Sanoma Oyj (SANOMA) Earnings Call Transcript & Summary

Good morning, everyone, and warmly welcome to Sanoma's Third Quarter Interim Report for 2020 (sic) [ 2022 ] Presentation. My name is Mira Rinne-Helenius, and I work as an Investor Relations Manager here at Sanoma. I'm joined today by our President and CEO, Susan Duinhoven; and CFO, Alex Green, who will shortly present the third quarter results. After the presentation, we will have a Q&A session, and we will start by taking questions from the audience here at Sanoma House. After that, we will move on to take the questions from the telephone lines. Please note that you can also place your question via the chat function on the webcast platform. This event will be recorded, and the webcast, including the Q&A session, will be available on our website shortly after this event. Without further ado, I welcome Susan on stage, please.

Thank you, Mira, and good morning to you all. A warm welcome also from my end to this Q3 results presentation. We saw a quarter with good net sales growth due to the Spanish curriculum change and the recent acquisition in Learning. And if we look at that EUR 40 million in revenue growth, you could see that being split between the Learning business and the Media Finland business, both organically growing, and then EUR 20 million of that growth was coming from the Pearson acquisition of Italy and Germany. So an organic net sales growth of 2%. But even with that good sales growth, our operational EBIT declined, and that was due to 2 reasons; one, a particular reason was the Dutch learning distribution business that had a difficult high season this year. But then, throughout the business, we saw higher paper cost impacting both the Learning business and the Media business. So that made the overall operational EBIT, excluding PPA, EUR 192 million year-to-date. Now with that lower earnings and the higher investments that we had already indicated at the start of the year, our free cash flow landed below last year at EUR 48 million. But there, we also have to realize that where last quarter we were talking a lot about the Spanish curriculum change being late in its decision taking. And therefore, a lot of the revenues moving from Q2 to Q3, and now, of course, feeling happy that we see that full revenue into the third quarter. But it does mean that the cash flow is now, of course, also delayed following that revenue shift and comes in more towards the year-end. So that is one of the reasons for the lower cash flow now in the year-to-date figures. If we then look at our leverage, our net debt over adjusted EBITDA, that's at 3.3%. That is above our long-term target of being below 3%, but that is very logical because the Pearson acquisition of Italy and Germany was only closed on August 31. So the loans that we have taken from that are fully in the debt. If we then look at our outlook, that is unchanged. On August 31, when we did that acquisition, we adjusted the outlook based on the fact that the Pearson businesses are only for 4 months into our results. So in that sense, slightly dilutive. But since that moment, the outlook fully stands for 2022. But let me now go into a bit of detail on the Learning business. If we look there at the net sales, we see strong organic growth, and that comes from Spain and the Pearson acquisition. The Pearson acquisition itself contributed for more than EUR 20 million to that sales growth. Organic growth was 2%. And there, you see the 2 effects that we have talked about before. Spain, where we are very happy to say as indicated that the lease in the curriculum implementation have now come to full bloom, I would say, in the third quarter. We see that the conversions in the schools have gone well. So the market share that we were aiming for is fully there. And that is something that we will benefit from, of course, not only this year, but also in the coming years. We still see that a big part of that curriculum change will flow into 2023 as we said before. But in the places where the curriculum change happened, it was done well. What we also knew in advance is that in Poland, where the last curriculum change was last year, that we would have a strong decrease in the market. And strong has different meanings for different people. So if I attach a value to that EUR 18 million lower sales, and that is just totally in line with how the whole of the market in Poland has performed. So you see that decline, and then you also understand that all the other content businesses have also grown quite nicely in the Netherlands, in Finland, in Belgium, and with that, still resulting in a net organic growth even with a decline of that size in the well-performing Polish business. So a lot of pluses and minuses, but overall, good solid sales growth. If we then look at the earnings, there we see some impact, not in the learning content businesses. Those have performed very nicely. Earnings improved across all markets, of course, apart from Poland. Because in Poland, the EUR 18 million revenue decrease, of course then also translates as expected in a EUR 10 million lower profitability in that market. But that is, I would say, all part of the normal curriculum change. All the other learning content business is doing quite nice despite the very significant impact of higher paper cost, because we're selling hybrid solutions, both digital and paper. So we are impacted by that increase. Where the issue was in this quarter, what made overall a net decrease of EUR 4 million EBIT in the Learning business was in the Dutch distribution business. That business declined due to a bit of an exceptional situation and a very strong competitive market that is ongoing there. Now, it's good to realize if we just deep dive a little bit into that. It's good to realize that a distribution business is by nature a low-margin business. And therefore, if costs start going up on a big base with small margin, then you're very quickly entering in the zone of actually losses. So the inflationary cost pressures that we see, be it on trucks, on fuel, on all aspects of the operation already had a significant negative effect. But then, it was compounded by an extreme shortage of labor in the Dutch market over the summer. Where normally this business, where if you realize it is only in 4 to 6 weeks that those millions and millions of books and parcels have to be constructed, and that is all manual labor. So over 500 people are needed in order -- during those couple of weeks in order to push that business out. If you can't, at that moment, get the labor, you need to pay almost whatever it takes to get the people in to do the work because you can't wait, because there is the hard stop of the school start. So that's the business they're in. And this year, quite exceptional situation where both the increase in labor rate per hour was needed, but also we had to rely on foreign workers to be brought into the country quite quickly in order to fill those shortages. And then, compounded by another unfortunate element that we had not seen before, and that is that publishers were late in delivering their books. And that not only creates the cost of double deliveries, because in the end, you need to make sure that the students can at least start with the majority of their books. So you have to do that first delivery, and then you had to do the delayed books in a second delivery. So that extra cost, but also it creates, of course, a massive inefficiency during your whole process, because you -- it's quite impressive to see the scale of that operation once you start handling over 5 million books in the period of a couple of weeks. Now, a number of these effects are one-offs. But a number of them, we expect -- take for example, the labor cost and the labor shortage, we expect also to continue into the next year. So we want to pre-warn a bit that this business, even though we see that the pressures in the market have led to also thinking through on both the publisher and enter schools to optimize this chain, and that will give in the longer run, good results back to this business. But for next year, we still expect some of these impacts to continue and, therefore, a relatively low performance also next year. Now, whole story on that business, but we don't often talk about it, this is now a moment to understand a little bit the pressures that business is under. But as said, the acquisition of Italy and Germany performed well according to the plan, contributed already nicely to both the sales, but also to the earnings in the third quarter, in that 1 month that we owned that business. So all in all, earnings strong in the content businesses issue in the Dutch distribution business that made the EBIT go down with EUR 4 million year-to-date. The Pearson acquisition, I already talked a bit about it, and we have, of course, presented that before. But with this acquisition, we're quite happy to now enter the Italian market, which is one of the largest K-12 market in Europe and which is at the starting point of its digitalization. It's the third largest publisher, 15% market share. And the interesting thing for us is, it's focused on secondary education. And that gives us more scale in that important part of the publishing portfolio. And that allows us then also to invest further in digital platforms, specifically for that part of the K-12 market. The EV of this business, EUR 190 million, as said, we closed it on August 31. And with this acquisition, our share of learning revenues within the total group increases to 55% and the share of total profit, the total EBIT excluding PPA, increases to about 70%. As we indicated, the sales for these acquired businesses contributed around EUR 20 million in the third quarter. And for the full year, we expect EUR 4 million to EUR 5 million contribution in operational EBIT. If we then turn to Media Finland. There we saw stable net sales and earnings a bit impacted by the higher paper cost. But the stable net sales we feel quite comfortable with. And it's quite a complement to the Media Finland team to have achieved this, because the advertising market as the B2C market are declining slightly. But if we look at the total advertising, we're in a good position that the digital and the radio advertising is continuing to grow, which are typically quite resilient types of advertising, and then, of course, compensated unfortunately by a decline in print and TV. And that made net a small decline in line with how the market segments operated. If we look at the subscription sales, that also declined slightly, and it's coming from a high of the corona-driven period. Because during corona, we had these 2 balancing factors, lower advertising but higher B2C. Now, the subscription sales is coming back to a more normal level. What we do see is that also when consumers are economizing the exchange print for digital, which is, from a top line perspective, leads to a decline but is not necessarily a negative for our profitability. In the quarter, the event sales and the external printing services contributed to the net sales and compensated the decline. But there, even though the net sales, of course, stay stable that way, we know that we're exchanging high-margin sales for lower-margin sales. So therefore, you see an impact on the operational EBIT. That was EUR 21 million compared to EUR 24 million last year. And a large part of that difference is coming from the increased paper costs, that even with economizing on our paper usage, we still see that in our numbers, and then, as indicated, change in sales mix impacting the profitability. Just on the events business, a small positive contribution also in the profitability in the third quarter. But for the full year, as we have indicated before, it will be around breakeven. Now if we then go to the outlook for the full year, that is unchanged since we last updated it on August 31, and that was an update only because of the acquisition of the Pearson businesses in Italy and Germany. We only have those businesses 4 months in our numbers. So it was slightly dilutive on the full year outlook. But unchanged at this moment, meaning in 2022, we expect to be between EUR 1.3 billion and EUR 1.35 billion in sales and a group operational EBIT margin, excluding PPA, to be around 15%. At this point in the year, looking out for the last quarter, we can see that we will be on the lower end, trending towards the lower end of these ranges. Now, this outlook is, as before, still contingent on our operating environment staying stable, and that means the continuing coronavirus pandemic not to have an impact on our business, also not in the fourth quarter in the advertising market in Finland for the whole of the year to be stable. So outlook, '22, unchanged. But if we then look forward to 2023, then we see an operational environment that will continue to be challenging. And we are in a solid position, a strong starting position with a resilient learning business that has -- will be looking out for some growth, both in Spain with the second year of the curriculum change, but also in Poland where we this year had a big step down, and in Poland, next year, a small curriculum change will be happening. So that will end that decrease and give a little bit of uplift, but nowhere near back to, let's say, last year's levels, but still a bit of an uplift. And then, of course, the addition of the Italian and the German business. In Media Finland, we have a good starting position because the digital advertising continues to grow, and it is by now the largest single advertising part of our business, so the largest single segment. And that is typically a segment that is more resilient towards economic worsening situation than, for example, TV or print. And then, part of our good starting position is that we are quite used to thoughtful cost management across our businesses, and we will apply that again in full for the next year. But we do think that when we look out for 2023, there are also elements that will burden our performance. We see, as discussed before, that in learning our Dutch distribution business will have another year of strong market pressures, but also in Media Finland. Declining advertising market is what we think looking ahead. And we have been, I think, positively surprised by the resilience of the advertising market so far, but we do not think that, that will continue going forward. But in addition, we also see a slightly weakening B2C demand, and that impacts not only the new subscriptions, but also, for example, the events and the [ route ] to the VOD propositions, that weakening B2C demand is coming just from simple lower consumer confidence. Now, none of us have a crystal ball. If we think back last year this time, we would not have expected 2022 to go this way. So if, of course, the market situation changes, maybe for the positive, then this could look differently. But if we now look out to 2023, we see top line some pressures, as indicated, but also continuing inflationary cost pressures. Paper and distribution, we still see further increase. So we're not at the peak yet. But particular attention, I think, we should pay to the rising personnel cost, because personnel costs and salary adjustments are typically done at the start of the year. And that means that in 2022, we see personnel costs that are based on the still relatively modest inflation of 2021. In the beginning of 2023, we will see, of course, that the demand for salary increases will be based of inflationary increases in 2022, which in some of our territories are double digit. The good thing is that more than half of our personnel is based in Finland, where Finland has been relative to Central Europe quite modest in its inflation, but still significantly above what we have seen in the last couple of years. Now, we just wanted to share that with you at the moment that we see it, but at the same time saying, our long-term targets we see in place, solid business both in Learning and in Media Finland, an important part of our equity story, increasing dividend year-on-year. And that also is when we look further out to 2030, where we have stated a strategic growth ambition, and we see that fully in play. Of course, the acquisition now end of August already brought our learning share of the total business to 55% of sales. And what we're aiming for by 2030 is to have a group total net sales of over EUR 2 billion, of which 75% will be coming from the learning business. So that means, in the learning business, significant additional growth. And that growth comes from organic growth, in line with the targets that we put on the business of 2% to 5% annual growth, but also growth through acquisitions, while paying that increasing dividend. And that's from the solid cash flow that the businesses generate themselves. Important that we will keep our leverage certainly in a higher interest environment, keep our leverage below 3. But then, in addition, as we have stated before, if it is in the interest of all shareholders, we also see equity as a way of funding further acquisitions in the future. So all in all, solid quarter sales, Spain has picked up nicely after the Q2. Strong content learning business, some issues on the profitability in the distribution business for learning in the Netherlands, but that is a contained element. And the media business, having done a good quarter, but some impact of the paper cost. So with that, I would like to hand over to Alex Green to give you some further details on the financials.

Thank you, Susan, and a warm welcome from me here also to our Q3 results presentation. So first of all, looking at the operational EBIT and focusing on Q3 here. The EBIT is stable or, in fact, slightly increasing versus last year. And as you can see, it is Learning increasing by EUR 4 million versus last year, and Media Finland being EUR 3 million lower. And so if we look at Learning, we can see that the organic growth in the content -- sorry, content businesses in [indiscernible] Spain and Netherlands has helped boost our EBIT for this quarter. And also there has been a contribution from Pearson Italy and Germany, where we had for 1 month in the quarter. But as you've heard, the weakened profitability in the Dutch distribution business brought us down. And also because Poland had their curriculum change last year, and not this year, that creates quite a change from a year-on-year basis, which is, to a great extent, replaced by Spain, which had a good high season. If you remember, we talked last quarter about the delays to Spain, we were very pleased with how that worked out in Q3. On the Media Finland side, we had a small positive contribution for the events business in Q3. Overall, for the full season -- full year, it will be roughly breakeven, but it did add to Q3. However, this was offset by the quite significant paper cost situation we're seeing and also by the lower advertising and subscription sales. In terms of the other and elimination line, this, as we said for, will be -- remain stable versus last year. If we look at the free cash flow and talk about Q1 to Q3 free cash flow. But first of all, if you look on the right-hand side, you can see clearly that Q3 is our large high-season quarter, particularly, obviously in the Learning side, and that was actually slightly higher than last year. But on a year-to-date basis, we are quite a bit behind last year for a number of reasons. If you remember, at the beginning of the year, we talked about how we are expecting our cash flow to be down because of the investments we were going to make in the business, particularly in digital development and also adapting our offices to our hybrid working. Despite some small positives coming from the Pearson 1-month acquisition -- 1 month in our numbers. The lower EBITDA for the period has brought it down, together with those investments in development and office adaptation, and also the higher taxes paid because 2021 was a more profitable year than 2020. We're also seeing higher net working capital in a number of markets as we see a buildup in inventory, particularly in Spain in the curriculum change years. Also as we talked about before, first of all, with the Spain delays in ordering within this year, we saw basically the business operate the later than it otherwise would have done, which means the more sales were coming in, in Q3, and then a lot of the cash will come actually in later in Q4. So versus previous years, we see that shift in cadence back towards the back end of the year. And this will be increased going forward as we have Italy. So as we bring in -- as we brought in markets from Southern Europe, where the school start date is later and also you sometimes see longer payment terms, we will see that sort of cadence of cash coming in -- coming later in the year or sort of stretching out more than it has been in the past. Here, we also confirm our second installment of the dividend, which will be paid on the 4th of November at EUR 0.27 per share. If we look at the net debt and leverage, a number of impacts from our acquisition can be seen here. You see our net debt over adjusted EBITDA ratio is up at 3.3, which is understandable given the debt levels. We do expect that to come down towards our long-term 3 target. At the end of the year, it might still be slightly above, but it will go back to our long-term target. Our interest-bearing net debt at EUR 838 million, which includes the EUR 250 million 4-year term loan drawn down for the acquisition of Pearson Italy and Germany. In terms of our net financial items, it's slightly higher than last year, and this is again impacted by the acquisition. So the last quarter, it's only a slight increase, higher debt, but also with the rising interest rates. So on a year-to-date basis, we've done -- I think we were pleased with the job we've done using commercial papers to optimize to ensure that our interest rate levels stayed relatively low through the year. It's starting to impact us in Q3. Obviously, interest rates rising. And as we go into next year, that will have an impact as we have -- as we bring down that debt, optimize with commercial paper. But with the higher interest rates, it will clearly have a significant impact. And finally, on the bottom of the slide, our PPA for the Pearson acquisition. This will be approximately EUR 4 million amortized each year, but we do also have, like we did with Santillana, an extra EUR 10 million amount for the first 12 months, which relates to how we value the purchased inventory as part of the PPA. So we value it as a sales value rather than a sort of cost value, and that gets amortized as that inventory gets sold, which will be approximately 12 months from the date of acquisition. Post that, it will be the EUR 4 million every year. So that concludes my 3 finance slide, but I do have one date for your diaries as we will have another deep dive into the Learning business, in this case, talking about the learning content businesses that we have in Europe at the moment. So Rob Kolkman, the CEO of the Learning business, and I will host a virtual presentation and roundtable, a similar format to we did before. And as I say, 1st of December, so save the date for that. Here, I give you the financial reporting dates for 2023, including the AGM on the 19th of April for your information. And with that, I will hand back over to Mira, and welcome Susan back, so we can go into the Q&A session.

Thank you, Alex, and thank you, Susan and Alex, for the presentations. So let's move on to the Q&A session. As I said, we will first take the questions from here -- from the audience at the Sanoma House and then move on to the telephone lines, and then also to the webcast chat where we have questions pending. So yes, just wait for the microphone, but we will start with Maria from SEB.

So my first question is coming on the Media Finland subscription sales. Do you think -- I mean, in the current environment, you could compensate these declines, perhaps -- I mean, it was declining now in the Q3, but the declines in subscription revenue by -- or subscriptions, number of subscriptions by price increases.

Yes. I think, the price increases are a very normal part of, let's say, how to build the product packages. So the combination between hybrid, digital, print, 7-days print, 3-days print, weekend subscriptions, so all those packages get priced and there is quite a bit of science, let's say, from a whole team that is working on how to then also help consumers that might not want to go through an increased price on one set into another product, that is for them doing the same job, let's say, but in a different mix between print and digital. So the price increases are a part of the normal procedure. And of course, with increasing cost base, there is more pressure and bigger steps in those price increases. So will we be able to do all, that is -- of course that's a constant measuring in the market. What we do know is that every time when we increase the prices, we know that it might impact the number of subscriptions a bit on the negative end, but in the total profitability on the positive.

And maybe a follow-up there. What happened to your subscriptions -- the number of subscriptions, I mean, during the financial crisis, for example, or I guess, you were part of [indiscernible] in the '90s in the Finnish economic crisis.

Yes. We would need to look them up. But the general trend is that in a strong consumer-oriented economic crisis, so take, for example, the financial crisis in 2008 didn't impact that much because it didn't hit the full consumer market to the same extent. But if it is a consumer-oriented recession, so where everyone feels it in their wallets, we typically see subscriptions coming down. What we, of course, at that time, did not have was this, I would say, way out through digital, which is considerably lower priced. So that is a new dynamic that we hope will help sort of keeping everyone well informed through the news -- through quality curated news, and then being able to adapt, let's say, the package that they choose to their economic circumstances.

Interesting. And then, one question on basically the wage inflation in the Netherlands and Belgium. And what is to my understanding that we are seeing much higher wage inflation already now in these countries. I mean, how do you see the pricing that will -- I mean, when can you raise your own prices in the -- I mean, the content as well as in the distribution business or how long we are going to be behind?

Yes. Take, for example, the Belgium market, a little bit as an extreme because in the Belgium market, there is an index that is written in all the contracts and all the union agreements, and that index just does a multiplication. And that multiplication lands on double-digit salary increases. Now that is across the whole of Belgium in every sector, civil servants business, I mean this is a societal phenomena, of course, with its consequences. But that means also that the price increases in Belgium can be higher, because everyone is in the same situation that they need to translate that into the price. And that's where it is easier to communicate in Belgium, then for example in the Dutch market where typically the salary increases are more a result of sector-by-sector negotiations, where also the profitability and the circumstances of a sector are taken into account into that negotiation. So that's where the differences between sectors can be high that leads to more moderation. But at the same time, it makes it a little bit more difficult to communicate because it is not the same for everyone. So if we now look -- because this is the moment where we're also in our learning business are thinking through and communicating and testing the price increases, we do see that in some of our markets, the cost increases have now gone so fast, so high that we will not be able to translate it all in year 1 price increases. So we will need multiple years for what we're now seeing. In other markets, we do see more modest inflation, and therefore, the price increase being able to cover those cost increases quite well. We are happy with, let's say, the fact that we have a broad portfolio so that you have more variation, let's say, between the markets. And the other thing is that, as I said in the presentation, the positive thing is that a big part of our employee base is in Finland, where at this moment, Finland is less inflationary hit, let's say, than take the Polish market or the Belgium or the Dutch market.

And then, my final question that -- I mean, the paper prices are still going up, but let's play with the thought that they would be coming down. When we would see this inflection point, how long does it take that we can see it in your cost base?

Yes. Let's say, everyone is, of course, trying to estimate where that is. And at that moment, you will try to decrease your inventories well enough in advance. It is that game that we need to play. At the moment, we're quite careful and building up quite a bit of stock because of the situation that it's not only a paper price, but it can also turn into a paper availability if, for example, in Central Europe, the energy crisis would lead to restrictions as the German government is preparing restrictions on production in certain sectors. So they will make an order, let's say, in which industries are allowed to produce emergency industries first and then graphical paper is not coming in that very first highest category. So that could impact availability across Europe. And that's why, at the moment, we're having well-stocked inventories as soon as we, of course, see the winter, how the winter is going, we will be quite clever. And then, we have a very good team on this that also managed us through the strike that build down that inventory. The long answer to say, it's not exactly to say, but it is a matter of months before we see it in our results.

Is it fair to assume that usually you say that it's 3 to 6 months, I mean, you have inventory, so are you now more at?

No. Normally, it's quite a bit less. So normally inventory are less. Now, we're in the 3 months -- in the 2 to 3 months, because we're talking big bulk. If you think what is running off the printing plant for us in a night, that is quite a bit of volume.

Let's move on then to Sanna from Nordea.

You touched a bit on this, but regarding the higher costs in learning, what kind of margin development will we see going to 2023? Do you believe you will be able to make price increases to offset the increase in costs or should we expect margin pressure in learning?

Yes. Some margin pressure might be happening. As I said, it might be different between the territories. In several of the markets, price increases will be able to match the increase. But also remember the funny thing about margin that even if you, in absolute terms, are able to translate it fully into your price, it still means that your margin comes down. So your absolute profitability might be the same, but your margin is then decreasing because your top line goes up. So that is a balance. In February, we will, of course, guide in more detail for 2023. And then, we will also indicate what that absolute profitability will be.

Then maybe a little bit detailed on that. What kind of profitability should we expect from the Netherlands and from the Spain? Or I mean, should we think them as offsetting each other in profitability terms or...

Yes. We typically don't guide on the profitability by territory. So I will not deviate from that. We are happy with the fact that we have that portfolio where we can sort of have the pluses and the minuses balanced with each other. But at the same time, it's also for the reason that we have, of course, central cost that we allocate where we typically don't put enormous extensive allocation mechanisms behind it and do that quite bluntly in order not to create unnecessary work. So that's where these profitabilities if you go country by country, then you're getting a bit lost also in the allocations.

Okay. Well, maybe one more question regarding the Netherlands and the increasing costs and difficulties in that country. Can you just a little bit clarify what kind of an impact will they have next year? And maybe this year, have you seen these difficulties already in H1?

Yes. No, that's a very good question. The unfortunate thing, and this is specific to the distribution business, because the content business, as I said, performed also in the Netherlands very well. And the transformation, you remember from earlier stories that the transformation from this rental model to the sold model in the Dutch market has actually a quite nice impact on specifically also the sales at Malmberg, our content business. So it is not as much the Dutch market as the distribution in the Dutch market that is a bit under pressure. And there -- I would say, there will be a continuing effect from that. And these are things that, to a certain extent, you see it upfront. But given the fact that the whole of the high season is done in 6 weeks' time, it then really comes down to, can your temp agencies recruit the right staff at the right price? And when they 2 weeks in advance come to you and say, we can get the people, but the price is 20% up. Then you can say, no, I disagree with that. But then you negotiate for a week, and then you have 1 week left, and then they need to come, because then all those books need to be made into parcels. Otherwise, you never make it. So that's a little bit the pressure that, that business is under normal circumstances, let's say, the last 20 years, have not seen such a shortage in labor market as we have now seen, which is, I think, surprising us all in general. But specifically, if you then, in 6 weeks' time, need 500 people in the center of the country, you're quite exposed to these fluctuations. So did we see this, for example, not even in July, did we see this coming because it was mid-July that we only got the inkling like we will need to get migrant workers into the country in high speed in order to have enough. So it's quite short-term. For next year, we're, of course, now taking the careful approach and saying, we start from the assumption that it will be as difficult and then we have, of course, also learnings from this year.

Okay. Let's hand over at this time to the telephone lines.

[Operator Instructions] Our first question comes from the line of Sami Sarkamies from Danske Bank.

Okay. I would actually like to continue on the Dutch distribution business. You haven't really spoken about this in the past, at least I don't recall. Can you please still open up the problem a bit and quantify the impact on results this year? And, I mean, also talk about your expectations regarding next year, you're a bit cautious that this might be an issue still next year.

Yes. I think, Sami, thanks for that question. I think, not going into further operational detail on it even though it's tempting, of course, to explain because it's such an operational business. But if I give you a feel for the financial impact that we see year-to-date, that is about an EUR 8 million negative impact in contribution, meaning a loss-making business to that effect. Typically, these businesses do 4% to 5% plus. And this is -- we are talking, of course, only on a smaller part of the Iddink business. This is only the learning material part of that, but that is an EUR 80 million, EUR 90 million business. So that gives you a little bit of a feel for the deviation and the size of the deviation. Of course, it is not just one element. It is a compounding of inflationary cost pressures in, let's say, all aspects of the chain and then the inefficiencies coming from publishers, which is quite unique that publishers have difficulty with their supply chain. Not our publisher, Malmberg, our books were there, but other publishers had difficulties in their specifically Far East supply chain with printing and bringing that over to Europe being delayed there, made inefficiencies in our process that you normally don't see. And this is a logistics business in essence. The part that happens during the summer, of course, in the spring time, you go to schools, you do the sales process, you help them forming the book list and all that. But in the summertime, this is a pretty straightforward parcel forming business. And then, it needs to be shipped out with trucks to the schools and with the post to the individual students. But of course, all of those contracts have inflation correction measures. And by summertime, inflation in the Netherlands was double-digit. So those contracts really also exploded in their cost. So that's the situation, given the fact that we are projecting for 2023, a continuing difficult economic climate. We're, therefore, also predicting that this cost base will stay high. The contracts that you go into in this business are longer term and governmental contracts, some of them with an inflation correction but typically with a cap, and then others even without a possibility to correct for inflation. Now, of course, that is what I indicated that within the chain and with our customers, we are, of course, now in discussions. And that's not only us, but our largest competitor who has the majority of the market went this summer through a full financial restructuring, change of ownership during the high season with the support of their banks because they couldn't continue operating. And that, of course, would have had a disastrous impact on the start of the school year. So I'm saying, this is now a well-known market phenomena, where it also gives us the opportunity with the whole of the supply chain to solve this. But that's solving, and that's what I'm signaling will take more than, let's say, April next year, because by April next year, what isn't solved, isn't solved for the high season. So it will take us some time before we're back to the more normal ranges of margin on this business. In the meantime, business did contribute to the top line growth. Customers are enthusiastic about it, because we were performing from an operational perspective quite well, and people are grateful, let's say, for the fact that the schools that buy their books through Iddink, they had their school books, the majority of them on time, but of course not too much pleasure on our end, at least not financially. So Sami, does that answer your question?

Yes. So I just wanted to verify, there has been no impact on your sales. So it's just about sort of incurring additional EUR 8 million in cost relative to the previous year cost base.

The only thing is that I do indicate that for next year, if contracts really would go to a large extent in the losses, then at some point, it will have also a top line impact, because then we will not be able to bid, for example, those tenders that do not allow the right price level. So there might -- for next year, there might be a bit of top line impact, but that is then only to mitigate further bottom line impact. Competitively speaking, we have improved this year and got on market share. Unfortunately, at the moment where it was a loss-making market, so that is, of course, not winning any prices.

Okay. And then, just curious on timing, this EUR 8 million delta, you highlighted big bulk of that take place in the third quarter or has more evenly spread throughout the quarters of this year?