Sanoma Oyj (SANOMA) Earnings Call Transcript & Summary

Sanoma published Q4 and full year 2021 results last Friday. And with me here, I have Sanoma's CEO, Susan Duinhoven.If we start looking back at 2021, how would you grade Sanoma's financial performance and strategic execution?

Yes. I must say, I was quite happy with 2021, how it's all in all played out. I think it was a good year for Sanoma, with very strong growth, both on the net sales and on the profitability. And what we were -- particularly proud of is the organic growth. The growth through acquisition, of course, the Santillana acquisition played well to our growth. But the organic growth of 7% in both businesses, both Learning and Media Finland, we were very happy with. And achieved the resilience of this business throughout the whole of the corona pandemic. That we've managed to get through and also with good improved profitability. If you look at the strategic execution, then for us, it was, of course, particularly important to have these integrations of recent acquisitions done well. And we see good progress in that, both in Santillana, but also in Media Finland, where we have now fully integrated the regional news business. So all in all, continued progress on the digital digitalization, Helsingin Sanomat growing a number of subscriptions due to growing a number of subscriptions. So yes, we're very happy with the progress we have been able to make and ready for the good start of 2022.

Sounds good. You mentioned the synergies and the regional media business and the integration part. If we think about the synergies you are targeting here and the overall performance of the regional media, how do you see it being performing likely?

Yes. I think we're very happy with that business. We acquired it, of course, in order to gain more scale in the digital subscriptions in news, and that it clearly does. So we see good subscription levels there. And the synergies that you indicated were very significant. And I know that many of the analysts have asked repeatedly like, are you certain that you're going to make those synergies. And we did. We managed last year to exceed the target of EUR 13 million annually, exceed that even a little bit and we see that now in 2022, fully in our numbers. So we're happy with the integration and happy with the progress of that business. But of course, it was impacted by corona, at least on the advertising side. There, of course, there was no avoiding that the printed part of the business, the print advertising did get, yes, its usual decline.

Right. Right. Then looking at this year's guidance, you guided for EUR 1.25 billion to EUR 1.30 billion revenues, and 15% to 16% operating margin, excluding PPA. Can you walk us through the assumptions behind the guidance? And how do you see the overall market situation in both businesses?

Yes. Yes. I think we -- as we just discussed, 2021 was a good year for us, and we see 2022 again being a good year. And that's our guidance, that we stay at that high level of profitability and also continue a little bit with upward growth. But it is important to realize that in the -- specifically the learning business, you have trends, curriculum trends. And there, we see that 2022 in Poland will be a year where we decline a bit. And then in Spain, we will show significant uplift, we expect due to the new law that is being introduced there and the curriculum change related. So we see those 2 canceling each other out. So being -- because of those 2 changes, quite stable. If we then look at the media business, there, we expect that the advertising market will be again good this year. So at the same level of 2021. And that some people might say, yes, but are you not expecting a bit more growth there? Because last year and was good and the start of the year is also good. But there, we say that the uncertainty in those advertising markets is still high and that some sectors might be impacted by still supply chain issues, but also shortage in personnel. And that might hinder their willingness and need to advertise. So that's where we see that even though the general economy might be expected to be quite positive, that the advertising might be stable versus last year. So those are 2 key assumptions. And then when we look at our cost, we do see that paper and print will be quite a bit more expensive in 2022 than it was in 2021. And that is roughly EUR 10 million for the 2 businesses combined, almost equally split between those 2, between Learning and Media Finland. And we think this is only a temporary impact, that over time we will be able to translate higher cost base into our price levels. But that will take a bit of time. So therefore, in 2022, we still expect some margin pressure for that. And then towards 2023, that will slowly disappear and be translated in pricing. So that's the underlying assumptions under 2022.

Very good. I think we are seeing the very broad cost inflation practically everywhere. If we think more on Media Finland, I think this is more of a bigger trend. But I think everyone is hopeful that the pandemic will be over soon. Do you expect this to have some kind of impact on the content side of demand in the longer run?

Yes, that's a good question. We have seen, of course, in -- specifically in 2020, we saw an enormous peak in news consumption and also in -- a peak in subscriptions. That has now come back to a more normal level. So we have [ godown ], for example, in 2021, 1% year-on-year in number of subscriptions. Still good growth, but not as much as we saw in 2020. So I fear, I must say that 2022 will still be quite a news year -- and maybe they're not pandemic, but there will be all sorts of other news events that will reinforce the need for good quality curated news. So I think it will be something of the future years that we will see strong news consumption. The other element that was, of course, positively impacted was Ruutu and Ruutu+. The need for entertainment was very high when people were sitting inside. That we also expect to come back to more normal levels. So we had also some windfalls, let's say, from the pandemic that will now come back to more regular levels of growth.

Yes. Then jumping on to Learning. I think it's fair to say that the pandemic accelerated digitalization, basically everywhere. If we think about the education sector, it's been somewhat slow to change maybe in the past. How do you see the trends going forward? Would you expect the accelerated rate of change to persist? Or should we expect some slowdown maybe in the future?

Yes, that is hard to say because I think if you imagine yourself a teacher with 25 kids in the classroom, it creates a bit of sort of weariness of big changes. They don't want big changes going far. So I think the teachers -- the level of digitalization that we have seen now, that will persist. People have gotten used to it, have gotten comfortable with it. And both teachers and children are now used to all the digital platforms and actively using it. But at the same time, I do think that our hybrid solution, so the combination of books and digital -- our digital for example, is heavily used for exercises and the books are maybe often used for text education and reading the textbooks. I think that hybrid solution is quite optimal for a teacher. So once the children are back in the classroom, we also do expect those practices to come back to that hybrid use. But of course, the teachers that were maybe a couple of years ago very reluctant to do any digital at all, they have now learned and they have now seen the benefits of it, and I don't think they will return to their old practices. But these are -- in learning, things don't go fast overnight. It is a stepwise process of change.

Yes, step by step. Then another interesting topic. M&A, you've said that you have EUR 300 million to EUR 400 million to use for acquisitions or headroom, so to say. How does your M&A pipeline look like? Can you tell something about that?

Yes. That's always tempting, of course, to tell about that. But we, of course, only do that once if something is really clear. But it is safe to say that we have a very active pipeline and there are many interesting opportunities to grow our Learning business further. So we are working on that as we speak. And we're very comfortable, let's say, with the pipeline that we have and very interesting opportunities to work on. So we definitely -- as I said on last Friday, keep watching this channel and something will come out of that.

Very good to see when it comes. Maybe just another thought on the M&A. I mean, we've seen the stock markets being very volatile. First, a big run up in the last year and then maybe some cooling off now. Are the valuations something that change in the private market? Also, is it easier to negotiate and be on the same page, so to say, with the sellers if the public markets go up and down?

Yes. Yes, I think that -- the good thing about Learning businesses is they are quite stable. And they are quite foreseeable and very good cash generative. And that, of course, then also leads to prices that -- and valuations that do not fluctuate that much for exactly that same reason. That also makes -- that Sanoma as an investment is good and solid, with now close to 70% of our earnings coming out of Learning. But that also means that in the M&A, there will not be very quickly, very cheap opportunities to come about because, yes, these are very solid, good cash-generative businesses.

That's understandable. My last question would be -- what would you say are the key themes, I mean investors interested in Sanoma should follow closely this year 2022?

Yes. I think 2022 will again be a year of good cash generation and good cash generation, as you've seen over the last years also leads to good dividend. So when we look at what the Board has decided to issue EUR 0.54 in dividend for the coming year split into 2 parts. That is a trend that we see is an important part of our equity story. And there -- therefore, also going forward, Sanoma aims to deliver increasing dividends to its shareholders. On top of that, I think you see that a solid business. And I think particularly also the Learning, of course, but there you might expect it. But also the media business was done very well through the past years. And if you look at that with 2 years of corona, you've seen constant increase in sales and in profitability. So all in all, I think a very resilient business. And then, of course, the acquisitions give also the shareholders an opportunity to be part of a larger company of even more towards learning, even more towards a stable part and cash generative part of the business. So I think Sanoma, in that perspective, a good future growth opportunities with a solid dividend yield.

That's very clear. Thank you for your time.

You're very welcome.