"During the first half of the year, Learning’s net sales were stable, though with significant variations between the markets. In our operating markets excluding Spain, the organic growth and financial performance were solid despite the current inflationary environment and increasing paper costs. In Spain, late regional governmental decisions related to the introduction of the new curriculum LOMLOE led to substantially delayed deliveries. Therefore, a significant shift in sales in Spain from the second to the third quarter, combined with expected higher marketing and content production costs, led to a sharp decline in operational earnings. Currently, we estimate that in Spain, the phased implementation of the new curriculum will create solid growth in FY 2022, however, most of the growth related to the new curriculum is expected only in 2023, with some postponement even to 2024. Across the learning business, we are well prepared for the third quarter high season.
In Media Finland, net sales growth was driven by the events business, while the overall profitability reduced. Subscription and advertising sales remained stable both in the second quarter as well as for the first six months. Despite stable subscription sales in the second quarter, we see a downward trend particularly in new subscription sales, after the coronadriven period of strong growth, which is expected to impact the second half of the year. After two years of the coronavirus pandemic having a heavy impact, the events season started with high hopes among all stakeholders – artists, audiences and us – but has turned out to be more challenging. In June, the number of visitors was lower than expected, and by now we can already say that this trend continued in July, and the financial performance of the events business will not reach the 2019 pre-corona levels. The increasing paper costs that – against our expectations – were not mitigated by earnings of the events business led to lower second quarter earnings in Media Finland.
Our free cash flow was lower as a result of lower profitability, higher net working capital, the earlier indicated additional investments especially in digital development in learning and higher bonus payments compared to the exceptionally low previous year level. Our FY 2022 expectations are unchanged, i.e. the underlying free cash flow will be slightly lower than last year due to higher investments as indicated in February. In addition, there will be a positive free cash flow impact from the Pearson acquisition.
I would like to thank our teams for their commitment and solid performance in continuing to grow our business sustainably and to successfully execute our development projects in the more challenging economic environment. Their ability and commitment to mitigate the impacts of increasing operating costs enables us to keep our full year outlook unchanged.’’
27 July 2022