Oriola Oyj

Good morning, everyone, and a warm welcome to Oriola's Q2 Results webcast. My name is Duos Teniuso-Örnjelm, 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, and you can start to send in your questions already during the presentations. Please be aware that we will focus on questions relating to Oriola's business and financial development, and take questions on Kroon and Sapotec only within a limited scope. We are recording this webcast and the recording will be available on our website later today. And next, we have the disclaimer that we all should be aware of. And without further ado, Katarina, please go ahead. Thank you, Tuva.

And then you can see the agenda for today. We'll start as normally with the quarter two highlights, going via the operating environment and segments to the financial review, and then go to the Q&A, as Tuva mentioned before. So let's then start with the highlights for quarter two. In quarter two, I'm really pleased to see that one of the strategic initiatives that we have, the goal about a strong partnership and customer centricity, has really been in the focus for this quarter. We can see that the distribution business has been growing very well and also had good profitability due to the strong partnerships that we have in this area. We also have the strong partnerships in the wholesale business and I'm also really proud to say that during the quarter we have the all-time high again like I also said in first quarter regarding the NPSs with our customers during overall segments. This has resulted in that the sales growth is supported by the both segments and we ended up at 494 million euros, that is 12% growth in the net sales. The sales margin has improved, especially with the inside distribution business segments and especially in the services side and we landed on 42.2 million euros compared to 40 million euros last year. We haven't talked so much about the services side and distribution before. In the distribution, of course, it's mainly to distribute pharmaceuticals to the pharmacies and hospitals and other downstream customers. But it's also about doing certain kind of things outside this one that is very close connected to the distribution. like taking medicines from the pharmacies that is done in the end of expiring date and send that forward to destroy it and also doing some repackaging for the pharmaceutical companies. This is something that has been growing very well during the quarter. Adjusted EBITDA was slightly above previous year despite higher costs and we will now for the rest of the year focus very much on these costs and really see that how can we drive efficiency even better. We have started by having more filling ratio in our totes. and we have also had really strict cost control now and implemented a recruitment freeze as well as looking at all the costs that we then don't need to have to really drive the profitability in the segments. The ERP project that we have talked about earlier will be launched during the year and the first deployment is in Sweden and its approaches. We have during the Q2 started with user acceptance tests and that will continue during the summer and also in the autumn. We will also then of course now go into the testing phases with outside customers and also do trainings in the organization. In the joint venture company, Kronans Apotek, we are not really happy with the results, and we can see that the result was burdened by the high costs also in the second quarter. The market share in Kronans Apotek has been strengthening with double-digit growth in the e-commerce side, while the brick-and-mortar sales was more flat. And I know that Mats will come back to this later in the presentation. So overall, I would say strong partnerships and strong distribution business, also strong growth in the wholesale business, but really to continue to be aware of the costs. In the operating environment, we can see that the value of the pharmaceutical distribution market has been growing in both Sweden and Finland. In Sweden, it has been growing with around 5% and in Finland, around 3%. We can still see that the consumer confidence is weak in both Finland and Sweden. And this is not affecting the pharmaceutical side as much as the self-care side. And in self-care, we have, for example, the skincare products, where we can see a shift from the more expensive products and the customers is then changing to more cheaper products in these segments, which will of course affect us if it's going to happen. The cost inflation has slowed down and we can see more normalized energy and fuel prices, as well as we now know also what the labor inflation will be since all the negotiations with the unions has been completed during the quarter. We have also earlier talked about the availability situation in Europe of pharmaceuticals. And that is, of course, also affected with the tariff situation in the US. In Europe, we can overall see that there starts to be a change towards more products from Europe and also from the Asian markets. But we can see that the challenges in availability will continue. And that's also something that, of course, is affecting us in the long run. Then going to our segments. The distribution segments, which consist of pharmaceuticals that we distribute to pharmacies, hospitals, as well as veterinarian and other customers downstream. In this segment we can see a net sales growth of 11% and we landed on 398 million euros during the quarter two. The growth was particularly strong in Sweden but we also had growth in Finland. Across the whole distribution segment we can see that this growth happened and it was supported by the sales both from the existing portfolio that we have and also the new onboarded customers that we have talked about both in quarter one and the end of last year. And we can see also that these new onboarded customers that is then completed onboarding now will benefit and support the second half sale, second half of 2025 sales. So that's an uplift what we have compared to last year. This is also showing the long processes we have that from the signing of a contract, it takes some months before we really can benefit from the new contracts. In the quarter, we have not lost any contracts, so that is also supporting the second half of the future of 2025. We also had good growth in the services sales and also, of course, we are benefiting from the overall market growth. The adjusted EBITDA improved to 8.3 million euros compared to 6.1 million euros last year. So the distribution segment is performing quite well. And of course, improvement is driven by the invoicing growth. We can see that we have had higher costs in these segments. And we have had temporary storage capacity constraints and also some high peaks in ordering that is resulting in extra costs during the quarter. This is something we have worked quite heavily with now and that means that during the second half this will be in more control and should also lower the cost burden in these segments. What I also mentioned before is the customer focus that we have had or had have overall in the company. And we can see that the distribution segment is benefiting from that one. We have a lot of customer that is like we have discussions with new customers. So that is one of the work to really get the net sales continue to grow and also get new customer contracts for the future. In Finland, we have also, during June in fact, had a legislative proposal regarding a new pharmacy reform. That has been presented and it's now out for comments. and it will be commented during the August month. The plan is to implement this by 1st of January 2026. For Aureola, I will say that this is a possibility for the future. We have been building the capabilities and we can see that the good distribution practice that we have and following in our distribution channel is something we have now implemented to be able to do also in the retail sector. So when this is happening, it will be possible for us to also then benefit from this one. Then going to the wholesale segment. In the wholesale segment we can see that the net sales was growing even more than in the distribution segment. In the wholesale segment we were growing with 18% and landed on 96 million euros, so the base is of course a little bit lower. We can see that the growth was primarily driven by the wholesale business in Sweden and especially in the parallel imported sector where we can see that weight loss medicines is really something that is driving this growth. Finland, we can see that the sales to veterinarians is growing while the overall sales is quite modest in this area. The adjusted EBITDA, though, was declining to 2.1 million euros compared to 3.1 million euros last year. In this segment, it's the same as we had in quarter one. We have planned increases in the personnel. It's the kind of investment we have to really get this now long-term strategic goal in the wholesale business to succeed. And we can also see that the parallel imports that we talked about before as a good part of the net sales growth has an unfavorable margin in this segment. And that means that the adjusted EBITDA has been declining. We can also see in this segment that the seasonal products like sun care and allergy products is affected. I know that it's today is really hot outside but in the same time we also know that during the springtime it was not so much sun outside and that is something that is then affecting the profitability since these products is having higher margins than the parallel imported ones. In advisory services, Medinfo, the Danish company that we were acquiring in the beginning of the year, has now been integrated completely to Aureola. And also the digital and data services that we have discussed in the beginning of the year, there we can see double-digit growth from low levels, but it's also promising for the future. And like I said before, the wholesale segment is something where we can really see it's important for us as a long-term strategic goal. And it will also benefit our profitability. We just now need to really get the profitability down to the bottom line. And that's something we'll focus on with cost control and also higher efficiency during the second half of this year. I'm also really happy to say that we have now, during the quarter, been approved by the science-based targets initiative, and we have also now the possibility to talk about our strong commitments and our goals that have been approved. Our targets are to commit to reach the net zero greenhouse gas emission across the value chain by 2050. And the goal is divided in two areas. It's the near term goals where we commit to reduce the absolute scope one and two greenhouse gas emission with 67% by 2030 from the 2023 base year. This means that we also need to work very close together with our suppliers to reach these targets. We also have a long-term target and that's that we commit to reduce the absolute scope 1, 2 and 3 of the greenhouse gas emissions with 90% by 2050 from the 2023 base year. What we need now to do is to really update our sustainability agenda and also work on the climate transition plan. To be able to achieve this, we need to work very close together with everyone in the value chain and also with the suppliers. because 99% of our emission comes from the purchased goods and also services that we have in scope 3. So we will not reach this target without really focusing on the whole value chain. But we will come back to that later in this year. Now, Mats, to the financial review.

Thank you, Katariina, and welcome to a warm and sunny Espoo. We will now go through the financials, starting from the top line. has been a good growth in both invoicing and net sales, both year to date and for the quarter. Especially in the quarter, we had a good growth also in the wholesale segment that was affecting the net sales growth. It has been a combination of both the current customers' volumes have been growing, but it's also related to the new customers that we have been onboarding during the beginning of the year, this year. Also, the Swedish krona has been strengthening, so if you look at the year-to-date number of plus 11%, so there's actually a two percentage unit increase related to the strengthening of the currency. Then if we go to the sales margin, just to note and to repeat that the sales margin for us is important. And the sales margin is a combination of distribution fees that we receive for products and also additional services that we do. and and it's the wholesale uh segment the margin from that and then it's the advisory sales that we perform uh the the the sales margin growth is really important also if we look at the profit the improvement of the profitability in the company because that will add add add a lot should add a lot of of profitability to the bottom line In the quarter, we had a growth of the sales margin of 6%, 2.2 million. If we look at year-to-date, it's a 5% increase. It's 3.8 million euro more than last year, year-to-date. The sales margin increase now is mostly generated from the distribution segment. If we look at the adjusted EBITDA in the quarter, 8 million. Last year, 8.1. No, sorry, 8.1 this year, 8 last year. The graph is a bit strange because we had a positive positive impact of an adjusting item last year. So we did a bit better this year than last year. Year to date, we are slightly behind last year with €100,000. uh we have quite big adjusting items we are now fully into the erp project so that that is affecting uh quite a lot so we have 6.5 million in adjusting items we also have a translation difference from the sales of svensk rules that is affecting the adjusting items the distribution is driving the improved EBITDA wholesale is having a negative development compared to last year. I will get back to that when we come to the segments also. Distribution segment first. Of all invoicing, 90% comes from the distribution segment. There has been a good growth, 12% in the quarter and 11% year to date. It is coming from existing customers having volume growth, but also from the new customers that were on board at the beginning of the year. And we have had, especially in quarter two, there has been a good sale of additional services. So if we look on the right hand side, we have the adjusted EBITDA in the segment that is increasing from 6.1 million to 8.3 in the quarter and from 12.4 to 15.4 year to date. So 3 million increase. The increase is coming from the volume, the new customers and the current volume that we have been increasing. We have also been able to make deliveries, improve the efficiency on the freight cost. We have been able to have a better fill rate, so we have really gained on that. On the other hand, we have had some more cost also to Due to the volumes, we have been having, especially in Sweden, some extra storage costs that is included in the EBITDA. And we have had some extra costs related to the volatility in orders and the handling of the goods, especially in the second quarter. Then if we look at the wholesale segment, a good 18% growth in net sales. A big part of that coming from a growth in Sweden. and 13% year-to-date, which we consider to be on a good level. On the right-hand side, we have the adjusted EBITDA declining from 3.2 to 2.1 in the quarter. We have had an unfavorable product mix, the weather has been affecting also, and we have some more cost that we have invested in the segment compared to last year. So the year-to-date number is also declining from 6.6 to 4.5 in EBITDA. We are now, like Katarina said, we are very much focusing on the profitability of both distribution and wholesale segment to get the sales margin and the pass-through margin to go down all the way to the EBITDA also in both segments. Looking at the net profit would highlight two things. We have some additional costs from now affecting the net income. Big part ERP project. We have costs related to that. And we have some... Cost now in impairment and in the cost part related to Svensk DOS. Svensk DOS is not affecting the cash part, but it's still in the result. Totally 13.8 million minus those two items. The other elements are developing positively compared to last year. If we look at the cash flow, it's positive, better than last year, even though the reported EBITDA is much lower than last year due to the fact that we have the adjusting items. Net debt on a good level, no big change from last quarter. Can be noted that we reported in June already that we have been renewing the revolving credit facility with the same banks and terms are quite close to the old one also, so no big changes in that amount is the same also. Looking at the financial position, gearing is continuing on a good level. Equity ratio, of course, is burdened by the extra cost that we have, ERP. We have the dues impairment and the cost for the translation difference. And we have the negative result in Kronan, so we are down on a 13% equity ratio. Kronan's Apotek, not a very good disappointment for the quarter EBITDA, minus 2.6 compared to 0.6. The brick and mortar not growing, had a good growth in e-commerce, but not... helping up the result, quite a lot of cost in the operations, and there is work ongoing to improve the profitability and get all the transformation projects over and done during this year. Year to date, EBITDA on minus 1.7 compared to minus 3.8 last year. Still, the loss for the period is minus 7.7 compared to minus 9.5 last year. We are not really happy with this and the work has to continue to improve the profitability of Kroonans. Then the outlook, we expect the H2 to improve from last year, so we have kept the outlook that we had previously that we will increase from the previous year. Thank you.

We still have the summary, to be honest.

Yeah, you have the summary.

I have the summary still. The key takeaways. And I will say that even though you see the EBITDA level, maybe like some more improvements to be done, I'm really proud to say that the sales growth and the sales margin improvement has really been there, and especially in the distribution business, but also from the wholesale side. And we will, of course, focus very much now on second half, both to continue to grow the sales and sales margin, to not lose that one, but also really secure the pass-through margin that we talked about here before, both me and Mats. It's important that we get, especially the wholesale business, to now really also show more positive profitability and not, of course, lose the profitability in the distribution business. And then I'm also really pleased that we have the science based targets and climate targets approved by SPTI, because that's important for us both now, but especially in the long run for the company parts. But with that, please, Tuva.

Yes. All right. So thank you, Katariina and Mats, for your presentations. So we now open up for the Q&A, and there are already some questions in the chat, but I just want to remind everyone that if you have a question, please send them through to us, and we will take them one by one. And we'll focus first on the questions relating to Oriola's business and financial development, and then later on, on the questions on Kruunan's Apotheek. So, the first question is relating to the cost level for the group, and I think that's for you, Mats, to take. So, was there any specific reason for group costs in Q2 to be one million more than usual?

I think the one million is a combination of quite many things, but in general, I would say that we have had, there is a, the main part is related to IT costs. We have more personnel now than we had last year within IT. We also have some general, in the other support functions, we have a few persons more that are adding to the cost. Then I know that we also had the the change in the structure by beginning of this year. So there might be some costs that are handled a bit different than last year, but those are the main parts of that cost increase.

All right. So then continuing on the group costs. So on adjusted EBITDA basis, should the level seen during H1 be considered an indicator for the run rate going forward?

I would say that the cost part, the adjustment part, can be seen quite close to a run rate now in the coming quarters, yes.

Good. And then a couple of questions on the segment. So for the distribution segment, do you expect the good development to translate into improved relative margins during H2?

I would say yes, because we can also see now that what we have done now in the first half, especially in quarter one, is to onboard the new customers. And we will really benefit from that in the end of the year. And you can also see that the efficiency part that we have done when it's come to, for example, what I mentioned before with the tote filling ratios and so on, that's a work we have done that we will also benefit from the rest of the year. and also some other projects that we have. You always need to work with the distribution every day, of course, to make it more efficient, but we will benefit from that, yes.

Good. Then on the wholesale, with the good growth in Q2, should we expect more focus on growth investments or a shift towards profitability? Definitely profitability.

Of course, we shouldn't lose the growth in this aspect. It's important that we grow, but it's important that we grow profitable. We need really to get the pass-through margin down from the sales to the profitability. And that's going for both parts that we have in the wholesale segment, both the part that is then going to the products and then the advisory businesses.

Good. Then there's a question relating to the adjusting items. So there is the logistics operations feasibility study. Can you comment what this is related to?

You or me? Yeah, I can take it. Like we announced before, we are checking or investigating what we should do in Finland with the distribution side. And that is something that is still ongoing and we haven't taken a decision. And of course, it will most likely be quite a big project. So when we are ready, we will announce, of course, what we will do and so on. But we are still checking that and will announce in due time.

It's under investigation. Yes.

Good. Then there's a couple of questions relating to the customers on the distribution side of the business. So a customer moved to your own inventory last year. Was this impact visible in Q2 numbers? And if so, how much was the organic growth excluding this impact?

It was shown also, but do you remember the Audi growth?

I mean, we have not only excluded that, but if we look at the invoicing, then we have... The 10% was the corrected... Number, yes. Corrected numbers without the kind of changes in the... And this is also the last quarter now where we will be affected.

So it's like, yeah.

But it's still a good growth, about 10% growth. Okay, and then moving on to with the customers. So do you have more new customers to be onboarded in H2, meaning should we expect this pace to accelerate towards the end of the year?

We have a long line of customers. There is no like this big as we have had in the quarter one, quarter two. But there is good customer traction ongoing. We haven't lost any customers, so I will say that we will continue to grow like we have done with the market and also with these new customers that we have.

Okay, so another question about the customers. So how profitable are your new onboarded customers? Are they more profitable than your average profitability in the segment?

I can say like this, we're always working with the profitability on the customers. And even if you have an average customer, we will always... try to increase the average. And that's both me and Matt's goal, to be honest, I will say, and also something we should do. We will not comment like the specific customers. We can't do that for several reasons, of course. But of course, our aim is always to get more profitable customers onboarded.

Good. Then going back to the wholesale segment. So the total costs increased more than sales growth in Q2. Do you expect you will be able to turn this trend in H2 already in Q3? And what kind of measures are you taking?

We have already started to do this shift, to be honest. So, for example, if you go for the pure cost parts, it's very much about now not investing anymore in the wholesale business in the same pace as we have done. So we have recruitment freeze, for example. We're also really, really cautious when it comes to, for example, travels and some other costs that is not directly benefiting to the profitability. or increased sales.

Looking at activities that we should not do.

Yes, exactly. And it's also about, of course, always looking at the efficiency. So we have taken parts already now in the quarter two that will affect positively in quarter three and quarter four.

Okay, good, thanks. And then a question relating to the one-off costs for the ERP. So they were 3 million in Q2. Is this a good proxy for ERP costs for Q3? And do you expect any other one-offs in Q3?

Well, I mean, yeah, it will be on average something like that. It's hard to say between the quarters if it's a bit more or a bit less. We don't have any other topics that we know for the adjusting items right now for the quarter three, I would say, not any big ones.

Good, thank you. And then going back to the distribution segment, or actually this would affect also the wholesale segment, but it's the deregulation in the Finnish market. So in what ways could this benefit your business? Are there any risks that the outcome could be negative?

I would say it's hard to say before we know exactly what will happen. The change now is a minor one. And if you listen to the government in Finland, there is most likely something else that also should be proposed further on. Right now, it's a minor part of the OTC portfolio that is proposed to be released on the Finnish market. and that will then happen first of january that means of course that this will then be going in other channels we are doing like so that we are ready to to then launch this or like be able to deliver this to to their new channels So that's what we can do right now. What we will benefit from in this one is that we already have these customers, most of them. And it's also a possibility that we can also sell other products to other customers. So that's the benefits. Risks, depending on how the legislation goes and of course how the customers act. But that's nothing we can say anything more about right now. But we will monitor this one closely.

Good. Thank you. We still have a couple of questions, and those are basically mostly related to the guidance. And so if there's just a reminder that keep on sending those questions to us, there is a small lag between the webcast and when we get the questions in. So, about the EBITDA for 2025, you aim EBITDA, adjusted EBITDA to grow this year. What does growth mean in the context of your guidance? Does it imply above 3% growth?

Yes, it's more than 3% growth in EBITDA growth. And generally, you can say that now we are at the same level as last year, but our guidance is growing, of course, then we need to improve from the status where we are now. And like I said, we have had quite some extra costs now due to several reasons during the first half year, and we expect to eliminate those and get the effect from the sales margin to go through the profit and loss also.

So we normally have a stronger second half than the first half.

Yes. Okay. So then there's questions related to the cost side. Cost side, so given the cost efficiency goals, are there particular segments or geographies where you have identified some potential?

I will say yes. I will not go through all of them now, of course. But overall, you can see when you look at the figures we are presenting today, of course, in the wholesale segment, both advisory and assortment part of that one is an area where we really need to get the profitability up. Then the efficiency part. And if we go for efficiency, that will of course make both the distribution segment and the wholesale segment in a better profitability situation. But it's like, you know, overall, but I will say wholesale.

Good. So just to summarize, so could you walk us through on how you will manage to improve EBITDA in H2 to reach the guidance?

Of course, we will continue then what we say also in the key takeaways here to continue sales growth. The difference is that we should then also get the pass-through margin in these cases. And we have then implemented now strict cost control. We have the recruitment freeze. We have really the costs like, you know, the unnecessary costs as much would phrase it under control. It's also about increasing now the efficiency, continue to work with filling ratio, which is a really big cost. You can say transportation is one of the biggest costs in Aureola to really work with that one. And the other big cost, like we said, the personnel to really like make sure that we don't get extra people into the organization. But doing the other one, that is two biggest areas that we have.

Good, thank you. And then there is the last question about Kronan Sapotec. So, Oriola expects Kronan Sapotec to reach profitability level representing industry benchmark by 2027. This means that EBITDA should be yearly about 40 million euros. Could you name at least one key issue to achieve this expectation?

I will say if I take one, I will say to really like, I know that we during the quarter now have made one company with Kronans, we have merged the legal entities. There is still some parts that need to be finalized to really do the full integration. And the biggest one in this is to really get the ERP system in place. So we have one ERP system in Kronans. And that is planned to be part during the autumn. In fact, not the full autumn even, but when that is done, I think we have the fundamentals in Kronos to really start the profitability journey.

Good. Thank you. So that was the last questions on the Q&A for now. And I would like to remind everyone that we have the next report on the Q3 report on 30th of October. And until then, if you have any follow ups or questions, please feel free to reach out to us. We are here to help you. But otherwise, thank you everyone for joining the call today and we wish everyone a good summer. Have a great summer.

Nice summer.