Oriola (Helsinki:ORIOLA) Q1 2026 Earnings Call

0:00 Good morning, everyone, and a warm welcome to Oriola's Q1 Audiocast. I am Tore Stenizoniam from Oriola's Investor Relations. With me today, I have our CEO, Katharina Gabrielsson and CFO, Mats Danielsen. We will start with Katharina's presentation, followed by Mats' financial review. After the presentation, we open up for your questions. As a kind reminder, in the Q and A, we will focus on questions relating to Oriola's business and financial performance. Like always, you can start posting questions to us already during the presentation through the chat. Finally, please note that we are recording this audio cast and a recording will be available on our website later today.

0:49 Before handing over to Katharina, here is the disclaimer that we all should be aware of. And now, further ado, Katharina, please go ahead. Thank you, Thioa, and also welcome from my behalf. If you look at the first quarter, we can see that the demand for order in house distribution services has remained strong. It has been supported by continued engagement with existing customers and also solid pipeline of new customers opportunities. In the wholesale business, the positive development from last year has continued building on the actions and improvements implemented in 2025. We last year said that we were investing in this business and we can also now start to see the results.

1:36 We have strengthened our footprint in the growing retail channel and we have also expanded the sales channel mix for animal health. And growth has also continued in the ecom channel. In the first quarter, Oriola's net sales was growing by 10.7% to €49,800,000 and adjusted EBITDA was €7,700,000 That is corresponding to an adjusted EBITDA margin of 15.4. In Finland, we have also started the construction of Oriola's new highly automated state of art distribution center in Jarvanpe. And this has started well and also is progressing as planned. In parallel, the investments to renew our ERP and warehouse management system continues.

2:24 Like we announced last time, we have integrated like had a first phase now in Sweden during the end of last year and we are now underway for the second deployment, planning for the second deployment in Sweden. Our supply chain operations has remained stable during the quarter and operations at Ejljaping and Mankal sites has performed well. While volumes in Mannlichke Central Warehouse were high also in the first quarter. This is partly reflecting the customer in our distribution business building inventories in Oriola Warehouses. At the Endshopping distribution center, we have continued the improvement in ways of working and we have enhanced operation efficiency. An improvement in filling rate in our totes has reduced the numbers of daily trucks and has also been supporting the cost control that we have in the supply chain area.

3:20 This is also contributing to environmental objectives since less chose will give less environmental footprints in our transportation. In March, we also announced that we will do a €5,000,000 investment in shopping distribution center in the automation. This will further increase the level of automation, improving efficiency and also competitiveness and strengthen our ability to respond to market growth and evolving customer requirements that we can see will come for the future. Then if you look at the joint venture company Kronos Apothe, from Oriola point of view, I will state that we are not satisfied with the performance that has been in Kronos Apotheik in the first quarter.

4:07 In Kronos Apotheik there will now be corrective actions to be able to get where we should be on the performance. Kronos Apotec is therefore launching initiatives that are focused on both revenue and cost efficiency. On the revenue side, efforts are directed towards strengthening commercial execution. It's also about optimizing product mix and also enhancing in store and digital sales performance. In parallel, there is a cost optimization program launched with the particular focus on reviewing the head office functions and also for the potential adding additional synergies from the recent integration that was finalized in the end of last year, but is of course still some parts to be done.

4:53 This includes identifying and eliminating inefficiencies, ensuring an appropriate cost base going forward and also clarifying which costs are structural versus temporary in nature. These actions are aimed at improving the profitability, also strengthening operational discipline and also positioning Krona Sapaterrek for more sustainable performance in the coming quarters. Then if we go for the operating environment. If we go for the operating environment, we can see that in the first quarter the value of the pharmaceutical distribution market has been growing in Sweden with 12.5%, while the growth was more modest in Finland with around 4%.

5:42 We can also see that the geopolitical and the market share in both countries were stable. If you look at the geopolitical situation, we can see that there is an increased uncertainty in the operating environment. Oriola is affected mainly by the higher fuel prices and also inflationary pressure. Our aim is to put these costs towards our customers and that is something that we are working on for the coming quarters. Mats will come back to this later, but we can say that for the quarter one we haven't seen so much cost increases as we most likely have been expected from other sources. In the pharmaceutical companies, we can see that they continue to build inventories like I mentioned before and that is to ensure the availability of pharmaceuticals.

6:35 And this is a way of course to address the geopolitical situation from our customer point of view. In advisory services, we see that we are affected by the situation with cautious customers. And they are cautious more when it comes to the decision making. The lead times are longer and significant longer even and it's affecting both the availability of new medicines in Europe and that's also affecting of course us when it comes to advisory and to some extent maybe in the future also pharmaceutical distribution. Consumer confidence is weak in both Finland and Sweden compared to the normal levels. Then during the first quarter, we also announced a change in the financial reporting.

7:25 And I want to add it already here, even if I know that Mats will come back to this later when we come to the financial matters. Oriola ensures safe and efficient distribution of pharmaceutical and health products. But we are fundamentally a service company offering value adding logistics and also advisory services. And we also have a wide portfolio of health products. Our aim is to be more transparent towards you and also make it easier for you to understand what we are doing. That's why we have now changed the revenue recognition policy and also started to use new segments. So when I now go to the segments, it's the first time that you will now see these segments. And the first segments that we have is then the service segment.

8:13 And the service segment is then a little bit different from what we have before. Today it consists of the distribution of pharmaceuticals, it's also the value adding services and the parallel imports in The Nordics. This segment also includes the advisory services and the commercial data solutions. So everything that we see where we have a service fee is part of now this segment. In this segment, the net sales during the quarter increased by 3.7% and landed on €36,600,000 The growth was driven by positive development in the distribution of pharmaceuticals in Finland and Sweden, as well as continued high volumes in the parallel import in Sweden. And I can also add here that this product mix is affecting our profitability, because parallel import has lower margin compared to the rest of the pharmaceutical distribution.

9:08 In the pharmaceutical distribution, growth was then supported by higher volumes, also the specialty flows that we have and that is vaccines, it's exports and it's also animal health. And also by the overall market growth, particularly in Sweden. Advisory services though has had a slow start of the year, resulting in a decline in the net sales compared with previous year. And that is coming back to then the overall geopolitical situation where we see that this is affecting the segment. Adjusted EBITDA decreased to 8,800,000 Euros with an adjusted EBITDA margin of 22%. The reduction was mainly due to the weak performance in the advisory services and also the product mix that I mentioned earlier in early reports.

10:00 Then going to the other product segments, the other segment that we then have and also the first time that we are then talking about this one. And that's the product segment. The product segment consists of wholesale of traded goods and also over the counter products like pain killers. And this is covering also our own brands and the specialised medicines that we have in Finland and Sweden. The segment also includes the dose dispensing business in Finland. The net sales was in this segment growing by 9.6% to 15,400,000 Euros. The growth was supported by both the wholesale and the dose dispensing business in Finland. The Finnish wholesale business has continued the positive developments that started at the end of last year, that is supported by the expansion in the retail channel and also the continuous development of own brands.

10:52 Sales of specialised medicines in Sweden were lower than in the comparison period. Adjusted EBITDA amounted to 2,100,000 Euros with an adjusted EBITDA margin of 13.9%. Improvement was driven by the wholesale and the Dose Dispensing businesses in Finland. And with this, we will then go on to the financial review. Please, Max. Thank you, Katarina and welcome from my part also. This is now as Katarina said the first quarter we report with the new revenue recognition principles and we believe that this this new reporting will improve the transparency of our financial reporting and and the understanding of our of our business logic.

11:43 We have looked at the or judged the the distribution customer contracts and reclassified those as Oriola as an agent in in in in these contracts. This has had the impact on on net sales, And we will now have been recognizing net sales on a net basis. So this is the only change in the in the in the pharmaceutical company contracts that we have. It's not the change to the to the own business we have, so it's not all contract that have have been have been reclassified. This has have had a had a, of course, an impact on the segments due to this, and we have now the two segments that that Katharina mentioned. We have the services, and we have the product business.

12:38 Services, it's a service fee, and and and the product business is actually no change on the on the revenue. If we then look at the the the the segments, the services is distribution of pharmaceuticals, We have we are distribution distributing about 300,000,000 packs per year. We have a 4,000,000,000 invoicing that we perform as a service to the to the to the pharmaceutical companies. And this segment also, of course, includes services that we do these same companies. And then we have parallel import and advisory services is included.

13:29 So it's it's it's a big invoicing, but now the net sales has declined. That that is more related to the service fee that we invoice. So it's a huge pass through margin and and and the and the net sales that is smaller. The product segment, this is the segment where we we have the ownership of the products. The risk is on in our hands, and and and we have the products in our own own inventory also. So the and the product segments in in in in the big picture includes the wholesale and the dose dispensing business in Finland. The product segment also includes now for quarter one twenty five, it's including the Swedish dose dispensing business.

14:17 We have tried to open that up also in the in the different tables and comments so that it's clear what is what. Then if we go to the if we go to the to the to the numbers, invoicing grew from 1000000008.1%. This is then mainly the pass through where we invoice on behalf of the customers. We had a decline in in the net sales. This is mainly due to the fact that we had the Swedish dose dispensing business in the first quarter last year. If we exclude that, we have a growth of 10.7%. There is an FX impact of the Swedish corona that has strengthened during during during the the the same time. So we we approximately two percentage units of the 10.7 is is affected by by by the FX.

15:24 Svensk Doos will only was only included in the first quarter last year, was sold on the April 1. If you look at the development on on on on net sales, we can say that it's coming both from the services and the product segments, especially the distribution services have been performing well, both in Finland and Sweden. And we have a good growth in wholesale and also in the dose finished dose dispensing business and in parallel import. Then if we look at the adjusted EBITDA, and and and we have an improvement from 7,500,000 to 7,700,000, it's mainly driven by the product segment, and and and we have an adjusted EBITDA margin of 15.4 compared to 14.8.

16:26 If we exclude this the the the dose dispensing business in in Sweden, it's slightly declining. This is mainly due to the impact by the parallel import and the slow start for the advisory business. In the adjusting items, we have 2,400,000, a bit more than last year, 1.6 last year, and that is related to the ERP project. And as Katarina said, we have very small impact of, for example, fuel price price increases and and and and cost for for the quarter. And the Jarvempa, just a reminder that the we have started to build in in in in Yaraventa, and those costs are not shown in the in the in the as it says, lease lease agreement.

17:28 So we are not having those costs before we move into the into the facilities or start start producing or delivering there. Then if you go to to the services segment, a good growth in the in the as said in the distribution and in the and in the specialty flows and parallel import. Advisory services slow and and and and declining slightly, And we can see that the the invoicing is growing 8.5%. Net sales growing only 3.7%. On top of the the slow start of the advisory services, it's good to remember that we have a pricing that will affect also that it's not always following the the invoicing.

18:26 We have a margin based and the transaction based pricing towards the customers, which which will, of course, have an impact on on the on the development of the net sales in in in comparison to the invoicing. If we look at the adjusted EBITDA slightly declining, and that is mainly affected by the advisory decline in the net sales. And there's in the percentage, EBITDA percentage, the parallel import also has a impact on due to the fact that it's not as profitable as the other services. If we go to the product segment, this is then has been performing well. The whole both the wholesale and the and the dose dispensing business in Finland has been performing both very well. This is then where we have the ownership of the product products we source and sell, and and and we can see that the the net sales is declining. That's related again to the to the to the dose the Swedish dose dispensing business. So we're almost 9.6% was the growth without the the dose dispensing business.

19:55 We EBITDA growing from 1,000,000 to 2.1. The EBITDA margin is now at 13.9%. So we are starting to up to the right level in a that it should be in this in this product business. Then if we look at the development of the of the of the result all the way down to the to the net profit, we have EBITDA is slightly lower than last year, mainly related to to the adjusting for the cost for the ERP and the adjusting items. If you look at the depreciations, we had a Svensk Doos impairment last year, which which increased the the the the impairment, the on the on the on the on the number of 8.8.

20:47 This year, we have accelerated now the depreciations of the some Monca assets, and and we'll have a more some more depreciations during the time until we move to to Jarvanpa. Looking at the EBIT improving from last year, and of course, the share of result in a joint venture was a disappointment, minus 2,300,000, and we end ended up in a in a profit for the for the period of minus 2,000,000. Then if we look at the cash flow, the cash flow the the free cash flow flow was was negative.

21:33 Mainly this is mainly related to the change in the working capital. We have really large payments coming in, and and and and now we had a we had a few payments coming in a day or two days late, which affected the the the negative change in working capital of of 20,000,000. The investment of 5,400,000 is mainly related to the acquisition of the land area in Jarvenpa and that's the only part that is affecting that we bought the land ourselves for the facilities there. Net debt, no big change, slightly impacted by the working capital and the free cash flow.

22:21 No more comments on that. Then we have the equity ratio and gearing. Equity ratio impacted slightly by the impact of mainly impact negative impact on the on the on the adjusting items again, and the result from the JV. And and we can see that the the gearing also impacted by the by the by the negative cash flow. And then if you look at Kronanz, this was a weak quarter for Kronanz, a disappointment for for for for us. Profit on all lines are are lower than 2025.

23:08 Most important, they are now starting an initiative to focusing on growth, cost cutting, that will, in the plan, improve the profitability starting already from quarter two onwards. And the outlook outlook is the same. We expect the adjusted EBITDA to increase from the previous year. Our previous year was 35,100,000, so that that was unchanged from last time. And then we have the we also communicated the new financial targets.

23:55 Both of these are, of course, set to drive profitability. First, we need to grow. We have a put as a target to grow at least 5%. We know that we are growing more right now, but we know also over time, it has not always been that the growth. So we we we we in our strategy, we are aiming at at at 5% at least. Then we have the the efficiency cost adjusted cost to net sales. This is a driver to improve on EBITDA. We need to manage our cost base and and and and see that we we get the pass through margin from the from the growth that we have.

24:43 We have also now we have put it at 75%. Last year, we were at 82.6%. And and now for the first quarter, we are at at 85.2. The first quarter is not really reflecting the full year, but there's a timing issue also during that. But we have improved from 2024 to 2025. We have also improved now quarter on quarter from '25 to '26. Then we have also a new dividend policy, partly new, partly old. We do not change the two third of the net profit. What we have included is the JV that that that it's the result from the JV is excluded.

25:35 And then, of course, there's a there's a disclaimer to evaluate the the financial status or situation when dividends are paid. Then there was a decision by the board to initiate a share buyback program. We'll now be initiated max maximum number of shares, 1,000,000 and a maximum of 1,500,000 to be used. It will start now immediately and and will be ended by thirty first of August twenty twenty sixth at the latest. Thank you, Mats. And with this, we will summarize the key takeaways.

26:27 I get started with, I think this we had a really good start to the year. Both net sales and adjusted EBITA was meeting our expectations. If we look at the supply chain operations has been stable and we have also then invested in the decision in automation and distribution center and shopping to better get efficiency for the future. And I also really would like to welcome you all to join our Capital Markets Day that is quite soon coming up, it's already on May 12. And in that we think that we can then also give even more clear lights to what we are doing in transparency for the future. But with that, we conclude our presentation and I can see that there has been some questions coming in, so It's let's a little bit small for me to see.

27:18 Good. So thank you, Katharina and Mats, for your presentations. And as a reminder, please use the chat to send in your questions. And in the Q and A, we will focus first on the questions relating to Oriola's business and financial development. And we already have some questions, so let's let's kick off. So relating to the parallel import, so could you explain more in detail why product mix impact from parallel import has negative impact on adjusted EBITDA, Mats? It has is it has not a negative impact on on the EBITDA, but it has an impact on the percent EBITDA percentage.

28:06 So the the volume, it goes up, but the profitability is a bit lower. So if there's a mix change, then it will it will compare to to to previous period. Will it will show a EBITDA percentage that is lower. All right, good. And then relating to the costs, so could you comment on 25% increase in group administration and other costs, will this trend continue the whole year? Well, this is this is not a trend, and it's a it's bit of we have had quite quite many large internal projects ongoing and and and and partly related to phasing of that cost. We don't have a plan that is growing. The cost would be growing. Then we also see that there's an FX impact on the cost side as well as on sales side.

29:01 So it it but it's, I think, most important message is that this is not a trend. I can I can agree to that? We have talked about strict cost control during quite many quarters, and that is still there. So it's like like exactly like Matt said, not a trend. Trend. Have a new financial target that is focusing exactly on the cost side also. So then a question related to the services segment. So if the advisory business had performed as in the comparison period, would the services segment's profitability have been above or below the comparison period? We don't comment specifically the advisory business as such as a separate, but we would have been closer to the last year numbers if it would have been performed according to last year, yes. You can say that one of the advisory services have a higher margin than the other parts of this segment, so that's a little bit something for you to know.

30:13 Good. Then there are a couple of questions relating to the financial targets, and we will take those. But of course, there will be more information about those also in the CMD. So what kind of costs include in your new efficiency target? Does this mean costs in EBIT or EBITDA level? And do these costs also include group administration costs? Mats? Yes. It includes all the costs. At least it includes freights. It includes the operational costs and administration costs and all the way down to to EBITDA. Good. And then continuing on that. So in the financial targets, is there a reason why you measure costs to sales instead of, for instance, the EBITDA margin?

31:08 We actually, we have chosen to look at the cost sales, because that's the driver of EBITDA. So we we find it relevant to to to focus on the driver of improving EBITDA and not the EBITDA as such. Of course, it will be a result of EBITDA if we improve on this. Yep. And there's one more question, I think you already answered this, but just in case you want to add something. So the 75% cost to sales target, is this equivalent to 25% adjusted EBITDA margin? Or what do you mean by these costs? I have not that now calculated exactly what that is in relation to the EBITDA margin.

31:55 It's of course that we might have a higher cost and higher it's always the cost in relation to sales and the EBITDA to sales. So we have more looked at where do we end up if we have a 75 below 75% in the cost related to sales. And this is actually what we have as a strategic target in our strategy. Yep. And then one more question relating to this efficiency target. So and the costs. So are leasing costs of included? The leasing cost for for will be we will book that as an asset in our balance sheet, and it will be depreciated, and and there there would be an interest cost. So it's not it's not included in in in in this cost.

32:52 Okay. Good. Thank you. So then continuing on to the dividend policy. So does your new dividend policy excluding JV result imply that you don't see the recovery plausible anytime soon? I will say like this, that we want to have like the possibility to have Oriola as a separate company, and this is one way of showing that the dividend policy that we have is reflecting the result of Oriola. When we go into Kronos Autoportik, we will work for having the recovery as soon as possible and we will also come back to this also in the same day a little bit more closer in that one. But it's absolutely so that for us as an owner of the joint venture company, it's important to make the recovery as soon as possible, as it also is for you to get a more clear opinion of us as a company.

33:49 Good, thank you. And we have one more question in the chat, so if you have any other questions, please post them through the chat, so that we can take them. And it's relating to the share buyback programme. So how should we view the share buyback programme in the light of your low equity ratio and aim to improve that? We see that this is a part of of of of our distributing distribution to to to our owners, and this is serves of the interest of of of shareholders also. The amount is still fairly small, and of course, we have in relation to this the dividend policy, and this is a combination that we all the time follow, and we also split the dividend now for the spring and the autumn, so that we follow and see also how the equity ratio develops.

34:58 Good. Thank you. So, looks like there are no more questions in the chat. And thank you, everyone, for joining us today. And as a reminder, and already mentioned, so the CMD takes place on May 12 and it's a hybrid event and the webcast and you can follow it live through a webcast. And in the meantime, if you have any questions, please don't hesitate to contact us. And we wish you all a good rest of the week. Thank you. Thank you. Bye.