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

Good afternoon, ladies and gentlemen, and welcome to the Springer Nature AG Analyst Conference Call 9 Months 2025. [Operator Instructions] Let me now turn the floor over to Tom Waldron, Head of IR at Springer Nature.

Thank you, Erika. Good afternoon, everyone. Welcome to the Springer Nature 9-month 2025 Results Call. I'm Tom Waldron, Head of Investor Relations. I'm here in Barcelona with our CEO, Frank Vrancken Peeters; and our CFO, Alexandra Dambeck, to participate in the Morgan Stanley European TMT Conference over the next couple of days. But first, to our 9-month results. Today's presentation follows a normal structure. Frank will start with a business update, followed by Alexandra with a review of our financial results before we move to Q&A. Before handing over, let me briefly remind you for revenues and adjusted operating profit, we present both reported figures based on actual currency rates and portfolio composition and underlying growth rates, which exclude currency and portfolio effects to ensure a like-for-like comparison. Our financial guidance for 2025 is based on constant currencies and the expected underlying performance of the business, excluding portfolio changes. With that, I will now hand over to Frank.

Thank you, Tom, and actually great to have you on board. I think it's your first call, right?

It is.

Exactly. So great to have you on board and a warm welcome from my side as well. So let's start with a brief overview of the key highlights from the first 9 months. We delivered strong results with revenue growth at 6% in underlying terms and AOP increasing by nearly 10%. Our Research segment continues to be the main growth driver with our journals outperforming the market, especially in Full Open Access. Education grew despite a challenging environment and Health performed in line with expectations. All three segments contributed to the growth in AOP, and we continue to deliver a strong cash flow performance, which Alexandra will take you through later. The strong momentum year-to-date means that we're confident that 2025 will be within our guidance range, and we are well positioned for 2026. Before we go into the details of our 9-month performance, I'd like to share three examples from across our journals portfolio, demonstrating the value we create for our communities by making knowledge accessible. The unveiling of DeepSeek R1 by Chinese researchers in January was celebrated in the press as a fundamental and transformational shift in the cost of AI interference. The first peer-reviewed analysis of how this was achieved was published in nature. The second example is an article published in BMC, which finds that people tend to regain significant weight within weeks of stopping anti-obesity drugs, highlighting that obesity management may require long-term medication or lifestyle support, a finding crucial for global health policy, future research on obesity drugs and for pharma companies developing them. Lastly, I will mention how proud our Springer team were to congratulate the 3 winners of this year's Nobel Prize for Physics, particularly Professor John Clarke, who's an Editorial Board member for Springers, the Journal of Low Temperature Physics. In celebration, the journal has made the 22 articles it has published over the years by John Clarke, Michel Devoret and John Martinis free to read until December. These examples illustrate the crucial role that we play and the things we stand for, trusted science, real-world impact and sustainable growth. Let's now move on to our different segments, starting with Research. The largest part of Springer Nature, accounting for almost 80% of group revenue and 90% of group adjusted operating profit. This reflects the scale, the quality and the resilience of our Research portfolio. Our Research segment delivered 7% underlying revenue growth and 8% AOP growth. We've seen continued strong development of our journals portfolio. The 2025 renewal season was completed successfully and the 2026 renewal season began in September with renewals progressing as expected. The global article market grew by about 7% in the year to September, while our own article output increased by a little bit more than 10%, reflecting both market dynamics and our ability to capture market share. The Full OA market grew 11%, and we've continued to perform well above that level with growth exceeding 25%. Submissions across the Journals portfolio continued to grow very strongly at more than 30% across the portfolio and more than 50% in full open access. We are capturing market share due to our investment programs, the quality of our portfolio and better execution driven by technology. For example, we continue to roll out our next-generation publishing platform, Snapp, which now covers half of our journals. T-Rex automates transfers within our journal portfolio and has driven a 40% increase in transfer accepts. At Nature Research Assistant continues to make great progress as we expand the beta program with more than 8,000 researchers using and providing overwhelmingly positive feedback on the tool. Lastly, none of this happens without ensuring the research we publish can be trusted. This is why we continue to invest heavily in research integrity and have developed tools to protect potentially problematic content, including nonstandard phrases, nonsense text, duplicate or manipulated images and irrelevant references. Now turning to Books. The long-term trend is for digital books to drive growth as print gradually declines with digital rising in the mix from the current level of 70% of revenues. However, in the first 9 months of 2025, we have seen growth in print, benefiting from a weak comparison to early 2024. And in addition, we have seen the pull-in of some print distribution orders into Q3 2025, which won't repeat in Q4. Finally, within Services, we have seen strong demand from corporate R&D clients for text and data mining solutions but a more challenging environment in talent-related services in the U.S. Now let's turn to the developments in our other two segments, Health and Education. Starting with Health. We saw continued momentum in scientific affairs services for international pharma clients. Our Dutch events and book business also performed well, offsetting a lower advertising and event business in Dutch markets. Growth in digital revenues and a more streamlined organization, together with positive phasing continue to support good underlying revenue growth in ALP in the segment. Turning to Education. After a solid performance in the first half of 2025, Education is held back by tough conditions in one of our larger markets, South Africa. Elsewhere, we've seen continued to benefit from good curriculum sales in Argentina, India and are looking forward to the launch of new ELT content in 2026. We delivered over 20% underlying growth in ALP, supported by continued progress in our operational excellence programme, Elevate. Now 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. In article Volume terms, Nature is only a very small part of our portfolio, but its unique positioning and model make it a unique asset for Springer Nature. From the first issue published in November 1869 to today, Nature has grown from a weekly journal of science to a portfolio of almost 70 prospective multidisciplinary publications. Nature's format, combining news and independent editorial content with peer-reviewed articles is unique as is its reputation for publishing research which changes the world. From the discovery of the neutron, DNA, quasars, plate tectonics, monoclonal antibodies to the research on AI I showed earlier, Nature plays a prong role in helping researchers to advance human progress, exemplified by the fact that 3/4 of Nobel Prize winners over the last 50 years have been published in nature. By the way, more than 90% of Nobel Prize winners have published across the Springer Nature portfolio. Nature and Nature Communications are the world's most cited hybrid and Full OA journals, demonstrating the impact of the research they publish and the selectivity of the editorial process. Nature's unique model includes a staff of more than 500 full-time PhD level editors, domain experts with extensive networks in the areas of specialism. As you can imagine, Nature is a door opener with customers and is a brand that attracts great talent. We aim to expand portfolio by 2 to 3 titles per year, leveraging but not diluting the brand and focusing on areas of science where the need and opportunity is the greatest. For 2026, we plan two launches, Nature Health, prioritizing research into health and resource limited settings and Nature Sensors, which will publish fundamental, applied and engineering research across a full spectrum of sensing technologies. Customer penetration and upsell is supported by a dedicated sales organization across the world, working alongside our team of global account managers. I think it's fair to say that Nature is a unique part of our portfolio, and we're a very proud owner. And with that, I'd like to hand over to Alexandra for a financial update.

Thank you, Frank. The achievements we just highlighted, especially within our Nature portfolio, really underscore the impact Springer Nature has on the global research community. One of the things I look forward to every day is the Nature briefing e-mail, which is always a great read and an accessible and fascinating way to keep up to date with developments in diverse fields, including AI, biology, health and climate science. With that inspiration in mind, let me now walk you through our key financials of 2025. As Frank mentioned, we have seen a strong performance. Reported revenue for the group reached EUR 1.429 billion with adjusted operating profit of EUR 408 million, which includes scope changes and the impact of actual FX movements. We delivered strong underlying growth with revenue increasing by 5.9% and adjusted operating profit rising by 9.9%. Free cash flow improved by EUR 103 million, reaching a total of EUR 175 million. Our financial leverage is down significantly year-over-year and remains within our target range of 1.5 to 2x net debt to EBITDA. The next slide provides further insight into our segments. As you've heard from Frank, our 9-month results show continued momentum, especially in our Research segment. Health continued its solid delivery, while Education after a good first half performance, faced an adverse impact from a tough funding environment in South Africa. Group revenue increased by 5.9% on an underlying basis and 4.3% on a reported basis. The Research segment was the primary growth driver with 7% underlying growth. Reported growth of 6.5% was lower due to the strength of the euro against the U.S. dollar and other currencies and a small portfolio impact of the divestment of AJE. Nearly half of revenues in research are in U.S. dollar. And so you might expect to see a larger impact from the fact that the dollar ended September around 8% lower than the average rate in 2024. The reason you don't is because more than 2/3 of our U.S. dollar revenues are contracted and generally paid annually in advance. That means that our reported growth in 2025 sees a muted FX impact due to the much stronger dollar during the last renewal season when rates were hovering around EUR 1.05. If the current rate of around EUR 1.15 persists through next year, you'd expect to see a bigger FX impact on reported growth in Research. In Education, underlying growth was 0.7%. As you heard from Frank, the business performed in line with our expectations in most markets, but we faced unexpected headwinds in South Africa, where we have seen both delays in the new curriculum and an uncertain funding environment for some provinces, which has impacted our revenues. We expect these conditions to continue in the near term. Reported growth of minus 7% is primarily impacted by hyperinflation effects in Argentina and the weakness of the Mexican Peso and Indian Rupee. Now looking at adjusted operating profit. Group adjusted operating profit increased by 9.9% underlying and by 7.6% on a reported basis. For Research, underlying growth was 8.2% and reported 7.7%. FX had a small negative impact due to the strength of the euro against the dollar and yen, offset by 2 factors: a slightly weaker pound, where we have more cost than revenue and the positive portfolio impact from the AJE divestment. In Health and Education, we saw the benefit of product mix and the efficiency measures that we began to implement during the course of 2024. The performance in Q3 was helped by phasing. This will partially reverse in the fourth quarter as Education is impacted by South Africa and in Health, where last year's fourth quarter AOP margin benefited from very favorable product mix. In Education, the reported AOP in the 9 months declined 2.8%, affected by the strength of the euro against a number of local currencies. Our cash generation in the first 9 months continued to be very strong. Operating cash flow increased by EUR 71 million year-on-year, driven by higher operating profit and stronger working capital inflows, again, reflecting excellent collections across all segments. As a result, free cash flow rose by EUR 103 million to nearly EUR 175 million. This was supported by improved operating performance and significantly lower interest payments due to reduced gross debt and lower interest rates linked to our continued deleveraging. There is always some potential for variability around the timing of payments in Q4, but we are on track to deliver a strong cash performance in 2025, helped by a strong start to the year. We received our investment grade -- our first investment grade credit rating in October, reflecting the effectiveness of our capital allocation strategy, the strength of our cash generation and our solid balance sheet position. We are in the final stages of our first refinancing initiative and expect to issue our Inaugural Promissory Note by the end of November. We are very pleased with the market reception. In addition, we will continue to actively review and optimize our financing structure in the near term. Moving on to our guidance. As Frank said, our performance in the first 9 months puts us in a good position to close out the year in our guidance range. Within the mix, Education revenue will likely deliver similar full year underlying growth to the performance seen in the first 9 months. Health has continued to perform well, but does face a challenging comparison in Q4. Bioresearch, which accounts for around 80% of our revenues, continues to enjoy very strong momentum. You will see in the FX note on this slide that rolling forward current exchange rates for the U.S. dollar and other currencies would imply a total FX headwind to full year reported numbers of only around EUR 20 million on revenue and EUR 9 million on AOP. The impact of significant weakness in the U.S. dollar in 2025 has been muted by the fact that the dollar rate was stronger against the euro during the last renewal season, as I explained earlier. With that, I'm happy to hand back to Frank, who will close today's presentation.

Yes. Thank you very much, Alexandra. To sum it up, we have delivered a strong business performance in the 9 months of the year that supports our confidence in meeting 2025 guidance and positions us well for 2026. Research is the key driver of that momentum, demonstrating the strength and resilience of our business and our strategic execution. We are a trusted partner in the constantly growing global research ecosystem. We've built on that foundation with targeted investments to drive the shift to open access and to further harness technology. Our teams have driven AOP margin improvement across Research, Health and Education with a focus on operational excellence. We have strengthened our financial position in our first year as a public company. And all of this positions us to continue to grow responsibly and deliver long-term value. And with that, I will hand back to Tom for Q&A.

Thanks, Frank. We'll now move to Q&A. [Operator Instructions] And with that, I'll hand back to Erika to start the queue.

[Operator Instructions] And we'll start with the first question that comes from Steve Liechti, Deutsche Bank.

My two would be, one, can you just give a little bit more detail in terms of renewals for 2026? Any kind of trends, changes that you're seeing? And anything that you can say on experience in the U.S. renewals specifically? I know there's a few less proportionately, but anything you can say there? And maybe you can bring in discussion in terms of yield and price that you think you're going to get this year relative to 2025? And my second question is just on Research like-for-like. I know it's about 7% at the 9 months. We were at a similar sort of stage in 9 months '24, but the fourth quarter growth specifically in that year was a lot lower, which kind of dragged down the full year number. I'm just looking at that and thinking, is there anything sort of specific in the fourth quarter that did that in last year? Or is there a risk of the same thing happening in this year, if that makes sense? That's my two questions.

Yes. Thank you, Steve. Well, let's maybe start with the first one on the renewals and then specifically on the U.S. So as I think I've mentioned before, we're a global diversified business. The U.S. accounts in total for about 24% of our total revenues. If you look at the U.S. actually, about 2/3 of our research revenues are contracted. The renewal cycle typically begins in September and our goal is to have at least 50% completed by year-end. I think it's fair to say that if we look at the U.S., actually, the progress is according to our plan. We're actually a little bit faster than last year, but that's because we prioritized the U.S. So I think we're in a good position. And maybe one additional point or if you look at the U.S., I think it's also good to know that actually, if you look at submission growth across the portfolio from U.S. researchers, it's above 20% across all different parts of the portfolio. So in that sense, I think that's also why we made the statement that we're well set for 2026. And at the moment, things are moving in line with our expectation. Now if I look at your other question around, let's say, the like-for-like growth in research, year-to-date and also full year, what that means. I mean I think a couple of points. So basically, what we have seen this year in Research is that growth in Q1, Q2 and Q3 has been at around 7%. That's also what we expect to be around for the full year. There's essentially been three drivers behind that growth. First, that as we have explained strong growth in Journals out performing the market especially through [Technical Difficulty]. Second, as you may remember, our booked revenue actually this year stabilized, quite a significant decline [Technical Difficulty] last year. And this year, we saw stabilization and last but not least, [Technical Difficulty] so maybe a little bit more detail [Technical Difficulty] I already mentioned the fact that in Full Open Access, the market grew by 11%, but we did more than 25% and submissions are well above 50%. So that shows you a little bit knowing that those submissions turn into publications in the next 200 days. It does give us actually quite good visibility. There was a little bit of positive phasing in the third quarter on print. We had some of the big orders in print already being fulfilled in Q3, and those will not come in Q4. And advertising, we would expect a further stabilization. So our current view is that probably for Research, we would finish at a similar growth rate that we have seen so far. I think already Alexandra gave a little bit of color on Health and Education. I think Education, fair to say that it will continue as we currently have seen in terms of growth rate. And in Health, we are -- the comparison is a pretty strong Q4 last year. So I think that probably gives you a bit of a feel of the revenue dynamics for the remainder of the year and also on the progress against the renewals.

And sorry, just one thing I sort of threw in there in terms of what to think about in terms of yield and price, both on renewals?

Yes. It's a little bit difficult to compare that because essentially, in every renewal cycle, you do kind of different -- if it's active renewals, you, of course, renew different clients. But I think so far, we have seen not a major deviation versus '25.

The next question then comes from Nick Dempsey, Barclays.

My two questions are, first of all, in Full Open Access, you clearly benefited in the last couple of years from the Hindawi situation, a lack of trust for those guys, but also other sort of younger peer open access publishers. Do you think that the good volumes that you're seeing now are still benefiting from that or that you're really hitting a normal market rate of submissions and therefore, that trend I'm describing is kind of behind you? And the second question, Education is about 3% of my sum of the parts value in my model. But every quarter, we're seeing volatility, a bit of uncertainty, emerging markets, currency effects, which have some effect on the highly reliable kind of progress in the rest of the business. Can you remind us what the logic of owning education is?

Yes. Thank you, Nick. I will start with the first one, basically the long-term trend in open access. And then Alexandra will take the second one on Education and let's say, the fit within our portfolio. Now if you look at open access, yes, I mean, we're seeing very, very strong growth year-to-date. And obviously, we would not expect that to suddenly stop. At the same time, I think it's fair to say that over time, as the market is moving more towards open access, that growth rate in open access will come down. That's why we've always said we would expect a kind of 10% growth in the midterm. But then overall, at some stage, it has to come down to the overall market growth in terms of publications. I think we are benefiting from the strength of our portfolio. I think also the fact that we made quite significant investments in terms of expanding our journals by launching new journals, implementing collections, using technology to drive, for instance, things like transfers, but also increasing our footprint in India and China, which are two important growth markets. I think that's why we're able to capture market share. I think your question around, let's say, to what extent young kids on the block, and mind you, those young kids by now are 25. Well, compared to my age, that's still relatively young. I wish I was still that age, but that's no longer true. But I think we are -- they are growing now as well. So in that sense, there's more kind of a balancing in the market, but we're -- as I said, we're seeing good continued growth. And I think also what you see this year is that article growth is now again above -- market growth is above 10%, and we have that kind of ambition to outgrow the market.

I'll take the second one. Yes. Nick, the question around Education, I would say it boils down to why do we own Education. I would say, first of all, Education really aligns with our mission that we want to advance discovery and learning. So it's a nice fit for us from that perspective. Operational synergies with the rest of Springer Nature, they are mainly shared in the infrastructure, technology and in the procurement field. But however, this segment has a strong market position and brand in the areas where we are present. And we also do see this as strong growth areas for research in the future is India and also with South America. And then you're also talking about the excellence initiatives that we have underway. So that would mean for Education of our Elevate program. And this is set up to help us reduce costs. We will improve margins, and this also will then enhance the value of the business. But I would say it is with all other parts within our portfolio, so maybe with the exception of nature, what usually Frank says then, we are regularly assessing whether we are being...

Health Springer.

Health Springer. Okay, that's a new addition to that. Every time something new. But yes, we regularly assess it. But currently, we believe we are the right owner. And as I've just outlined, we see potential to further improve that business.