Oriola Oyj

Good morning ladies and gentlemen. Warmly welcome to Oriola's Q2 result presentation. My name is Tuula Lehto and I'm Oriola's Communication and Sustainability Director. Today we are hearing first Oriola's CEO and President Juko Hakala from our studio and secondly our CFO Helena Kukkonen, who is in this time joining circumstantially through remote connection. In the end of the webcast, we will go through your questions, which you can start typing already during our presentation to the message chat. But now it's time to welcome Juko Haakala to start our result presentation. Please, Juko.

Thank you, Tuula. Good morning and welcome to this presentation also on my behalf. My name is Jukko Hakala and I am the interim CEO of Oriola. To put it short, Q2 marked a quarter of recovery and also a quarter of progress in many areas for Oriola. During the quarter two, the impacts of the COVID-19 pandemic in Oriola's business started to ease both in Finland and in Sweden. This was true especially towards the end of the quarter with many temporary pandemic related impacts easing. However, some of them continued to affect Oriola's market environment. The most important example was the continued lower consumer traffic in Sweden. This applied especially to areas that traditionally have high consumer density, such as shopping centers, where Oriola's key pharmacies are located. Due to the improved pandemic situation, the demand for pharmaceuticals started also to recover. However, it did not yet reach the pre-pandemic levels. Swedish pharmacy market value grew by 7% in Q2 and pharmaceutical market increased by 7.2% in Sweden, as well as 8.4% in Finland. As always, we'll discuss the market developments in more detail later in this presentation. Respectively, our invoicing and net sales were up moderately in constant currency, growing by 5.9% and 3.3% respectively. Looking at these figures, it's important to keep in mind that the comparison period last year was very low. We also saw improvement in our profit as our adjusted EBIT increased to 4.1 million euros from minus 0.3 million euros of the very low comparison period. The positive development of profitability was due to the recovering, but still impacted consumer demand in Sweden. Moreover, our strongly performing dose dispensing business impacted positively to the profit. To wrap up our business segments and their contribution to group profit, we can conclude that in consumer we saw recovery, while in pharma the development was flat. I'm pleased to see that retail has improved its performance in many areas, not only in dose dispensing, which is currently the strong arm of that business area. As you remember, we launched a short-term initiative called Focus 21 in Q1 to steer our activities and reach our strategic and performance goals for the year. This initiative is central to Oriola's leadership and it's progressing well with a number of actions at full speed. Overall in Q2, we continued significant simplification of our project portfolio. We implemented operational efficiencies, such as closing down a service center in Jusdal in Sweden. We also took action in the value creation side. We sold part of our shareholding in Dr. Point SC for approximately 340 million Swedish crowns. This deal excuse me, yielded a multiple in excess of four times for Oriola's investment, and the sale improved Oriola's net cash flow from investing activities by 32.8 million euros, as well as increased our equity significantly by 44.8 million euros. Oriola's strategic cooperation with Doctor Point SE continues as per usual. In the second quarter, we also opened a new Annex warehouse in Brunna. I'll come back to that under the pharma segment and discuss it a bit more. And to conclude our key points here, at the same time with strong development activity taking place across Oriola, our operational performance has consistently been solid and customer feedback positive, especially in Finland. Then moving on to key financials. Reported invoicing increased by 9.7% to 984.5 million euros and reported net sales increased by 7.3% to 467.5 million euros. As mentioned on a previous slide, on a constant currency basing, invoicing increased by 5.9%. and net sales increased by 3.3% respectively. Both increases were mainly driven by the recovering market. And then let's have a closer look at our EBIT. Oriola's EBIT increased to 4.1 million euros. The positive development in EBIT was driven by increased consumer demand in Sweden, It is good to keep in mind that the demand did not fully recover in Q2, but was still impacted by the pandemic. But another important factor in our improved profitability was the continued strength of our dose dispensing business. However, at the same time, volume volatility continued to impact our operational efficiency negatively, and the performance of the expert services was lower. Also, general cost increase, mainly in salaries in Sweden, burdened our profit. As in Q1, we have also now in Q2 estimated the net negative impact of the COVID-19 pandemic in our adjusted EBIT to provide further transparency. For the second quarter, we estimate that this impact was in the range of one to two million euros. For the first half, then, the estimated impact was in the range of five to seven million euros. And this estimate compares Oriola's second quarter and first half performance to a normalized market environment, excluding the pandemic effect. Considering the segments and their impact on profitability, we can state mainly two things. First, all business areas contributed positively to the EBIT development. And secondly, retail supported by the continued strength of those dispensing business was a key contributor in this quarter, followed by consumer as a strong second. And then let's take a closer look at our markets. Regarding consumers markets, the pharmacy market in Sweden started to recover and grew by 7% compared with minus 0.8% in Q2 2020. The online pharmacy market segment kept growing at high pace at 16.7%. And Oriola's overall market share in the pharmacy market in Sweden in Q2 was at 16.4% compared with 17% in Q2 2020. Oriola's market share in the online segment was at 7.6% compared with 7.4% in Q2 2020. For pharma, the value of pharmaceutical market grew 8.4% in Finland and 7.2% in Sweden. Oriola's market share remained intact in Finland and nearly intact in Sweden with a one percentage point drop year on year. And then on retail markets, the market for over-the-counter pharmaceuticals and traded goods grew by 7.8% in Sweden compared with 3.6% a year ago. And Oriol's market share in the traded goods and over-the-counter pharmaceuticals supply for pharmacies in Sweden stayed stable at 25%. In those dispensing business, the total market size is now approximately 235,000 patients in Sweden and 75,000 patients in Finland in the end of June. And Oriola is the market leader in Sweden at 43% of the market and has grown its market share also in Finland to 37% of the market. And the number of pharmacies using Oriola staffing services in Finland increased slightly to 166, while the corresponding figure a year ago was 159. And then a bit more detail on the segments and starting with consumer, please. In the second quarter, the pandemic situation improved in our consumer markets, which impacted on the consumer behavior and their increased mobility in Sweden. However, the consumer traffic remained low in areas that normally have high consumer density. Shopping centers and border traffic between Sweden and Norway are examples of such areas. And these are also examples of areas where we have our key pharmacies located. Consumers' net sales grew roughly at the pace of the market by 6.9%, to 197.6 million euros in constant currency. That was driven by the recovering market and the continued growth in our online channel, which we are also strategically developing. In the Swedish pharmacy market, the competition of market shares in e-commerce is tight. The players utilize a range of mechanisms to grow their market shares in e-commerce, such as price attraction and significant online marketing spend. And so do we. We are strategically developing our online channel. And based on this, our online business continued to outgrow the market in Q2 with a growth of 19.8% versus a market growth of 16.7%. The segment's profitability improved, adjusted EBIT increased to 2 million euros, increased demand in physical pharmacies and improved profitability in online channel contributed to the profit positively. Also, general cost increase in Sweden related to salaries impacted the result negatively. Then on pharma. For pharma, market recovery was reflected in volumes that picked up, but continued volume volatility still affected our performance. With volumes picking up, pharma's invoicing grew almost at the rate of the market by 5.6% to €729.9 million in constant currency. The development was close to the growth of the market and reported figures outgrew the markets. Net sales stayed essentially flat, showing an increase of 0.9% at 234.9 million euros in constant currency. Adjusted EBIT remained flat at 2.2 million euros. Positive volume development supported profitability. However, the continued pharmaceutical demand volume volatility caused operational inefficiencies, which affected the profit as in Q1. Moreover, the lower performance in the expert services impacted the profit negatively. In Q2, we also opened a new annex warehouse in Brunna, Sweden. It focuses on business-to-business logistics services for e-commerce companies and retail chains. And when fully operational, the new warehouse will support our growing volumes, especially in these e-commerce company and retail chain deliveries. It also clarifies the role of the company's main distribution center in Enschöping to pharmacy deliveries. Could I have a glass of water, perhaps? Yeah, thanks. And then on to retail. As already mentioned, retail has progressed positively in many areas, and especially its dose dispensing business continues its strong performance. In Q2, demand increased in dose dispensing and parallel imports. Net sales increased moderately by 3.1 percent to 124.7 million euros in constant currency. The increase in the top line was driven by the growth of patient volumes in those dispensing mainly. Adjusted EBIT increased to 2 million euros, The improvement was mainly driven by two factors, the continued strength of the dose dispensing business and the improvements in customer agreements and product mix in health and well-being product category in Sweden. I'll just change the slide. And then on to financial review and Helena, our CFO, if you take this spot, please.

Hello. Thank you, Jukko. So hello also from my side. So as Jukko stated already earlier, Q2 was a quarter of progress for Oriola. Our invoicing and our net sales increased and driven by the recovering market. Moving into adjusted EBIT, Our EBIT increased to 4.1 million from the very low comparison period. To make it short, consumer was recovering, pharma remained flat and retail improved. Overall increase of 4.4 million from the comparison period. Looking at our profit for the period, It was impacted by one million negative adjusting item, which was related to write down of closing down the customer service center in Sweden in our retail business area. Our earnings per share for the quarter was one cent. Then on to cash flow. Our cash flow from operating activities was 28 million, improving from the previous quarter. Cashflow was driven by the change in networking capital where decrease in inventories drove the positive impact and then by depreciation. Our cash decreased from the end of the year 2020 by about 17 million. Our cashflow operating activities for the first half year was 14 million. Positive number in our investing activities was driven by the cashflow of 32.8 million from the sales of the shares in Doctor.se. And during the first half, we have reduced our bank loans and also paid out dividends in June. Then on to net interest bearing debt. It has decreased by 38 million euros since the end of March. This is driven by the less bank loans and more cash. Also, our gearing has improved, driven by the reduced net debt and increased equity, like Hugo said. So handing over now back to Juko and to Studio for the takeaways for the quarter.

Thanks, Helena. And to wrap up the presentation part of the second quarter, there are four important takeaways. First, the impacts of the pandemic were easing and the markets were recovering. However, we saw still some pandemic related impacts, mainly in the consumer traffic of physical pharmacies. Secondly, Oriola's profitability improved, which was partially due to favourable development of the volumes and partially driven by the continued strength of our dose dispensing business. Third, the quarter was packed with actions across the company. We are working rigorously and in line with our priorities set in Focus 21 to achieve our strategic and business goals for the full year. And fourth, within the coming quarters, the pace of action will continue to increase with Oriola's new president and CEO Elisa Markkula joining the company on 9th of August. I'm truly inspired by our upcoming cooperation with Elisa and together we will steer a seamless handover with a consistently strengthening Oriola's turnaround focus. And then on to outlook. The pandemic effects in our operating environment, we're recovering in Q2. However, there remains an uncertainty of the severity and timing of the pandemic in Finnish and Swedish societies, and therefore we keep our outlook for 2021 unchanged. And then in closing, I'd like to thank you for your attention and interest and cooperation during this interim half a year as me as a CEO. We've been very active this time and consistently focusing in our performance improvement during some pandemic headwinds. We've driven many turnaround activities, some of them taking effect already, and we've also driven priority strategic activities, preparing our course forward. I'm honored of this opportunity to serve Oriola in this capacity and warmly welcome Elisa to take over the helm in Oriola in August. And then I will also return to my board duties in the company. Now, with that, we are ready to take your questions.

Thank you. There actually is some questions floating in, and some of them are actually related to our guidance. Let's wrap first. Petri Kajani from Inderes is asking the guidance. You are now 20.2 million behind your H2 EBIT compared to H1 2020. Your H2 in 2020 was pretty good. what sort of positive profit drivers you have for H2 2021, so that you will expect the profit levels in relatively good comparison period.

Very valid question and perhaps to sort of briefly comment on the few drivers that were also visible in the Q2 report. Naturally, first, if we start from the comparison period, Q3 and Q4 last year were pandemic affected. and naturally the H2 pandemic outlook for our societies still has some uncertainty. But if we take on the sort of recovering angle of the markets of Q2, we do have recovering volumes currently taking place. That's naturally a driver communicated in this report. The dose dispensing profitability is strong. The online profitability is developing positively. I think there's progress in quite a few areas actually as the header of the quarter states. And these types of examples are the ones that are of course important for us going forward as well.

Thank you, Juko. Iris was asking a little bit same from Kaane Kii. One specific more question related to this is these negative impacts, what we have now calculated, would these be clearly lower in H2? What is our estimation for that one?

Yeah, I think our, Our outlook is pandemic connected and the severity and timing of the pandemic is something that we can't predict. It's difficult for the societies to predict and it's proven to provide unexpected returns. But if we look at the Q2 and the recovering markets, we do see a clear improvement right there. And as our numbers also indicated, the pandemic effect for Q2 was significantly lower than what it was for Q1. But naturally, Q1 was perhaps the strongest pandemic impacted quarter with us in the Swedish markets, where our largest businesses reside. So, as the market recovers, so will the impacts recover, unless something unexpected happens.

Exactly. Thank you. I will continue a little bit on the same topic. Sami Saarkamies from Nudea is touching our Focus 2021 actions and related to that, to the guidance that how do we estimate improvement potential through Focus 2021?

Currently we've commented on the improvement potential of Focus 21, so that we will reach the strategic and business targets of the year. And that, I think, is the level at which we have commented on that. We do stay committed of being very open in every quarter on the concrete achievements of Focus 21, as we've done in this one, regarding the multiple points of progress there. I think the Capital Markets Day will be a good opportunity for us to open it in a more sort of perhaps even more transparent and more granular way. And I would look forward to Elisa's opportunity of doing that in the Capital Markets Day.

Thank you. Let's move some business, actual detailed business questions here. Iris is from Carnegie, touching our dues dispensing, a strong business performance. Do you expect the current trend to continue? And yes, do you see the current continue in dues dispensing?

Well, dispensing has been a strong business for us for quite a few quarters in a row now. And the performance has been solid. So I think that's perhaps the best what we can say, that it has consistently performed. It's the growing volumes, it's also efficiency improvement in those contributing, it's profitability, it's actually running quite well at the moment, and also in Q1. And of course it has a demand tailwind, given the market is growing.

Good. Then there's a question related to Doctor.se from Iris as well. Did you sell part of your shareholding in Doctor.se to strengthen your balance sheet? Or does this mean that you don't rule out exiting of Swedish pharmacy market anymore? Exiting.

Exiting, sorry. Thanks a lot Iris for asking that question. The main driver for us to do this partial sale of Dr. Point SC was the strategy of the company itself. Dr. Point SC is significantly accelerating its internationalization, even globalization. And we as Aureola, we are a regional company. And given Dr. Pedesi is now going significantly international and also well beyond our operating region, that's the sort of main strategic aspect for us to consider to sell part of our ownership and also make space for some new, perhaps globally driven parties there. Of course, also the financial outcome of the sale was very positive in comparison to our original investment and the cash flow and the equity impact it made. Naturally, those were significantly important, but they weren't the starting point of the sale.

Thank you. Then Sami Sarkanimies from Nuudea is touching the retail margins. Are current margins at retail sustainable thinking of earnings outlook beyond Q2 or were these positive one time factors?

Can you please repeat?

Are current margins at retail sustainable thinking of earning outlook beyond Q2 or were these positive one time factors in Q2?

Well, there were two main drivers of the Q2 profitability development. One, and the larger one, was the dose dispensing. And that we commented in the earlier question, that that has quite consistently performed strongly. And the second one is the improvements in customer contracts and the product mix. Something I also believe that we have now communicated, at least the two quarters that I have reported, I think probably also in Robert's time. So certainly it is a consistent development in the retail industry. in that area as well, starting sometime in H2 last year, I think, as a development activity. So not a one-time, rather a more consistent topic.

Petri Kajaani from Inderes would like to know a little bit more about the pharma segment. What could Oriola do better in the future in pharma segments so that pharmaceutical demand volumes change would not have such negative effect on profitability?

That's a very Precise and a good question. And I think one that would benefit perhaps the Capital Markets Day overview of our pharma portfolio and its dynamics. Because I think some contextualization for answering that question also would be useful. So Tuula, I would recommend that we would actually mark it down and respond to it clearly in the Capital Markets Day. It is, of course, a portfolio business and there's multiple product segments, there's multiple channels and the actions to improve are in that mix. So I would take the opportunity in Capital Markets Day to come back to that.

We will mark that down and cover it there. That's very good proposal. There's one question from Mari Wikström from Danske related to your CEO time here at Oriola. For Jukka, have you learned something as CEO which you can think is beneficial for board of director work going forward?

Yes, I have. Much. I think this has been personally a unique opportunity to serve, and I'm glad of having had the opportunity to serve, but also in terms of learning experience. When you're in a board, you develop quite a few questions for yourself, since you're looking at things in a different angle, perhaps a bit more of a higher level angle, if you like. So now in this time I've been able to go really hands on and we've actually all been really packed with action, hands on deep, deep in the business topic. So I've learned significantly and I think and I hope that it will be useful in my board role. So I look forward to that and I'm really glad of the opportunity.

Thank you, Juko. That was actually final question. So thank you, everybody joining our event. If there is no any question is floating, then I think it's time to thank you, everybody.

Thank you, everyone, and have a good summer as well.

Very nice summer to everybody. Thank you. See you next time.