”The year started as we had anticipated. In Learning, the first quarter is always seasonally small in net sales, with all sales and marketing efforts for the high season gearing up, and consequently this is always a loss-making quarter. The acquisition made in Italy in August 2022 has increased the seasonality of our business and thus the first quarter has become increasingly loss-making. This was further amplified by the impact of the high cost inflation, which is being compared to the close-to-zero inflation environment we still had a year ago. We have implemented increases in our selling prices that will have the biggest positive impact from the third quarter onwards, and are taking cost mitigation actions across the business. Overall, it will take 1−2 years before the impact of the high inflation will be fully transferred into prices. In Italy, the integration has continued according to our plans, the cultural fit of Sanoma Italia with the rest of Sanoma Learning is strong, and the teams are well-prepared for the upcoming high season.

In Media Finland, a different sales mix and high inflation had an impact on operational earnings. Higher margin advertising sales declined by 5% against a solid start to the comparison year 2022. We gained market share in digital advertising, but lost some in TV due to continued prudent TV content investments. This follows our projection that for the full year 2023, the advertising demand will decline slightly, with most of this taking place during the first half of the year. The slight decrease in the total number of subscriptions reflecting the weakening consumer confidence continued, while the targeted price increases generated overall stable subscription sales. There was a significant increase in paper and fixed costs compared to the first quarter of 2022, when there was basically no inflation impact yet – not even in paper prices, as we were still using the inventories we had built before the price increases accelerated. We have a good culture of active and conscious cost containment in place, and the teams across the business continue to reduce costs and improve processes very well in challenging conditions – despite this, we expect Media Finland’s operational earnings to decline by one third compared to full-year 2022.

Mirroring the increased seasonality with the acquired Italian business and the inflated costs, the free cash flow decreased significantly in line with our expectations. As communicated in February, the larger scale of the learning business will significantly increase the working capital required during the first half of 2023 versus the previous year, correspondingly leading to the clear majority of the cash coming in only in the third and fourth quarters. For the full-year 2023, we expect the Group’s free cash flow to temporarily decline. It will be impacted by the normalised free cash flow of the acquired Italian business, lower earnings in Media Finland, continued integrations and investments in our digital platforms as well as significantly higher financial expenses.

In early March, we issued a EUR 150 million hybrid bond. We consider the bond as the best way to strengthen our balance sheet to increase financial flexibility and support the execution of our strategic plan at all times, given the increased annual cyclicality of our business. In the current volatile capital markets, we wanted to make this transaction as soon as it was possible for us and were pleased with the broad distribution and significant oversubscription of the issue. Including the impact of the hybrid bond, our leverage (net debt / Adj. EBITDA) at 3.2 was stable compared to the end of 2022. During the second quarter, the leverage will seasonally increase. It is good to realise that the above leverage differs from the one that is used for our debt covenants, where the definition of net debt to non-adjusted EBITDA is used instead of adjusted EBITDA. Adjusted EBITDA is significantly lower compared to the non-adjusted EBITDA, as the annual amortisations typical for our business (broadcasting rights, pre-publication and rental book amortisations) have been deducted, while for debt covenants the leverage is calculated by using the much higher non-adjusted EBITDA that excludes the said amortisations.

Our Outlook for 2023 remains unchanged. The first quarter performance was in line with our own internal expectations. This year, we will focus on further building the long-term strengths of our businesses around learning content, harmonisation of digital learning platforms, integration of recent acquisitions and leading offering in digital news and entertainment, and thus coming out of the recession even stronger than we went in. We remain committed to our growth strategy and continue to be interested in value-creating acquisitions in K12 learning content. In the near term, we are most interested in smaller in-market acquisitions, as our main focus this year will be on integrating the acquired Italian business and gaining the scale benefits that our European learning portfolio can offer.

Another step in integrating sustainability even deeper into our business was taken in early March, when we included climate and accessibility related sustainability KPIs into our EUR 300 million Revolving Credit Facility. Our climate targets in line with the Science-Based Targets initiative are currently being reviewed, and we are expecting the validation to be finalised after summer.

I would like to thank our employees for their commitment, innovativeness, and agility as we are progressing towards the learning high season confidently and well-prepared. Thanks to our teams, we continue to give our best in serving our customers across the business also in these volatile and sometimes challenging circumstances.”

4 May 2023