Oriola-KD Corporation Annual Report 2008

8/14/2019 Oriola-KD Corporation Annual Report 2008

1/25

2008Vuosikertomus 2008 Annual ReportMore care


2/25

IMPORTANT DATES 2009Interim Report 13/2009 on Wednesday, 29 April 2009Interim Report 16/2009 on Thursday, 13 August 2009Interim Report 19/2009 on Thursday, 29 October 2009

Oriola-KD Corporations Annual General Meeting will beheld on Thursday, 16 April 2009 in Helsinki.

Oriola-KD CorporationCorporate CommunicationsP.O.Box 802101 Espoo, Finland

[email protected]

RIOL A- K D S TENGH T S I T S

P RI V A TE L A BEL

P ROG R AMM The com

pan y launched th

sale s o f heal thcare con sum

er produc t

sold under i t s proprie tar y MedO

la

rand in Finland.

R I O L A - KD E X P A N D E D I T S O P E R A T I O N S O O R U S S I A T h e a c qui si t i on of t h e i t i m a nd Mor on L t d p h a r ma c y a nd

V h a r ma c e ut i c a l w h ol e sa l e c omp a ni e s

. E REGU LATION OFTHE S WEDI SHD HARMAC Y MARKET P Or iola- KD st a rte d r epa ra tion to d eregulati on o Swed i shha rmacy ma rket. T he d eregulati on iseen e stima ted t o ta ke pl a ce on Jul y 009 . 2

I L 60 S ear 2008 wa s a

O bileum year t o Or

iola when i t t hrew

ar t y for deci sion-maker s, cu s t omer

,

i ci ri i i

.

Events in 200

Oriola-KD countries of operation Oriola-KD ofces

Oriola-KD Corporation is a leadingcompany in Pharmaceutical and HealthcareTrade in Finland, Sweden, Russia and theBaltic countries. Invoicing in 2008 was EUR2.9 billion and the number of personnelwas 4,700. Oriola-KD is listed on NASDAQOMX Helsinki Ltd. For more information,visit www.oriola-kd.com


3/25

CONTENT 2 CEOs Review

3 Strategy 4 Market Review 6 Financial Review 8 Pharmaceutical Trade 14 Healthcare Trade18 Personnel

21 Contact Information

2008More care

1


4/25

CEOs Review

For Oriola-KD, 2008 was a year of success. The long-planned acquisi-tion on Russias rapidly growing pharmaceuticals retail and wholesalemarket went ahead, preparations for changes in the Swedish pharma-cy market proceeded according to plan, and we achieved the targetswe set in 2007 for improving operating prot and return on capitalemployed, despite the challenging market situation.

Alongside the Russian and Swedish programs, we also continued todevelop our core business operations and to shed non-core business-es, a process which we started in 2006. We focused on improving theprotability of pharmaceutical wholesale in Finland and Sweden andtook further strides towards our goal of raising distribution marginscloser to the general European level. This work will continue in 2009,the focus being on services pricing and process development. In addi-tion, we will discontinue product groups and services that do not rep-resent our core business or which perform poorly. These steps havereinforced the positive trend in our protability and have focused ourresources on those services which are most important for our cus-tomers and for quality enhancement.

Early in 2008, we dened a new strategy for Oriola-KD. Our goal isto be a leading pharmaceutical retail, wholesale and healthcare tradecompany in Finland, Sweden, Russia and the Baltic countries. Withthe help of our revised strategy, we are preparing for changes dueto take place in our markets in the coming years. These foreseeablechanges include a change in the ownership of pharmacies and in theregulations governing their business operations, a slowdown in mar-ket growth in Finland and Sweden due to the expiry of pharmaceu-tical patents and more widespread use of generic drugs, an increasein the importance of comprehensive management of the refrigeratedtransport chain, particularly in the distribution of expensive specialmedicines, and consolidation among customers and suppliers in ourHealthcare Equipment and Supplies business.

In April 2008, we took an important strategic step on the Russian mar-ket, broadening the expertise within our retail business. Oriola-KD iscurrently one of the leading pharmaceutical retail and wholesale com-panies in Russia. At the end of 2008 we were operating 150 modern

pharmacies in and around Moscow. Our wholesale operations areconcentrated in the more densely populated western part of Russia.In addition to integrating newly acquired businesses, we placed a par-ticular focus in 2008 on enhancing business operations and improvingprotability, and we succeeded well in this. Although the uncertaintyin nancial markets had an adverse effect on the Russian economy,Oriola-KDs good liquidity and careful preparation against a weaken-ing in the value of the rouble enabled us to strengthen our marketposition in the Russian pharmaceutical wholesale sector, particularlyin the latter part of the year. We will continue to develop the opera-tions of our Russian companies and will seek a moderate expansionof our pharmacy chain in 2009.

The Swedish Government has proposed that its pharmacy monopolybe abolished in July 2009. Such deregulation of the pharmacy marketcould offer Oriola-KD greater earnings potential in its pharmacy busi-ness. We have prepared for this eventuality very carefully and havecreated alternative operating models for developing the business.

The Healthcare Trade businesss performance in 2008 was adverse-ly affected by agreements made earlier which led to us losing therepresentation of two signicant suppliers as part of a reorganisa-tion of international distribution channels. Nevertheless, we boost-ed the efciency of our sales operations and revised our organisa-tional structure during the year, and in special nursing we focusedour operations more sharply on selected specialised sectors. In pri-mary healthcare, we developed our wide-ranging wholesale conceptto encompass the products most commonly used in healthcare, andin the course of this process we also reinforced our product rangewith products manufactured under our proprietary Medola brand. Ourwholesale concept offers customers the opportunity to outsource alarger share of their materials logistics to Oriola-KD, giving theirhealthcare staff more time to attend to patients.

We continued with our systematic efforts in personnel develop-ment during 2008. I am extremely glad that personnel satisfaction atOriola-KD has continued to grow since 2006. Our personnel feelsthat developing the company is both satisfying and challenging and

2


5/25

VISION 2012Oriola-KD is a leading pharmaceuticalretail & wholesale and healthcare tradecompany in Finland, Sweden, Russia andthe Baltics

STRATEGYDuring 2008 Oriola-KD specieda strategy that consists of vestrategic programs:

Integrate and expand wholesale andretail business in Russia

Transform into integrated pharmaceutical retail in SwedenPrepare for pharmaceuticalwholesale and retail in FinlandImplement wholesale business modelfor healthcare tradeOperational excellence

Oriola-KD expandedinto pharmaceutical

retail andwholesale in Russia, in line with its

strategy

that, above all, it is steering Oriola-KD in the right direction. The keydevelopment areas in 2008 were the performance-linked remunera-tion and bonus system, the provision of training opportunities andimproving the internal ow of information.

We also conducted our rst Group-wide customer satisfaction survey,which provided us with valuable feedback on our operations. We willcontinue to gather customer feedback in order to enhance our busi-ness operations and improve quality.

I wish to extend my thanks to all our customers, employees, partnersand shareholders for their trust in the company.

Eero HautaniemiPresident and CEO

3


6/25

Market Review

GENERAL MARKET TRENDSConsolidation is occurring in the global pharmaceutical market andhealthcare equipment and supplies market, with ever larger compa-nies being formed. Consolidation is also taking place in pharmaceuticalretail and wholesale and in the wholesale of healthcare equipment andsupplies. The global pharmaceutical market is expected to grow at anaverage of 5 to 8 percent annually, despite the fact that some 20 per-cent of existing medicines will lose patent protection within the nextve years, leading to an increase in the proportion of generic medi-cines.

The share of special biochemical medicines is expected to increase, asis the direct delivery of such medicines to hospitals. On-line purchasingof medicines and their direct delivery to households may also becomemore widespread.

The owning and conducting of pharmacy operations is being dereg-u ate in Europe, an t is is expecte to ea to c anges in t e wayin which medicines are distributed. Deregulation will allow the forma-tion of pharmacy chains and the vertical integration of wholesale andretail activities.

PHARMACEUTICAL MARKETThe value of the Finnish pharmaceutical market in 2008 was approxi-mately EUR 2 billion, while that of Sweden was roughly EUR 3 billionand Russia about EUR 10 billion (460 billion roubles). The combinedLithuanian, Latvian and Estonian markets were valued at just under EUR1 billion. The Finnish and Swedish pharmaceutical markets are esti-mate to grow y a out 3 to 5 percent annua y, w i e t e anticipategrowth in Russia is 15 to 20 percent. Per capita consumption of medi-cines in Western and Central Europe is roughly six times greater thanin Russia. In 2008, the pharmaceutical market grew by some 7 percentin Finland, about 4 percent in Sweden, about 25 percent in Russia, and5 to 10 percent in the Baltic countries. The growth in the Baltic coun-tries was down substantially on the 2007 gures.

PHARMACEUTICAL WHOLESALE MARKETFinland and Sweden have a single-channel model of pharmaceuticaldistribution where the pharmaceutical wholesaler enters into a contractwit a p armaceutica company to exc usive y istri ute a its pro -ucts to every pharmacy in the country. There are two major pharma-ceutical wholesalers in Finland and Sweden. In contrast, Russia and the

Baltic countries have a multi-channel model where wholesalers can buypharmaceuticals from different manufacturers and then market them topharmacies. There are a number of different wholesalers in Russia andthe Baltic countries.

PHARMACY MARKETIn 2008, the approximate number of pharmacies in Finland was 800,in Sweden 900, in Russia 30,000, in Estonia 500, in Latvia 800 and inLithuania 1,500. In Finland, pharmacies are not permitted to form chainsand can only be owned by private persons, with the exception of theHelsinki and Kuopio University Pharmacies. Sweden has a state phar-macy monopoly and the Swedish Government has proposed that it bedismantled in mid-2009. This may open up new business opportunitiesfor Oriola-KD in pharmaceutical retail. In Russia and the Baltic coun-tries, pharmacies can form chains and be owned by both private indi-viduals and companies. At the end of 2008, Oriola-KD had 150 pharma-cies in and around Moscow and several in Latvia.

HEALTHCARE EQUIPMENT AND SUPPLIES MARKETThe estimated volume of the healthcare and laboratory equipmentand supplies market within the sector covered by Oriola-KDs Health-care Trade segment was roughly EUR 4 billion in 2008. In 19952006,healthcare costs increased in Finland by an average of 5.8 percent perannum source: Stakes . The proportion of this accounted for by equip-ment and supplies did not change signicantly during this period, andthis has been the case since 2006.

The healthcare product manufacturing industry consolidated further,wit t e argest companies continuing to acquire ot er usinesses.This affects Oriola-KDs ability to increase its market share throughadding new representations since the largest companies market mostof their products themselves. On the other hand, basic products arebecoming increasingly similar, which means that customers can beoffered parallel products, and customers are also adopting local mod-els of procurement. The increasing similarity of products and new pro-curement models represent opportunities for Oriola-KD. Consolidationamong healthcare customers has been continuing, both in the municipaland the private sector. This consolidation is reinforced by the pressureto cut healthcare costs. When different organisations decide to mergecertain functions, this can also bring new opportunities in procurementand logistics services.

4


7/255


8/25

Financial Review

DIVIDENT POLICYOriola-KD will seek to pay out as

dividends approximately 50 percentof earnings per share annually. Thecompanys nancial position andoperational strategy shall be takeninto consideration when determiningannual dividend.

LONG-TERM FINANCIAL TARGETSThe Groups long-term nancial

goals are based on the developmentof its operating prot (EBIT) andreturn on capital employed (ROCE).The long-term goal for the Groupsoperating prot excluding one-offitems is set at growth of at leastve percent over the previous year.Return on capital employed shall beat least 13 percent in 2010.

KEY FIGURES IN 2008:Invoicing EUR 2,882.3 million and

net sales EUR 1,580.8 millionOperating prot EUR 36.4 millionOperating cashow EUR18.1 millionReturn on capital employed 13.5percentEarnings per share EUR 0.19

6


9/25

Oriola-KD Corporation was enteredin the Trade Register on 1 July 2006

as a result of the demerger of OrionCorporation. Trading in Class A andClass B shares in Oriola-KD Corpo-ration commenced on the main list ofthe NASDAQ OMX Helsinki Ltd. on3 July 2006.

INVOICING AND NET SALESEUR illion

Invoicing Net sales

3,0002,500

2,000

1,500

1,000

500

02005 2006 2007 2008

OPERAT ING PROF IT EUR million

40

30

20

10

02005 2006 2007 2008

EARNINGS PER ShARE

0.20

0.15

0.10

0.05

02005 2006 2007 2008

BALANCE Sh EET , T OT AL AND Eq UIT y EUR million

Balance s eet, total E uit

800

7 00

600

500

400

300

200

100

02005 2006 2007 2008

RETURN ON CAPITAL EmPOLyED (ROCE)

%15

12

9

6

3

02005 2006 2007 2008

CASh F LOw F ROm OPERAT IONS

EUR illion

60

40

20

0

202005 2006 2007 2008

2 5

. 8

2 2

. 6 2 9

. 1

3 6

. 4

0 . 1

2

0 . 1

0

0 . 1

6

0 . 1

9

1 1 . 8

8 . 6

1 4

. 2

1 3 . 5

3 9

. 5 5 2

. 7

3 9

. 0

1 8

. 1

2 , 3

9 2

1 , 3 3 1

2 , 3

4 0

1 , 3 3 5

2 , 5

2 5

1 , 3 7 7

2 , 8

8 2

1 , 5

8 1

6 1 0

6 1 1

6 4 5

7 9 1

1 8 6

1 9 2

2 0 4

1 8 6

7


10/25


11/25

Pharmaceutical Trade

Oriola-KD engages in the pharmaceutical wholesale in Finland, Swe-den, Russia, Estonia, Latvia and Lithuania. In addition, it engages inretail (i.e. pharmacy) operations in Russia and Latvia. In the Finn-ish and Swedish pharmaceutical wholesale, Oriola-KDs customersinclude pharmaceutical manufacturers and importers, and (as bothretailers and end-users) pharmacies, hospitals, healthcare centres andveterinarians. In Russia, Oriola-KDs pharmaceutical wholesale cus-tomers are its own chain of pharmacies and other pharmacies, whole-salers and hospitals. Consumers are the customers of the pharma-cy business.

Oriola-KDs pharmaceutical wholesale customers comprise some 60pharmaceutical manufacturers in Finland and about 70 in Sweden. InRussia, about 20 percent of the net sales of Oriola-KDs wholesalecompany came from sales to Oriola-KDs own pharmacy chain andthe remainder from sales to other pharmacy chains, pharmaceuticalwholesalers and hospitals.

Oriola-KDs strengths in this business are its long experience and cus-tomer relationships, strong market position and high quality. Oriola-KD has operated in Finland for 60 years, in Sweden for 100 years andin the Baltic countries since the 1990s. The companies acquired byOriola-KD in Russia have operated since the 1990s.

MARKET GROWTHIn the Nordic and Baltic countries, the pharmaceutical market isexpanding because of the ageing populations. The Russian marketis expanding with the countrys increasing wealth, which is boostingthe demand for more expensive and effective Western medicines inplace of cheaper local products. The Russian market is also expect-ed to grow because of the countrys ageing population, increasingstate healthcare expenditure, improvements in the compensation sys-tem, increasing diagnostics and growing demand for over-the-counterproducts. The Finnish and Swedish markets are anticipated to growan average of 3 to 5 percent annually, while the anticipated growth inthe Russian market is 15 to 20 percent.

The Finnish pharmaceutical market grew 6.7 percent in 2008 (7.2 per-cent: The Finnish pharmaceutical markets like-for-like growth, i.e.

excluding the large one-off vaccination delivery made late in the year,was 5.4 percent n 2007). The Swedish pharmaceutical market grewby 4.1 percent (6.8 percent), and growth in the Russian market wasapproximately 25 percent (about 16 percent). The Baltic countriespharmaceutical markets grew by 5 to 10 percent (approx. 20 percent)(source: IMS Health).

The introduction of the reference price system in Finland in April2009 is expected to slow the growth of the pharmaceutical marketin 2009.

INVOICING, NET SALES AND PROFITABILITYInvoicing by the Pharmaceutical Trade segment in 2008 came to EUR2,682.1 million (EUR 2,253.4 million), net sales to EUR 1,425.6 millEUR 1,135.8 million and operating prot to EUR 32.0 million E

17.4 million). The segment accounted for 93.1 percent (89.3 percent)of Oriola-KDs total invoicing, 90.2 percent (82.5 percent) of net salesand 76.2 percent 54.0 percent of operating prot in 2008. The seg-ment employed 4,321 (856) people at the end of the year.

The segments invoicing in Finland was EUR 1,047.9 million (EUR 97million), in Sweden EUR 1,270.3 million (EUR 1,242.2 million) and inBaltic countries EUR 40.7 million (EUR 37.4 million) in 2008. Net salin Finland in 2008 were EUR 533.9 million (EUR 468.1 million), in Swden EUR 536.1 million (EUR 634.9 million) and in the Baltic countriEUR 36.7 million EUR 32.7 million . The decline in net sales in Swedwas the result of the higher relative share of pharmaceutical manufac-turers consignment agreements in 2008.

The Russian gures have been consolidated with the Oriola-KD g-ures since 1 April 2008. Net sales for April-December were EUR 318.million, up by some 31 percent on the previous year if measured interms rouble-denominated sales.

MARKET SHARES AND DELIVERIES BY MARKEOriola-KD held a 47.6 percent (45.9 percent) share of the pharma-ceutical wholesale market in Finland and 43.8 percent 42.0 percentpharmaceutical wholesale in Sweden in 2008 (source: IMS Health andthe Finnish Association of Pharmaceutical Distributors). The share

9


12/25

Net sales in Russiawere up by some

31 percent on theprevious year

if measured in termsrouble-denominated

sales

Ge lus-kapseli t

ORIOLA-KD IN RUSSIA

Founded in 1999, Vi tim is Mosco ws third

larges t

pharmacy chain, wi th a marke t share o f

abou t

6 percen t in the region. The chain uses

mod-

ern sales and resource planning techniqu

es and

o f fers bo th prescrip tion medicines and

O TC

produc ts. Vi tims S tary Lekar was cons

idered

to be the second bes t kno wn chain o f p

harma-

cies in Mosco w in 2008 (source: DSM G

roup ).

The pharmacy opera tions employ approx

ima tely

1,500 people.

Moron, founded in 1996, engages in whole saling

and has a well-es tablished and gro wing

posi-

tion in pharmaceu tical wholesale. In addi

tion to

S tary Lekar, i t sells to independen t phar

macies,

pharmacy chains, local wholesalers and

hospi-

tals. I ts marke t share in Russia is roughly

5 per-

cen t. In 200 7, Moron opened a ne w and m

odern

logis tics cen tre in Mosco w, which allo ws

for an

expansion in i ts ac ti vi ties. A t the end o f 2

008, i t

had regional dis tribu tion cen tres in S t. P

e ters-

burg, Voronezh, Sara to v, Chelyabinsk, I

rku tsk,

Nizhniy No vgorod and Tu

la. The wholesale

opera tions employ some 1,500 people.

PERA TING PRO I TEUR million

2005 2006 200 7 200

5

0

5

0

15

10

5

INV OICING AND NET SALESEUR million

Invoicing I i i Net sales

3,000

,500

2,000

1,500

1,00

00

2005 200 2007 2008

EGMEN TS PERSONNELpers ns

,0 0

4,000

3,000

2,000

1,00

02005 2006 2007 2008

1 8 .

1 5 . 1

7 . 4

3 2

. 0

9 5 7

9 2 5

8 5

6

4 , 3

2 1

2 , 6 8 2

2 , 5 3

2 , 0 6 5

2 , 1 2 5

1 , 4 2 6

1 , 1 3

6

1 , 0 9

9

1 , 0 9 3

10


13/25

of the pharmaceutical wholesale market in Russia was about 5 per-cent. In Moscow and its environs, where Oriola-KDs market share inretail was approximately 6 percent, the share of the pharmaceuticalwholesale market was about 14 percent. The share of the pharmaceu-tical wholesale market in Estonia was roughly 10 percent and in Latviasome 5 percent.

Generic medicines accounted for approximately 14 percent (14 per-cent) of the value of the total pharmaceutical market in both Finlandand Sweden, approximately 40 percent in the Baltic countries (source:IMS Health). The approximate share of prescription medicines was 90percent in Finland (90 percent), 92 percent in Sweden (91 percent),46 percent in Russia (57 percent) and 73 percent (72 percent) in theBaltic countries.

Pharmaceutical deliveries to pharmacies accounted for some 75 per-cent (75 percent) of the total value of pharmaceutical deliveries in Fin-land, some 97 percent 99 percent in Russia and about 86 percent(86 percent) in the Baltic countries. Correspondingly, pharmaceuti-cal deliveries to hospital pharmacies accounted for some 25 percent(25 percent) of the total value of pharmaceutical deliveries in Finland,some 3 percent (1 percent) in Russia and about 14 percent (13 percent)in the Baltic countries.

PHARMACEUTICAL WHOLESALEIN FINLAND AND SWEDENIn 2008, Oriola-KD aimed at raising pharmaceutical wholesale marginsin Finland and Sweden closer to the general European level. Basedon negotiations undertaken, the company expects distribution mar-gins to grow in 2009.

During 2008, Oriola-KD began to distribute the products of Wyethin Finland and McNeil in Sweden. These new agreements representsome 2 percent of the Finnish pharmaceutical market and about 2percent of the Swedish market (source: IMS Health). Oriola-KD con-tinued to distribute for all its major pharmaceutical principals in Fin-land in 2008. In Sweden, pharmaceutical principals that will no longerbe distributed by Oriola-KD are Schering-Plough and Organon. As aconsequence of this, Oriola-KDs market share in Sweden in the phar-maceutical wholesale at the beginning of February 2009 is down toaround 40 percent.

In June 2008, Oriola-KD Corporation increased its shareholding inthe Swedish-based Kronans Droghandel AB (KD) from 85.62 percentto 98.13 percent by acquiring a minority holding in Merck Sharp &Dohme (Sverige) AB. Merck Sharp & Dohme (Sverige) AB held a 12.51percent minority in Kronans Droghandel. Subsequent to this transac-

tion the minority holding in Kronans Droghandel consists of OrganonABs 1.87 percent holding.

PHARMACEUTICAL RETAIL AND WHOLESALEIN RUSSIAOriola-KD expanded its operations to Russia and on 21 April 2008, itconrmed the acquisition of the Vitim and Moron pharmacy and phar-maceutical wholesale companies, by purchasing a 75 percent sharein both. Vitim has a chain of 150 pharmacies in Moscow under theStary Lekar brand. Moron is a nationwide pharmaceutical wholesal-er, though operating primarily in the more heavily populated west-ern part of Russia.

The acquisition is part of Oriola-KDs long-term strategy to invest inRussias rapidly growing pharmaceutical wholesale and retail markets.Oriola-KDs aim is to invest in long-term in business growth and useits strong expertise in logistics to strengthen the Russian business.

Oriola-KD paid about EUR 65 million in cash for its 75 percent hold-ing. Oriola-KD has also agreed to buy the remaining 25 percent inthe companies in 2010. The retail and wholesale businesses acquiredin Russia have been consolidated into Oriola-KDs accounts as of1 April 2008.

The business in Russia is typically seasonal in nature, with perfor-mance being strong in the rst and fourth quarters of the year. Thefourth quarter has long been the strongest by a clear margin, whilethe second and third quarters have been weaker than the others. Ori-ola-KD embarked on a programme of efciency measures in both theretail and wholesale operations as part of the takeover of the busi-nesses in 2008.

Oriola-KDs high solvency and its careful preparation to cope withthe weakening of the rouble allowed it to strengthen its market posi-tion in the Russian wholesale operations especially towards the endof the year. Improving the efciency of the companies in Russia willcontinue in 2009, and the aim is to expand the pharmacy chain at amoderate rate.

PHARMACEUTICAL WHOLESALE AND RETAILTHE BALTIC COUNTRIESOriola-KD is engaged in pharmaceutical wholesale in Estonia andLatvia and prewholesale operations for manufacturers in Lithuania.A new prewholesale agreement was made with the pharmaceuticalmanufacturer Teva in Lithuania, under which Oriola-KD is in chargeof the warehousing of Tevas products and their delivery to wholesal-ers in all three Baltic countries. This activity began in January 2008.

1


14/25

In Latvia, Oriola-KD has its own Pansana pharmacy concept. Pansanasrange includes not only medicines but also a comprehensive selec-tion of healthcare consumer products. In Estonia Oriola-KD moved tonew premises in Tallinn.

CONSUMER HEALTHConsumer health products are marketed in Finland, Estonia, La iaand Lithuania, and on a smaller scale in Sweden. The seg ent isresponsible for the entire procurement, marketing, sales nd delivery process for the consumer market. The products it m rkets includenon-prescription medicines, comprehensive food sup ements, specialdiet products and skin care products. Some of th marketed productsare covered by Oriola-KDs exclusive sales ri ts and the companyalso owns individual brands.

The distribution channels and custom s include pharmacies, healt - care shops, veterinarians, sports tores, convenience stores andhealthcare staff. Pharmacies are t e principal distribution chan el andtheir importance in product rketing to consumers has rown. Inresponse to the general healt trend, pharmacies have inc eased theirrange of functional produ ts offered to consumers. O iola-KD sellsrconsumer products in i own pharmacies in Russia as part of theoverall range.

In Finland, Oriola- D combined the Pharmace ical Trade and Con- sumer Health bu ness units into a single org nisation in mid-2008 toimprove custo er focus and augment the e ciency of operations.

Oriola-KD c ntinued to refocus its ran in Finland by concentr t- ing its eff rts on the most protable p oduct categories and its wnrbrands, hich are Avne, Dexal, Ge lus, Lysi, Nicopass, A-Parmaand Ph rmacare. The most importa t product launch of 2008n Fin- land as Nicopass, a nicotine re acement product used t relievewith rawal symptoms experience by people trying to quit moking.

T possible removal of the S edish pharmacy monopol may offerriola-KD new business oppo tunities in this product are in 2009.

IMPROVING THE QUALITY OF PHARMACEUTICALDISTRIBUTIONQuality is very important o Oriola-KDs business. Thcompany aimstto develop new processe and methods to ensure beter patient safe- tty throughout the distri ution and service chain. Th processing andmonitoring of temperat re-controlled medicines is a example of this.Procedures are develo d in cooperation with pharaceutical companies and supervisory uthorities. One of Oriola-Ks principal areas

of development 2008 was the processing of mperature-controlledproducts.

Ori a-KD joined Excellence Finl d as a key corporate mber inrder to form networks wit ompanies operating inferent elds

and to identify new way to improve quality to suport its businessin the long term.

Oriola-KDs strengthsin this business are

its long experienceand customer

relationships,strong market position

and high quality.

12


15/2513


16/2514


17/25

Healthcare Trade

Oriola-KDs Healthcare Trade business segment markets, sells, installsand services healthcare equipment and supplies in Finland, Sweden,Denmark, Estonia, Latvia and Lithuania. Oriola-KD is Finlands leadingsupplier of healthcare equipment and supplies. In Sweden, Oriola-KDis engaged in marketing and wholesale and healthcare logistics, whichcomprises logistics services offered to both healthcare product sup-pliers and customers. Oriola-KD is a major company in the Swedishhealthcare market. The company also has a strong position in the Bal-tic countries and operates on a smaller scale in Denmark.

The main product groups are medical imaging products, medicalproducts for operative specialities and nursing care products for hos-pitals and primary healthcare, and laboratory products for healthcare,industry and research institutes.

Oriola-KDs success factors in the business include recognition of itsname, knowledge of its customers needs, strong brands, a compre-hensive eld organisation in sales, regional coverage, the scope andstandard of technical service and the cost benets derived from com-prehensive deliveries.

During 2008, Oriola-KD enhanced its sales activities and refocusedits operations. Special nursing operations focused more on select-ed specialised sectors. In primary healthcare, Oriola-KD developed abroad wholesale concept to encompass the products most commonlyused in healthcare, and in the course of this process also reinforcedits product range with products manufactured under its proprietaryMedola brand.

INVOICING, NET SALES AND PROFITABILITYInvoicing by the business segment in 2008 came to EUR 200.2 mil-lion (EUR 271.2 million), net sales to EUR 155.3 million (EUR 241.5 mil-lion) and operating prot to EUR 10.1 million (EUR 14.9 million). Thesegment accounted for 6.9 percent (10.7 percent) of Oriola-KDs total2008 invoicing, 9.8 percent (17.5 percent) of net sales and 24.0 per-cent (46.0 percent) of operating prot. The Healthcare Trade segmentemployed a total of 388 446 persons at the end of 2008.

Invoicing of Healthcare Trade in Finland in 2008 was EUR 85.4 millio(EUR 86.9 million), in Sweden EUR 102.0 million (EUR 135.5 milland in the Baltic countries and Denmark a total of EUR 12.8 million(EUR 12.3 million). Net sales in Finland in 2008 were EUR 76.6 milli(EUR 81.7 million), in Sweden EUR 65.8 million (EUR 113.4 millionin the Baltic countries and Denmark a total of EUR 12.7 million (EU10.9 million . The sale of the Swedish home distribution business in2007 reduced both invoicing and net sales.

Oriola-KD agreed to augment its product range with Carl Zeiss Med-itecs ophthalmic surgery products from the beginning of 2008. As apart of an international distribution channel reorganisation, two impor-tant suppliers, Zimmer and Sysmex, were transferred away from theHealthcare Trade in 2008, and this had a negative impact on net salesand operating prot. The marketing business of Zimmer orthopaedicproducts was sold in spring 2008 to a sales company established inFinland by Zimmer, and the Sysmex haematology products businesswas transferred as a part of the international reorganisation to RocheDiagnostics in Finland and the Baltic countries in early 2008. Oriola-KD is actively looking for new representations to reinforce its prod-uct offering in selected areas.

HEALTHCARE LOGISTICS SERVICE IN SWEDENThe target in the healthcare logistics services business in Sweden wasto improve protability by focusing on the provision of turnkey logis-tics solutions that include product procurement and wholesale oper-ations. Oriola-KD improved protability in 2008 and negotiated onenhancing its role as a healthcare product distributor to municipalcustomers in Sweden, resulting in a deal conrmed in January 2009,under which the procurement contracts of the healthcare products of33 municipalities were transferred to Oriola-KD. At the end of 2008,Oriola-KDs market share in municipal healthcare logistics serviceswas about 8 percent. In addition, the company offered outsourcedhealthcare logistics services to ve joint municipal authorities. Thisagreement was extended to 2011.

15


18/25

Wholesale businessmodel to

Healthcare Trade

ORIOLA-KD REINFORCED I TS

POSI TION AS THE LEADING MAGNE TIC IMAGING

DE VICES

SUPPLIER TOGE THER WI TH PHILIPS

In 2008, Oriola ins talled three ne w 3- Tes

la mag-

ne tic imaging de vices a t the leading Finni

sh pri-

va te hospi tals Pulssi, Dex tra and Ter veys

talo.

In the Philips annu

al dis tribu tor sur vey, Ori-

ola recei ved the highes t grade, tha t any

par t-

ner has e ver recei ved. These sur veys ha ve

been

conduc ted since 2006. A t Oriola

s 60 th anni ver-

sary celebra tion Philips handed Oriola a scale

model o f a ligh thouse which, accordi

ng to

An ton Schlenger, Direc tor and Dis tribu to

r Man-

ager a t Philips, represen ts Oriolas beac

on-like

role, ac ting as a guide for the o ther com

panies

in the sec tor.

P RA TING PROFI TUR million

2005 2006 200 7 2008

15

12

9

3

EUR million

Invoicing Net sales

0

250

200

1

100

50

2005 2006 2007 200

SEGMEN TS PERSONNELersons

600

5 0

400

30

200

100

02005 2006 2007 2008

8 .

1 0 . 4

1 4 . 9

1 0 .

5 7 4

5 7 0

4 4

6

3 8 8

2 3

1 5 5

2 7 5

1

2 7

2

0 0

7

2 6

2 3 6

2 4 2

16


19/25

MEDOLA BRAND PRODUCTS TO THE MARKETAs a part of Oriola-KDs strategic program to implement the whole-sale concept within Healthcare Trade, the company launched the salesof healthcare consumables sold under its proprietary Medola brandin 2008 in Finland. The companys aim is to form a comprehensiveproduct offering of healthcare consumables which it acquires direct-ly from manufacturers mostly in the Asian market. Oriola-KD mar-kets and sells the products in Finland, Sweden, Denmark and the Bal-tic countries.

MATERIALS MANAGEMENT OUTSOURCING SERVICESThe strategic healthcare program also involves another businessmodel, namely a materials management outsourcing concept, which ispart of the healthcare support services. Oriola-KDs services includeboth healthcare products and associated services such as categorymanagement, end user training and processing and shelving of goodsat hospital wards in accordance with work ow. The purpose of thecomprehensive solution is to substantially reduce customers materialcosts, to free care personnel to concentrate on care work and to solvepotential resource issues concerning materials management. Oriola-KD has already been selected to provide such services in a majorSwedish public tender process. The aim is to sign the agreement forthis during spring 2009.

DENTAL TRADEOriola-KD merged its Dental Trade business with the Swedish com-pany Lifco Dental in year 2007 in Finland, Sweden, Norway and Den-mark. In the Baltic countries this merging process was completed on2 January 2008. Oriola-KDs holding in the merged dental business is30 percent, while Lifco has a 70 percent holding. The purpose of themerger is to establish the company as a leader in northern Europe.The share of the prot from this associated company will continueto be recognised under the Healthcare Trade business segment. Den-tal Trade contributed EUR 0.0 million EUR 36.5 million to the seg-ments invoicing, EUR 0.0 million (EUR 35.6 million) to its net salesand EUR 2.1 million (EUR 2.2 million) to the segments operating prof-it in 2008.

17


20/25

Personnel

CHANGES IN THE NUMBER OF PERSONNELOriola-KDs personnel at the end of 2008 numbered 4,709 (1,302), ofwhom 74 percent (0 percent) worked in Russia, 14 percent (54 per-cent) in Finland, 8 percent (28 percent) in Sweden and a combined 4percent (18 percent) in the Baltic countries and Denmark.

PERSONNEL DEVELOPMENT AND SATISFACTIONThe personnel satisfaction survey conducted in 2008 had a responserate of 79 percent (79 percent) and the general index came to 287(270). This shows an improvement of about 40 percent since 2005.Personnel satisfaction was evaluated using the HUPO index HumanPotential Index), which has been developed to meet the manage-ment and development needs of human capital in organisations. Theindex factors in all the areas related to know-how, capabilities andmotivation. The personnel in Russia were not included in the 2008 per-sonnel satisfaction survey. The survey indicated that 91 percent of Ori-ola-KDs personnel feel that they are doing important and independ-ent work. A total of 93 percent of the personnel said that they likedtheir work, and 75 percent of those surveyed thought Oriola-KDschange and development projects were steering the company in theright direction.

Personal development reviews are a key tool for management anddevelopment at Oriola-KD. The aim is that all employees should dis-cuss personal development matters with their supervisor. The objectiveof the Group-wide personal development review process is to dene

job descriptions and goals for all employees in line with the compa-nys strategy, and to specify personal development plans. In 2008, 76percent of the Groups personnel participated in personal develop-ment reviews; this group had a higher job satisfaction rate than thosewho did not participate in the reviews. According to the 2008 job sat-isfaction surveys, 85 percent felt they had clear goals and 84 percentthought their job description was appropriate. The lowest satisfactionresults in 2008 were related to remuneration, training opportunities,the opportunity to take up new tasks and the ow of information.

Oriola-KD also evaluates supervisory performance using the 360 eval-uations introduced in 2006, and during the three years since, a totalof 158 evaluations has been made. In 2008, the company adopted a

revised sales bonus system and conducted training for sales person-nel. Oriola-KD also focused on training cooperation in language andcultural skills in a bid to improve both internal and external interac-tion skills.

Oriola-KD aims to further enhance job rotation and development oppor-tunities within the company as well as remuneration systems, and tocreate a better platform for managing international business projects.Strategic expansion into Russia will increase opportunities for job rota-tion and personal development to Oriola-KDs personnel.

REMUNERATION AND BONUS SYSTEMSRemuneration at Oriola-KD is based on the collective agreements thatare in force at the given time. The aim is to offer a level of salary andbonuses for each position that is competitive in relation to the mar-ket. Base salaries are based on job requirements and the qualications,experience and performance of each employee.

Bonus systems at Oriola-KD are based on the nancial performanceof Oriola-KD and the business segments and on personal targets, asapplicable for the country in question. The pilot phase of the bonussystems for warehouses in Finland and Sweden was concluded in Jan-uary 2008, after which the bonus systems were adopted on a perma-nent basis. Oriola-KD began charting bonus systems in Russia dur-ing 2008.

Oriola-KDsexpansion intoRussia has increased

the number ofpersonnel from 1,300to 4,700

18


21/2519


22/25

Monitoring of working conditions was intensied in 2008 in respect ofindustrial accidents, sickness absences and personnel turnover, withthe aim of improving job satisfaction and creating a better workingenvironment. In Estonia, Oriola-KDs business operations were relo-cated to new modern logistics and ofce premises in early 2008.

ORGANISATIONAL CHANGES AND PERSONNELREDUCTIONSThe marketing business of Zimmer orthopaedic products, representedin Finland by Oriola-KD, was sold in spring 2008 to a sales companyestablished in Finland by Zimmer. The Sysmex haematology productsbusiness was transferred to Roche Diagnostics in Finland and the Bal-tic countries as part of an international transaction in early 2008. Asa result of these transactions, about 15 employees were transferredfrom Oriola-KD during the rst half of 2008. The number of personnelin Russia was reduced in 2008 as operations there were adjusted.

In a move to increase the efciency of operations overall and toimprove customer service, the Finnish pharmaceutical wholesale func-tions in Seinjoki were discontinued and moved to Espoo and Oulu.

CORPORATE SOCIAL RESPONSIBILITY AND ENVI-RONMENTAL IMPACTSDuring 2008, Oriola-KD continued its corporate social responsibilityprogramme that started in 2007 for supporting the WWFs OperationMermaid. As one of the main cooperating partners of OperationMermaid, Oriola-KD chooses to focus its donations funding onprotection of the Baltic Sea. The company distributed information onthe state of the Baltic Sea and measures to protect it to its personneland to external parties at customer and stakeholder events.

In Finland, Oriola-KD made a commitment to donate a pulse oxime-ter to ve university hospitals in February 2009 as part of a prod-uct marketing campaign. Pulse oximeters are used in newborn andpaediatric intensive care units to measure the oxygen saturation of apatients blood.

Oriola-KDs company car policy favours low-emission car models foremployees in Finland and Sweden.

Oriola-KD supports sustainable development in all its activities andmanages environmental concerns by conforming to an environmentalsystem suited to its operations, with the aim of minimising adverseenvironmental impacts. The efciency and economy of distributionare based on a scheduled and optimised route network. Deliveries toestablished customers are packed in recyclable plastic boxes that can

be reused hundreds of times. Waste prevention, reuse, sorting andrecycling are essential principles of waste management. Pharmaceu-tical and other hazardous waste is sorted and delivered to a hazard-ous waste treatment plant for disposal using the methods required bymedical and environmental authorities.

AGE DIST RIBUT ION BYEMPLOYEES

%

Over 49 years, 33% ,30 49 years, 50%

Under 29 years, 17%

AV ERAGE LENGT H OF EMPLOY MENT

ear0

6

2

2005 2006 2007 200

HUMAN POT ENT IALINDEX (HUPO)

index00

250

00

150

100

50

2005 2006 2007 2008

Excluding gures f rom Russia.

P E S O N N E L B Y O U N R Y

persons

uss ia Denmar k and t

he Ba l t ic coun tr ies

S weden

F in land

,000

4,000

3,000

2,000

1,000

02005 2006

200 7 2008

NUMBER OF PER ON ELby segment

5,000

4,0 0

3,00

,000

1,000

02005 200 200 7 2008

Healthcare Trade

Pharmaceutical Trade

8 50 38 700 644

4 30 400 68 3 7 52 2 5 7 2 2 9

3,4 1

2 0 5

2 5 0 2

7 2 8 7

9 . 2

7 . 6

7 .

4 . 5

5 74 5 70 446

3

95 7 925 85

4 321

20


23/25

HeadquartersOriola-KD CorporationOrionintie 5FI-02200 Espoo,FINLANDP.O.Box 8, FI-02101 Espoo,FINLANDTel.: +358 10 429 99Fax: +358 10 429 [email protected]

Oriola OyOrionintie 5, FI-02200 Espoo,FINLANDP.O.Box 8, FI-02101 Espoo,FINLANDTel.: +358 10 429 99Fax: +358 10 429 [email protected].

OOO MoronDzerzhinskoe shosse 2140053 Russia Moscow oblestRUSSIAwww.moron.ru

OOO Vitim & CoDzerzhinskoe shosse 2140053 Russia Moscow oblestRUSSIAwww.oldlekar.ru

KronansDroghandel ABFibervgen SolstenSE-435 33 Mlnlycke,SWEDENP.O.Box 252,SE-435 25 Mlnlycke,SWEDENTel.: +46 31 887 000Fax: +46 31 338 [email protected]

Meteko Instrument AbStenstravgen 9ASE-127 39 Skrholmen,SWEDENP.O.Box 410SE-129 04 Hgersten,SWEDENTel.: +46 8 880 360Fax: +46 8 973 [email protected]

Oriola KD Healthcare ABTaljegrdsgatan 11ASE-431 53 MlndalSWEDENP.O.Box 302SE-431 24 MlndalSWEDENTel.:+46 31 88 70 [email protected]

Oriola A/S, DenmarkSandvadsvej 17 B, 4600 Kge,DENMARKTel.: +45 46 901 400Fax: +45 46 901 [email protected]

As OriolaKungla 2EST-76505 Saue, Harjumaa,ESTONIATel.: +372 6 515 100Fax: +372 6 515 [email protected]

SIA Oriola RigaDzelzavas iela 120 MLV-1021 Riga,LATVIATel.: +371 67 802 450Fax: +371 67 802 [email protected]

SIA PanpharmacyDzelzavas iela 120 MLV-1021 Riga, LATVIA

UAB Oriola VilnusLaisves pr. 75LT-06144 Vilnus,LITHUANIATel.: +370 5 2688 401Fax: +370 5 2688 [email protected]

Contact information

O T T I O N F W I N r i o a - a r r a ng e d a p h o t o c o mp e t i t i o n f o r e r so nne l a s a p a r t o f t h e O p e r a t i o e r ma i d p r o g r a m. T h e w i nne r i n t h c a t e g o r y A r t i st i c w a s t h e p i c t u r e P r o t e c t i o n o f a w i ng , p h o t o g r a p h e A r t o H a l me l a .

DOOR TO CLE NR B LTIC SE

The winner in t he ca t egor y Reali s t

ic

a s A Door t o a Cleaner Bal t ic Sea ,

pho t ographed y Su vi Leppmki.

Business locations are published inwww.oriola-kd.com/locations


24/25


25/25

P.O.Box 8, FI-02101 EspooOrionintie 5FI-02200 EspooFinland

Tel.: +358 10 429 99Fax.: +358 10 429 4300

www.oriola-kd.comDomicile: EspooBusiness Identity Code: 1999215-0

Oriola-KD Corporation Annual Report 2008

Documents