Good morning everyone, and a warm welcome to Oriola's Q4 and full-year results webcast. I am Tua Stenius-Örnhjelm from Oriola's Investor Relations. With me today I have our CEO Katarina Gabrielson and CFO Timo Leinonen.
Hi.
After the presentation we open up for your questions. As a reminder, in the Q&A we prefer to focus on the questions relating to Oriola's business and financial development, and take questions on Kronans Apotek only within the scope that we can comment on. You can send in questions to us through the chat already during the presentation. Kindly note that we are recording this webcast and the on-demand version will be available on our website later today. Before handing over to Katarina, here is the customary disclaimer that we all should be aware of. Now without further ado, Katarina, please go ahead.
Thank you, Tua. Good morning and welcome everyone also on my behalf. As Tua mentioned, we will today discuss the quarter four and full-year results. I will start with the highlights and comments on the operating environment and then Timo takes you through the financials. At the end I will also discuss the strategic investments that we announced early January. 2023 was yet again an eventful year for Oriola. We achieved strategically important milestones when we announced in October our refined strategy, new financial targets, and a new sustainability agenda. These are the key elements that form the solid foundation for building the future Oriola. Last year our focus was on strengthening our distribution business and our role as an infrastructure company in securing the availability of pharmaceuticals in society.
Throughout the year we have seen that the distribution business has developed strongly and we have, for example, signed several new distribution agreements and our market shares have been stable. As a result of this the distribution business grew by 7.3% on constant currency basis in 2023. The growth in distribution has offset the impact of the Svensk Dos business dose dispensing business and the group's net sales grew by 2% to EUR 1.6 billion. When we look at EBIT and exclude the negative impact of Svensk Dos, we can see a strong improvement of 64% from last year with adjusted EBIT at EUR 19.5 million compared to EUR 11.9 million last year. All in all we have successfully managed the inflationary pressure both with strict cost control and by price increases. Operating expenses were below last year's level including transport costs in Sweden.
We have also improved efficiency in our operations especially in Enköping which we can also see as a positive contribution on the EBIT level. I should also note that the reported adjusted EBIT declined to EUR 16.7 million due to Svensk Dos business which we are now in the process of divesting. During the year Kronans Apotek implemented a new organization, harmonized its assortment, completed the rebranding of 191 pharmacies and optimized its network by closing some pharmacies resulting in more than 500 pharmacies operating today under one brand. In addition Kronans Apotek continued to invest in its omnichannel operating model by strengthening its e-commerce capabilities. Kronans Apotek is today the biggest pharmacy chain in Sweden measured by numbers of pharmacies and with its market share of around 24% and a growing e-commerce it is now set to improve profitability and strengthen its business and brand on long term.
Kronans Apotek is an important strategic partner for us and we will actively support its value creation as major shareholders. We have also today published the notice to the annual general meeting which we will have on the 19th of March. The board of directors has presented the dividend proposal which is EUR 0.07 per share. The proposal is in line with our dividend policy of paying out an increasing annual dividend. In 2023 we successfully managed to navigate in an overall unstable operating environment. Cost inflation stabilized at a high level, interest rates increased strongly, and the Swedish krona remained weak throughout the year. In addition, consumer confidence was impacted as consumers' expectations of their own economy weakened. However, due to the relatively stable nature of our industry, the value of the pharmaceutical distribution market continued to grow steadily in both countries.
In the fourth quarter volumes in the pharmaceutical distribution market in Sweden grew while volumes in Finland declined. The challenge in the availability of some pharmaceuticals has remained tight across Europe and energy and fuel prices have stabilized. We believe that the solid underlying long-term market drivers such as aging population, well-being, and health remain unchanged. Let's now take a closer look at the markets. As said, despite uncertainties in the economy overall, the pharmaceutical distribution market grew in 2023. The Swedish market measured in local currency grew by 10% and the Finnish market by 3%. Our market share was stable year-on-year. Both in Sweden and in Finland we have a market share of around 44%. In the dose dispensing business the total market size in Finland grew by 10,000 patients while our share of the market declined by 2 percentage points to 28%.
To conclude, last year was good on many fronts and we are set to develop our business further. Now let's go to the financials so let's hand over to Timo.
Thank you, Katarina, and good morning from me as well. Let's start with Q4. All in all we can say that the solid development seen in the first three quarters continued in Q4 and the year ended strongly. On top line, company grew when measured in constant currency. Invoicing grew in Q4 by 10% to roughly EUR 1 billion and net sales grew by 5% to roughly EUR 400 million. Also when looking at reported figures we can see growth on top line despite the weak Swedish krona and negative impact from Svensk Dos business . So very solid quarter with the growth driven by distribution business. We also see an improvement in profitability. When we exclude the negative impact from Svensk Dos business adjusted EBIT was EUR 6.2 million compared to EUR 1.7 million last year.
We can see that the Q4 last year was not a very strong quarter so improvement means that we are returning back to more normal level. The top line growth in distribution business is visible also on EBIT as well as lower operating expenses which were largely driven by cost reductions in Svensk Dos business . But as Katarina mentioned in the beginning we have made a good progress in operations and improvement efficiency especially in Enköping, Sweden. And this is directly visible in our profitability. Now moving on to the full-year figures. We had a good full year 2023. Looking at top line in constant currency we see both invoicing and net sales growing. Invoicing grew by 6% to EUR 3.8 billion while the net sales grew by 2% to EUR 1.6 billion. Growth is coming mainly from the distribution business.
Adjusted EBIT without Svensk Dos business improved to EUR 19.5 million from EUR 11.9 million last year meaning 64% improvement. But let's turn to the next page to have a closer look to that EBIT development. On this slide we want to show the different elements in our EBIT development. The negative impact from Svensk Dos business for the full year of 2023 was EUR 2.8 million on EBIT level. But I would like to draw your attention to our distribution and wholesale. These are preliminary unaudited EBIT figures for the new segments. But as we have mentioned many times we had a strong EBIT improvement year-on-year driven by the distribution but also in wholesale we saw a positive development. Group items include mainly savings in the shared function such as IT and finance.
We have managed the cost pressure quite well and operating expenses were below previous year's level despite the cost inflation. Efficiency improvements are also contributing positively to the full-year EBIT. Now moving to the profit for the period. In Q4 the profit for the period was -EUR 2.8 million. Profit in Q4 was impacted by the loss of EUR 3.9 million from Kronans Apotek and also increasing net financial expenses. Profit for the full year was -EUR 20.7 million. The items taking the profit down were the impairment losses of EUR 21.4 million that were recognized in Q3, a total loss of EUR 4.8 million recognized from Kronans Apotek as well as increasing net financial expenses. Due to higher interest rates net financial expenses have increased by almost EUR 7 million.
This increase was mainly related to higher interest rates in loans and sold receivables and also that the comparative figures include interest income of EUR 3.5 million from discontinued operations. Adjusted profit for the period which is profit for the period excluding for example impairment loss was EUR 1.1 million and adjusted EPS was EUR 0.01. In Q4 our financial position remained strong with the positive cash flow in Q4. Net cash flow from operating activities in 2023 was EUR 9.6 million of which changes in working capital accounted for -EUR 13.2 million. Increase in inventories and trade receivables has impacted working capital negatively. Strong fluctuation in net working capital is typical for Oriola's industry. Net cash flow from the investing activities was -EUR 3.5 million. Net cash flow from financing activities was -EUR 28.3 million including the dividend payment of EUR 11 million in April.
Liquidity remained on a good level at the year end and cash position was approximately EUR 140 million at the year end. During the last year we have strengthened our balance sheet. Following this net debt level has decreased and was at the end of the period EUR 21 million negative. We have repaid loans, issued less commercial papers, and have less lease liabilities which means that despite a bit lower cash position compared to previous year our net debt position remained negative. Just to inform that the sold trade receivables at the end of the period were at the current average level. To conclude we can say that our financial position is strong with the solid cash flow and gearing on the negative side at 12%.
Equity ratio was 19% and the main reason to this was the negative net result due to goodwill impairment made during Q4 in connection of dose dispensing business. Let's move to look at Kronans Apotek. In the joint venture Kronans Apotek integration projects are proceeding with several actions being implemented albeit benefits are not yet fully visible. Realized synergies were behind the plan while integration costs also were below estimates. In 2023 realized synergies were EUR 13.5 million and integration costs were EUR 6 million. We have booked a loss of EUR 4.8 million for 2023 in our books. Kronans Apotek is an important strategic partner for us and we will actively support its value creation as a major shareholder. Kronans Apotek expects its full profit potential to materialize by the end of 2025. Next, a short update of Svensk Dos investment.
We announced the sale of Svensk Dos in October last year. Only a couple of weeks ago we informed that the Swedish competition authorities have decided to move the investigation into phase two. Due to this we now expect the transaction to be complete on the second quarter of this year. Then a reminder about our new reporting segments. As of this year we have two reporting segments and here you can see preliminary unaudited net sales and EBIT figures for the segments. We will publish the restated segment information during Q1. Last but not least, a few words about our outlook.
Looking at the market we expect the pharmaceutical distribution market to continue to grow. However, the continuation of weak consumer confidence might impact the wholesale market development. The inflationary environment and related cost pressure may impact the profitability. With these assumptions, we expect the Adjusted EBIT excluding dose dispensing business in Sweden for the year 2024 to increase from the Adjusted EBIT for 2023, which was EUR 19.5 million. Now I would like to hand over back to Katarina.
Thank you, Timo. As many of you might be aware, we also announced a strategic investment early January and I would like to briefly comment that. But before I comment it I would also like to take a step back and remind you of the refined strategy that we launched at the end of October. In the strategy we have set three strategic goals of which the second goal is about enhancing efficiency and operational excellence. We said that this strategic goal consists of actions to increase warehouse capacity and efficiency by investing in both infrastructure and technology. All supporting our long-term ambition to improve profitability. The investment that we announced in ERP and warehouse management is exactly a response to this. As well as the fact that we are now initiating an in-depth investigation of the different options for developing our logistic operations in Finland in the long term.
This investment comprises renewal of our ERP and warehouse management during the years 2025-2027. We are today running two separate systems so the aim of the project is to have one common system which will enable us to harmonize our business processes, strengthen data management, and enhance customer experience. This means also that we will be in a better position to respond to future customer and business needs. This will support us in managing the business in a cross-market operating model. The value of the total investment is about EUR 35 million. The project will start in 2024 and the new system will be deployed in phases during 2025-2027. We will start with the deployment in Sweden and then go to Finland. Now I want to conclude our presentation with a couple of key takeaways.
As said, we had a strong overall market growth, a strong year overall. Market grew and we saw our business growing and profitability improving driven by distribution business. In line with our dividend policy, the board is proposing to the AGM a growing dividend of EUR 0.07 per share. For this year, we expect Adjusted EBIT to increase from the 2023 year's level of EUR 19.5 million. As a final note, I would also like to extend my warmest thanks to our people for their engagement. And also their dedication and hard work. Also, I want to take this opportunity to thank all customers and partners for the collaboration last year and also all the shareholders for the continued trust in us. And with this, we are ready and open for your questions.
All right. Thank you so much, Katarina and Timo.
As a reminder, you can send in your questions through the chat. In the Q&A, we prefer to focus on the questions relating to Oriola's business and financial development. We take questions on Kronans Apotek only within the scope that we can comment on. We will start with the questions about Oriola. So here's a question to Timo. Short-term interest-bearing debts have increased and long-term interest-bearing debts have decreased. Does this indicate that there will be debt structuring in 2024 as indicated in earlier webcast Q2 2023?
Well, yes, it's a question of the normal or natural kind of timing and maturities of the debt. So basically we are as kind of normal procedures kind of probably negotiating some new loans this year and also might paying something out. But that's a normal kind of standard maturation.
Okay. Good. How do you see your underlying debt development in 2024? Synergies from the JV were above your EBIT in Q4, meaning your underlying business was loss-making.
In Kronans?
It doesn't define it more closely, the question.
Yeah, yeah, so.
But I would assume, yeah.
Yeah, but yeah, yeah, because our business was profitable as we have said and we are very happy about that one. Basically not commenting that much about Kronans because it's their job, but yeah. If the synergies were up also it means that at least some parts of the business has been struggling.
Yep. Okay, so there's no further questions on Oriola at this point, so let's take a couple of those that have come on the Kronans Apotek. The net debt of the JV was at EUR 1.93 million. Do you see a need for recapitalizing?
There has not been any discussions on that one. Still, yeah.
Okay. And then how would you describe full potential of JV in EBITDA percentage or in euros to be by the end of 2025?
So we have stated that we are going to get synergies first of all EUR 25 million yearly basis during that or 2026. And then of course the improvement on underlying business when all the integration is made so is wanted so basically that's the only thing we have been commenting.
Yeah. Following on this one. You have reported that JV will have about EUR 25 million one-time costs within 3 years. You have reported so far about EUR 10 million. Will there still be EUR 50 million one-time costs in the coming years? And if yes, what kind of costs will be reported?
That's mainly just Kronans Apotek to comment but basically we don't have any kind of different information on that one so.
Yeah.
That's what they are saying, yeah. Of course when we are talking about what kind of integration costs there are so there is kind of massive work still going on with the different pharmacies and rebranding. Also with the IT systems to integrate them and so on so basically.
I can add one thing on Kronans. I think we can say it like this, that during this year we have done a lot of things that is basic work in Kronans. We should remember also that we have rebranded all the pharmacies. Right now we have done all the pharmacies that's more than 500 pharmacies in the same brand. We also have the same customer club and so on. You can say that the integration process and the synergies have starting to like be a better like being a how should I say a ground for the future work in these cases. That's something we should remember. It has been, yes, like you see in the figures, a struggling year. But these kind of things we can say because that's also common knowledge, and we should remember that because that's the base for the foundation for the future.
Thanks. Then there just arrived two questions on Oriola, so let's take them. Can you just remind us what the wholesale segment and distribution segments include?
In distribution segment we have our distribution businesses in Finland and in Sweden. Of course dose dispensing business in Finland currently because Sweden is on the sales process. In wholesale segment we have our wholesale businesses in Finland and in Sweden and advisory business as well.
Following up on that, would you like to give some flavor on the differences of the wholesale business in Sweden and Finland?
I can do that. You can say that in Finland we have had a wholesale business for quite a while. In Finland we have like both our own brands that we are then selling to the market. We also have brands that we sell very close together with other companies. Like the Gefilus brand for example. Our own brand if I give an example of that is Dexal and Apteekkarin also. We also then have exclusivity rights for Finland in some of the areas that we then are using in this wholesale segment. On top of that we also then have the, you can say, the products and assortment that we sell that also other wholesale wholesalers sell. So that's the main three parts that we have in Finland. In Sweden we are mainly having like the full assortment for pharmacies.
You can say that we have everything and in Sweden we are then building up these two other building blocks. Where we are then looking for exclusive products and then also looking for our own products.
Good. Thank you. And then a question to Timo again, so would you consider raising interest-bearing debt in 2024?
Not necessarily, of course, the fluctuation in our business in net working capital is high, and that we need to take into account when we are kind of thinking of interest-bearing debts as well. But more, I would like to see kind of more balanced in that sense. That EUR 7 million is interest rate, so it's quite high.
Okay. Then there is one more question, so just a reminder that if you have any questions, so please send them to us through the chat. So what is the most significant risk for Oriola in 2024?
I can start. I will say like this. If I look at the guidance that we said here about increasing the profitability, I'm quite confident at that one. The thing I see can maybe like harm us is of course the confidence on the consumer in the end. Because we know that we have a high inflationary environment around us. We can also say there is a lot of things that has happened during the last years. And to some extent this is quite soon the new normal. So we need as a company to balance that. And if I then look at what we are saying is that we have a strong distribution business. We see that the pharmaceutical market is growing. And that is also a stable market as an infrastructure company.
It's so that this part will continue to grow because people are in aging, we have an aging population and all these other things that is supporting us. And then we have the wholesale segment that is maybe more affected about the environment about the inflationary environment than the pharmaceutical side. But here we really see that we have a possibility to grow.
Good. So then one more question and this is back to Timo. So how do the rising interest rate environment affect Oriola's business in general and the result?
Yeah, so basically interest rates are rising, so also the interest costs are rising if thinking that net debt is in the current or gross debt is in the current level. But otherwise not that kind of clear kind of significant effects.
Okay. I think these were all the questions for today. So thank you everyone for joining us. Our next scheduled event are the publication of the annual report during week nine. So in a couple of weeks' time and then the AGM on 19th of March. In the meanwhile if you have any questions please don't hesitate to contact us. Thank you everyone.
Thank you.
Thank you.