Springer Nature AG & Co. KGaA (SPG) Earnings Call Transcript & Summary

Welcome to the Springer Nature Investor Conference Call for the First Half of 2026. The conference will be recorded. [Operator Instructions] Let me now turn the floor over to your host, Tom Waldron, Head of Investor Relations.

Thank you, Karissa. Good afternoon, everyone. Welcome to the Springer Nature H1 2026 Results Call. I'm Tom Waldron, Head of Investor Relations. Today's presentation will have the following structure. Frank will start with a business update, followed by Alexandra with a review of our H1 2026 financials, before we move to Q&A. Before handing over, let me briefly remind you, for revenues and adjusted operating profit, we present figures based on actual currency rates and portfolio composition and underlying growth rates, which exclude currency and portfolio effects to ensure for a like-for-like comparison. Our financial guidance for 2026 is based on the expected underlying performance of the business, excluding FX and portfolio changes. When growth rates are mentioned in this presentation, they are underlying unless otherwise specified. With that, I will now hand over to Frank.

Yes. Thank you, Tom, and a warm welcome from my side. Let's start with the highlights. Our results show continued good progress with revenue growing by 6% in underlying terms and AOP increasing by 8%. Our Research segment continues to be the main growth driver with strong performance across our journal portfolios. Growth was again driven by our leadership in Open Access and our investments in technology and AI. We've delivered another strong cash flow performance with leverage well within our target range even after paying out 2025 EUR 0.83 dividend in June. Given the strong first half performance and the visibility we have into the remainder of the year, we have updated our guidance. And we now expect '26 underlying growth of around 6%, and we expect AOP margin to improve at least 30 basis points in underlying terms. As a reminder, Springer Nature operates in three attractive markets where we hold strong positions. As you can see, Research remains by far our largest segment. And in H1 2026, it represented almost 80% of group revenue and more than 90% of adjusted operating profit. This reflects the scale, quality and resilience of our Research portfolio. We're the second largest publisher of academic journals by some distance. We have the largest share of the top 50 journals by Impact Factor, and we're the world's largest publisher of academic books. Around 60% of the revenue we generate in research is contracted in agreements, which typically have a 3- to 5-year duration. Before turning to a business update, I'd like to share some recent examples of research from across our journals. Together, these studies showcase the breadth of the research ecosystem we support. They also show the impact that high-quality, trusted research can have across disciplines and society. First, researchers at Sony AI published a paper on their robotic system, ACE, which is capable of outperforming elite table tennis players in open play. Like most research, this paper was the result of several years of work by the research team. And if you follow my LinkedIn profile, you may know that I was able to have a go at playing ACE during a visit to Sony's Computer Science Laboratories in Japan last year. And just for clarity, I don't -- I wouldn't call myself an elite table tennis player, so I think ACE had an easy go there. I managed, however, to win a couple of points. I guess the robot needed a little bit of oil in there, but it was a pretty one-sided match. It was a powerful reminder of the pace of progress and the way in which AI and robotics is shaping science. Second, researchers published findings in BMC Microbiome, showing the remains of Otzi, the Iceman still harbor living ancient microbes dating back thousands of years, including ancient yeast. The research generated quite a lot of press coverage, particularly when they also revealed that they had cultivated that 5,000-year-old yeast and used it to bake a loaf of bread. No mention of how it tasted. And thirdly, from scientific reports, a paper showing that shrinking sea ice in Svalbard has unexpectedly improved the health of polar bears, although the researchers caution that this benefit may only be temporary. More than 80% of the research that we publish contains original, primary research insights of the kinds you see in these papers. That verified, trusted knowledge plays a vital role in advancing human progress. Let's now move on to the performance of our different segments in the first half, starting with Research. Research delivered another strong performance. Revenue increased by 7% in underlying terms, while adjusted operating profit grew by 8%. The 2026 renewal season is complete with an almost 100% retention rate. Growth in our Journals portfolio was broad-based across our full Open Access, Nature and Springer portfolios. And our article publication growth of 13% continued to outpace the market, which we estimate grew at around 8% in the first half. Submission growth at 30% has continued at similar levels seen last year, with good growth seen across the portfolio and across all major regions. We continue to drive Open Access adoption. We signed 19 new transformative agreements, bringing the total to more than 100 and covering more than 4,500 institutions. During H1, we also launched 39 new journals, including Nature Process Oncology, Scientific Reviews, BMC Sustainability and Discover Telecommunications. Whilst growing our publication volumes, we have also increased the impact of our portfolio as nearly 2/3 of our journals recorded an increase in Impact Factor in Clarivate's JCR report for 2025. Our growth in journals is being supported by the AI strategy we outlined in our full year presentation in March and at our recent investor tech event. SNAPP, our AI-enabled article processing platform, continues to onboard new journals. And year-to-date, over 60% of our submissions have been processed through SNAPP. For example, our Journal Finder brings new authors to Springer Nature, and our AI tools are helping editors find the right reviews faster. Our transfer recommender is ensuring that good papers rejected on grounds of scope are retained within our ecosystem. And also, AI tools are helping our teams ensure research integrity across the portfolio. Nature Research Assistant, our AI tool for researchers, introduced Manuscript Adviser to users. We continue to receive very positive feedback from a large group of beta testers with customer satisfaction levels well over 80%. And as you may have seen, yesterday, we announced an ARC3 partnership. These partnerships give researchers, clinicians and R&D teams access to our trusted scientific content with an AI-powered environment. They represent the next step in the evolution of our long-standing text and data mining businesses. And in books, revenue grew with positive phasing in digital products. And a particularly exciting milestone for our books business was the launch of Nature Books in July, combining the strength of the Nature brand with our leading position in this market. Research AOP grew faster than revenue, reflecting operating leverage and ongoing efficiency improvements. And finally, during H1, we announced the disposal of our consumer media business, further increasing our focus in the core Research segment. Let's now turn to the development in our other two segments, Health and Education. Turning first to Health. We saw revenues and AOP increased by 1%. Revenue growth was led by the DACH market. Overall performance reflected a difficult comparison in the Netherlands and a challenging environment for pharma marketing spend in international health care. Turning to Education. Revenue and AOP increased by 4% with a strong performance in the Southern Africa, including good growth in Zimbabwe. Performance also benefited from growth in India and favorable phasing in Western Europe. So we delivered a good growth performance in Education in H1 despite the fact that last year, we benefited from a large government order in Argentina in H1. And before I hand over to Alexandra, I'd like to pause to review one part of our Journals portfolio in a little bit more depth, our full Open Access journals. Open Access continues to create value for researchers, institutions and funders by increasing visibility, accessibility and impact. And as we have mentioned before, papers published called Open Access has 6 times more downloads, 1.6 times more citations, and they get 5 times as much public attention when compared to non-Open Access articles. Our market-leading full Open Access Journal portfolio is broad because it's covering all research areas, and it's deep because it covers all Impact Factor ranges. It now compromises over 800 journals and continues to expand. Across the portfolio, quality metrics improved -- continued to improve year-on-year in 2025. We have approximately 18% article share in full Open Access, but those articles generate 26% of all citations from full Open Access articles. Our portfolio is clearly the highest quality in the industry. Now turning to the individual brands. In the Nature portfolio, we have Nature Communications, a highly selective and prestigious title, which is now the most cited journal in the world. Scientific Reports is the world's largest journal. It seeks to be inclusive without compromising the rigor of peer review. Since launch in the Nature Portfolio about 16 years ago, Scientific Reports has published the works of over 1 million authors. And with nearly 1.1 million citations last year, it's second only to NetComs in the impact it generates. Now sitting between NetComs and Scientific Reports, we have three portfolios. We have our communication journals, we have our Nature Partner journals, and we have our newly launched Nature Progress imprint. Now moving beyond the Nature Portfolio, we have BMC founded in 2000 as the first commercial Open Access publisher. BMC was a pioneer of Open Access for the last 25 years. BMC offers a complete portfolio to biomedical communities, including prestigious titles like BMC Medicine and Molecular Cancer as well as a fast-growing series of inclusive journals. Discover was launched in 2020 to serve communities of research, particularly in the fields of Applied Science. Discover is a young portfolio with strong growth. In H1 alone, we have launched 14 new Discover journals, bringing the total to about 80. As we touched on in more detail last quarter, our Springer portfolio includes more than 340 full Open Access journals. Springer pioneered transformative agreements in 2015 and continues to drive OA adoption today. And finally, within our Health segment, we have Cureus, a full Open Access journal with an innovative model, which charges editing fees rather than a traditional APC. We've expanded our market-leading full Open Access portfolio, launching 150 journals since 2024. We've expanded our staff footprint in growth markets, and we leveraged our investment in technology and AI. And as a result, we have outgrown the industry and continue to do so in H1. And with that, I'll hand over to Alexandra for a financial update.

Thank you, Frank. I'll now take you through the financial performance in more detail. This was a strong first half. Revenue reached EUR 940 million with underlying growth of 6%. Adjusted operating profit was EUR 246 million, increasing by 8% in underlying terms. Underlying AOP margin improved by 38 basis points. Free cash flow increased by EUR 64 million to EUR 268 million. This reflects strong operational delivery supported by favorable phasing impacts. And leverage reduced further versus year-end 2025, ending the half at 1.6x, well within our target range. The consistency of these metrics demonstrates our ability to convert strong operational performance into profitable growth and cash generation. The next slide provides further insight into our segments, covering both reported as well as underlying revenue and adjusted operating profit growth. Frank has already covered the key drivers here. Reported revenue growth was lower, mainly due to currency movements, especially the stronger euro against the U.S. dollar and Indian rupee as well as the impact of hyperinflation in Argentina. Underlying AOP margin improved by 38 basis points. The reported margin of 26.2% also reflects a benefit from scope of around 16 basis points. This benefit is the result of lower losses at Scientific American prior to the divestment of that business at the end of June 2026. Underlying improvement and the benefit from scope was offset by an FX headwind of around 33 basis points. The FX headwind was partially mitigated by the depreciation of British pound and the Indian rupee, which lowered our cost base. In addition, we benefited from favorable quarter end FX revaluation on accounts receivable. Now moving on to adjusted net income. As expected, the very strong operating performance was delivered -- we delivered was offset at the net income and EPS level by the normalization of the financial result and the tax rate in 2026. The adjusted financial result was a net expense of EUR 39.7 million compared with EUR 20.7 million in the prior year. The year-on-year movement mainly reflects favorable currency translation effects on intercompany balances in H1 '25, which did not recur this year. This was partially offset by lower leverage and improved borrowing costs. As expected, the adjusted tax rate increased from 24.7% to 31.7%. You may recall that H1 '25 saw a one-off tax benefit related to the utilization of tax losses carryforward. This results in adjusted net income of EUR 141 million and adjusted EPS of EUR 0.71. Turning next to cash. Cash generation was particularly strong in the first half. Free cash flow increased by EUR 64 million to EUR 268 million, supported by improved operating performance and lower interest payments, with H1 free cash flow also benefiting from positive phasing impacts and tax, investments and interest. Lower interest and fee payments reflected both lower average debt levels and interest rates. We also saw a timing of benefit from the 2025 Schlichting [indiscernible], which defers a portion of cash interest into later quarters. Strong H1 cash generation supported continued deleveraging, and we ended the half year at 1.6x net debt-to-EBITDA despite paying out over EUR 160 million in dividends in June. Our capital allocation approach is unchanged. Our priorities are to fund organic growth, maintain a strong balance sheet and look for value-accretive M&A opportunities with a strong strategic fit. We continue to pay a progressive dividend. And after our 2026 AGM, we now have the ability to return excess capital via buybacks in the future. Finally, let me turn to our guidance. Given the strong first half performance, we have updated our outlook for full year 2026. We expect underlying growth in revenues of around 6% compared to the prior 5% to 6% range, with underlying improvement in AOP margin of at least 30 basis points. The FX scenario shown on this slide is the one we first gave you in March. It is based on FX rates at the end of full year 2025. A stronger dollar over the remainder of 2026 would be a tailwind to revenue and margins, also muted by the fact that around 60% of our research revenues are contracted and invoiced at renewal season rates. If the euro-dollar rates as at the end of June of 1.14 were to persist until year-end, this would result in a smaller adverse impact of around 2.6% on revenue growth and around 30 basis points on AOP margin. At today's rates, we are somewhere in between these two scenarios. With that, I'll hand back to Frank to close today's presentation.

Yes. Thank you, Alexandra. As you have seen, we're happy with our strong performance in the first half of '26, demonstrating the strength of our business, both in terms of financial performance and strategic execution. Research is the key driver of that momentum, both for our leadership in Open Access and our commitment to embracing AI across the portfolio. This gives us confidence as we look ahead, allowing us to update our '26 outlook, as Alexandra just explained. And we're well positioned to continue to grow sustainably and responsibly in the years ahead as we outperform the industry. And with that, I'll hand it back to Tom for Q&A.

Thanks, Frank. We'll now move to Q&A. As a reminder, we ask each analyst to limit themselves to two questions initially. If you do have additional questions, we'll be happy to come back to you at the end. With that, I'll hand back the call to Karissa.

[Operator Instructions] The first question is from Barclays, Nick Dempsey.

I've got two, please. So first of all, latest thing that people have decided to worry about in U.S. around academic publishing is the OMB decision, which I know we don't have a decision on it yet. But I wonder if you could talk a little bit about if that does indeed go through and federal funds cannot be used for subscriptions or APCs, can you talk about the potential impact and how you're thinking about it in general? The second question, volumes in article submissions in this market have been really good compared to the past for quite a while now. It doesn't seem likely that, that continues forever and ever. Do you think that when we look towards next year that we should start to think about volume growth starting to normalize? Or is it even beyond next year?

Thank you, Nick. I'll take both questions. Maybe start with the last one first, so submission growth and what's our view on that. As I think we just mentioned in the presentation that we have seen strong submission growth across the portfolio at around 30%, which is kind of a continuation of what we have seen over the last 2 years. Now if you look at the underlying factors for that, I think there's two of them. One, which I think is an important driver is that we see new regions like Latin America, but also the Middle East and India contributing, let's say, to global article growth. So that's number one. And second, what we're also seeing is that there is just an acceleration of research finding as a result of the adoption of AI. I think against that positive market momentum, I think we're doing well. And I've just explained why that is the case, first and foremost, by the fact that we have an extremely strong portfolio with Nature Springer and our full Open Access spreads, but also the investments we have made over the past couple of years. We have expanded our portfolio in terms of launching new journals. We have increased our footprint in those markets where growth is the highest, especially in Asia. We have invested in technology. We have launched connections. So quite a number of things actually support market share gains. Now if you ask me how do we look at, let's say, that momentum. At the moment, we don't see a slowdown. I mean we continue to see good submission growth across all regions. Actually, we see that in both North America and Western Europe, actually submission growth has picked up. So in that sense, we don't see a slowdown yet, and it's not something that we're anticipating at this stage. So I hope that answers your second question. Now let's go to your first one, the OMB and what do we need to think about that? Well, I think it's always good to put things in perspective. And I think it's important to recognize that we are a diversified and resilient business. So the U.S. accounts for about 25% of our revenues, 12% of the articles that we publish. And keep in mind that out of the 12% of the articles that we publish, about half of those are the result of federally funded research. So you talk about 6% of the articles that we publish. Second, I think that's also important is that researchers but also academic institutes, they actually use multiple funds to pay for APCs and subscriptions. So not just the federal funds, but they use multiple funds for those. So I think that's the second element to keep into mind. Now if you look at the OMB, the Office of Management and Budget which helps to set -- helps the President to set the federal budget and advisers on budget rules and policies, they have proposed some wide-ranging changes in terms of how policies govern federally funded research. I think what we have seen after the announcement was made and the 45 days consultation period which ended on the 13th of July, the -- quite an enormous reaction from the research community in the U.S. I think more than 500,000 comments, which I think is by any means quite extraordinary, especially if you look at the fact that most of those comments were really different comments from each other. So it was not like a petition being signed by a lot of people, but really a lot of individual content feedback. So I think at this stage, we just have to wait and see what comes out of that. Yes, I think -- so not much more to be said about that at this stage. The only thing is that I do think that we don't expect it to have a negative impact on our results this year. That's why we have updated our guidance. That answers your questions, right.

Next question is from Deutsche Bank, Steve Liechti.

My two will be, just can you give us a little bit more meat on Nature Virtual Assistant? I'm just thinking in context of Claude Science launch since we last spoke. So how it kind of plays against that? And an update on the monetization model or thoughts there if they've progressed at all? That's the first question. And then the second question is just on the Consumer Journals exit. I just wonder within your portfolio, whether there's anything else that might be obvious to you, that should be obvious to us, that might be further divestment candidates and whether the exits of those journals have changed or signal a change in your appetite for almost consolidating the portfolio more?

Thank you very much, Steve. I will take the first question on Nature Research Assistant and then Alexandra will talk about the portfolio changes. So as you know, Nature Research Assistant is part of our overall AI strategy, which is about transforming the publication process, increasing visibility of research finding and protecting the integrity of the scientific record. I think Nature Research Assistant is for us an opportunity to support researchers with a broader set of use cases across the research workflow. I think we're extremely well positioned to pursue that opportunity based on our strong Nature brand, which stands for integrity and quality throughout the research community, the fact that we have access to high-quality content and technology. And I think also what is extremely important is the fact that we have an extensive in-house editorial expertise. Now if you look at where we are today, we have about 25,000 beta users. Feedback from those [Technical Difficulty] Okay. So we have about 25 -- apologies for that. We have about 25,000 beta users. [Technical Difficulty]

Maybe my end. Do you want to mute me?

Little better.

Yes, that's better. Okay. So we're actually very happy with the feedback. CSAT well above 80% and we're continuously adding new functionality. We started off with write and then describe an articles, and we're now expanding into the Discover area. And we're planning for a commercial launch of Nature Research Assistant early next year, early 2027. And if you look at, let's say, the monetization model, I think it will be a combination of a B2B business model because, of course, that's where we have most of our existing agreements today. So something that could be an add-on to the existing agreements. But at the same time, we also definitely see an opportunity into a consumer model, so targeting individual researchers. So that's where we are today. As I've said in the past, I don't think it will have a impactful -- let's say, it will not be impactful on our short-term results, but I think it's something that we're extremely well positioned to pursue. And that's why we're -- yes, we're going after this opportunity. And I guess that's over to the next question you had, Steve, which was about the portfolio changes.

Exactly. And Steven, as we also notified, we divested our consumer [indiscernible] in H2 and then with Scientific American and then also just recently end of July with Spectrum. While these are strong and well-respected brands, consumer media has been not a core area of strategic focus for Springer Nature, and we have limited synergies with the rest of our portfolio. With that disposal, we see now an increasing focus on research, where we see attractive growth opportunities driven by Open Access, technology and AI. But we will continue to review our portfolio and our primary focus will remain to create shareholder value through organic growth, value-accretive M&A, but also active portfolio management. I hope that answers your question.

Next question is from Kepler Cheuvreux, Conor O'Shea.

Two questions from my side as well. Firstly, can you -- I think you announced a deal with -- licensing deal with OpenEvidence last night. So could you maybe give a little bit more color on that and the thinking behind that and whether that could make any noticeable difference to adjusted operating profit on a full year basis next year? And then second question, maybe for Alexandra on -- just on the net financial costs. So I think it came in just under EUR 40 million in the first half of the year. So just for the full year '26, should we be thinking double or almost double that for the full year or maybe a bit less in the second half of the year?

[Audio Gap] Technology Day is that we believe that AI will have a positive impact on research. And we want to make sure, I think at the end that's why people publish with us, that we take full advantage of AI tools, but also that we give maximum visibility to research findings. So I've already mentioned in this call our AI strategy. ARC3 fits into that strategy by making sure that researchers get maximum visibility. But at the same time, we also, of course, understand that AI needs trusted content to function properly. So if you look at ARC3, that's essentially our AI data licensing solution, it's a logical extension of our text and data mining business. And it's based upon a set of principles, as we have outlined in the past as well, attribution, provenance and of course, the subscription revenue model. We're actually very happy about the agreement we have recently announced with OpenEvidence because it really matches up to the principles that we have set out and essentially ensures that new medical research insight, and keeping in mind that we are one of the largest medical research publishers in the world, are being provided at the point of care, and it ensures clear attribution and provenance for our content. And of course, given the fact that it's a subscription model, it results in recurring revenues. So at the same time, given that it is a -- let's say, subscription model doesn't mean that it will have a large short-term impact because we're already later in the year. So I don't expect a significant impact on, let's say, revenues this year. But of course, it will add to the growth next year.

Okay. Then I will take the financial results question. So what we have seen for the first half of the year, we are roughly EUR 20 million improved compared to last year, and there are two major drivers behind that. So on one hand side, with the reduced debt and also the improved financing cost, we had lower interest expense of around about EUR 14 million. So that's one part. But on the other hand side, we had just last year this one-off impact where we had benefiting from a positive valuation impact of our intercompany balances. But this was really last year more kind of a one-off, and we have also taken this year measures to further reduce intercompany balances and also to optimize our hedging in this respect. So we expect less volatility this year than we have seen last year. In terms of interest expense, and this is then primarily the major impact that also you will see on financial results, I would expect an improvement roughly considering where we are currently with our debt level and considering the improvements that we also have seen in terms of base rates as well as our margins, I would roughly expect EUR 20 million lower interest expense for the full year than you have seen last year.

The next question from Goldman Sachs, James Tate.