Oriola Oyj

Today, our CEO, Katariina Gabrielson, will go through the presentation. And after that, we'll take the questions and answers. But I remind you that during the presentation, you can already upload questions. A recording of the webcast will be available on our website, oriola.com slash investors. With that, I hand it over to you, Katariina.

Thank you, Mikael. And good morning and welcome to... I don't have the flip now. To this Aureola third quarter result presentation, also on my behalf. Thanks and sorry about the mess. I'm Katarina Gabrielsson, the CEO for Aureola. We will do this presentation in the same way as for quarter one and quarter two, based on the continuing operations and discontinued operations. The continuing operations consist of services segments and discontinued operations consist of the consumer segment, including the pharmacy operations in Sweden. We had a good quarter in Q3 as Aureola Group improved its comparable adjusted EBITs to 13.5 million euros, which is 30% higher than 2021. The improvement was driven by our efficiency and cost-saving actions related to our turnaround initiatives as well as a good market demand in both of our markets. In addition, the balance sheet has also strengthened throughout the year due to improved cash flow and increased results. I'm also very pleased that the continuing service business has been able to achieve a solid result in the current inflationary environment. For the continuing operations, invoicing increased with 4.1% on a constant currency basis and our adjusted EBIT improved, reaching 6.6 million euros, which is an increase with 23%. In the discontinued operations, we had growth in online sales and our turnaround initiatives were offsetting inflation. The near-term focus will now continue to be on the rigorous implementation of turnaround initiatives and the transformation. All the actions related to our 7 million euro cost savings targets have been implemented in 2022 in both the continuing and the discontinuing operations. And we have also progressed further in improving our efficiency, the portfolio management and the product pricing. During the quarter, we announced a new operating model to further improve operational, commercial and supply chain excellence. This will help us to create synergies and to ensure seamless work across the markets. Right after the end of the reporting period, we finalized the combination of Kronans Apotek and Apoteksgruppen Pharmacy Business in Sweden into a new jointly owned company. This transaction, which has required plenty of preparations from our organization, support us in our journey towards a pharmaceutical infrastructure and health care distribution company. But let's now take a deeper look into the figures. In our continuing and discontinued operations, our invoicing increased by 1.3% to 982 million euros compared to 970 million euros previous year. The net sales increased by 3.3% to 481 million euros compared to 466 million euros in Q3 2021. The adjusted EBIT was 19.8 million euros compared to 10.4 million euros previous year. It should also be noted now that the adjusted EBIT includes a positive impact of 6.3 million euros in Q3 from the lower depreciations as discontinued operations non-current assets are classified as held for sales and not depreciated. The comparable adjusted EBIT, excluding the positive impact from depreciations, was 13.5 compared to 10.4 million euros. The improved performance compared to earlier years were driven by improved market environment, net sales growth and also well-progressing turnaround actions in all businesses. Let's now look at our operating environment and we can all see overall that the consumer confidence is indeed weakening due to the all-time high inflation that we can see in the markets. Although this is not fully visible yet in the consumer behavior. This might impact consumer spending in the long run and could also have impact on Aureola in the future. The pharmaceutical wholesale market continued to grow in the third quarter compared to previous year. And when we look at the value developments at the wholesale prices in Sweden, the growth was 6.6 in the Swedish krona in the third quarter. In Finland, the market value grew by 4.3%. Based on our estimate, Aureola's share of the pharmaceutical wholesale market remains at the same level as previous quarter. In dose dispensing business, Aureola offers pharmaceuticals and dose dispensing for private and public healthcare sectors. The total market size for the dose dispensing has increased slightly in both markets. The number of patients that Aureola is serving in the dose dispensing business has declined in Sweden to approximately 75,000 patients and slightly growing in Finland to about 30,000 patients. In Sweden, the regional customers arranged public tender processes from time to time. This is the reason why the decrease is in Sweden now. Due to this process, we have lost a regional customer in the dose dispensing and therefore the number of patients has declined to 75,000 from 105,000 in Q2 2022. If we look at the pharmacy market, this is also the last time that we now look at the pharmacy market from our point of view. But the pharmacy market in Sweden grew by 5.7% in Q3. The total online pharmacy market growth has been stabilizing from 2021, and the growth was 9% in the third quarter. The online pharmacy's share of the total pharmacy market remained at the same level as in previous quarters, and that was 19% at the end of third quarter. The Oriola's online sale growth was higher than the market and grew by 18% in the third quarter. The market share for Oriola in the Swedish pharmacy market in quarter three was about 16%. Let's then look at the segments that we have and also go through the development in the segments. Let's start with the continuing operations, Oriola services and the performance that we have here. Both the pharmaceutical market value and the volume grew in Q3 in both Sweden and Finland. The Q3 invoicing increased by 1.4% to 871 million euro compared to 859 million. The net sales grew by 4.1% to 374 million compared to 359 million. This growth was driven by the market growth as well as new customer agreements in the pharmaceutical distribution. The adjusted EBIT increased to 8.7 million euro compared to 7.7 million, driven by the net sales growth and the turnaround initiatives. However, the cost inflation, the production challenges and the lower number of those patients in Sweden limited the EBIT improvements. Then looking at the discontinued operations in the consumer segment. The consumer net sales decreased by 3.2% to 194 million euros compared to 200 million. In the constant currency, the growth was 0.9%. Our online channel grew faster than the market in the third quarter. When we exclude a positive impact from depreciations, the comparable adjusted EBIT in consumer side was €6.9 million compared to €5 million in previous year. The performance was driven by the turnaround actions and an additional VAT refund of approximately €2 million. Let's then also take a look at the financials for Q3 in more detail. The profit for the period for both continuing and discontinuing operations totaled at 14.6 million euros compared to 6.8 million euros a year ago. Similar development can be seen from the EPS as earning per share is increased from 8 euro cents in quarter three compared to 4 euro cents a year ago. The cash flow has been strong in 2022, with €41.8 million in cash flow from operating activities year to date, when including both continuing and discontinuing operations. The quarterly fluctuations in cash flow can be significant in our industry, and you can also see that in the graph here on the left-hand side of the slide. The net debt declined and was 36 million euros at the end of Q3. For 2022, this figure includes only continuing operations. Including the discontinued operations, the net debt at the end of Q3 was 69 million euros. It's also down year over year. The decline in net debt was driven by the improved cash flow and result compared to the previous year. And it's also good to note here that in the end of the comparison period the consumer lease liabilities were included in the net debt and that is also of course affecting this one. On the right hand side you can see the elements of our net debt and again the 2022 numbers includes only the continuing operations where the 2021 figures include also the discontinued operations. The improved financial result that we have and a strong cash flow has also improved equity ratio and the gearing compared to previous years. In gearing, the 2022 number includes only continuing operations. If we would include the discontinued operations, the quarter free gearing is 30% and showing a good improvement year over year. During this beginning of October, the 3rd of October in fact, we issued a new outlook for 2022 after finalizing the combination of Aurela Kronan's Apotek and EuroApotek's Apoteksgruppen into a new jointly owned company. and the new guidance is done that the adjusted EBIT for the continuing operations is estimated to increase from the 2021 level and the new outlook is based on the continuing operations that we have and this is done the 3rd of October guidance. During this presentation, we have, as we have done during the whole year, mentioned the turnaround several times during this presentation. And let's go through now the key areas of the turnaround and our key focuses in the coming months. And we'll also, after this one, say a few words about how the finalization of the combining Kronan's Apotek and Apoteksskrippen will impact our financials in the quarter four. Here is then a recap of our short-term action plan and what we have achieved. Our turnaround short-term action plan consists of four key priorities areas. It's the cost savings, it's the efficiency network and capital management, excellent customer relationship management and the commercial excellence. When we look at the cost savings priority, we have focused on three main areas. First, we have announced a new operating model. We have implemented all the initiatives related to our 7 million euro cost savings targets in 2022 in both the continuing and the discontinuing operations. To streamline our operations further, we have divested our pharmacy staffing business in Finland as of 1st of April this year. Secondly, we are focusing on reducing our operating costs. High focus has been in our distribution center, especially in Enköping. The third area is cost control. We have and we will continue to implement strict cost control, which is even more important now when we have the all-time high inflation figures in the total environment around us. Furthermore, we have ongoing improvement activities in network and capital management to enhance end-to-end sales and operations planning and supply chain planning. Also, we are crystallizing and optimizing our assortment portfolio. These actions are leading especially to a better warehouse management. For us, excellent customer relationship management and commercial excellence means improvements related to commercial management. During the third quarter, we have paid extra attention to these areas and gained good results. These activities are very important to mitigate inflation impacts that we see around us. This short term action plan is our key priorities and we know what to do and where to focus. And also not only me know it. I will say that the whole organization knows about this. If we then look at how the financialization of the combination of Kronas Apotek and Apoteksgruppen will impact our financials in Q4, this is a little bit like how we estimate it to be. There will be a one-time negative impact on the transaction amounting to approximately 30 million euros in Q4 this year. The non-current assets are not depreciated while they are classified as held for sales. This had a positive impact of 16.5 million euros of the EBIT of discontinued operations in Q1 to Q3 this year. That's partly offsetting now the negative impacts to be recorded in Q4. From Q4 onwards, the new company will be reported as an associated company under the equity method above the EBIT line. For the parent company, there will be a negative impact of approximately €100 million of net profit as a result of loan receivables that are not transferred to the new company, decreasing the parent company distributable funds by an equal amount. And that we will then see during Q4. To wrap up now this presentation before we go to questions, the third quarter, there are five important takeaways that I would like you to remember. First, I'm really, really happy and proud about the continuing service business, which was able to achieve a solid result in the current inflationary environment. For continuing operations, our invoicing increased 4.1% on constant currency basis and our adjusted EBIT improved, reaching 6.6 million euros, and that is a plus of 23% compared to last period. Second, we are currently witnessing all-time high inflation, and that gives uncertainty for the coming quarters. In quarter three, our own efficiency and cost savings continued to mitigate inflationary cost pressure. Inflation is mainly affecting our fuel and energy prices, but also labour costs in the long run. Third, our new term focus continues to be on the rigorous implementation of our turnaround initiatives and transformation. All the actions related to our 7 million euro cost savings target have been implemented in 2022 in both continuing and discontinuing operations. We have also progressed further in improving our efficiency, the portfolio management and the product pricing. Fourth, we announced a new operating model to further improve our operational, commercial and supply chain excellence. This will help us to create synergies and to ensure seamless works across the markets. Our local presence is a strength, and by combining our knowledge and expertise, we will be even more agile and efficient. Our aim is to capture the full value of our business by optimizing our operating model and simplifying our structure. And last but not least, we have finalized the combination of Kronans Apotek, Apoteksgruppen Pharmacy Business in Sweden into a new joint loan company. This transaction, which has required plenty of preparations from our organization, supports us on a journey towards a pharmaceutical infrastructure and healthcare distribution company. I would also now like to take the opportunity to thank all our employees for their commitment and also, in fact, the customers and the partners that we have for really good cooperation in this challenging environment that we can see around us in the inflationary world that we are living in at this point. And before we go to questions, it's like this also. We announced, I think it was yesterday, that we will have an investor day on the 30th of November here in Helsinki. And I would like to invite all of you now to that event. You can join in person or via the web. And this is also a great opportunity to both meet you in person and also hear more about us and what we are heading towards as a company in the near time future. And I would like to thank you for the attention. And let's see now if we have got some questions.

Yes, let's start with questions. We have one here. You are losing market share in Swedish pharmacy business. What's the reason for that?

One of the reasons for that is that we are not comparable apples and apples in that area because we have during the year also closed pharmacies. So that's the main reason. But also if we look at like the Swedish krona, it's not the same level as we see now in euro because we are quite affected about the euro rate. um there was in the presentation i don't remember the figure now but i think it was plus 0.9 or something like that if we look at the swedish krona growth it looks like we don't have any additional questions it's a busy day on the market it's a busy day on the market and if you have more questions coming then you know where to reach us so

Very good. As there are no more, we can probably conclude the webcast. Just to remind you still about our fourth quarter interim report or the financial statement for full year 2022 will be out on February 16. With that, I want to thank you for your attention and wish you a good day. Goodbye. Thank you.