Oriola Oyj

Good morning, everyone, and a warm welcome to Oriola's Q4 and full year results webcast. I am Tuas-Tenius Örnjärm from Oriola's Investor Relations. With me today, I have our CEO, Katariina Gabrielsson, and CFO, Timo Leinonen. After the presentation, we open up for your questions. As a reminder, in the Q&A, we prefer to focus on the questions relating to Oriola's business and financial development, and take questions on Kruunan's Apotek only within the scope that we can comment on. You can send in questions to us 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. As Tua mentioned, we will today discuss the quarter four and full year results. I will start with the highlights and comments on the operating environment, and then Timo takes you through the financials. At the end, I will also discuss the strategic investments that we announced early January. 2023 was yet again an eventful year for Aureola. We achieved strategically important milestones when we announced in October our refined strategy, new financial targets and a new sustainability agenda. These are the key elements that form the solid foundation for building the future Areola. Last year, our focus was on strengthening our distribution business and our role as an infrastructure company in securing the availability of pharmaceuticals in society. Throughout the year, we have seen that the distribution business has developed strongly, and we have, for example, signed several new distribution agreements, and our market share has been stable. As a result of this, the distribution business grew by 7.3% on a constant currency basis in 2023. The growth in distribution has offset the impact of the Swedish dose dispensing business, and the group's net sales grew by 2% to 1.6 billion euros. When we look at EBIT and exclude the negative impact of Sven's dose, we can see a strong improvement of 64% from last year, with adjusted EBIT at 19.5 million euros compared to 11.9 million last year. All in all, we have successfully managed the inflationary pressure, both with strict cost control and by price increases. Operating expenses were below last year's level, including transport costs in Sweden. We have also improved efficiency in our operations, especially in Enköping, which we can also see as a positive contribution on the EBIT level. I should also note that the reported adjusted EBIT declined to 16.7 million euros due to Swedish dozed business, which we are now in the process of divesting. During the year, Kronans Apotek implemented a new organization, harmonized its assortment, completed the rebranding of 191 pharmacies and optimized its network by closing some pharmacies, resulting in more than 500 pharmacies operating today under one brand. In addition, Kronans Apotek continued to invest in its omnichannel operating model by strengthening its e-commerce capabilities. Kronans Apotek is today the biggest pharmacy chain in Sweden, measured by numbers of pharmacies, and with its market share of around 24% and a growing e-commerce, it is now set to improve profitability and strengthen its business and brand in the long term. Kronans Apotek is an important strategic partner for us, and we will actively support its value creation as major shareholders. We have also today published the notice to the annual general meeting, which we will have on the 19th of March. The Board of Directors has presented their dividend proposal, which is €7 per share. The proposal is in line with our dividend policy of paying out an increasing annual dividend. In 2023, we successfully managed to navigate in an overall unstable operating environment. Cost inflation stabilized at a high level, interest rates increased strongly, and the Swedish krona remained weak throughout the year. In addition, consumer confidence was impacted as consumers' expectations of their own economy weakened. However, due to the relatively stable nature of our industry, the value of the pharmaceutical distribution market continued to grow steadily in both countries. In the fourth quarter, volumes in the pharmaceutical distribution market in Sweden grew, while volumes in Finland declined. The challenge in the availability of some pharmaceuticals have remained tight across Europe, and energy and fuel prices have stabilized. We believe that the solid underlying long-term market drivers, such as aging population, well-being and health, remain unchanged. Let's now take a closer look at the markets. As said, despite uncertainties in the economy overall, the pharmaceutical distribution market grew in 2023. The Swedish market, measured in local currency, grew by 10% and the Finnish market by 3%. Our market share was stable year on year. Both in Sweden and in Finland, we have a market share of around 44%. In the dose dispensing business, the total market size in Finland grew by 10,000 patients, while our share of the market declined by 2 percentage points to 28%. To conclude, last year was good on many fronts, and we are set to develop our business further. And now, let's go to the financials, so let's hand over to Timo.

Thank you, Katariina, and good morning from me as well. Let's start with Q4. All in all, we can say that the solid development seen in the first three quarters continued in Q4 and the year ended strongly. On top line, company grew when measured in constant current. Invoicing grew in Q4 by 10% to roughly 1 billion euros, and net sales grew by 5% to roughly 400 million euros. Also, when looking at reported figures, we can see growth on top line despite of the weak Swedish krona and negative impact from Swedish Doge business. So, very solid quarter with the growth driven by distribution business. We also see an improvement in profitability when we exclude the negative impact from those business adjusted EBIT was 6.2 million compared to 1.7 million last year. We can see that the Q4 last year was not a very strong quarter. So improvement means that we are returning back to more normal level. The top line growth in distribution business is visible also on EBIT as well as lower operating expenses, which were largely driven by cost reductions in Swedish DOS business. But as Katarina mentioned in the beginning, we have made a good progress in operations and improvement efficiency, especially in end-shipping Sweden. And this is directly visible in our profitability. Now, moving on to the full year figures. We had a good full year 2023. Looking at the top line in constant currency, we see both invoicing and net sales growing. Invoicing grew by 6% to 3.8 billion, while the net sales grew by 2% to 1.6 billion. Growth is coming mainly from the distribution business. Adjusted EBIT without 20-dose business improved to 19.5 million euros from 11.9 million last year, meaning 64% improvement. But let's turn to the next page to have a closer look to that EBIT development. On this slide, we want to show the different elements in our EBIT development. The negative impact from Swedish Doge business for the full year of 2023 was 2.8 million euros on EBIT level. But I would like to draw your attention to our distribution and wholesale. These are preliminary, unaudited EBIT figures for the new segments. But as we have mentioned many times, we had a strong EBIT improvement year on year, driven by the distribution, but also in wholesale we saw a positive development. Group items include mainly savings in the shared function, such as IT and finance. We have managed the cost pressure quite well and operating expenses were below previous year's level, despite of the cost inflation. Efficiency improvements are also contributing positively to the full year EBIT. Now moving to the profit for the period. In Q4, the profit for the period was minus 2.8 million euros. Profit in Q4 was impacted by the loss of 3.9 million euros from Kruunen support debt and also increasing net financial expenses. Profit for the full year was minus 20.7 million euros. The items taking the profit down were the employment losses of 21.4 million euros that were recognised in Q3, a total loss of 4.8 million euros recognised from Kroon and Sabotec, as well as increase in net financial expenses. Due to higher interest rates, net financial expenses have increased by almost 7 million euros. This increase was mainly related to higher interest rates in loans and sold receivables, and also that the comparative figures include interest income of 3.5 million from discontinued operations. Adjusted profit for the period, which is profit for the period excluding, for example, impairment loss was 1.1 million euros and adjusted EPS was 0.01 euros. In Q4, our financial position remained strong with the positive cash flow in Q4. Net cash flow from operating activities in 2023 was 9.6 million, of which changes in working capital accounted for minus 13.2 million. Increase in inventories and trade receivables has impacted working capital negatively. Strong fluctuation in net working capital is typical for Aureola's interest. Net cash flow from the investing activities was minus 3.5 million. Net cash flow from financing activities was minus 28.3 million euros, including the dividend payment of 11 million in April. Liquidity remained on a good level at the year end, and cash position was approximately 140 million euros at the year end. During the last year, we have strengthened our balance sheet. Following this, net debt level has decreased and was, at the end of the period, 21 million euros negative. We have repaid loans, issued less commercial papers and have less lease liabilities, which means that despite a bit lower cash position compared to previous year, our net debt position remained negative. just to inform that the sold trade receivables at the end of the period were at the current average level. To conclude, we can say that our financial position is strong with the solid cash flow and gearing on the negative side at 12%. Equity ratio was 19% and the main reason to this was the negative net result due to goodwill impairment made during Q4 in connection of those dispensing business. Then let's move to look at Kroonan's Apotech. In the joint venture Kroon and SapoTech, integration projects are proceeding with several actions being implemented, albeit benefits are not yet fully visible. Realized synergies were behind the plan, while integration costs also were below estimates. In 2023, realized synergies were 13.5 million and integration costs were 6 million euros. We have booked a loss of 4.8 million euros for 2023 in our books. Krunas Apothec is an important strategy partner for us and we will actively support its value creation as a major shareholder. Krunas Apothec expects its full profit potential to materialize by the end of 2025. Next, a short update of Svensk Du's divestment. We announced the sale of Svensk Du's in October last year. And only a couple of weeks ago, we informed that the Swedish competition authorities have decided to move the investigation into phase two. Due to this, we now expect the transaction to be complete on the second quarter of this year. And then a reminder about our new reporting segments. As of this year, we have two reporting segments, and here you can see preliminary and audit net sales and EBIT figures for the segments. We will publish the restated segment information during Q1. Then last but not least, so few words about our outlook. Looking at the market, we expect the pharmaceutical distribution market to continue to grow. However, the continuation of weak consumer confidence might impact the wholesale market development. And the inflationary environment and related cooperation may impact the profitability. With these assumptions, we accept the adjusted EBIT excluding those dispensing business in Sweden for the year 2024 to increase from the adjusted EBIT for 2023, which was 19.5 million euros. And now I would like to hand over back to Katariina.