Sanoma Corp Unsp/Adr

Good morning, everyone, and welcome to Sanoma's first half 2024 results presentation. My name is Kaisa Urasmaa. I'm heading investor relations and sustainability at Sanoma. Our first half of the year was strong and earnings improved in both learning and media. And today, our president and CEO Rob Kolkman and CFO Alex Green will tell you more about that. After their presentation, we will have a Q&A session. We will first take questions from the audience here at Sanoma House. Please use the microphone. And then we will hand over to the telephone line if there is any audience there. You can also use the chat function in the webcast platform for questions. The full event, including the Q&A, is recorded and the recording will be available on our website shortly after the event. With this, I would like to invite Rob to start the presentation. Please.

Thank you, Kajsa. And good morning, everyone. It's my pleasure to present the half-year results to you today. And we've had a good first six months of the year. And that's reflected in pretty much all of the metrics that you see here. And I will talk you through that and then, as usual, also go specifically into the two business areas. If you look at the sales side, that grew in learning, that was driven by the Netherlands and Spain in particular, and that was overall stable in media Finland. That helped, of course, with a strong operational EBIT improvement, where on top of what happened on the top line, we also saw lower operating expenses. And that flowed through as well to the free cash flow, which improved again by both the higher earnings, but also the lower investments. And I think all this really contributes to the core focus areas that we highlighted during the Capital Markets Day, and those are, of course, around improving the profitability in both learning and in media, improving also the organic growth, particularly in learning also together with in-market consolidations. And that third point I would like to highlight is, of course, the deleveraging of the balance sheet as the third key focus area. And if you purely look back now one year, then you see that also in action on our balance sheet with a reduction in the net debt and also our leverage improved to 2.9 below the 3.0 that we have as our target. And Alex later on will talk a bit more about that as well. Also pleased to report that the program solar or efficiency program within learning is on track. And I'll touch on that more specifically in a minute as well. So we're very happy with the results for the first half of the year, good results. It is always good to realise in our type of business that, of course, we have a very big H2 ahead of us. That is true very much in learning, when you think about the school start of the year, and also, of course, a lot, particularly on the advertising revenue in Media Finland. And that is also, in essence, and I'll touch on it in a bit more detail, why we are keeping the outlook unchanged. Let me now zoom in on both parts of the business, starting with learning and starting with the top line on the learning side. So the net sales grew 3% and actually organically we grew 5%, keeping in mind, of course, that we had the divestment of Stark now really impacting the numbers by about 5 million on the top line. So the learning content sales grew in the Netherlands, Spain and Poland, and that was partly offset by Finland and Belgium. And we see that as the sort of phasing effects that I also mentioned in the previous quarter that does happen. Particularly, of course, in Spain, good to realize that last year we were still in sort of finalizing some of the content, getting the books ready and then selling them in quarter three. What you now see is, of course, there is no change in books anymore. So we have more available to already deliver in quarter two. And that's partly why you still see Spain being ahead at the half-year point. But of course, as I also highlight here, for the full year, the Spanish lower curriculum will have a significant impact on lower revenues for the full year. And besides the lower curriculum taking effect in Spain in quarter three, there is also the discontinuation of the low value Dutch distribution contracts. Again, something we already highlighted before, but of course, that is also happening more in quarter three and not so far in the year. Clearly, the positive revenue growth flew through to our margins, which is highlighted here, with the net sales growth having a positive impact. But also, the first effects of solar, especially in Spain, you can start to see that also in lower personnel costs. Clearly, the majority, as we've mentioned, is actually happening initially as less investments, therefore on the balance sheet, and then ultimately lower depreciation. That is still true. But of course, there are also some impacts that you can already see in the P&L as well. And again, Alex will highlight a couple of points there too. And in learning, although less than in media at this point in time, we also see lower paper and printing costs. In learning, you will see more of that happening again in the second half of the year when, of course, we sell more of the books in quarter three. Keeping in mind the two key areas within learning with regard to the lower curriculum cycle in Spain and the discontinuation of the low value contracts, we still think that the margin, everything considered, will be relatively stable for the full year compared to the 18.7 that it was at the end of Q4 last year. Let me now say a few words about program SOLAR. So pleased to say that SOLAR is very much on track. The key way we are currently measuring that is unchanged, which is around all the decisions that we are taking to get to those run rate savings for 2026. And by the end of the year, we will have taken 80%, so the vast majority of those decisions that will then flow through via the balance sheet and then also into the results fully into 2026. So we still slightly ahead there. And for the full year, we expect to at least be on schedule there with the 80%. And again, to bring that to life for you a bit, it is really across all these segments that you see here. I already mentioned Spain and the organizational optimization there post the curriculum having an impact. And that will continue to be the case. And we are also still taking more steps in that area. Same was true for Poland. And we're doing it in a couple of the other operating countries as well. but Spain being the main one there. We also continue to improve our publishing processes. That is partly also introducing new ways of working and benefiting really there from the scale, also some software that will help us further reduce and optimize, for example, inventory levels. You see that already happening now, but we expect that to continue and improve even further, which is important as well if you think about the next high seasons coming up in particularly also 26. And on the harmonization of the digital platforms, the key element there is unchanged, which is to focus on building and growing our tech hubs, particularly in Poland and also in Spain. And that will help us and our customers to deliver more features and functionalities and digital solutions, but also at a lower cost, because effectively it is moving very expensive development costs from some of our countries to lower cost countries like Poland and Spain. And then there is a wide range of other optimizations as well across the business also to make sure that we really benefit from our scale in HR, in finance and all those areas. So that's with regard to learning and solar. Very much on track and a very good first six months of the year for learning. Let me now switch to Media Finland. There you saw overall stable net sales, and I would characterize it as really a continuation of the core trends that we've seen for a while, which is on growth on the subscription side, very good development in Route 2+, and overall the subscription sales grew year on year by 6%. And that's also a continued solid performance there on the news driven by digital. The advertising sales still sees that growth on digital, also on TV, and the decline on the print advertising. So again, that is what makes up the 1% overall. And then this time of year, always a popular topic, of course, the events. So I think there's a few things to highlight here for events. So the event sales overall is slightly lower, and that is a combination of no Rockfest, which we, of course, did have in quarter two last year, and we now will organize again in 2025. but that was partly mitigated by two events that were last year in quarter three and are now in quarter two. So there is some phasing, particularly with an impact on the top line happening there. If you look through that and you look at the ticket sales, then overall the ticket sales are in line with expectations. And that also means more or less in line with last year. So no major changes there. Obviously, event by event, it can be different. But overall, that's what we see on the event side. And most of the events, of course, now have happened in the year. And also here, good to realize the impact of the portfolio changes in the quarter, 2 million, and for the half year, 5 million. If you then look at the earnings within Media Finland, there we saw good growth in the operational EBIT going to 14 million compared to 9 million last year. Same trends, of course, contributing here. Growth in digital advertising, subscription sales. Also the lower paper cost, still very significant here as well. And again, Alex will touch on it in a bit more detail. And the events phasing I also mentioned here as well. Then just to be very clear on where do we now see this go for the second half of the year. So what we expect for the full year is that the plus that we see year to date of roughly 8 million, that that is there to stay. And that for the second half of the year, the profit will be more or less similar to the second half of last year. So that's about an 8 million year on year improvement then on the results if you look at it from a full year perspective. And why is that the case? We do see continuation of a slightly declining overall advertising market. We also have stronger prior year comparables for both advertising subscription sales and the lower paper costs are still there, but less significant than they were in the first half of the year. And this is sort of the expectation of being similar to last year for the second half of the year. That does mean that it can still be different between quarter three and quarter four. And for example, if you take in quarter three, we have the Olympics that always leads to some slight changes in advertising spend, which you then see happening more, for example, again in quarter four. So overall, similar performance in the second half of the year expected. So all these points lead to an unchanged outlook for the key reasons I mentioned and also the same operating environment underlying expectations that we have set at the start of the year, which is the advertising market in Finland declining slightly and more or less stable economies in all of our operating countries. So with that said, I would like to hand over to Alex to talk us through some more of the financials.

Thank you, Rob. Thank you and welcome here for me as well to this H1 presentation. So with the financials, let's start with our operational EBIT for Q2 with good development in both businesses going from 54 to 61 million operation EBIT for Q2. On the learning side, an increase of two coming from some sales mix impacts, but also then lower operating costs, particularly in paper, where we have a full year in paper for learning, about a five million drop, of which the bulk of that will come in Q3, but there's about two million for the first half of the year and about one million in here. But as I said, adding to a two million increase. In Media Finland, as we've just seen, a five million increase year on year in operational EBIT with the growth in digital subscriptions and advertising sales. Again, lower paper costs for Media Finland, a 10 million year impact with about six million year to date, three in Q1, three in Q2, and then the rest evenly spread. So in H2, less of an impact because the paper prices were already coming down in H2 last year. In addition to that, the events change with more in Q2 than Q3 improved the profitability. And then we also had some lower external printing sales, which tends to happen when the price comes down automatically as well. But that all led to a five million increase year on year. The other in elimination line is relatively stable. And for that line, the full year estimate is it to be similar levels to 2023. Moving to our relatively new slide on income statement items. Now, we showed this for the first time in Q1. Here in Q2, we're putting both Q2 and H1 in the table here. I'm going to focus on the Q2 numbers for the comments. So in terms of Q2 IACs, 8 million booked in Q2, 2 million of which come from a program, Solar, and then the others coming from the coming towards the end of the Pearson integration costs and also other strategic development costs throughout the business. You'll notice, and as a reminder, in Q2 2023, there's a large amount there, which is the VAT claim booked at Media Finland, for which we have an appeal out still, so that not yet concluded, but booked in 2023. In terms of net financial items, that did grow from 8 till 10.7 in Q2. This is mainly due to the repayment of the low coupon rate, 200 million bond at the beginning of this year. That was obviously done three years ago at a very low interest rate. And so refinancing that with our term loan and with other funding sources is at a sort of more contemporary interest rate, so higher. So the average interest rates did go up from 4 to 5.3 in Q2. And then similarly for H1, it goes up in the same way. If we look at free cash flow, so free cash flow is always negative in the first half of the year because of the learning business cycle. We did improve it from the minus 84 last year to minus 54 with the higher operating results and also lower investments at this part of the year. And also some acting work in capital management, which included significantly lowering our inventory levels due to the higher cost of capital. We are reducing those to be more exactly what's needed in the following months, therefore improving the working capital. That was offset a little by the higher interest paid, but also the lower prepayments in the Dutch distribution business, which is one of the changes from last year. So obviously, as we talked about, when we discontinue low-value contracts, last year they would have been a prepayment associated. Given we don't have the contract, therefore, less prepayments, so that does impact the number here as well. With regards to those timing impacts and all that, so overall net-net, as you look at the full year, we still expect the free cash flow to be relatively similar to 2023. And here we state also the installments, the dividends, so the second half installments, the second one will be in September and the third one will be in November. As you remember, we do it in three installments. So the free cash flow has contributed to improving our leverage position and bringing us to 2.9 below our long-term target of three. And we expect that to, given the nature of the flow of cash in the second half of the year, that will come down towards the year end. So net debt reduced by 62 million year on year, obviously slightly up from March due to the seasonal patterns of our spending. And the equity ratio at 37.4 is inside the long-term target range that we have of 35 to 45. That concludes the finance section, so I'll invite my colleagues back on stage for the Q&A session.