Let’s open a dedicated thread for Oriola as well.
What are your thoughts on the company? Last week, there was a profit warning, and the 2019 results will be on the weak side. However, the savings program should be reflected in next year’s performance, and earnings are expected to improve. Oriola has often been characterized as a high-quality company in the past, but what do you think of it today?
Great that you opened a dedicated thread for Oriola as well.
Oriola’s stamp of quality probably stems from the fact that few companies on the Helsinki stock exchange have as strong a market position as Oriola, and the high barrier to entry into the industry acts as a kind of moat. It has over a 40% market share in the wholesale trade of medicines in Finland and Sweden, and that is quite well-cemented. It’s difficult for new players to break into that. The same applies to the company’s pharmacy operations in Sweden, where it has the country’s 3rd largest chain and a network of 327 pharmacies. And at least historically, for example, during 2014-2016, the company has been able to generate quite good profits with these operations.
However, in all these operations, the company has faced many difficulties in recent years, and operating profit has fallen from the 2014-2016 level (around 60 MEUR per year) to the current weak level (around 30 MEUR per year). The company has made many poor choices and really messed up in recent years. One could say that Oriola has the ingredients to be a good company, but these have not been properly utilized in recent years.
The current profit level is weak, and the stock price has rightly followed this dismal development. Finnish wholesale operations have finally been stabilized after the ERP (Enterprise Resource Planning) mess, and operations are becoming more efficient in Mankkaa, which already showed good signs in the Q1 report. However, the Swedish pharmacy market is very tight, and Oriola cannot yet compete with the price competition brought by e-commerce. Operations there should be seriously streamlined to reach previous profitability levels. This, of course, also requires significant investments and marketing efforts for its own online store, which is not cheap either.
The new automated distribution center in Enköping should also improve profitability by the end of 2019, as the company currently has to run both old and new lines simultaneously in Sweden, causing inefficiencies at least in Q2’19. Co-determination negotiations and other efficiency measures should bring 20 MEUR in cost savings by the end of next year. If this were to be fully realized, with everything else remaining constant, the profit could rise back to over 50 MEUR. In that case, I believe the stock’s valuation should be closer to 3 euros than 2 euros.
However, the full realization of the savings can be strongly doubted. In recent years, the company has consistently overestimated its ability to streamline operations while underestimating the speed at which markets/competition have tightened. Oriola’s stock price should be significantly lower than its current level if the profit level remains at the current approximately 30 MEUR. Now, one must trust that management can achieve at least half of the targeted 20 MEUR in savings, which should already lead to a rise in the stock price. Confidence in the company’s guidance and statements has certainly taken quite a hit in recent years, as financial targets have consistently been missed, and solving problems has regularly taken much longer than the company has indicated.
Oriola’s strong market position, established network, customer relationships, product portfolio, etc., are strong assets that the company has not managed to leverage properly. If one invests in the company, one must trust that management can significantly raise profitability above the current level by utilizing these features better than they have been used in recent years. Without profit growth, there will be no better times for the stock price either.
If Oriola’s normal EPS were 20 cents, the stock would be affordable. However, it’s no longer easy to estimate the company’s normal earning power after a few years of struggle, especially as the market and competitors move forward in the meantime. On the other hand, if the company were doing better, the stock wouldn’t be available for under 2 euros. So, this is also an opportunity, if the company gets on a better trajectory. At least the starting points are at least reasonable, given such a strong market position. The M&A card is a wild card. I got in at the 2 euro mark. I like industries that are not very cyclical, which generally makes them more predictable.
While waiting for the turnaround…
One would think that the company’s personnel have learned something from their struggles. The management was thoroughly reshuffled in 2018, so even if they can’t speak of learning from their own mistakes, it’s probably clear to them where things went wrong. Hopefully, they listen carefully to their subordinates, because it’s not enough for just the leader to “charge across the swamp.”
In other words, the turnaround for the better is almost complete, if it’s largely dependent on the company’s own actions. I trust the company’s potential (i.e., the collective) - not the management’s potential - and I hope the board keeps management on a short leash until they have demonstrated their capabilities in their role and earned investors’ trust.
{“content”:“Thoughts on the review? I for one was not convinced, I pessimistically expected better.\nAnd then there’s the mention\n\n> "The implementation of the new automated distribution center in Sweden is progressing slower than expected, causing additional costs."\n\nCan’t they even properly assemble one machine 
, it seems like the management reshuffle didn’t change anything for this company.\n\nWell, nothing to do but continue towards new disappointments → \n\nP.S First message to this forum, hello 
”,“target_locale”:“en”}
The slowness of the Swedish distribution center’s implementation continues. Revenue is growing. Inderes recommends reducing holdings, even though there was a small positive note in Q3. Is this expensive now, then?
I’ve been thinking about this myself and ended up adding a bit after the earnings report. In my opinion, this is a bet that the cost-cutting program will work and the Swedish distribution center will be operational before Olkiluoto is completed. That seems to be the problem currently eating into the results. It shouldn’t be rocket science, but on the other hand, there might be a bit of a serial explainer fault in the leadership.
How long has Enköping’s eternal project been underway, how much longer will it continue, and above all, what’s so difficult about it? Information, estimates?
Enköping is, to my understanding, about 2 years behind its original schedule, which was supposed to be in the spring of 2018. When the SAP project managed by Accenture in Finland’s distribution centers failed in the fall of 2017 and the distribution chaos in Mankkaa began, the system was later changed, and plans for Enköping also had to be revised. Since SAP was no longer “the group’s choice,” Enköping had to be redesigned, including robots and everything, as everything had been prepared on the assumption that SAP would be implemented in Finland and the same system would be extended to Sweden. Now Enköping is starting in spring 2020, which is a couple of years behind the original schedule. I don’t remember which system will be used there. The company seems to have so many different IT systems in use that there will be plenty of work for new IT architects for years to come.
Thanks for this comprehensive answer.
That was a good quick review (20 min) of Orion from the investment fair. It can be found on Inderes TV! Pretty ambitious growth targets for 2025, I’m contentedly sitting in the ride whistling now.
As Klunssila, the regular caller on the night line, would say, just more shit in the pants.
How, in this day and age, in the era of information technology and barcodes, can Oriola misestimate the value of its inventory by millions over several years?
Just when one thought the table was slowly starting to be cleared after the Q3 write-downs, what do you know?
Inventory and fixed asset impairments significantly weaken Oriola’s fourth-quarter result
I don’t think this company is going to get out of the mud…
{“content”:“At some point, I briefly looked at this company as well. Luckily, it didn’t pique my interest. It’s almost better to wait for a clear improvement in the company’s operations and sacrifice a bit on the price than to try to fish from the bottom. Because it seems very deep.”,“target_locale”:“en”}
Are we already putting the company up for sale? I hope so.
They were revamping their ERP for a long time, so it’s probably related to that – maybe the inventory data from the old system didn’t transfer correctly (i.e., mistakes were made during implementation), and it was only noticed in hindsight when sales figures didn’t match up.
I sold my Oriola position, which wasn’t very big anyway. It’s been too sluggish.
Still a very unclear and seemingly completely inefficient company, and no change to this seems to be in sight.
