Oriola Oyj

Good morning everyone and a warm welcome to Oriola's Q2 audio cast. I am Tua Stenius-Örnhjelm from Oriola's Investor Relations. With me today I have our CEO Katarina Gabrielson and CFO Mats Danielsson.

In the Q&A we will focus on questions relating to Oriola's and the recording will be available on our website later today.

And before handing over to Katarina, here is the disclaimer that we all should be aware of. And now, without further ado, Katarina, please go ahead.

Thank you, Tua, and welcome also on my behalf, and good morning. In Åreola we could see a positive sales development in the wholesale business in Finland during the second quarter. This is a development that we have seen since the end of last year, so I'm really pleased to see that it has continued also in the second quarter. Also the volumes in the specialty flows has been remaining on high levels and in the specialty flows we see for example vaccine and export volumes going from Sweden as well as in Finland. We could also see that the demand for Aureola's pharmaceutical distribution services was somewhat weaker than anticipated during the second quarter. The profitability landed on last year's level despite that we had higher freight costs driven by increased fuel prices. We have taken measures during the quarter to mitigate the impact more effectively going forward, especially when it comes to the fuel prices. In quarter two the net sales was growing by 1.7% and landed on 51.8 million euros and the adjusted EBTA was 8.1 million euros which was in line with last year's level. In the supply chain I'm pleased to see that the operations remain stable and we have made important improvements during the quarter that will make positive effects going into the second half of the year. One example is that we have moved the vaccine distribution for the northern Sweden from Gothenburg area to the Stockholm area, which means that we can take down the air freight and go with road transportation instead. That will ease up our costs and will also be positive for environmental footprint. Kronans Apotek delivered a quarter of revenue growth as well as the profitability has improved. This has been based on the execution of the short-term actions that we talked about earlier this year and also in the CMD. Kronos will now continue to execute on the commercial and operations improvement to further strengthen the profitability. In Åreola we are continuing to re-planning our ERP program and we are taking into the learnings that we made with the first deployment in Sweden. We are in the design phase and for the second deployment and that's ongoing and we'll continue more on this further when it's ready to be commented. If we then look at operating environment, Our market share was stable both in Finland and Sweden, but we could see that in the second quarter the value of the pharmaceutical distribution market was growing in Sweden with around 10%, while the growth in Finland remained quite flat. We are affected by the geopolitical development that we can see during the quarter has continued to contribute to uncertain operating environments. One example is the higher fuel prices that I already have mentioned, but there is also some inflatory pressure. And like I said before, when it's coming to the fuel prices, we are taking actions to mitigate the high fuel prices. The pharmaceutical companies is also continuing to building inventories Both Sweden and Finland. And that is to ensure the availability in both markets, which is benefiting us positively since we have higher volumes to expect for the future. In the advisory services, it continues to be cautious customers and we can see that in the decision making. There is longer lead times and there is also taking more time than to get the contract and the new engagement signed with the customers in this area. And this is mainly based on what happened in the US and how the product is then coming to the Europe. The consumer confidence indicator is weak in Finland as well as in Sweden. We could see some improvements during the end of the quarter. And like I've said before, also in these sessions, this is affecting mainly the traded goods and especially the traded goods and over-the-counter products, since this is the out-of-the-pocket spend for the customers in the pharmacies. It's also so that there will be changes done from more expensive products to lower priced products. If we then look at our segments, The service segments has a decline in the net sales, which is 2%. The decline is due to the weaker quarter, especially in the pharmaceutical distribution in Sweden, but also in advisory services. If you look at the pharmaceutical distribution part in Sweden, we have continued to see that the weight loss products has increased in volumes. And the increase here is based on that it's going to be parallel imported products in Sweden. And we are less strong in this customer portfolio, which is affecting the volumes in the distribution area in Sweden. But the volumes in the specialty flows, such as vaccine exports and animal health, remain high level for Oreola. And that is something we have seen for a while now, and we are expecting that will continue for the future. In advisory services we have taken restructuring measures based on the longer lead time with the contracts and we have also by that implemented to reduce the personnel costs which will be positive for the second half. The JASIT EBTA decreased in this segment to 9 million euros and the main reason for the decline was the high freight costs. Then going to the product segment. In this segment the net sales was growing by 11% and landed on 16.9 million euros. The growth was supported by both the wholesale and the dose dispensing business in Finland. We could see that the positive development in the wholesale business, like I mentioned before, has continued and it's supported by the growth both in the e-commerce as well as the retailers and in the pharmacy channels. The renewal of our own brands that we have talked about earlier during the year has progressed and we can see that the renewal of the brands that we have done is now growing in some areas with double digits. We can also see new listings that we contribute more in the second half of the year. The sales of the specialised medicines were also strong during quarter. and we have succeeded in capturing market opportunities in this area which is something we will continue to strive for. The adjusted EBTA was 1 million euros and that's a small decline compared to last year and that is mainly due to higher operating expenses. Let's now go more into the financial figures and Mats will do some presentation on those, so please Mats.

Thank you, Katarina, and welcome also from my side. I will start from the invoicing and net sales. And this quarter was a bit softer than quarter one. And if we start by looking at the invoicing for the quarter, of course, the main part of the invoicing is coming from the service segment, where we had a low Low volume growth in the segment, still invoicing grew by 5.3%. If we then look at net sales, we have a growth of 1.7%. The low net sales growth is directly linked to the volume growth in the service segment. Service segment is about 70% of net sales and I will come back to that a bit more in the services segment. If you look at the year-to-date numbers, pretty much the same development as in Q1. If we eliminate for the Swedish dose dispensing business year-to-date, we have had a net sales growth of 3.5%, a bit better in the first quarter and now a bit softer in the second quarter. Looking at the EBITDA, We stayed at the same level in the quarter as in 2025, with a margin of 15.6% compared to 15.8%. Adjusting items a bit lower than last year. This is mainly due to the fact that we are more in a planning phase than an execution right now. and we have used less consultants during the quarter. EBITDA year-to-date is slightly higher and the EBITDA margin also 15.5% compared to 15.3%. In general, if we look at the quarter two EBITDA staying flat, of course, it's the volume growth that is lacking. and that gives us the opportunity to grow profitability. Then we have some headwind in the advisory, especially in the full H1. And then we have, like Katarina mentioned, we have some extra freight cost at the latter part of quarter two. and then we have some more costs and not good enough pass-through margin in the product segment and that affected the profitability to stay at the same level. Then if we move into the services segment, here the We had a low volume growth and as Katarina said, the growth was mainly coming from, for example, vaccines and export and the invoicing growing 5.2% and 6.8% year to date. And then if we look at the net sales, this volume, Volume growth is directly impacting the net sales due to the fact that we have, especially on the growing categories, there was a transaction related pricing. And that means that regardless of the price increases, we get paid by the transaction volume. and then we have a headwind in the advisory that gives a small decline in the net sales and that compared to the growth still in the invoicing. Year-to-date 0.7% growth in net sales. If we then look at the adjusted EBITDA, like Katarina said, we have the freight cost now hitting us as a delay. in quarter two. We also have the low net sales and the volume growth that is affecting the EBITDA. And then we have the slowness in the advisory business. So a slight decrease in profitability, both in the quarter and year to date. In the product segment, we have a good Development that continued from quarter one. If we adjust for the Swedish dose dispensing business, we have 11% growth in quarter two, but also with the correction, it's around 11% year to date. If we look at the adjusted EBITDA for the quarter, it was a bit of a small disappointment not reaching the level of last year. Some more cost, operating expenses, some freight, and then the pass-through margin was a bit lower than we had expected. Still, year-to-date, we are well ahead of 2025. Both in Euros and in the EBITDA percentage that is 9.7% compared to 6.9%. Then if we look at the bridge for the net profit, we have improved the net profit and just a few highlights on that. As said before, we had some less adjusting items this year compared to last year, so the EBITDA was higher. Another thing is that last year we had a write-down on the Swedish dose dispensing business that hit the depreciations and then of course Kronos had a better first half year than last year. That gives us a loss of minus 3.2 million compared to 11 million last year, which is a clear improvement. Then we look at the cash flow. A few comments on the cash flow. We have a change in the working capital. It's minus 35.2. Here we have a few things that have happened. We have decreased one of the factoring customers in Sweden. We are using factoring for retail chains. Pharmacy retail chains and we have now taken out one customer from that which has had an impact that is roughly one third of this minus 35. Then from the customer mix in the invoicing growth we have had some impact also on the change but the main Main point here is that this is a kind of a normal volatility. We still have invoicing of more than 300 million euro each month. So there's small and very large payments. So this will always fluctuate a bit. Then another point here are the investments. 7.6 million, this consists of the Järvenpää land area and then some automation in end shopping that we have also talked about earlier. If we look at the net debt, minus 35 million. If we compare this to the last year, Without the sold receivables, we would be at the same level as we were last year. So no big change. Then the financial position, we have no big changes in gearing or equity ratio. Gearing as compared to last quarter is a bit lower due to the cash flow, but compared to last year, quite the same level. Then if I look at Kruunans, Kruunans had a very good quarter. Net sales in local currency grew by 5.3%. Kruunans had some really successful activities in the pharmacies. They have had a good cost control. And if you look at the adjusted EBIT, we have now an improvement of More than 4 million euro from the quarter last year and also even though Kronos had a quite bad first quarter we are now ahead of in the adjusted EBIT compared to last year. And then if we look at the outlook, we still keep the same outlook as before. We expect the adjusted EBITDA to increase from the previous year. And this is very much related to the growing market and then the strategy execution and the actions that we have related to that. That was my part.

Thank you. Thank you, Mats. And if we go down for the key takeaways before we go to the questions, we will continue with the net sales growth like Mats mentioned here in the product segments. And we can also see that the volumes in the specialty flows remain at a high level. and that is something that has been done during Q2 specifically and also going forward we believe in this. The supply chain during Q2 remains stable despite operating environment uncertainties that we can see and also some higher costs. And in the second half the net sales growth and efficiency improvements is expected to continue. and one of our key priorities is the cost discipline, both to get the costs to the customers as well as looking at all the costs that we can work on in Aureola itself. So that's the key takeaways from the quarter and now we open up for questions.

Great, so thank you Katarina and Mats for your presentations and as a reminder please use the chat to send in your questions. and in the Q&A we will first focus on the questions relating to Orellas business and financial development and then take the questions about the joint venture. So we already have quite a few questions in the chat and I will do my best to group those questions that are relating to the same topic. So let's start with the first questions that we have received. So there are a few questions relating to the ERP program. So could you estimate what is the remaining amount of ERP costs to be booked as one-time costs? Has the original amount of ERP costs changed? And if yes, how much?

Yeah, like Katarina mentioned in the beginning, we have now been and I noted that also that we have taken the learnings from the release one and now we have During the first and the second, mainly the second quarter, we are now planning and designing the release too. And that, of course, will have some impact, but we don't have any numbers to rely on yet, so that will happen.

Okay, and relating to the costs, so do you want to comment anything about how the costs will be divided between age to 26 and the years 27-28?

That is very much dependent on the planning and the details that we are doing right now.

Okay, so there are two other questions relating to the ERP costs. But maybe we take this one that you have booked 6 million euro costs for H1 for the ERP project. Is the level expected to be similar for H2?

Well, the level might be close to that, but the details are to be still developed.

Okay. And then have the findings from the first deployment of ERP in Sweden cost any costs?

I will say like this, the findings, it's hard to say exactly what cost it will be. It's like the learnings we are taking from the findings now. And we should also remember that we're infrastructure critical, so we need to, when we go into the next phases, we need to be able to deliver on that once. But findings and how do we then both look at the cost, of course, going forward, but how can we also make sure that we make a secure deployment when we go to the releases, the next releases.

Okay, thanks. I think those were all the questions related to the ERP that we had. So let's continue with the other ones. So in addition to the buyback program, Oriola has paid 0.4 million euros when purchasing own shares. Could you describe more detail what kind of payments these have been related to what purchases?

These are mainly related to the incentive programs and also for the board compensations that we pay, so those are the items.

Good, thank you. And then there's a question relating to the cash position, so you continue to run a sizeable We still have quite the volatility in the cash balance and that is something that we work on all the time. It's a bit dependent on things that we are

cannot affect and therefore at the end of the month it looks quite different than during the middle of the month. But we are working on this and like I said, we have now discontinued with one customer the factoring program also to take the interest costs down.

Okay, and then questions relating to the free cash flow. So free cash flow was minus 35 million in H1 driven by the working capital swing and you cite fewer factoring program customers as one driver. So first, is the reduction in factoring participation structural or temporary? Should we expect sold receivables to recover toward the 120 million level or stabilize lower?

I mean, this is a structural. It's not the temporary. We have reduced one. Then, of course, we had 120 million in quarter one, end of quarter one. Now it, of course, depends on the sales to the chains, how much we sell. But now with the current level, we are lower than that. If it would have remained with this customer also, it would have been higher.

And a follow-up question. Does the H1 outcome change the 80 to 100% cash conversion target you presented at the Capital Markets Day? Or do you still expect that range for the full year 2026?

We still believe in the full year. Let's say that the working capital and the free cash flow in a quarter is maybe not reflecting. We have big swings between the months also, so we still believe in a very good cash flow. We believe in stronger growth and a better cash flow version and cash flow.

Okay, so then there are two questions that are relating to the freight costs. So it looks like clients are good at pricing as invoicing goes up. Transportation costs have been going up for five months due to the war. It should not be a surprise. And also, do you see freight cost headwind existing into H2 or have you been able to compensate by higher prices?

I would say that, no, I agree, it's not a surprise. We also have some contractual parts that is meaning what we can do with our customers in this aspect. Going forward, we have mitigated the freight cost as much as we can, and I will not see that it's going to be as a surprise as we have had, or like on these levels as we have had now. So we are mitigating most of it going forward.

And we actually knew from the beginning that there will be a small delay due to the fact that the contracts are set up in a certain manner.

Okay, good. So then there's a question relating to advisory services. You mentioned longer sales cycles and cautious decision making within advisory services. What concrete signs are you seeing that demand may normalize during the second half of the year and what commercial actions are you taking to accelerate the growth?

You can say that of course when there is longer lead times it's also so that for the second half we will benefit from that the parts that have been longer will now also then go into decision. That is something that is an upside for the second half. So that's the same as with the freight price to some extent. There is a delay in the beginning and then it's normalizing. And that's what we can see also in the decision making parts. So there is some tenders now up for decisions. What we do overall is of course to be more active together with the customers to try to persuade them to come to us. We have seen in fact also during the quarter some more Nordic contracts coming to us, but we also need the bigger ones in our portfolio and that's where we normally see that more delay. But there is some new customers also in the price group.

Good. And then there is a question relating to the guidance. So what are the main drivers for H2 in order to reach your higher adjusted EBITDA guidance for the year?

Well, we strongly believe in the market growth. We have a good growth in the speciality flows and have had it during the beginning of the first half year, for example, vaccine distribution. And we know that we have a more efficient supply chain for some of the flows also now for the latter part of the year. We believe also in the sale of the value-added services that we do and the advisory services of course catching up. On the other hand, we also focus a lot on the cost side and that's a priority that we work on all the time and are trying to improve on in all areas with the costs. So that gives a good ground for a basis for the full year outlook also.

Great. And then there's a question relating to employees. So the number of employees has decreased in Sweden and Denmark, but gone up in Finland. Why is this?

If we look for Denmark and Sweden, it's mainly based on the restructuring of advisory. Denmark is even fully advisory with what we have there. Going up in Finland is just to some extent also based on the SkyWay program, where we have also backed what's called backfilled a little bit. And we have done it a little bit more in Finland than we have done in Sweden.

And just to be clear, the SkyWay is related to the ERP program.

It's an internal term. No worries.

Okay, so just a reminder that please send any questions that you have to us through the chat. And now there are two questions that are relating to the joint venture. So it looks that the measures in Kronans are improving its profitability. When do the measures presented in CMD concerning Oreola improve its profitability? Is Oreola still on the road to achieve its financial targets? So it was more Oreola this one.

I would say yes, absolutely. Even if we have like a little bit softer quarter two compared to maybe the expectations. We are absolutely there. And we should also remember that we are now on par with last year. And normally we also have a much stronger second half of the year. So that's absolutely something that is going in the right direction here.

Okay. And then this would be for the time now, the last question. So there was an intergroup change in the ownership of shares within other share owner of joint venture during the spring. Does Oriola see that the commitment of other shareholder is on the same level as before despite the structural change in ownership?

The short answer in this is yes. What they have done is to make change in the group composition and they have assured us and I can't see any changes in their engagements in the joint venture. So yes.

Good. All right. So now it looks like there are no more questions in the chat. So I would like to thank everyone for joining us today. And if you have any follow up questions, please don't hesitate to be in contact with us. So enjoy everyone the summer and have a good weekend. Thank you.