Sanoma Corporation, Interim Report 1 January‒30 September 2023: Solid growth in net sales and operational EBIT in Learning

Sanoma Corporation, Stock Exchange Release, 26 October 2023 at 8:30 EET

Sanoma Corporation, Interim Report 1 January‒30 September 2023: Solid growth in net sales and operational EBIT in Learning

This release is a summary of Sanoma’s Interim Report 1 January‒30 September 2023. The complete report is attached to this release and is also available at www.sanoma.com/en/investors.

Q3 2023

• The Group’s net sales grew to EUR 580 million (2022: 515). In Learning, net sales grew driven by the curriculum renewals in Spain and Poland, successfully implemented price increases across learning content businesses and the Italian and German business acquired in August 2022. In Media Finland, net sales declined slightly mainly due to lower advertising sales. The Group’s organic net sales growth was 6% (2022: 1%), being 9% in Learning and -3% in Media Finland.
• The Group’s operational EBIT excl. PPA increased to EUR 179 million (2022: 148). In Learning, earnings were supported by the strong growth in learning content sales as well as the solid positive contribution of the acquired Italian business, while lower advertising sales had an adverse impact on earnings in Media Finland.

• EBIT increased to EUR 147 million (2022: 116) as a result of the operational earnings improvement. Items affecting comparability (IACs) were stable at EUR -22 million (2022: -22) and mainly consisted of restructuring expenses related to Program Solar. Purchase price allocation adjustments and amortisations (PPAs) amounted to EUR 10 million (2022: 10).
• Operational EPS increased to EUR 0.70 (2022: 0.61).
• EPS was EUR 0.59 (2022: 0.52).
• The Group’s Outlook for 2023 is narrowed: In 2023, Sanoma expects that the Group’s reported net sales will be EUR 1.38‒1.4 billion (2022: 1.3). The Group’s operational EBIT excl. PPA is expected to be EUR 165−175 million (2022: 189).
• On 26 October, Sanoma announced that Sanoma Learning’s operational EBIT margin excl. PPA is estimated to reach its long-term target level of 23% in 2026 (approx. 18% in FY 2023) supported by new process and efficiency improvement program, Solar. Annual operational efficiencies from Solar are estimated to amount to approx. EUR 55 million from 2026 onwards.
• On 25 October, the Board of Directors decided the record date and the payment date of the third dividend instalment of EUR 0.11 per share. The dividend record date will be 27 October and the payment date 3 November.
• On 18 October, Sanoma announced it has signed a new EUR 100 million term loan, which together with other existing funding facilities will be used to repay the EUR 200 million bond maturing in March 2024.
• On 4 September, the Board of Directors decided the record date and the payment date of the second dividend instalment of EUR 0.13 per share. The dividend record date was 15 September and the payment date 22 September.

Q1-Q3 2023

• The Group’s net sales grew to EUR 1,139 million (2022: 1,039). In Learning, significant net sales growth was mainly attributable to the acquired Italian and German business as well strong growth of learning content sales particularly in Spain and Poland. Net sales declined slightly in Media Finland due to lower advertising sales. The Group’s organic net sales growth was 3% (2022: 2%), being 7% in Learning and -3% in Media Finland.
• The Group’s operational EBIT excl. PPA increased to EUR 202 million (2022: 192). In Learning, earnings improvement resulted from strong organic growth and contribution of the acquired Italian business. Lower advertising sales had a significant adverse impact on earnings in Media Finland. In both SBUs, earnings were affected by the inflation impact on paper, personnel and fixed costs.
• EBIT decreased to EUR 103 million (2022: 133). IACs increased to EUR -68 million (2022: -30) mainly due to the booking of the VAT claim in Media Finland during Q2 2023. PPAs grew to EUR 31 million (2022: 29) as a result of the acquisition in Italy and Germany.
• Operational EPS decreased to EUR 0.61 (2022: 0.72) and was adversely impacted by clearly higher financial expenses and the interest booked for the hybrid bond.
• EPS was EUR 0.26 (2022: 0.60).
• Free cash flow was EUR 35 million (2022: 48). The positive impact of higher net sales and active working capital management in Learning was not sufficient to offset the impact of the seasonally negative operating cash flow of the acquired Italian and German business.
• Net debt/Adj. EBITDA was 2.8 (2022: 3.3), being at the long-term target level of ‘below 3.0’.
• On 8 June, Sanoma announced that the Administrative Court has rejected its appeal that concerned the VAT payment decision regarding the tax audits at Sanoma Media Finland for years 2015–2018. Based on the Administrative Court’s decision, the VAT claims for years 2015−2018 and 2019−2021, amounting to EUR 36 million, were booked as IACs in Media Finland’s Q2 2023 result. This was partially offset by a positive EUR 5 million adjustment to the income taxes. The court decision had no impact on Sanoma’s free cash flow as the VAT claims were pre-paid in 2021 and 2022. Sanoma has applied for a permission to appeal the decision to the Supreme Administrative Court. The VAT regulations have changed as of 1 July 2021 and thus further tax audits related to the matter are not expected.
• On 9 March, Sanoma announced that it will issue a EUR 150 million hybrid bond to strengthen its balance sheet to increase the financial flexibility and support the execution of the strategic plan. The hybrid bond was issued on 16 March.

Outlook for 2023 (narrowed)

In 2023, Sanoma expects that the Group’s reported net sales will be EUR 1.38‒1.4 billion (2022: 1.3). The Group’s operational EBIT excl. PPA is expected to be EUR 165−175 million (2022: 189).

Regarding the operating environment, Sanoma expects that:

• The advertising market in Finland will decline slightly in the fourth quarter.
• The economies in the Group’s operating countries, particularly in Finland, will continue to experience a mild recession.

Previous outlook (given 10 February)

In 2023, Sanoma expects that the Group’s reported net sales will be EUR 1.35‒1.4 billion (2022: 1.3). The Group’s operational EBIT excl. PPA is expected to be EUR 150−180 million (2022: 189).

Regarding the operating environment, Sanoma expects that:

• The economies in the Group’s operating countries, particularly in Finland, will experience a mild recession.
• The advertising market in Finland will decline slightly, with most of the decline during the first half of the year.

President and CEO Susan Duinhoven:

”Our performance during the third quarter high season in Learning was solid. The successful second year of the LOMLOE curriculum renewal in Spain, a minor curriculum renewal in Poland and the successful implementation of the inflation mitigating price increases across our operating countries led to strong 7% organic growth for the whole Learning SBU and 10% for the learning content business in January−September. In Spain, the growth in the final phase of the LOMLOE curriculum renewal included some shift from 2024, and the third quarter sales were further accelerated by a much earlier sales cycle compared to the previous year. In the Netherlands, solid growth in learning content sales was offset by the planned discontinuation of loss-making distribution contracts. In Italy, both the integration and the high season sales and financial performance proceeded successfully and in accordance with our plans.

In Learning, we have initiated a segment-wide process and efficiency improvement programme, named ‘Solar’, to ensure that we use the benefits from our increased scale and the best practices from our recent acquisitions in an optimal way. First implementation phase of Solar is already underway with focus on the post-curriculum optimisation especially in Spain and Poland. Supported by Program Solar, Learning’s operational EBIT margin excl. PPA is expected to reach its long-term target level in 2026.

In Media Finland, comparable subscription sales grew modestly as a result of price increases, while the subscription base declined slightly. The team continued to launch good initiatives to extend our customer offering across the business. Cooperation with Elisa, started in September, is an example of a joint initiative of two strong Finnish players to enhance the local VOD content. It is further enhancing Ruutu’s offering and strengthening its position as the go-to local VOD service. In the challenging operating environment, decline in advertising demand continued, and had an expected adverse impact on Media Finland’s earnings.

Higher comparable sales in Learning and active working capital management across the businesses had a sizable positive impact on our free cash flow, while it was adversely impacted by the acquired Italian business, which has a seasonally negative operating cash flow during the first three quarters of the year. For the full year 2023, we expect the free cash flow excluding the acquired Italian and German businesses to be somewhat higher compared to 2022, and thus better than earlier indicated.

Our leverage improved compared to the end of June 2023, and at 2.8 was within our long-term target of below 3.0. The improvement was in line with the annual seasonality of the learning business, supported by the hybrid bond issued in March. In October, we announced the signing of an EUR 100 million term loan that, in conjunction with our existing funding facilities, will be used to repay the EUR 200 million bond in March 2024. In the current interest rate environment, we consider this as the most flexible and efficient option to refinance the bond. We have also extended the maturity of our EUR 300 million Revolving Credit Facility by one year to November 2026. We are pleased with the wide variety of options for this refinancing offered by our relationship banks, indicating their solid support to our K12 learning services growth strategy.

With our solid performance during the first nine months and the high season in Learning mostly behind us, we are now in a position to narrow the range of our Outlook for 2023 to the upper end of the original range. The advertising market in Finland remains challenging with relatively low visibility, but thanks to the strong performance of our teams in implementing successful mitigation actions, we expect Media Finland’s full year earnings to meet the expectations indicated earlier. Together, Program Solar in Learning and continuing optimisations in Media Finland will be the centre of our success in the coming 2−3 years, combined with small in-market acquisitions and deleveraging of the balance sheet.

I would like to extend my warmest thanks to all Sanoma employees for their great work in supporting our customers, creating unique and impactful content as well as constantly improving our ways of working, thus ensuring solid financial performance under the current complex economic environment.”

Key indicators

EUR million	Q3 2023	Q3 2022	Change	Q1–Q3 2023	Q1–Q3 2022	Change	FY 2022
Net sales	580.3	514.9	13%	1,139.4	1,038.8	10%	1,298.3
Operational EBITDA 1)	220.9	188.4	17%	330.5	310.1	7%	355.4
Margin 1)	38.1%	36.6%		29.0%	29.9%		27.4%
Operational EBIT excl. PPA 2)	179.4	148.4	21%	202.4	191.6	6%	189.3
Margin 2)	30.9%	28.8%		17.8%	18.4%		14.6%
EBIT	146.7	116.3	26%	103.2	132.8	-22%	112.0
Result for the period	99.7	85.6	16%	48.7	98.1	-50%	77.0
Free cash flow	118.5	146.9	-19%	34.6	47.5	-27%	111.7
Equity ratio 3)				39.5%	33.0%		35.8%
Net debt				691.4	837.6	-17%	823.4
Net debt / Adj. EBITDA				2.8	3.3	-15%	3.2
Operational EPS, EUR 1)	0.70	0.61	14%	0.61	0.72	-16%	0.65
EPS, EUR	0.59	0.52	13%	0.26	0.60	-56%	0.47
Free cash flow per share, EUR	0.73	0.90	-19%	0.21	0.29	-27%	0.68
Average number of employees (FTE)				5,141	4,996	3%	5,018
Number of employees at the end of the period (FTE)				5,095	5,135	-1%	5,079

¹⁾ Excluding IACs
²⁾ Excluding IACs and purchase price allocation adjustments and amortisations (PPAs)
³⁾ Advances received included in the formula of equity ratio were EUR 174.1 million in Q1-Q3 2023 (2022: 164.2).

Analyst and investor conference

An analyst and investor conference will be held in English by the President and CEO Susan Duinhoven and CFO Alex Green at 11:00 EET at Sanomatalo, 9th floor, Töölönlahdenkatu 2, Helsinki. Access to the investor conference takes place through Sanoma’s reception.

The conference can be followed as a live webcast at https://sanoma.videosync.fi/q3-2023-results.

Management presentation is followed by a Q&A session. Questions can be placed through the webcast chat function or by phone. To ask questions by phone, the participant is required to register at http://palvelu.flik.fi/teleconference/?id=10010427. After the registration you will receive the phone number and conference ID to access the conference. If you wish to ask a question, please press *5 on your telephone keypad to enter the queue.

An on-demand replay of the webcast will be available shortly after the conference at www.sanoma.com/en/investors.

Interview opportunities for media by Teams or by phone are available after the conference. Media representatives are asked to book interviews via Communications Director Marcus Wiklund marcus.wiklund@sanoma.com.

Additional information
Kaisa Uurasmaa, Head of Investor Relations and Sustainability, tel. +358 40 560 5601

Sanoma 

Sanoma is an innovative and agile learning and media company impacting the lives of millions every day. Our Sustainability Strategy is designed to maximise our positive ‘brainprint’ on society and to minimise our environmental footprint. We are committed to the UN Sustainable Development Goals and signatory to the UN Global Compact.

Our learning products and services enable teachers to develop the talents of every child to reach their full potential. We offer printed and digital learning content as well as digital learning and teaching platforms for primary, secondary and vocational education, and want to grow our business.

Our Finnish media provide independent journalism and engaging entertainment also for generations to come. Our unique cross-media position offers the widest reach and tailored marketing solutions for our business partners.

Today, we operate in twelve European countries and employ more than 5,000 professionals. In 2022, our net sales amounted to approx. 1.3bn€ and our operational EBIT margin excl. PPA was 14.6%. Sanoma shares are listed on Nasdaq Helsinki. More information is available at sanoma.com.

Attachment

• Sanoma Q3 2023 Interim Report

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