Tua Stenius-Örnhjelm: Good morning, and a warm welcome to Oriola's Q3 results audio. Okay. I am Tua Stenius-Örnhjelm from Oriola's Investor Relations, and joining me today are our CEO, Katarina Gabrielson, and CFO, Mats Danielsson. We will start with Katarina, who will take us through the quarter, and Mats will then cover the financials. After that, we will open the Q&A. As a reminder, we will first focus on questions relating to Oriola's business and financial performance. You are welcome to submit your questions through the chat at any point during the presentation. Just a practical note, we are recording today's newscast, and the recording will be available on our website later today. Before we get started, a quick look at our customary disclaimer. With that, Katarina, over to you.
Katarina Gabrielson: Thank you, Tua, and also warm welcome on my behalf. If you look at Q3, we had a solid business performance, and we continued to strengthen the profitable growth. I will come back a little bit later in this presentation with how we did it, but especially the commercial execution of operational improvements and infrastructure development was something that continued to strengthen the performance. The net sales was growing by 5%, and it was supported by continued high volumes, in specialty flows, in good sales in wholesale, and also strong sales in specialized medicines. Last quarter, we talked a lot about higher fuel prices and also how we could pass costs through to our customers. This is something that we have succeeded with in Q3, and I am really pleased to see that has succeeded.
Katarina Gabrielson: During the quarter, we also had a one-off inventory provision, and you will hear it more in this presentation going forward. That was on EUR 2.7 million, and that has affected the group profitability, so we landed on last year's level. During the quarter, we also have stable supply chain operations. We have a lot of volumes in our warehouses, and to some extent, depending on the geopolitical situation that we have around us. That has meant that we have high inventory levels and also capacity pressures. During the quarter, we also announced that we revisited our implementation strategy for the ERP and the warehouse management program. That has been revised based on the insights from the first deployment that we did in Sweden at the end of last year.
Katarina Gabrielson: Now the timeline allows us parallel core builds and also direct deployment into Finland. We will also come back a little bit later to that in this presentation. One highlight for this quarter is, of course, Kronans Apotek. We can see another quarter of growth and profitability improvements from Kronans Apotek. It has mainly been by disciplined focus in the commercial performance and cost efficiency. This is also then based on the CMD discussions that we had earlier this year. I know that Mats will come back to the figures later on with Kronans Apotek. With this going on now to the operating environment. In Oriola, we could see stable market shares in Finland and Sweden during the quarter. The pharmaceutical distribution Sweden with around 8%, while the growth in Finland remained low with only 0.5%.
Katarina Gabrielson: The geopolitical development that I mentioned before, especially when it comes to fuel prices, inflationary pressures, is still there, and it contributes, of course, to an uncertain operating environment also going forward in the future. We can see that the pharmaceutical companies are building the inventories to some extent based on this, because this is based on how you then ensure the availability onto pharmaceuticals in our markets. In advisory services, the geopolitical development is continuing also to have more cautious customer decision-making, like we also mentioned earlier this year, and this means longer lead times for the new engagements. Consumer confidence in Finland and Sweden has been a little bit different in the different countries now during Q3.
Katarina Gabrielson: In Finland, we can see that it is below the long-term average, while in Sweden, in the end of the quarter, it has been rising sharply and is now in line with historical average. Then if we go into the services segment, and I will start then with the service segment, which consists of the distribution of pharmaceuticals, the value-adding services, and parallel import in the Nordics. The segment we have here is also including the advisory services and commercial data solutions. Service segment had a net sales growth by 3.7% and landed on EUR 36.4 million. This has been supported especially by the volumes in the specialty flows. The specialty flows, including the export business, vaccines, and also animal health. We can also see a solid development in the direct-to-pharmacy deliveries.
Katarina Gabrielson: The adjusted EBITDA was improved and landed on EUR 10.1 million. The improved adjusted EBITDA was driven very much of this net sales growth that I mentioned before. If you now look back to what we talked about in the CMD, we talked a lot about in this segment about Strengthen the joint with customer and the joint account planning. This is something that we can see we have worked on a lot during the quarter and also during the full year. This is now also visible when we looked at extended key partnerships and also a healthy pipeline across the markets. We have now new key partnerships that will affect both Q4 and the business from 2027.
Katarina Gabrielson: In advisory services, we can see that the sales has remained weak during the quarter, basically on the longer lead times in the decision-making from the pharmaceutical company. What we have worked on in advisory business is to further strengthen our customer engagement and also to work more on integrated businesses that is done also in all the different countries that we have advisory services in. In Sweden, we launched AI-enabled commercial data service. That is something that has also been bought by pharmaceutical companies, and this is covering the medical information that we have, and it is taking the data that we have in medical information and turn it into actionable product insights that is helping the pharmaceutical companies now in their decision-making.
Katarina Gabrielson: Then if we continue with the product segment, and the product segment consists of the wholesale of traded goods and over-the-counter products, and it is also our own brands and specialized medicines that we have in Finland and Sweden. The segment also includes the dose dispensing business that we have in Finland.
Katarina Gabrielson: The net sales in this segment was growing by 8.8% and landed on EUR 60.8 million. It is especially the wholesale growth overall and also the strong sales of specialized medicines that has been part of this growth, as well as the dose dispensing business in Finland. I am also pleased to see that we have now started to sell to one new customer in Sweden, and that is a new specialty retail customer that we have got into our customer pipeline. The adjusted EBITDA was a little bit lower than last year. It landed on EUR 1.7 million. The reason for this is one of product inventory provision of EUR 0.7 million that I mentioned earlier that is then affecting this segment negative.
Katarina Gabrielson: If you then look also here on what we talked about on the CMD, we also here talked about how to work with the customer, but also how we work with the product portfolio. In this segment, we have now continued to align the product portfolio and also take the products to the growing sales channels. That is something that we then can see in the results, especially in the sales. We will continue now also to develop our own brands and have done that also during the quarter. That includes both how we price the products, how we do the offering to the customers, and also to strengthen the competitiveness in these product groups compared to our other competitors.
Katarina Gabrielson: We can continue to see that the recent launches have been received well and gave new listings with our customers. Normally, we talk quite much about the big investments that we do in Oriola. I would now take the opportunity to also to talk a little bit about the continuous improvements that we do, in fact, every day in our business. We will today then focus a little bit here on what we do in the supply chain and efficiency that we do here. Supply chain is one of the biggest cost, of course, that we have in Oriola, and it is super crucial that we everyday work on continuous improvement. Like I mentioned before, we also have higher volumes in our warehouses, and that is, of course, increasing the capacity pressure that we have in our warehouses.
Katarina Gabrielson: What we do then to balance these volumes is, of course, to use external warehousing, and this is something that we work with to maximize the net income and the profitability that we have and also how to handle new customers and growing stock levels. On top of this, we work a lot with the transport, and transport is one of the major cost elements that we have in Oriola. That is, of course, super crucial to work with the route planning, deliveries accuracy, and also streamline the tools in the sorting processes, as well as looking at route optimization. Here we are mentioning the route optimization in Northern Sweden.
Katarina Gabrielson: If you look at the map, you can see that Northern Sweden doesn't have so many inhabitants, but there is a lot of roads and a lot of kilometers between different cities. This is also a way of taking down the cost of the transportation. AI and digital tools is something that we mention and have mentioned quite much when it comes to advisory business, but this is also something that we use in the distribution or in our operations parts. Here in supply chain, we are working with the digital tools and AI, for example, to use in inventory planning.
Katarina Gabrielson: This means that we can have the right product in the right volumes in the right site to be able to have the picking accuracy up to our customers and also that will release the working capital in our balance sheet. With this, we will then go to what we normally talk about, and that is the strategic projects that we work with. What we talked about in the CMD is that we should double the EBITDA by 2029 and strengthen the foundation for our future growth, and that this strategic project is a vital part of reaching that goal. During the quarter, we have now revised the time, updated the timeline about ERP and warehouse management program.
Katarina Gabrielson: I will secure here for you that this has not changed, that we, in 2029, still have this goal to double the EBITDA. It is still there. What we revised now in the ERP and warehouse management program is that we have taken the learnings from the first deployment, and then implemented the strategy with the new program based on that, and also that we then have the Järvenpää distribution center in the end of this period. What we have done is to strengthen the program and the program governance.
Katarina Gabrielson: We are taking more into our own business, so the internal organization has been strengthened and taken more ownership of the total program. We have also appointed a new implementation partner in this process. The revised timeline has been extended to 2028, to also be balanced then with the Järvenpää distribution center. We will take a direct deployment then into the Järvenpää distribution center. The investment has been now also revised and been landed on EUR 64 million, and previously it was EUR 35 million. But this enables us now a parallel core build in Sweden and in Finland, and then followed by what I said earlier about this phased implementation.
Katarina Gabrielson: On top of this ERP and warehouse management program, of course, we are also doing some, in this scope, a little bit maybe smaller projects, with the Enköping automation upgrade. This is something that is very crucial for Sweden, where we can see that we will have now the possibility that in Q1 next year to get more volumes through Enköping, and that will support the growth in the business in both distribution and wholesale. I will also mention here that the Järvenpää distribution center is continuing to advance according to the schedule. With this, I conclude now the business highlights and leave the floor to Lasse.
Mats Danielsson: Thank you, Katarina, and welcome also from my side. We can start to talk about our net sales. We had a 5.1% increase in net sales this quarter, the graph in the middle, top. This was driven by both the product segment and the services segment. Percentage-wise, product segment was growing more, but also service segment in euros was delivering and good growth in both segments. Invoicing for the quarter was +3.4%. If we look at the net sales for year-to-date for the 3 quarters, we are at +1.6%. If we then eliminate the Swedish dose dispensing business that we still had in Q1 in 2025, the growth is 4.1%. Looking at the, so far this year, like Katarina said, we have had a good growth in the distribution segment or the services segment.
Mats Danielsson: The distribution part, we have had specialty flows like export and vaccines, and we have had also good sale of value-added services. On the product side, there has been a good development on the wholesale part, specialized medicines, and also the dose dispensing in all areas in the product segment has been growing fairly well, especially now in Q3. The invoicing for year-to-date is +5.6%. If we look at the EBITDA, we are on the quarter on the same level as last year. This includes the inventory provisions of -0.7 coming from the specialized medicines. It is a one-off booking that we have, but we are on the same level. If we look at the margin for the quarter, we are at 18.1% compared to 19%.
Mats Danielsson: If we adjust the quarter with the provision, we would have been at 19.4% compared to 19%. So an improvement on that side. If you look at the year-to-date, we are slightly higher than last year. Of course, this is now impacted also by the provision. As you might remember, we also had increased freight costs due to the fuel in Q2. On a high level, if these 2 items are eliminated, we are showing a margin percentage that is close to 17% compared to 16.1% last year. So we are also, the underlying EBITDA margin is growing compared to last year. If we go into the services segment, we have had a bit of lower growth in the invoicing from our customers.
Mats Danielsson: However, the net sales has improved, especially in Q3, and this is much related to what was commented earlier. It is export vaccine, animal health growing, and we have also, on the net sales, of course, it is the service fee for the value-added services that we sell. Then we have had in the quarter also some increased partnerships in Finland that have supported the growth. Advisory's net sales is continuously lower than last year, affecting the development a bit negative. If we look at the adjusted EBITDA, we had a good quarter, a good net sales growth, and also an improved EBITDA from EUR 9.6 million to EUR 10.1 million.
Mats Danielsson: Then year-to-date, we are behind last year, but still getting closer to last year, and of course, especially in the services segment, the quarter increase in fuel prices is affecting the EBITDA number. If we go to the product segment, this was a good quarter in all areas. We had a good sales in the wholesale part.
Mats Danielsson: We had in the dose dispensing part was good. Special licensed medicines was good. So it's a really good development, +8.8%. Year-to-date, we are -3%, but if we eliminate the dose dispensing business in Sweden, the net sales grew by 4.6%. Looking at the EBITDA, we can see that the EBITDA is slightly lower than last year, but here we have included the provision for the inventory provision. If we look at the year-to-date EBITDA, we are improving despite this provision that we have had. If we look at the EBITDA percentage margin, excluding the dose dispensing, we are at 9.8% compared to 8.4%. If it also excludes the provision from the numbers, we are actually above 11% compared to 8.4% last year. So it's an underlying improvement in the product segment.
Mats Danielsson: If we look at the year-to-date net profit, would take out one part here and look at the share of the result of Kronans that is improving, of course, compared to last year, which is a good thing for us. We can also see that the profit for the period is actually EUR 8 million higher than last year. Then if we look at the cash flow, two things here. We have the change in working capital. We have a reduced factoring that you see from the numbers also. We had EUR 122 million end of last year, and it's below EUR 100 million now, so it's more than EUR 20 million affecting that. That's a one-time, one-off, of course, reducing the factoring volumes with the customer.
Mats Danielsson: Then we have an invoicing mix of customer changes now during the autumn that has affected this one. Of course, the product segment is growing, which is slightly affecting also, and then we have some FX differences. So there's a few big things that are affecting this. At the same time, we know that reducing the factoring will reduce our interest expenses, and despite the increased interest rates, we have reduced also our interest expenses in the quarter. Investments, EUR 8.5 million compared to last year, only EUR 1.8 million. We have now the Järvenpää land area that we have acquired. It's in this investment.
Mats Danielsson: Then we have the automation part in Enköping that is also as an investment. So -EUR 29.8 million free cash flow negative compared to last year, +EUR 11.6 million. If we look at the net debt, it's fairly on the same level as last year, the same period, and has not changed from Q2.
Mats Danielsson: Here we can also see the big difference in the sold receivables, EUR 99.6 million compared to EUR 109 million last year in September, and also good to remember that it was EUR 122 million at the end of last year. Financial position, no big changes in gearing or equity ratio. Same level as previous quarter. Then we can go in and look at Kronans. I would say that this is now the result of not working with the integration anymore. You can see that the company is working with the right things. It's a big commercial focus, looking at the pharmacies' opening hours, efficiencies in pharmacies, campaigns, how can we sell additional products? On the other hand, there has been an organizational restructuring within head office, but also the working hours in the pharmacies.
Mats Danielsson: If you look at the adjusted EBIT, we are quite close to last year's level, but if you then look at the EBIT for the quarter, there is a big difference, and that, of course, then gives an impact on the result for the period, for the quarter also. Especially if you look at the same numbers for year-to-date, we can see that the integration costs were much higher last year compared to this year, and therefore, we have almost a EUR 5 million difference in the net result for the year to date, which, of course, have a big impact on our numbers also. The outlook is unchanged for the full year and to increase the EBITDA from the EUR 35.5 million.
Katarina Gabrielson: Yes, and then I will conclude with the key takeaways. If you look at this one, you can say that the net sales was growing by 5.1%, and both of the segments was growing on the net sales. We can see that the profitability has been resilient despite we have this one-off inventory that you have heard a lot about during this audiocast. We have also had the possibility to pass through the high fuel prices to our customers. We can also see that the customer partnerships have been extended, and new ones have been secured, that will be positive both for the end of this year but also next year. In the Wholesale, we focus on the growth channels and also the products that is supporting the profitable growth.
Katarina Gabrielson: We are also continuing with efficiency initiatives, both like when it comes to bigger investments and how they are improving, but also the smaller ones that we do every day. These have generated savings and improved the productivity and profitability for us. We are now building the foundation for the growth, the ERP and WMS program, and also the Järvenpää distribution center remain to be the key enablers for our modernization to reach the double profitability by 2029. Like Mats just said here, we are reiterating the outlook. We can see that the sales growth is expected to continue across both the segments, and that is supported by a strong commercial momentum that we see now in the markets.
Katarina Gabrielson: Also, the new distribution partnerships that we have are set to contribute positively, and already now in Q4, they will contribute. Efficiency gains actions to offset higher fuel costs and also to continue the cost discipline support the profitability and also that is one of the reasons why we are reiterating now the outlook for the year. With that, I think we conclude the presentation.
Tua Stenius-Örnhjelm: Yes. Thank you. Thanks, Katarina and Mats, for talking us through the quarter. We will now turn to your questions, and you can continue to submit them through the chat. As a reminder, we will focus first on questions relating to Oriola's business and financial performance. We already have quite a few questions, and I will do my best to group them per topic. There is a lot of questions relating to the ERP, so I will take those first and then continue with the other ones. Will the new ERP and WMS be live before Järvenpää starts operations in Q1 2028? If not, will you delay the move or open Järvenpää on the current system?
Katarina Gabrielson: We can say like this, like I said also, there will be phases in this implementation. In Sweden, the plan is to go before Finland. In that aspect, yes, it will be live before we go to Järvenpää. The plan here is then to take the new system directly into Järvenpää when we go in Finland.
Tua Stenius-Örnhjelm: Good. Thank you. Of the roughly EUR 29 million of ERP costs still to come, how much will be booked in 2027?
Mats Danielsson: We will book still this year about EUR 5 million, so it will be EUR 15 million this year. It will be around EUR 15 million next year, and then the rest will be a bit less than EUR 10 million, the last in 2028.
Tua Stenius-Örnhjelm: And then a follow-up. Could you describe the possibilities that ERP will now have concerning business efficiency and competitiveness of Oriola compared with if Oriola would have continued according to first deployment in Sweden?
Katarina Gabrielson: I would say like this, it is like efficiency-wise, it is not what we have changed in the program. The program is based to look at the processes, how we work, and so on, and that is still the same part of the scope. What we changed now is how we do the implementation, how we set up the program to take away risks in the total program part and be able then also to launch it in the phases where we believe is the best for the company. Still, like I said before, the platform and the part here is crucial for the business going forward, and it is also then very important for the total business plan and strategy that we have from 2028 onwards and the 2029 result.
Tua Stenius-Örnhjelm: Okay. Could you comment whether Oriola will claim HCLTech to receive compensation for ERP project? If compensation is received, will it be handled as adjusting item? Just to comment that this is the previous partner.
Katarina Gabrielson: Implementation partner.
Tua Stenius-Örnhjelm: Yes.
Katarina Gabrielson: We are not commenting the contract on how we expect to do that. If there will be something, you will see that in the numbers.
Tua Stenius-Örnhjelm: Good. So those were, at the moment, the questions that were related to the ERP program. Let us continue now with the other questions. First about the services segment. Services EBITDA grew again despite advisory remaining weak. How should we think about the margin trajectory here going forward?
Mats Danielsson: Well, we see that the growth was good in Q3, and we expect that to grow and to achieve the full year numbers. We need growth and profitability in that segment.
Katarina Gabrielson: What we can see also in the service segment is now that, as we mentioned here, we have more customers, we have onboarded customers in Q3, and that will affect Q4 in a positive way. We have also work done with the profitability in each customer. That is part of course the guidance also, that is also what we can see this segment.
Tua Stenius-Örnhjelm: All right. A question relating to product segment. What drove the underlying clear EBITDA improvement in products, and how repeatable is that?
Katarina Gabrielson: I would say that it is repeatable because if you look at this, it is a lot about growth. It is net sales growth that we have in the main part of the businesses, and that has affected the adjusted EBITDA in a positive way. What we have done now is, like I said here, to work with the basic part in this segment. When we are working with the products, we get new launches and so on. That will affect also the earnings coming forward.
Tua Stenius-Örnhjelm: Okay. Good. A couple of questions related to the rest of the year. Q4 and guidance, can you walk us through the key building blocks? How will you improve in Q4?
Katarina Gabrielson: Mm-hmm. Overall, it is of course to continue with the net sales growth and also the profitable growth that we have seen during Q3, and to continue to build on that. We can also see that the new distribution partnerships that we just mentioned will contribute positively already in Q4. That is one part. Then we are working a lot with the costs and efficiency gains, to offset the high fuel cost, both with the continuous improvement, as we mentioned here before, but also on the daily cost control that we have overall. There is a lot of small things, but continue what we do in Q3 and improve from that.
Tua Stenius-Örnhjelm: Great. Thank you. Then a question related to the fuel prices. The fuel prices have increased again in the fall. Should we expect a negative impact in Q4 from that as was seen in Q2?
Katarina Gabrielson: I would say that what we have now is to have the contracts in place. I do not see that Q4 should be affected in a negative way as we saw in Q2. In Q3 now we have worked on that, and that should remain as it is in Q4.
Tua Stenius-Örnhjelm: Okay, good. Those were all questions relating to Oriola, so we will now move on to questions about Kronans Apotek. Just a reminder that please submit your questions through the chat. There is always a slight delay before we see them, so that we can take them during the audio cast. The first question now is, Kronans has had a new chairman for 2 months. Could you comment his thoughts concerning +EUR 60 million EBITDA target in Kronans by 2029 presented in CMD? Is this doable according to him, or can we expect that this target is going to be changed?
Katarina Gabrielson: Of course, I am not Magnus Håkansson, and of course, he should normally comment this himself. But I know that both him and the full board, including the management, is committed to what we presented in the CMD. There is no change on that, even though that we have done some changes in the board composition. So the targets and also the actions and goals that we presented in the CMD is absolutely still valid.
Tua Stenius-Örnhjelm: Great. Oriola presented in CMD saving target EUR 20 million in Kronans by 2027. Could you comment how much of this has been achieved by Q3, and how much of it can we expect to see in Q4?
Mats Danielsson: There is a part, of course, as you see in the numbers, is included in the quarter now. There will be more in Q4, and the rest of the program will be seen in the next year. The program is working.
Tua Stenius-Örnhjelm: Good. There is the final question. This is a little bit related to what you just said, Mats, but maybe open up a little bit. Kronans has improved now in Q2 and Q3. Are the efficiency measures presented at the CMD working?
Mats Danielsson: They are working. They are working in all the areas that we presented also with the personnel costs, driving the pharmacies, and different activities they have around the sale in the pharmacies is working. They are focusing and when the integration has ended, they have time and energy to work with that instead of integrating the two companies and the systems.
Tua Stenius-Örnhjelm: Basically.
Mats Danielsson: Basically, the improvements.
Tua Stenius-Örnhjelm: Good. Thank you. That seems to be all the questions we have today. Thank you everyone for joining us today. If there is anything else you would like to discuss with us, please feel free to get in touch afterwards. Thank you again, and have a great rest of the week.
