Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sanoma Oyj (STU:SNQB, Financial) reported strong earnings improvement in both learning and media segments.
- Sales growth in learning was driven by the Netherlands and Spain, with organic growth at 5%.
- Operational EBIT improved due to higher earnings and lower operating expenses.
- Free cash flow improved, supported by higher earnings and lower investments.
- The company's deleveraging efforts have reduced net debt and improved leverage to 2.9, below the target of 3.0.
Negative Points
- Despite strong H1 results, the company remains cautious about H2 due to uncertainties in the advertising market and the significant impact of the Spanish lower curriculum.
- The discontinuation of low-value Dutch distribution contracts and lower curriculum in Spain are expected to negatively impact full-year revenues.
- Free cash flow, although improved in H1, is expected to be similar to 2023 for the full year, indicating no significant improvement.
- The Finnish advertising market and economy show no signs of improvement, which could affect H2 performance.
- Salary inflation and personnel costs could put pressure on profitability despite cost-saving measures from the solar program.
Q & A Highlights
Q: How did the quarter go compared to your estimates, and why are you keeping the guidance unchanged despite improved profitability in H1?
A: We are pleased with the results in the first half of the year. For Media Finland, the improvement in profitability is expected to stick, but the key uncertainty remains the advertising market. For Learning, the main caveat is that H1 is a relatively small part of the full year, and Q3 is crucial. Therefore, we are not changing our forecast.
Q: What is your expectation for free cash flow for the full year?
A: Many impacts are timing-related. We see strong improvement in free cash flow in 2025 and 2026 due to the absence of ITCs related to solar and margin improvements. For 2024, we expect free cash flow to be relatively similar to last year.
Q: What was the year-on-year impact of order phasing in Learning in Q2?
A: The impact was very limited on a customer-by-customer basis. The key highlight is Spain's growth due to more books being available for sale. However, for the full year, Spain's revenue is expected to decline significantly due to normalized curriculum cycles.
Q: Why are you not seeing margin improvement in Learning for the full year despite top-line headwinds coming down?
A: The decline in Q3 for Spain is in a highly profitable part of the market, which is primary education. This is where we see headwinds in profitability.
Q: Can you elaborate on the advertising success in Media Finland in Q2?
A: The success is driven by our focus on digital and TV advertising. We are leading the way in digital transformation, which has resulted in overall increased spend from customers. Additionally, a small acquisition had a positive impact on the numbers.
Q: Are you taking market share in Media Finland?
A: We saw a bit of regaining market share in Q1, which has remained stable through H1. In Learning, it's too early to draw conclusions about market share as we need full-year numbers to make firm conclusions.
Q: What is your ambition level for in-market acquisitions?
A: We are very focused on in-market acquisitions as we believe in the benefits of market consolidation. However, we cannot comment specifically until deals are finalized.
Q: How do you see salary inflation impacting profitability this year?
A: We have salary inflation, early impacts of the solar program, and divestments reducing headcount. Net-net, we expect personnel costs to be similar or slightly lower for the full year.
Q: What is the balance between prioritizing profitability and growth?
A: We focus on both. Improving profitability through cost management and the solar program is crucial, but organic growth and acquisitions are also important for long-term success. This balanced approach will help with deleveraging our balance sheet.
Q: Are there any new ESG initiatives planned for the near future?
A: We have clear targets for ESG topics and are continuously working towards them. There are ongoing initiatives in inclusive learning and digital innovations, and we are adapting to new regulations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
