Sanoma estimates the impact of the current corona pandemic on its business – Q&A
On 24 March, Sanoma temporarily withdrew its Outlook for 2020, which was given on 7 February, due to the corona virus pandemic. In the current continuously and rapidly evolving situation, it is too early to make reliable and specific estimates for an adjusted Outlook. Sanoma expects to give an updated Outlook for 2020 later during the year.
In its Q1 2020 Interim Report, Sanoma described the key impacts, risks and mitigations actions related to the pandemic. This page summarises information presented in the Q1 2020 report, complemented with frequently asked questions from the analysts and investors related to the pandemic.
Overall impacts and risks related to the corona virus pandemic
Sanoma estimates that the corona virus pandemic will have significant impacts on its business during 2020. In Learning, no major impacts on net sales and profitability are currently expected. In Media Finland, a material impact on the net sales and profitability of Media Finland’s B2B advertising business as well as events business are expected. The expected impacts by SBU are presented below.
Additionally, the crisis may lead to increased credit risk related to receivables from B2B and B2C customers in both SBUs. It may also limit the possibilities for production of new TV content or lead to disruptions in printing and distribution of printed media products. The overall economic uncertainty may result in lower demand for recruitment and/or real estate advertising.
Q: Will the corona virus outbreak have an impact on Sanoma’s dividend payment or long-term financial targets?
A: No, Sanoma’s long-term strategy and financial targets remain unchanged. The divestment of Media Netherlands, which was completed on 20 April 2020, generates a EUR 400 million headroom for M&A.
On 25 March 2020 the Annual General Meeting decided according the Board’s original and unchanged proposal on a dividend of EUR 0.50 to be paid for 2019 in two equal instalments. The first instalment was paid on 3 April and the second instalment will be paid in November 2020 (estimated timing). Sanoma’s long-term dividend policy remains unchanged.
For its own part, the Group’s well-balanced business portfolio mitigates the impacts to a certain extent; after the acquisitions completed in Learning in 2019 and the divestment of Media Netherlands, a majority of the Group’s operational earnings will come from Learning in 2020. In addition, Sanoma is actively and perseveringly taking actions to mitigate the risks and continuously updating the risk situation and mitigation plans. Mitigation actions include careful cost containment of all non-mandatory cost categories.
Q: What precautionary measures have you taken to mitigate the impact or protect business continuity?
A: Our first and foremost priorities are maintaining the health and safety of our employees, giving solid support to our customers and continuation of fulfilling our role in society in a responsible manner. Practically all our teams have successfully shifted to remote operations and this has caused no disruptions to the business. Remote work is largely supported by our improved, cloud-based IT infrastructure, in which we have invested during the last years.
For its own part, the Group’s well-balanced business portfolio mitigates the impacts to a certain extent; after the acquisitions completed in Learning in 2019 and the divestment of Media Netherlands, a majority of the Group’s operational earnings will come from Learning in 2020. We are actively and perseveringly taking actions to mitigate the risks and continuously updating the risk situation and mitigation plans. Mitigation actions include careful cost containment of all non-mandatory cost categories.
In Learning, no major impacts on net sales and profitability are expected. Due to the pandemic and related restriction measures, risks related to reliability, capacity and costs of paper, printing and digital hosting services, as well as success in capturing new business opportunities, may rise in importance.
Q: What are the biggest risks and opportunities related to the current corona pandemic to Sanoma Learning?
A: In Learning, no major impacts on net sales and profitability are expected. In March, schools in almost all European countries moved from F2F to remote learning. This has emphasized the importance of high-quality, modern and well-functioning digital learning platforms and the number of users of our digital learning platforms grew by hundreds percents compared to earlier months. Our businesses have been active in supporting schools and teachers in managing the challenge of full-scale remote learning by providing tips and best practices.
Majority of the printed and digital course materials are ordered and delivered around the start of the new school year, i.e. during the second and third quarters. The sales process is typically in its most active phase during March and April and our teams have been active in applying alternative ways to be in touch with the schools and teachers and help them make decisions on next year’s materials and the sales process has proceeded as planned. Currently, we don’t expect a major impact on the demand of course materials for school year 2020-2021. We are closely following the operative situation of our main paper and print service suppliers, and don’t see a material risk related to availability.
Q: Is there a risk that curriculum renewals planned for 2020 in different countries would be postponed due to the corona crisis?
A: Planning and implementation of renewals in curriculums or educational systems are long projects and normally take even close to 10 years. They are not easily cancelled, paused or postponed when they have once been started. In the picture below, we illustrate the timeline of the ongoing renewal in Poland. The Ministry of Education has recently published the documentation related to the implementation in 2020 in the same schedule as for earlier years as well.
In Media Finland, subscription and other B2C sales represents more than half of the total net sales and are not expected to be significantly affected unless the current exceptional situation prolongs or intensifies significantly. Sanoma estimates that the corona virus pandemic will have a material impact on the net sales and profitability of Media Finland’s B2B advertising business as well as events business.
- In the B2B advertising business (net sales of EUR 247 million in 2019), Sanoma estimates a material impact, which may greatly vary between customer categories and media channels. The size of the impact is dependent on the duration of the crisis and the pace of the recovery, but it is too early to make reliable and specific estimates of the size of the impact. After the financial crisis in 2008, Sanoma’s advertising sales declined by approx. 17% in-line with the market.
- On 22 April, the Finnish government decided to prohibit all large events until end of July 2020. As a consequence, all Media Finland’s festivals for the summer season 2020 will be cancelled. Sanoma estimates that net sales and operational EBIT for Media Finland’s events business will be close to zero in 2020. In 2019, net sales of the events business was approx. EUR 35 million and its operational EBIT margin was above the margin of the Media Finland SBU (12.0%).
Q: Have you seen growth in the number of subscriptions during the pandemic?
A: For us it is of utmost importance to continue keeping all Finns well informed in this exceptional situation and we have seen record-high numbers of visitors both at HS.fi and IS.fi. Early March, Helsingin Sanomat opened the online paywall for all corona-related news. Increased need for news in this situation as well as the quarantines and possibly increased free time may as well increase demand for subscription-based businesses like Helsingin Sanomat, our VOD service Ruutu+ and the newly launched audio-on-demand Supla+. In the longer run, if the situation is prolonged or intensifies, subscription sales may also be negatively impacted by lower consumer spending due to economic downturn and e.g. lay-offs. Lengthening or escalation of the situation could also have a negative impact on the early-morning print newspaper delivery. If disruptions in distribution occur, we have readiness to offer digital news media as a replacement to print.
Q: Have you already seen the bottom in the demand decline of the B2B advertising?
A: During the last weeks of March we saw in practise all marketeers reducing their spending significantly. This is also visible in the 16% decline in advertising demand in the Finnish market in March and 7% decline in Q1 – while Sanoma’s advertising sales declined by 3% in Q1. We have already seen some recovery in April, but the development varies a great deal between customer sectors and media types and the volatility in the market is relatively high. The pace and timing of the recovery will to a large extent depend on the duration of the crisis as well as the speed and way the restrictions will be lifted. Due to this, it is currently too early to make reliable and specific estimates about the full year development.
Q: Due to the current lower demand for advertising, do you expect the prices especially for TV advertising to decline?
A: The Finnish TV market has been characterized by overcapacity already before the corona crisis. We have not been significantly discounting the prices earlier – prices are on a low level structurally – and price reductions are not our strategy this time either. We will lower our investments in content, adjust the program schedule and postpone esp. the more expensive programs to autumn and this way reduce the supply in the market. Postponements are partially driven by the fact that not all programs can be produced on time under these exceptional circumstances. Maybe also good to acknowledge that the advertising spending still takes place although at lower levels. By holding to our pricing policies, we want to make sure that we will come out of this crisis on the right price level.
For further questions, please contact:
Kaisa Uurasmaa, Head of IR & CSR
mob. +358 40 560 5601