Apotea AB (publ) (APOTEA) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Presentation of Apotea's First Quarter Report. We are presenting here today from our office in Stockholm. We will start with a quite short presentation and the business update, and then we'll move on to a Q&A with the spoken questions. Today's presenters will be Par Svardson, our CEO and Co-Founder; Johan Marild, our CFO; and myself, Sarah Ahnstrom, COO and Deputy CEO. And we will start by highlighting some quarterly highlights.

Thank you. We have had a good quarter. We have had an improved profitability and a stable growth. And Yes. Johan, let's look at the figures.

Yes, we had revenues of SEK 1.754 billion in the quarter and a solid growth of 15.2%. We increased the EBIT margin from 4.1% Q1 '24 to 5.3% first quarter.

And if we look at the quarter, we can see increased market uncertainty. It's obvious for everyone in the world, but it's -- the market is a little bit unstable, but we live in a very stable part of the market. If we look back, in the last 25 years, the pharmacy market has been growing every year, so in both good times and crisis. So it's stable. And we had a solid growth, driven by underlying demand, and we have also increased our market shares and increased profitability. So actually, we are a little bit above our corridor now, but it's sunny.

During the quarter, we also focused quite a lot on the preparations for the new fulfillment center in Varberg. We're happy to see that everything is still proceeding according to plan, and our plan is still to go live during this summer. We are currently finalizing or testing the automation, I should say and starting to also recruit key personnel to the warehouse.

Yes. So with the solid growth in the quarter, we're now approaching SEK 6.8 billion in rolling 12 months net revenues and rolling 12 months adjusted EBIT margin of 4.7%. We didn't have any items affecting comparability in the quarter. Last year, we had nonrecurring items of SEK 24 million, and those costs were related to the IPO in December. Let's look on the -- let's close to the -- on the growth for the quarter. As mentioned, we had growth of 15.2%. We had more or less equal growth in Rx as well as in OTC and traded goods. Hence, you can see that the product mix in the quarter is in line with what it was a year ago. The growth was primarily driven by a solid and stable underlying market demand and also affected by the fact that Easter took place after the end of the period. To the right, you can see our gross margin development. We had a fairly stable gross margin, slightly increased, and the -- that increase is due to improved purchasing terms. We were able to increase our profitability in Q1 compared to Q1 '24. EBIT increased from SEK 62 million to SEK 92 million, and the margin uplift is the result of the increased profit -- the increased gross margin and also continued tight cost control, cost management and an increased capacity utilization. In line with what we've said before and in line with earlier communication, we expect gradually our costs related to Varberg to increase as we start the production there this summer and ramp up the organization on site, start [ depreciation ] the machinery in Varberg as we start production and also will have a lower capacity utilization initially. To the right-hand side, you see our costs and depreciation in percentage of net revenue has been going down year-over-year, as you can see. Personnel costs in relation to sales decreased from 8.6% to 7.5% and that decrease was the result of, I mean, increased efficiency and also that we are today using external staffing to a larger extent than a year ago, meaning that we're shifting costs from personnel costs to other operating costs. We increased our operating cash flow from SEK 7 million to SEK 8 million, Q1 '24 to SEK 123 million, Q1 '25. The operating cash flow financed the investments in the period of SEK 117 million, and that investment was mainly related to our new fulfillment center in Varberg, and the increased operational cash flow was due to the increased profitability. To the right, you see a breakdown of net working capital. Inventory turnover was 8.7x and slightly increased from a year ago. The net working capital will fluctuate over time, and there will be variations from quarter-to-quarter. Finally, let's have a look on the balance sheet and some balance sheet ratios. To the left, you can see our return on capital employed. Return on capital employed was close to 34% and increased from a year ago due to the increased profitability. We maintain a solid balance sheet and a low net debt, despite our investments in Varberg. As of end of Q1, we had a net debt-to-EBITDA ratio of 0.2x.

And if we look a little bit ahead, our focus ahead will be to continue to build the pharmacy of tomorrow and improve the customer experience. And with the new warehouse in Varberg, we will absolutely do that because then we can deliver same day to the West Coast. But to continue to improve the customer offering is very, very important for us, but also to build efficiency, improve the efficiency and lower our costs. But we also live in an uncertain world. And then we have a big war going on in Europe. We have a trade war going on in the world and several other conflicts, so we focus quite a lot on our own security, especially cybersecurity. But we also look into maybe increase the stock levels a little bit, so reduce the risk of shortfalls of products and look over the total organization, so we are really prepared for uncertain times. But to work with all this and continue to increase the efficiency is very important.

Yes. And as we said in the beginning, we are doing the preparations for the Varberg fulfillment center. Everything is proceeding according to plan. And once -- I think for this quarter as well or the coming months, our focus is, of course, the launch of the new fulfillment center and also the ramp-up of the new fulfillment center. So once that is up and running, we will see an increased capacity of around 50%. So we'll go from approximately 100,000 orders a day to approximately 150,000 orders each day. And the go-live is planned this summer. We're also very, very close to launching a new Rx hub in the south of Stockholm in Årsta. This is, of course, according to our plan to increase the Rx capacity. We think also it's a good location to attract and recruit pharmacists living in the south of Stockholm. And finally, I think we should also mention perhaps technology. We have used technology since the start to optimize our business and also to really gain -- to really have efficiency gains. And we have talked a lot for the past 2 presentations also about the AI and the new AI department. And I think we are super happy to see that the new -- a few new AI products are also being launched. And we feel quite confident that this will also help us to also improve the optimization of the operations, but also the customer offering going forward. So good steps, I think. That was also the last slide of this quite short presentation. We will now open up for Q&A with spoken questions. So let's start.

Question comes from Johan Fred from SEB.

A first one on the gross margin development. Could you elaborate on sort of the drivers behind the gross margin improvement? You state that the improvements come as a result of purchasing terms, but I also note decent growth in your service offering. So potentially a bit of mix there as well. And also, if you could elaborate on your private label selection and how that has impacted the gross margin, that would be very helpful.

Yes. The gross margin is fairly stable. But as you mentioned, it's also slightly increasing. And it's due to our long-term effort to increase the purchasing terms. And the supplier and purchasing terms is a combination, of course, of the purchasing prices, but also other contributions from our suppliers. And that mix is an important -- that is what's driving the increased gross margin somewhat.

And our own products have a much higher gross margin compared to other products. So they will also help to increase, and we have launched like 30 new products, I think. And we sell more and more of them. So they will absolutely contribute going forward.

But it's still a small share of the total revenues.

And how much of your revenues was generated from your own brands during Q1?

I don't have that figure in front of me. As of Q4, we had 1% of the sales roughly related to own products. This is a long-term objective for us to increase the own product sales, but it will be a long run.

Got it. Did you see a -- without quoting any specific numbers, do you see a sequential growth from Q4?

We see a solid -- we see a very good growth in our own products.

Okay. And the second question on sort of your contingency preparation. You state that this may affect your inventory levels over the course of the year. How should we think about this in terms of net working capital? Are you planning to build up or stack up on inventory? Or how should we interpret the comment?

Yes, I think we shall -- I mean, we're not sure we're going to do that. But we -- like I say, we might do that because if we see that it's a risk of logistics problem around the world, we might add some inventory but it's -- you might never notice it because it might be just within a quarter or so or we -- if we see bigger problems, we might add maybe SEK 100 million to the stock or something like that. But we're not sure because we look -- read the newspapers, see what happens and follow it very closely.

Okay. Got it. Got it. Very clear. And the final one from me on sort of Rx sales and your hiring of pharmacists. Is there any way you could disclose how many pharmacists you currently have on staff?

I think we said the last time that our goal or ambition for the full year is approximately 200 pharmacists. And I would say that we are steadily recruiting towards that ambition. So I think we have a quite -- we welcome a lot of new colleagues every week, and we're super happy to see that we can attract pharmacists to our business. So a steady growth in the number.

We launched -- we already have and Southern Stockholm is part of that effort to increase the capacity long term in Rx.

Exactly.

The next question comes from [ Fredrik Iversen from ABG ].

A few questions from me as well. Can we come back to the gross margin and the improved purchasing prices that you mentioned? Do you expect a positive impact from this over the coming quarters as well? Or is it more isolated to Q1?

[indiscernible] Our goal is to have a stable gross margin. So we are not like promising an increasing gross margin and it's going a little bit up and a little bit down. So -- but I think it's better that you calculate with a quite stable gross margin instead of increasing.

But on those improved purchasing prices, just that sort of isolated impact? Do you expect that to be a continuous driver of the gross margin?

We will absolutely continue to negotiate with our suppliers and try to hire them. But on the other side, we have growing Rx and that -- and Rx have a little bit lower gross margin, so we can compensate with that. So our goal is to have a stable one.

Yes. Yes, that's clear. Great. And then second question on the Easter impact. You mentioned it in the report and in the presentation. What's your assessment of the Easter impact in Q1?

We had Easter last year in Q1. This year it was in Q2. We tend to have a bit slower sales during this kind of vacation period. And there was, I mean, like-for-like positive impact in Q1. It's hard to say a precise figure of the impact on that season effect. But...

You always have some seasonal impacts every year. I mean you have like if it's a Monday or Sunday, last day of the month. And so it differs a little bit, but it have some impact, absolutely.

Okay. Fair. And last question from my side. On the external staffing, you mentioned you're increasing that gradually. And I guess we can see this in a sort of gradual decrease of the number of employees that you've had during the last year or so. How should we think about this as we look ahead in a like-for-like basis?

Not sure I...

I think if we look ahead, we will probably have approximately the same number of consultants compared to own staff in our warehouse. So from now on, I think we will see a decrease in personnel, but that's more like the real figure. Now it's more like a mix of them.

Right. And when you look at the cost per employee in sort of like-for-like terms, how has that developed during the last 12 months?

It's approximately the same.

The next question comes from Victor Hansen from Carnegie.

A couple of questions from my side. Firstly, I noticed that other products bounced back up to 15% growth versus 9% in Q4. So did you do anything differently this time? Or what do you think drove this?

No. I think -- I mean, if you look at the quarter, it's quite a short time, and it goes a little bit up and down. And so it's not a big difference, and I don't think it's -- next quarter, it might be the opposite.

Okay. Okay. So on Varberg, I was hoping you can give a bit of an update here on -- could you give an estimate of additional costs for Varberg coming in Q2? And is your plan still to start deliveries from July, meaning Q3?

I think the main -- I mean, we'll start ramping up the cost in connection to the start this summer. And so we will -- you'll see the full impact of the costs in Q3 for sure. And what we can say and I said before is, I mean, you will start depreciation of the machinery in Varberg, and that's an investment of SEK 350 million to SEK 380 million, which will then depreciate over 5 years' time, starting from production launch this summer.

And if you look at the cost, I mean, now we have like 5 -- approximately 5 employees in Varberg, and we maybe add that to 10, 15 during second quarter. So I mean, it's not a very big cost, but we're absolutely adding up some costs. But -- and during third quarter, we will have much more costs, but then we also have revenue from that cost. So it's not big, but it's -- still cost is coming up.

Yes. But that's helpful and giving the magnitude of the number of employees. So that's helpful. And a final question from my side. If you could give an update on parallel import here in Q1 and also going forward, we have the stronger [ SEK ] currently. So perhaps your parallel import could benefit from this.

Yes. I think we can say that we have really focused on this area for the fall and going forward. And I think we can anticipate an impact of it continuously. I wouldn't say quarter-to-quarter is a quite short period still, but we are focusing on this area, and we will see that it will have an effect in the long term to do a good job in this area. But of course, currency is one factor that affects, of course, but also the availability on the market and so on. So it's different factors and parameters in that mix.

The next question comes from Daniel Schmidt from Danske.

Par and Johan, a couple of questions from my side. I think, Par, you mentioned that you were above the corridor that you've been guiding for when it comes to EBIT margin, impressively so in the quarter. And at the same time, you're saying that you expect the gross margin to be stable going forward. And you're also highlighting that you will take on higher depreciations from the summer when it comes to Varberg, maybe a little bit more cost. But given the growth that you're seeing, do you think that Q1 was an anomaly in terms of profitability and it will go back down on the back of these factors that I just mentioned when you look ahead?

I think first quarter was a good quarter because we have said 3% to 5%, and now we're a little bit above 5%. So we want to continue to guide you 3% to 5%. So that's not certain.

So you're basically saying that, that will shave off -- what's coming up is going to shave off the outperformance versus your own corridor that you had in Q1 in the coming quarters. Is that a fair assumption?

Yes. At least we don't want to guide you on something above 5%.

Okay. Okay. Cool. Then on the back, you continue to take share when you look at the entire market, but you've been trailing online growth as I look at it for now 3 quarters. What is the reason for that?

I think if you look at the total market, we are increasing our market share on the total market. On the e-commerce market, if you -- like the physical chains, if they move volume from offline to online or if they don't, I don't really care about that. For us, it's important that we grew and we grew our market share in the -- of the total market. So that's what we focus on.

The next question comes from [indiscernible].

Any questions from audience.

I think you're still on mute, if you want to try to unmute. We give you 1 second perhaps, okay, to unmute if you want to ask questions. Otherwise, that was it for today's session. Thank you very much for listening in. Our next quarterly report is released on the 18th of July, and we wish you all a pleasant day. Thank you for listening.

Thank you very much.

Take care. Bye.