Oriola Oyj

Good morning everyone and a warm welcome to Oriola's Q1 results webcast. I am Tuva Stenius Örnjälm from Oriola's Investor Relations. We have today two speakers, our CEO Katariina Gabrielsson and CFO Timo Leinonen. After the presentation, we open up for your questions. You may send in your questions already during the presentation. And kindly note that we are recording this webcast and the on-demand version will be available on our website later today. Before handing over to Katariina, here is the customary disclaimer that we all should be aware of. And now without further ado, Katariina, please go ahead.

Thank you Tuva. And good morning and welcome everyone also on my behalf. Today, we are here to present our first quarterly result for this year to you. I will start with the highlights and comments on the operating environment. And then Timo takes over and we'll talk you through the financials. And before the quick Q&A, there will also be a couple of closing remarks from me. So let's now start with the highlights. Looking at the first quarter, I'm pleased to say that we had a solid start of this year, despite some uncertainties in our operating environment. Our net sales measured in constant currency were 370 million euros, which is at par with last year. We saw good development in the distribution of pharmaceuticals, especially in Finland, but volumes in Sweden were negatively impacted by the lower import of parallel medicines. In quarter one, profitability declined to 3.5 million euros, but this was in line with our expectations. There were mainly two reasons for the development. As we communicated in connection with the fourth quarter last year, the volume in the Swedish dose-depensing business have declined, impacting profitability, and further, our transportation costs in Sweden were higher. In addition, we experienced in the first quarter a challenging overall inflationary environment. However, with strict cost control, we were able to mitigate the pressure and operating expenses were below last year's level. As we have discussed before, we successfully completed our short-term turnaround last year. We now have a clear strategic direction and focus on a long-term transformation. In my closing remarks, I will also comment some more on this topic. Before we move on to discuss the operating environment, I want to remind you all that towards the end of Q1 last year, consumers hoarded pharmaceuticals, especially in Sweden, as a reaction to the war in Ukraine. This boosted the volumes, the sales, and to some extent profitability, and made Q1 2022 a somewhat tough compassion period. When looking at our operating environment, we can see that the overall market demand in Q1 was good, both in Sweden and Finland. The increased economic uncertainty has not impacted the pharmaceutical market. On the other hand, the tight situation in raw material supply that was seen already last year has continued and impacted the availability of some medicines across the whole Europe. Consumer confidence has weakened due to the high cost inflation and increasing interest rates. Typically, in an economic downturn, it would be the traded goods that would be impacted first and then the OTC over the counter products. On the cost side, energy and fuel prices have been stabilizing. The union negotiations were completely during the first quarter in both Sweden and Finland. And now we have a better understanding on the inflationary impact of labor costs in the coming quarters. As next, I will present more closely the market developments. The pharmaceutical wholesale market continued at a healthy growth, both in Sweden and Finland. In value and local currency, the market in Sweden grew by 10% and in Finland by 4%. Based on our estimates, Aureola's market share in Sweden was 43%, which is lower than it was the first quarter last year, while the share was stable in Finland at 44%. In Sweden, new businesses has partly offset the decline from the last year's lost business, but the decline in market share was related to lower volumes of imported parallel medicines. I'm really satisfied to inform that we have been winning new businesses during Q1. We have won more than five new contracts and the positive impact of these starts to materialize in the second half of this year. In dose dispensing business the total market size has increased by around 10 000 patients in Sweden and in Finland respectively. Aureola serves approximately 37 000 patients in Sweden compared to last year 105 000 patients and approximately 30 000 patients in Finland compared to 28 000 patients last year. The decline in Sweden was related to the lost tenders last year, as communicated in the fourth quarter. The transfer of these customers is materializing now as lower number of patients and lower sales. The regional customers in Sweden organizes public tenders processes from time to time, and we continue to participate in these. The Swedish dose dispensing business continues to focus on new customer segments to develop the business, and this is already visible in new contracts. With this, I'm ready with my first part, and I would like to hand over to Timo for the next part of the presentation. So, Timo, please.

Thank you, Katarina, and good morning, everyone. Let's go briefly in finances. As Katarina already mentioned, it was a solid start for the year. However, as I said, the exchange rates in Swedish krona impacted heavily on our top line, and that's the reason why our invoicing was below last year's level. But then, when coming to the net sales, so we were in line of the last year, except of course for the Swedish, or Sweden, which actually explains mostly the lower numbers in net sales. And when coming to the adjusted EBIT level, so we, as stated before as well, so we made changes in reporting of JV net results. Now it's reported after financial items and before taxes in our profit and loss account. And the reason was that we made it more transparent and simple to communicate on our own performance, which we are guiding in adjusted EBIT level. And also to highlight that we are measuring our joint ventures performance in the longer term and through the share value, which we obviously want to bring shareholder value to our shareholders as well on the longer term. And let's go more closely to the EBIT on next page. When seeing the EBIT level, so profitability was in line our expectation. Foreign exchange doesn't impact that much on our EBIT level. And the reason is, of course, that mostly our sales, net sales and also the cost base in Sweden is kind of measured in the Swedish crowds. However, the biggest impact came from those in Sweden, as we announced already earlier. Then how to maintain the good profitability level and expected profitability level in this inflammatory environment, so price increases have had some effect there, and then of course the good cost control and better efficiency in our operations than before have been affecting positively on our profitability. And as also Katarina mentioned before, so hoarding of medicines after the start of Ukraine war in first quarter in 2022 also impacted to the numbers what we have on that period there. And when going to the high inflatory environment, so especially the transfer transportation costs in Sweden were kind of higher level than what we expected. But despite of that, so our operating expenses were at last year's level due to good cost control overall in the company. Then when seeing the profit for the period, so net results, so it was declining one million euro from the previous year and was also in line of our expectation. The loss of joint venture, Swedish pharmacy holding company were spurring in the result and also the rising interest rates. And the result from JV was minus 0.5 million euros, but compared to the last quarter of 2022, so it was much smaller. Last year, it was on the last quarter, 2.0 million euros. And net financial expenses increased mainly due to the higher interest rates, and some effect came also from foreign exchange rates. And I think one of the positive things was that during this quarter, we didn't have any adjusting item. So basically when the operations are kind of starting to run smoothly and we don't need to do any adjustments. So of course it kind of supports net profit and earning per share as well. We've seen the cash flow, so cash flow was highly negative, but on expected level also in the Q1, our cash position was higher than normally at the end of last year, and of course it has when this comes to the normal level, so impact for the quarterly figures. And it comes from the high fluctuation of the net working capital, which is actually typical in our industry. Having said that, we can say that the change in the net working capital for the quarter was minus 38 million euros, while the cash position declined to about 43 million euros. So basically all the changes are coming from the net, changes of the net working capital. But having said that, so I also have to say that our cash position is on very good level and liquidity is in a good level. It was 119 million euros, our cash position at the end of the quarter. And then when seeing net debt, it was also on the last year's level, and just to notify that Q1 2022 cash and sold trade receivables included also discontinued operation. On cash, there were roughly 38 million euros from discontinued operation and sold trade receivables, 77 million in that one. But basically, when seeing the gearing, and our loans and so on, so everything is kind of on good level, and basically on the same level that what we really had last year. And otherwise also balance sheet remains strong and basically we are in good position if we kind of need to use our balance sheet somewhere, for example, in the investment and so on. Equity ratio is in good level and better level than what it was in the last year. and also the assets of gearing is in the very good level compared to what it has been previously, especially before the joint venture measure, what we did last year. Then a little bit about Swedish pharmacy holding. meaning Kroon and Zapotec, our joint venture. So, net sales was 280 million euros, which was slightly below last year, but as said also last year, the same hoarding of medicine affected here as well on the last year. Access to debit was about zero, and compared to minus 2.8 million on the last quarter of last year. So, we see the improvement in the profitability, and it shows that we are going in the right direction in synergies and integration as well. The adjusted debit was a result of the lower earnings from the pharmacy sales, as said, as well as increasing costs, mainly connected to the pharmacy stuff. So basically inflation in the salaries are affecting there as well. And as said, so we are using the equity method to book the results of JV to our book, so we booked a loss of 0.5 million euros compared to minus 2 million euros in Q4 2022. And as stated, so we are committed to the long-term ownerships, and we see that on long-term, this will bring value to our shareholders. Then shortly about our outlook for 2022, as stated also before, so it reminds on the same level what we had before. Of course, there is a technical change in the wording, because now we are reporting our joint venture on different place, but actually that was only taken out from the outlook that it's not excluded from our reporting in that sense, which we've all before as well. But as said, so our outlook is that we are expecting our agency a bit to be on the same level as it was in 2022, and the comparable number there was 19.7 million euros. That's all from my part. Please, Katarina, continue.