Oriola Oyj

Good morning and welcome to Oriola Q1 2021 result webcast. Thank you all for joining us today. My name is Tuula Lehto and I'm Oriola's Communication and Sustainability Director. I have here with me our CEO Juko Hakala together with our CFO Helena Kukkonen. They will walk us through our Q1 result presentation. There will be time for Q&A session after the presentation. Please feel free to start adding your questions to the question chat box during the presentation. Now it's time to go to the presentation.

Please, Jukka. Good morning. My name is Juko Hakala. I am the interim CEO of Oriola. Please be welcome to this Q1 2021 interim report call also on my behalf. Q1 of this year was a challenging quarter for Oriola and also for the entire pharmaceutical markets in our operating region. This was an unfortunate development after a slight recovery of our market and Oriola's business in Q4 2020. The third wave of the amplified COVID-19 pandemic affected significantly both Finland and Sweden's societies in Q1. The pandemic had a significant adverse impact on Oriola's operating environment and now also especially in Sweden. General risk awareness and stronger restrictions set by authorities, now also in both countries, extensively impacted consumer behaviour, which led to a declining demand. These pandemic related effects in our societies had a clear adverse impact in the market demand. The pharmacy market in Sweden declined by 6% year over year, when it grew by 11.7% a year ago. Also, the combined overall pharmaceutical market declined in Sweden and Finland by nearly 6%. This was also against the growth of 14.7% and 10.9% respectively a year ago. In addition to the overall volume decline, there were three additional important and adverse market impacts on the demand from the pandemic. First, decline in the important prescription and over-the-counter categories. For example, volumes in elective care were down, and seasonal demand drivers such as influenza epidemics were nearly non-existing in Q1, affecting the whole pharmaceutical market. The market demand in both countries was also fluctuating in an unusual way within the Carter in volumes and in categories. We estimate that these two adverse pandemic impacts to be temporary in nature. The third adverse impact of the pandemic was the fall in demand in physical pharmacies in Sweden. We also estimate that this adverse pandemic demand effect in physical pharmacies is also largely temporary in nature and related to, for example, governmental restrictions in Sweden. So in a declining market, Oriola's invoicing and net sales declined. Both of these top line figures decreased by 6% on a constant currency basis. which also corresponds to the market decline numbers in both of our operating countries and communicates a fairly stable overall market share in Q1. The positive exception in market share was e-commerce in Sweden, where once again we increased our online sales at a pace clearly faster than the market. Oriola's growth was 80% in comparison to market growth of 41%. Unfortunately, in Q1, our adjusted EBIT declined significantly to €0.3 million. There were several drivers impacting to this profit. Most important one was pandemic-driven pharmaceutical market volume decline and changing product mix. Also, the decrease in demand in our physical pharmacies is important. factor. The third factor was the demand fluctuation driven inefficiency in our operations. And fourth key year on year difference is the relatively strong comparison period based on the pandemic related positive peak in demand in March 2020. Additionally, there were a few smaller drivers, both positive and negative. I will discuss those in more detail on the following slides. But before going on there, though, a couple of additional important points. In the middle of the amplified pandemic and true to our role in the society, we focused on securing reliable deliveries of pharmaceuticals and solid service levels in our societies. We succeeded well in this important task and our customer satisfaction feedback, for example, in Finland was very high. And second important point is that in Q1 we started a new short-term initiative called Focus 21. We did this especially due to the significant temporary and adverse pandemic effects of the COVID-19 accelerated pandemic in our market environment. This initiative simplifies the focus of our 2021 activities to reach our strategic and business performance goals for the year. I will soon elaborate this initiative also in more details. Next slide, please. As discussed, in constant currencies, our invoicing and net sales decreased by 6%. In reported currencies, they decreased by 2.4%. In invoicing, to 942.5 million. and net sales decreased by 2.1% to 450.2 million. Both of these declines were driven by temporary market-driven decline in pharmaceuticals demand and low volumes in both of our operating markets. Next slide, please. Then a bit more detailed comments on our Q1 profit. The adjusted EBIT decreased unfortunately to 0.3 million euros due to several drivers. I mentioned the decrease in prescription and over-the-counter pharmaceuticals demand and changes in the product mix. Those had a major impact on our profitability. And for example, as a change of the product mix, the lack of seasonal influenza pandemic, which created a market-wide lack of demand for cough and cold medicines. Also, consumers increasingly chose to go to online instead of visiting physical pharmacies due to movement-related restrictions posed in Q1. And the third factor was the inefficiency in operations due to exceptional volume volatility in our operations in Q1. And as mentioned, we estimate that these pandemic-related impacts are temporary in nature with the exception of the shift to online. Moreover, we saw generic cost increase mainly from salaries in Sweden and customer agreement changes. We have communicated also in our earlier quarters. And on a more positive note, the dose dispensing business of our retail segment developed well and impacted the result positively. Let's stay on the previous slide. To provide further transparency to our pandemic impact, we have now provided an estimate in euros of the net pandemic effect to our profitability in Q1. We estimate that in Q1 the pandemic impact was in the range of 45 million euros, including the impacts of the pandemic. In this estimate, we have compared Oriola's first quarter performance to a normalized market environment, excluding the pandemic effect. Also, when reading this estimate, it's useful to consider our message a year ago, that in Q1 2020, we received a tailwind from the pandemic due to historically high order levels of pharmaceuticals and golden pain products in the beginning of the pandemic, March 2020. Then before we go on, just a couple of comments of the key segment profitability changes. When we take a look at the segments also and their impact on profitability, we see clearly that the challenges faced in consumer are the major reason in the EBIT decline. Consumer's impact in profitability decline was significant, 6 million euros, and the segment adjusted EBIT decreased to minus 0.6 million. This was due to lower volumes and changes in product mix. Customer traffic was low in pharmacies, and we also had general salary increases in Sweden. Pharma's contribution to profitability was also negative, minus 1.5 million euros as the segments adjusted, EBIT decreased to 2 million euros. This impact was from the low demand in many categories like cough and cold pharmaceuticals, but also due to changes in customer agreements, as we have discussed in previous quarters. The exceptional volatility in volumes caused inefficiency in our operations, which especially influenced our pharma segment. And retail business area had a positive contribution to the profitability, increasing by 0.8 million euros and to 1.1 million euros. This was mainly due to the positive development of its dose dispensing business. Next slide, please. So in quarter one, the COVID-19 pandemic got more amplified with increasing impacts in Oriola's operating environment and now especially in Sweden, which constitutes a larger share of Oriola's business operations. And to respond to this situation, we started a short term initiative named Focus 21 in the first quarter. This initiative simplifies our focus in this year and drives forward our drives us forward to reach our strategic and business performance goals for the full year. Focus 21 includes three key targets. First, prioritize value creation and profitability in everything we do. Secondly, simplify and prioritize development activities planned for this year. And thirdly, and very importantly, increase focus and balance for Oriola's employees to ensure strong execution of our priorities also amid the pandemic. Within Focus 21 and in our business areas, we have a broad range of rigorous actions to be executed. Just to name a few examples. We relentlessly prioritize and simplify our development projects. We execute strong P&L efficiency and profitability measures. We accelerate introduction of new business services, similar to the ones we have communicated last year. For example, the click and collect in our pharmacies, the click and drive in our pharmacies and corona tests yielding additional revenue for us. And we create further improvements in strategically important e-commerce business. So this Focus 2021 initiative, it will defend our profitability also through measures geared to increase our top line. We are also focusing on cutting costs in this exercise, but not only that. And on top of the actions in our business segments, We will have a specific program focusing on our businesses in Sweden in total within the Focus 21. In this program called Focus Sweden, we will work in a new way and across our Swedish organizations to secure strong execution of our business plans in Sweden, which is our largest market. And then finally, before we move on, a couple of comments on our existing strategic programs, 20 by 20 and customer experience. Both of these will be combined into the Focus 21 initiative for focus and prioritization of this year. So let's then move on to discuss a couple of more words on the operating environment. and looking into the consumer markets in quarter one. As already discussed, pharmacy market in Sweden declined quite strongly by 6% against the growth of 11.7% a year ago. Oriola's Kruunan Sabotex market share remained nearly intact with 1% point difference in overall market and strong growth in e-commerce. Within the market, we are faring also well against our traditional competitors and falling slightly behind the strongest e-commerce players. Next slide, please. In pharma, the market decline was similar to that of the consumer, nearly negative six percent in both markets, Finland and Sweden, against also a market growth of 14 and 10.9% respectively last year. Oriola's market share remained unchanged in Sweden and nearly unchanged in Finland. Next slide, please. The market impact was visible in retail as well, but it was not as remarkable as in consumer and pharma. Oriola's market share remained intact in all of our retail businesses, And then perhaps let's move to look at more detailed business segment comments. A couple of words on the consumer segment. The amplified pandemic hit strongest our consumer segment in Q1. The net sales declined by 6.4% and in constant currencies to 189.4 million euros. The decline was driven by lower volumes in physical pharmacies, customer traffic was low. And it is also worth to note that the Q1 last year was impacted positively by the accelerated sales of pharmaceuticals in the start of the pandemic. Consumers' online sales in the strategically important e-commerce business continue to grow strongly with 80% growth, again outperforming the overall market development of 41%. Profitability fell, unfortunately, to the red numbers, minus 0.6 million euros, based on several drivers, most importantly, lower volumes in prescription and over-the-counter pharmaceuticals and changes in product mix, lower demand in our physical pharmacies, and the cost increase related to general salary increases in Swedish markets. And then on to pharma, please. For Pharma, the quarter was hampered by the exceptionally high volume volatility. Net sales decline of 6.3% to 228.7 million euros in constant currencies was driven by low pharmaceutical volumes and their high volatility. The EBIT decrease was related to lower volumes in many categories, for example, and importantly, the cough and cold medicines. Volatility of volumes created inefficiency in our operations, and also changes in customer agreements had a negative impact to profit. Then on to retail. In retail, the first quarter, was solid, even though the market was in temporary decline due to the pandemic. Net sales declined slightly due to the soft demand. On a positive note, in a challenging market environment, retail improved its EBIT, mainly due to the positive development of its dose dispensing business. Also improved customer agreements in health and well-being product category in Sweden had a positive impact on the result. And then we could move on to the financial review, and I invite Helena, our CFO, here to discuss that part.

Thank you, Juko. Moving into invoicing and net sales. Like Jukko said, we had an invoicing and net sale decline of 6% in constant currency, driven by the decline in pharmaceutical demand and low volumes in both markets. Looking at the adjusted EBIT, our adjusted EBIT decreased to 0.3 million due to several drivers, which Jukko already went through. The pandemic had a big negative impact on our result. When we look at the profit for the period, we made a loss of 1.7 million, which was impacted by the adjusting item where we have cost for the termination of the CEO service contract. Therefore, earnings per share was minus one cent. Our cash flow for the quarter was minus 14 million euros. This was driven by the low result and change in net working capital, coming from the payments out and then higher receivables at the end of March. Our cash balance declined by 32 million, driven by the operative cash flow, investments and less commercial papers versus then end of the year. And then internet interest bearing debt. It has increased by 22 million from the end of December, which is driven by the change in cash. There are no other big changes versus the end of December. And then I will hand back to Juuko for the summarization.