Oriola Oyj

Good morning, everyone, and a warm welcome to Oriola's Q3 results webcast. I am Tuas, the new senior from Oriola's investor relations. With me today, I have our CEO, Katariina Gabrielsson, and CFO, Timo Leinonen. Hello. This morning, right after the publication of the Q3 report, we also communicated about Oriola's strategy, financial targets and sustainability agenda, as well as new reporting segments. This means that we have a lot to cover within the one hour that we have reserved for this session. As usually, we will take your questions at the end, but you may of course 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 Katarina, here is the customer disclaimer that we all should be aware of. And now, without further ado, Katarina, please go ahead. Thank you, Tuva.

Good morning and welcome also on my behalf. As Tua mentioned, we will today discuss the Q3 results, our strategy and financial targets. I will start with the highlights and comments on the operating environment, and then Timo takes you through the financials. After that, I will discuss the strategy and financial targets. Looking back at Q3, I would summarize it as a quarter with solid sales development supported by the good development in the distribution business, especially in Sweden. Net sales on a constant currency basis were 376 million euros, which is at last year's level. Profitability was mainly burdened by lower volumes in the Swedish dose dispensing business. Adjusted EBIT declined from the previous year to 4.4 million euros. On a constant currency basis, adjusted EBIT was 4.7 million euros. So with the further weakening of the Swedish krona, we start to see some FX impact on the EBIT line as well. Here I want to highlight that when looking at adjusted EBIT without the Swedish dose dispensing business, we have improved during the whole year and in Q3 adjusted EBIT excluding Dose Sweden was 5.2 million euros compared to 4.8 million last year. Operating expenses were below last year's level, mainly driven by cost reductions in the Swedish dose dispensing business, and our financial position has remained strong with a positive cash flow in Q3 and networking capital at a normalized level. After the reporting period, we announced about the sales of Svens dose to Apotekstjänst Sverige. The sale of Svensdos means that Aureola will be exiting the dose dispensing business in Sweden. As many of you will know by now, Svensdos has lost market share during the past 12 months due to the loss of public tender contracts. During our ongoing strategy process, we were not able to identify a recovery of the business within the foreseeable future, mainly due to the prevailing tender market structure and dynamics in Sweden. The sale of Svensk Dostar Protection gives continuity to the dose business and, on the other hand, supports our decision to strengthen focus on our distribution business. We will continue to offer dose dispensing services to pharmacies in Finland, where the market structure is different. Going forward, we plan to deepen the cooperation with Apotextions by supplying pharmacy health products to them. The agreed sales price in cash is 110 million Swedish krona, approximately 9.5 million euros. The transaction is subject to customary approval by the competition authority and we expect to complete the transaction no later than in quarter one next year. You will hear more about the financial impacts by Timo later on. Next a few words about the operating environment. In the third quarter, we saw that the volumes in the pharmaceutical distribution market were somewhat softer than in the first half of the year. But when looking at the market value, we can still see a steady growth both in Sweden and Finland. We also believe that the solid underlying long-term market drivers such as aging population, well-being and health remain unchanged. The availability of raw materials for pharmaceuticals has continued to be tight, which has affected the availability of some medicines in Sweden and Finland. On the cost side, energy and fuel prices have remained stable. Then we move on to look at the market development. As said, the market continued to grow in value. The market in Sweden, measured in local currency, grew by 9% in Q3 and growth year-to-date was 10%. In Finland, the market grew by 2% in Q3, while growth year-to-date was 3%. Our market share was stable year-on-year. In Sweden, we had a market share of 44% at the end of September and in Finland, 45%. In those dispensing, the total market size grew by 10,000 patients, both in Finland and in Sweden. Our share in the Finnish market declined by three percentage points to 28%. With this, I'm ready with my first part and I would like them to hand over to Timo.

Thank you, Katariina, and good morning for me as well. In my part of the presentation, I will first discuss Aureola's financial development and comment on Kroon and Sabotech, and then discuss the financial impact of the sale of Sven's tools and the new segmenting report, which we announced today. As Katarina mentioned, on top line, the company is growing when measured in constant currency. Invoicing grew by 6% to 921 million euros in constant currency. Net sales in Q3 grew by almost 1% to 376 million euros in constant currency. Growth is mainly coming from our volume business, the distribution of pharmaceuticals. We saw good development, especially in Sweden, and this has offset the decline from the Swedish dose dispensing business. The currency headwind is significant with both reported invoicing and net sales declining year on year. Adjusted EBIT declined to 4.4 million euros. Adjusted debit is behind last year in Q3 and year-to-date as well, when we look at the figures, which includes Sven's dues. In Q3, adjusted EBIT was 4.4 million euros and year-to-date 11.3 million euros. The impact of weak Swedish krona was 0.3 million euros negative on EBIT line in Q3 and 0.6 million negative year to date. The decline in EBIT came solely from the Swedish dose dispensing business. Excluding the Swedish dose dispensing business, we were above last year's level. The distribution business in Sweden, where we saw good development in top line, also contributed positively to EBIT line. The cost inflation has stabilized, but is still on high level. Operating expenses were below last year's level, mainly due to cost reduction in Swedish dose dispensing business. In Q3, we had adjusting items totaling 21.6 million euros, mainly related to the Sven's dues transaction, and I will discuss more those later on. The impairment loss of 21.4 million euros that was recognized in Q3 is the main reason to the drop of profit for the period. Other items that impacted profit for the period were the lower EBIT, due to loss of business in those dispensed in Sweden, higher financial expenses due to rising interest rates, and the loss of 0.6 million euros from Krunas Apotheke. In Q3, we book a future decrease of 1.1 million euros to the fair value of doctor.se. This was due to the price levels of realized transactions being lower level. In total, a decrease of 20.6 million euros has been recorded to the fair value during the reporting period of January, September. The booking has no impact on profit and loss account and our ownership of the shares of Dr. Punkes has not changed. As the profit for the period declined, EPS declined as well. In Q3, our financial position remained strong. Gas flow from operations in Q3 was positive at 10 million euros. The most material thing, as typically in our industry, was the fluctuation in networking capital, which is now on the long-term average level. Investments year-to-date have been lower than in previous years. Liquidity remained on a good level on Q3, with a cash position of 130 million euros at the end of the period. Net debt level has decreased throughout the reporting period and was at the end of September 2 million euros negative. Just to inform that trade receivables at the end of the period were at the current average level, roughly 90 million euros. In the comparison period, the discontinued operations accounted for 67.1 million euros on the trade receivables and roughly 16 million in cash. As said earlier, our financial position remains strong, and it is quite stable, excluding the networking capital that fluctuates, as mentioned before. Equity ratio was 19% and carrying 10.5% negative. As said, we recognize the future decrease of 1.1 million euros in the fair value of doctor.se. In a total, a decrease of 20.6 million euros has been recorded during the reporting period. The change is visible in other long-term assets and in equity in balance sheet. Aureola's ownership of the shares of Doctor.se has not changed during the reporting period, only the valuation. The impairment of goodwill of 21.4 million euros relating to the dose dispensing gas generating unit impacts balance sheet. And now let's move to Krona's Apotech. In Q3, Krona's Apotech had net sales of 275 million euros, which is somewhat below last year. The weak Swedish Krona impacts, of course, due to reported figures. EBIT A was 1.8 million euros compared to 3.6 million euros in Q2 and 1.7 million euros in Q1. Profitability was impacted by lower customer flows. Adjusted EBIT was 0.8 million euros compared to plus 2.3 million in quarter two and zero in quarter one. The decline of adjusted EBIT relates to the lower revenues compared to QQ, which were mainly affected by customer flows. EBIT and net results were of course burdened by the amortization of purchase price allocations related to the forming of JV. The focus with Kruunan Sabotech reminds on operations and integration activities, and the integration and synergies work has been progressing according to the plan. Realized synergies were 3.5 million during Q3 and year-to-date 8.2 million euros. In Q3, we booked a loss of 0.6 million compared to the profit of 0.2 million in Q2. We are committed to the ownership and we see that on the long term, this will bring value to our shareholders. We have commented on this many times, but next I will summarize the financial impact. The accurate sale price in cash is 110 million Swedish krona, approximately 9.5 million euros, and we expect to complete the transaction no later than the first quarter of 2024. As of October, Svensh Deuce has been classified as an asset held for sale. In Q3, we have recognized an impairment loss of goodwill of approximately 3.3 million euros relating directly to the transaction. In addition, we have recognized an impairment loss of goodwill of 18.1 million euros to the dose dispensing cash generating unit in Q3 2023. This means that the total impairment loss on goodwill amounts to 21.4 million euros. We also estimate the record on expense of 3.0 million euros for the translation differences at the completion of the transactions. The impairment and reclassification of translation differences has no cash flow effect. But as Katarina mentioned in the beginning, the Swedish dose dispensing business has lost market share, and to give visibility on the impact, we also released Oriola's net sales and adjusted debit figures, excluding the Sven's dose business. And we have also given the new outlook for adjusted EBIT, which is now excluding DOS Sweden. In Q3, excluding Swedish DOS business, Oreos net sales were approximately 350 million euros and adjusted EBIT was 5.2 million euros. The impact of Sven's dues on EBIT in Q3 was 0.8 million euros negative. And for January, September, net sales were slightly above 1 billion euros and adjusted EBIT was 13.3 million euros, which means that in comparable figures, we were 2 million ahead of the whole last year. Like I mentioned, we gave a new outlook for this year on 13th October, when we announced the Svensk Doge investment. We expect the adjusted EBIT excluding those dispensing businesses in Sweden for the year 2023 to be on the same level as adjusted EBIT for 2023. This means 19.7 million euros. Things that worries us about the Q3 are the continuing softening of the market in volume and weakening demand, rising inflation and weaker than anticipated Swedish crude. On the other hand, We do expect the pharmaceutical distribution business to continue to grow in value and the distribution business has been performing strongly year to date. We will continue to manage our costs strictly and mitigate the high cost inflows. And the final note from me is about our new segments we announced also today. As a response to the feedback and improved transparency in our financial reporting, we have decided to make changes in our segment report. The new segments will also reflect the new strategy, which Katarina will soon tell you about. As of 1st of January 2024, we will have two reporting segments, distribution segment and wholesale segment. The distribution segment consists of pharmaceutical logistics and those dispensing services, while the wholesale segment consists of wholesale of traded goods and over-the-counter products, parallel imports and special licensed medicines as well as advisory services. According to preliminary unaudited figures, distribution segment net sales in 2022 were approximately 1.2 billion euros and adjusted EBIT was 23 million euros. Wholesale segments net sales in 2022 were approximately 350 million euros and adjusted EBIT was 6.5 million euros. We will publish our unaudited restated segment information during Q1 2024, after publishing our financial statements. And the Q1 report will be prepared according to this segment reporting structure. With this, I'm ready with the financials and let Katariina continue with the strategy.