Sanoma Oyj (SANOMA) Earnings Call Transcript

Good morning, everyone, and welcome to Sanoma's Third Quarter 2026 Results Presentation. My name is Kaisa Uurasmaa. I'm heading Investor Relations and Sustainability at Sanoma. We saw strong growth in our adjusted operating profit and have narrowed our earnings outlook for the full year to the higher end of the original range. And today, the President and CEO, Rob Kolkman; and CFO, Alex Green, will tell you more about the results. After the presentation, we will host a Q&A session. We will first take questions from the audience here at Sanoma House. Please use the microphone. We will then hand over to the telephone line, and you can also use the chat function in the webcast platform. After the event, a recording of the presentation and the Q&A session will be available on our website. With this, I would like to invite Rob on stage, please.

Thank you, Kaisa, and good morning, everyone. It is my pleasure to present the quarter 3 results to you this morning. Really strong growth in our adjusted operating profit, which is also reflected if you think about our year-on-year growth that you see here. So with the updated guidance to the higher end, we see the profit to grow between 14% and 20% this year. So really that step change that we have been indicating. And as usual, what I would like to do is say a few words about the business overall and then zoom in on Learning and Media, respectively, before handing over to Alex for more on the financials. So overall, we saw our net sales being stable. In Learning, that meant strong growth in content and platform sales, especially in Poland. And I'll touch on that, of course, more in a minute. In Media Finland, we very much saw the digital transformation to continue, and we saw the net sales decreasing mainly due to the lower advertising sales. Our adjusted operating profit, as indicated, grew strongly, driven by Learning, driven by the higher learning content sales in those largest markets, but also now benefiting from this increased scale, therefore, improved cost efficiencies. And also another good strong quarter in Media Finland with improvement there, driven also by Pia Kalsta and the team continuing doing a really good job on the cost containment as well. Free cash flow, Alex will touch on that a little bit more in a minute, but we expect that to grow moderately for the full year as we've been indicating also in the previous quarters. The deleveraging, as always is the case around this time of year, has now resumed in quarter 3. And as a reminder, the leverage is above last year's level, mainly due to the repayment of the hybrid bond with normal debt and also the Vicens Vives acquisition. Our net sales narrowing of the outlook is between EUR 1.30 billion and EUR 1.32 billion. And as indicated, our adjusted operating profit now to the higher end of our guidance, EUR 215 million to EUR 225 million, really indicating that step change in our growth. Let me now zoom in on Learning first. So results like this and growth like this, of course, come with a lot of hard work and a lot of new things we continuously bring to market. More than 60 new learning methods have been published and the sales have gone, of course, now really through quarter 3 mainly. Poland, standout performance there, really strong growth. Education reform, we really further strengthened our position in the market in Poland with a lot of new products coming to market there as well with a combination of print, digital learning experiences, also some virtual reality there. So really modern new methods that we bring to market in a big market for us that is Poland. The Netherlands continues to be a successful market for us with continuous growth, partly also zooming in on the new Dutch curriculum, the changes there. Math is a good example of that. And we also saw in the Netherlands another improvement, further increase in our market penetration. And then we also saw the launch of Sanna, our common brand for AI Teacher Assistant across 7 of our markets in Europe. So the one solution that we then roll out across our markets and really combining that trusted content, the pedagogical expertise to help teachers save time and also increasingly be able to do personalized learning. And that is co-created, as always, with teachers in the schools, so about 1,500 teachers participated in this specific sort of getting Sanna ready for the market. Let's now see what that means on the numbers for Learning. So strong growth in the Content & Platforms, especially in Poland. The net sales was EUR 667 million compared to EUR 658 million last year. 25% growth in Poland, that renewed offering being really well received, as I indicated, by teachers, but also supported by increased government textbook funding. So a really strong performance there in the Polish market. In Spain, we did see some late government funding decisions, and that ultimately resulted in teachers changing less of the materials than we originally anticipated. So what that effectively means is that they continue with, let's say, the old books in the classroom more than we thought some time ago. We also see in Spain that the sales cycle continued into October. So we also see some continued sales there in October. And the strong growth that you see here year-on-year is mainly driven by Vicens Vives. However, for the full year, because of the things that I've indicated, we also expect still the mid-single-digit revenue growth organically on -- in Spain as well. There's also solid growth in learning content sales in the Netherlands continuing on the back of what I just mentioned on a really good solid performance and new products we bring to market there, too. So we see that as a market where the teachers really do appreciate, continue to appreciate what we, of course, offer there and a high quality. In Italy, this is now the year before the curriculum renewal there. So we do see some higher share of secondhand market. Always very difficult to indicate exactly how much that will be, but you do see some effect here of teachers waiting before they go for new materials next year. So that means more secondhand market. What we also see, and that's always very difficult to predict in a market like ours is a more digital sales mix in the Netherlands and Belgium. So in other words, more blended learning solutions, more digital solutions that teachers are choosing to use from us. And that, of course, means in a pure revenue recognition point that, that is more spread out over the school year. So from quarter 3, more into quarter 4 and early next year even as well. So that's fundamentally what we see there. So strong position, strong growth, but more of a digital sales mix. And then last but not least, which very much is in line with what, of course, all of you know, we also now see the planned discontinuation of the low-value Dutch distribution contracts materializing in quarter 3 to the order of magnitude of about EUR 40 million, which we've said all along. And that strong growth underlying, of course, means that our strong earnings improvement is there, too. EUR 200 million versus EUR 183 million last year, driven by that higher sales in the largest market, particularly, of course, Poland and Spain. We also see now the benefits of the increased scale becoming visible with the net sales growth. So really also the margin improvement that you see here that step change is happening, and we really see this being well on track to be then clearly above 23% for the full year. And that is also with further improved operational efficiencies really benefiting there as well from higher volumes as well. Let me now zoom in on Media. In Media, we saw another quarter of adjusted earnings improvement. Sales, a couple of million up. Fundamentally, the digital transformation is, of course, continuing here. So that means if you look at it from our perspective, it is the stable subscription sales. But within that, it's growth in Ruutu+, it's growth in the Digital News Media subscriptions, and that is continuing to offset the decline in print. On advertising, we see the lower advertising mainly driven by TV and print. We do see some positive signs, of course, in the market overall getting more towards stable. But that, of course, remains the main uncertainty for us as well going into quarter 4. The thing to highlight here as well is really strong event sales for quarter 3 as well. So higher event sales, higher number of festival visitors, also a few individual concerts that really performed well. It's in line with what I said at the quarter 2 results, but even a little bit stronger there, too. So overall, that's very good to see. All this then leads to an improved adjusted operating profit, EUR 22 million versus EUR 20 million. So higher sales, the improved performance of events year-on-year. And of course, then the rest continues as well, including the lower paper printing distribution and also lower fixed costs on the back of Pia Kalsta and the team continuing to do this really great job on the cost containment. And then there are some higher TV programming costs, but that's mainly a timing factor, also resulting in continued improvement in our margins. Let me now say a few words on the narrowed outlook. So on the top line between EUR 1.30 billion and EUR 1.32 billion is the narrowing we've done there, of course, very much reflecting where we now are in the year with the learning main quarter behind us and also more visibility on media. Group adjusted operating profit to be at the higher end of our original guidance, so the EUR 215 million to the EUR 225 million, really indicating that step change in growth that we've been highlighting, of course, before. And then the assumptions, of course, they remain the same, but have now largely -- you can see them after 9 months, right? So the demand for learning content will increase, driven by those curriculum renewals in some of the group's operating markets. And you've seen that happening, particularly also, of course, in Poland and the advertising market in Finland to be relatively stable. As always, the key uncertainties for us that remain in quarter 4 is on the learning side, how will the sales season exactly finish, and that includes then, of course, the exact level of returns, particularly in markets like Spain and Italy. That's always the case. That's always a difficult one to exactly predict. So that can be a positive or a negative within this guidance. And the same, of course, applies for the advertising market in Finland. Where will that exactly end up in quarter 4? Again, that will then determine the higher or the lower end of the guidance. So with that said, let me now hand over to Alex to talk more through the financials, and then we'll come back for the Q&A.

Thank you, Rob, and good to be here with you again today. Let's start, as usual, with the Q3 profit earnings chart. So as you see here, a roughly 10% increase in profit overall, which you actually see as a percentage in both Media Finland and Learning, but in absolute terms, obviously, the vast majority coming from the Learning business and following through with the higher learning content sales, especially in Poland and Spain. And as we've talked through over quite a period, that increase in volume with the benefits of the scale and the improved operational efficiency is driving higher profitability. In Media Finland, as you saw in the earlier slide, so the higher results from the events with both higher sales and improved performance has driven growth along with the great cost management that's been done in that team and this offsetting the lower advertising sales and the timing of the TV programming, as Rob mentioned. So all in all, a good step change in profitability here in Q3. Looking at the overall finance table, you can see the earnings per share increased significantly with that adjusted operating profit flowing through. Just to touch on a couple of items. So on the IAC side, we see in here some costs related to the recent acquisitions, also restructuring provision. And then if you look down at the financial items, you can see that although the average interest rates on external loans is relatively stable, we do see an increase in cost here with the higher levels of debt, which I will talk through in a couple of slides' time. As you say here, the free cash flow. So overall, again, as Rob says, we expect -- we continue to expect a moderate increase year-on-year. So absolutely no change there. And as indicated earlier, we would be lower than last year. But you can see here on the slide on the bottom right, we've gone cash net positive with the free cash flow amounting to EUR 43 million. So you see on that lower slide that a large chunk of cash comes in, in Q3. And you can see there the results coming in, in the EBITDA. And then the working capital negative as a lot of that learning growth is going to be collected in Q4, that's why we see more of it coming in, in the back end of the year. You see also the impact of the investments, which is partially due to the TV programming spend timing between years. But overall, as I said, on track for the increase -- the moderate increase versus 2025. And here, we also highlight the second installment dividend paid and also when the third installment will be paid. So looking at leverage. So firstly, we are deleveraging versus the sort of seasonal peak in June with the positive cash flow, so pulling us down to 2.7. So in absolute levels of debt terms, we're at EUR 716 million versus the EUR 536 million last year. So 3 reasons for that. So one is the repayment of the hybrid bond as the debt goes -- part of that debt moves to normal loans. Also the acquisitions of not just Vicens Vives, also Fluentbe. And also, we've extended some of our leases here in Finland to do with the Sanomatalo building and also our printing plant. So having had good extensions to those leases, that increases the lease liability that as well as the right-of-use assets on the other side of the balance sheet, such as purely a balance sheet adjustment, but that does increase the debt. However, as we go into the end of the year with the positive cash flow that I've just been talking about with the collections, that number of 2.7 will come below the target, continuing that trend to be lower than the 2.5 at the end of the year. And then finally, here, we continue to -- I'll be very grateful for the recognition we're getting for our ESG progress. Sustainability continues to be a key factor for all of us at Sanoma, and we're delighted to see that we're seeing that recognition. And with that, I will invite my colleagues back on stage for the Q&A.

Thank you, Alex. Thank you, Rob. And we will start with questions from here at Sanoma House. Nikko from SEB.

This is Nikko Ruokangas from SEB. I have a couple of questions, and I'd like to start with Spain and postponed sales or funding decisions there. So can you give us some kind of estimate that how much do you think that was the impact of postponed funding decisions? And how is that divided between kind of sales being postponed to Q4 and how much of not being renewed this year at all? And I guess that there was at least some grades of renewals not being done in Madrid area due to this late decision?

That is correct. Let me take this one. So I mentioned in my presentation as well that for the full year, we're expecting a mid-single-digit, let's say, organic growth still, which would indicate about EUR 4 million, EUR 5 million around that level, with the uncertainty, of course, being around how will the sales season exactly, of course, pan out with my comment on the returns being in Spain and Italy, the main uncertainties of that. That's one part of it. I think if you were purely to look at our expectations, then there would at least be a few more percentage points growth if Madrid and a couple of others would have changed more than they now ended up doing. But the exact outcome of that is a full year picture. It is always difficult to see that between the quarters.

Okay. And that concerns the whole Learning, not only Spain?

The EUR 4 million, EUR 5 million is specifically on the Spanish side, the indication which would flow into quarter 4. But then, of course, the key question is or uncertainty remains around the returns.

Yes. And then on maybe for Alex, same topic, do you see possibility that some cash flow will be postponed to Q1 next year due to this change in timing?

So not significantly, no. In fact, I'm expecting most of this to come in, in Q4, as we say, the sales period continues to October, not through the entire quarter. So there's still time there to collect the vast majority of that in. So no, I'm not expecting a significant change there.

All right. Then on the sales guidance, you narrowed the EBIT guidance to the upper end, but then you shaved some from the sales guidance. So does the kind of shaving from the upper end of sales guidance reflect more maybe weaker advertising market for the whole year or this kind of postponements in Spain?

Yes. I think -- I mean, obviously, if we look at the total picture, right, that's where this is coming from. But you are absolutely right that the advertising market, if you compare it with the beginning of the year has, of course, been -- if you compare to the higher end, has been softer than that. So that's a big factor in that. And of course, we do look now at, for example, the strong performance in Poland, the slightly less strong performance in Spain also being taken into account. But the media advertising is definitely a key element of that.

And then we will hand over to Petri from Inderes, please.

Thinking about the Dutch distribution revenues, it's been coming down as planned. Can you remind us on what level is the revenues now? And are you expecting it to come down more next year?

So we're now -- for the full year 2026, it's now down just to a few million. So this is kind of the end of this story really. So no big -- just the remaining bit, but that's small.

Sure. Then on the festival business, I recall we've been talking about the margins not maybe being satisfactory in the past. Now we've seen a clear margin improvement in Media Finland. Does this have something to do with the festival business? You mentioned that there were more people going to the events.

If you look at it year-on-year, absolutely. The festivals last year were, of course, high-quality festivals. But from a financial point of view, not successful. This year, I think we are very pleased with the quality of the events, but also with the financial performance. So logically speaking, although it's a relatively small part of the business, but it has a positive impact on our overall margins as well.

Would you be willing to comment on the impact on the overall segment margin? Is it margin dilutive or...

I'm not commenting on that. No.

And we have more questions from Sanoma House. Sanna from Nordea, please.

Sanna Perala from Nordea. I'm going to continue on Nikko's question regarding Spain. Just to clarify, the postponed government funding decisions, does it mean that these orders will be delayed or some of it will not come at all?