Apotea AB (publ) ($APOTEA)

Good morning, everyone, and welcome to Apotea's First Quarter Report this year. We will present today from our office in Stockholm. And as usual, we will start with the presentation and then move on to a Q&A with spoken questions. Today's presenters will be Par Svardson, our CEO and Co-Founder; Johan Marild, our CFO; and myself, Sarah Ahnstrom, COO. So let's begin.

Thank you. We have had a good quarter with good profitability and stable growth. And Johan, so.

Yes, we had revenues of SEK 1.937 billion and a growth of 10.5% in the quarter and an operating margin in line with last year. The operating margin was 5.2%.

Yes. And as I said, we have had improved profitability and a stable growth and our project, I think, they are heading in the right direction.

And since this fall, we have put a lot of focus into our growth initiatives, as we have said before, and some of these have now been launched. We're very happy about that. Most recently, we soft launched our site in Norway, apotea.no, which means that we are now selling our health and beauty products on the Norwegian market under the Apotea brand on the site. We are delivering the customer orders from our fulfillment center in Varberg. And this is, of course, a step to strengthening our position in Norway as well as increase the utilization of the new fulfillment center. We have also continued during the quarter to scale up the production in Varberg. We have sent out as much as 27,000 orders in 1 day. And we have done that by increasing the number of shifts as we are now working both evenings and weekend shifts as well and approximately 1/3 -- slightly above 1/3 of all customer orders are now going from Varberg.

And when we launched this soft launch of Norway, we also launched our new platform, and that was a big step as well.

Yes. And with the growth in the quarter of 10.5%, we now have rolling 12 months revenues approaching SEK 7.4 billion, and we have a rolling adjusted EBIT margin which is flat compared to Q4 '24 and was 4.2%. And let's take a closer look on the revenues. To the left, you see our net revenue development. And as mentioned, we had growth in the quarter of 10.5%, and the growth was fairly evenly distributed across our product areas, roughly 10% growth in Rx as well as in non-Rx. And we experienced a continued solid demand for pharmaceutical products online. To the right, you see our gross margin. We had a slight increase in the gross margin in Q1 compared to Q1 '25, and the increase was the result of successfully executed campaigns as well as improved purchasing. Our ambition is to have a fairly stable gross margin and with attractive prices, attract more and more people to buy pharmacy products online. Yes, we had a strong operating profit in the quarter. We had an operating profit of SEK 101 million, and the operating profit increased despite increased depreciations related to the new fulfillment center in Varberg. And the increase in operating profit was driven by increased net revenues as well as a slight higher gross margin, as mentioned, and continued good cost control. Let's talk more about the cost then. To the right, you see a breakdown of our operating costs. And as you can see, the depreciation in percentage of revenues increased in Q1 as expected, and the increase was related to the new fulfillment center in Varberg that was opened up last year and depreciation started in Q4 last year. If we then look on personnel costs and other operating costs and take those combined, these are fairly flat compared to a year ago, and we maintain a good cost control. And as I mentioned before and worth mentioning again, the mix between personnel costs and other operating costs is also impacted by the usage of external staffing in our fulfillment centers. We did not have any items affecting comparability in Q1. Yes. We had a strong operating cash flow in Q1, and that was fairly stable compared to a year ago. We had limited investments in Q1. The investments in Q1 '25 were related to the new fulfillment center in Varberg, which is now the platform investments are completed, and we expect this year to have significantly lower CapEx level compared to a year ago. If we take a closer look on the net working capital to the right, you can see that the inventory increased compared to a year ago and the increase in inventory also impacted the inventory turnover rate somewhat, which is slightly lower. And the increase was the result -- the increase in inventory was primarily the result of increased inventory in Varberg. We have a slightly lower return on capital employed in Q1 compared to a year ago. However, it remains a strong return. And the decrease in return on capital employed is the result of the new assets related to the new fulfillment center in Varberg. And then finally, in terms of numbers, we had, let's look on the net debt and the net cash position. End of March, we had a net cash position of SEK 105 million and the increase in cash compared to a year ago was the result of a strong underlying operating cash flow as well as then in Q1 '26 limited investment.

So -- and our focus ahead is to continue to build the pharmacy of tomorrow, to improve the customer journey and improve our efficiency. And I think we have like hundreds of projects to improve the customer journey to make it a little bit easier for the customer, make it -- I mean, retail is all about the customer. And if we can improve the customer satisfaction and then we will both be more profitable, we will grow faster and so on. So that's our super main focus.

Yes. And we will continue to have a very strong focus on growth going forward. And as we mentioned at the beginning, we have done a soft launch of the apotea.no site, but that also means that we will continue to work on that site and continue to improve the customer offering in Norway. We will also continue to evaluate and launch several growth-related initiatives going forward still. And I think one of the examples of kind of optimizing the operations also in terms of sales-oriented initiatives that we have done is that we have also expanded our offering of refrigerated deliveries on pharmaceuticals in Sweden and these types of initiatives with a great potential in, I would say. We will, of course, also continue to scale up the production in Varberg. The automation has a capacity of 50,000 orders each day. And as I mentioned in the beginning, we have reached 27,000 as of now. So we will continue to optimize the operations, making sure that the system is stable even in higher volumes and also work with related processes such as purchasing inventory levels and freight options from the Varberg facility. So I think we have a -- we have not reached the maximum level yet.

Yes. And as all of you already know, there's a lot of uncertainty out there in the world. And we haven't been affected yet. We haven't seen any signs of that, but we are -- have a big focus on it every day because it can affect us in the future, but we hopefully not. I mean like logistics where container is in the world and plastic bottles and so on. But we haven't seen it and we are in a very stable industry, but we have a focus on it. Thank you.

And that was the end of the presentation as well. So now we move on to the Q&A with spoken questions.

The next question comes from Johan Fred from SEB.

Johan Fred here from SEB. A few questions on my side. Starting off with the revenue growth. Could you give us a sense of the split between volume growth and sort of price mix effect in the quarter?

I think we have a fairly stable AOV in the period. Yes.

And I think we have some price effect, but it's more like very expensive medicine. It's not like higher prices on the same product, but it's -- we sell more and more of very expensive medicines.

Okay. So mix then was an important factor on in Rx sales growth, while sort of volume drove OTC growth. Is that correct?

It's a little bit 50-50.

I don't have the exact split. But yes, in terms of Rx, we had a positive impact from increased orders or increased share from very expensive medicines, whereas the volume and was the main driver in the -- in other segments.

Got it. Got it. And on the gross margin, came in at, I believe, 28.3%, which is, I believe, the highest gross margin, I think you ever reported. How much of this was driven by sort of one-off campaign timing in the quarter? And how much was structural improvement in procurement?

I mean if you compare with Q4, we have done a lot of improvements in how we buy things to 2 warehouses and so on. And our goal is to have a stable gross margin, and it goes a little bit up and a little bit down, but we're quite stable. And in this particularly in Q1, I mean then we have had successful campaigns. I mean, you buy -- you should buy the products from the right source at the right time and the right amount to the right warehouse and do campaigns together with the supplier and have a successful campaigns and so on. So it's -- I mean, we have done a quite good job with that, and we can absolutely try to do it next quarter as well, but it goes -- I mean, it's a little bit up and down.

Okay. So more sort of -- I don't want to call it a one-off effect, but specifically relating to Q1, essentially the opposite of what happened in Q4. Is that correct?

Yes, something like... Yes.

Yes. And in the light of this, how should we think about the revenue contribution from services? It grew 30% in Q1, I believe. Is that relating to the campaigns you are alluding to? Or is there anything that could indicate that this is a higher structural base going forward?

I mean, we try to improve or raise that as well. But then it's absolutely related to campaigns.

Okay. Got it. Got it. Makes sense. A final one then, if I may, on CapEx, which was miniscule here in Q1. You've previously guided for around SEK 50 million to SEK 70 million, I believe, annually going forward. Does this still hold? And if so, what types of investments should we expect in 2026 to get to that number?

I mean, we evaluate all possible investments we can do. And if we see that it's a profitable investment, we will do it. And this SEK 50 million to SEK 70 million, I mean it's more like some kind of target, but we haven't found that much investments yet because we have -- now we are improving the investments we already have done. So I think we will have to come back over time and calibrate that.

I think if you look into the Morgongava case, we have kind of done it step by step. So we have improved the efficiency by smaller investments that has happened several times this year. And I think in the Varberg case, we have kind of still to optimize the operations and so on.

We have bought a few bins to Varberg, so we can put more stock.

Yes. But I see your point, but it was just the SEK 50 million to SEK 70 million is quite a -- given that you essentially had no CapEx in Q1, it's quite a steep step-up in coming quarters then. But as I interpreted from your answers, you have no sort of planned CapEx investments in Varberg rather continue to optimize existing infrastructure?

Not yet.

Exactly. No.

But it might come.

The next question comes from Benjamin Wahlstedt from ABG Sundal Collier.

I will sort of say I will go back to one of Johan's questions about the gross margin. I got the impression last conference call that while the campaign intensity was one issue you faced in Q4, the gross margin pressure you experienced was also an effect of purchasing to Varberg. I believe you, Johan said that you were sort of still in the process of calibrating the purchases for the new logistics center, for example. In Q1, it appears Varberg purchasing is basically not an issue at all. Was this a quicker turnaround than you expected? Or how should we think about this?

I mean, we have absolutely done much better purchasing in first quarter compared to fourth. And then I don't think it's probably too early to say that all problems is gone and we'll be sure about that because if you have just 1 quarter, it's a little bit too early. But I mean we have absolutely improved our purchasing process, and we will continue to improve it over time.

Perfect. Par, you also write in the CEO letter about planning more investments to ramp up growth. Could you elaborate on the kind of investments you're referring to here? Or is this the apotea.no website, for example?

Sarah Ahnstrom mentioned that we have built a new e-commerce platform. And then it's not investment on the balance sheet, but it's working hours for the AI team and for the tech team and then to improve the assortment, maybe do more marketing. So it can be a lot of different areas, maybe not the big costs, but costs related to that. And we want to focus on growth and want to spend both money and time on building more growth. So -- because I think it's very valuable for both Apotea and for our shareholders.

Perfect. That's clear. And sort of following on that then, you mentioned marketing spend or marketing investments as an example of such investments. While you don't share marketing ratios explicitly, could you give us a hint or an indication of whether or not your marketing ratio is sort of up or down compared to the time of the IPO, for example?

I think it's quite stable. And then our goal is to find profitable marketing and do that marketing. And if we -- I mean, for example, Google, if you -- it's not profitable to buy search terms that is not profitable, but we want to buy as much as we can that is profitable. And so...

That's something that we continuously evaluate the marketing spend. If we see that there's a room to increase the marketing in external channels, that's a good return on investment. That's something we do, obviously. But I think as we've shared before, the main driver for Apotea's growth has always been having the best offering to the consumer and ensuring that with our attractive prices and speedy deliveries and free deliveries and attractive and large assortment, that drives new customers, but also keeping the customers returning more frequently. And so that's the main of our focus, ensuring that the deliveries and assortments are the right, et cetera.

A happy customer is a good customer.

Yes. And it might seem like -- and that's -- I think that's a good way to kind of drive growth. That's a long-term sustainable way of driving growth rather than having short-term adjustments in marketing, big calibration in marketing or prices, for example.

That's very clear as well. Final one for me then. In essence, why do you not raise your short-term financial targets for the margin? I mean you showed in Q1 that you can deliver above 5% margins with the new setup running far from sort of max or optimum capacity, I guess, one could assume that with further growth, you would scale more on the now higher D&A from Varberg, for example, for a rather positive margin trajectory from here, assuming continued growth. So yes, you're above the 3% to 5% interval. Why keep it intact?

We mentioned just before the uncertainty in the world. I mean we want to grow faster and want to spend money on that. And I think we need a few more quarters. So I mean, like fourth quarter was not that good. So we need more time before we can say, okay, this is the new stable level where we can be because we don't want to overpromise. So that's why we try to keep it that way.

And I mean we are in the middle of this short to midterm corridor of being in within 3% to 5%. We had an adjusted EBIT margin rolling 12 months of 4.2%. So we are in the middle of that corridor. And even though Q4 was -- and I think we're fairly often that Q4 was a disappointment and low profitability below our expectations. Q4 tends to be with the seasonal variation and higher share of campaign sales, a softer profit-wise quarter compared to the other 3 quarters during the year.

The next question comes from Victor Hansen from DNB Carnegie.

A couple of questions from my side. I was curious on your impressions of the competitive environment during Q1 because we've had some peers commenting on this recently and it seems that the market remains tough, relatively low growth still. So what's your view on the competitive environment here?

I think the competitive environment is quite stable as well. We have had a very competitive market for several years. And that's how we like it.

Okay. Perfect. So nothing... No change.

Not really.

Okay. Okay. My next question is on your Beauty segment. Beauty products are up a lot. So do you have any comments on how growth was within this segment? And how important you would say beauty is for you going forward to reach your sales targets?

It's an important segment. And there -- it is a broad segment as well, right? So it contains a lot of different type of products. And it's going well, good growth in that area. So it's one of the focus areas that we have. But I think in order to have a higher growth rate, we need to work on all categories.

Yes. And we also have seasonal effects. I mean, now we are heading towards the summer and then you have like some protection sells a lot. And in the autumn, you have different products. So all categories is very important for us, and we want to grow all of them, and we try to maximize the growth on all of them. So we try to handle them individually and try to do as good as we can with everyone.

I think in terms of the Beauty segment in specific, we have done quite large steps in terms of the assortment and so on. So we're very proud to welcome a lot of good brands to our site. And that's something we have been very proud of, I would say. So we're happy to...

Sarah is buying much more now...

Yes. So I think we're very happy to see that the assortment is widening within those types of categories and especially in the more premium segments.

Perfect. And then on Varberg here, I was hoping that you could perhaps provide an estimate of the savings effect as you have lower fulfillment costs in Varberg compared to Morgongava. And now you said you moved 1/3 of your total orders.

Yes. I think it's still early days, and I think we mentioned this before. Yes, we see a significant improved efficiency in Varberg. However, it's early days in terms of ramping up and understanding the kind of, what should I say, more steady state type of production cost in Varberg. And at the same time, we also are shifting the production between our sites and between different shifts. So at this point, hard to say a fixed number. But yes, we see efficiencies in Varberg, and we will come back to that absolutely.

Okay. Perfect. And then a final question from my side. Yes, the consumer sentiment, it's tough now with another war going on. How did April start?

We will need to come back to Q2 in the summer when we report the Q2 results. I think, yes.

Probably a good idea.

Perfect. Thank you, everyone. That was the last question. Thank you for listening to the presentation of our quarterly report, and we wish you a pleasant day.

Thank you very much.

Bye.