Oriola Oyj

Good morning, everyone, and a warm welcome to Oriola's Q4 and full year results webcast. My name is Tuas Tenusdörjen, and I'm from Oriola's Investor Relations. With me today, I have our CEO Katarina Gabrielsson and CFO Mats Danielsson. After the presentation, we will open up for your questions, but I would like to remind you that we will focus on the questions relating to Oreola's business and financial performance and take questions about Kroon and Sapotec only within the limited scope that we can comment on. You can send in your questions already during the presentation using the chat function in the webcast player. I would also like to remind you that we are recording this webcast and the on-demand version will be available on our website at a later point today. And now if we go to the next slide, here we have the customary disclaimer that we all should be aware of. And now without further ado, I would like to hand over to Katariina. Please go ahead. Thank you, Tuva.

And also welcome on my behalf. This is the agenda for today's webcast. First, we will look at the 24 highlights for full year. We will look at the operating environments, the segments, and then also go through the financial numbers in a little bit more detail. And like Tuva said, we will then end this session with the Q&A. If we then look at the full year 2024, I'm really happy to see that the strategy implementation that we have done during 2024 have enhanced the financial performance that we have made a result of today. The net sales has been growing and it has been growing with 3% in organic growth, landing on 1.7 billion euros. The adjusted EBIT was growing 30% from 16.7 million euros to 21.7 million euros and without Svensk DOS Sweden we are landing on 21.6 million euros. What we can see is that the sales growth has been improving and also the profitability has improved and that is supported by both the distribution segment and the wholesale segment. We can see that we have good progress with our strategy and we have strengthened the customer centricity. and this means that we have been working closer to the customer and we continue to work close to the customer both the pharmaceutical companies that we normally call upstream customers and the pharmacies veterinarians etc that we normally call downstream customers and that means that we have then expanded the businesses together with our customers and we can also look forward to continue to do that In the wholesale business we have worked very much of building the foundation during the year, we have also said that before, and that means that we have now also taken the next step to continue the journey that we have in the strategy and start to then expand the wholesale business, both in the assortment business and in the advisory side. In the advisory side we have introduced the data driven services which means that we have then utilized more data and also technology including AI to introduce new services for the pharmaceutical companies. We announced in the end of last year a new operating model and that is to accelerate the strategy execution that we have done started during last year. We have during now first quarter had more commercial focus in the management team and that means that we have two new members from 1st of January, that is Sato Nylén and Katja Lundell who is then responsible for the two units, Sato for products and services and Katja for advisory services. In February also Thomas Tillikainen started as supply chain manager or director and we have also then yesterday announced that we have an EVP sales starting 1st of April and his name is Stig Thordell. The ERP project in Sweden has gone according to plan and the first deployment in Sweden are approaching quite fast. In the joint venture company Kronans Apotek, we can see that the focus has been during the year on integrating the two companies and developing the network of nearly 500 pharmacies that we have. We are not satisfied with how Kronans Apotek has been performing and we are expecting that Kronans Apotek should deliver on market standard in 2027. The e-commerce though in Krona Apotek was growing with double digits and that's good since we can see that you are following down what's happening in the Swedish market in e-commerce. We have also announced the dividend proposal from the board. The board of directors has proposed the AGM that the dividend of 7 cents should be paid for 2024. The record dates will be 4th of April 2025 and the payment date will be the 15th of April. I also want to remind you about our dividend policy. That is that our aim is to pay out an increasing annual dividend of two-thirds of net profit. And of course what we now then do here is not fully in line with the dividend policy, but we can see that our cash flow and also network and capital is supporting this dividend payout. Then going to the operating environment. Overall the operating environment has been stabilizing during the year. We can see that the consumer confidence was weak in both Finland and Sweden and we can see that it's continuing to be weak. The cost inflation during the year has been slowing down and that means that we have more visibility to both energy prices and also fuel prices. That is a big cost for us in our businesses. Availability of pharmaceuticals is something that you can see quite much in the media and there is challenges and it has been during the whole 2024. There has been a similar kind of challenges in 2024 that was also part of 2023 and for the future I can also see that it will continue unfortunately. But we can't really see that it's some change in this one. The value of the pharmaceutical distribution market has continued a steady growth, driven by a good demand from high-value pharmaceuticals. And with high-value pharmaceuticals, we can, for example, see a lot of cold chain products coming into the market, and also more specialized products. That is not done in the generic segments in the same way as it has been before. In 2024 the pharmaceutical distribution market was growing in Sweden with 7% and in Finland with 5%. Then looking at each segment. In the distribution segment we then have the pharmaceuticals that were distributing to pharmacies and other customers in both Sweden and Finland. The net sales was growing 16% to 362 million euros. The organic growth was growing only 2% since the market volumes are then changing and we also have a change in Aureola's consignment stock to inventory stock that we announced already in Q3. The market growth was like there in the quarter but we can see significant fluctuations of the volumes especially between November and December. We've unfortunately had very much volumes and unfortunately the same because we had much volumes in December in the end of December where we also have a lot of red days you know that the Christmas is there and that means that volumes that we get in this part of December is quite costly for us. Even though we had this, the profitability improved in the distribution segment by 22% and the adjusted EBIT was reaching 5.9 million euros. The net sales was growing and we also had lower freight costs year on year. But like I said, we had higher OPEX in December. For the market share, we can see that we had stable market share in Finland and some decline in Sweden. And the main part, why do we have the decline in Sweden, is the same as we said last time we were standing here. There was like, especially in Sweden, focus on weight loss products, and that is some part of this value parts medicines. In 2024 we have a strategic focus area in distribution segments as well as in wholesale segments about being closer to the customer to enhance the customer centricity and really listen to the customer being there and this has also given As a structured approach and increasing dialogue with the customers, which has meant that we have no retention in the strategic accounts and we also have new customers onboarding now in the quarter 4 of 2025. Then going to the wholesale segments and in wholesale segments we have the advisory services as well as the assortment business. The net sales was growing 5% in this segment and the growth in Finland was supported by a wider offering and also new sales channels. In Sweden we have both consignment stock and our own assortment and especially the own assortment that we have in Sweden was growing during the quarter. The profitability improved by 10% with adjusted EBIT landing on 2 million euros. The wholesale segment is really important for us in the strategy execution and it's a long-term strategic goal to grow the wholesale business both the advisory side and the assortment side. In 2024 we have worked very much on developing the capabilities and expanding our offering and that is of course because we want them to have the growth coming now in 2025 and so on. I'm happy to say that we have in quarter four a strong double digit growth in the key sales channels in the wholesale segment. And also in advisory services we can see that we have gained traction of the recently launched data driven services that is then very much a tech part and also AI part where we use the data that we collect in the company. We have talked a lot about the Svensk DOS during the last year and also before that. We are now approaching a final decision in Svensk DOS and that is expected to come in March 2025. And as soon as we know something more, we will of course announce that. With that, I'll leave you with Mats to go a little bit deeper on the financial figures.

Thank you, Katarina, and good morning from my side also. Now we can go a bit further into the 2024 and the financials. And we'll start with the, With the quarter four, we had a net sales organic growth of 3%. As Katariina also said, we had during last year a large customer moving from consignment to inventory, which means that the distribution is having a 16% increase. On the wholesale, especially In the quarter four, Finland had a good growth there. So in total, it was a 14% improvement. Looking at the adjusted EBIT for the quarter, going from 5.4 million to 6.4, we had an improvement of 1 million in the distribution segment, mostly related to margin increase and lower freight costs. there were some offsets by higher costs, especially in December due to the red days and Christmas and so on. So it was a bit more cost than it would have normally been. If you look at the wholesale improvement, it's mostly related to the increase in sales. If we look at the comparison quarter four excluding svensk dos we actually have a in 2023 there was a more of a technical correction for the full year related to svensk dos which mean that there was a positive impact on quarter four And in real numbers, also excluding Svensk DOS, the profitability, the adjusted EBIT would have increased if that would have not been done, if it would have been done in a correct way. That's the right direction. Invoicing, if we look at the quarter, we had a, we had a bit of a lower invoicing on the quarter compared to 2% in the quarter and 5% year to date. That has to do with the November invoicing, which was a bit of a disappointment and lower than we expected, but we caught up with that to be partly in December. Looking at net sales, there is the effect of the, A customer moving to inventory, so we see that the numbers or the percentages are quite high. If we then look at the adjusted EBIT on the full year, we have a $5 million increase in adjusted EBIT. Of that, 3 million is related to Svensk DOS, which had a negative result last year. And the 2 million improvement is related to margin increase, lower freight cost, and then offset by some increase in cost in the operations. And that mostly has to do with quarter four and the December effect there also. Good to note also that we have now treated, according to what we said in the last quarter, we are now treating the ERP cost mostly as a cost, not as an investment, and we had 5.9 million booked as adjusting items for the ERP, and we know that there will be now during the coming years 2025-2026 and some in 2027 related to the new ERP. If you look at the distribution segment, we see the increase in net sales related again to the customer moving to inventory. The organic growth was 3%. Adjusted EBIT. Improving year to date 4.5 million and here we can also see that the impact is 3 million and so the real improvement is 1.5 million. again related to margin increase and and Freight cost a lower freight cost and and and offset by some some cost increases we also see that the distribution segment has 81 percent of the of the company's net sales and and 67 percent of the of the adjusted EBIT I Wholesale segment, important part of our strategy. Here we can see that the wholesale segment, if we look at the quarter, 5% increase and 3% increase on the full year. As said, we had a good quarter in Finland. adding to the good development. And if we look at the adjusted EBIT, we can see, of course, the effect of that good quarter that we had in Finland positively. But we have also to remember that we have the Clinical trials affecting positively on the wholesale segment. We have had quite a lot of extra cost and employed personnel to support the wholesale segment during the year according to our strategy. Share of debt sales, 19%. Share of adjusted EBIT is 33%. Then if you look at the... all the way down to the net profit, we can see starting from EBITDA, we have a bit of a lower EBITDA than last year. That's related to the adjusting items that were much higher this year. We have 8.1 million in adjusting items, mostly related or a big part related to the ERP project. Then we had in the depreciations, we also had a small 1.9 million that was an impairment of cost that we had as investments in 2023 that we wrote down in 2024, according to the handling of the treatment of the ERP cost. EBIT is 13.6. And then we see also now the impact of the JV minus 24.8 landing on a net profit at the same level as last year. And then we have to remember that last year we had the impairment on the dose business of 21.4 million. So we are at the same level as last year. we had a positive operating cash flow from operating activities, 38.7 million, starting from EBITDA, 27.2. We had a positive change in working capital. This is an initiative that we are also working with now to look at the working capital and the cash volatility, so we will put an effort on that to stabilize that. Then we have repaid loans and we have utilized less commercial papers and prepayments from pharmacies and we are landing at the ending cash at 113.5. And then we can look at the We can look at the net debt, so it's minus 37 million compared to minus 21 last year at the same time. On the right, you can also see how the debt situation is developing. We have repaid, during last year, repaid loans, 28 million. We have less commercial papers and some other some other lines and the interest-bearing debt has gone down by 41 42 million uh We have had a good cash flow gearing is minus 28 and equity ratio has gone down now during to 15 and that is of course also related to the to the effect from the JV and Krunan's Apotheke, but also from the impact of the adjusting items that have been growing since last year. Krunan's Apotheke, we had the impairment. the adjusted EBIT for the quarter was, was at the same level as last year. But if you look at the, the full year it, so it has been, been, been worse than, than, than last year. And, and in December we announced the impairment that was done in Kronos and affected us, affect our numbers also. Outlook, we have, we have a, We have decided to move to comment on the adjusted EBITDA instead of adjusted EBIT that we have previously done. We think that that gives a better picture of the performance of the company. it will give a better comparability compared to previous years due to the fact that we are handling for example the ERP investments now in a different way than we have previously done so we feel that this is a better way of doing it and we expect the adjusted EBITDA to increase from 2024

And then to wrap this up, you can stay here Mats, if you want to. The key takeaways that we want you to remember is then that we think that we had a good financial performance with sales growth and improved profitability. That when you then see the guidance for 2025, we can see that we are expecting that to continue. And there are certain different things that we then would like to highlight, but especially then the new operating model that should then enhance the customer focus and drive growth. And we have seen that it started already 24, but it will then continue also 25. And of course also then the full strategy execution that we have. Continue to work on that and also see that the numbers will come with these achievements. So with these highlights, I don't know if there are some questions to ask.

Thank you, Katariina, and Mats, for your presentations. We have a couple of questions from the chat, and they are mainly related to Kronan Sapoteet, but I will take those because I believe we can still comment on these ones. So, Oriola has reported 6.7 million euros one-time costs in JV based on integration. What kind of costs are these?

I don't know if you should open up too much, but of course, something is like ERP costs, since we know that we have a huge ERP project ongoing in Kronans. So, we'll say main costs is from that one, as Mats also already have talked a little bit about.

Good. Thank you. And then relating to the pharmacy business as a whole and the comment that we have added about the benchmark level by 2027. So what is normal profitable level in pharmacy business in Sweden, which is expected to reach by 2027?

What we are saying here is that we expect Krona's business to be somewhere between what Apotek AB and Apotek Hjärtat has and I'm not commenting exactly that level because of course that's also changing but we would like or like we think that this company can be on the same level as these two companies.

Thank you. And then there is a question relating to the wholesale in Finland or the prescription medicines in Finland. So there was a 1.5% reduction in wholesale prices for most of the prescription medicines in Finland since 1st of March this year. Does this have a direct impact on your invoicing in Finland? From 2024, you mean, or 2025?

The question says 1st of March 2025. Okay. Of course, there will be some effects on that one, but I don't see that it should be like an alarming one because we can also see that the market is growing. So in that aspect, I'm not seeing that it should drag down the business.

Okay. And then, yeah, and then still on the Krona Sapotex. So do you expect to reach normal level, a profitability level in JV steadily quarter by quarter by 2027? Or will there be any bigger steps within next two years?

That's hard to say. We're not normally commenting like that one. But what we expect, of course, is that we should improve from the basic figure or the figures that we have now, because we can't continue on this level.

All right, good. And then there's another question. So here is about Finnish wholesale. So you mentioned that the profitability in Finnish wholesale was slightly positive. Does this mean that it has been loss-making in previous quarters?

No, but we can see that in quarter four, we can see that we have some effects that we have then started to build during the year. So it's not loss making, but of course, it's like I always want businesses to be better. And this is one comment for that one. We had good growth in the wholesale business in Finland, especially in the channels that is really important for us. And that is, of course, good for the future also.

And a good result. That's true.

That's true. I'm picking it together.

OK, good. And then there is a question relating to the new customers that we have commented on. So you have new customers onboarding at the start of 2025. Can you talk more about this? What is the size of these customers and will that become visible in Q1?

Yes, we are onboarding now during quarter one, so of course you will see some part of it in quarter one, but not the full effect until later. It's a customer that is visible or has business in both Sweden and Finland, both in pharmaceutical side and also advisory side. So that gives an effect that should be visible in the numbers.

All right. And then there's a question relating to dose dispensing business. So is it fair to expect the result from the dose dispensing business to be fairly in line with 2023 or maybe 2024?

Depends of course also now we of course in the dose dispensing Sweden are waiting now for the results and that is of course something that I think both you and we are eagerly waiting for to know what we should do with this business for the future. You should also say that the Swedish dose dispensing business during 2024 has been running on without depreciations and extra costs. So it's more like a maintenance part that we do. So depending on of course what the outcome will be and how we then continue with that, that will affect of course the numbers. But I hope we can announce this as soon as possible.

And Iris just commented that she meant 2024. Will it be on the same level as in 2024? Okay, I think, let's see if we have any more questions. I think we need to wait a little bit because there is the lag between the live webcast and how the questions pop up here. But we can also ask a question that we didn't mention about the acquisition that we made in Denmark. So would you like to comment a little bit about that?

I can comment on that one. A couple of weeks ago we announced that we were then buying Medinfo. Medinfo is a small acquisition that we made in Denmark. They are mainly working with medical information and patient support programs, which is an important part of the advisory services that we do and they have been like a subcontractor to Aureola before and works mainly for Denmark and Norway and when we look at the advisory business it's important to be in the whole Nordic because there is local language required and a lot of the pharmaceutical companies is then expecting us to cover the whole nordic or like these four countries at least and this was something we can do then so we are like fulfilling this customer requirement and looking forward and to expand that business

Great, thank you. So one more question relating to the ERP investment and financial impact going forward. Would you like to comment a little bit on that one?

Yes. Like we said, we have in the plan to invest up to 35 million in the new ERP. And that will be mostly taken as a cost, not as an investment. That will go on now for up to 27. So it's three more... Three more years where we book this cost. 10% is roughly that we calculated that will be as an investment. So it will be hitting our net result as an adjusting item during the coming years.

All right. Good. Thank you. So we don't have any other questions on the chat at the moment. So I think we can conclude the presentation for today. I would like to just remind about our next event. So during next week, we will publish our annual report. And then the annual general meeting will be held on the 2nd of April. And the Q1 report is going to be published on the 29th of April. But that's all for us today. Thank you, everyone, for joining our webcast. And if you have any questions or want to follow up with any topics, please don't hesitate to reach out to us. Thank you. Thank you.

Thank you.