Oriola Oyj

Good morning and welcome to Oriola's webcast and listen our final statement from 2021. My name is Tuula Lehto and I'm Oriola's communication and sustainability director. With me here at studio is our CEO Elisa Markkula and our CFO Sari Pohjonen. During the presentations, feel free to start including the questions to the chat, and we will take all those after the presentations. But please, Elisa.

Thank you, Tuula, and good morning also on my behalf, and welcome. Let's start reviewing Q4 and also the full year results. The year ended with improved profitability driven by the execution of the turnaround actions and positive market demand. The market really continued to recover both in Finland and in Sweden. That was the sign that the volume especially was close to 2019 levels, which is a clear signal for the recovery. Oriola improved its full-year adjusted EBIT to 26.3 million, which is actually 25% more than 2020. And in Q4, our adjusted EBIT increased to 11.6, which was over 45% above the 2020 numbers. During very exceptional second year with the pandemic, our focus has been ensuring the health and safety of our employees. In December, this principle was truly challenged by Omicron COVID variant. And also, I have to thank our employees who did the extra mile and the utmost in order to secure deliveries. And I would really, from the bottom of my heart, say a big thanks to our employees and for this great commitment to fulfil our important role in the society and fulfil our purpose, health for life, during these very exceptional times. And as final point after the reporting period, earlier this month, we announced that our consumer business and Apotexgruppen in Sweden is planning to merge. I will talk about that a little bit more later in the presentation. So, let's review the invoicing and net sales. The overall pharmaceutical market volume was, on the last quarter, slightly over 2019 levels, and this was also reflected in our performance in invoicing, which increased almost 8% to 1.1 billion euro. and it was clearly above 2019 and 2020. The same growth numbers applies to net sales, also increase was 7% for almost 500 million euro. So that was about the sales development and then the adjusted EBIT here throughout the quarters. As I said, 11.6 was the fourth quarter adjusted EBIT. And the biggest contributor to the EBIT development was retail with its good performance in dose dispensing and also the sales increase in health and well-being products. Also worth to mention that consumer improved adjusted EBIT also driven by the increased sales in physical pharmacies and in e-commerce. All in all, throughout the quarter, the strict cost control and improved operational efficiency in Mankaa and in Enköping, in our distributor centers, together with the preparations related to our new country-based operating model, really accelerated our performance and helped to push the profitability above 2020. Here is a summary of the full year and since 2017 invoicing, which is actually reflecting more our true top line, because the volumes are really how much our operations are then pushing through. pharmaceuticals. So in that sense, invoicing is quite important to look in our business. And all in all, you can see about the adjusted EBIT development that it was actually heavily amplified with the COVID-19 pandemic in the first quarter. And then throughout second, third and fourth quarter, the net sales started to improve. And then let's look a little bit about the operating environment, the market development in general terms before going detailed to our business areas. So about the pharmacy market first. All in all, there are a lot of numbers in this picture, but let's try to crunch them. Overall, the value development was very good in the fourth quarter. It was 4% in total pharmacy market in Sweden. And then year to date, due to quite low, especially Q1, was 2.3%. And all in all, the volume was also growing throughout the quarter four. And when the market was recovering from the COVID-19, the physical pharmacy market was growing also in the fourth quarter. But which is quite interesting, actually, is that the fourth quarter was the online pharmacy was not growing anymore so much like before. like, for example, the previous year. So, the growth was only actually 6%, when then last 2020 quarter 4 was 66%. So, this is interesting development. And all in all, the full year online pharmacy market was growing 19%. So only 19% compared to 2020 growth, which was 60%. And online pharmacies, total sales from the total pharmacy sales in Sweden was 17%. And previous year, it was actually 18%. Lower than the total market. Interesting development. When we talk about our online sales, we actually grow by 31% in the full year in online, and that was definitely more than the market development, which was that 19%. All in all, our market share in Swedish pharmacy market was 16% in the fourth quarter and 16.3% full year. So slightly lower than 2020 number. And there were no big changes or movements in the split of the sales between product groups, so prescriptions are prevailing with over 72% share. Which was also quite interesting from the pharmacy market, that the number of the physical pharmacies were declining in Swedish market by 22 pharmacies. And that means that still there are 1,400, even more, 1,411 pharmacies in Swedish market. So that was about the pharmacy market development, and let's review the pharmaceutical market development in Q4 and full year. We saw the slight recovery on the market related to Q4, especially regarding the volume development, which is an important indicator. When that starts to move, it's the first sign that the market The market is potentially truly recovering or normalizing. And because the value is always growing by nature related to the more expensive pharmaceuticals coming to the market. When we look at the value development in Finland, the pharmaceutical distribution market value grew by 4% in the fourth quarter. And in January, December, growth was 3%. And while in Sweden, actually, the development was pretty much the same. In total Q4, it was 4.6. And year to date, the market was growing the same number, like in Finland, 3%. And based on our estimate, our market share, Oriola's market share in pharmaceutical wholesale market was in Finland 44%, so growth since 2020, and then pretty flat, 46% in Sweden. And as a final slide related to the operating environment about the retail market, in dose dispensing business, we are market leader in Sweden with 41% of the market share. And we have been growing also our market share in Finland to 33. And this is thanks to the growing number of the patients naturally in both markets for Oriola. In Sweden, the traded goods and OTC pharmaceuticals value was growing quite heavily in Q4. So it was 9%. And then in Finland, sorry, then year to date, the growth was five. And our market share in the total sales of traded goods and OTC products was pretty stable in Sweden in Q4, 24%. So that was about the market environment, and let's review then the business area, performance respectively. And then start with the consumer. The sales were increasing, and that was improving the profitability. As said, market seems to be recovering, especially the physical pharmacy market was growing in the fourth quarter, And online market growth was more modest than what we have used to in previous quarters. So this was the total market. And our development of net sales was reflecting this development. And in Swedish crowns, the growth was 2% all in all. And Q4 adjusted a bit increased to 5 million and was above 2020 and 2019 levels clearly. And I said our online channel was growing faster than the market. And all in all, from our total sales of Oriola consumer business, our year to date online sales is accounting for 9%, around 9% of our total consumer sales. So we are supporting, naturally, this growth of online business. And we have already announced previously last year that we are investing in the new e-commerce logistics center in Enköping in Sweden. And that warehouse will be ready, expected to be ready on the second half of 2022. And let's review about the pharma increased sales and we were really focusing on securing deliveries as I already mentioned that we had quite hard the latter part of December especially. So, as already stated, the market demand was growing in both markets, and this means that when that is also reflected in our numbers, so the growth was nicely invoicing 7%, and the net sales increase by 8%. And the adjusted EBIT was on the same level than previous year, so 4.1. And this was actually driven by lower performance in expert services, and as well there was an ascent impairment reflecting the numbers. But the underlying performance in our distribution centers was improving clearly. And then finally retail, that really continued the strong performance in Q4 as well as in other quarters. And we saw really a positive development in Sweden. We don't have the numbers from Finland, but from Sweden we have these numbers which are reflecting the development. So that's then the case that our sales were growing roughly 3% and thanks to the growth in patient volumes in dose dispensing and increased demand for for health and well-being products. Adjusted EBIT increased to 4.6 in the fourth quarter, and thanks to very, very good development in those areas that I already mentioned. So that was about the retail. And then I think it is important here at the end of the 2021 also capture our achievements related to sustainability, because our purpose Help for Life is somehow, at least for me, it's a compass for us related to our sustainability work. And really last year again, it had a special meaning reflected in the situation with pandemic, when we were handling a large amount of COVID vaccines in both countries where we are operating. And in our sustainability work, we have set long-term sustainability goals, and those are improving people's health, best-in-class employee engagement, and carbon neutrality by 2030. And we also committed to United Nations Sustainable Development Goals, as well as Global Compact Principles. During the pandemic, the seamless availability of pharmaceuticals, including those already mentioned COVID-19 vaccines, and their high quality transport, that has been a central meaning to the society. and we developed an indicator to follow pharmaceutical deliveries and their quality and accuracy. We are measuring the ability to deliver ordered pharmaceuticals to pharmacies and hospitals and so forth. Indicator was now applied in Finland and it was 99.8 and during this year we are also planning to implement the same indicator in Sweden. We continued 2021, our roadmap to change to renewable electricity, and already 100% of the electricity in Oriola Group comes from renewable energy. sources, and 95% of our total energy consumption comes from renewable or carbon neutral sources. And this was a clear improvement from 10 to 20. And our target here is actually 100% in 2022. Most of the waste that we generate in our operations comes from the packaging materials and from the goods which are arriving to our warehouses and distribution centers. And in 2021, we improved For example, the collection of plastic packages and cardboard boxes, as well as improved collection of reusable wooden pallets to minimize waste and promote circular economy. And thanks to these operations, we managed to improve our recycling rate to 79. And the target for this year is 85. Also, we achieved EcoVadis in EcoVadis Silver, which means that Oreo lies among top 15 performing companies worldwide. All these indicators are a proven track record that we are doing the right thing on our path for a more sustainable planet. And then let's talk about here also about our turnaround activities. And it is naturally continuing. And we have the concrete action plan, which was already presented in Q3, result release. And here is some also now updated with some achievements. As I said already earlier that there is a potential in this company to improve our profitability clearly. We know what to do to improve our efficiency and grow together with the growing health and well-being market. So we have focused with the cost savings through the new operational model. We have decreased complexity and moved to the country-based operating model, which will improve customer focus, reduce costs, and thus improve the profitability. We have now cut our cost based on this operational model by 7 million euro. And that is visible then from this quarter 22 onwards. We have also improved our distribution center's efficiency and reduced other operating costs. For example, improved cold chain automation in end-shipping and many other activities. We have implemented also a strict cost control and cost management across the full organization. Secondly, we have ongoing improvement activities in networking capital management and we have enhanced our sales and operations planning and doing it constantly in full supply chain planning. And we are also crystallizing and optimizing our assortment portfolio. And these actions will be leading to better efficiency by smoother product changes as well as better warehouse management and thus bundling less capital in our operations. We have also taken significant steps related to our customer experience, which is really something to be proud of. At the end of 2021, we saw all-time high NPS, so Net Promoter Score, in Finland and very good progress also in Sweden. And now with this new country based operating model, we are able to serve our customers even more individually and locally with one touch point. And this will be important part of our improved customer experience and relationship management. For us, the commercial excellence means all improvements related to commercial management. We have started our core service portfolio crystallization and implemented value-based pricing models. We are on the road also to really improve our internal margin management. And this is our action plan to improve Orilla's performance. We have seen some results already of this work, but still many activities are in the planning table and of course also ongoing as we speak. And there might be the question, so how long does this take to see a full impact of these activities? It is hard to say. I would say that this is not a sprint, but this is not definitely either a marathon. It's a longer run. But this is our primary focus to improve efficiency in all our area. This is something we heavily concentrate this year. And we will naturally inform our progress in all these quarterly reviews. And now let's go through the financials in more detail. So I hand over to Sari Pohjonen. Go ahead, Sari.

Thank you, Elisa. And let's indeed take still a little bit more detailed look on our 21 full year results as well as the financial for Q4. In terms of the profit for the period, we saw a clear improvement also in Q4 in a similar manner as already in Q3. On a full year basis, though, the profit for the period was on par with the previous year. We had more so-called adjusting items in 2021 versus 2020. These adjusting items were mainly related to restructuring programmes, and the majority of those were recorded in the latter part of the year. As an example, restructuring related to the organisational changes that we have been implementing in order to be setting up the new country-based structure, which is now ready since the beginning of this year. If we then take a look at the earnings per share, also there a good development towards the end of the year. However, on a full year basis, we were also there on par with the previous year. So the full year basis, six cents per share as in 2020. And there the key difference, as I said, versus the operational development was then the adjusting items. In terms of the profit for the period, and also the earnings per share, there were no major differences between the financial items, nor with our effective tax rate versus the previous year. Then if we take a look at our cash flow development, firstly the cash flow from operating activities, as you can see from the slide, it's fairly seasonal, or it can vary a lot between the quarters. It is very typical for our business that there are high fluctuations in working capital, and we experienced those also during 2021. In the last quarter, our cash flow was 42 million for net cash flow related to operating activities. It didn't quite reach that. the level of 2020, however, I still think it was a good achievement and helped to improve our net debt position, and I'll get back to the net debt position in a bit. In terms of just looking at the cash levels, our total cash at the end of the year was significantly lower, than at the end of 2020. However, it's good to know that at the end of 2020, one could say that the level was somewhat abnormal, as the company had taken precautions to mitigate any pandemic-related actions or effects to the company's cash. Now we are more at the normal level and have been reducing certain items in our balance sheet. Then if we take a look at the net interest-bearing debt, I'm very pleased to note that it declined compared to the previous year. So from December 2020 to 2021, there was a decrease of 26 million here, and it's illustrated somewhat in more detail here as well. It's good to note that at the same time, we have been able to improve our gearing which went down to 46.5% versus 75 a year ago. And obviously, that is a very good achievement as well. And then if you take a look at kind of a more longer-term view, both on our equity ratio as well as the gearing, both thanks to the result development, our equity ratio and gearing improved, but it's also good to note here that the cash proceeds that were related to Oriola selling part of its holding in doctor.se during the Q2 that is visible both in the equity ratio as well as gearing for the year. But good improvement in both of those during the year. Then the dividend proposal. So the board proposes a dividend of €0.04 per share, and this is well in line with Oriola's dividend policy to pay out at least 50% of its earnings per share. And if we look at the earnings per share and dividend per share development from 2017 onwards, this is a more longer term illustration of both KPIs. And should the board proposal be approved by the AGM, the payout ratio would be approximately 64%. And comparing the proposed dividend to our share price at the end of December, it would indicate a dividend yield of approximately 2%. Then we will talk about our outlook and back to Elisa.