Oriola-KD Corporation Stock Exchange Release 23 October 2014 at 8.30 a.m.
Oriola-KD Corporation's Interim Report for 1 January-30 September 2014
Financial performance July-September 2014
* Net sales decreased by 13.6 per cent to EUR 565.6 (654.4) million
* EBITDA excluding non-recurring items decreased by 33.9 per cent to EUR 11.3
(17.1) million
* EBITDA was EUR 11.2 (15.1) million
* Operating profit excluding non-recurring items was EUR 4.6 (10.6) million
* Operating profit was EUR 4.6 (8.6) million
* Net cash flow from operations was EUR -10.5 (-19.5) million
* Profit for the period totalled EUR -1.6 (2.3) million and earnings per share
were EUR -0.02 (0.01)
Financial performance January-September 2014
* Net sales decreased by 8.7 per cent to EUR 1,752.5 (1,918.8) million
* EBITDA excluding non-recurring items decreased by 2.8 per cent to EUR 32.8
(33.8) million
* EBITDA was EUR 31.5 (27.8) million
* Operating profit excluding non-recurring items was EUR 12.9 (16.6) million
* Operating profit was EUR -59.5 (10.6) million
* Net cash flow from operations was EUR -19.2 (-21.0) million
* Profit for the period totalled EUR -81.1 (0.2) million and earnings per
share were EUR -0.55 (0.00)
Key figures 2014 2013 Change 2014 2013 Change 2013
EUR million 7-9 7-9 % 1-9 1-9 % 1- 12
-------------------------------------------------------------------------------
Net sales 565.6 654.4 -13.6 1,752.5 1,918.8 -8.7 2,598.5
Retail business 207.3 221.4 -6.4 639.1 583.7 9.5 809.9
Wholesale business 444.5 499.7 -11.0 1,378.3 1,500.7 -8.2 2,025.9
-------------------------------------------------------------------------------
EBITDA excluding non-
recurring items 11.3 17.1 -33.9 32.8 33.8 -2.8 53.2
EBITDA 11.2 15.1 -25.6 31.5 27.8 13.4 46.7
-------------------------------------------------------------------------------
Operating profit excluding
non-recurring items 4.6 10.6 -56.5 12.9 16.6 -22.4 29.0
Retail business 9.5 7.2 32.4 24.1 14.6 65.0 21.1
Wholesale business -3.2 4.4 -6.5 7.6 14.2
-------------------------------------------------------------------------------
Operating profit 4.6 8.6 -47.2 -59.5 10.6 21.0
Retail business 9.5 5.8 63.7 23.1 9.2 150.8 13.7
Wholesale business -3.2 3.8 -77.8 7.0 13.6
-------------------------------------------------------------------------------
Operating profit % excluding
non-recurring items 0.8 1.6 0.7 0.9 1.1
Retail business 4.6 3.2 3.8 2.5 2.6
Wholesale business -0.7 0.9 -0.5 0.5 0.7
-------------------------------------------------------------------------------
Operating profit % 0.8 1.3 -3.4 0.6 0.8
Retail business 4.6 2.6 3.6 1.6 1.7
Wholesale business -0.7 0.8 -5.6 0.5 0.7
-------------------------------------------------------------------------------
Profit for the period -1.6 2.3 -81.1 0.2 5.8
-------------------------------------------------------------------------------
Earnings per share, EUR -0.02 0.01 -0.55 0.00 0.04
Net cash flow from operating
activities -19.2 -21.0 29.8
Return on equity (ROE), % -41.5 0.1 2.0
Gearing, % 86.9 80.9 65.3
-------------------------------------------------------------------------------
Outlook for 2014
Oriola-KD estimates that net sales and operating profit excluding non-recurring
items will decrease from 2013 level.
Oriola-KD revised its guidance announced in interim report 24 July, 2014 with
stock exchange release on 10 October, 2014.
President and CEO Eero Hautaniemi's comments regarding the interim report:
"Profitability improved in both operating segments in Pharmaceutical Trade
Sweden. Third quarter operating profit percentage excluding non-recurring items
for Swedish retail business was 5.5 (3.8) per cent. The Swedish wholesale
business' profitability was strengthened by the increased volume of the business
as well as the efficiency programme that was started in the third quarter of
2013.
In Finland we strengthened the product portfolio of our online shop by reaching
a co-operation agreement with Orion Corporation. Orion's traded goods products
were transferred over to Oriolashop.fi product portfolio as of the beginning of
September.
Russian retail business developed according to our plan despite of the
challenging market conditions. Weak development of the Russian wholesale
business contributed negatively to Oriola-KD's net sales and operating profit
during the first three quarters. Operating profit of the Russian wholesale
business was poor and the operating segment's profitability was clearly behind
the goals set regardless of slightly improved September net sales. Continued
intense competition and planned change in business model contributed negatively
to Russian wholesale business profitability. Further to measures to improve the
performance of the Russian wholesale business we have nominated a financial
advisor to investigate the conditions for selling the Company's Russia
businesses. We will continue the ongoing initiatives to develop Company's
Russian businesses."
Oriola-KD Corporation's Interim Report for 1 January-30 September 2014
The text section of this financial statements release focuses on the January-
September result. A comparison in accordance with the International Financial
Reporting Standards (IFRS) has been carried out on the figures for the
corresponding period in 2013, unless otherwise stated. The figures in this
interim report are unaudited. The figures in the tables have been rounded
independently.
2014 2013 2013
Key Figures 1-9 1-9 1- 12
---------------------------------------------------------------------
Goodwill, EUR million 285.4 389.4 379.0
Equity, EUR million 211.3 278.5 278.1
Interest-bearing debt, EUR million 252.6 321.1 318.8
Net interest-bearing debt, EUR million 183.7 225.4 181.5
Total assets, EUR million 1,267.5 1,467.2 1,500.1
Equity ratio, % 17.2 19.5 19.2
Return on equity (ROE), % -41.5 0.1 2.0
Return on capital employed (ROCE), % -14.7 2.8 4.2
Gearing, % 86.9 80.9 65.3
Net debt / rolling 12-month EBITDA 3.6 5.2 3.9
Equity per share, EUR 1.40 1.84 1.84
Earnings per share, EUR -0.55 0.00 0.04
Average number of shares, 1000 pcs 151,134 151,161 151,157
Average number of personnel 4,977 5,087 5,135
Number of personnel at the end of the period 4,738 5,327 5,256
Gross investments, EUR million 29.6 184.6 193.7
Changes in the Group Structure in January-September 2014
There were no changes in the Group structure during the period.
The Group's net sales and result for July-September 2014
Oriola-KD's third quarter net sales were EUR 565.6 (654.4) million. Operating
profit excluding non-recurring items was EUR 4.6 (10.6) and operating profit was
EUR 4.6 (8.6) million. The retail business' net sales were EUR 207.3 (221.4)
million, operating profit excluding non-recurring items was EUR 9.5 (7.2)
million and operating profit was EUR 9.5 (5.8) million. The wholesale business'
net sales were EUR 444.5 (499.7) million, operating profit excluding non-
recurring items was EUR -3.2 (4.4) million and operating profit was EUR -3.2
(3.8) million.
Profit after financial items was EUR 1.6 (4.5) million. Oriola-KD's financial
expenses were EUR 2.9 (4.1) million and profit for the period was EUR -1.6 (2.3)
million. Earnings per share were EUR -0.02 (0.01).
The Group's net sales and result for January-September 2014
Oriola-KD's net sales decreased by 8.7 per cent to EUR 1,752.5 (1,918.8) million
and its operating profit excluding non-recurring items decreased by 22.4 per
cent to EUR 12.9 (16.6) million. Operating profit was EUR -59.5 (10.6) million.
The positive development of Oriola-KD's operating profit was supported by the
improved profitability in Swedish operating segments. Oriola-KD's January -
September operating profit was negatively impacted by EUR 71.1 (-) million
impairment charge recognised for the second quarter. During the second quarter a
change in the marketing income and bonus receivables estimate regarding the
Russian wholesale business pharmaceutical principle contracts led to a EUR 7.2
million expense. The comparative period operating profit includes EUR 2.7
million expenses associated with a business acquisition in Sweden.
The retail business' net sales were EUR 639.1 (583.7) million, operating profit
excluding non-recurring items was EUR 24.1 (14.6) million and operating profit
was EUR 23.1 (9.2) million. The wholesale business' net sales were EUR 1,378.3
(1,500.7) million, operating profit excluding non-recurring items was EUR -6.5
(7.6) million and operating profit was EUR -77.8 (7.0) million.
Profit after financial items was EUR -68.8 (1.5) million and profit for the
period was EUR -81.1 (0.2) million. Oriola-KD's financial expenses increased to
EUR 9.3 (9.1) million. Earnings per share were EUR -0.55 (EUR 0.00).
Return on equity was -41.5 (0.1) per cent during January - September 2014.
Reporting segments
Oriola-KD's reporting segments are Pharmaceutical Trade Finland and Baltics,
Pharmaceutical Trade Sweden and Pharmaceutical Trade Russia. Oriola-KD has
formed its reporting segments by combining its operating segments. The
Pharmaceutical Trade Finland and Baltics reporting segment comprises the Finnish
pharmaceutical wholesale business, the Consumer Health and the Pharmaceutical
Trade Baltics operating segments. The Pharmaceutical Trade Sweden reporting
segment comprises the Swedish pharmaceutical retail and Swedish pharmaceutical
wholesale operating segments. The Pharmaceutical Trade Russia reporting segment
comprises the Russian pharmaceutical retail and Russian pharmaceutical wholesale
operating segments.
Reporting segment results in the Oriola-KD management reports are presented
without management fee. Segment information for 2013 has been revised to
correspond with the current presentation.
Pharmaceutical Trade Finland and Baltics
Key Figures 2014 2013 Change 2014 2013 Change 2013
EUR million 7-9 7-9 % 1-9 1-9 % 1- 12
-------------------------------------------------------------------------------
Net Sales 108.5 96.0 13.1 316.3 316.0 0.1 425.3
Pharmaceutical wholesale in
Finland 87.0 75.8 14.8 252.9 253.9 -0.4 342.1
Pharmaceutical wholesale in
Baltics 11.5 9.9 15.3 33.7 30.2 11.5 41.0
Consumer Health 10.1 10.3 -2.3 30.1 32.2 -6.5 42.7
-------------------------------------------------------------------------------
Operating profit 5.5 5.3 5.0 14.7 14.6 0.7 18.8
-------------------------------------------------------------------------------
Operating profit % 5.1 5.5 4.7 4.6 4.4
-------------------------------------------------------------------------------
Number of personnel at the end of
period 504 508 501
-------------------------------------------------------------------------------
July-September 2014
The net sales of Pharmaceutical Trade Finland and Baltics in the third quarter
of 2014 were EUR 108.5 (96.0) million and operating profit was EUR 5.5 (5.3)
million. Net sales of the wholesale business in Finland were EUR 87.0 (75.8)
million and invoicing was EUR 253.5 (244.7) million. The net sales of the
wholesale business in the Baltic countries were EUR 11.5 (9.9) million and net
sales of the Consumer Health business totalled EUR 10.1 (10.3) million.
January-September 2014
The Finnish pharmaceutical market grew by 4.0 (2.1) per cent in January-
September 2014 (source: IMS Health). Oriola-KD's market share of the Finnish
pharmaceutical wholesale market was 45.6 (46.6) per cent in January-September
2014 (source: ATY).
The net sales of Pharmaceutical Trade Finland and Baltics increased by 0.1 per
cent to EUR 316.3 (316.0) million and operating profit increased by 0.7 per cent
to EUR 14.7 (14.6) million.
The net sales of the wholesale business in Finland was EUR 252.9 (253.9) million
and invoicing totalled EUR 741.6 (764.7) million during January-September. Net
sales of the wholesale business in the Baltic countries increased due to
broadened service portfolio and were EUR 33.7 (30.2) million. Net sales of the
Consumer Health business were EUR 30.1 (32.2) million.
The EBITDA of Pharmaceutical Trade Finland and Baltics was EUR 17.7 (17.1)
million.
Profitability of Pharmaceutical Trade Finland and Baltics remained at the level
of the comparative period. In Finland, a co-operation agreement with Orion
Corporation strengthened the product portfolio of the Oriolashop.fi online shop
targeted to the healthcare professionals. Orion's traded goods products moved
over to Oriolashop.fi from the beginning of September. Oriola-KD started
delivering pharmaceutical re-packing services from Baltics.
Pharmaceutical Trade Sweden
Key Figures 2014 2013 Change 2014 2013 Change 2013
EUR million 7-9 7-9 % 1-9 1-9 % 1- 12
-------------------------------------------------------------------------------
Net Sales 281.3 315.7 -10.9 878.3 893.9 -1.7 1,194.4
Retail business 181.1 189.7 -4.6 556.3 476.8 16.7 669.6
Wholesale business 181.0 187.1 -3.3 570.0 569.4 0.1 743.4
-------------------------------------------------------------------------------
Operating profit excluding non-
recurring items 12.4 8.2 52.0 33.7 16.2 108.2 24.1
Retail business 9.9 7.1 39.3 26.0 14.5 80.1 20.3
Wholesale business 2.5 1.0 142.3 7.9 2.0 299.5 4.2
-------------------------------------------------------------------------------
Operating profit 12.3 6.2 99.7 32.7 10.2 220.9 16.4
Retail business 9.9 5.7 72.3 25.0 9.0 177.2 12.9
Wholesale business 2.5 0.4 459.4 7.9 1.4 465.0 3.8
-------------------------------------------------------------------------------
Operating profit % excluding
non-recurring items 4.4 2.6 3.8 1.8 2.0
Retail business 5.5 3.8 4.7 3.0 3.0
Wholesale business 1.4 0.5 1.4 0.3 0.6
-------------------------------------------------------------------------------
Operating profit % 4.4 2.0 3.7 1.1 1.4
Retail business 5.4 3.0 4.5 1.9 1.9
Wholesale business 1.4 0.2 1.4 0.2 0.5
-------------------------------------------------------------------------------
Number of personnel at the end
of period 1,790 1,861 1,836
Retail business 1,512 1,589 1,562
Wholesale business 278 272 275
-------------------------------------------------------------------------------
July-September 2014
The third quarter net sales of Pharmaceutical Trade Sweden in 2014 were EUR
281.3 (315.7) million. Operating profit excluding non-recurring items was EUR
12.4 (8.2) million and operating profit was EUR 12.3 (6.2) million. The net
sales of the retail business were EUR 181.1 (189.7) million. Operating profit
excluding non-recurring items for the retail business totalled EUR 9.9 (7.1)
million and operating profit was EUR 9.9 (5.7) million. The net sales of the
wholesale business totalled EUR 181.0 (187.1) million. Operating profit
excluding non-recurring items for the wholesale business was EUR 2.5 (1.0)
million and operating profit was EUR 2.5 (0.4) million. Invoicing for the
wholesale business was EUR 368.0 (361.0) million. The Medstop pharmacy chain has
been consolidated in the figures of Oriola-KD as of 1 June 2013.
January-September 2014
The pharmaceutical market grew by 2.8 (declined 2.1) per cent (source: IMS
Health) and the retail market for OTC products and traded goods grew by 4.5
(6.1) per cent (source: Nielsen) during January-September. Based on Oriola-KD's
estimate 25 new pharmacies were established in Sweden during first three
quarters, at the end of September there was 1,331 pharmacies in Sweden.
During January-September the net sales of Pharmaceutical Trade Sweden decreased
by 1.7 per cent to EUR 878.3 (893.9) million, and on a constant currency basis,
net sales increased by 3.5 per cent. January-September net sales strengthened
due to ongoing development of the businesses and the acquisition of Medstop in
June 2013. January-September retail business net sales were EUR 556.3 (476.8)
million, wholesale business net sales totalled EUR 570.0 (569.4) million.
Invoicing for the Swedish wholesale business was EUR 1,121.6 (1,136.1) million.
The Swedish retail business' EBITDA excluding non-recurring items was EUR 37.7
(23.1) million and EBITDA was EUR 36.6 (17.6) million during January-September.
The EBITDA percentage excluding non-recurring items and the management fee for
the retail business was 6.9 (4.9) per cent.
The Swedish wholesale business' EBITDA excluding non-recurring items was EUR
9.8 (3.9) million and EBITDA was EUR 9.8 (3.3) million.
Pharmaceutical Trade Sweden's operating profit excluding non-recurring items
increased by 108.2 per cent to EUR 33.7 (16.2) million and operating profit
increased by 220.9 per cent and was EUR 32.7 (10.2) million during the first
three quarters. Operating profit excluding non-recurring items for the Swedish
retail business totalled EUR 26.0 (14.5) million and operating profit was EUR
25.0 (9.0) million. Operating profit excluding non-recurring items for the
Swedish wholesale business was EUR 7.9 (2.0) million and operating profit was
EUR 7.9 (1.4) million.
Profitability of the Swedish retail business developed positively during the
reporting period. Pharmacy and product portfolios have been developed according
to the plan. Oriola-KD has opened 7 new pharmacies, operating under the Kronans
Apotek brand, during the first three quarters. At the end of September 2014,
Oriola-KD had a total of 303 (295) pharmacies in Sweden. Oriola-KD estimates
that its market share of the pharmaceutical retail market was 21 (21) per cent
at the end of the period.
Strong development of Swedish wholesale business' net sales and operating profit
was driven by increased volume and profitability programs carried out. The
relative share of parallel imports in the Swedish pharmaceutical market has
decreased during the first three quarters. Based on the company's estimate
parallel imports share of the Swedish pharmaceutical market was approximately
14.5 per cent, Oriola-KD estimates that its market share of the wholesale trade
was 38 (41) per cent during January-September.
Pharmaceutical Trade Russia
Key Figures 2014 2013 Change 2014 2013 Change 2013
EUR million 7-9 7-9 % 1-9 1-9 % 1- 12
-------------------------------------------------------------------------------
Net Sales 175.8 242.7 -27.6 557.9 709.0 -21.3 978.8
Retail business 26.2 31.7 -17.4 82.8 106.9 -22.5 140.3
Wholesale business 155.0 216.5 -28.4 492.0 615.3 -20.0 857.2
-------------------------------------------------------------------------------
Operating profit excluding non-
recurring items -11.7 -1.9 -31.0 -8.8 -8.0
Retail business -0.4 0.0 -1.9 0.2 0.8
Wholesale business -11.3 -1.9 -29.1 -9.0 -8.8
-------------------------------------------------------------------------------
Operating profit -11.7 -1.9 -102.5 -8.8 -8.3
Retail business -0.4 0.0 -2.0 0.2 0.8
Wholesale business -11.3 -1.9 -100.5 -9.0 -9.1
-------------------------------------------------------------------------------
Operating profit % excluding non-
recurring items -6.7 -0.8 -5.6 -1.2 -0.8
Retail business -1.6 0.2 -2.3 0.2 0.6
Wholesale business -7.3 -0.9 -5.9 -1.5 -1.0
-------------------------------------------------------------------------------
Operating profit % -6.7 -0.8 -18.4 -1.2 -0.8
Retail business -1.6 0.2 -2.4 0.2 0.6
Wholesale business -7.3 -0.9 -20.4 -1.5 -1.1
-------------------------------------------------------------------------------
Number of personnel at the end of
period 2,405 2,928 2,881
Retail business 1,060 1,254 1,210
Wholesale business 1,345 1,674 1,671
-------------------------------------------------------------------------------
July-September 2014
The third quarter net sales of Pharmaceutical Trade Russia in 2014 were EUR
175.8 (242.7) million. Operating profit excluding non-recurring items was EUR
-11.7 (-1.9) million and operating profit was EUR -11.7 (-1.9) million. The net
sales of the Russian retail business were EUR 26.2 (31.7) million. Operating
profit excluding non-recurring items for the Russian retail business totalled
EUR -0.4 (0.0) million and operating profit was EUR -0.4 (0.0) million. The net
sales of the Russian wholesale business were EUR 155.0 (216.5) million.
Operating profit excluding non-recurring items for the Russian wholesale
business totalled EUR -11.3 (-1.9) million and operating profit was EUR -11.3 (-
1.9) million. Russian retail business developed as planned despite of the
challenging market conditions. Weak development of the Russian wholesale
business contributed negatively to Oriola-KD's net sales and operating profit
during the first three quarters regardless of slightly improved September net
sales. Continued intense competition and planned change in business model
contributed negatively to Russian wholesale business profitability.
January-September 2014
During January-September the net sales of Pharmaceutical Trade Russia decreased
by 21.3 per cent to EUR 557.9 (709.0) million, and on a constant currency basis,
net sales decrease was 9.3 per cent. Russian retail business net sales decreased
by 22.5 per cent to EUR 82.8 (106.9) million in January-September, and on a
constant currency basis net sales decrease was 10.8 per cent. Russian wholesale
business net sales decreased by 20.0 per cent to EUR 492.0 (615.3) million, and
on a constant currency basis net sales decrease was 7.9 per cent.
The Russian retail business' EBITDA excluding non-recurring items was EUR -0.7
(1.8) million and EBITDA was EUR -0.7 (1.8) million. The Russian wholesale
business' EBITDA excluding non-recurring items was EUR 27.0 (-6.6) million and
EBITDA was EUR -27.3 (-6.6) million.
Pharmaceutical Trade Russia's operating profit excluding non-recurring items
decreased to EUR -31.0 (-8.8) million and operating profit was EUR -102.5 (-
8.8) million. Operating profit excluding non-recurring items for the retail
business was EUR -1.9 (0.2) million and operating profit was EUR -2.0 (0.2)
million. Profitability of the Russian wholesale business was poor. Operating
profit excluding non-recurring items for the wholesale business was EUR -29.1 (-
9.0) million and operating profit was EUR -100.5 (-9.0) million.
The second quarter result of the Group include EUR 77.2 (-) million impairment
charge for Russian pharmaceutical wholesale business. The impairment charge is
reported as a non-recurring, non-cash item of expense. During the second quarter
a change in the marketing income and bonus receivables estimate regarding the
Russian wholesale business pharmaceutical principle contracts led to a EUR 7.2
million expense.
As a result of efficiency measures initiated in the Russian businesses, the
headcount reduction at the end of September 2014 in comparison to September
2013 was 523. Oriola-KD has continued the ongoing initiatives to develop
Company's Russian businesses.
At the end of September 2014, Oriola-KD had 229 (233) pharmacies in the Moscow
area.
Non-recurring items
A non-recurring item is an income or expense arising from non-recurring or rare
events. Gains or losses from the sale or discontinuation of business operations
or assets, gains or losses from restructuring business operations, and
impairment losses of goodwill and other non-current assets are recognised by
Oriola-KD as non-recurring items.
Non-recurring items included in Operating
Profit 2014 2013 2014 2013 2013
EUR million 7-9 7-9 1-9 1-9 1- 12
-------------------------------------------------------------------------------
Pharmaceutical Trade Sweden
Restructuring costs -0.1 -2.0 -1.0 -2.8 -4.6
Write-off of cotract-based accrual - - - -3.2 -3.1
Pharmaceutical Trade Russia
Impairment charges - - -71.1 - -
Restructuring costs - - -0.3 - -0.3
-------------------------------------------------------------------------------
Total -0.1 -2.0 -72.5 -6.0 -8.0
-------------------------------------------------------------------------------
Non-recurring items reported during January-September relate to restructuring
charges in Pharmaceutical Trade Sweden and in Pharmaceutical Trade Russia as
well as the impairment charge recognised for Pharmaceutical Trade Russia.
Balance sheet, financing and cash flow
Oriola-KD's total assets at 30 September 2014 were EUR 1,267.5 (1,467.2)
million. Cash and cash equivalents totalled EUR 68.9 (95.7) million and equity
was EUR 211.3 (278.5) million. The equity ratio was 17.2 (19.5) per cent and
gearing was 86.9 (80.9) per cent.
Oriola-KD's goodwill of EUR 285.4 (389.4) million has been allocated in
impairment testing to the cash-generating units consisting of the Group's
operating segments. Oriola-KD prepares the goodwill impairment testing twice a
year, in accordance with the timetable of its strategy and planning process. At
the end of September 2014, EUR 231.3 (243.4) million of the goodwill was
allocated to the Swedish pharmaceutical retail business, EUR 26.1 (27.5) million
to the Swedish pharmaceutical wholesale business and EUR 28.0 (39.1) million to
the Russian pharmaceutical retail business.
At the end of September, interest-bearing debt was EUR 252.6 (321.1) million of
which syndicated bank loans totalled EUR 167.6 (155.9) million, commercial
papers EUR 29.9 (114.0) million, advance payments from pharmacies EUR 35.2
(35.9) million, a contingent consideration related to Medstop-acquisition EUR
14.9 (14.7) million and finance lease liabilities EUR 5.0 (0.6) million. Long-
term interest bearing-liabilities were EUR 163.9 (171.0) million and short-term
interest-bearing liabilities were EUR 88.7 (150.1) million. Interest-bearing net
debt was EUR 183.7 (225.4) million. The non-recourse trade receivables sales
programmes were continued in the Pharmaceutical Trade Sweden in the third
quarter of 2014. At the end of September 2014, a total of EUR 80.7 (80.4)
million in trade receivables had been sold.
Oriola-KD's committed long-term credit facility of EUR 100.0 million and EUR
41.9 million of short-term credit account limits with banks were unused at the
end of September 2014. Oriola-KD signed a financing agreement of approximately
EUR 280 million during the second quarter of 2013. The financial covenants
contained in the financing agreement are based on the ratio between the Group's
net debt and rolling 12-month EBITDA and gearing ratio. The ratio between the
Group's net debt and the 12-month rolling EBITDA was 3.64 and the adjusted ratio
in accordance with the terms and conditions of the financing agreement, stood at
3.35 at the end of September 2014, the covenant limit in the agreement being
3.50. The Group's gearing ratio was 86.9 per cent and the adjusted gearing ratio
in accordance with the terms and conditions of the financing agreement was 79.9
per cent at the end of September 2014, the covenant limit in the agreement being
100 per cent.
Financial covenants contained 30 Sep 2014 31 Dec 2014 31 Mar 2015 30 Jun 2015
in the financing agreement
-------------------------------------------------------------------------------
Ratio between net debt and
rolling 12-month EBITDA 3.5 3.5 3.0 3.0
Gearing ratio 100% 100% 100% 100%
On 20 February 2014 Oriola-KD issued a EUR 40 million hybrid bond. The bond
bears a fixed interest rate of 7.0 per cent per annum until 20 February 2017 and
a floating interest rate thereafter. The hybrid bond has no maturity date but
the issuer is entitled to redeem the hybrid bond after three years. Interest on
the hybrid bond will be paid providing dividend is paid in accordance with the
annual general meeting resolution. If dividends are not paid, the Group will
make a separate decision regarding interest payment on the hybrid bond. Unpaid
interest is accrued and taken into consideration in the calculation of earnings
per share.
Income taxes for January-September were EUR -12.3 (-1.4) million, including the
EUR 6.1 (-) million write-down of deferred tax asset relating to the Russian
wholesale operations subsidiary. The entity has not recorded a deferred tax
asset for the losses incurred during the period.
January-September net cash flow from operations was EUR -19.2 (-21.0) million,
of which changes in working capital accounted for EUR -38.0 (-35.2) million. Net
cash flow from investing activities was EUR -24.7 (-88.8) million.
Investments
Gross investments for January-September totalled EUR 29.6 (184.6) million and
consisted of investments related to the opening of new pharmacies, information
systems and improvements in logistics efficiency. The investment project for new
main logistics centre in Moscow is progressing according to the project plan.
The total cost estimate for the project is EUR 25-28 million, of which
investments account for EUR 15.7 million. According to the project plan,
operations will be gradually transferred to the new facilities and full
production capacity will be reached by the end of first quarter in 2015. Due to
the investment plan, Oriola-KD will record EUR 0.5 million in accelerated
depreciation in 2014.
Personnel
At the end of June 2014, Oriola-KD had a payroll of 4,738 (5,327) employees, 11
(10) per cent of whom worked in Finland and the Baltics, 38 (35) per cent in
Sweden, and 51 (55) per cent in Russia. Personnel numbers consist of members of
staff in active employment.
Administration
Oriola-KD's Group Management Team:
* Eero Hautaniemi, President and CEO
* Lars Birkeland, Vice President, pharmaceutical retail, Sweden
* Tuomas Itkonen, CFO
* Konstantin Minin, Vice President, pharmaceutical wholesale and retail,
Russia
* Jukka Mäkelä, Vice President, Development
* Teija Silver, Vice President, HR
* Kimmo Virtanen, Executive Vice President, pharmaceutical wholesale, Finland,
Sweden and the Baltics
Oriola-KD applies the Finnish Corporate Governance Code which was issued by the
Securities Market Association on 15 June 2010 and which entered into force on 1
October 2010, with the exception that the company's Nomination Committee may
also have members who are not members of the company's Board of Directors. The
purpose of this deviation from Recommendation 22 of the Corporate Governance
Code (Appointment of members to the committees) is to allow the election of
major shareholders in the company to the Nomination Committee and thus to ensure
that their opinions are heard well before the Annual General Meeting. The
Nomination Committee is a body established by the Board for the purpose of
preparing and presenting to the Board a recommendation for the proposal to be
put to the Annual General Meeting concerning the composition and remuneration of
the Board. The Corporate Governance Statement and the Remuneration Statement
for 2013 can be viewed on the company's website at: http://www.oriola-
kd.com/en/Corporate-Governance/.
Board authorisations
The Annual General Meeting, held on 24 March 2014, authorised the Board of
Directors to decide on a share issue against payment in one or more issues. The
authorisation comprises the right to issue new shares or assign treasury shares
held by the company. The authorisation covers a maximum of 9,500,000 Class A
shares and 21,000,000 Class B shares and includes the right to derogate from the
shareholders' pre-emptive subscription right. Pursuant to the authorisation,
shares held by the company as treasury shares may also be sold through trading
on a regulated market organised by NASDAQ OMX Helsinki Ltd. The authorisation
is in effect for a period of eighteen months from the decision of the Annual
General Meeting.
The Annual General Meeting, held on 24 March 2014, authorised the Board of
Directors to decide on a share issue against payment in one or more issues. The
authorisation comprises the right to issue new class B shares or assign class B
treasury shares held by the company. The authorisation covers a combined maximum
of 15,000,000 class B shares of the company and includes the right to derogate
from the shareholders' pre-emptive subscription right. Pursuant to the
authorisation, class B shares held by the Company as treasury shares may also be
sold on regulated market organised by NASDAQ OMX Helsinki Ltd. The authorisation
is in effect for a period of eighteen months from the decision of the Annual
General Meeting.
The authorisation revokes all previous share issue authorisations given to the
Board of Directors apart from the authorisation given to the Board of Directors
by the Annual General Meeting held on 20 March 2013, pursuant to which the Board
of Directors may decide upon directed share issues against or without a payment
concerning no more than 1,715,000 class B shares in order to execute the share-
based incentive plan for the Oriola-KD Group's executives and the share savings
plan for the Oriola-KD Group's key personnel.
The Annual General Meeting, held on 24 March 2014, also authorised the Board of
Directors to decide on repurchasing of the company's own class B shares. The
authorisation entitles the Board of Directors to decide on the repurchase of no
more than 15,000,000 of the company's own class B shares in a proportion other
than in which shares are owned by the shareholders. The authorisation to
repurchase own shares is in force for a period of not more than eighteen months
from the decision of the Annual General Meeting. Shares may be repurchased to
develop the company's capital structure, to execute corporate transactions or
other business arrangements, to finance investments, to be used as a part of the
company's incentive schemes or to be otherwise relinquished, held by the company
or cancelled.
Oriola-KD Corporation shares
Trading volume of the Oriola-KD Corporation's class A and B shares during
January-September 2014:
January-September 2014 January-September 2013
Trading volume class A class B class A class B
-------------------------------------------------------------------------------
Trading volume, million 5.5 22.9 1.8 18.1
Trading volume, EUR million 13.1 54.2 4.2 42.7
Highest price, EUR 2.85 2.78 2.69 2.73
Lowest price, EUR 2.00 2.10 2.24 2.18
Closing quotation, end of
period, EUR 2.41 2.36 2.34 2.36
-------------------------------------------------------------------------------
Oriola-KD Corporation's market capitalisation on 30 September 2014 was EUR
359.3 (356.0) million.
In the review period, the traded volume of Oriola-KD Corporation shares,
excluding treasury shares, corresponded to 18.8 (13.1) per cent of the total
number of shares. The traded volume of class A shares amounted to 11.7 (3.7) per
cent of the average stock, and that of class B shares, excluding treasury
shares, to 22.0 (17.4) per cent of the average stock.
At the end of September 2014, the company had a total of 151,257,828
(151,257,828) shares, of which 47,148,710 (47,148,710) were class A shares and
104,109,118 (104,109,118) were class B shares. The company has 134,982 (96,822)
treasury shares (including treasury shares held by third-party service
provider), all of which are class B shares. They account for 0.09 (0.06) per
cent of the company's shares and 0.013 (0.009) per cent of the votes.
Under Article 3 of the Articles of Association, a shareholder may demand
conversion of class A shares into class B shares. During the period 1 January -
30 September 2014, no class A shares were converted into class B shares (0
shares).
On 19 December 2012, Oriola-KD Corporation's Board of Directors decided on a new
share incentive scheme for the Group's senior management for the years
2013-2015. The scheme covers seven persons. The company's Board of Directors
will determine the earnings criteria for the earning period and the targets to
be set for these at the start of each earning period. The bonus for the 2014
earning period is based on the Oriola-KD Group's earnings per share (EPS). The
rewards to be paid on the basis of the performance period 2014 will correspond
to the value of a maximum total of 1,010,000 Oriola-KD Corporation class B
shares (also including the proportion to be paid in cash), of which 720,000
Oriola-KD Corporation class B shares (also including the proportion to be paid
in cash) have been allocated to the current participants.
The Board of Oriola-KD Corporation approved the terms and conditions of the key
employees' share savings plan on 28 May 2013. A total of about 50 key employees
are participating in the plan. The savings period started on 1 October 2013 and
end on 30 September 2014. In addition the Board of Oriola-KD Corporation
approved on 27 August 2014 the terms and conditions of the key employees' share
savings plan. A total of about 49 key employees are participating in the plan.
The savings period started on 1 October 2014 and end on 30 September 2015. For
both savings plans the maximum and minimum monthly savings amount to 10 and 2
per cent, respectively, of each participant's fixed gross monthly salary. The
accumulated savings will be used for purchasing Oriola-KD's class B shares for
the participants at market prices. About two years after the start of the
programme, the company will give the participants two class B shares for every
three shares purchased as part of the programme. The shares given to the
participants will be partially used for paying taxes. Oriola-KD Corporation has
an agreement with a third-party service provider concerning administration of
the share-based incentive program. At the end of the reporting period, the
amount of treasury shares held by the third-party service provider was 38,160.
Liquidity guarantee
There is no liquidity guarantee in effect for the shares of Oriola-KD
Corporation.
Flagging announcements
On 7 May 2014 Norges Bank (The Central Bank of Norway) portion of the shares of
Oriola-KD Corporation exceeded the 1/20 limit referred to in Chapter 9, Section
5 of the Securities Markets Act. On 7 May 2014, the direct shareholding of
Norges Bank totalled 5.76 per cent of Oriola-KD Corporation's shares and 1.49
per cent of the votes conferred by the shares.
On 18 September 2014 Mariatorp Oy portion of the shares of Oriola-KD Corporation
exceeded the 1/20 limit referred to in Chapter 9, Section 5 of the Securities
Markets Act. On 19 September 2014, the direct shareholding of Mariatorp Oy
totalled 5.01 per cent of Oriola-KD Corporation's shares and 5.002 per cent of
the votes conferred by the shares.
Risks
Oriola-KD's Board of Directors has approved the company's risk management policy
in which the risk management operating model, principles, responsibilities and
reporting are specified. The Group's risk management seeks to identify, measure
and manage risks that may threaten Oriola-KD's operations and the achievement of
goals set. The roles and responsibilities relating to risk management have been
determined in the Group.
Oriola-KD's risks are classified as strategic, operational and financial. Risk
management is a key element of the strategic process, operational planning and
daily decision-making at Oriola-KD.
Oriola-KD has identified the following principal strategic and operational risks
in its business:
* Amendments to pharmaceutical market regulations may weaken Oriola-KD's net
sales and profitability.
* In the Swedish retail business, the free establishment of pharmacies has led
to an increase in the number of pharmacies. The number of pharmacies may
continue to grow, which could further increase the fierce competition.
* Extra capacity ensuing from a change in the Swedish wholesale market will
intensify competition, which may weaken the profitability of operations. The
share of single channel distribution in the pharmaceutical wholesale market
may decline rapidly, which may weaken the profitability of operations and
lead to the restructuring of wholesale operations.
* Changes in share of parallel imports in Swedish pharmaceutical market may
affect profitability of the Swedish wholesale and retail businesses.
* In the Russian retail business, tough competition resulting from the
increasing number of pharmacies and potential consolidation of the pharmacy
market may lead to a further decrease in the gross margin and a rapid
turnover rate of key personnel.
* As a result of the tough competition in the Russian wholesale business, the
gross margin may decline further, which will lead to a continued need to
intensify operations and restructure wholesale operations over the long
term. The payment behaviour that is typical to the Russian market, combined
with the regional expansion of operations may increase credit risks.
* Strategic development projects involve operational risks.
The main financial risks for Oriola-KD involve currency rate, liquidity,
interest rate and credit risks. Currency risks are the most significant
financial risks in Russia and Sweden, as any changes in the value of the Russian
ruble and the Swedish krona will have an impact on Oriola-KD's net sales,
earnings and equity.
Oriola-KD prepares goodwill impairment testing twice a year, in accordance with
the timetable of its strategy and planning process. Changes in cash flow
forecasts based on strategic plans, or in the discount rate or perpetuity growth
rate, can cause a goodwill write-off, which would weaken Oriola-KD's result.
Near-term risks and uncertainty factors
A slowing down in the economic growth of Russia as well as the continuing
weakening of the external value of the Russian ruble may have an effect of the
net sales and profitability of the Oriola-KD Russian businesses in 2014. A
decrease in gross margin resulting from intense competition, weak development of
the operations and relationship to Pharmaceutical principles and an increase in
credit risks concerning customers may have a negative impact on the
profitability of the wholesale business in Russia.
Oriola-KD's strategic development projects in the Russian wholesale business and
the operations in Sweden involve operational risks which may have an effect on
Oriola-KD's profitability.
Oriola-KD's long-term financing agreement contains financial covenants
concerning the ratio between Oriola-KD's net debt and rolling 12-month EBITDA
and the group's gearing ratio. Weakening profitability of Oriola-KD's business
operations may affect Oriola-KD's ability to meet the financial covenants
contained in the financing agreement.
Outlook
Oriola-KD's outlook for 2014 is based on external market forecasts, agreements
with pharmaceutical companies and pharmacies, and management assessments. During
the five-year period from 2014-2018, the Finnish pharmaceutical market is
expected to grow at an annual rate of 2.6 per cent and change an average of 0
per cent in Sweden per year while the Russian pharmaceutical market is expected
to grow by an average of almost 8.7 per cent annually in the local currencies
(source: IMS Health Prognosis 2014-2018, September 2014).
Outlook for 2014
Oriola-KD estimates that net sales and operating profit excluding non-recurring
items will decrease from 2013 level.
Oriola-KD revised its guidance announced in interim report July 24, 2014 with
stock exchange release on October 10, 2014.
Events after the review period
Oriola-KD has stated in its stock exchange release on October 10, 2014 that the
Company has nominated a financial advisor to investigate the conditions for
selling the Company's Russian businesses and conducted negotiations in the
matter. No decision has been made on the sale of the businesses, and there is no
certainty regarding the completion of any possible sale. In addition to the
ongoing initiatives to develop Company's Russian businesses, the Company will
also continue to investigate other strategic alternatives.
Next interim report
Oriola-KD Corporation will publish its financial statements release for 2014 on
February 6, 2014 at about 8:30 a.m.
Oriola-KD's Interim Report for January - September 2014, unaudited
Consolidated Statement of
Comprehensive Income
(IFRS), 2014 2013 2014 2013 2013
EUR million 7-9 7-9 1-9 1-9 1- 12
-------------------------------------------------------------------------------
Net sales 565.6 654.4 1,752.5 1,918.8 2,598.5
Other operating income 2.2 1.1 7.7 3.7 5.7
Cost of goods sold -477.5 -551.7 -1,473.1 -1,632.1 -2,199.4
Employee benefits -41.1 -45.3 -137.3 -138.4 -186.5
Other operating expenses -37.9 -43.3 -118.4 -124.3 -171.5
-------------------------------------------------------------------------------
Gross profit 11.2 15.1 31.5 27.8 46.7
Depreciation and
impairment -6.7 -6.5 -91.0 -17.1 -25.7
-------------------------------------------------------------------------------
Operating Profit 4.6 8.6 -59.5 10.6 21.0
Financial income 4.3 2.4 12.2 7.6 14.1
Financial expenses -7.3 -6.5 -21.5 -16.7 -27.7
-------------------------------------------------------------------------------
Profit before taxes 1.6 4.5 -68.8 1.5 7.4
Income taxes * -3.2 -2.3 -12.3 -1.4 -1.6
-------------------------------------------------------------------------------
Profit for the period -1.6 2.3 -81.1 0.2 5.8
Other comprehensive
income
Items which may be
reclassified subsequently
to profit or loss:
Translation difference -15.1 -3.7 -25.0 -20.0 -29.7
Cash flow hedge -0.3 0.0 -1.3 1.1 0.8
Income tax relating to
other comprehensive
income 0.9 0.1 1.0 0.2 0.3
-------------------------------------------------------------------------------
-16.0 -1.2 -106.3 -18.5 -22.9
Items which are not reclassified
subsequently to profit or loss:
Actuarial gains/losses on
defined benefit plan - - - - 5.9
Income tax relating to
other comprehensive
income - - - - -1.3
-------------------------------------------------------------------------------
Total comprehensive
income
for the period -16.0 -1.2 -106.3 -18.5 -18.3
Attribution of Profit for
the period
-------------------------------------------------------------------------------
To parent company
shareholders -1.6 2.3 -81.1 0.2 5.8
-------------------------------------------------------------------------------
Attribution of total
comprehensive
income for the period
-------------------------------------------------------------------------------
To parent company
shareholders -16.0 -1.2 -106.3 -18.5 -18.3
-------------------------------------------------------------------------------
Earnings per share for
the period
Basic earnings per share,
EUR -0.02 0.01 -0.55 0.00 0.04
Diluted earnings per
share, EUR -0.02 0.01 -0.55 0.00 0.04
*) The tax expense for the period corresponds to the taxes calculated
from the profit for the financial period
Consolidated Statement of Financial Position (IFRS),
EUR million
ASSETS 30 Sept 2014 30 Sept 2013 31 Dec 2013
-------------------------------------------------------------------------------
Non-current assets
Property, plant and equipment 102.1 93.9 93.2
Goodwill 285.4 389.4 379.0
Other intangible assets 67.5 76.3 72.0
Other shares and shareholdings 0.0 0.0 0.0
Pension assets 9.1 6.2 9.3
Other non-current assets 0.0 0.2 0.0
Deferred tax assets 2.9 11.5 8.3
-------------------------------------------------------------------------------
Non-current assets total 467.1 577.5 561.8
Current assets
Inventories 342.5 361.9 391.4
Trade and other receivables 318.6 355.7 337.9
Other receivables 70.5 76.3 71.8
Cash and cash equivalents 68.9 95.7 137.3
-------------------------------------------------------------------------------
Current assets total 800.4 889.7 938.3
ASSETS TOTAL 1,267.5 1,467.2 1,500.1
-------------------------------------------------------------------------------
EQUITY AND LIABILITIES
-------------------------------------------------------------------------------
Equity of the parent
company shareholders
Share capital 36.2 36.2 36.2
Hedging reserve -1.2 0.1 -0.2
Contingency fund 19.4 19.4 19.4
Hybrid bond 39.6 - -
Other reserves 1.2 1.2 1.2
Other equity 116.0 221.6 221.5
-------------------------------------------------------------------------------
Equity total 211.3 278.5 278.1
Non-current liabilities
Deferred tax liabilities 15.5 18.6 17.7
Pension obligations 7.4 10.1 7.6
Borrowings 163.9 171.0 176.2
Other non-current liabilities - - 0.3
-------------------------------------------------------------------------------
Non-current liabilities total 186.8 199.7 201.7
Current liabilities
Trade payables and other current
liabilities 780.3 836.2 874.7
Provisions 0.4 2.7 3.0
Borrowings 88.7 150.1 142.6
-------------------------------------------------------------------------------
Current liabilities total 869.4 989.0 1,020.3
EQUITY AND LIABILITIES TOTAL 1,267.5 1,467.2 1,500.1
-------------------------------------------------------------------------------
Consolidated Statement of
Changes in Equity (IFRS)
Equity of the parent company
shareholders
Trans- Re-
lation tained
Share diffe- earn- Hybrid Equity
EUR million capital Funds rences ings bond total
-------------------------------------------------------------------------------
Equity
31 Dec 2012 36.2 26.0 3.9 248.9 - 314.9
-------------------------------------------------------------------------------
Change in accounting
policy (IAS19) - - -0.0 -4.3 - -4.4
-------------------------------------------------------------------------------
Equity, revised*
1 Jan 2013 36.2 26.0 3.8 244.5 - 310.5
-------------------------------------------------------------------------------
Comprehensive income
for the period
Net profit for the
period - - - 0.2 - 0.2
Other comprehensive
income:
Cash flow hedge - 1.1 - - - 1.1
Income tax relating
to
other comprehensive
income - -0.3 0.5 - - 0.2
Translation
difference - 0.0 -20.0 - - -20.0
-------------------------------------------------------------------------------
Comprehensive income
for the period total - 0.8 -19.5 0.2 - -18.5
-------------------------------------------------------------------------------
Owners-related
transactions
Dividends paid and
repayment of equity - -6.0 - -7.6 - -13.6
Share-based payments - - - 0.1 - 0.1
-------------------------------------------------------------------------------
Owners-related
transactions total - -6.0 - -7.4 - -13.5
-------------------------------------------------------------------------------
Equity
30 Sept 2013 36.2 20.7 -15.7 237.3 - 278.5
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Equity
1 Jan 2014 36.2 20.4 -25.3 246.8 - 278.1
-------------------------------------------------------------------------------
Comprehensive income
for the period
Net profit for the
period - - - -81.1 - -81.1
Other comprehensive
income:
Cash flow hedge - -1.3 - - - -1.3
Income tax relating
to
other comprehensive
income - 0.3 0.7 - - 1.0
Translation
difference - -0.0 -25.0 - - -25.0
-------------------------------------------------------------------------------
Comprehensive income
for the period total - -1.0 -24.2 -81.1 - -106.3
-------------------------------------------------------------------------------
Owners-related
transactions
Hybrid bond - - - - 39.6 39.6
Share-based incentive - - - 0.0 - 0.0
Purchase of own
shares - - - -0.1 - -0.1
-------------------------------------------------------------------------------
Owners-related
transactions total - - - -0.1 39.6 39.5
-------------------------------------------------------------------------------
Equity
30 Sept 2014 36.2 19.4 -49.5 165.6 39.6 211.3
-------------------------------------------------------------------------------
*) Revised standard IAS 19 Employee benefits has been applied as of 1
January 2013
Condensed Consolidated Statement of Cash
Flows (IFRS), EUR million
2014 2013 2013
1-9 1-9 1- 12
-------------------------------------------------------------------
Operating profit -59.5 10.6 21.0
Depreciation 19.9 17.1 25.7
Impairment 71.1 - -
Change in working
capital -38.0 -35.2 3.5
Cash flow from financial
items and taxes -9.6 -13.1 -13.8
Other adjustments -3.1 -0.6 -6.7
-------------------------------------------------------------------
Net cash flow from
operating activities -19.2 -21.0 29.8
Net cash flow from
investing activities -24.7 -88.8 -97.8
Net cash flow from
financing activities -26.3 118.1 118.4
Net change in cash and
cash equivalents -70.2 8.3 50.4
Cash and cash
equivalents
at the beginning of the
period 137.3 88.1 88.1
Foreign exchange rate
differences 1.8 -0.6 -1.2
Net change in cash and
cash equivalents -70.2 8.3 50.4
-------------------------------------------------------------------
Cash and cash
equivalents
at the end of the period 68.9 95.7 137.3
-------------------------------------------------------------------
Principal accounting policies as of 1 January 2014 (IFRS)
This interim report has been prepared in accordance with IFRS standards (IAS
34). The accounting policies and calculation methods applied in the interim
report are the same as those in the 31 December 2013 annual financial
statements, excluding the standards and interpretation applied as of 1 January
2014 and presented below. However, the interim report does not include all of
the information and notes present in the annual financial statements.
Consequently, the interim report should be read with the company's financial
statements for 2013. The accounting policies of the 2013 and 2014 financial
years are comparable. The company has no discontinued operations in 2013 or
2014 that it should report.
The calculation principles of key figures in this interim report are the same as
for the annual financial statements, except for the calculation of earnings per
share (EPS) whereby the profit attributable to equity owners of the parent has
been adjusted with the unpaid hybrid loan interest.
The presentation of consolidated statement of comprehensive income has been
changed from the "function of expense" method to the "nature of expense" method.
The comparable figures have been revised to correspond with the current
presentation.
The figures in the interim report have been rounded independently.
New standards or amendments to the existing ones that have been applied as of 1
January 2014:
* IFRS 10 Consolidated Financial Statements
* IFRS 11 Joint Arrangements
* IFRS 12 Disclosure of Interests in Other Entities
* IAS 27 (revised in 2011) Separate Financial Statements
* IAS 28 (revised in 2011) Investments in Associates
The new standards have not had a material impact on the Group's financial
position.
On 20 February 2014 Oriola-KD issued a hybrid bond, classified as equity.
Interest on the hybrid bond is paid in accordance with a decision made by the
Board of Directors. Unpaid interest is accrued and reported on the balance sheet
upon the interest payment decision. Unpaid interest is taken into consideration
in the calculation of earnings per share.
Reporting segment results reported to Oriola-KD management exclude the
management fee. Segment information for 2013 has been revised to correspond with
the current presentation.
The figures in this interim review are unaudited.
Earnings per share
2014 2013 2014 2013 2013
EUR million 7-9 7-9 1-9 1-9 1- 12
-------------------------------------------------------------------------------
Profit attributable to equity owners
of the parent -1.6 2.3 -81.1 0.2 5.8
Accumulated interest on hybrid bond
net of tax -0.6 - -1.4 - -
-------------------------------------------------------------------------------
Adjusted profit for the period -2.2 2.3 -82.5 0.2 5.8
Average number of outstanding shares (1000
shares)
Basic 151,134 151,161 151,134 151,161 151,157
Diluted 151,134 151,161 151,134 151,161 151,157
Earnings per share (EUR)
Basic -0.02 0.01 -0.55 0.00 0.04
Diluted -0.02 0.01 -0.55 0.00 0.04
Tangible and intangible assets
Impairment loss in relation to Russian pharmaceutical wholesale operating
segment
Following a revised business plan developed by the new Russian pharmaceutical
wholesale operational management, the Group assessed the recoverable amount of
the Russian pharmaceutical wholesale operating segment during the second quarter
of 2014. Based on the business plan, the growth in future net sales and
profitability are expected to be below those of the earlier plans. The Group's
revised outlook on the growth of Russian pharmaceutical wholesale operations is
consistent with the weakening view of external information sources regarding the
future development of the Russian markets.
Based on the assessment, the carrying amount of the cash generating unit was
determined to be higher than its recoverable amount and an impairment loss of
EUR 77.2 million was recognised. The impairment charge consists of goodwill EUR
70.2 million, intangible assets EUR 0.9 million and deferred tax assets EUR 6.1
million. After the impairment no goodwill is allocated to the Russian wholesale
business. The impairment charge is included within "depreciation and
impairments" and "income taxes" in the consolidated statement of comprehensive
income.
The recoverable amount of the cash generating unit was based on value in use and
was determined on the basis of discounted cash flows (DCF-model). The cash flow
forecasts are based on five-year strategic plans approved by the management,
which are consistent with the current business structure. The cash flows of
2020-2024 are based on the assumption that the net sales growth percentage and
the operating profit percentage will gradually normalise at the level of
terminal growth. Value in use was determined similarly to the 31 December 2013
goodwill impairment test.
The key parameters applied in the value-in-use calculation of the Russian
pharmaceutical wholesale (31 December 2013) were as follows:
* Post-tax discount rate 11.8 (10.1) per cent
* Operating profit 0.2 (0.8) per cent. Operating profit percentage in the
value-in-use calculation is the average operating profit percentage over a
ten year period.
* Terminal growth 2.0 (1.0) per cent. Terminal growth rate is applied from the
beginning of year 2025.
* Net sales growth 5.0 (8.4) per cent. Net sales growth rate is the average
growth rate over a ten-year period.
Changes in Property, Plant and Equipment, 2014 2013 2013
EUR million 1-9 1-9 1- 12
----------------------------------------------------------------------
Carrying amount at the beginning of the period 93.2 81.4 81.4
Increases through acquisitions of subsidiary shares - 9.0 8.0
Increases 23.1 14.4 22.4
Decreases -0.3 -0.1 -1.4
Reclassifications 0.8 - -
Depreciation -12.3 -9.9 -14.8
Foreign exchange rate differences -2.4 -0.8 -2.4
----------------------------------------------------------------------
Carrying amount at the end of the period 102.1 93.9 93.2
----------------------------------------------------------------------
Changes in Intangible assets, 2014 2013 2013
EUR million 1-9 1-9 1- 12
----------------------------------------------------------------------
Carrying amount at the beginning of the period 451.0 329.0 329.0
Increases through acquisitions of subsidiary shares - 156.9 157.8
Increases 6.5 4.2 5.4
Decreases -0.2 0.0 -0.0
Reclassifications -0.8 - -
Impairments and depreciation -78.8 -7.3 -10.8
Foreign exchange rate differences -24.9 -17.3 -30.4
----------------------------------------------------------------------
Carrying amount at the end of the period 352.9 465.6 451.0
----------------------------------------------------------------------
Derivatives
30 Sept 2014 Positive fair Negative fair Nominal values of
EUR million value value contracts
-------------------------------------------------------------------------
Derivatives recognised
as cash flow hedges
Interest rate swaps - -1.5 43.7
Derivatives measured at
fair value through profit and
loss
Foreign currency forward and
swap contracts - -0.1 131.3
-------------------------------------------------------------------------
30 Sept 2013 Positive fair Negative fair Nominal values of
EUR million value value contracts
-------------------------------------------------------------------------
Derivatives recognised
as cash flow hedges
Interest rate swaps 0.1 - 46.2
Derivatives measured at
fair value through profit and
loss
Foreign currency forward and
swap contracts 2.3 - 122.4
-------------------------------------------------------------------------
Derivatives measured at fair value through profit and loss are mainly related to
hedging of group's internal transactions. Fair values of the derivatives have
been booked to balance sheet in gross amount as the derivatives contracts are
related to credit events and cannot be netted in financial statements. The group
has not given nor received collateral to/from derivatives counterparties.
Fair value hierarchy
EUR million
30 Sept 2014 Level 1 Level 2 Level 3 Total
-------------------------------------------------------------------------------
Assets
Derivatives measured at fair value through
profit and loss - 0.2 - 0.2
Liabilities
Derivatives designated as
hedges - 1.5 - 1.5
Derivatives measured at fair value through
profit and loss - 0.3 - 0.3
Contingent consideration - - 14.9 14.9
-------------------------------------------------------------------------------
EUR million
30 Sept 2013 Level 1 Level 2 Level 3 Total
-------------------------------------------------------------------------------
Assets
Derivatives measured at fair value through
profit and loss - 2.3 - 2.3
Derivatives designated as
hedges - 0.1 - 0.1
Liabilities
Contingent consideration - - 14.7 14.7
-------------------------------------------------------------------------------
Level 1: Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2: Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable
market data (i.e. unobservable inputs).
Reconciliation of financial liabilities recognised at fair value through profit
and loss according to the level 3
EUR million
---------------------------------------
Carrying amount 31 Dec 2013 14.6
---------------------------------------
Recognised in financial expenses 0.7
Foreign exchange rate differences -0.5
---------------------------------------
Carrying amount 30 Sept 2014 14.9
---------------------------------------
Financial liabilities recognised at fair value through profit and loss (level
3) include estimated discounted fair value of a contingent consideration related
to the Medstop acquisition. Payment of the contingent consideration will be
based on 2015 EBITDA of Oriola-KD's combined Swedish retail businesses and will
be paid in first quarter of 2016. The fair value of the contingent consideration
has been calculated using discounted cash flow method. The discount rate used in
the valuation is determined using the weighted average cost of capital of the
Group.
Commitments and Contingent Liabilities
Contingencies for own liabilities
EUR million 30 Sept 2014 30 Sept 2013 31 Dec 2013
-----------------------------------------------------------------------------
Guarantees given 16.9 19.9 21.3
Mortgages on land and buildings - - -
Mortgages on company assets 2.3 2.4 2.4
Other guarantees and liabilities 1.1 0.8 0.9
Accumulated interest on hybrid bond 1.7 - -
-----------------------------------------------------------------------------
Total 21.9 23.1 24.6
-----------------------------------------------------------------------------
Leasing commitments 0.9 3.0 2.6
Non-cancellable rental agreements 87.2 81.8 77.0
The most significant guarantees are bank guarantees against trade payables in
wholesale companies in Russia and Sweden. In addition, Oriola-KD Corporation has
granted parent company guarantees of EUR 23.8 (24.3) million against
subsidiaries' trade payables and EUR 148.3 (157.0) million against Oriola-KD
Holding Sverige AB's external loan.
Provisions
On 30 September 2014 Oriola-KD had restructuring provisions totalling EUR 0.4
(2.7) million related to restructuring costs incurred by Pharmaceutical Trade
Sweden in connection with the integration of the Medstop acquisition and an
efficiency program as well as by Pharmaceutical Trade Russia in connection with
a profitability improvement program.
Related parties
Related parties in the Oriola-KD Group are deemed to comprise the members of the
Board of Directors and the President and CEO of Oriola-KD Corporation, the other
members of the Group Management Team of the Oriola-KD Group, the immediate
family of the aforementioned persons, the companies controlled by the
aforementioned persons, and the Oriola Pension Fund. The Group has no
significant business transactions with related parties, except for pension
expenses arising from defined benefit plans with the Oriola Pension Fund.
Segment information
2014 2013 2013
Net Sales, EUR million 1-9 1-9 1- 12
-------------------------------------------------------------------------------
Pharmaceutical Trade
Finland and Baltics 316.3 316.0 425.3
Pharmaceutical Trade Sweden 878.3 893.9 1,194.4
Pharmaceutical Trade Russia 557.9 709.0 978.8
Net sales to other segments -0.0 -0.0 -0.0
-------------------------------------------------------------------------------
Group total 1,752.5 1,918.8 2,598.5
2014 2013 2013
Operating Profit, EUR million 1-9 1-9 1- 12
-------------------------------------------------------------------------------
Pharmaceutical Trade
Finland and Baltics 14.7 14.6 18.8
Pharmaceutical Trade Sweden 32.7 10.2 16.4
Pharmaceutical Trade Russia -102.5 -8.8 -8.3
Group Administration and Others -4.5 -5.4 -5.9
-------------------------------------------------------------------------------
Group total -59.5 10.6 21.0
Operating Profit excl. Non-recurring items, EUR
million 2014 2013 2013
1-9 1-9 1- 12
-------------------------------------------------------------------------------
Pharmaceutical Trade
Finland and Baltics 14.7 14.6 18.8
Pharmaceutical Trade Sweden 33.7 16.2 24.1
Pharmaceutical Trade Russia -31.0 -8.8 -8.0
Group Administration and Others -4.5 -5.4 -5.9
-------------------------------------------------------------------------------
Operating Profit excl. non-recurring items 12.9 16.6 29.0
-------------------------------------------------------------------------------
Non-recurring items -72.5 -6.0 -8.0
-------------------------------------------------------------------------------
Group total -59.5 10.6 21.0
2014 2014 2014 2013 2013 2013 2013
Quarterly Net Sales,
EUR million 7-9 4-6 1-3 10-12 7-9 4-6 1-3
-------------------------------------------------------------------------------
Pharmaceutical Trade
Finland and Baltics 108.5 107.0 100.8 109.4 96.0 112.5 107.5
Pharmaceutical Trade Sweden 281.3 298.5 298.5 300.5 315.7 304.5 273.7
Pharmaceutical Trade Russia 175.8 187.6 194.6 269.8 242.7 235.2 231.1
Net sales to other segments -0.0 -0.0 -0.0 -0.0 0.0 -0.0 -0.0
-------------------------------------------------------------------------------
Group total 565.6 593.1 593.9 679.6 654.4 652.1 612.3
2014 2014 2014 2013 2013 2013 2013
Quarterly Operating Profit,
EUR million 7-9 4-6 1-3 10-12 7-9 4-6 1-3
-------------------------------------------------------------------------------
Pharmaceutical Trade
Finland and Baltics 5.5 4.4 4.8 4.2 5.3 5.2 4.2
Pharmaceutical Trade Sweden 12.3 11.0 9.4 6.2 6.2 0.8 3.2
Pharmaceutical Trade Russia -11.7 -85.0 -5.8 0.5 -1.9 -3.4 -3.6
Group Administration and
Others -1.6 -1.5 -1.3 -0.5 -1.0 -3.0 -1.4
-------------------------------------------------------------------------------
Group total 4.6 -71.2 7.1 10.4 8.6 -0.3 2.3
Quarterly Operating Profit, 2014 2014 2014 2013 2013 2013 2013
excl. non-recurring items, EUR
million 7-9 4-6 1-3 10-12 7-9 4-6 1-3
-------------------------------------------------------------------------------
Pharmaceutical Trade
Finland and Baltics 5.5 4.4 4.8 4.2 5.3 5.2 4.2
Pharmaceutical Trade Sweden 12.4 11.3 10.0 7.9 8.2 4.9 3.2
Pharmaceutical Trade Russia -11.7 -14.0 -5.4 0.8 -1.9 -3.4 -3.6
Group Administration and
Others -1.6 -1.5 -1.3 -0.5 -1.0 -3.0 -1.4
-------------------------------------------------------------------------------
Group total excl. Non-
recurring items 4.6 0.2 8.1 12.4 10.6 3.7 2.3
-------------------------------------------------------------------------------
Non-recurring items -0.1 -71.4 -1.0 -2.0 -2.0 -4.0 -
-------------------------------------------------------------------------------
Group total 4.6 -71.2 7.1 10.4 8.6 -0.3 2.3
2014 2013 2013
Net Sales by Market,
EUR million 1-9 1-9 1- 12
--------------------------------------------------------
Finland 282.2 284.7 382.9
Sweden 833.9 852.1 1,135.0
Russia 557.9 709.0 978.8
Baltic countries 31.7 28.7 38.8
Other countries 46.8 44.3 63.0
--------------------------------------------------------
Group total 1,752.5 1,918.8 2,598.5
2014 2014 2014 2013 2013 2013 2013
Quarterly Net Sales by Market,
EUR million 7-9 4-6 1-3 10-12 7-9 4-6 1-3
-------------------------------------------------------------------------------
Finland 97.1 95.9 89.2 98.2 85.3 102.5 96.8
Sweden 265.8 283.7 284.4 283.0 303.5 289.5 259.0
Russia 175.8 187.6 194.6 269.8 242.7 235.2 231.1
Baltic countries 11.1 9.8 10.9 10.0 9.1 9.6 10.0
Other countries 15.9 16.1 14.8 18.7 13.7 15.3 15.4
-------------------------------------------------------------------------------
Group total 565.6 593.1 593.9 679.6 654.4 652.1 612.3
Espoo, 23 October 2014
Board of Directors of Oriola-KD Corporation
Further information:
Eero Hautaniemi
President and CEO
tel. +358 (0)10 429 2109
e-mail: eero.hautaniemi@oriola-kd.com
Tuomas Itkonen
CFO
tel. +358 (0)40 5964 004
e-mail: tuomas.itkonen@oriola-kd.com
Distribution:
NASDAQ OMX Helsinki Ltd
Key media
Released by:
Oriola-KD Corporation
Corporate Communications
Orionintie 5
02200 Espoo
www.oriola-kd.com
[HUG#1864847]
