Oriola Oyj

Good morning and welcome to Oriola's quarter three result presentation. I am Elisa Markula and I started here in Oriola two and a half months ago. And now let's review quarter three highlights. This was the quarter for improved profitability and the start of turnaround activities. In the third quarter, the pandemic situation continued to improve both in Finland and Sweden, with most of the government restrictions removed by the end of the quarter. The volume demand for pharmaceuticals and other health and well-being products recovered and nearly reached 2019 levels. And at the end of the quarter, that is what I mean, it is before the pandemic levels. Continued market recovery was reflected in our invoicing and net sales, which were both up by 4.8% in constant currencies. As demand picked up, our adjusted EBIT increased to 10.4 million euros, exceeding clearly previous year and also 2019 year. All our business areas, especially retail, improved their profitability, and we will look at their performance shortly. We started turnaround activities now in August, and the first results were actually visible at the end of the reporting period. In the beginning of October, we announced further turnaround measures, and I will come back to turnaround activities and action program in more detail later in this presentation. Pandemic still had an impact on the market and also here in Oriola's operations, our priority has been to ensure and secure health and safety of our own personnel. And we have been actually performing very well in our role to ensure distribution and availability of pharmaceuticals on the markets. Let's review a little bit more detailed invoicing and net sales. The recovery market was visible in our net sales and invoicing and in our both actually increased six percent and in constant currency roughly five percent. So the recovery market was here visible clearly. Adjusted EBIT, as I said already, increased to 10.4, which is a strong evidence of recovery and also the fact that change is possible when the market environment is improving and when focusing on right things internally. EBIT was above last year and 2019. And at the end of this quarter, we started also to see the first impacts of our cost savings, which were initiated in August. And they were coming through already, helping to push Q3 above 2019. It is worth to mention that this was the highest quarter since actually 12 quarters, so since Q3 2018. So quite a remarkable achievement. Considering the business areas here and the impact on profitability, we can state actually two things. First, all business areas contributed positively to the eBIT development. And secondly, the retail business area supported the result very well. And that was thanks to the good performance in the dose dispensing business. And actually, retail was the key contributor here, as you can see from the numbers. Let's have a review about the year-to-date performance and invoicing and net sales. Invoicing increased 4.3 million to 2.9 billion euro almost. And on a constant currency basis, invoicing was increased by 1.4. Net sales increased by 4% to 1.4 billion euro. And on constant currency basis, the net sales increased by 0.6%. And this impacted very heavily with the first quarter this year, when the net sales were declining and due to the decreased demand and low volumes due to the pandemic. And then the profitability adjusted a bit increased to 14.7 million euro, which is above last year, 1.7 million. And it is important to note that the generic cost increases, mainly salaries in Sweden, has been affecting this year to date result negatively. So, this was the year-to-date result, and let's have a look at our market environment. So first, pharmacy market. So value development has been growing in Q3 4.7 percent and year to date by 1.7 in Swedish krones. And Oriola was very close to this market development and the market recovering from pandemic related decline in customer traffic was meaning the low demand in physical pharmacies. The physical pharmacy market demand started to slowly recover towards the end of the Q3, as the mobility of the people was increasing. It is obvious that the digital transformation of the pharmacy market is actually continuing, but not anymore as fast as in 2020. And year to date, the total online pharmacy market grew by 24, clearly slower than in 2020. In Q3, Orjola's online channel grew faster than the market, actually double, and that was also visible in our net sales, where we will come back to that shortly. And also, year to date, our online sales have been growing double the market growth, and Online pharmacies reached approximately 19% share of the total market by the end of September 2021 in total pharmacy market. So 19% compared to a previous year when it was 16%. Oriola's market share in the middle, here in the pharmacy market, in Q3, was 16.2. So this is the Q3 number. So there were no big movements either in the split or the sales between product categories inside the pharmacy market. So prescription products, pharmaceuticals, were prevailing with the 73%. of the total Q3. Then have a look next about the pharmaceutical market all in all in Q3. And we saw the slight recovery on the market also here during the third quarter, especially regarding the volume development. And there where we already close or the market was close to the pre-pandemic levels. So this is very important to understand that the volume development is the first sign of the market to recover and normalizing. And the value is growing by nature because there are always more expensive pharmaceuticals coming to the market. So volume development is here something that we follow carefully. And when we look at the value development, it's in the pies here. So Finland wholesale, the pharmaceutical distribution market, grew by 6% almost. And in the third quarter, so that was the third quarter number, and then year-to-date, the growth was 2.5. And while in Sweden, the pharmaceutical distribution market value at wholesale prices was 6.5, higher than in Finland, and year-to-date number is there 2.6. So pretty similar year-to-date still, like in Finland. Based on our estimate, our market share in this wholesale market was about 42% in Finland and about 46% in Sweden. Then retail market. In dose dispensing business, Oriola is market leader in Sweden, and we have 42% of the market. And we have been growing also our market share in Finland, where we have now 36% from the market. And why this is happening, the growth, is the number of patients have been growing in both countries. In Sweden, we have already over 100,000 patients. And in Finland, we have grown to 28,000 patients in our dose dispensing business. Then about the traded goods and OTC market value development in Sweden. They also grew in Q3. almost by over 9%, and year-to-date the growth was for a little bit over 4%. And our market share in the supply of these products for pharmacies was very stable, so 24%. Here in the below, we are talking about our staffing services and the number of the pharmacies who are using our staffing services in Finland increased slightly to 204 pharmacies. So let's move a little bit more detail to look at our performance in business areas. And first about the consumer. The recovery of the consumer traffic in pharmacies became actually fully visible only towards the end of the quarter. And the net sales increased by 5% to 200 million euro. And in constant currency, the growth was 3.5. Our online channel grew faster, as I already stated, and this was the main driver for the increase in net sales. Adjusted EBIT increased to 5 million euro, which was already slightly above 2020 and in line with 29 level. All in all, general cost increases, mainly salaries in Sweden, have been impacted negatively and limited the improvement in the profitability development. Online continues to be our strategic development area here in Oriola, and we have been able to grow both year to date and Q3. But this is, and it's already accounting for our total consumer sales, 8.5%. So all in all, to support this e-commerce business growth, we have been announced that we are investing in the new e-commerce logistics center in Eterping. And that will be, the new warehouse will be ready during second half of next year. And then let's move to pharma and our performance in there. Pharmaceutical market value and volume grow against 2020 and was already 2019 levels, especially towards the end of the quarter, as I already said when we talked about the market environment. This means that the market is recovering, and thanks to this, during the third quarter, our invoicing increased 4.4, and that was in constant currency. And adjusted EBIT increased to 4.1 million, driven by the increased volumes. Then retail as our third business area, which has actually progressed very well in many areas. And as I told in the market environment part, OTD and traded goods market was recovering during Q3 with a growth of 9%, the total market growth. And reflected in our numbers, our net sales increased by almost 7%, 6.6%, and on constant currency basis, that was 5%, to 127 million euros. And this was thanks to the growth in the number of those dispensing patients, and also increased demand for health and well-being products in Sweden. Adjusted EBIT increased to 3.6 million euro and thanks to dose dispensing but also improvements in customer agreements and product mix in health and well-being product category. So that was about it. And then let's see some key financial KPIs. And the recovery is clearly visible on the net result as well. Profit for the quarter increased to 6.8 million and earnings per share to 4 cents. And then about the cash flow in Q3 shortly. The cash flow was negative, minus 16 million, driven by negative net working capital chains, which is due to the strong fluctuation, is quite typical to our business. And therefore, this decrease was happening with the fluctuation in net working capital. But the gas position returned to be normal level at 86. And at the end of the last year, actually, it was abnormally high because we took precautionary measures related to pandemic uncertainty on the commercial papers and loan market. So that's the reason we have been repaying pandemic-related precautionary loans back. So let's move to the net interest bearing debt. And that was 136 million euro. And also you can see from the graph and the table on the right-hand side, that way our gearing is improving and we are back on normal levels in 2020 for the reasons what I just explained when we actually prepaid back our loans. So that was about the financial KPIs. And finally, at the end of the presentation, I would like to talk about the turnaround and also first about the timing of our focus areas here in the near future. Firstly, turnaround is our first priority and thus also our short term action plan for the coming months. This is what we do now. And I will in the next page then talk more about the content of the turnaround. If this is what we do, the other part is how we do it. as we are also fixing the foundation of this company, which is related to how we operate more efficiently in the new structure, which is country-based. This is the plan. And how we handle the customers and how do we improve processes, practices, our ways of working. In other words, we are also creating a new working culture here in Oriola. And as we are now concentrating into turnaround in the coming months, we will do the fundamental business strategy during Q1 and Q2 next year. And that means that we have also rescheduled our capital markets day into May 5th. So this is what we have decided now to do with the CMD. And then let's move into the content of the turnaround in more detail. So, we have a concrete action plan, how we improve our performance in all key areas. I see a lot of potential in Orjala, and we have that potential to improve profitability. We know now how to do and what to do to improve our efficiency and grow together with the growing health and well-being market. First, we are targeting for cost savings through simplified operational model, decreasing the complexity and moving to country-based model which is dramatically improving customer focus, reduce costs and thus improve profitability. We will also cut our cost base by concentrating two relevant value-adding projects which will have value to customers and strict cost discipline and management has been started. We are also implementing networking capital improvement actions to enhance end-to-end sales and operations planning, and all in all, our supply chain planning. Operational efficiency will be one of our key focus areas, and it includes also optimizing our portfolio. It means smoother product changes as well as better warehouse management. Thanks to the planned country-based structure, we are able to serve our customers more individually and also locally with one touch point, which will be an important part of our improved customer relationship management. Commercial excellence means all improvements related to the commercial management as well. We will also crystallize our core service portfolio and implement value-based pricing models. And we will increase internally our margin management and governance. So this is our action plan to improve Aureola's performance. And now this work has been started, and I can imagine you will ask, how long does this take? To that question, it is hard to say one definite answer, but as this is our primary focus, we will rigorously concentrate into this and delivering results. To the next question, which might arise from this, that how much we will deliver more profit. And I want to say that we will inform our progress in every quarter, in our reviews, and also every time we have something to inform. So this time we will not give a definite one number target. So not this time. And just like we already did in the beginning of October, we announced the first phase of this transformation and turnaround. We announced that we plan to simplify our operating model and structure and started the restructuring negotiations. And the preliminary estimate of this annual cost saving is around at least 7 million euros. So let's then, as a final kind of summary, let's take some key takeaways from Q3. This was the quarter of recovery in our market environment, especially towards the end of the quarter, and the volume demand picked up, and that is something what we follow very carefully. So almost reached the pre-pandemic levels at the end of the quarter. Secondly, market recovery was reflected in our invoicing and net sales, and both were around 5% without currency effect. So we were very happy to see that we could deliver also in terms of profitability, and this was supported by the improved market environment, but also thanks to strong performance our retail business, but also all the business areas delivered and helped improve the profitability. And also, we have started cost savings activities now in August, and some of the results were already visible at the end of the reporting period. In the beginning of October, we announced the further measures, and we will then also inform about this in due course. And then finally, going forward, we have initiated our strategy process here at Oriola and plan to publish that together in the CMD on the 5th of May. So that is the key summary. And then about the guidance outlook for this year. Guidance is unchanged that our adjusted EBIT is in constant currency, stays on the same level or increases from 2020. Thank you from my part for now. And let's review if you have had any questions. So Tuula, welcome. And will you guide us through the questions?

Thank you. So as earlier, previous webcast, please use the chat area to type your questions. Currently still not any question. I don't know if you were so comprehensive. Exactly. But please. Audience, if you have any further more questions to Elisa to ask now.

Or then you can also come back to me personally, and then we will, of course, answer to your possible questions at later stage. Exactly. So thank you, as there are no questions. So I thank you for your attention today. And let's come back to possible questions at later stage. Thank you. Thank you.