Sanoma Oyj (SANOMA) Earnings Call Transcript & Summary

[Foreign Language] Warm welcome to President and CEO, Rob Kolkman, from Sanoma.

Thank you. Thank you very much. Good evening, everybody. It is my great pleasure to introduce Sanoma to you today. When I say introduce, I'm pretty sure that all of you have a view on Sanoma and what we do. And the reason I say that is because here in Finland, we reach about 97% of all of you in Finland on a weekly basis with our newspapers, with our entertainment and also with a lot of other products that you see very much here on the right-hand side of this slide. So Helsingin Sanomat, Ilta-Sanomat, but also Ruutu and several other products, as you can see here. What you might not know as well is that, if you were to go into a classroom in a lot of countries now in Europe, the chances are that you will meet a teacher in primary education, in secondary education, who teaches the children with products that are being produced and developed by us, by Sanoma. And that very much goes to the core of the transformation that we are going through and have gone through as an organization over the last 5 to 10 years. And that very much has led to the situation that we are now in, where we are a leading European K12 learning company. And what I would like to do today is bring that a bit more to life for you. Let me first do that as we are, of course, here in an investor environment with some of the key metrics that you can see. So when I talk about that transformation, if you look at the operational EBIT profit, we actually are now almost 80% profit coming from that learning part of the business. So that has been a real transformation that we have gone through. On the revenue side, it is 57%, and it's 79% on profit. If you look at our core position that we have in our K12 learning company, you see a few key characteristics here. The first one being that on a daily basis throughout the school year, we reach approximately 25 million students across Europe. So that means on a day-to-day basis, we support their teachers to make sure that they can reach their full potential, really reach the next stage of their education. And we do that in countries like Finland and Sweden, but also in the Netherlands, Spain, Italy and Poland, with leading positions in those markets, mostly #1, #2 position. In the K12 market, so the core education market, we characterize as very stable and resilient markets, which we've also seen over the last few years, which means that the investment in that market, of course, driven by government funding is continuing to grow because all countries that we operate in see education as a core importance to invest in longer term. And it's also not easy to operate in those markets. You really need to be close to the students, to the schools on a day-to-day basis, which creates what we consider high barriers to entry, so attractive proposition from an investment point of view. At the same time, if you go to the media side of the business, we are, of course, very, very proud of the great heritage that we have with our media company here in Finland. It is a great honor to make a difference in the lives of every day of the people with regard to news and entertainment and the things we do there. If you would put that a bit more into numbers, then you see that we have over 900,000 subscriptions that have some kind of digital component already to it, which on 2.7 million households, country is actually quite a lot. And the other thing that you might not realize is that if you think about advertising, also that has a real transition to digital there, and the actual print advertising is less than 10% of our media net sales these days. And of course, with the growth of subscriptions, that will only go down further. And here at the bottom, you also see a couple of the key financial characteristics. One of them also being that dividend plays an important role in our equity story to the market. It has always done, and it will continue to do so. Let me briefly zoom in a bit more on the media side and the way we look at that business and how we also manage that. We see pretty much 2 clear paths to it, which is the news and feature, and the entertainment. If you think about news and feature, the fundamental part of that is the subscription part, which is a subscription, for example, to Helsingin Sanomat, and that is the transition there. And you, as an audience, might yourself notice that on a day-to-day basis, where increasingly, of course, it is not just print, but it's print together with the digital component as well. And then you see on the entertainment side, where also increasingly, the transition is towards paid subscriptions. In other words, paying for solutions like Ruutu+ here in the Finnish market. But those are all very strong stand-alone brand names that we have. And we see a lot of potential in years to come, and we're already doing that with further combination of these products. In other words, real bundling opportunities for us there, because of also the really great reach we have in the market. So that leads to that 97% of reach within Finland on a weekly basis. Let me now bring to life a bit more what we do on education. So first of all, the term K12. K12 really stands for the foundational years of education. So think of a child that starts around 4, 5 years of age all the way to 18. So really, the core primary, secondary education, vocation as well, depending on what path the child chooses. And our role is very much to support the teachers to help the students reach their potential. And that means going back to stepping into a classroom pretty much anywhere in Europe that you would see that teacher using our books, our content, but also our digital exercises, our digital platforms, and increasingly very much a combination of the two. And teachers do not change every year. They typically, in all markets, keep that for 4 to 8 years. So that's a very sticky market. Once you are in those markets, they really tend to stay for a long time. And that, of course, from a position -- market position point of view, is a great strength as we see it. The other thing, and I don't have the time to go into detail, but the other fundamental part that is happening across Europe is that there is increasingly a shortage of teachers. It's slightly less sort of case at the moment in Finland, so you might not feel that as much, but it is also starting to happen here, and this is definitely the case in all our other markets. And what that fundamentally means is that the more we can help the teachers to be more efficient, to be helped in whatever way we can, that means that the teachers that are there have more time to spend with the children to really support the children, which is, of course, what it's all about for the school system. And what we offer effectively is only a very small part of the overall spend on education, 1% to 3%. So that is also to put that in perspective. And then the last point here is around our impact on learning outcomes. So with the solutions and methods, whether it's in math or in languages or in all the subjects, this really helps the content we provide and the methods we provide really support the teachers so that there are better outcomes for the children. So that very much comes out of all kind of research that is being done, and that towards those roughly 25 million students across Europe. And we really believe in the point that it is a blended approach. So you might have heard a lot of talk about a survey, what's called the [indiscernible] results, where there's a lot of talk, not just in Finland, across all the European countries around, it has gone too far maybe around the digital side. We strongly believe in finding the right kind of combination of print and digital. And that can depend on the infrastructure in the country. A situation in Poland, for example, is very different from what you have here in Finland or what you could see in the Netherlands. But it can also depend on political views, on what you want with technology in the classroom. But fundamentally, it's about finding that right mix of print and digital. And effectively, in all our markets, it -- very minimum, it's these days a print book with a digital version, but you can also go to market, particularly Belgium, Netherlands, where it has gone much more completely blended, where a lot of the exercises you do as a child are done online. And effectively, we are ready with the solutions that we have to introduce that in all the markets that are also willing and able to do that. And of course, there's a lot of support here for the teachers to make sure that they can do that in the best possible way. If you then link it to another topic that, of course, comes up a lot, and understandably so, that is around sustainability. And in both our businesses, we really have a unique profile in that way. We do impact in one way or the other, the lives of millions of people via the news and via the entertainment, but of course, very much also via the learning that I just explained on a day-to-day basis. In learning, we call that the inclusive learning proposition that we have. So really trying to make sure that all the content we offer is really there for children with different abilities so that we really make sure we can reach all of them. And we also have the ambitious climate targets. Clearly, as a company, we are not that -- the pollution element of it is less, although there are elements there, too, but we are really looking at, what you can see here, the climate-based, science-based targets that we have adopted there with clear targets towards 2030. And we think that is a very important part of our story as well. And that results, of course, in quite a lot of different kind of recognitions for that, that we are proud of and that we are also continuous to work on to see how we can improve that further. Let me then bring it back to the financials and also from an investment point of view. We have grown the business a lot over the last few years, particularly on the learning side, also with acquisitions. And we are now at that point where we can really benefit from that scale as well. So the focus very much is also on further increasing the profitability. And in learning that specifically goes towards the target that we have set ourselves to go from the 18.7% you saw for '23 to over 23% in 2026. The Media Finland side, it is very much a digital transformation that is happening. So the focus there is less on top line growth. The focus there is on making sure that you really make that transition to sustainable, profitable business models, which are increasingly, of course, digital and a combination of print and digital with clear financial targets there, too. And with all that also comes to further strengthening of the balance sheet, combining that with a very clear, continued focus on dividend, which, as you can see here, is that 40% to 60% of the free cash flow, which very much is a continued focus for us as an organization. So with that, what I consider a very great purpose as an organization, where we, through learning and media, really have the positive impact on the lives of people every day and students, we also have clear kind of ambition targets going forward. And the first one is around the growth. We really want to continue the growth that we have seen over the last few years in learning to make sure that continues going forward, that is both organic growth as well as M&A. So that's very much the focus there. Given the current economic climate, the focus in the short term is more on what we consider additional businesses that we can add to our existing markets, that could be here in Finland, but also especially in markets that are more fragmented throughout Europe and the bigger acquisitions again also in years to come. The other key investment target is around the profitability improvement, further improvement on the learning side to over 23%. And that really is supported by that increased scale. We now have an organization on the learning side that is of a scale that is not being seeing in Europe. And we also -- with all the parts of the organization, we have a lot of opportunity to work closer together, to do joint method creation, to have joint digital platforms, and that's very much the day-to-day work that is happening in our organization. And last but not least, particularly also here, I would like to highlight that, that also the dividend continues to be a very important part of our equity story with that payout ratio of the 40% to 60% that I mentioned. So there's a lot more to say, but that we have limited time, so I would leave it at that and then zoom in on the Q&A. Thank you very much.

Thank you, Rob. And now it's time for questions. [Foreign Language]. And first, before we get to the questions to the people who have sent like, you just started as CEO in the change of the year, and you worked for Sanoma for several years already. But as a CEO, is there something that was new or surprising to you? And like what now, what do you want to do?

Yes, very good. As you say, I was at Sanoma already for 5 years. I started in the media side in the Netherlands and then moved to learning quite quickly after that. So the new parts for me are, of course, around meeting also investors, but also getting to know better, even better, the media side, and understanding even better the elements there. But for me, the purpose of Sanoma is what makes it really exciting. That point on influencing and having an impact on people. It's great to see that here in Finland on a day-to-day basis, but also in learning across Europe. So it's just very motivating to be part of that.

And actually, as you guess, like many of the questions also have to do with like Sanoma being so influential, and people are so interested in what Sanoma is doing. We start with the question that someone is asking -- that the person is asking the question is feeling that Helsingin Sanomat -- they think that Helsingin Sanomat has a strong political bias towards the left. And they're asking, does it really maximize the shareholder returns? Or should this be changed somehow? So as the CEO, do you have an influence on what is -- how the magazine, how the newspaper decides to position themselves? And is there a discussion about it? Or is that something that's like -- that it's not really on the table of the CEO?

It's not on the table of the CEO for good reasons, I think, because the true element there is the independent, strong journalism. And I'm pleased with people having an opinion on that, one way or the other. Of course, at the end of the day, the way it goes from a business point of view, but that's a Board decision is, let's say, the Editor-in-Chief, but I strongly believe the Editor-in-Chief needs all the support in this case that she can get to then develop their own kind of editorial standards, which they are doing.

And about a similar topic, the person is asking, is the state-owned Finnish news broadcasting company, is that considered a threat to Sanoma?

I think -- the way I look at that is there is a place and a role for a good and strong public media company as well. But I also think there's a really strong role for us to play there. And there will constantly be, let's say, a bit more attention on what is the role of a publicly-funded company or not, but that's a healthy debate to have.

And about learning, someone is going to ask -- is asking, when will you fix Kampus Sanoma Pro? Like someone -- perhaps who is using. And then another person is asking, is Sanoma going to increase the cost of educational material over time to achieve greater profits? And how is that going to work out?

Yes. It's a good point. Maybe to tackle the second one first. When there was a big inflation increase over the last few years, we've said all along, we are, over time, adapting our prices to reflect the higher costs, like, for example, our printing costs went up by something like 80%. But we try to do that in a responsible and considerate way, meaning, we have said all along, it will take us a few years to adapt to the new situation. So I think that's the way to do it and also to work with -- in a government and publicly-funded environment.

So little by little.

Yes. And on the first one, I mean, we constantly strive to improve the products there further, yes.

Then let's take -- there is a question about, is traditional side newspapers and so forth going to be decreasing and K12 increasing?

Yes. If you think, for us, as a business, you saw it in the overview, almost 80% of our results now come from the learning side. And with the ambition we have, we think that will continue to be the case. I think, for us, we are very proud of the heritage we have on the media side. It continues to be a very important part of our business. But if you look, logically speaking, then learning will become more important as part of the business.

Then there's a question about, do you think AI will change either learning or media industries? And how is Sanoma adopting this change? Artificial Intelligence, what do you think?

Yes. AI is a fantastic topic. And I mean, you could spend an hour talking about that. But there's a lot of opportunities there, both on the media side and on the learning side. Just to give you a real quick example of it. If you think about personalized learning, so really trying to help a child on a more individual basis, and to support the teachers doing that, AI gives phenomenal opportunities. But it comes with a big responsibility to do it in the right way and also not to, so to speak, pigeonhole children too early on. So there's a lot of opportunities there, besides the points around you can create content more efficiently, you can do all kind of things there. But it has to be done in a responsible way.

Then the previous year, was also asked about their favorite food, and now you're receiving the same question. Somehow that's important for some people as investors, like making their investment decision. So they're asking, what is your favorite Finnish food? Like is there something that you could choose?

Well, I really enjoy all sort of -- out of the seafood type things, but also, I did not know how many different versions of Salmon there are in the world until I went to Finland. So that was really good to see.

And then let's take a couple more. They say, you have done a lot of M&A in the past and planned to do in the future, how successfully have you bidded down your acquisitions? And can you give us an example? But basically, about mergers and acquisitions, like we know Sanoma has done a lot. Like you've a little bit changed focus doing that, so how do you see going forward?

Yes. I think as I highlighted, I think mergers and acquisition will continue to be an important part of our further growth in learning. Also because if you look at it slightly broader in Europe, it is a very, very fragmented market still across Europe. So we see a lot of opportunities there to the point of has that gone well or not well, I think we can point particularly in Spain and Italy to very successful acquisitions that we have done and that we have fully integrated as well. Always comes with, let's say, a bit of risk as well, and we know that, and we also factored that in when we do our integration plans. I think we've become quite accustomed now to do that in the best possible way.

There's someone here is like looking forward to having better audio book versions of the textbooks in terms of learning. Like is something like that coming?

Yes, we actually invest a lot in what I would call the inclusive learning solutions. That is also something that everybody over time will see more and more because the regulations become even stricter to make sure that new products you launch, I think, from '26 onwards, need to have that inclusive part to it. Talking about AI, AI helps a lot with that, too. It makes it a lot easier to do quicker kind of also audio books in that way, which is good news for all the users.

Thank you so much. And before we end with you, like let me just tell everybody here that actually, we also have a lot of IR representatives from companies present, like so during the break, if you want to ask questions, like you can go ask the CEOs or you can ask also the investment -- Investor Relations professionals from the companies. So from Mandatum, we have Lotta Borgstrom; from Sanoma, we have Kaisa Uurasmaa, and then from Wartsila, we have [indiscernible]. [Foreign Language]. Rob, thank you to you, Rob Kolkman.

My pleasure. Thank you.

And we'll be having a 20 minute break. After which, we are going to hear from Wartsila CEO, Hakan Agnevall.