Good morning, everyone, and warm welcome to Sanoma's Capital Markets Day 2023. My name is Kaisa Uurasmaa. I'm heading Investor Relations and Sustainability at Sanoma. Together with the management, we are pleased to have you all here to hear the latest from Sanoma's businesses. We have a unique sustainability profile, and we have clear plans how to improve our profitability going forward. Those are the main topics that we will actually discuss today. Looking at the agenda, now in the morning, we will focus very much on the Learning business. A special feature of this Capital Markets Day is the simulation of digital learning in the schools in Finland today. We have two Finnish teachers here, one from the primary, one from the secondary education, who will showcase you how they use our digital tools in their everyday life.
So we hope that that brings you additional value on how our products add value on the Learning side. After the break, we will focus more on the media business in Finland and then on the overall financials of the group. As you can see from the agenda, we have the full executive management team presenting here today. Before handing over to the presenters, I would like to remind a few practicalities. This event will be recorded, including all the Q&As, and the recording will be available on our webcast after the event. We have audience here in Helsinki, face-to-face, and we have a lot of audience in the webcast, too. For the Q&A, we will start from here in Helsinki. Please wait for the microphone before you ask your question.
Then for the webcast audience, please use the chat function for questions. The first Q&A will take place after Susan and Rob have both presented. With this, I would like to once more welcome you all and hand over to Susan Duinhoven, our CEO, to start the presentations. Please.
Thank you very much, Kaisa. A warm welcome also from my end to all of you here in Helsinki and in the webcast. We have, I think, a very interesting lineup of presentations for you this morning, and showing you why it is interesting to invest in Sanoma. We have a unique sustainability profile, and I call this unique because the core of our business is about having a positive impact on society. That's true for our Learning business, and that's very much true also for our independent media business. So a unique sustainability profile, but in addition, also a very strong position and a clear-cut path to increase our profitability in the coming years. So starting from this strong position comes also with a very strong focus.
So our focus for the coming three to four years is very much around three themes. The first theme is increasing the profitability, both in the media business and in the Learning business. In the Learning business, that very much comes from the increased scale that we have gotten over the past years through multiple acquisitions, more than doubled the size, and now we will benefit from that increased scale by building the profitability in the Program Solar. Rob will, of course, go into much more details on that. Also in the media business, we have seen a successful digitalization. That digitalization is on a path to, to continue even further, and with that comes automatically already improved profitability.
But on top of that, we also expect that in the later years, the Finnish economy will recover, and with that, also the advertising market. The second focus is growing organically, and that top-line growth, organic, but then complemented by a smaller, highly synergistic, in-market acquisitions. And the third, but not the last, and certainly not the least, is de-leveraging the balance sheet in order to prepare for future growth. Our long-term target, unchanged, to be below three, and the de-leveraging will then come from increased profitability, also increasing the cash flows. While realizing that dividend is an important part of our equity story. We feel that the 40%-60% payout range that is part of our dividend policy gives enough room for changing economic circumstances, for de-leveraging, and for regular investments in our business.
So strong positions with a clear focus. But let me then show you a bit on those strong positions, because by now, we are the leading K-12 Learning company in Europe. And you see on the graph the leading positions in the various markets. And K-12 is what we abbreviate for the first 12 years of formal education, so teaching children from six to 18 years, and that is a very localized market, and we see that as a strong positive because of the high barriers to entry that that creates. In media, we're the leading digital media house in Finland with a reach of 97%, so basically reaching all Finns on a weekly basis.
The business has a very nice profile, touching on all the different areas of media, news and feature, entertainment, and supported by B2B marketing solutions. It's good to realize, if you see the numbers, I always think that's quite impressive, with 900,000 subscribers paying for digital components, out of a total market with 2.7 million households only. So if you then look at our financials, the outlook for this year, you see that we're indicating close to EUR 1.4 billion in sales, and a profitability of EUR 165 million-EUR 175 million operational EBIT, excluding PPA. Out of that profitability, already 80% is coming from Learning.
So in that sense, we have turned ourselves, in the past years, predominantly into a Learning company, and we have done that through multiple acquisitions. You see here the ones coming from 2019, where the last ones, if you look at Santillana, in Spain, a large company bought at the end of 2020, and the integration already fully done last year. And this year and last year, we have benefited from the LOMLOE, the major curriculum change in the Spanish market. The last acquisition, Pearson, in Italy and in Germany, now nearly fully integrated. There will be some applications that will only transition in the summer holidays for the teachers, but that's only a small part, majority being integrated.
So what this also shows is that, that Rob and the team have now a very strong, and effective, proven, playbook for these complex separations and integrations, and do that to the T, both from a, a returns perspective and from a, a timing perspective. But of course, in the, in the last years, we have also done an interesting acquisition in the, in the media market in Finland with the regional news, business in the, the Tampere and the Pori area, Aamulehti and Satakunnan Kansa, was all immediately, integrated with the full, capture of the indicated synergies.
Overall, these acquisitions of the last years have brought us in a position where 80% of the group's profitability is coming out of the Learning business, and the Learning business itself has more than doubled in size, coming from around EUR 300 million in 2018 to now close to EUR 800 million. That then also shows that, of course, our capital allocation in the last couple of years has gone very much towards M&A. We have increased our debt levels in order to facilitate that, and if you look at this slide on the left-hand side, you see that M&A has taken quite a bit of the capital, in addition to the normal investments in digitalizing our business and, of course, dividend.
Now, if we look forward to the coming years, then we see that profitability and cash flow is impacted by the typical higher financing cost, the cost associated to the transformation program, Solar, but also the economic headwinds that we have in Finland that impact the advertising part of the media business. But we do see and expect that in the later years, 2025, 2026, we will already see the improved profitability of the Learning business, reaching in 2026 its 23% margin, and with that, its long-term target. But we also expect that by 2025 we start seeing recovery of the Finnish economy, and with that, also increase in our advertising business. If we look at the capital allocation, then over those three years, we see that deleveraging will take the place of the M&A.
We still have M&A headroom for smaller in-market acquisitions, but the deleveraging will take a bigger part of that capital allocation. In addition, of course, to continuing making the investments in the business and dividend. Now, I already indicated at the start that Sanoma has a unique sustainability profile. For us, sustainability is not something that we do in addition to the business, it is the core of our business. Our Learning business, our media business, are set up to deliver a positive contribution to society in its core. We typically have, as an intellectual and people-oriented organization, we have a small climate footprint. So the small climate footprint, we still have put quite ambitious targets on. So we have said by 2030, we want to be carbon neutral.
So that is still a significant reduction, and we have put those ambitions into very concrete targets. Science Based Targets, they have now been approved in November. They are part of our business, part of how we operate. And these Science Based Targets are now also taken into our financing. So also in our RCF, these targets are reflected. Now, if you look on this slide, and you see all those indices, you see that we have improved significantly in the last couple of years, specifically from a quality of reporting perspective, and we're on all these indices in the top range of our industries. So with that summary, I would like to introduce you to the team that is going to present this morning, but more importantly, that is going to lead the business going forward.
Because as you know, I have indicated to step down from my position, and I'm very happy to be able to introduce you here to the team that is going to go forward, and most particularly, to Rob Kolkman, who is going to be the CEO from first of January onwards. But let me give a bit more background on each of the three. Rob Kolkman is a seasoned executive who joined Sanoma close to five years ago, after 15 years of a successful career at RELX. He started in Sanoma, in Sanoma Media Netherlands, in 2019, and then when we sold that business, transitioned early 2020 to the Learning business.
So Rob knows this business inside out, knows it well, and has been the person who has grown this business very significantly over the last years. Rob and his team have done those integrations successfully, have done them on time, have gotten the synergies out. But most importantly, also, Rob has been the architect under the Solar Program. And that Solar Program is the path to our future profitability increase and reaching our long-term targets by 2026. So I see in Rob the ultimate successor, excellent position to start from, and therefore, I'm very glad to hand over to such a capable person and with such a knowledge of the business on the first of January.
If we then introduce Pia Kalsta, and almost doesn't need introduction, but after 20 years in media experience in Sanoma, of which the last 9 years already as the CEO of Media Finland. Pia has been the CEO leading the turnaround of the media business in those last 9 years. Turnaround from a financial perspective, from an efficiency perspective, but also the digitalization she has led. The media business in Sanoma has already for years, and Pia has led that business for years, quite standalone. While Rob and myself have been busy with transforming the business more and more into a Learning company, Pia has steadily steered the media business.
Alex Green, as CFO, a very experienced CFO, joined us two years ago from eBay Classifieds, and has therefore solid experience in running finance teams in large European distributed digital companies. So very similar type of way we're organizing within Sanoma is what he was used to in eBay Classifieds. So I have full trust in this team. I look forward to seeing that strategy being implemented by them. And as I will hand over to Rob on the first of January, I will do so now as well. Rob, it's all yours. Over to you.
Thank you very much, Susan, for your kind words, and also a warm welcome from my end. What I would like to do this morning is really talk you through the key point of reaching our long-term profitability at Learning in 2026, with the 23%. And if you were to step into the Learning organization at the moment, you would really see focus on two key points. The first one is: how do we now really make our scale work? How do we really benefit from the scale that we have created over the past few years? So that's very much a first point. You will see there the focus on Program Solar very much being core to that.
And secondly, it is around the organic growth, making sure that we continue to grow the business with all the great products that we have, and also creating new solutions and new business models. And today, with the simulations, you will see that very much in action later on. And I think that will give you a good feel for what it is like at the moment in a classroom, both in primary as well as in, in secondary. So that's also very much what we will be talking about here. And the focus, of course, is: how do we make that scale then really work? So I will give you quite a lot of examples around Program Solar, how that now fits into our story, what we are practically doing across, across the whole organization....
And at the same time, if we want to be successful longer term, it of course, all about the high quality offering that we have, what we call blended. And I will, to get a bit of simulations, give you more examples on that too. What does that now really mean for us in all our operating markets? And we very much continue with the strategy that, that we've laid out over the last few years, with those two core components being the 2%-5% organic growth, and at the same time reaching that profitability.
With all the changes that have been announced, I would also like to spend a little bit of time to give you a bit more insight on our organization and our very strong and experienced Learning management team that we have, which we've built over the last few years and also recently strengthened again. We've used the opportunity of growth over the last few years to also regionalize our business more, and really have very experienced people in those core regions or bigger countries. As you can see here, like Kirsi in the Nordics, and also our MDs for Spain and Italy, and Marta also in Poland. And we're also constantly strengthening our team in key areas.
We've recently appointed Jelena Sutic as our new CHRO, and she has a strong background in organizational development and talent development, which we consider very crucial to the success of the organization longer term. Another key topic, which I will talk about later, is around our making our scale work with our platforms and harmonizing it, the really Learning tech part of our organization. I'm very pleased that Charlotte Svensson will join us in the new year. She has a strong background in that, also at the scale that we are now at as an organization. So I'm sure she will really give that an another enormous impulse to grow that further and to benefit from it. Then with regard to Program Solar, that's of course a crucial program for us, as you all know.
We have also full dedication on that with a separate team that is led by Roos Verdurmen, who is really experienced in that area. Then I'm very pleased that we also have strengthened our team further early in the new year, with Sander de Groot joining us for the Belgium- Netherlands region. Key message here being, we have a very strong management team, and if you were to go underneath that, you see a very dedicated and passionate team in Learning, with lots of experts around all the topics that we will be talking about today. Actually, some of the experts are also in the room here today. Let me now go to the next phase, which is around zooming in a little bit and giving a bit more color to our performance year to date.
Then look a little bit at the broader picture for that over the last few years, and then we'll start to look forward. So when I look at the performance 2023 so far, you can see that the price increases that we have talked about are now really showing through in our results. That's across all our markets, and that's, of course, an important step we have taken. The other one is that after years of preparation, the new curriculum in Spain, the LOMLOE, has now really been fully introduced. And I'll have a separate slide on that in a minute because we've talked so much about Spain that I would like to share a bit more insight with you on that. And therefore, we are at that higher end this year of the organic growth target.
And I'm also very pleased that if you look at the Italian business, that that has now been almost fully integrated. There's a couple of bits left, but fully integrated, fully in line with plan, maybe slightly ahead, and the performance has also been a very good and solid one, again, according to our plans. So that's very good to good to see. Let me give you a bit more color on Spain, because that was, of course, a big change in that market, where it's also a really good example of the kind of investments that you need to do to not only keep that position, but also try to strengthen it further. That's where the investment in content are so, so important.
And we have managed to do that, I think, very well, including a further strengthening of our core position in that market around primary education. So that's what you see there. There are, of course, fluctuations in that market, and when I look forward, I will share that with you because we are now at the end of that LOMLOE implementation, so you will see the cycle happening there, too, but I'll talk about that later. That has resulted in a very strong performance year to date in this part of the business of 22% up. At the same time, Spain is a great example of a market that is still very fragmented, but also only very limited in its digitalization.
I'll talk later about the points of blended learning and how we look at it, and you'll see the examples later, but that's very fundamental. We see a lot of opportunities in that Spanish market for consolidation, for really benefiting again there from the scale, and also for further digitalization, really implementing more advanced blended learning products over time. So that's on Spain specifically. If I then take a step back and look at our K-12 Learning services, the attractive opportunities we see in that market, and I think these are all very well known to you, but let me pick a couple of them from there. If you think about K-12, and we have a few teachers in the room today, then of course, choosing a method is not something you do every year.
You really make a choice as a teacher to do that for a longer period. Then, of course, that depends a little bit how long it is, but typically we see across our markets, a 4-8-year period being a very normal period. So there's a lot of stickiness there. That's also when we do have curriculum changes, it is so important that we do the right investments and get the right content into the market. That's at the same time also where you really then see that the localized nature of the content and making sure you get it right in detail is a big barrier to entry for other players. That's not something you just do easily.
You really need that kind of experience in the market, and that's what we have seen time and again in our core markets as well. We then look at the scale advantages. I will talk a lot more about that as part of Program Solar. But there you also see the key elements around making sure that you benefit from it with the platforms that you can then roll out across the different businesses. And all that is also underpinned with a few key trends that we see across most our markets. And in the middle there, you see the structural shortage of teachers. It's a little bit less an issue here in Finland, although sometimes as well, but it is a big issue in other markets.
For example, a big market for us, the Netherlands, but you also see it in, in Italy and, and Spain. And that means whatever we can do to make, the life of a teacher as efficient as possible, and, and save time for them, is a crucial element of, of actually offering new solutions, to the market. So that's very much a focus point there, and it's a trend. And then we'll talk about that as well. The economic environment, of course, plays a role, economic and, and political environment in our different markets. And then the last but not least, and I'll touch on that specifically, is AI and generative AI.
I mean, you might argue that's maybe at the height now of its, yes, let's say, hype curve at the moment, but fundamentally, there are really good opportunities there in the longer term, both for us as an organization, but also for teachers. So we'll touch on that later as well. But all that leads from my perspective to very much a continuation of our core strategy that we firmly keep in place. But let me touch on a couple of key elements there. So what we do really well in our markets, we, of course, focus on continuing, which is winning in our local markets, making sure that we grow our importance there, that we grow our market share. But for that, you also include new solutions, new offerings, new blended solutions in the market.
And that together is that 2%-5% organic growth that we've been highlighting, before. And then on top of that is the M&A, and let me spend a little bit of time on how we view that. If you look at the short term, so the next 2-3 years, we see mostly that that will come from what we call the in-market, highly synergetic, consolidations. So opportunities there in markets that we are already active. Alex will later on talk about balance sheet and balance sheet strengthening. We then see the effects of that being that in the later years of our strategic plan, we will then go back to the bigger acquisitions as well, which means into new geographies and territories. So that's our view on the M&A in the coming years.
Then going back to Program Solar, that's of course driving a lot of the 23% that we will reach in 2026. Fundamentally, really answering that question on how do you now benefit from the scale that we have created together over the last few years? What I would like to do now is take a bit of a step back on the financials and show you the slightly longer trend, both in revenue as well as in profit, and then highlight a few what I consider to be key points there to mention. So if you look at our business, we've always had cycles. Cycles driven by curriculum changes or funding changes or just also you know changes in the market itself.
Underpinning all that, if you look at the longer term, we see a very strong market growth in our primary education offering. And if you then look at the other parts of the business, which of course, predominantly is then the secondary education part, there we see very stable to slightly growing positions. Obviously, there's always changes in every market and underlying more details, but that's fundamentally what you what you're seeing. The other thing that is clearly visible here is that with the growth of our business and the increasing size, you also see that, yes, we still have the cycles, but in percentage terms, they of course, become less. Simply put, because a single curriculum change or a single funding change in a market has less impact on our overall business. That's what you see see there as well.
And then last but not least, over the last years, you see us being towards the higher end of the organic growth of about 4%. So that's with regard to the revenue side. Similar when we then look at profit. And clearly there, we have seen some challenges over the last couple of years, but I would like to break them down a bit for you and share our view on that, and also then afterwards, of course, the steps we are taking Solar and a couple of other elements. So if you compare it to 2021, there are three key areas to consider from my perspective, and then it's partly offset by that solid performance in the other businesses. The first one is around our headwinds, strong headwinds in the distribution business.
That was really hard hit. There is no other way of saying it, hard hit by the rapidly accelerating inflation that we saw in this high season. So all the prices were effectively fixed, but at that point, really, our prices to the market were fixed, but then we really saw a big increase in the cost. And I'll talk in a couple of slides around what we are doing across our distribution business to counteract that, what we have been doing already and what we will continue to do. So that's the first one. Quite a significant impact there. The second one, we, of course, knew when we did the acquisition of the Italian business, that that was at a structurally lower margin.
You might recall when we, when we talked about that, that is to do with the fact that that business really is focused on secondary education, and that is a different profile, profitability-wise than what we see in primary education. So that's the second part. Then the third part is around what I guess we've seen for most businesses and also with us, which is the impact of high inflation. In our case, that was in particular around paper. That saw a very big increase initially, has now somewhat stabilized, but at a higher level, and also printing and personnel costs. If you add that all together, that also was a noticeable part of it.
As we've said, and as you also saw in our results year to date, we are compensating for that with above-average price increases over a number of years. That has now had a good first year in 2023, and we are focused on continuing that in 2024 as well. As I said, that is offset by the other part, which is around a continued solid and very profitable growth in our core Learning content businesses. Later on, when I show a bit more forward-looking on our expectations per market, you will also see that reflected there. I thought it was useful to share that with you, to give a bit of perspective on where we stand now and what has happened over the last few years.
Clearly, when we then talk about profitability, Program Solar is top of mind, is also the core focus, of course, where we bring together a lot of our initiatives to get to the 23%. That's what I would like to focus on now. In Program Solar, we basically leave no stone unturned to get to that point of, let's now really make sure together that we benefit from the scale that we have created. There are quite a few different components to it, and I'm trying to bring that to life for you a bit, without going into too much detail, of course. The first one is very much around what it says here, the organizational optimization.
There's a couple of core points here, but the main one being, if you think about markets like Spain and Poland that have shown really big curriculum changes, that also meant we had to scale up significantly when you think about our content development or our publishing business. We're now at the end of those cycles. That also means we go back to more normal investment levels. Now, that means we are making changes in our publishing plans, and that means we are doing lower investments there, which is just a logical consequence of the cycle we see in the market. So that's a big chunk, which you can also see reflected on the right-hand side by the coloring. It's a big part of that EUR 55 million. That is not the only thing we're doing around here.
We also have other optimizations across the business. In every single business, we are looking, what else can we do to improve that? That's the first one. Then, publishing process improvements for our organization. There are several opportunities. We've always highlighted at every acquisition, we see immediate opportunities when you think about paper, printing, and the production. That has gone well in the acquisitions we've done, and we will continue to do it, and we're stepping that up. Stepping it up with centralizing more of that decision-making, having more efficient systems and processes in place, meaning therefore, that that also results in a lower cost base. That's a logical thing that you can do from my perspective, once you have the size we now have. So that's one area.
The other one is around, in our publishing, process, of course, what else can we do on the content creation side? You know, if you think about it from a, author perspective, once that, very localized content is made, you can actually, of course, the rest of the process do... it's, it's pretty similar for all our businesses. So how can you, with center of excellence and otherwise, how can you then really benefit from that and centralize also that, that more? And we have a lot of experts in our, business working on that to now really see how, can we do that in the best possible way.
But keeping the strength locally on the content side, benefiting from the fact that a lot of it afterwards really is done in a similar way across our businesses, and therefore, we can do it more efficiently. And then there is the publishing portfolios and plans. I mentioned earlier that we've created regions across our business, and I'll give you a particular example here now in the Nordics, where by combining Finland and Sweden from a publishing perspective, we really have had opportunities to roll out content that we developed in the Finnish market, adapt it for the Swedish market, and then roll it out there. And one of the architects of that, Mika, is actually in the room, who has really made that work.
It's just one example, but I think an example that really shows strength, because then it means a lot less investment, a lot less, for example, royalties we have to pay on, on that. So really a beneficial way of doing it. And that's just one example. We see that across the business, and on top of that, increasingly, we are also seeing, by bringing together the experts we have on publishing, you know, how can we share better content? Because the things that you can also think of yourself, for example, on certain subjects, math or languages, we can really bring together more of that content, combine it better, and therefore do it more efficiently. Those are steps that we are taking there. And the last one to mention there is around-...
You know, all businesses pretty much come from a situation where their publishing plans were very local, country-specific. I already mentioned we are now looking at more on the regional level, but we're also increasingly, of course, looking at that from a Sanoma-wide perspective. What that means in practice, that is, that you can then also smoothen your investment levels a bit more by saying, "I'm now investing more in that market because of the curriculum change," and then over time, that also moves again to another market. So we're looking at it more holistically than you're able to do when you purely look at it as a single market. So that's the publishing process improvement side. Then one other one is around harmonizing of our platforms.
Clearly, a big part of what we have been doing already over the last few years, and we continue to do so. And there are a couple of core components to that. The first one being that, we, of course, want to only develop certain solutions and features and functionalities only once, with one team, and then roll it out across the markets. That's what we're actively doing for both primary and secondary. And we also do that in countries where that makes most sense to do from a cost perspective. So in other words, we have scaled up significantly in Poland. We are scaling up in Spain, compared to more high-cost countries, where we used to have that. And that also links to another theme you see across all our markets, which is there's actually shortage of developers across Europe.
So being able to create good centers, tech hubs, also makes it easier for us to attract the right talent to do that. So that's an important part there. And then we also look at what should we do ourselves compared to outsourcing. And you saw a, I think, nice example of that last Friday when we announced our collaboration with Microsoft on AI. Because what you see there is, of course, it doesn't make sense for us to do all that investment ourselves. That's not realistic, but combining yourself with other players in the market, not exclusive, but also, and making them for sure that if a school has Microsoft solutions, we can really bring our content together with that, create really engaging solutions. That is very much what you see there.
We also do that with other players in the market as well. Then the last point, it's always a little bit called other, but it's other optimizations, which really, of course, means benefiting again from our scale wherever we can. To give you a very practical example there, we have, of course, now got the scale to introduce what I would consider proper HR systems, like something like Workday, but that also opens up efficiencies that we can do across the organization if you think about our HR processes. That's one example there, and you can go actually every support function with similar kind of solutions. So that altogether is the EUR 55 million that we talk about. Then the key question that, of course, comes up is, "Okay, that's great, but why is it not going faster?
Why, why do we have to wait till 2026 to see the benefits of, of all that?" And actually, all the work is now being done, which is reflected here. So if you think about it from the perspective of the work that we now do, 80% of that will have been done by the end of 2024. Some things, if you think about our publishing processes, to really change this, that will take a bit longer. But fundamentally, all the work to benefit from that scale, all the work to get Solar in place, is happening now. Well, that then begs the question: what, what does that mean?
But with a lot of financial experts in the room, I think the clear answer there is, because this is mostly investments in our content, the way that works for us as a business, it first ends up on the balance sheet as investments and then ultimately in the D&A. In other words, the lower investments will, for us, then lead to lower D&A in the years to come, and that's then what you see, particularly in 2026, with the actions we now take.
And then the last point there, and Alex will touch on that later as well, is that you then also, yeah, basically see the benefits of some of these cost savings and efficiencies when the volumes go up again, and the volumes will go up more in 2026, and I'll touch on that later when you look at the cycles. So that's around Program Solar and all those sort of key elements there. And another thing that is at play here that I would like to share with you is, we also see the profile of our business changing.
And partly, that's a consequence of the acquisitions we have done, but it's also deliberate actions, and that links me to the point, if you look at our business today, that 75% that you see here on the printed and digital, Learning content, that was 70% a year ago. And the key reason for that change is to do with the Italian acquisition. But there is also an increasing importance of, of the Learning content, which then, of course, is spread over all the markets, that we, that you know, the 12 countries, and particularly also, the five regions and bigger countries. If we look forward, we see that share, that share of more profitable, business to grow further, towards roughly 80%.
We also see the digital platforms to continue to grow, which is a logical consequence of, let's say, the blended learning and the digital solutions in the market. It includes school information systems, but also learning management systems. And then you see, the point around distribution. You see that that will become a smaller part of our, of our organization. We are still very much committed to distribution. We see it as an integral part of the offering, that we have, but we also have seen challenges there, and I would like to zoom in on that one and also share with you what we are doing about it to counteract that.... So to the point of it's an integral part of our offering, I would like to give you two very specific examples why it is important to us.
The first one is in the Polish market, where we do distribution together with our content of what we consider high-quality, specialized other publishers in certain areas. By combining that, we can offer to the schools a full package, which they really like. So that's a practical example of where offering it in that way really helps, and distribution is a means to to do that. The second one is around the entrance we have as a result of that in the schools. If you combine the businesses, you see normally that if you purely are focused on methods, you tend to speak to the teachers, and you tend to speak to the teachers around the methods.
If you look at it from a more distribution point of view, and that includes the digital distribution, that includes solutions like Magister in the Dutch market, but it also includes distribution of the materials, you tend to speak with the management of the schools, and that gives you opportunities to then also look at other things and elements where you can really help them with their day-to-day work. So that combination is, in our view, still very valid and also important. Having said that, we have seen, of course, really significant pressure and challenging situation in the Dutch distribution market, and we also expect that to continue. So that's, of course, not something where we just stand on the side. We really try to proactively take steps to counteract it and to deal with it.
The core ones that I would like to highlight here are, we are changing and optimizing our commercial proposition. Moving away from what we call the volume-based discounts together with the publishers to service fees, so to really be getting paid for the services we offer to the schools. That's the first one. Then we also take a critical look at which parts of the business are crucial to us and which ones are not, or which ones do we not see a future because the market no longer requires it. That's the second part. When you think about the rental model, that is a model that is no longer key needed in the market, so we are discontinuing that and transitioning together with the schools to a school-owned books for reuse.
And then the last one is around, you know, which parts of the distribution are structurally loss-making or very much, on the low, very low end of the margin, and that is with regard to the Belgium distribution business, the case. We are discontinuing that and also scaling as a result, of course, scaling down our overall overhead. So we're touching within the distribution business, all aspects to make sure that we, you know, get it towards that, average margin target of zero to five percent, but it does also mean a decline in the net sales. And we'll get back to that later on in the financials and what that, in our view, means for the coming years as well. So that's on distribution.
What I would like to do now is start to look forward with regard to the Learning content business. At that point, I know some of you have printed out the slide with all the cycles and really keep that as a really key important information point. We have updated that slide, and I would like to talk you through that now to give you a couple of the key elements there. And that's what you see here. I won't talk about every single line, but I would like to highlight two types of markets that we see here. So if you look at the one that ends at the top, which is Poland, there you see our latest view on where we think that market with its cycle will go.
And I would like to stress that we are not anticipating or forecasting here any fundamental changes in the curriculum. In other words, we're not trying to anticipate on a political change that then would mean a new curriculum will be implemented. This very much is a reflection of our current understanding of how the subsidy cycles in the Polish market will go based on what is currently already in place. And then you see that there is still fluctuations there in the coming years, particularly towards the lower end in 2025 and then up in 2026. The second one, which is similar in nature, is Spain. There, I highlighted earlier, the real key point around it being at the height now of the implementation of the new curriculum.
The logical cycle of that will then also be that we will see a decline of that next year. Simply put, all the books have been put into the market, and now there has been really good adoption. You saw also the point around our market share, continue to be strong there. But that also logically means that also from a funding perspective, that is then less in 2024, 2025. And then you see the normal cycle up happening again in 2026 and also after that. So that's the second part. Again, we are not assuming big curriculum changes for that market. Then the other category is around markets that show more consistent growth. Obviously, with the Netherlands being the nice straight line, there's a lot of hard work going on to make that happen.
But fundamentally, the Dutch market is now one where, yes, there are still changes in content and in curriculum, but that is managed from a point of view of that 70% of our revenue now, roughly, is in a subscription model, and we continuously change the offering in that market. So different dynamics compared to the other ones.... For those of you who afterwards will compare this with the previous version, there are some smaller changes there. We are looking slightly more positively now at the Belgian market, as an example. We're also seeing some further upside on the Nordics, but those are relatively smaller compared to the ones that I mentioned.
What I would like to do now is explain the thick blue line, because I think that is something where we're trying to be helpful in the way of, okay, if we now consider all that, what I just said on the markets, and if I then also look at the trends on the number of students, which across the European markets is a slow decline, a small decline, expenditure, which is going up per student, and then the market shares, which, as I mentioned, are stable to slightly growing as well. If you then take all that together, the thick blue line is trying to indicate what we think, with our current knowledge, that means for our revenue in this Learning content over the next few years.
Then you see that towards 2024, that would mean a small decline, sort of stability towards 2025, and then the up in 2026, which then links also to the point of, that's when we then really benefit with higher volumes as well from some of the initiatives that we are taking now on the cost side with Solar. Sure, we'll come back to this one with questions as well, but hopefully, that gives a bit of a feel for how we now really look at that and how we combine all that information. I would like to change tack a bit now and set up the scene as well for the simulations that you will see later on, to bring to life when we talk about blended learning.
And we see all kind of different versions of blended offerings across our markets. And to give you a feel for the kind of new products we launched, we did over 800 either method changes or changes to part of the method in 2023 across all our markets. So very significant kind of changes. And that is also a reflection of the different kind of levels of blended learning we have. And that varies from the print book with digital version. I don't know a market anymore where you would just step in and you would just see a print book. I think all our markets have that combination with digital. How much that is used, then it really depends on the teacher. You know, that is then where it becomes individual kind of teacher preference.
Then you see in the middle, the point where it is that combination, but also more exercises. So really benefiting online from the kind of, elements you can do to help the student and to also do a bit of personalized learning. And then the more, digital version of that is still in combination with print, but then also have more parts for the learning experience. Gamification can be one of them. All kind of elements do come into play there. The Dutch market is one where you see most of the different elements actually then happening. A big part of what we do as well is try to support the teachers with how they can best do the blended learning. So what do they need as additional material to make that happen?
So if you think about that, and the simulations will also bring that more to life later, then that is a nice link, I think, to where can AI for us then now really help? And how do we look at it? And I try to, of course, read as many of the reports that I can on AI and what's coming out. I mentioned already at the start, I think there is probably a bit towards the higher end of the hype at the moment, but there are, of course, fundamental opportunities here for us as a business and also for teachers over time. And that's what we try to reflect here. And if you look at it, then there are several opportunities to become more efficient in the processes.
Editorial, content creation, but always, and the teachers also give that back to us in surveys across Europe, always from the point of view that we really make sure that it is the right kind of content, that it is the high quality, and that it is specific to the market. In other words, that it meets the curriculum criteria, that it is age-specific, what you do, of course, a key point in Learning, and that it really is also done in with all the, let's say, ethical AI principles in mind as well. So a crucially important point there. Then the one where you see most enthusiasm also at our end, if we think longer term, is around personalization.
If you were to step into a classroom, and when I do that on a regular basis, then you do see teachers trying to personalize, sometimes in small groups, but they say, well, they are a similar ability in a certain subject or also more individually. That really depends on the market and the country and the teacher as well. But with AI over time, there is, of course, a lot more opportunity there to what you could call more hyper personalization. To me, that links back to a key point for a teacher, which is around the point of, okay, how can we help save time for the teacher? How can we make sure the teacher has as much time as possible around for the children? So that's that one, and that links to also more time savers.
If you think about our learning management systems, how can we, from the moment the teacher goes into the classroom till in the evening when there is marking going on, how can we help? And then last but not least, it's around the new skills, way to teach and way to learn. So really around the curriculum itself, but always with that high-quality content of ours as a basis. And that's also the basis of that collaboration with Microsoft that I mentioned earlier. Last point, coming back to something that was mentioned, of course, at the start. When we look at sustainability, not a core topic for today, but I wanted to share with you briefly, how we progress on that. We, of course, see that as a very logical part of our offering.
And increasingly, when you think about sustainability for Learning, it is a lot about inclusive learning, making sure you really include as many of the children, as many of the different ways of teaching that you can. And that's what all the different solutions that we offer in the market. So inclusive content, special education needs, increasingly very important in the different countries, and also accessible learning tools. So all these points are happening there, and that is also almost, for us, second nature. Whenever we develop methods, this is really part of it as well.
So let me round it off by highlighting again, if you come back to the, to the starting point, for us, it is all about execution of that strategy, that clear strategy that we have in place, focusing on making that scale work, Program Solar being a crucial one of it, and making sure we continue to grow organically with the strong blended learning solutions that we have. And all that leading to that 23% in 2026. So with that said, I would like to hand back to Kaisa and Susan and us to do the Q&A.
Very good. Thank you, Rob. Thank you, Susan. We are now happy to start the first Q&A session related to these questions. We will start from here at face-to-face. Please wait for the microphone. Then, a reminder to the webcast audience, please use the chat to type in your questions now during the time. In order to manage the agenda, this Q&A will take a bit more than 15 minutes at max. We will have a final Q&A in the end of the event, when Rob will be again on stage for that. So you will have another opportunity to ask questions. So please, if we start here.
Okay, thanks. Sami Sarkamies from Danske Bank. I have plenty of questions, but I will start from the two main questions I had for the day. The first one is regarding the Learning outlook for next year that you have provided. I think sort of the weak top-line outlook comes as a bit of a surprise, given what you've been alluding in the past, that you would be able to reach this 2% organic growth, even during years when there are no curriculum changes. If you look at the chart, there's only one country where you're faced with significant decline. That is Spain. So can you first explain why the top-line outlook is looking so weak for Learning next year?
Yes. I think there are two core elements there to highlight. You are mentioning one, which is indeed Spain. That is quite significant, if you look at the cycle there. The second one are the steps we are taking in the distribution business to basically stop some of the loss-making activities there. And that is another element. If you look at purely the impact of the Spanish, let's say, cycle, that is mostly offset with the other markets continuing its growth. So I think you look at that in the correct way. Yeah. But those two elements, including distribution, makes then the top line what it is.
Yeah. I guess you will still make those, material price increases also next year?
Yes, the above average price increases very much are a focus point, in line with what we said before. Yeah.
And then, if we come back to the margin outlook for Learning, just sort of trying to get my head around why you're not seeing more material margin improvement over next year. If I think about some of the factors, you have started the Solar program. There are some, let's say, quick wins. I'm sure about that. Secondly, you will be doing these price increases also next year. And then thirdly, the measures you're doing at Iddink, they should come with positive margin impact. So how come you're not seeing a more positive margin outlook for next year?
Yeah, I think the core point there being is that the vast majority of the actions we take in Solar, like I showed earlier, do take time to really factor through. You are right that there are, of course, also ones that you could consider more quick wins, but they are relatively much smaller than the core ones around our investment levels in the content, et cetera. Yeah.
Okay, and then maybe my second question, that would be on deleveraging. Given this, you know, outlook that you're painting, given the fact that you will continue to pay good dividends, to which extent do you see Sanoma deleveraging over next two-year period?
That is maybe something that we can come back to when Alex presents. I would keep that question as the first one for Alex.
Okay, thanks.
Please. Maybe we take on the left-hand side next.
Yes, thank you. Maria Wikström, SEB. I had a few questions as well, and the first one I really wanted to ask your teachers presenting here today, but I start with you, Rob, because I think it's good to hear your views as well. So how do you think the digitalization adds stickiness to your material? So kind of interested to see your views. And I mean, will the business be even more defensive going forward? I mean, if you combine the print and digital material, and then when the teacher gets to know how to use the digital material, that it's kind of like more sticky than it was with the school books.
We look at the market that is already the furthest advanced in that, the Dutch market, then that's definitely something we do see. So the short answer to that is definitely yes. That's-
... Good. And then, the second question on the, the Program Solar that, you had, was it, five different, parts, where you get the savings from? So kind of, a little bit more on your confidence that what do you think are like low-hanging fruit, and what do you think, I mean, requires more work that, I mean, you kind of, anticipate them coming, but you, you probably the confidence level is not as much as for the other ones?
Yeah, on confidence level, I'm very confident, and the reason for that is that, as I tried to highlight on the planning, a lot of it is now already, you know, firmly in action. If you think about that point that I made around the organizational optimizations, those are steps we have already taken and are continue to to take. To the point of what takes a bit longer to do, if you fundamentally change some of the publishing processes and really try to combine that in, let's say, the center of excellences for the production process, for example, that takes simply more time, because we of course doing that while we are also continuing to produce our content. So those are two quite different parts to it.
Then, yeah, there's other examples as well, but that's to give it a bit of a feel.
Then finally, on the Learning cycles that we discussed with a previous question as well, but what is happening in Italy? Because, I mean, that was kind of like a dead curve, I mean, in my eyes.
Yes, if you look at Italy as a market, there is not much curriculum change happening in that market. So what you mainly see there is in the market a slight decline in student numbers. So for us, growing in that market really means new products, new solutions, particularly also in upper secondary education, where you do new content on a much more frequent basis. So those are the core elements there. So ultimately, you win in that market by also introducing new solutions and market share.
Thank you.
Good morning. Anton Brink of Antaurus Capital Management. Three questions from my side. Firstly, looking at Learning, because emphasis is very much on basically stable sales towards 2026. But if I saw the graph correctly, then you're deliberately exiting roughly EUR 80 million in distribution business. And when correcting for that, one would see, let's say, 2.5% organic growth per year towards 2026. Is that correct?
Ballpark, yes.
Ballpark, yes. Then a question on the 23% margin in 2026. Because going back to the Q3 report, Susan specifically mentioned 23% is the new normal as of 2026. How does the timing of the curriculum renewals fit in that story?
Yes. Our aim very much is to indeed make the changes now such that the 23% then indeed becomes the new normal also after 2026. And some elements I mentioned around how do we then look at our investments across the business will help with that.
Should that imply reduced cyclicality in margins going forward, or does it imply further upsides in curriculum peak years, so to say?
I think it more implies, less cyclicality in the margins.
Okay, and the last question would be on Spain. Because in the slide, it was mentioned you're number one now in Spain.
Mm-hmm.
If I'm correct, then in previous slides, you've showed yourself as number two in Spain. No?
No. Number 1.
Okay.
We like to win.
Thank you. Do we have further questions from the room?
Hi, Sanna Perälä from Nordea. Continuing on the Italy question Maria had, and you mentioned that you... in order to win in the market, you will need to introduce new content on a regular basis. How do you see that? Will you be able to introduce new content on a desired pace to the schools and to the teachers?
Yeah, that's very much what the Italian team has a really good track record in doing. And that's also where the real local knowledge comes into play, and you saw just the one person, Mario, on the slide of as the key manager, but there's a very experienced team within Italy to make that happen on an annual basis. Yes.
Thank you. Then you had a graph of digital platforms and their margins. Why are they so low? If I remember correctly, 5%-10%.
Mm-hmm. Yeah, I think that's very much a reflection, what that market dynamics is, is like. So this is really focused on the, let's say, the learning management systems and, and those markets, where we see that these are the typical margins across the business, and we also see that, in our own, but also across the industry.
Thank you. My last question would be, maybe a little bit touching upon a further future. Do you already have some plans beyond 2026 regarding, for example, M&A or something else?
Mm-hmm. Well, we never comment on specific M&A, certainly not that far out. But I think the core component that I tried to highlight was, of course, that focus for 2024, 2026 on the in-market, highly synergetic, M&A, and then the bigger ones in the 30 years out.
Nothing concrete yet? Thank you.
Thank you. And then handing over to the right, please.
Yes. Hi, Pia Rosqvist from Carnegie. And Rob, congratulations to your appointment. I've got a question regarding the future and looking now at your plans until 2026. So, so where are you—I mean, I think you have made it clear you are confident that the Solar program is progressing well. But what keeps you awake now at night?
... Yes. Thank you, first of all, and, good point. I think there's a lot going on in the education market, right? And I see a lot of opportunities, so that is excited. That can also sometimes keep you awake. But of course, there are also constantly changes happening in our market. So for example, the specific of a curriculum change and how we respond to it is, of course, a key. In more general terms, if you also look at us as a company, of course, the economic situation and how that develops is a key, one that is a concern, and, and politically as well in, in our market. So it's the, what you could consider the more, yeah, logical ones, of course, and how that then impacts our business and our ability to act quickly.
Okay, thank you. But, nothing specific in the competitive environment which would make you concerned?
Well, we like to win, right? So we are really focused on that. Clearly, if you were to ask our local teams, and also if I look at it overall, then, of course, we do see competitive doing also a good job. So we really are fighting in our markets. But that's what we do, and that's also what we're really good at. So I have all confidence in the teams to deliver on that across all the key markets. So that's not so much that keeps me awake, that's more we need to get it done. That's it.
Thank you. Then to the M&A agenda, which has become very different now. And looking at the valuations in the market, I'm sure it's quite hard to get a good understanding, since there are very few deals. But when you talk about in-market acquisitions, what kind of valuation levels should we think about? Do you have any tangible on this?
I think you already phrased it very well. That is so difficult to see because it is so specific for any deal, right? So that is not something in generic terms I think we can meaningfully say something about.
All right. Then a final question. Going back to your last CMD, we discussed the conversion from single products to a subscription model, and that kind of improving the margins over time. So now, looking into 2026, what kind of contribution from this specific theme should we consider?
I think it's something that is baked into our overall numbers. It's not something we specifically comment or disclose on. One thing, specific example I can give, in the Netherlands, you see that continuous change towards more subscription base, which helps. That's it.
Thank you, Pia. Any further questions? Yes. Okay, please. Sami, continue.
Sami Sarkamies, Danske Bank. Okay, Susan, I remember you coming in eight years ago, smiling. You're still smiling. So why are you leaving us?
Yeah. No, I think that is also a good thing to sort of come in and leave smiling. So, you know, that's... It's been great eight years. I think the company is in very good shape, very solid position, a very capable team to take over, so that's a good moment to leave.
Okay. And then, coming back to the Solar program, unfortunately, a couple of questions. I think one item was publishing process improvement. I think in the past, your message has been that it's not really possible to migrate or reuse content developed in other countries. Now, I think you're actually going to do that. So, what has changed, and could this also result in you seeing new competition?
So a couple of comments on that. It's one part of the publishing process redesign, but it is indeed there, and we do see opportunities, and I mentioned a specific example in the Nordics. So yes, that is true. With the increased scale and bringing people closer together, we see more opportunities for that now than we saw before. But to put that in perspective, that is not the big part, of course, of Solar. That is a benefit from the scale we now have and bringing the experts together in that market.
Then, secondly, on Solar, I was a bit surprised that the role of IT wasn't bigger than what it is on the chart. You've announced a couple of additional investment programs related to IT in recent years. Just wondering what the status is and if you will be opening this, let's say, roadmap in more detail. We know that these are usually quite complex topics, and usually, things may easily fail on that front.
Yes, I think, it is an important part of what we do. The point is here also that we already were doing elements of that before, and we're now factoring in what is still to come in the future years. That's also maybe why it is in proportion what you saw here. You're absolutely correct in saying that this is, of course, a very important part of what we are getting our benefits of scale from. So we are very focused on it with a dedicated team, and what I mentioned at the start, getting additional expertise at the senior management as well, will further help with executing on it.
What are you kinda like assuming by 2026 in terms of, I don't know, shared Learning platforms that... Do you think you will be having those in place? And, are some of the, let's say, Solar benefits,
Yes
... kind of like driven by, by those happening?
Yes. I mean, the good news is we already have platforms across our markets that we use combined. I think we will continue on that path, and we will always look for ways to do that faster and better. At the same time, it is also important that you do it with the market firmly in mind. And the situation, let's say, in Spain, is a different one than in the Netherlands. We need to reflect that in the solutions we bring to market. But that idea of only delivering and developing once is, of course, a fundamental part of that.
Thanks.
Please.
Hi, it's Pia here again. A clarification regarding the distribution business. You have talked about the Netherlands and Belgium, but the other larger markets, like Poland and Italy and Spain, is distribution not an issue in those markets, or what's going on?
Yeah, so I tried to give an example on Poland as well, which was around the point of the combining the content with niche, really high-quality players there. That's what we do there, that's what we continue to do there. So the bundling of offering is happening in that market, and we continue to do that. That part of the business also there has that similar kind of profile, but we do that. In the other markets, it is much smaller part of our business. Yeah.
Okay, we have time for one more question, so please go ahead.
[Jan Nagell from Evelyn Funds]. Yeah, you said that in solar, a high share of the savings comes through lower investments and lower D&A going forward. Just... Can you just... Which investments are you talking about there, and sort of flesh out a bit more? Is that content or platforms or what?
Mainly on the content, to be specific on that one, and it is linked to the cycles that I showed. So it really is, fundamentally on the markets where we did the highest investments over the last few years, which is Spain and Poland, normalising that more to what you could consider more like long-term averages, which is also needed in that market. So that's really specifically a big part of it, and then there are all kind of smaller parts as well, but the fundamental part is in those areas.
Now we need to move on in the agenda. We will come back to the Q&A in the end of the event. So, sorry for that. I would like to remind to the webcast that you can use the chat function. We haven't received any questions from there yet, so just making sure that it works. So please ask questions. Now, I thank Rob and Susan, and we move on to do the simulation of blended learning. And we start with primary education, where we have Minni Heikkinen from Helsinki area, a primary school English teacher, and she will take us to a primary school English lesson. So we have a teacher in the room, so remember to behave and participate in the teaching. So I hope you enjoy the class.
Thank you.
Good morning, everyone. My name is Minni Heikkinen. I teach English and French in a primary school in Espoo, Tapiola. I am one of the Come With Me authors, the books that you have on your desks today, and I am very proud of our series, and I'm very honored to be here today. I am a huge fan of blended learning, which means that I use the teacher's digital material, and my students still have the printed books during the lessons. I'll show you today that we learn English by singing, moving, speaking, and playing, and that's what we'll do today. I hope you will participate and be active. I've chosen a lesson from our third-grade book, which means that the students are about nine years old, and they have been Learning English for two years. Yes, so let's start.
I would normally ask the kids to stand up and greet me, but I will not do that today. Instead, I'll ask you to open your textbooks on page 22.
A living room. Great, good job! Music is a big part of our series, and then we will move on to a song. We are Learning prepositions: in, on, under, behind. And instead of singing, I'll ask you to use your finger and show me in. Can you show me in your mouth? On.... under, behind, in, on, under, behind. In, on, under, behind. In, on, under, behind. In, on, under, behind. Good. Now with the song. Are you ready? In, on, under, behind. In, on, under, behind. In, on, under, behind. In, on, under, behind. I'm in my room. What do I see? In, on, under, behind. Oh, a puppy is hiding from me. In, on, under, behind. In, on, under, behind. In, on, under, behind. In, on, under, behind. In, on, under, behind. A puppy in my bed.
Good. I think we'll leave it there. Good job. I'm very proud of you. After the song, we'll move a bit. The instruction says in Finnish that you should jump, but I will not ask you to jump. The kids should jump every time they hear a piece of furniture in English, and I have to clarify, a room is not a piece of furniture. So if you hear the word, for example, a chair, raise your hand, okay? So listen and react if you hear a piece of furniture.
Mm-hmm. Good. Great. After moving, I would then use this play corner puzzle piece and play with the kids. We have instructions in Finnish for different things that we can do in the classroom, where we act and we play and use English. These are the instructions. After moving, then we would speak. They learn the core phrases in this comic. In this chapter, it's: "Where's the red ball?" "On the sofa." "Where's the blue ball?" "In the kitchen." And I would ask the kids, "Can you please look at the pictures? And I will ask you, where's the red ball in the pictures?" Where's the red ball?
Under the bed. Yes, perfect. Good. After speaking, I would use this digital lamp here. We have different kinds of games that we can use. I, in my classroom, I have a smart board, which means that I have a big tablet that the kids can come and click, so we play. But today, I will test your memory with this game. Please look at the pictures. Try to remember all the words and the pictures. A memory test. I will then hide one of the pictures and ask you which one is missing.
Attic.
Attic, good. Great job. Another one. Look at the pictures. Which one is missing?
Aha, good. Last one.
Table, yes. Perfect. Good. I could use all of the three games if I have the time. After doing group work, we would then move on to our workbook, and we have the same words and prepositions in the workbook. I would do a listening activity, then a coding exercise, and then I would probably give you homework, which would be workbook page 37. And there we have a study tip in pink, which says that at home you should write all the pieces of furniture and rooms on pieces of paper, and then you would have to put them on the right places in your own home. So you would take Learning to your own home by adding the words there.
I am, as I said, I'm a fan of blended learning, so the kids would do these writing activities, but I would remind them to use their smartphones, 'cause we have, free, applications that you can use at home. You can listen to all of the songs, watch all the videos that we have a lot in our series, and you would be able to learn the words with these flashcards and learn English with your smartphones. But that would be my lesson altogether. You've done so well that we will move and we'll skip a few grades and move to secondary school right away.
Indeed. Thanks a lot, Minni.
Thank you.
And, I have a pleasure to invite Kirsi Silonsaari on stage. She's an English teacher for secondary school from the middle of Finland, Jyväskylä, and she will show you how she uses digital and tools in her work. It's a bit different compared to the primary education. So please, Kirsi.
Thank you. We'll go here. Yes, good morning, everybody. My name is Kirsi Silonsaari, and yes, I'm an English teacher in upper secondary school in one of the biggest schools in Finland called Schildt Upper Secondary School. I'm also an author in the Element series, so at the moment, I would encourage you to pick up the Element 6 book on your table, and I will not be giving you a lesson. I will be giving you an insight into what the content of the book is, and also how I use the digital materials of the digital tools that I have at hand. I've been teaching for 20 years, and teaching has changed quite a bit since the introduction of laptop computers in class, also with the introduction and implementation of digital materials.
It is divided into two sections now. We have the content in the printed material, and the content is essential. I'm teaching upper secondary school students who are 17, 18. They don't want to play fun games anymore. Unfortunately, it would be really fun to do the same kinds of, of games as Minni was showing. They want something that they get interested and excited and enthusiastic about. So the content of the book needs to be something up-to-date, talking about the world, introducing phenomena from the science, from the economy, from, all kinds of aspects of life, society, politics, and all that, because we need to get them prepared for further education. We need to get them prepared also for the working life and life in general when they graduate and do their matriculation exams.
So, what we study is cryptocurrencies, for example, quite current topic as I've read the news today, and it is also in the news now. Here's an example of a text in the economy section. Module six is about further education, working life, and economy. So, we are bringing quite a challenging topic of crypto trading to the students' level with the help of an article taken from the BBC, and this article explains how a crypto trading hamster is beating human investors. It is a fun task because the topic is quite challenging, but it allows us to introduce the theme of economy, of cryptocurrencies, also to make them quite critical readers, critical thinkers, and it also allows us to embed vocabulary that then provides them the tools to go on to further education and working life.
So with the help of this text, we can also teach them the English words for different types of companies in the yellow box over there, the fact box, but we can also move on to general vocabulary on economy. So English is, is basically a tool to learn about the world. So here, for example, different words regarding personal finances, word pairs, market terms that are then valuable for them later in life. The content of the book, if you want to browse it further, it can only be... Like, it cannot only be text, it also needs to be something else. We are teaching them media literacy. They need to be, skilled consumers of the media after they graduate.
So if you want to browse back to page 32, there's also a different kind of example of a text that we offer them. So we're not only offering articles or blogs. They read quite a lot of blogs already online, and social media posts and so, and such. This is an infographic, also requires a different kind of skill that they need. We give them poems, we give them fiction as well, we give them advertisements and commercials and videos, and the tools to analyze them and to break them down into pieces, and also understand and critically evaluate them. So here, for example, an infographic on how humor affects the workplace, how to reduce anxiety with the help of humor. Also, to make it a bit lighter, but teaching them skills that then hopefully will benefit them in the further life.
This is the content. It needs to be thought-provoking, when I'm dealing with students who are 17 years old. There needs to be something that gives them food for thought, something that kinda ticks their clock. So something that that gets them a bit excited about something, and that's what we try to do with the Element Series as well. So it's not just about everyday life, but also something that kinda gives them new ideas about life in general. What the digital material then gives us, in addition to the printed book and the content, it gives us tools to make teaching very effective. So here, for example, what the students do in the digital material, they have all the exercises there.
And now that we are not restricted by the book covers, we can offer them all kinds of exercises at their own skill level. So we can, we can have as much material as we have authors create it. This is an example of one of the best advantages of the digital materials: self-corrective exercises. So here, for example, a student can test their knowledge on shortened sentences. This is grammar. So what they do is they start making the exercise. They click on Valmis when they say, "Okay, now I've chosen my answer here." It was correct, they get instant feedback. If the exercise says, "Okay, this is incorrect," they can go back, they can revise the topic, they can revise the theory. They learn from their mistakes.
They don't need to wait till the next lesson, for example, to get the feedback, whether they got it correct or not. So they can try again if it was incorrect, but they can move over, move forward if it was correct. They can do it again and click Valmis. And when I now click forward, this exercise is adaptive. This is probably the future of teaching as well. This exercise first gives the student a medium level exercise, and when the student succeeds well, gets two correct answers, it gives them a more challenging task. So it adapts to the student's skill level, and this is important in upper secondary school when the students come from very various backgrounds, and they also have very various skill levels. So now nobody gets frustrated because now they get more challenge. They need to actually write the answer.
They don't have a drop-down box anymore. If the student then, let's just write something here. If they get two answers incorrect, they get an easier task again. So for the weaker students, they don't have to push themselves to doing the same challenging tasks as the ones who are, like, skilled in English. They get easier tasks, they can revise, and then go up the levels again. Well, this is also kind of like a game they play. They want it green. They want to get it correct. They want ten out of ten of the exercise, and they want to get to the next level like they do in games that they play on the computer, for example. And then, at the end of the day, they can always retake the tests.
They can retake the exercises and try them again and revise and practice, and this makes Learning individual. It makes it more independent as well, but it also makes it a lot more effective. The best teacher tool that I have at hand is called the Dashboard. I'll show it here. I have blurred out the names, but this is what has changed teaching in the past three years or so quite significantly. I now can see how the students are performing without circling and going around, so this helps me plan the lessons. When I step into the classroom, I open my dashboard, I see the homework exercises, and see who has done the exercises, who hasn't. If it's white, they haven't done the exercise. If it's green, they have done, and they have succeeded in the exercise. They have all the answers correct.
If it's still red, I can see that the student is struggling. So here, for example, the first student here, I see that this student is struggling, so they might need more individual guidance, and I have time for that now that I don't need to go through all the exercises in class. I see that this exercise, for example, here, this is the exercise. Only two students struggle with this exercise, so I don't have to necessarily spend time on the exercises that the students have already corrected themselves at home. I can pay attention to the exercises that seem challenging for the whole group, like this exercise here.
So I can go back and revisit the theory, I can go back and revisit the topic, I can explain, and then focus on the ones that are challenging and not, no longer, focus on the ones that are not challenging for the students. If the exercise is green here, it tells me that it is not self-corrective. It needs my attention. I need to explain and show them the right answers and go to this exercise together with the group. This is probably the thing that has changed my work most because now I plan lessons according to this learning analytics, but I also make it more individual with the help of this analytics. It saves time. As I said, I don't have to go through all the exercises.
I can just point out the ones that actually do need to going back to. So, that's basically how I use the digital materials and the content. I use them side by side. I have the, the book at hand and also, for example, the students who have learning disabilities, the book is a must. They struggle with reading from the screen, so it's good to have the book. But then again, they also benefit from the, self-corrective exercises and the fact that they can redo the exercises as many times as needed to get to their skill level and set goals for themselves and, and also reach the goals. So, both are essential, and they make a combination that creates an, an effective learning environment, also an effective teaching environment for me. So, yes, this is what it's like.
Not as fun as in lower secondary school. I'm sorry, but yes, this is what the 17-year-olds need and what I need in upper secondary school. Yes.
Thank you very much, Kirsi. Now we know that the chat in the webcast is working because we have one question, and it would be for Minni. So Minni, may I ask you to come back for one minute? So, because I think that this is an interesting question, so if we can take it still. I don't have a mic. Then please take a mic so that we can hear you. Yes. Thank you. So first of all, there is thanks for you for an amazing presentation. Thank you. And have you enjoyed the new learning and teaching methods offered by blended learning? Yes, I have. I think, what Kirsi said about printed books, I feel like someone asked about the stickiness of digital material. I don't feel that. In Sanoma Pro, what we use works.
It works well, it gives us opportunities, and we have, for example, our series is known for the songs, the videos that are really high quality now, and, and different kinds of games, and the fact that the kids can use their phones at home and really learn the words and listen to everything. It's easy, it's you have your phone with you. So I, I am very proud of it, the blended learning. What do you think are the biggest upsides and downsides if, if the use of digital increases in schools? How do you see it from the primary school perspective? If it... Well, maybe the screen time is something that we're worried about, the kids using too much time on screens, so that is one thing that we're concerned about.
I have kids at home and, if they play too much or they watch too many videos, I don't know how it affects them in the future. So that's a concern, and that's why, for example, I love the blended learning. Very good. And, any tips how one can get kind of the most out of the blended materials? For teachers? For teachers. Get to know the material. We have so much. The feedback that we've gotten that there's so many, like, too many nice things, I don't know what to choose, so get to know your books and the videos and the teacher's guides. There's a lot, and when you know what you have that you can use, then it'll go very well. Yeah.
Thanks a lot, Minni. Thank you.
Thank you.
Now we will start the break in the webcast session. We will come back 11:30 EET, 10:30 CET. Here, in Helsinki, in the room as well, there is an hour break until
Welcome back to the webcast and the agenda. We will move forward, and next, I'm happy to invite Pia Kalsta, CEO of Sanoma Media Finland, to talk you about our media business. Pia, welcome.
Thank you, guys. Many of you have been following the digital transformation of Sanoma Media Finland for years. We have been transforming a traditional media company into a focused, profitable, and digitally-driven company. I have been working for Media Finland since a CEO of Media Finland since 2015, and I must say that I'm still thrilled on the daily basis about the development I see. I would like to share you today why I'm confident right in Media Finland business. We are making good progress towards our unchanged long-term margin target of 12%-14%. However, in the short term, we are not immune to slowing down of GDP growth and the resulting advertising market decline... but going forward, increased digital scale, where the digital growth compensates for the decline in print, starts to improve our profitability.
We will, of course, continue with the productivity work, which is already part of our culture, and generative AI will be an additional tool in that work. And recovering advertising market demand will contribute to our profitability. From the ESG perspective, the core of our business, independent Finnish media, has a positive impact on people every day. So as you know, Media Finland is built on two pillars: news and feature, and entertainment. We are the leading provider of domestic independent journalism in Finland, and we have a strong position in domestic high-reach entertainment. News and feature accounts for two-thirds, and entertainment one-third of our revenue. And in both of our businesses, we have a portfolio of strong, independent, and still complementary brands, and both businesses are well-positioned with Finnish content, with Finnish point of view against global competition.
We have substantial synergies in commercial operations in both B2B and B2C, whereas content and digital content consumer platform synergies are mostly within the news and feature and within the entertainment. And through our portfolio, we reach, we have very high reach across the target groups, which makes us relevant for all advertisers in Finland. And this high reach also helps us to grow our subscriptions. And today, B2C revenue accounts for over 50% of our top line. So how does the team driving Media Finland business look like? We have a strong and experienced team leading Media Finland. This management team has worked together since 2018. The team consists of members with extensive media business knowledge.
There are more of us in the team who has been working for media from 15-20 years, and then combined with team members with strong substance knowledge in sales, tech, finance, HR. With this team, we are going to drive the digitalization forward. In the coming years, the focus will be on increasing the digital value for our customers to prepare us for the digital-only future. The starting point is excellent. We have the needed scale to succeed. We reach 97% of Finns every week, and we already have 900,000 paid digital subscriptions. We will further accelerate our digital development, both in subscriptions and advertising, and we will also continue the productivity work, which will now also be helped by AI.
Now, I would like to show where we are and what we are going to do with news and feature and entertainment business. Let's start with the news subscriptions. News media subscription base has become highly digitalized. In five years, we have grown our digital subs base by 22 percentage points, and now already 95% of the subscribers pay for the digital component. Going forward, we will focus on growing the digital usage of our current subscribers, as well as the digital subscription base. We will invest in consumer experience. For example, now we are about to launch our new news media apps for all our news brands, and this is something that only happens every five to six years. We will also digitalize our sales and marketing processes.
For example, today, around 100% of our VOD sales is done via digital channels, and that percentage is around 50% for our news media. So potential is definitely there. Over the past years, we have made continuous investments in digital transformation, and the plan is to continue at the same investment level. You most likely wonder, what is the margin impact when a subscriber then switch from print to digital? And let's look at that next. A transformation away from a seven-day hybrid product improves the consumer contribution. Because the seven-day print, seven-day product, that for the seven-day print product, the printing and distribution accounts currently around two-thirds of the consumer price, and the cost is even higher in the outer regions of Finland...
We will continue to carefully manage the transformation speed from print to digital, to give time for our consumers to learn to use our digital services, and for us then to adjust our supply operation, supply chain operations. And hybrid productizations, like Helsingin Sanomat Print Weekend, combined with the digital product, play an important role in this transformation. We have now looked at transformation from one product to another. Let's look at where we see growth potential. Even though we are a leading provider, leading player in Finland, we still have growth potential in digital subscriptions. Our news brands have strong subscription penetration in their core areas: Helsingin Sanomat in metropolitan area, and regional news brands in their respective regions.
Digital news consumption overall is growing, and the competing local and regional print media is being published less frequently. This creates additional potential, especially for our national digital news media, Helsingin Sanomat, outside of its core region. We actively benchmark our media businesses in U.S., in Europe, and now we see that media companies with portfolio of brands have started to package their digital offering with excellent results. They have managed to decrease churn and improve household ARPU and penetration. And going forward, we can also use our unique position and package our news and even entertainment subscriptions products to create value for our customers. For example, we can offer our regional customers regional subscribers Helsingin Sanomat digital at an attractive price on the top of their current subscriptions.
In the print world, this wasn't possible because of the high cost of sale, but in digital, we can, we can do that. Digital opens up new opportunities in packaging our offering. Let's move now from subscriptions to Ilta-Sanomat, the largest digital news media in Finland, which is advertising-funded. Ilta-Sanomat has 3 million readers a week, and it reaches two-thirds of the Finns on the weekly basis. According to our knowledge, IS is actually the largest digital news media in the world when it comes to reach and usage per capita. And, and during its transformation, the reach and impact of IS has grown, and the revenue has been stable. Digital B2B already accounts for over 50% of the revenue, and, and that is of higher contribution than print revenue.
IS ambition is to increase the leadership as the most used digital news media in Finland by growing its audiences, strengthening its video and audio usage, and continuing its strong track record in display advertising. We have years of experience of using AI throughout the company. But for our news media, generative AI presents significant new opportunities. With generative AI, we can both improve our products as well as improve our productivity. We have a large number of use cases ongoing already. I can see that our teams are truly enthusiastic about the opportunities. But while going fast, we have very high integrity, very high transparency when using generative AI to safeguard the trust our audiences have on us.
But just to give a couple of small examples of the ongoing activities, we already now use generative AI to summarize our articles, and in software development, we have progressed fast, and we use generative AI tools to improve productivity and speed of development. So quite a lot of going on. Let's now take a look at the other part of the business, entertainment, and how we have positioned ourselves in that market. TV accounts two-thirds of our and radio and live together one-third of our entertainment revenue. We have leading brands in selected segments and a highly efficient organization running this business. Nordic TV business has been in the headlines during the past months. And let me share you the our content strategy and how we differ from our competition.
Our TV strategy focuses on domestic entertainment, non-premium, mainly domestic sports, and content partnerships. We monetize our content investments efficiently through windowing, so we use the same, mainly the same content through FTA, advertising funding, advertising VOD, and subscription VOD. We have not invested in expensive premium sports. I have learned my lesson during my years in entertainment when we, when Sanoma acquired ice hockey league rights, and prices have gone up even, even if, even after that time. And we have been very focused also with our drama investments. And this strategy might have seemed conservative, but now in times of economic uncertainty, we can continue the path we have to build a sustainable position here in Finland. And as you know, FTA segment in Finland has been challenging with overcapacity and low prices.
And for that reason, we have been careful with our content investments in FTA, and we have carefully shifted investments towards VOD. This approach has resulted in a slight loss of viewing and market share in FTA as expected. However, we have taken good care of our campaign-level reach, which is competitive and very important for advertising customers. Going forward, we expect that the FTA segment and our share to be rather stable. The declining viewing minutes will be compensated by the price pressure coming from scarcity of the FTA inventory and the recovering economy. It is good to keep in mind that currently, the TV price level in Finland is around one third of that in Sweden. So the starting point price-wise is low. Now we start to see also change in field rates.
Currently, TV advertising, even in these economic circumstances, is practically sold out in Finland. So we have been conservative in FTA investments, but how is our VOD segment doing? Continued growth of our subscription VOD service, Ruutu+, demonstrates that there is strong demand for domestic content. Even this year, which with economic uncertainties, Ruutu, Ruutu+ subscription base has grown by 10% and ARPU by 25%. And so what is behind this growth that might even surprise you? And it is driven by three factors. The first, a part of this is driven by the transformation from linear, but it's also driven by our smart windowing strategy. Then, our partnership strategy is delivering results.
During the summer, we launched Paramount's Pluto FAST channels to our Ruutu service, and these Pluto FAST channels are digital linear channels focusing on one content type only. So we have channels for Top Gear, South Park, Frasier, a huge number of channels currently on Ruutu service. And in October, we launched then Elisa Viihde content as part of Ruutu, and there we added a complimentary drama and movie content. And this partnership Elisa previously had with Viaplay. And thirdly, productization. Our SVOD has different product tiers with advertising, without advertising, and we have been launching those products actually before our prior to international players. So I believe that Ruutu growth will continue.
There is definitely demand for domestic content, and now it seems like the global, local Nordic players are pulling back their content investments here in Finland to some extent. So let's then move to advertising market and how that impacts our business. As you know, advertising market is inherently volatile, and during the past years, it has been hit by Corona, the war in Ukraine, and resulting decline in economy. In the graph, you can see the market development in the domestic measured market, and in 2023, this year, we estimated the media market to start to recover towards the end of the year, but that recovery has not taken place. Currently, we estimate that the total market will be -4% this year.
Going forward, we estimate the measured market to be flat, but when exactly will the recovery start? It's hard to estimate. 2024 will most likely still show negative growth, and it will be closer to 25 when we see the advertising market recover. When looking at our advertising portfolio, the performance of digital advertising starts to compensate for the decline in print advertising, and our print advertising represents only around 20% of our total advertising revenue. As mentioned before, we have lost some market share in FTA, but that has been a conscious choice.
Going forward, the total TV measurement, where we combine linear TV and digital TV into one inventory, will improve our competitive position against the global players, because there we will have a very competitive campaign reach. In addition, the potential opening of the gambling market early 2026 will create advertising growth opportunities in Finland. So how does all this reflect into our profitability? Our business is resilient, but it is not immune to economic downturn. Even though we took action early 2023 to mitigate advertising market development, the market conditions have had an impact on our profitability this year. And we continue to expect that our operational EBIT, we expect that it to decline by 40% compared with year 2022.
Our long-term margin target of 12-14 is unchanged. We have a solid track record of efficiency improvements while transforming the business into digital. And now, going forward, AI will be an additional tool in that work. The recovery of the Finnish advertising market will help us to reach our long-term target, and in addition, we start to now see the reduction in paper prices, and paper volumes will continue to decrease. To summarize, we have very strong digital positions in journalism and entertainment, and we have a solid roadmap how to drive the digitalization forward. The digitalization of our business, as well as our continuous productivity work, combined with gradually improving advertising market, will help us to reach our long-term margin target of 12%-14%. Thank you.
Thank you, Pia. And, we will now take questions for Pia. Reminder to the webcast, please use the chat function there, but we will start from here in the room. Maybe on the left-hand side to us, please.
Thank you. Maria Wikström from SEB. You presented, like the logic between print and digital subscriptions. I'm curious to hear that... I mean, do you think, I mean, in the medium term, if we are going to see the time when, like, the domestic newspaper Helsingin Sanomat doesn't exist in the print format?
We will follow that closely. But we do our best to cater for the consumer needs. But it will be about the consumer preferences. And I don't see that happening in the near future. But what we do see is the transformation from seven-day to weekend product or from seven-day to digital. But it is a kind of long continuation. But the next years, the next 2-3 years, we will focus on digital consumer experience, so that if in some regions, for example, we cannot distribute the HS product any longer, the consumers are also happy with the digital product only. But it's a transformation journey.
If we talk about the financial impacts of a transformation from, like, a hybrid to pure digital, I mean, of course, the sales will go down, but what happens to the absolute EBIT?
I showed in the graph that the consumer margin will actually improve because the cost of sales will go down. But that only happens when we can manage the speed so that we can also then adjust our logistics and printing operations at the same time. But that is something that we have done for the past years. I'm confident that we will be able to do that also going forward.
Then finally, on the margin target, because you are still quite far away from this 12-14 range, which also in the historical perspective looks quite, I mean, quite high, or at least, I mean, there is some way to go. You didn't tell about any new cost-saving efforts. How do you really see yourself getting to within that range?
We have not set a clear date for that, like, compared to like we have done in Learning. And most likely, we will reach the target. I believe the target is realistic, but most likely, in the long term, most likely in five years. And it will be a but the profitability will improve also along the way. But it will be a product of three factors: The first, the Finnish economy needs to get back to its long-term growth trajectory of 2%. We will continue with the productivity work that we have done also previously.
That is so ingrained into our culture that we don't see that any longer as a program that we would publish to you, but it contributes every year to our product, our profitability. And then the digitalization, of course, of our businesses will contribute. So I must say that it's a realistic target, but it's not a target that we are going to achieve 2024 or 2025. It will be a combination of our efforts and then improving market.
Thank you.
Thank you. If you hand back the microphone. Thank you. Go on, please.
Yes, Samuel Wilhelmsson from Nordea Credit Research. I had one question concerning Ilta-Sanomat. You mentioned it's a very big media for you, and it's ad-funded. And also regarding you said on the advertising market that, of course, we know that it has been declining a bit, and it is uncertain, somewhat volatile. So concerning a large ad-funded media, do you have any, let's say, ongoing initiatives, for example, for the digital page, you know, for this kind of subscription-based content or anything like that to mitigate the advertising effect?
Yeah. Are you referring we have seen that in neighboring countries?
Yeah, because the-
... evening, evening newspaper-
Yeah
... have also subscription services. The sheer size and reach of IS in Finland is so big that it's as an advertising media, it has a great future. But of course, we looked into opportunities to add revenue sources, but advertising will definitely be the core, given that we want to take good care of the reach of Ilta-Sanomat.
All right. Thank you.
Thank you. If you hand over. Thank you.
Hi, Sanna Perälä from Nordea Equity Research. I have a couple of questions first also regarding the advertising market. If it's expected to decline next year and be somewhat flat the following year also, is there any way you could win the market since you've also lost market share and so on?
Yeah, good questions. First, to the advertising market development, I wish I knew the exact timing of the recovery. That would also help me steer the business. But I expect the market recovery to start at the latter part of next year or early 2025, but I might also be wrong. So, that's hard to estimate. And when it comes to market share in digital, we are gaining share, and that is important for us in the long run, and that is what we are geared for.
Thank you. And then regarding your increasing share of or increasing the amount of paying customers in Finland, how do you see it? What does it require? Is it more marketing or new content or maybe better platforms, or what's needed in order to gain customers?
Yeah, that's a really good question. We have now seen, after strong growth during the Corona, that the subscription base is for some products stabilized or slightly decreasing. I think it's a combination of everything that you said. Individual products need to be sharp. They need to understand their audience. They need to be relevant. But then it's also about the potential that we have in packaging and creating value in digital. So it will be also a marketing and sales game. So it's practically kind of a combination of all these. But in the heart of everything lies good, relevant content and sharp brands.
Thank you.
Thank you. If we move to the other side, please.
Okay, Sami Sarkamies, Danske Bank. A couple of questions. Firstly, starting from the long-term advertising media market outlook, you're not seeing any growth beyond 2023, but I was actually a bit surprised that you didn't highlight this gambling impact more because, I mean, that could easily lift the market by more than 10%-
Yeah
... just looking at other countries.
Yeah, you are right. I didn't want to raise it yet because the legislation around the new license system is ongoing. Like most of the audience know, that the gambling market will open in Finland early 2026, and it's really dependent on the regulation on advertising, what's the uplift? But when we see other countries where the gambling markets have opened, the uplift has been significant. And as soon as we can start... we see how the regulation will play out, then we can, then we will give kind of estimates, what is the potential. But that's definitely kind of potential in the latter years.
Yeah. And then, in the presentation, I mean, you were quite critical regarding expensive content investments, and I mean, they haven't really played out too well in the past.
Mm.
But if you look at the market environment today, there's actually a lot of turmoil, and many of your peers are in deep trouble, so you don't see a room for, let's say, opportunistic moves due to changed situation?
We are also commercially driven organization, so we can be opportunistic. But we know how to excel, so we will not get too excited. But if there are opportunities, we will definitely catch them. You are right, there might be some rights coming to the market at the lower prices than what they have previously been. So we do follow the market very carefully.
Okay, and then finally, you noted the Elisa Viihde cooperation that started in, I think, October.
Yes.
How will that be visible in your financials?
It will help us grow and improve our profitability, and it's a cooperation that is beneficial for both parties. Elisa benefits from our marketing power, and their customers get broader content offering. And the content that we have now added to Ruutu Plus is highly complementary. It's especially the drama and movies that our supply has been somewhat... or offering has been somewhat limited.
Okay, thanks.
Thank you. Please continue.
Thank you. Pia Rosqvist from Carnegie. On the page 37, you showed the picture of digital sales growing, and to me it seems like it's, it's kind of leveled off now since 2021. And my question is really why, and what are your concrete steps to improve this? Are we lagging here behind the development in the other Nordic countries?
If I start with your last question, I think we are lagging here compared with the other Nordic countries. And in this market, when the total market is declining, I wouldn't draw kind of conclusions how we are going to move forward. We have also kind of seen the growth of international peers kind of momentarily slowing down. So the market will definitely the advertising market will digitalize, then the question is about the pace. How fast? And I think in digital advertising, it is about creating kind of creating value for customers. So it is about the targeting and being able to convert, and it's...
So it's a combination of reach and using data and understanding our customer needs.
Eventually, things won't be, you know, slower in this adoption.
We do have some catching up to do.
Yeah. Right. Okay, and then maybe coming back to your margin target of 12%-14%, the, which seems really far away now. So, improving ad volumes, that's a clear step change. But if you would put the other margin drivers in, in some kind of order, how would you place the other margin drivers?
Then, it's definitely our productivity improvements throughout the company. It's process improvements using AI. It's exactly the same work that we have done before. I also see potential in packaging our offering going forward. Paper price is going down, play a role there. So given our portfolio, it's a product of number of developments, but of course, the advertising market is the most pronounced.
Thank you.
Thank you. Now we have on the left-hand side, any further questions, please?
Yes, Anton Brink, Antaurus Capital Management. You said specifically the 12%-14% is to be expected on a five-year horizon. But could you speak a bit more about the adversity that you faced this year, and also in the context of the stabilization of the advertising market, what one can expect in terms of margin improvement going forward? Is this sort of the low point of the cycle in your view?
Yeah. I think that what you see now in 2023 is that how this business performs in a high inflation, low advertising demand environment. And then going forward, it is. I do repeat myself, but it is about recovering of advertising, continuing the productivity work, packaging our offering, and then continuing the digital transformation that we have done. But it has the improvement does have a number of components in there. And reaching the long-term target, then it's like I said, realistic. In the long term, most likely not happen earlier than in five years.
But would you dare to commit to, let's say, gradual improvement in margins and also absolute profitability, and then a further pickup in 2026, given the gambling regulation?
Yeah. I wouldn't promise a linear improvement-
Okay
... because we don't control the advertising market development. And we come back with the 2024 guidance in February, as you know, so we can then continue the discussion.
Any further questions to Pia? If not, then, Pia, thank you.
Thank you.
... We will continue with Alex Green, CFO, coming on stage and kind of summarizing everything from the financial perspective. Please.
Thank you, Kaisa, and great to be here with you, with you all today. And, you know, as Kaisa said, we've seen some great and compelling presentations from Rob about the Learning business, and then from Pia just now about Media Finland. I'd like to bring this all together and take us and show the clear path we have to meet our long-term profitability targets. And I want to do that in three pieces: the increasing profitability that we've talked about, this improving our cash flow generation, and then strengthening the balance sheet, which this enables. And these lead towards our long-term financial targets.
In particular, we've talked a lot our operational EBIT, excluding PPA, in the Learning business of 23% from 2026, and as we were just talking in Media Finland, in a slightly longer timeframe, the 12%-14%, which we will get to. Firstly, though, I'd just like to talk a little bit about our sustainability targets, which are incredibly important to us as an organization, and all the way through the organization. And here we see on this slide the two types of sets, the emissions reductions at the top, both on the Scope 1 and 2, which is our own emissions, and then on Scope 3, which is 95% of the total through the value chain. Now, we have ambitious targets that we've set, as Susan said earlier, to be carbon neutral by 2030, and we're on track with these.
We have annual targets that you can see here, annual reductions, and you can see in the brackets well, how we have done in the prior year. On the lower part of the graph, the employee side of this. We have an employee experience index target, which is above the European average. European average being, I think, at 7.1. We've set ourself a target of 7.5, and we're well on the way. In terms of our management gender balance, again, very pleased with the progress there to get towards our 50/50 in 2030. But let's start with where we are, summarize where we are in the business. On this slide, talk about the portfolio and the growing seasonality.
So on the left-hand side of this slide, you can see the revenue splits of the Learning business and the Media Finland business. And as Rob talked about here, Learning content coming from our seven countries, this is a growing part of our business in Learning and also the higher profitability part. Just touching on the platforms bit, heard from a question earlier, remember that when we do this split of revenues, the platform part of this is where platforms are sold without content. So this is platforms only. And then, as Rob said, the lower margin is about, you know, to do with the industry margin. So the Learning content with the platforms together comes into the Learning content growth side. On the Media Finland side, Pia mentioned print advertising in this.
As this evolves towards further and further digital, that print advertising is becoming a smaller and poorer part of that pie. On the right-hand side, you can see the difference between the business in terms of seasonality. Very steady from Media Finland through the quarters, but a very big difference in the Learning business, with the high emphasis on the Q3 results due to the sort of cycle of a school year. This means that until Q3 results, up to that point, it's only at that point, rather, that we really have a great idea of how we're doing for the year and how the year's gonna pan out. So as we reported a few weeks ago, we had a solid Q3 performance.
This solid Q3 performance in both businesses came from successful implementation of the curriculum renewal in Spain, the Italian business coming in and adding to our sales, but also the continued efficiency improvements in the Media Finland business, as Pia was talking about, which enables them to navigate through the challenging media sales market. Just to add to that point, because they've continuously improved the efficiency, they've become a lean business, so that when the advertising market does drop, a large percentage of that drops to the bottom line. But as the market recovers with a lean business, it goes straight up. As you see, and you talked about that margin being far away from the 12-14, it does go up quickly as when the media sales market improves.
Over this period of 2022-2024, we have seen fluctuations in our main cost levels, particularly in paper and printing costs, which has been 30% increased in 2023. Significantly higher prices and also the increased volumes in the Learning business with these curriculum changes in Spain and also the cycle renewal in Poland, have increased those, increased those costs. We expect those to go down in 2024. The prices have, have peaked, and with the lower volumes, that will be a lower cost to us next year. However, personnel expenses will continue to be a challenge for us as they will rise again next year. With the inflation, this was a 10% increase in 2023, and we still see that factoring into, into 2024. However, as mentioned earlier, we continue to implement price rises successfully.
Very pleased with how that went in 2023, and as we put these above-average price rises through, we'll continue to do that in 2024. But let's look at now the increasing profitability, starting with the solar program in the Learning business that Rob talked through. So this brings, as he said, the full benefits of the scale, generating the EUR 55 million of EBIT impact from 2026 onwards. And in the middle of the slide, you know, as we announced a few weeks back, this does have costs relating to it, which we will book as IACs. EUR 30 million in 2024, we already booked EUR 15 million this year, connected to these programs, which generate these savings in 2026 onwards. And to reiterate, a couple of reasons why that takes the time.
Part of this is to do with resizing our effort and our teams in terms of content creation, post these large changes. This mostly booked on the balance sheet and then comes through as depreciation and amortization over the next years. As you reduce those costs, that impact on the P&L comes comes over time. And also we see, in terms of the margin percentage, that fact, the lower volumes in the next couple of years impact that, as we go forward, so that the full impact will be in 2026, as you can see on the, left-hand side of this graph, showing the Learning's profitability. So coming from our estimated amount of around 18% this year, you can see the annual Solar benefits coming in.
Remember, this is a margin percentage slide, so we do see the benefits happening in the sense, as Rob says, the actions we're already taking now, but they're offset by the impact of the fewer curriculum changes, and also by the changes to the distribution business that we talked about in terms of reducing the size, or getting out of certain contracts which aren't beneficial to us, which then drops down the volumes. So that leads to the targeted 23% in 2026. On the Media Finland side, we just talked about this a lot, but I'll go through it again. The 12%-14% target coming from the continued efficiency improvements, also the AI impact in that. The recovering of the Finnish advertising market.
You mentioned also the possibilities around the opening up of the gambling market, which, depending on regulations, could play a factor in there. And also the higher digitalization as we go forward, resulting in the lower paper and distribution costs. And as I just said, very lean business, so margins quickly rise again with the improvement in the net sales coming from advertising. Now, let's touch a second on 2024 sales. As Kaisa said before, we're not offering guidance for 2024 at this point. We will come back and do that once the year is completed in February.
But to give a sort of directional idea, on the left-hand side, in terms of net sales for 2024, we see going from our current levels, the lower sales in Spain, as we are past a large curriculum change, is mitigated greatly by the growth in the other, the organic growth in the other Learning content businesses, but that impact of the distribution change, netting us, somewhat, lower, slightly lower than the previous year. And on the Media Finland, so, sorry, Media Finland side, we're expecting to be relatively stable in sales in 2024. Subscription sales to grow modestly, driven by digital, with the Ruutu, Elisa deal contributing to that. And then the B2B advertising sales, we're expecting to remain stable, but to recover in later years. So that's in terms of summary of the increasing profitability plans that we have.
In terms of improving our net free cash flow generation, as we've mentioned before, free cash flow in 2023 will be somewhat higher than the previous, previous year or the previous year's underlying. And underlying, meaning we remove the one-off impact of the Italian acquisition. Now, higher financing costs have obviously challenged the cash flow going into this year and also for next, but we've improved our working capital management significantly this year, both in two ways, both within the year, improving our H1 position through higher prepayments, earlier billing, but we're also improving it for the full year. Again, with the earlier billing, better collections or more increased level of collections, but also in managing our stock levels. So, earlier with low cost of capital, having higher stock levels was less impactful.
With the higher cost of capital, we've looked to reduce the money we tie up in stock as much as possible, so just having what we need in stock for the periods straight after that. So reduced stock levels is helping us with our cash flow. But where does this go going forward? So we see improved cash flow in 2024, but more so beyond. And this is the improving profitability over time, but also the investments being more efficient earlier. As I said, we're taking actions now in terms of our content investments. That has an earlier impact on cash reduction than it does on the P&L. So we'll see that coming in sooner and improving cash flow. We will maintain the better working capital management, which is impactful.
And also from 2025 onwards, we will have reduced IACs. As I said, in 2024, we have the large impact, EUR 30 million, coming from Solar project, but not past that point, so that improves the cash. Now, offsetting this slightly is the further increase in financing costs that we will see next year. We're not expecting interest rates to come down, and also with our changing, with our bond expiring, which was at a very competitive rate. We have got a very good rate in terms of our the loan that we have signed, as we talked about, but net, that will have an increase in financing costs still in 2024.
So with the increased free cash flow over time, I'm gonna go back to the slide that Susan took us through at the beginning of the day, and highlight the change in focus. So on the right-hand side, we will focus on de-leveraging. And so lower levels of M&A as we focus on in-market, very synergistic, smaller size opportunities. Still investing in the business, still investing in paying a dividend, which is a key part of our equity story. But the focus will be on de-leveraging the balance sheet. And what we want to do is we want to get to 2026, Q1, when the hybrid bond expires. The repayment of that hybrid bond, we will then fund through operating cash. So when we get to that point, we will stay within our leverage targets and equity ratios, et cetera.
So the idea of strengthening the balance sheet over that time, generating cash through increased profitability, enables us to pay off that hybrid bond in 2026 and continue operating. You also see here the leverage and equity, the leverage ratio moving around significantly due to the seasonality. Again, I touched on that, earlier. My final slide, just a reminder that we have the refinancing in place for early next year in terms of the EUR 200 million bond maturing. We have a new EUR 100 million term loan with our, one of our relationship banks, OP, which will be drawn down in March. We'll use that, plus our existing funding facilities, better cash generation, commercial papers, backed up by a revolving credit facility, which is there at all times and currently unused.
That puts us in a good position, and you can see here the details of our debt structure and our maturity profile. So in summary, the increasing profitability, both Rob and Pia have talked about, helps us improve the cash flow generation over time, but also earlier in the P&L with the actions we're taking with Solar. This is helping to enable us to strengthen our balance sheet and get to that point in 2026. Higher profitability, paying off the hybrid bond in a good position for those larger M&As going forward. So that's the path. And with that, I will move to the Q&A. I'd like to invite our Learning CEO and newly elected Group CEO back to the stage, Rob Kolkman, and also Pia Kalsta, who is our Media Finland CEO, as well as Kaisa, to help moderate the Q&A.
Thank you, Alex. Now we open the Q&A again from the room here in Helsinki. Please.
Okay, Sami Sarkamies, Danske Bank. Coming back to my earlier question around deleveraging, you have obviously provided sort of your summary of the situation, but so is it looking so that next year, effectively, you will not be deleveraging because of the factors you highlighted? But then, the plan is that over the next two-year period in 2025, 2026, you would be deleveraging to the extent that you can kind of refinance the hybrid bond from your cash flow.
That is indeed the plan. So as you say, next year, to a lesser extent, because we have those investments in the IECs, but ramping it up in 25 and 26. So very much a three-year plan to get to that desired outcome.
And, okay, fast-forwarding to 2026, you have this 2030 ambition of reaching EUR 1.5 billion in net sales for Learning. How will you fund those acquisitions?
EUR 2 billion net sales. So, yes, well, de-leveraging the balance sheet, enabling us to, will open up the opportunities to do that. We believe through, at that point, with the higher profitability, better cash flow generation, lower leverage, we have in that time, the we have in that position, the time to, through our partnership banks as well, enable us to provide the funding for M&A that gets us to that target.
Okay, thanks.
Thank you. Please, Pia, continue.
Thank you. Pia from Carnegie. I was thinking about the cash flow profile and how it turned out weaker than expected. One thing we haven't discussed much is the VAT issue, which has drained your cash flow, and without that, things would have looked different. So first of all, maybe to Pia Kalsta and the EBIT margin targets in Learning, were they set at the time when, you know, the VAT wasn't an issue, so that was according to plan and kind of your business had a higher but not sustainable margin? So I mean, is the margin target really valid since these circumstances have changed?
I think the margin target is realistic in the long term. We review it carefully. I can guarantee that I review it carefully, and I believe in the margin target, and it has taken into account.
... Okay, and then the VAT, in its total, can you remind me the size of the cash outflow? And then on how the process is now, where are we in the legal process?
Let me start with that, maybe Pia will do the second part. So it was gross, it was EUR 35 million, but it was in 2021 and 2022. We actually... There was a sort of tax benefit back, which net, net, it was about EUR 30 million. Pia?
Yeah. And now it's, we have taken it to the higher administrative court. This is kind of the last point of decision. We and our advisors strongly believe that we will win the case, and in this phase, it will be kind of examined from the beginning, so that it will be a thorough investigation. But then once we get the decision there, then it's final, but it might take years to get it.
Thank you.
Thank you, Pia. Please, Maria, continue.
Yes, I mean, this is a question to actually the slide 55, when you represented the earnings profile of Learning and Media Finland. Now, I don't have the slide in front of me, so I don't recall the colors, but I think, well, I think it's easier. Yes. So here, that you don't give guidance for 2024, but how should I read this? Because it, to my eyes, I mean, now, the blue and purple bars, I mean, look exactly the same size for 2024. So I would read that the margin target for next year for Learning is basically the same level as this year, and then it's a little bit higher for 2025. So is this how you want us to read this chart?
This is indicative. As you said, we're not guiding till 2024, but we did want to show on this slide a sort of general idea of the path, particularly the ramp up in 2026.
Okay, thank you. And then, the other question is, I think this was a slide 58, where you show on the this is again on the deleveraging. And I just wanted to... Because we have seen the companies that are basically skip the dividends in order to deleverage quicker and be able to, to leave room for M&A, and now I see the dividend on the top. So is this how you kind of view it, that, I mean, the dividend first, and then comes the rest, or how should I read this chart?
Yeah, I think on the dividend side, that is a very important part of the equity story for us. So that very much also continues in line with the policy that we have in place. So that's also why it is showing here specifically.
Just to add to that, the order of it is not important. We actually wanted to connect the M&A and the deleveraging at the bottom, so that was very visible. It's not that it's in order of priority.
Okay, good. And then, finally, as M&A story has also been part of the equity story, and I think you say that now, for the coming years, I think up until the 2026, you're ready for smaller in-market acquisitions and then for the bigger ones. So what do you define by small?
So we, we have the headroom to do something around the same size as the Pearson acquisition last year, so about EUR 200 million. We would think that it would not necessarily be one, but in-market acquisitions over that period. So in a sense, two or three smaller ones than that, that sort of, if you like, bolt on to a local market, add an extra angle, highly synergetic, maybe new subjects or new methods within a particular market, which add on and increase the value in that country.
So small is EUR 60 million-EUR 70 million?
Small can be. So basically, to do it the other way around, the large acquisitions that are needed to get to that EUR 2 billion ambition, or the EUR 1.5 million in Learning, it's not those ones. Those ones will be later. You know, smaller than that, and within that headroom of EUR 200 million. But, you know, as Rob mentioned earlier, you know, it can when the opportunities come, we will look at them, so there's no specific target of any particular size.
Okay, thank you.
Thank you. Please.
Thank you, if I can continue. Regarding asset health, and I'm now thinking about Iddink. Iddink has, at least to me, turned out a bit different than maybe was planned for at the acquisition. Is there a risk of a goodwill write-down now when you do a cleanup of operations?
Yeah. Shall I?
Go on.
I think we see Iddink very much as an integral part of that offering in the Dutch market. And the benefits are also still very clear, like I highlighted before. So from that perspective, we see it as an integral part of the offering. Maybe Alex, you want to-
Yeah, in terms of the goodwill, I mean, we do the annual impairments as per IFRS, every single year, and also at other times, if necessary. I would say the risk is not particularly increased. We do individually write down certain... Sometimes we've written down certain platforms, also rental books, as that market have moved away. So we've done some relatively small, to what you're talking about, adjustments, but overall, the risk hasn't changed in that area.
Thank you.
Thank you. Any further questions? Okay, then I think that we, we thank for the kind of active discussion, active questions, and thanks for all the presenters. I would like to hand over to Rob for the closing remarks.
Thank you very much. Let me click through here. So yes, I would like to make a couple of closing remarks, and firstly, I would like to take this opportunity to say a huge thank you to Susan. Susan has led the organization over the past eight years with what I consider enormous dedication, commitment, and also passion for the business, and that has truly resulted in what you've seen today, a very transformed organization compared to eight years ago. So on behalf of all the team, Susan, thank you very, very much for that. Of course, at the same time, I'm very excited now to take over and lead the organization into the next phase. And for me, that really comes down to getting it done.
You see two clear strategies in place that were the result of that transformation I talked about, and we are really, as a team, and also me personally, are very focused on making sure that that is being executed over the next, over the next years. With all the points that we've mentioned and highlighted today around the increasing profitability, that growth focus organically, and also the strengthening of our balance sheet. So, I'm very excited to now lead that into the next phase. Also, very much looking forward to engaging with all of you, going forward. So thank you for joining the CMD for now, and look forward to, continuing the conversation. Thank you.