Oriola (Helsinki:ORIOLA) Q2 2026 Earnings Call

0:00 Good morning, everyone, and a warm welcome to Oriola's Q2 Audiocast. I am Tuas Deniosonian from Oriola's Investor Relations. With me today, I have our CEO, Katharina Gabrielsson and CFO, Mats Danielsen. In

0:27 the Q and A, we will focus on questions relating to Oriola's And a 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, Katharina, please go ahead. Thank you, Tova, and welcome also on my behalf and good morning. In Oriola, we could see a positive sales development in the wholesale business in Finland during the second quarter.

1:15 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.

1:24 Also the volumes in the specialty flows has been remaining on high levels and in the specialty flows, you see for example vaccine and export volumes going from Sweden as well as in Finland. We can also see that demand for Oriola'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 and especially when it comes to the fuel prices. In quarter two, the net sales was growing by 1.7 and landed on 51,800,000 Euros and adjusted EBITDA was 8,100,000 Euros which was in line with last year's level.

2:21 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 freights and go with road transportation instead. That will ease up our costs and will also be positive for environmental footprint. Krona and Sapotek 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, but also about and also in the CMD.

3:11 Kronos will now continue to execute on the commercial and operations improvement to further strengthen profitability. In Oriola, 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.

3:43 If we then look at operating environments, 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 developments that we can see during the quarter has continued to contribute to uncertain operating environments. One example is the higher freight fuel prices that I already have mentioned, but there is also some inflammatory 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 in both Sweden and Finland.

4:33 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 advisory services, it's continued 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 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 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.

5:20 And like I've said before also in these sessions, this is affecting mainly the traded goods and especially 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 change then 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 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.

6:05 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, export and animal health remained high level for Oriola. And that is something we have seen for a while now and we are expecting that will continue for the future. In advisory services, the restructuring, 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.

6:51 Adjusted EBITDA decreased in this segment to €9,000,000 and the main reason for the decline was the high freight costs.

7:05 Then going to the product segments. In this segment, the net sales was growing by 11% and landed on 16,900,000 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.

7:55 The sales of the specialised medicines were also strong during the quarter and we have succeeded in capturing market opportunities in this area, which is something we will continue to strive for. The adjusted EBITDA was 1,000,000 Euros and that's a small decline compared to last year and that is mainly due to higher operating expenses.

8:19 Let's now go more into the financial figures Max will do some presentation on those. So please, Max. Thank you, Katharina 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 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%.

9:07 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 quarter one. If we eliminate for the Swedish dose dispensing business year to date, we have had a net sales growth of 3.5, Bit better in the first quarter and now a bit softer in the second quarter.

9:51 Looking at the EBITDA, we had we stayed at the same level in the quarter as in in in '25. EBITDA margin of 15.6% compared to 15.8. Adjusting items a bit lower than than than than last year. This is mainly due to the fact that we have been they are more in a planning phase than execution right now, 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

10:43 staying flat. It of course, it's the it's the volume growth that is lacking and and and that gives a would give us the opportunity to to grow profitability. Then we have some headwind in the advisory, especially in or both in the full H1. And then we have the, like Karina mentioned, we have some freight extra freight cost at the at the latter part of quarter two. And and and then we have a bit we have more some more cost and and past and and not good enough past through margin on in the product segment, and that affected the the the profitability to to stay at the same level.

11:37 Then if we move into the services segment, here, the the the we had a low volume growth, and as Katrina said, we had the growth was mainly coming from from from, for example, vaccines and and export and and and and the invoicing growing 5.26.8% year to date. And then if we look at the the net sales, this volume volume growth is is is directly impacting the the net sales due to the fact that we have a especially on the growing categories, there there was a transaction related pricing, and that that means that the the regardless of the the price increases, we get we get paid by by by the transaction volume.

12:33 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 Katrina 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 slight decrease in profitability, both in the quarter and year to date.

13:28 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 a 11% growth in quarter two, but also with the correction, it's around 11% year to date. If you look at the adjusted EBITDA for the quarter, it was a bit 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%.

14:26 Then, if we look at the bridge for the net profit, we have improved the net profit. And a few just a few highlights on that. As said before, we had some less adjusting adjusting items this year compared to last year, so the EBITDA was higher.

14:45 Another thing is that last year we had a write down on on this 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 3,200,000 compared to 11,000,000 last year, which is a clear improvement. Then we look at the cash flow. Few comments on the cash flow. We have the change in the working capital is minus 35.2. Here we have a few things that that that that have happened. We have decreased one of the factoring customers in Sweden.

15:33 We are have been using factoring for

15:37 retail pharmaceutical 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 on also on the change. But the main point here is that this is a kind of a normal normal volatility. We still have invoicing of more than €300,000,000 each month. So they're small small and very large payments. So this will always fluctuate a bit.

16:27 Then another point here is the are the investments.

16:33 7,600,000, this consists of the of the Yarvanpa land area and then some automation in end shopping that we have also talked about earlier.

16:47 If we look at the net debt, minus 35,000,000, if we compare this to the last year with the without the sold receivables, we would be at the same level as as we were last year. So no big change.

17:09 Then the financial position, we have no big changes in gearing or equity ratio. Gearing as compared to last quarter a bit lower due to the cash flow, but compared to last year, we are at quite the same level.

17:30 Then if I look at Kronan's, Kronan's had very good quarter. Net sales in local currency grew by 5.3%. Kronan's had some really successful activities in the pharmacies. They have had a good cost control. And and if you look at the adjusted EBIT, we are we have we have a now an improvement of of more than €4,000,000 for from last the quarter last year.

18:00 And also, even though we had a quite, Kronus had a quite bad quarter, 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 we keep the same outlook as before. We expect the adjusted EBITDA to increase from the previous year. And this is very much related that will be in a growing market and then the strategy execution and the actions that we have related to that.

18:36 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 remained at a high level.

18:56 And that is something that has been done during the quarter two specifically and also going forward we believe in this. The supply chain during quarter two remained 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.

19:17 And one of our key priorities is the cost discipline, both to get the cost to the customers as well as looking at all the costs that we can work on in Oriola itself. So that's the key takeaways from the quarter and now we open up for questions.

19:34 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 and A, we will first focus on the questions relating to Oriola's 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.

20:06 So, let's start with the first questions that we have received. So, there are a few questions relating to the ERP programme. So, could you estimate what is the remaining amount of ERP costs to be booked as one time costs?

20:22 Has the original amount of ERP costs changed?

20:26 And if yes, how much?

20:30 Yeah, like Katharina mentioned in the beginning, we we have now been and I I noted that also that we have taken the the learnings from the release one and now we have during the the first and the second, mainly the second quarter, we are now planning and designing the release two and

20:54 that of course will have some impact, but we don't have any numbers to rely on yet, that we will have to come back to later. 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?

21:19 That is very much dependent on the planning and how we the details that that we that we are doing right now. Okay. And then okay. So there are two other questions relating to the ERP costs, but maybe we take this one that you have booked €6,000,000 costs for h two h one, sorry, for the ERP project, is the level expected to be similar for h two? Well, the level might be close to that, so but but but the details are to be still developed. So

21:57 Okay. And then have the findings from the first deployment of ERP in Sweden cost any costs?

22:07 I will say like this, the findings, it's hard to say exactly what causes it it's the 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 the next releases.

22:37 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 programme, Oriola has paid

22:53 €400,000 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. Those are the items. Good, thank you. And then there is a question relating to the cash position. So, you continue to run a sizable cash position while paying meaningful financial costs. When are you planning to optimize this to

23:33 decrease the financial costs?

23:38 We still have the quite the volatility in cash balance and that is something we work on all the time. It's a bit dependent on things that we are cannot affect, but and therefore at the end of the month, looks quite different than during the middle of the month. So 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 cost down. Okay. And then questions relating to the free cash flow. So free cash flow was minus 35,000,000 in H1, driven by the working capital swing, and you cite fewer factoring programme customers as one driver.

24:38 So first, is the reduction in factoring participation structural or temporary?

24:44 Should we expect sold receivables to recover toward the 120,000,000 level or stabilize lower?

24:52 I mean, this is a this is a structural. It's not the temporary. We have reduced one. Then, of course, we had 120,000,000 in quarter one, end of quarter one. Now it, of course, depends on the sales to the to the to the chains, how much we sell. But but now with the current level, we are lower than that.

25:14 If it would have remained with this customer also, it would have been higher. Okay. 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. I mean,

25:40 let's say that the the the working capital and the free cash flow in in a quarter is is is maybe not reflecting. We have big swings between the months also. So we we still believe in a very good cash flow for. And we believe in stronger growth and a better cash conversion 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.

26:23 And also that does do you see freight cost headwind existing into H2 or have you been able to compensate by higher prices?

26:35 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, 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. Good. So then there's a question relating to advisory services.

27:21 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?

27:34 And what commercial actions are you taking to accelerate the growth?

27:40 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 part that has 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

27:59 beginning and then it's normalising 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 like 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 advice from. 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?

28:47 Well, we strongly believe in the market growth. We have a good growth in the specialty flows and have had it during the beginning of the the first half year, for example, vaccine distribution. And we know that we have we have a more efficient supply chain for for for some of of the the flows also now for the for the latter part of the year. We believe also in the in the sale of the value added services that we do and and there are 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 cost.

29:43 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, but what we have there. Going up in Finland is to some extent also based on the SkyWay program where we have also what's called backfilled a little bit and we have done it a little bit more in Finland than we have done in Sweden. Okay, just to be clear, the SkyWay is related It's to the ERP an internal term. No worries.

30:34 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 Kronan are improving its profitability. When do the measures presented in CMD concerning Oriola improve its profitability? Is Oriola still on the road to achieve its financial targets? It was more Oriola 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 much stronger second half of the year. So that's absolutely something that is going in the right direction here.

31:27 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 like engagements in the joint venture. So yes. Good. All right. So now it looks like there are no more questions in the chat.

32:16 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.