Sanoma Corp Unsp/Adr

Good morning, everyone, and welcome to Sanoma's third quarter 2024 results presentation. My name is Kaisa Urasmo. I'm heading investor relations and sustainability at Sanoma. Third quarter is always important for us, especially in the learning business, and we had a solid quarter and delivered improved operational EBIT also for the first nine months. Today we have President and CEO Rob Kolkman and CFO Alex Green presenting the results. After the presentation, we will have a Q&A session. We will first take questions from the audience here at Sanoma House. Please use the microphone. Then we will hand over to the telephone line. And finally, you can also use the chat function in the webcast platform. The full event will be recorded and the recording will be available on our website shortly after the event. So with this introduction, I would like to invite Rob on stage, please.

Thank you very much, Kajsa, and good morning, everyone. It's my pleasure to present to you the quarter three results today. And as Kajsa was saying, it's a solid quarter, important quarter for us, and we delivered overall for the first nine months the improved operational EBIT. So let me, as usual, zoom in on a couple of the key elements and then go into both businesses a little bit more specifically. First and foremost on the sales side. There we saw pretty much the indications that we gave earlier. They also happened in both businesses, which means in learning the expected lower sales in Spain as a result of the end of the curriculum is now very much reflected in the quarter three numbers. And the same is true for the planned discontinuation of the low value distribution contracts in the Netherlands and Belgium. And also as expected, that was partly offset by continued good growth in other learning content markets. And of course, I will zoom in on that a little bit more in a minute. Media Finland decreased, if you look at it for the nine months, mainly due to the divestments. And again, I will zoom in on the specific elements of that. Our improved operational EBIT for the first nine months was driven largely by Media Finland, and learning with the solid results in quarter three was stable. We're very pleased to see that the free cash flow continues to improve and has improved for the first nine months, actually significantly, partly driven by solar. And solar really helps us to continue to be on track to reach the long-term profitability target of 23% in 2026 for learning. We're also pleased with the continued deleveraging of the balance sheet in line with what we were expecting, and that leverage has now improved to 2.4, well below our long-term target of 3.0. As a result of the solid quarter and the first nine months, we're now in a position to narrow the group's outlook, which, as you can see here, means that our reported net sales is expected to be between 1.32 and 1.34 billion, and our operational EBIT, excluding PPA, is expected to be 170 to 180. And both of them are at the higher end of our original outlook that we gave back in February. Let me now zoom in on learning first. So the lower net sales in the quarter, very much in line with our earlier indications and the key trends being there as expected. So the net sales decline in Spain of 21 million was actually sort of on the better side of what we expected. And for the full nine months, that's an 18 million, because we saw, of course, still a little bit of an uptick in the first six months. And very much driven by the ending of the Lomloy curriculum renewal, so the cycle we talked about. That was offset by growth in other learning content markets, in particular Poland and the Netherlands. And across the board, we saw the second year now of above average price increases also supporting our numbers. And on that point of the above average price increases, we've now seen two years of that happening as we intended. That also means we have compensated now for the very high inflation impact we saw a few years ago. And going forward, we expect our price increases, therefore, to be more at normal levels. With regard to the planned discontinuation of our low-value distribution contracts in the Netherlands and Belgium, that had an impact of 28 million if you look at the first nine months for learning. That remains a tough part of our market. Nothing new as such there. But of course, we have done a lot of work to see what's the best way forward there. And that means that we continue to work with the market on finding the right business models for going forward. But in the short term, next year as well, we expect a further decline of these low distribution sales conditions. contracts as well. We expect that to continue to go down. And as a result of that updated outlook, and Alex will talk about that later, we have also booked an impairment of 27 million in quarter three. And as always, as a reminder, the divestment of Stark had a 9 million impact on the top line, and for the full year, that will be 14 million. Regarding the operational EBIT for the nine months that is stable on the back of a, as we describe it, solid quarter for learning, same trends here as you've seen before. The net sales decrease in Spain, of course, on the profitability having the bigger negative impact. And we continue to see that we are supported by lower paper cost and the price increases that I mentioned in the other learning content markets also support the earnings. If you look at the full year 24, we expect the margin to be relatively stable versus 23. So similar message as we gave at the half year results. And again, the main impact there is the lower curriculum cycle in Spain. And if I give a little bit more color on that for quarter four, what is still there in the learning business, that's particularly in some of our markets, most notably Spain and Italy, the returns that happen. Of course, we have provided for that with the latest information we have, but that's always still a little bit of the uncertainty in those markets. Let's zoom in on Programme Solar. That remains firmly on track, as you can see here as well, with all streams continuing to perform well and deliver what we want to do. Most notably, we are doing a very tough a second reorganisation round in Spain that we announced also in quarter three. And I would like to highlight that in the financial numbers that Alex will talk about, you therefore see the IAC booked for that in this percentage that is not included yet, that will happen in quarter four, because the discussions and negotiations with, for example, work council and unions are still ongoing. So that's a little bit of how you interpret these numbers. For the full year, we expect to continue to be on track and therefore materially have made all the key decisions for Programme Solar that then will support initially, as I've mentioned before, the cash flow, but then after that, of course, also our operational result. Let me now zoom in on Media Finland. So if you look at the quarter three, there were two things there. The element of the divestments that I highlighted already for the first nine months. But between quarter two and quarter three, you might recall there was also an element around the events. So more events in quarter two than in quarter three if you compare it with the previous year. The trends very much continue to be the same, which is good development on the subscription sales, particularly the digital subscriptions, Route 2+, but also digital news and features. Those are solid performances on the top line. The advertising sales, the trends there, no surprises. The growth in digital being offset by the decline in newsprint and TV. Events I already touched on with a bit of the phasing effect. Overall, the events a year has been, of course, a relatively small part of our business, but has performed in line with our expectations. And also here, good to realize impact of portfolio changes. In the quarter, 3 million. For the first nine months, it was 8 million, and it will be 10 million for the full year. If you look at the earnings, we saw a slight improvement compared to last year. Same drivers there that you can see here. Continued growth in digital subscription sales. That's more than offsetting actually the decline in print, so that's an encouraging sign. The growth in digital advertising sales is offsetting the decline in print. And if anything, we see both of those elements actually be more pronounced, i.e. the growth in digital advertising is slightly higher than we may have expected, but the decline in print also remains at quite a high level. And as I mentioned before, we see customers and we work with customers to actively make that switch to digital, and that is also long-term in our benefit. Good to mention here as well that the lower paper costs have, of course, two aspects, the price and the volumes. There is still a bit of both there, but increasingly going forward, it's mainly volumes because the prices have now come down, and that already happened also in a similar period last year, so you now see the pricing being more stable, but the volumes, of course, continue to come down based on the move to digital. And we reconfirm that for the fourth quarter, and therefore more or less for the second half of the year, we see earnings expected to be similar to quarter four 2023. Few words additional on the outlook. You see the numbers here again, the 1.32 to 1.34 billion with regard to sales, the 170 to 180 for operational EBIT. In both cases, the higher end of our original guidance. The two key things remain the same as well, which is we continue to see the advertising market in Finland to decline slightly for the full year and the other economies to be relatively stable. On the learning side, I also mentioned that what is happening in quarter four is mainly around some of the returns in markets, especially like Italy and Spain. When you look at Finland specifically with the advertising market, then we still don't see many signs that the market is improving. So despite interest rates coming down, we do not see that reflected in a more positive situation in the advertising market. And that's also why we are continuing to highlight the full year decline expectation. So with that said, I would like to hand over to Alex, who can talk you through a bit more of the financials.

Thank you, Rob. Good to be with you here today. With the financials, let's start off with the operational earnings for Q3. Now, as you heard, for learning on a year-to-date basis, the operational EBIT was relatively stable, but it's here in Q3 we see where the impact for Spain really hits, with the highly profitable sales being a lot lower this year versus last year This is slightly offset by growth in other markets, particularly Netherlands and Poland, and also the lower paper costs, which had about a 4 million positive impact learning in Q3 specifically. Media Finland, the operational EBIT, as you saw, is relatively stable. Again, lower paper costs, adding about two million to EBIT, although a lot of that being volume rather than price. And then here, the growth in digital, subscriptions and advertising, slightly more than offsetting the decrease in print. The other in elimination line, there is a slight change here year on year, but overall, that is timing, and in a full year basis, the 2024 costs expected to be similar than 2023. Moving to the key items from the income statement, the overall EPS for Q1 to Q3 is increasing. There are two notable items here to talk about in the IAC line, as mentioned earlier. So firstly, we have a 27 million impairment linked to the distribution business in the Netherlands. Now, this is the time of year when we do our annual impairment review for the full amount of goodwill and intangible assets on the balance sheet. So with the high season over in learning and with us updating our long-term strategic plan, we have the optimal amount of information to look at those impairments. And so out of that came this $27 million impairment. This is connected to the discontinuation of the low value contracts, which drops the revenue in this quarter by 28 million year on year. And we expect that drop to continue in 25 and 26. So the calculation we do looks at the revenue profile and the value coming for that over the years in the future. And that led to an impairment of the value on the balance sheet to the tune of 27 million euros. In addition, here we see the restructuring costs related to the second phase of the restructuring in Spain. This was announced in Q3, and the conditions of the announcement were sufficient to trigger the need for a provision in the books of 12 million. This is being worked on, negotiated through Q4, which is why, as Rob said, you don't see it in our solar chart taking us up to the 80%. That will happen in Q4. So this will be completed in Q4, but the provision is done at this point at the end of Q3. Looking at net financial items, relatively stable in Q3 overall year to date. It is higher with the average interest rate rather being around 5% this year in Q1 to Q3 versus 3.6 last year. So reduction in debt as you'll see, but still the interest rates are higher. Looking at the free cash flow, we have strong improvement year on year in free cash flow, going up to 77 million. Higher operational results coming through, particularly in media Finland, being accompanied by the active working capital management that we've improved over the last couple of years, leading to faster collections, earlier invoicing in a lot of cases, and also lower inventories across the units with the higher cost of capital. We're also having lower investments year to date, both in prepub costs in the learning business and partly driven by solar with the changes we've made there, but also in Media Finland with lower investments in TV programming rights. And this is countered by the net of the higher financing costs with slightly lower taxes. So these levers are generating a strong position year to date. Some of them are timing and will reverse a little bit, but these levers will still lead us to have a stronger cash flow this year rather than last year. The second installment of the dividend was paid in September and we will now pay the third installment of 11 cents a share on the 12th of November. Looking at the net debt chart and our leverage, so good progress in deleveraging on the balance sheet as we talked about at the Capital Markets Day about a year ago. So net debt significantly lower at 616 versus both the June point where it tends to be at its highest in the year and also versus last year where it was 691. This leads our... Leverage to improve to 2.4. Our net debt over-adjusted EBITDA and leverage 2.4, so well below the long-term target of 3. And our equity ratio is close to 41, which is in the middle of our long-term target range of 35 to 45. And finally, a chart to show our maturity profile of our external debt, where we've made some changes this year and improved that maturity profile. So first of all, within Q3 on the 5th of September, we issued 150 million social bond, which was the first social bond in the Finnish market. We're very pleased with how that went with the oversubscription enabling us to get a very competitive rate. The social bond aspect of it, this is fantastic. The fact that we are going to use the money to finance or refinance expenditures related to education, related to learning, improving access to essential education services. The refinancing part, we use some of the funds to repay the Santiana loan as well. That's one thing. We also extended the maturity of the 300 million revolving credit facility to November 2027 with the second and final extension option. And we also extended the maturity of our 100 million term loan that you see on the right there, which is now extended to 2027. So much improved maturity, profile of the external debt, and our focus on ESG is also leading us to get improvements in a number of our ratings and taking us up to industry-leading levels. So the ISS going up to prime B-, earlier C+, and the S&P Global to 51, which is also an increase, following a lot of the hard work and the passion that we see in the company ESG and the increased reporting that we're doing as well. With that, I'll invite my colleagues back to the stage so that we can go through the Q&A process.