Morning everyone, and a warm welcome to Oriola's Q1 audiocast. I am Tua Stenius-Örnhjelm. I am from Oriola's Investor Relations. With me today I have our CEO, Katarina Gabrielson, and CFO, Mats Danielsson. We will start with Katarina's presentation, followed by Mats' financial review. After the presentation, we open up for your questions. As a kind reminder, in the Q&A, we will focus on questions relating to Oriola's business and financial performance. As always, you can start posting questions to us already during the presentation through the chat. Finally, please note that we are recording this audiocast, and a recording will be available on our website later today. Before handing over to Katarina, here is the disclaimer that we all should be aware of. Now, without further ado, Katarina, please go ahead.
Thank you, Tua, and also welcome from my behalf. If you look at the first quarter, we can see that the demand for Oriola's distribution services has remained strong. It has been supported by continued engagement with existing customers and also solid pipeline of new customer 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. We have strengthened our footprint in the growing retail channel, and we have also expanded the sales channel mix for animal health. Growth has also continued in the eCom channel. In the first quarter, Oriola's net sales was growing by 10.7% to EUR 49.8 million, and adjusted EBITDA was EUR 7.7 million.
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-the-art distribution center in Järvenpää, and this has started well and also is progressing as planned. In parallel, the investment to renew our ERP and warehouse management system continues. 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 on the way for planning for the second deployment in Sweden. Our supply chain operations has remained stable during the quarter, and operations at Enköping and Mankkaa sites has performed very well. While volumes in Mölnlycke 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 Enköping distribution center, we have continued the improvement in ways of working, and we have enhanced operational efficiency. An improvement in fill 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. This is also contributing to environmental objectives since less totes will give less environmental footprints in our transportation. In March, we also announced that we will do a EUR 5 million investment in Enköping 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.
If you look at the joint venture company, Kronans Apotek, from Oriola point of view, I will state that we are not satisfied with the performance that has been in Kronans Apotek in the first quarter. In Kronans Apotek, there will now be corrective actions to be able to get where we should be on the performance. Kronans Apotek 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 a particular focus on reviewing the head office functions and also for the potential adding additional synergies from the recent integration that was finalized at the end of last year.
It is, of course, still some parts to be done. 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 the operational discipline, and also positioning Kronans Apotek for more sustainable performance in the coming quarters. If we go for 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%. We can also see that the market share in both countries were stable. Let's add that one also.
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 quarter one we haven't seen so much cost increases as most likely has 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. 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 more cautious customers, and they are more cautious when it comes to the decision-making. The lead times are longer, and it's significantly 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 in pharmaceutical distribution. Consumer confidence is weak in both Finland and Sweden compared to the normal levels. During the first quarter, we also announced a change in the financial reporting, 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. 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. The Service segment is then a little bit different from what we had before. Today, it consists of the distribution of pharmaceuticals. It's also the value-adding services and the parallel import in the Nordics.
This segment also includes the advisory services and the commercial data solutions. 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 EUR 36.6 million. 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. 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. In the pharmaceutical distribution, growth was then supported by higher volumes, especially flow, 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 EUR 8.8 million 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 parallel imports. 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, painkillers, and this is covering also our own brands and the specialized 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 EUR 15.4 million. 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. Sales of specialized medicines in Sweden were lower than in the comparison period. Adjusted EBITDA amounted to EUR 2.1 million with an adjusted EBITDA margin of 13.9%.
The improvement was driven by the wholesale and the dose dispensing businesses in Finland. With this, we will then go to the financial review. Please, Mats.
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 new reporting will improve the transparency of our financial reporting and the understanding of our business logic. We have looked at the distribution customer contracts and reclassified those as Oriola as an agent in these contracts. This has had the impact on net sales, and we will now have been recognizing net sales on a net basis. This is the only change in the pharmaceutical company contracts that we have.
It's not the change to the own business we have, so it's not all contract that have been reclassified. This has had, of course, an impact on the segments due to this, and we have now the two segments that Katarina mentioned. We have the Services, and we have the Product business services. It's a service fee and the product business is actually no change on the revenue. If we then look at the segments, the Services is distribution of pharmaceuticals. We are distributing about 300 million packs per year. We have a EUR 4 billion invoicing that we perform as a service to the pharmaceutical companies.
This segment also, of course, includes services that we do to these same companies. We have parallel import and advisory services is included. It's a big invoicing, but now the net sales has declined. That is more related to the service fee that we invoice. It's a huge pass-through margin and the net sales that is smaller. The Product segment, this is the segment where we have the ownership of the products. The risk is in our hands and we have the products in our own inventory also. The Product segments in the big picture includes the wholesale and the dose dispensing business in Finland.
The Product segment also includes now for Q1 2025, it's including the Swedish dose dispensing business. We have tried to open that up also in the different tables and comments so that it's clear what is what. If you go to the numbers, invoicing grew from EUR 1 billion 8.1%. This is then mainly the pass-through where we invoice on behalf of the customers. We had a decline 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 krona that has strengthened during the same time. Approximately 2 percentage units of the 10.7 is affected by the FX. Svensk dos was only included in the first quarter last year, was sold on the 1st of April. If you look at the development 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. We have a good growth in wholesale and also in the Finnish dose dispensing business and in parallel import.
If we look at the adjusted EBITDA and we have an improvement from EUR 7.5 million to EUR 7.7 million, it's mainly driven by the Product segment. We have an adjusted EBITDA margin of 15.4% compared to 14.8%. If we exclude the dose dispensing business 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 EUR 2.4 million, a bit more than last year, EUR 1.6 million last year, and that is related to the ERP project.
As Katarina said, we have very small impact of, for example, fuel price increases and costs for the quarter. Järvenpää, just a reminder that we have started to build in Järvenpää, and those costs are not shown in the assets as a lease agreement, so we are not having those costs before we move into the facility. Start producing or delivering there. If you go to the Services segment, a good growth in the distribution and in the specialty flows and parallel import. Advisory services slow and declining slightly. We can see that the invoicing is growing 8.5%.
Net sales growing only 3.7%. On top of 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 invoicing. We have a margin-based and a transaction-based pricing towards the customers, which will of course have an impact on the development of the net sales in comparison to the invoicing. If we look at the adjusted EBITDA is slightly declining, and that's mainly affected by the advisory decline in the net sales. In the EBITDA percentage, the parallel import also has an impact on...
Due to the fact that it's not as profitable as the other services. If we go to the Product segment, this then has been performing well. Both the wholesale and the dose dispensing business in Finland has been performing both very well. This is then where we have the ownership of the products we source and sell. We can see that the net sales is declining. That's related again to the Swedish dose dispensing business. Almost 9.6% was the growth without the dose dispensing business. EBITDA growing from EUR 1 million to EUR 2.1 million.
The EBITDA margin is now at 13.9%, so we are starting to come up to the right level that it should be in this product business. If we look at the development of the result all the way down to the net profit, we have EBITDA is slightly lower than last year, mainly related to adjusting the cost for the ERP and the adjusting items. If you look at the depreciations, we had a Svensk dos impairment last year, which increased the impairment to EUR 8.8.
This year we have accelerated the depreciations of some Mankkaa assets, and we'll have some more depreciations during the time until we move to Järvenpää. Looking at the EBIT improving from last year, and of course, the share of result in a joint venture was a disappointment, EUR -2.3 million, and we ended up in a profit for the period of EUR -2 million. If you look at the cash flow, the free cash flow was negative. This is mainly related to the change in the working capital.
We have really large payments coming in and now we had a few payments coming in a day or two days late, which affected the negative change in working capital of EUR 20 million. The investment of EUR 5.4 million is mainly related to the acquisition of the land area in Järvenpää. 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. No more comments on that. We have the equity ratio and gearing. Equity ratio impacted slightly by the impact of...
Mainly negative impact on the adjusting items again and the result from the JV. We can see that the gearing also impacted by the negative cash flow. If you look at Kronans, this was a weak quarter for Kronans, a disappointment for us. Profit on all lines are lower than 2025. Most important, they are now starting an initiative to focus on growth, cost-cutting and that will, in the plan, improve the profitability starting already from quarter two onwards. The outlook is the same. We expect the adjusted EBITDA to increase from the previous year.
Our previous year was EUR 35.1 million, so that was unchanged from last time. We also communicated the new financial targets. Both of these are of course set to drive profitability. First, we need to grow. We 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. In our strategy, we are aiming at 5% at least. We have the adjusted cost to net sales. This is a driver to improve on EBITDA. We need to manage our cost base and see that we get the pass-through margin from the growth that we have.
We have also now put it at 75%. Last year we were at 82.6%. Now for the first quarter we are at 85.2%. The first quarter is not really reflecting the full year, but there's a timing issue also during that. We have improved from 2024 to 2025. We have also improved now quarter-on-quarter from 2025 to 2026. We have also a new dividend policy, partly new, partly old. We do not change the 2/3 of the net profit. What we have included is that the result from the JV is excluded. Of course there's a disclaimer to evaluate the financial status or situation when dividends are paid.
There was a decision by the board to initiate a share buyback program, will now be initiated. Maximum number of shares, 1 million, and a maximum of 1.5 million to be used. It will start now immediately and will be ended by 31st of August 2026 at the latest.
Thank you, Mats. With this we will summarize the key takeaways. Like I started with, I think this, we had a really good start to the year. Both net sales and adjusted EBITDA was meeting our expectations. If you look at the supply chain operations, has been stable and we have also then invested in the decision in automation and distribution center in Enköping to better get efficiency for the future. 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 the 12th of May. In that, we think that we can then also give even more clear lights to what we are doing and transparency for the future.
With that, we conclude our presentation and I can see that there has been some questions coming in. Yes, let's see. It's a little bit small for me to see, so.
Good. Thank you Katarina and Mats for your presentations. As a reminder, please use the chat to send in your questions. In the Q&A we will focus first on the questions relating to Oriola's business and financial development. We already have some questions. Let's kick off. Relating to the parallel import, could you explain more in detail why product mix impact from parallel import has negative impact on adjusted EBITDA? Mats.
It has not a negative impact on the EBITDA, but it has an impact on the EBITDA percentage. The volume goes up, but the profitability is a bit lower. If there's a mix change then it will compare to previous period it will show an EBITDA percentage that is lower.
All right. Good. Relating to the cost, so could you comment on 25% increase in group administration and other costs? Will this trend continue the whole year, Mats?
Well, this is not a trend. We have had quite many large internal projects ongoing and partly related to phasing of that cost. We don't have a plan that this is growing. The cost will not be growing. We also see that there's an FX impact on the cost side as well as on the sales side. I think the most important message is that this is not a trend.
I can agree to that. We have talked about strict cost control during quite many quarters, and that is still there. It's like exactly like Mats said, Mats says there, not a trend.
And we have, and we-
Still strict cost control.
We have a new financial target that is focusing exactly on the cost side also, so.
Good. A question related to the Services segment. 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.
We can say that one of the advisory services have a higher margin than the other parts of this segment. That's a little bit something for you to know.
Good. There's there are a couple of questions relating to the financial targets, and we will take those, of course, there will be more information about those also in the CMD. 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 freights, it includes the operational costs and administration cost and all the way down to EBITDA.
Good. 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?
We actually have chosen to look at the cost to sales because that's the driver of EBITDA, so we find it relevant to focus on the driver of improving EBITDA and not the EBITDA as such. Of course, it will give result on EBITDA if we improve on this.
Yeah. There's one more question. I think you already answered this, but just in case you want to add something. The 75% cost to sales target, is this equivalent to 25% adjusted EBITDA margin, or what do you mean by these costs?
I haven't calculated exactly what that is in relation to the EBITDA margin. 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. We have more or less looked at where we end up if we have below 75% in the cost related to sales. This is actually what we have as a strategic target in our strategy.
Yeah. Then one more question relating to this efficiency target and the costs. Are leasing costs of Järvenpää included in costs?
The leasing cost for Järvenpää will be, we will book that as an asset in our balance sheet, and it will be depreciated, and there will be an interest cost. It's not included in this cost.
Okay. Good. Thank you. Continuing on to the dividend policy. 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 going to Kronans Apotek, we will work for having the recovery as soon as possible, and we will also come back to this also in the CMD a little bit more closer in that one. 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.
Good. Thank you. 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. It's relating to the share buyback program. How should we view the share buyback program in the light of your low equity ratio and aim to improve that?
We see that this is a part of our distribution to our owners, and this serves the interest of shareholders also. The amount is still fairly small and of course we have the dividend policy in relation to this, and this is a combination that we all the time follow. We also split the dividend now for the spring and the autumn so that we follow and see also how the equity ratio develops.
Good. Thank you. Looks like there are no more questions in the chat. Thank you everyone for joining us today. As a reminder, and already mentioned, so the CMD takes place on 12th of May, and it's a hybrid event, and you can follow it live through a webcast. In the meantime, if you have any questions, please don't hesitate to contact us. We wish you all a good rest of the week. Thank you.
Thank you.
Thank you.
Bye.