”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.