Oriola Oyj

Good morning, everyone, and a warm welcome to Oriola's Q2 Results webcast. I am Tuas-Denius Örnjelm from Oriola's Investor Relations. With me today, I have our CEO Katariina Gabrielsson and CFO Timo Leinonen. Hello. After the presentation, we open up for your questions. You may send in your questions through the chat already during the presentation. 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. Good morning and welcome everyone also on my behalf. Today we will discuss our second quarter results. I will start with the highlights and comments on the operating environment. And then Timo will take you through the financials. And before the questions and answers, I will give a couple of closing remarks. So let's start with the highlights. I'm very pleased to say that in quarter two, our distribution business has performed very well with the stable market shares. This has supported a solid net sales growth of 3% to 407 million euros measured in constant currency. Profitability in the second quarter declined from the previous year to 3.4 million euros. This decline was due to the low volumes in the Swedish dose dispensing business. But when looking at the cost side, we can see that our operating expenses were below last year's level. We have been restructuring the Swedish dose business to minimize costs. And our efficiency in the Swedish operations has improved year on year. In the second quarter, we booked a positive contribution of 0.2 million euros from Kronans Apotek. The integration has proceeded, which brings synergies, savings, and the customer inflow in the pharmacies was good in the second quarter. Like discussed in connection with the quarter one report, we have a clear strategic direction to focus on our core business and the profitability improvement in the core business. Our strength is in the distribution business, which has performed strongly in the first half, and where we have new customer onboarding in the second half of this year. On top of this, we also continue to focus on the long-term transformation of the company, which I will comment on in the closing remarks. Then a few words about the operating environment. To start with, we saw that the overall market demand in Q2 was good, both in Sweden and Finland. Consumer confidence is currently at a very weak level due to cost inflation and raising interest rates, as well as the weak Swedish krona in Sweden is also affecting. Nevertheless, this economic uncertainty or weak consumer confidence has not impacted the pharmaceutical market. Typically, in an economic downturn, the traded goods would be impacted first and then the over-the-counter product that you also name OTC. The availability of some pharmaceuticals, which has been an issue since the last year, saw slightly improvement during the second quarter, but still the challenge remains. On the cost side, energy and fuel prices have stabilized, just like the overall cost inflation, but on a high level. Then let's move on to look at the market development. The pharmaceutical wholesale market contributed a healthy growth both in Sweden and Finland. In value and local currency, the market in Sweden grew by 10% and in Finland by 3%. Our market share was stable year over year. In Sweden, we had a market share of 45% and in Finland of 44%. In those dispensing, the total market size in Sweden increased by 10,000 patients, while the markets in Finland was flat at 100,000 patients. As communicated earlier, we are now at the low point with regards number of patients in Swedish dose business and serve currently some 11,000 patients, while the volume in Finland has remained flat at 30,000 patients. The decline in Sweden is related to the tenders that we lost last year. The regional customers in Sweden organize public tender processes from time to time, and we continue to participate in these. The Swedish dose dispensing business continues also to focus on new customer segments to develop the business, and this is already visible in new contracts. But there will be no fast recovery back to high volumes. We estimate to continue with this level of patients in Q3 and Q4. Significant volumes growth is a long-term target. With this, I'm ready with my first part and would like to hand over to Timo. Please.

Thank you, Katariina, and good morning from my path as well. So when going to the finances, so let's start with our profit and loss account and invoicing net sales and adjusted EBIT. So, as Katariina already mentioned, so solid performance in distribution businesses and significant currency impact in our invoicing and net sales. So, when seen in constant currency, so invoicing was growing 6% and growth was mainly coming from our volume business distribution of medicines. And when going to the net sales, so it was declined because of those dispensing business and currency fluctuation, but grew 3% in constant currency. Adjusted EBIT declined as expected to 3.4 million euros due to those dispensing business and more closely about EBIT on next page. If seen adjusted EBIT, so we were unfortunately behind last year's figures in second quarter and year to date as well. And if just seeing kind of technical changes, so impact of week Swedish ground was 400,000 euros during the whole first half of the year compared to numbers in constant currently. And then other thing, we had a 0.2 million euros adjusted steel item related to operational changes in companies. But having said that, so I have to mention that decline in EBIT came solely from those dispensing business. And the rest of the business portfolio as a whole improved their profitability. And to improve our profitability, we had and we have different actions going on, including strict cost control and price increases in different services. And of course, the efficiency in operations in general. When going lower to the profit of the period, so profit for the period declined from the previous year to one million euros. Profit was burdened, of course, by the lower EBIT, as mentioned before, and it came mainly from or solely from those Sweden. And of course, the rising interest rates had an impact on our profit for the period. Having said that, and also what you can read from the report, so we booked a positive contribution for the first time from Grunan Sabotec after the merger in last October by 200,000 euros compared to first quarter, minus 500,000 euros and 2.8 million during the last quarter of 2022. And as said in the report, so we made a decrease in fair value of doctor.exe stock valuation because of the fair value booking model and booking had no impact whatsoever on profit and loss account. And as the profit of the period declined, declined EPS as well. When coming to the cash flow, so in Q2, cash flow from operations were positive by 19 million euros. Having said before as well, the most material thing is the fluctuation in net working capital in our cash flow. And now, the net working capital is on long-term average level. So, having said that, we see that it is kind of normalized from the very good end of 2022. And when seeing the cash flow as the whole, so we have to take into account that we paid dividends of 10.9 million euros during the Q2, which is obviously seen in our cash position as well. But having said that, so liquidity remained and cash position remained good during the whole second quarter of the year. When coming to the net debt level, so as I said already before, so I see that net debt level now is on the normalized level after the exceptionally good year end on 2022. Net debt was 9 million euros at the end of June. And the most important thing, as said, in the cash flow as well, is the fluctuation of our net working capital, which affects the cash position in that sense. And just to inform that if you are kind of seeing the comparable number from the last year, so it includes trade receivables and gas position also from the discontinued operations, which were at the end of June 2022. The trade receivables were 66.4 million euros and they had cash in 42.5 million euros in our balances during that time. Then when seeing the balance sheet as a general, I see that it remains strong. We have room to invest if needed. And of course, it's quite stable, excluding the fluctuation of networking capital, which is normal and was mentioned before as well. We have a long-term target to have our adjusted gearing lower than 70% when you are taking into account that sole trade receivables are kind of seen as a net debt or debt item. And the comparable number for that one was around 50. So we were well in line in our long-term target. And when talking about that decrease of the valuation of Dr. Puntek's shares, so that 19.5 million is visible in long-term assets, in the balance sheets or asset side, and then in the equity of the other side of the balance sheet. And just to mention that Oriola's ownership in the shares of Dr. Point Assay has not changed during the reporting period, only the valuation due to fair value valuation method. A few words about Grunan Sabotex, meaning official name, Swedish pharmacy holding company. The net sales was, to the second part, roughly 290 million euros, and it was slightly below the last year's level. Of course, weak Swedish crown impacted also to these reported numbers. EBIT A was 3.6 million euros compared to the 1.7 million in the first quarter of this year. So significant improvement there. And seeing the adjusted EBIT was 2.3 million euros compared to zero in the first quarter and minus 2.8 million in the fourth quarter of last year. So we see the improvement there as well. And the realized synergies for the second quarter was 2.5 million euros. We see that the integration of the companies in Grunan's apotheosis is going in the right direction. And of course, the profitability is improving after a little bit slower start than expected when the JV was formed. And as said before as well, we booked 200,000 euros positive contribution from the shareholding to our profit and loss account compared to minus 500,000 in the first quarter and minus 2.8 million in the fourth quarter. So basically in that sense, we are improving as well. And having said that, so I have to remind that we are committed in the long term ownership and we see that on the long term, this will bring value to our shareholders. Then finally, coming to our outlook of 2023, so our guidance remains unchanged and we expect that adjusted EBIT is to remain on the same level as 2022. And as Katarina also mentioned, at the moment we are at the lowest point in those weed and number of patients, and we expect it to remain roughly at the same level now. And as we stated before as well, so for the the decline in the profitability came solely in the beginning of the year from those dispensing business so it means that all the other businesses has been improving so what in general worries us is that that if swedish crowns exchange rate is continuing to weakening so of course it has an effect to our reported numbers not that much in in real business because most of the cost and sales are done in Sweden, in Swedish crowds. And also, we are monitoring quite closely the consumer confidence, what is happening especially in Sweden. If we are thinking of the positive things, what we see, so when we look forward, we expect that pharmaceutical distribution market is continuing to grow. And as Katarina mentioned, before as well our focus and strength is in distribution business and it has been performing strongly during the first half of the year as well and second half of the year will be supported by the new customers we have won and they are starting to bring railway news as well during the second half of the year. we also have implemented some price increases in q2 and during the beginning of the year and we are continuing to do so forward or going forward as well and also in in the businesses so we are maintaining a strict cost control throughout the company And based on those, so we think that despite of those dispensing business where we have had challenges and we have challenges, so basically the other businesses are improving. But that's roughly about the numbers. So now back to Katarina.