Sanoma Corp Unsp/Adr

Good afternoon, everyone, and welcome to Sanoma's Q1 2025 results presentation. My name is Kaisa Uurasmaa. I'm heading investor relations and sustainability at Sanoma. Q1 is always a seasonally small quarter for Sanoma, but our performance improved, driven by learning. And today we have, as usual, President and CEO Rob Kolkman and CFO Alex Green telling you more about 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 wait for the microphone. We will then hand over to the telephone line, or then you can also use the chat function in the webcast platform. After this event, a recording of the presentation, including the Q&A, will be available on our website. With this, I would like to invite Rob on stage, please.

Thank you, Kajsa. And good afternoon, everybody. It's my pleasure to present the quarter one results to you today. As Kajsa already mentioned, we saw improved performance across the business, but it is in a seasonally small quarter. So it's a good start to the year, but of course still a lot more to come. And you see that reflected in the numbers here. So the sales was overall stable, and the driving factors there were around growth in learning, particularly in the Netherlands and Poland, and that was offsetting the lower advertising sales in Media Finland. And I'll talk later specifically on media and also on advertising. If you look at the group's operational EBIT, that improved due to learning, and that is also a result again of the net sales growth and the improved cost efficiency. It's stable in media Finland overall. And here also good to keep in mind, of course, that this is a small quarter for us and therefore also seasonally loss making. Our free cash flow continues to improve on a year-on-year basis, and that's driven again by the strong performance and also the networking capital improvement. And Alex will talk about that more later on. Then Programme Solar already highlighted at quarter four the full year results that our initiatives there that we have taken and the decisions have been mostly completed. Of course, the execution of that continues, but that means that also the first impacts are visible in the free cash flow and also in our cost base, and that will only increase more when we go into 2026, and it also will benefit then from the growth in our curriculum. We also saw continued progress in deleveraging the balance sheet, very much the trend that, of course, we've seen over the last year as well. And again, Alex will touch on a few specifics there. Clearly, this is a very small quarter, therefore also our outlook for 2025 is unchanged, and I will give a few context around that later on. Let me now zoom in on both businesses, starting with the learning side. So learning, as highlighted, the net sales increased to 89 million in this seasonally small quarter, driven by the Netherlands and also driven by the digital sales growth, platform sales in Poland, which is mainly to do with our student information system we have there and also some exam preparation that is being provided to the students and parents directly. We also saw an improved operational EBIT. Again, of course, because it's quarter one, it's less loss effectively driven by the growing net sales, but also the first impacts of solar are visible in the cost base. And that results in the margin development that you see here on the slide as well. So a good start on learning, a lot more to come, and also a reminder for everybody that, of course, the phasing from quarter to quarter, that's both quarter one to quarter two, but also to quarter three, can depend quite a bit on earlier or later ordering from our customers. So that's something to keep in mind here as well. Let me now go to the media part. There we saw overall stable operational earnings. And the trends that we've seen for quite a while now continued, which is growth in the subscription sales, particularly, of course, driven by digital, Route 2+, continuing there so that's good to see and also the advertising sales are still decreasing particularly around tv print and and radio online continue to grow there and it's also good as a reminder that of course in these numbers we now also have the ending of the third party tv advertising deal we had so that's no longer in 25 revenue and it was in 24. it's at a lower profitability level but it's still there If you look at the operational EBIT, then that was, of course, supported by the elements that I just mentioned, especially the growing subscription sales, still also lower paper cost that's mainly driven by lower volumes. The lower advertising sales had obviously an adverse impact on our EBIT. And then Pia and the team, of course, continue to do a really good job when we look at operational efficiencies and keeping the cost, therefore, under control and optimizing that even further. A couple of words around the advertising market. In the broader context, of course, there's a lot going on if you look at the geopolitical situation. The US tariffs, as I've also highlighted in the quarter one report, is not impacting us directly. However, none of that, of course, helps for the economic situation also here in Finland, nor the sentiment around it. Therefore, we also see that the limited visibility we have in the advertising market, that the softness will continue, particularly in quarter two, and especially in comparison with quarter two 2024. So for the full year, our picture remains the same, but we do see that the advertising shifts between the half years might be more that some of the growth that we're seeing or improvement is more in the second half compared to the first half. And that links nicely to the outlook, which is unchanged. So we continue to say that it's between the 1.28 and 1.33 billion in revenue, clearly with quarter three for learning being the big quarter that will determine that mostly as well. And already the link with advertising, as I mentioned. Our operational EBIT between the 170 and 190 compared to the 180 from last year, so unchanged. Last comment here, just linking it back. On the learning side, this, of course, 2025 is the last year of the lower cycle in, for example, Spain, and we see growth particularly happening from 26 onwards. So for this year, our expectation is that overall a relatively stable learning content market. On the media side, we expect the advertising market to be relatively stable, but as I highlighted, more of the decline in the first half of the year and the stabilization more towards the second half of the year. So with that said, I would like to hand over to Alex to talk us through some more of the financials.

Thank you, Rob, and great to be with you here today for this Q1 presentation. So with the financials, let's start, as always, with the Q1 operational EBIT. Now, as Q1, it's similar to what you saw on the previous slide, so operational EBIT going from minus 24 last year to minus 19, so a 5 million improvement, primarily driven by the learning business. with the growth in the content sales in the Netherlands, which is partly driven by earlier ordering, and the increased digital platform sales in Poland. And together with we're seeing some impacts of solar visible in the cost base now, as Rob mentioned, we have substantially completed the tasks to have that program complete. In Media Finland, we have operational EBIT at a similar level to last year, which is the lower advertising sales being offset by continued growth in Ruta and the subscription sales, lower paper costs driven by volume, and then the ongoing improvement in operational efficiency to keep the costs managed and to keep the results in a good place. In terms of other and elimination, this is relatively similar to last year. And for a full year basis, we expect the 25 total to be the same as the full year 24 costs. If we move on to the financial table on the income statement, and first let's start with the items affecting comparability, the second line. And so there were four million in the first quarter of this year versus a credit of one and a half last year. Now last year we had a capital gain from some divestments of about five million. So if you exclude that, the IECs were relatively similar year on year. And the four million this year, about one million of it was related to solar. In terms of the overall EBIT, that gets the overall EBIT stable year on year with the improvement in the operational EBIT that you just saw being offset by the absence of that one-off positive in 2024. Net financial items are lower due to the lower amount of external debt. Average interest rates are slightly lower, but not that much lower. It's mainly the lower debt that's impacting that, which we can see on the next slide. where we continue to deleverage on a year-on-year basis. You can see their net debt down from 694 last year to 617, taking the adjusted EBIT leverage from 2.9 down to 2.4. Obviously, it goes up from December due to the fact that the... Free cash flow in the first quarter of the year is negative, as you'll see in a second. Equity ratio there at roughly 43, which is at the higher end of our long-term target range. And then finally here, as I said, the strong free cash flow improvement there, you can see the 12-month rolling average increasing up to past the 150 mark. So at Q1 2025, we were at minus 30 versus minus 44 last year. We saw the higher operational earnings that you saw, lower interest rates, but also continued positive working cash development on the learning side, optimising for inventory levels, optimising for for the receivables and those kind of hours, so feel good about that. So that gets us to a good, strong cash position for this quarter. And we expect, having gone up from 105 to 145 for the total of 2024 free cash, we expect to stay at those high levels, in fact, be a little bit higher in 2025. So with that, that finishes the slides. I'll invite my colleagues back with me to do the Q&A.

Thank you, Alex. Thank you, Rob. And we will now start the Q&A session. First, I would like to ask if there are any questions here at Sanamahaus. Samu from Nordea, please.

hi and thanks for the presentation probably first question regarding program solar because uh if if i remember correctly uh when the program was announced you said that that you would achieve run rate savings around 26 or by the end of 25 uh what you described now that the effects are already to be seen in q1 so does this mean that you are ahead of your original schedule or how would you elaborate that

Yeah, so maybe on that from a business point of view, we showed at the full year last year that we are slightly on track, slightly ahead of the percentages of actions taken. So that's one thing to consider. What we're highlighting is that all these decisions, of course, mostly will go into 2026. And Alex can elaborate a bit on that. how that works exactly from a financial point of view. But, of course, some elements are already visible. To give you one specific example, if you think about some of the reorganisations we have done, particularly in Spain, that has also resulted in lower people costs, of course, tough decisions, but needed. And that is partly, of course, reflected as well in the P&L.

Yes, indeed. And so, as we stated a couple of years ago, and I think beginning of 2023, we would basically take the run rate of expenses down by about 55 million, which generates the 23% margin in 2026. Two aspects of that were the reorganisations that Rob just talked about. A lot of the people, all the work there, A big part of that was being capitalized and then the savings would come through on lower depreciations over time. So that takes time to come through. And secondly, some of the efficiencies, a lot of efficiencies are about actually lowering the unit cost so that when the volumes go up, you get a higher margin. And so we only get that when the volume goes up next year. But as Rob says, where we have reorganized and the element of that where people was going into OPEX, we're starting to see that obviously lower from now.

All right, thank you very much. Then perhaps another question regarding acquisitions. Of course, we understand that the new strategy you presented in the last Capital Markets Day just a few years ago, but given that sizable acquisitions that at least you've made before, the due diligence processes for those tends to take some time. So probably my question is that

do you know already that what you're buying and is it going to happen around 2027 or later on so the first answer is we never comment of course on ongoing M&A I think it is important to highlight that it is indeed a very important part of our growth story going forward and you're absolutely correct that means that we are of course working very hard on that as we speak as well all right thanks

Thank you, Samu. And I will now hand over to the operator if there are any questions on the telephone line.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Sami Sakamis from Danske Bank Markets. Please go ahead.

Hello, can you hear me?

Yes.

Yes, okay. I have three questions. Firstly, starting from the positive timing impact of UR referring to app learning, can you give us more specific on what you're meaning with this into one?

Sorry, can you... The specifics of the timing of the ordering.

Oh, yes, indeed. So, as we say, we have growth, higher sales in the Netherlands, which we're saying is partly due to earlier ordering. Now, there isn't any one big particular order that's sort of come into Q1 from Q2. It's more... So, it's harder to tell specifically how much is early and how much is growth. We'll only really know that when the season's over. But we do see and believe that... a reasonable part of what we're seeing is going to be early and the other part be growth.

Okay and then I'll ask you for your comments on the Finnish macroeconomic situation, what are you seeing at the moment with the latest data points you have?

Yeah, I think it's fair to say that that is still a very soft market. So we do not see signs of improvement yet in that market overall. But also if I look at our own performance, which if you take out the third party, a deal is very much aligned with the market overall.

Okay, thanks. And then finally, regarding the Disney Corporation, I think you're saying that the earnings impact was limited in Q1, but maybe more pronounced later on in the year. Can you be more specific on this one?

Yes so overall in terms of the sales in 2024 we had 15 to 20 million in sales there which we don't have this year. This contract as a reseller is lower profitability than the rest of the advertising portfolio and that doesn't go exactly equally It's not that much of a difference between quarters, but it's maybe a million between the high and the low in terms of the profitability impact in the different quarters. So it was low impact profitability in Q1. It'll be higher in a number of the other quarters.

Okay, but it's not that your book order is not in Q4?

No, no.

Okay, thanks. I don't have any further questions.

There are no more questions at this time, so I hand the conference back to the speakers.

OK, thank you. The discussion has been lively on the chat, so we will continue with a few more questions. They are basically around three topics, some of them already touched, but maybe I start with the ones related to solar, so indeed we already discussed that a bit, but would you like to quantify the impact in Q1 and do you expect a similar impact in the coming quarters too?

So, I mean, I won't put an exact precise number on it. As I said before, at the end of the year, we'd finished 80% of the tasks. We're now above the 95%. It's starting to show in, you know, as Rob mentioned, the restructures we've seen. So we have a certain impact in Q1. We expect it to be in all quarters and growing, growing slightly as we're growing, growing sort of gradually as we go into the end of the year. so that we have the full impact that we set out to have in 2026. So it will accumulate.

Thank you. And then the other two topics are basically the advertising market in media Finland and then the learning business. So if I continue with learning... Sales in other regions, including for example Sweden, was weak now in the small quarter of Q1. Why was that?

Yeah, so this is actually a good example of where also phasing can go the other way. So this was actually mainly the Swedish market where we saw a phasing differently. So from that point of view, this comes back to the overall point that these are small quarters that also still counts for quarter two, as I mentioned, to maybe even phasing into quarter three. So it is all relatively small numbers where you can then see these changes. There's nothing from my perspective that can be read into that for the overall performance for the year. We are firmly on track with that.

Yes. Good. And then still one question on the phasing in learning. Was it also elsewhere than in the Netherlands?

No, it was primarily in the Netherlands that we saw the growth coming from early ordering.

And then the final one is on Poland, where the higher digital platform sales in the B2C channel drove growth. Could you please elaborate on that a bit? What are the products and services offered and does this sales contain recurring revenue items?

Yeah, so if you look at what happens in the Polish market, there you do see that the share of parents paying for certain services is increasing, which is partly a reflection of slightly different funding from the government. So in other words, parents pay more. In this particular case, keeping in mind, again, it's a small quarter, It is also around student information systems, so parents getting access to certain things, paying for that, but also with regard to exam preparation materials and things like that. So it's a variety of things, but it's around the point of actually selling directly to the parents and the students. And maybe to add to the point, is it recurring or not? Of course, this is towards parents. So there is an element of if that is the right kind of service for them, that is recurring.

Very good. And then moving forward to the advertising market in Finland still. The advertising market in Finland has been quite weak for a long period of time. What makes you think that it could improve in age two and how does it look like in Q2?

Yeah, I mean, let's be very clear on the fact that, of course, the visibility of all this is very limited, right? I mean, even in the quarter two, there is still quite a bit of uncertainty if you go more towards June, for example. So that is a big caveat to make. If we look at it, I mentioned quarter two being one where you also have slightly higher comparables compared to 2024. which is of course also to do with the fact that we've seen a certain phasing of our advertising revenue in 2024 and if we then look at what do we now expect for 25 we do expect a slightly different phasing and for in this particular case maybe more towards quarter three and quarter four if the point is around do we already see a real improvement in the finnish economy no we don't see that yet

Yes. And were the advertising sales in Q1 in line with your expectations?

Mostly, yes. They were maybe a little bit on the softer side, if you look at some elements of it. But overall, the trends, as I highlighted as well, on the digital growth and, of course, the decline in print, those were the same. Overall, of course, yeah, we don't see the improvement yet that, of course, everybody would like to see, but that's not the case yet.

Yes. So I think this concludes the questions on the chat, unless somebody still has more to come. No, nothing on the platform yet. Nothing from here. So with this, we would like to conclude the presentation by reminding you that the next quarterly report will be published end of July. And also, as a reminder, we held our AGM this morning, and the recording of the presentation from there by Rob, but also by Pia Kallsta, CEO of Media Finland, and Kirsi Harra-Vauhkonen, Managing Director of Sanoma Learning Nordics, is available on our website at the moment. So it also covers aspects, for example, what comes to AI in our businesses. And as said, recording of this presentation will also shortly become available on our website. And we continue to remain at your disposal at IR. So please contact us if you have any further questions. Thanks for the participation and wishing you a good afternoon.