimination will be a similar level to last year, so around 13 million. Now we've added an extra slide here and going forward to expand on the P&L to go from the operational EBIT down to the results for the period, obviously this information fully in the interim report. So you can see here on the top line there the IACs. IACs, a small quarter for IACs, and in fact the number is positive at 1.5 because we had a 5 million capital gain related to the Net Wheels divestment. So if you take that out, relatively similar to last year, so not a large IAC quarter. And as you saw on the solar slide with the increase to 80% for 2024, that will connect with some higher IAC bookings, as we mentioned before, in the second half of the year. Net financial items, relatively stable. A big part of that is interest due and interest paid. Going forward, full year 2024 will be impacted by the repayment of the low cost, low coupon rate, €200 million bond, which we repaid in March 2024. So going forward, and we refinance that with a €100 million turn loan and through commercial papers. Going forward, expect this line to be about €2 million plus every quarter due to the fact that the current interest rates are higher than when we had that bond. So that will increase going forward. And then you can see the result for the period just flows through from the operational EBIT improvement and from the capital gain on Netwheels. Looking at leverage, improved year-on-year, so net debt down 694, so lower year-on-year, slightly higher than the year-end, obviously due to the investment nature of Q1 and the negative cash flow, but we're at 2.9 leverage, below our long-term target of 3, equity ratio at 42%. As I mentioned, the bond was paid back in March, and average interest rates at 4.3 versus 2.9 last year, that will go up for the remainder of the year due to the nature of the funding. And then finally on free cash flow, improved from minus 68 to minus 44 year on year. Two big parts of that are the flow through of operating results with EBITDA being 9 million positive year on year and another 9 million coming from active working capital management, which is primarily the optimisation of cash. inventory levels. So a lot of the good work we did last year to improve our operational cash flows happened after Q1. And so year on year, we do see that improvement together with in the quarter slightly lower investments with some timing of TV investments being earlier versus last year and offset by the higher interest paid. So that kind of adds up to the improvement for the quarter. A look at full year, free cash flow is expected to be at similar levels than 2023 with the lower investments because we don't have a large curriculum cycle and the improved working cash management being offset by higher interest pays. And we also still do have the solar IACs coming in at the back half of the year, like we did last year. So net overall, roughly the same place for... free cash flow in 2024 and improving thereafter. So that concludes the presentation, so we'll move to Q&A.