News Column

Oriola-KD Corporation's Interim Report for 1 January-30 June 2014

July 23, 2014

Oriola-KD Corporation Stock Exchange Release 24 July 2014 at 8.30 a.m. Oriola-KD Corporation's Interim Report for 1 January-30 June 2014 Financial performance April-June 2014 * Net sales decreased by 9.1 per cent to EUR 593.1 (652.1) million * EBITDA excluding non-recurring items decreased by 25.6 per cent to EUR 6.9 (9.3) million * EBITDA was EUR 6.6 (5.2) million * Operating profit excluding non-recurring items was EUR 0.2 (3.7) million * Operating profit was EUR -71.2 (-0.3) million * Net cash flow from operations was EUR 17.1 (24.6) million * Profit for the period totalled EUR -82.1 (-2.8) million and earnings per share were EUR -0.55 (-0.02) Financial performance January-June 2014 * Net sales decreased by 6.1 per cent to EUR 1,186.9 (1,264.5) million * EBITDA excluding non-recurring items increased by 29.1 per cent to EUR 21.5 (16.7) million * EBITDA was EUR 20.2 (12.7) million * Operating profit excluding non-recurring items was EUR 8.3 (6.0) million * Operating profit was EUR -64.1 (2.0) million * Net cash flow from operations was EUR -8.7 (-1.5) million * Profit for the period totalled EUR -79.5 (-2.1) million and earnings per share were EUR -0.53 (-0.01) Key figures 2014 2013 Change 2014 2013 Change 2013 EUR million 4-6 4-6 % 1-6 1-6 % 1- 12 ------------------------------------------------------------------------------- Net sales 593.1 652.1 -9.1 1,186.9 1,264.5 -6.1 2,598.5   Retail business 215.9 190.6 13.3 431.8 362.3 19.2 809.9   Wholesale business 467.1 515.7 -9.4 933.8 1,001.0 -6.7 2,025.9 ------------------------------------------------------------------------------- EBITDA excluding non- recurring items 6.9 9.3 -25.6 21.5 16.7 29.1 53.2 EBITDA 6.6 5.2 26.3 20.2 12.7 59.9 46.7 ------------------------------------------------------------------------------- Operating profit excluding non-recurring items 0.2 3.7 -94.3 8.3 6.0 38.1 29.0   Retail business 7.6 3.7 107.0 14.6 7.4 96.5 21.1   Wholesale business -5.8 3.0   -3.2 3.2   14.2 ------------------------------------------------------------------------------- Operating profit -71.2 -0.3   -64.1 2.0   21.0   Retail business 7.3 -0.3   13.6 3.4   13.7   Wholesale business -76.8 3.0   -74.6 3.2   13.6 ------------------------------------------------------------------------------- Operating profit % excluding non-recurring items 0.0 0.6   0.7 0.5   1.1   Retail business 3.5 1.9   3.4 2.1   2.6   Wholesale business -1.2 0.6   -0.3 0.3   0.7 ------------------------------------------------------------------------------- Operating profit % -12.0 0.0   -5.4 0.2   0.8   Retail business 3.4 -0.2   3.1 0.9   1.7   Wholesale business -16.4 0.6   -8.0 0.3   0.7 ------------------------------------------------------------------------------- Profit for the period -82.1 -2.8   -79.5 -2.1   5.8 ------------------------------------------------------------------------------- Earnings per share, EUR -0.55 -0.02   -0.53 -0.01   0.04 Net cash flow from operating activities       -8.7 -1.5   29.8 Return on equity (ROE), %       -53.0 -1.4   2.0 Gearing, %       73.0 71.4   65.3 ------------------------------------------------------------------------------- Outlook for 2014 Oriola-KD estimates that operating profit excluding non-recurring items will increase compared to 2013 actual. Net sales is estimated to decrease from 2013 level. Oriola-KD revised its guidance announced in interim report April 22, 2014 with stock exchange release on July 15, 2014. President and CEO Eero Hautaniemi's comments regarding the interim report: "Profitability improved in both operating segments in Pharmaceutical Trade Sweden. Kronans Apotek has established itself as one of the main players in the Swedish pharmacy market with a market share of approximately 21 per cent according to the company's estimate. The Swedish wholesale business' profitability was strengthened by the efficiency programme that was started in the third quarter of 2013 as well as the increased volume of the business. Weak development of the Russian businesses contributed negatively to Oriola-KD's net sales and operating profit during the first half. Operating profit of the Russian wholesale business was very poor and the operating segment's profitability was clearly behind the goals set. In connection with the planning process, the Group's outlook on the future development of Russian pharmaceutical wholesale operations was revised which led to EUR 77.2 million impairment charge.  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 June 2014 in comparison to June 2013 was 490. We will continue and enhance the efficiency measures taken to improve the performance of the Russian wholesale business during the second half of the year. The construction work of the new distribution centre in Moscow has been completed. The investment project is progressing as planned and transfer of the operations is scheduled to begin in the last quarter in 2014. Full production capacity will be reached by the end of the first quarter in 2015." Oriola-KD Corporation's Interim Report for 1 January-30 June 2014 The text section of this financial statements release focuses on the January- June 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 1-6 1-6 1- 12 --------------------------------------------------------------------- Goodwill, EUR million 294.8 389.3 379.0 Equity, EUR million 227.4 279.7 278.1 Interest-bearing debt, EUR million 274.6 330.0 318.8 Net interest-bearing debt, EUR million 166.1 199.8 181.5 Total assets, EUR million 1,335.0 1,466.5 1,500.1 Equity ratio, % 17.6 19.5 19.2 Return on equity (ROE), % -53.0 -1.4 2.0 Return on capital employed (ROCE), % -22.0 0.8 4.2 Gearing, % 73.0 71.4 65.3 Net debt / rolling 12-month EBITDA 3.1 5.1 3.9 Equity per share, EUR 1.50 1.85 1.84 Earnings per share, EUR -0.53 -0.01 0.04 Average number of shares, 1000 pcs 151,137 151,161 151,157 Average number of personnel 5,036 4,943 5,135 Number of personnel at the end of the period 4,899 5,414 5,256 Gross investments, EUR million 17.9 178.4 193.7 Changes in the Group Structure in January-June 2014 There were no changes in the Group structure during the period. The Group's net sales and result for April-June 2014 Oriola-KD's second quarter net sales were EUR 593.1 (652.1) million. Operating profit excluding non-recurring items was EUR 0.2 (3.7) and operating profit was EUR -71.2 (-0.3) million. The retail business' net sales were EUR 215.9 (190.6) million, operating profit excluding non-recurring items was EUR 7.6 (3.7) million and operating profit was EUR 7.3 (-0.3) million. The wholesale business' net sales were EUR 467.1 (515.7) million, operating profit excluding non- recurring items was EUR -5.8 (3.0) million and operating profit was EUR -76.8 (3.0) million. Profit after financial items was EUR -73.9 (-4.0) million. Oriola-KD's financial expenses were EUR 2.8 (3.6) million and profit for the period was EUR -82.1 (- 2.8) million. Earnings per share were EUR -0.55 (-0.02). Oriola-KD recognized EUR 77.2 (-) million impairment charge for Russian pharmaceutical wholesale for the second quarter. 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. The Group's net sales and result for January-June 2014 Oriola-KD's net sales decreased by 6.1 per cent to EUR 1,186.9 (1,264.5) million and its operating profit excluding non-recurring items increased by 38.1 per cent to EUR 8.3 (6.0) million during the first half. The positive development of Oriola-KD's operating profit was supported by the improved profitability in both Swedish operating segments. Operating profit was EUR -64.1 (2.0) million. Oriola-KD's first half operating profit was negatively impacted by EUR 71.1 (-) million impairment charge. 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 431.8 (362.3) million, operating profit excluding non-recurring items was EUR 14.6 (7.4) million and operating profit was EUR 13.6 (3.4) million.  The wholesale business' net sales were EUR 933.8 (1,001.0) million, operating profit excluding non-recurring items was EUR -3.2 (3.2) million and operating profit was EUR -74.6 (3.2) million. Profit after financial items was EUR -70.5 (-3.0) million and profit for the period was EUR -79.5 (-2.1) million.  Oriola-KD's financial expenses increased to EUR 6.4 (5.0) million. Earnings per share were EUR -0.53 (EUR -0.01). Return on equity was -53.0 (-1.4) per cent during the first half of 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 reported to Oriola-KD management exclude the 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 4-6 4-6 % 1-6 1-6 % 1- 12 ------------------------------------------------------------------------------- Net Sales 107.0 112.5 -4.8 207.8 220.0 -5.6 425.3   Pharmaceutical wholesale in Finland 86.5 91.8 -5.7 165.8 178.2 -6.9 342.1   Pharmaceutical wholesale in Baltics 10.8 9.9 9.3 22.2 20.3 9.6 41.0   Consumer Health 9.8 10.9 -10.6 20.0 21.8 -8.6 42.7 ------------------------------------------------------------------------------- Operating profit 4.4 5.2 -15.6 9.2 9.3 -1.8 18.8 ------------------------------------------------------------------------------- Operating profit % 4.1 4.6   4.4 4.2   4.4 ------------------------------------------------------------------------------- Number of personnel at the end of period       515 535   505 ------------------------------------------------------------------------------- April-June 2014 The net sales of Pharmaceutical Trade Finland and Baltics in the second quarter of 2014 were EUR 107.0 (112.5) million and operating profit was EUR 4.4 (5.2) million. Net sales of the wholesale business in Finland were EUR 86.5 (91.8) million and Invoicing was EUR 273.1 (264.8) million. The net sales of the wholesale business in the Baltic countries were EUR 10.8 (9.9) million and net sales of the Consumer Health business totalled EUR 9.8 (10.9) million. January-June 2014 The Finnish pharmaceutical market grew by 3.7 (1.0) per cent in January-June 2014 (source: IMS Health). Oriola-KD's market share of the Finnish pharmaceutical wholesale market was 45.2 (47.7) per cent in January-June 2014 (source: ATY). The net sales of Pharmaceutical Trade Finland and Baltics decreased by 5.6 per cent to EUR 207.8 (220.0) million and operating profit increased by 1.8 per cent to EUR 9.2 (9.3) million. The net sales of the wholesale business in Finland was EUR 165.8 (178.2) million and invoicing totalled EUR 530.6 (519.9) million during the first half. Net sales of the wholesale business in the Baltic countries were EUR 22.2 (20.3) million and net sales of the Consumer Health business were EUR 20.0 (21.8) million The EBITDA of Pharmaceutical Trade Finland and Baltics was EUR 11.1 (11.0) million. Profitability of Pharmaceutical Trade Finland and Baltics remained at the level of the comparative period. As expected, the discontinuation of the distribution of Astra Zeneca's products by Oriola-KD in the third quarter of 2013 reduced the net sales of the Finnish wholesale business during the first half. Pharmaceutical distribution and marketing cooperation with MSD progressed as planned in the Baltics. Profitability of the Consumer Health business improved despite of decrease in net sales. Sales of the main Consumer Health brands, such as AvÈne, Lysi and Cefilus, increased in January-June 2014. Pharmaceutical Trade Sweden Key Figures 2014 2013 Change 2014 2013 Change 2013 EUR million 4-6 4-6 % 1-6 1-6 % 1- 12 ------------------------------------------------------------------------------- Net Sales 298.5 304.5 -2.0 597.0 578.2 3.2 1,194.4   Retail business 188.7 155.2 21.6 375.3 287.1 30.7 669.6   Wholesale business 193.5 199.2 -2.9 389.0 382.2 1.8 743.4 ------------------------------------------------------------------------------- Operating profit before non- recurring items 11.3 4.9 132.6 21.3 8.0 165.4 24.1   Retail business 8.7 3.8 129.8 16.1 7.3 119.9 20.3   Wholesale business 2.7 1.1 149.6 5.5 1.0 467.6 4.2 ------------------------------------------------------------------------------- Operating profit  11.0 0.8 1,192.9 20.4 4.0 407.6 16.4   Retail business 8.4 -0.2   15.1 3.3 359.3 12.9   Wholesale business 2.7 1.1 149.6 5.5 1.0 467.6 3.8 ------------------------------------------------------------------------------- Operating profit % before non- recurring items 3.8 1.6   3.6 1.4   2.0   Retail business 4.6 2.4   4.3 2.5   3.0   Wholesale business 1.4 0.5   1.4 0.3   0.6 ------------------------------------------------------------------------------- Operating profit % 3.7 0.3   3.4 0.7   1.4   Retail business 4.4 -0.2   4.0 1.1   1.9   Wholesale business 1.4 0.5   1.4 0.3   0.5 ------------------------------------------------------------------------------- Number of personnel at the end of period       1,866 1,870   1,849   Retail business       1,579 1,593   1,573   Wholesale business       287 277   277 ------------------------------------------------------------------------------- April-June 2014 The second quarter net sales of Pharmaceutical Trade Sweden in 2014 were EUR 298.5 (304.5) million. Operating profit excluding non-recurring items was EUR 11.3 (4.9) million and operating profit was EUR 11.0 (0.8) million. The net sales of the Swedish retail business were EUR 188.7 (155.2) million. Operating profit excluding non-recurring items for the Swedish retail business totalled EUR 8.7 (3.8) million and operating profit was EUR 8.4 (-0.2) million. The net sales of the wholesale business totalled EUR 193.5 (199.2) million and operating profit was EUR 2.7 (1.1) million. Invoicing for the Swedish wholesale business was EUR 382.0 (392.2) million. The Medstop pharmacy chain has been consolidated in the figures of Oriola-KD as of 1 June 2013. January-June 2014 The pharmaceutical market grew by 1.7 (declined 2.7) per cent (source: IMS Health) and the retail market for OTC products and traded goods grew by 3.6 (6.0) per cent (source: Nielsen) during the first half. Based on Oriola-KD's estimate 21 new pharmacies were established in Sweden during the first half, at the end of June there was 1,327 pharmacies in Sweden. During the first half the net sales of Pharmaceutical Trade Sweden increased by 3.2 per cent to EUR 597.0 (578.2) million, and on a constant currency basis, net sales increase was 8.4 per cent. The first half net sales strengthened due to the acquisition of Medstop in June 2013. First half retail business net sales were EUR 375.3 (287.1) million, wholesale business net sales totalled EUR 389.0 (382.2) million. Invoicing for the Swedish wholesale business was EUR 753.6 (679.9) million. The Swedish retail business' EBITDA excluding non-recurring items was EUR 23.8 (12.2) million and EBITDA was EUR 22.8 (8.2) million during the first half. The EBITDA percentage excluding non-recurring items and the management fee for the retail business was 6.5 (4.3) per cent. The EBITDA of the Swedish retail business was EUR 6.7 (2.2) million. Pharmaceutical Trade Sweden's operating profit excluding non-recurring items increased by 165.4 per cent to EUR 21.3 (8.0) million and operating profit increased by 407.6 per cent and was EUR 20.4 (4.0) million during the first half. Operating profit excluding non-recurring items for the Swedish retail business totalled EUR 16.1 (7.3) million and operating profit was EUR 15.1 (3.3) million. Operating profit for the Swedish wholesale business was EUR 5.5 (1.0) million. Profitability of the Swedish retail business developed positively during the reporting period. Targeted EUR 8-10 million synergies from Medstop acquisition have been realized according to the plan. At the end of June 2014, Oriola-KD had a total of 302 (293) pharmacies in Sweden. Oriola-KD estimates that its market share of the pharmaceutical retail market was 20.7 (20.1) 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 half of the year. Based on the company's estimate parallel imports share of the Swedish pharmaceutical market was approximately 17 per cent, Oriola-KD's market share of the wholesale trade was 38.0 (34.7) per cent during the first half. Pharmaceutical Trade Russia Key Figures 2014 2013 Change 2014 2013 Change 2013 EUR million 4-6 4-6 % 1-6 1-6 % 1- 12 ------------------------------------------------------------------------------- Net Sales 187.6 235.2 -20.2 382.1 466.2 -18.0 978.8   Retail business 27.2 35.4 -23.1 56.6 75.2 -24.7 140.3   Wholesale business 166.6 204.1 -18.4 337.0 398.8 -15.5 857.2 ------------------------------------------------------------------------------- Operating profit before non- recurring items -14.0 -3.4 315.5 -19.3 -7.0 177.8 -8.0   Retail business -1.1 -0.1   -1.5 0.1   0.8   Wholesale business -12.9 -3.3 295.8 -17.9 -7.1 152.2 -8.8 ------------------------------------------------------------------------------- Operating profit  -85.0 -3.4   -90.8 -7.0   -8.3   Retail business -1.1 -0.1   -1.5 0.1   0.8   Wholesale business -83.9 -3.3   -89.2 -7.1   -9.1 ------------------------------------------------------------------------------- Operating profit % before non- recurring items -7.4 -1.4   -5.1 -1.5   -0.8   Retail business -4.0 -0.3   -2.6 0.2   0.6   Wholesale business -7.7 -1.6   -5.3 -1.8   -1.0 ------------------------------------------------------------------------------- Operating profit % -45.3 -1.4   -23.8 -1.5   -0.8   Retail business -4.0 -0.3   -2.7 0.2   0.6   Wholesale business -50.4 -1.6   -26.5 -1.8   -1.1 ------------------------------------------------------------------------------- Number of personnel at the end of period       2,518 3,008   2,901   Retail business       1,092 1,298   1,219   Wholesale business       1,426 1,710   1,683 ------------------------------------------------------------------------------- April-June 2014 The poor development of Pharmaceutical Trade Russia had a significant negative impact on Oriola-KD's second quarter net sales and operating profit. The second quarter net sales of Pharmaceutical Trade Russia in 2014 were EUR 187.6 (235.2) million. Operating profit excluding non-recurring items was EUR -14.0 (-3.4) million and operating profit was EUR -85.0 (-3.4) million. The net sales of the Russian retail business were EUR 27.2 (35.4) million. Operating profit excluding non-recurring items for the Russian retail business totalled EUR -1.1 (-0.1) million and operating profit was EUR -1.1 (-0.1) million. The net sales of the Russian wholesale business were EUR 166.6 (204.1) million. Profitability of the Russian wholesale business was very poor. Operating profit excluding non- recurring items for the Russian wholesale business totalled EUR -12.9 (-3.3) million and operating profit was EUR -83.9 (-3.3) million. 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 second quarter results of Oriola-KD Corporation include EUR 77.2 (-) million impairment charge for Russian pharmaceutical wholesale business. The impairment charge consists of goodwill EUR 70.2 million, intangible assets EUR 0.9 million and deferred tax assets EUR 6.1 million relating to the Russian wholesale operations subsidiary. The impairment charge is reported in the Oriola-KD Corporation's second quarter interim results as a non-recurring, non- cash item of expense. January-June 2014 The weak performance of the Russian businesses had a negative impact on Oriola- KD's January-June net sales and operating profit. During the first half the net sales of Pharmaceutical Trade Russia decreased by 18.0 per cent to EUR 382.1 (466.2) million, and on a constant currency basis, net sales decrease was 3.4 per cent. First half Russian retail business net sales decreased by 24.7 per cent to EUR 56.6 (75.2) million, and on a constant currency basis net sales decrease was 11.3 per cent. Russian wholesale business net sales decreased by 15.5 per cent to EUR 337.0 (398.8) million, and on a constant currency basis net sales increase was 0.4 per cent. The Russian retail business' EBITDA excluding non-recurring items was EUR -0.6 (1.2) million and EBITDA was EUR -0.7 (1.2) million. The Russian wholesale business' EBITDA excluding non-recurring items was EUR -16.4 (-5.3) million and EBITDA was EUR -16.7 (-5.3) million. Pharmaceutical Trade Russia's operating profit excluding non-recurring items decreased to EUR -19.3 (-7.0) million and operating profit was EUR -90.8 (-7.0) million. Operating profit excluding non-recurring items for the retail business was EUR -1.5 (0.1) million and operating profit was EUR -1.5 (0.1) million. Profitability of the Russian wholesale business was very poor. Operating profit excluding non-recurring items for the wholesale business was EUR -17.9 (-7.1) million and operating profit was EUR -89.2 (-7.1) million. As a result of efficiency measures initiated in the Russian businesses, the headcount reduction at the end of June 2014 in comparison to June 2013 was 490. Headcount reduction in Russian wholesale business was 284. In addition, principal agreements which are either commercially unprofitable or unfavourable for Oriola-KD have been re-negotiated. 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. At the end of June 2014, Oriola-KD had 222 (242) 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 4-6 4-6   1-6 1-6   1- 12 ------------------------------------------------------------------------------- Pharmaceutical Trade Sweden    Restructuring costs -0.3 -0.8   -1.0 -0.8   -4.6    Write-off of contract-based    accrual - -3.2   - -3.2   -3.1 Pharmaceutical Trade Russia    Impairment charges -71.1 -   -71.1 -   -    Restructuring costs 0.1 -   -0.3 -   -0.3 ------------------------------------------------------------------------------- Total -71.4 -4.0   -72.4 -4.0   -8.0 ------------------------------------------------------------------------------- Non-recurring items reported during the first half 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 June 2014 were EUR 1,335.0 (1,466.5) million. Cash and cash equivalents totalled EUR 108.5 (130.2) million and equity was EUR 227.4 (279.7) million. The equity ratio was 17.6 (19.5) per cent and gearing was 73.0 (71.4) per cent. Oriola-KD's goodwill of EUR 294.8 (389.3) 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 June 2014, EUR 230.6 (240.1) million of the goodwill was allocated to the Swedish pharmaceutical retail business, EUR 26.0 (27.1) million to the Swedish pharmaceutical wholesale business, EUR 0.0 (81.8) million to the Russian pharmaceutical wholesale business and EUR 38.2 (40.3) million to the Russian pharmaceutical retail business. At the end of June, interest-bearing debt was EUR 274.6 (330.0) million of which syndicated bank loans totalled EUR 167.1 (77.5) million, commercial papers EUR 50.7 (122.0) million, advance payments from pharmacies EUR 39.0 (33.7) million, a contingent consideration related to Medstop-acquisition EUR 14.6 (14.3) million and finance lease liabilities EUR 3.1 (0.6) million. Long-term interest bearing-liabilities were EUR 172.9 (92.1) million and short-term interest- bearing liabilities were EUR 101.7 (237.9) million. Interest-bearing net debt was EUR 166.1 (199.8) million. The non-recourse trade receivables sales programmes were continued in the retail and wholesale businesses in Sweden in the second quarter of 2014. At the end of June 2014, a total of EUR 80.0 (80.6) million in trade receivables had been sold. Oriola-KD's committed long-term credit facility of EUR 100.0 million and EUR 41.5 million of short-term credit account limits with banks were unused at the end of June 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 its gearing ratio. The ratio between the Group's net debt and the 12-month rolling EBITDA was 3.06 and the adjusted ratio in accordance with the terms and conditions of the financing agreement, stood at 2.79 at the end of June 2014, the covenant limit in the agreement being 4.00. The Group's gearing ratio was 73.0 per cent and the adjusted gearing ratio in accordance with the terms and conditions of the financing agreement was 66.6 per cent at the end of June 2014, the covenant limit in the agreement being 120 per cent. Financial covenants contained in the financing 30 Jun 2014 30 Sep   2014 31 Dec 2014 31 Mar 2015 agreement ------------------------------------------------------------------------------- Ratio between net debt and rolling 12-month EBITDA 4.0 3.5 3.5 3.0 Gearing ratio 120% 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 they are taken into consideration in the calculation of earnings per share. Income taxes for the first half were EUR -9.1 (0.9) 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-June net cash flow from operations was EUR -8.7 (-1.5) million, of which changes in working capital accounted for EUR -24.0 (-5.6) million. Net cash flow from investing activities was EUR -17.9 (-83.1) million. Investments Gross investments for January-June totalled EUR 17.9 (178.4) 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 4,899 (5,414) employees, 11 (10) per cent of whom worked in Finland and the Baltics, 38 (34) 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 the first half 2014: January-June   2014   January-June 2013 Trading volume class A class B   class A class B -------------------------------------------------------------------------- Trading volume, million 4.3 17.5   1.4 15.1 Trading volume, EUR million 10.3 41.9   3.3 35.7 Highest price, EUR 2.85 2.78   2.69 2.73 Lowest price, EUR 2.25 2.13   2.24 2.18 Closing quotation, end of period, EUR 2.43 2.37   2.30 2.28 -------------------------------------------------------------------------- Oriola-KD Corporation's market capitalisation on 30 June 2014 was EUR 361.3 (345.8) million. In the review period, the traded volume of Oriola-KD Corporation shares, excluding treasury shares, corresponded to 14.5 (10.9) per cent of the total number of shares. The traded volume of class A shares amounted to 9.1 (2.9) per cent of the average stock, and that of class B shares, excluding treasury shares, to 16.9 (14.6) per cent of the average stock. At the end of June 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 127,827 (96,822) treasury shares (including treasury shares held by third-party service provider), all of which are class B shares. They account for 0.08 (0.06) per cent of the company's shares and 0.012 (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 June 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 will start on 1 October 2013 and end on 30 September 2014. 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 31,005. Liquidity guarantee There is no liquidity guarantee in effect for the shares of Oriola-KD Corporation. Flagging announcements On 7 May 2014Norges 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. 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. * In the Russian retail business, tough competition resulting from the large number of pharmacies 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 and an increase in credit risks concerning customers may have an 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 many 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 1.9 per cent and decline an average of 0.2 per cent in Sweden per year while the Russian pharmaceutical market is expected to grow by an average of almost 8.1 per cent annually in the local currencies (source: IMS Health Prognosis 2014-2018). Outlook for 2014 Oriola-KD estimates that operating profit excluding non-recurring items will increase compared to 2013 actual. Net sales is estimated to decrease from 2013 level. Oriola-KD revised its guidance announced in interim report April 22, 2014 with stock exchange release on July 15, 2014. Events after the review period There were no material events after the review period. Next interim report Oriola-KD Corporation will publish its results for the third quarter of 2014 on Thursday 23 October 2014 at about 8.30 am. Oriola-KD's Interim Report for January - June 2014, unaudited Consolidated Statement of Comprehensive Income (IFRS), 2014 2013 2014 2013 2013 EUR million 4-6 4-6 1-6 1-6 1- 12 ------------------------------------------------------------------------------- Net sales 593.1 652.1 1,186.9 1,264.5 2,598.5 Other operating income 2.6 0.7 5.5 2.7 5.7 Cost of goods sold -500.9 -555.6 -995.6 -1,080.4 -2,199.4 Employee benefits -47.4 -48.8 -96.2 -93.1 -186.5 Other operating expenses -40.8 -43.2 -80.5 -81.0 -171.5 ------------------------------------------------------------------------------- Gross profit 6.6 5.2 20.2 12.7 46.7 Depreciation and impairments -77.8 -5.6 -84.3 -10.7 -25.7 ------------------------------------------------------------------------------- Operating Profit -71.2 -0.3 -64.1 2.0 21.0 Financial income 2.7 1.4 7.8 5.2 14.1 Financial expenses -5.4 -5.0 -14.2 -10.2 -27.7 ------------------------------------------------------------------------------- Profit before taxes -73.9 -4.0 -70.5 -3.0 7.4 Income taxes * -8.2 1.2 -9.1 0.9 -1.6 ------------------------------------------------------------------------------- Profit for the period -82.1 -2.8 -79.5 -2.1 5.8 Other comprehensive income Items which may be reclassified subsequently to profit or loss: Translation difference 7.6 -22.6 -9.9 -16.3 -29.7 Cash flow hedge -0.5 0.5 -1.0 1.0 0.8 Income tax relating to other comprehensive income -0.5 0.3 0.1 0.1 0.3 -------------------------------------------------------------------------------   -75.6 -24.5 -90.3 -17.3 -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 -75.6 -24.5 -90.3 -17.3 -18.3 Attribution of Profit for the period ------------------------------------------------------------------------------- To parent company shareholders -82.1 -2.8 -79.5 -2.1 5.8 ------------------------------------------------------------------------------- Attribution of total comprehensive income for the period ------------------------------------------------------------------------------- To parent company shareholders -75.6 -24.5 -90.3 -17.3 -18.3 ------------------------------------------------------------------------------- Earnings per share for the period Basic earnings per share, EUR -0.55 -0.02 -0.53 -0.01 0.04 Diluted earnings per share, EUR -0.55 -0.02 -0.53 -0.01 0.04 *) The tax expense for the period corresponds to the taxes calculated from the profit for the financial period. Q2/2014 tax expense includes EUR 6.1 million write-down of deferred tax asset. EUR million ASSETS 30 June 2014 30 June 2013 31 Dec 2013 ------------------------------------------------------------------------------- Non-current assets Property, plant and equipment 96.1 91.9 93.2 Goodwill 294.8 389.3 379.0 Other intangible assets 68.7 77.0 72.0 Other shares and shareholdings 0.0 0.0 0.0 Pension assets 9.2 6.3 9.3 Other non-current assets 0.0 0.1 0.0 Deferred tax assets 3.5 10.7 8.3 ------------------------------------------------------------------------------- Non-current assets total 472.3 575.4 561.8 Current assets Inventories 365.2 350.0 391.4 Trade and other receivables 318.1 334.1 337.9 Other receivables 70.9 76.8 71.8 Cash and cash equivalents 108.5 130.2 137.3 ------------------------------------------------------------------------------- Current assets total 862.7 891.1 938.3 ASSETS TOTAL 1,335.0 1,466.5 1,500.1 ------------------------------------------------------------------------------- EQUITY AND LIABILITIES ------------------------------------------------------------------------------- Equity of the parent company shareholders Share capital 36.2 36.2 36.2 Hedging reserve -1.0 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 131.9 222.8 221.5 ------------------------------------------------------------------------------- Equity total 227.4 279.7 278.1 Non-current liabilities Deferred tax liabilities 15.9 18.8 17.7 Pension obligations 7.4 9.6 7.6 Borrowings 172.9 92.1 176.2 Other non-current liabilities - - 0.3 ------------------------------------------------------------------------------- Non-current liabilities total 196.2 120.4 201.7 Current liabilities Trade payables and other current liabilities 809.0 828.5 874.7 Provisions 0.7 - 3.0 Borrowings 101.7 237.9 142.6 ------------------------------------------------------------------------------- Current liabilities total 911.4 1,066.4 1,020.3 EQUITY AND LIABILITIES TOTAL 1,335.0 1,466.5 1,500.1 ------------------------------------------------------------------------------- Consolidated Statement of Changes in Equity (IFRS)       Trans- Re- Equity of the parent company     lation tained shareholders 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 - - - -2.1 - -2.1   Other comprehensive income:     Cash flow hedge - 1.0 - - - 1.0     Income tax relating to     other comprehensive income - -0.3 0.4 - - 0.1     Translation difference - 0.0 -16.3 - - -16.3 ------------------------------------------------------------------------------- Comprehensive income for the period total - 0.8 -16.0 -2.1 - -17.3 ------------------------------------------------------------------------------- Owners-related transactions   Dividends paid and repayment of equity - -6.0 0.0 -7.6 - -13.6   Share-based payments - - - 0.0 - 0.0 ------------------------------------------------------------------------------- Owners-related transactions total - -6.0 - -7.5 - -13.6 ------------------------------------------------------------------------------- Equity 30 June 2013 36.2 20.7 -12.1 234.9 - 279.7 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Equity 1 Jan 2014 36.2 20.4 -25.3 246.8 - 278.1 ------------------------------------------------------------------------------- Comprehensive income for the period   Net profit for the period - - - -79.5 - -79.5   Other comprehensive income:     Cash flow hedge - -1.0 - - - -1.0     Income tax relating to     other comprehensive income - 0.2 -0.1 - - 0.1     Translation difference - -0.0 -9.9 - - -9.9 ------------------------------------------------------------------------------- Comprehensive income for the period total - -0.8 -10.0 -79.5 - -90.3 ------------------------------------------------------------------------------- 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 39.6 ------------------------------------------------------------------------------- Equity 30 June 2014 36.2 19.6 -35.3 167.2 39.6 227.4 ------------------------------------------------------------------------------- *) 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   1-6 1-6 1- 12 ------------------------------------------------------------------- Operating profit -64.1 2.0 21.0 Depreciation 13.2 10.7 25.7 Impairment 71.1 - - Change in working capital -24.0 -5.6 3.5 Cash flow from financial items and taxes -6.4 -6.2 -13.8 Other adjustments 1.4 -2.4 -6.7 ------------------------------------------------------------------- Net cash flow from operating activities -8.7 -1.5 29.8 Net cash flow from investing activities -17.9 -83.1 -97.8 Net cash flow from financing activities -1.7 127.3 118.4 Net change in cash and cash equivalents -28.3 42.7 50.4 Cash and cash equivalents at the beginning of the period 137.3 88.1 88.1 Foreign exchange rate differences -0.5 -0.6 -1.2 Net change in cash and cash equivalents -28.3 42.7 50.4 ------------------------------------------------------------------- Cash and cash equivalents at the end of the period 108.5 130.2 137.3 ------------------------------------------------------------------- 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 4-6 4-6 1-6 1-6 1- 12 ------------------------------------------------------------------------------- Profit attributable to equity owners of the parent -82.1 -2.8 -79.5 -2.1 5.8 Accumulated interest on hybrid bond net of tax -0.5 - -0.8 - - ------------------------------------------------------------------------------- Adjusted profit for the period -82.6 -2.8 -80.3 -2.1 5.8 Average number of outstanding shares (1000 shares) Basic 151,137 151,161 151,137 151,161 151,157 Diluted 151,137 151,161 151,137 151,161 151,157 Earnings per share (EUR) Basic -0.55 -0.02 -0.53 -0.01 0.04 Diluted -0.55 -0.02 -0.53 -0.01 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 1-6 1-6 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 12.8 9.4 22.4 Decreases -0.3 -0.1 -1.4 Reclassifications 0.8 - - Depreciation -8.2 -6.1 -14.8 Foreign exchange rate differences -2.3 -1.6 -2.4 ---------------------------------------------------------------------- Carrying amount at the end of the period 96.1 91.9 93.2 ---------------------------------------------------------------------- Changes in Intangible assets, 2014 2013 2013 EUR million 1-6 1-6 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 5.1 3.0 5.4 Decreases -0.2 - -0.0 Reclassifications -0.8 - - Impairments and depreciation -76.2 -4.5 -10.8 Foreign exchange rate differences -15.5 -18.1 -30.4 ---------------------------------------------------------------------- Carrying amount at the end of the period 363.5 466.3 451.0 ---------------------------------------------------------------------- Derivatives 30 Jun 2014 Positive fair Negative fair Nominal values of EUR million value value contracts ------------------------------------------------------------------------------- Derivatives recognised as cash flow hedges Interest rate swaps - -1.3 43.6 Derivatives measured at fair value through profit and loss Foreign currency forward and swap contracts 1.2 - 99.1 ------------------------------------------------------------------------------- 30 Jun 2013 Positive fair Negative fair Nominal values of EUR million value value contracts ------------------------------------------------------------------------------- Derivatives recognised as cash flow hedges Interest rate swaps 0.1 - 45.6 Derivatives measured at fair value through profit and loss Foreign currency forward and swap contracts 4.0 - 194.5 ------------------------------------------------------------------------------- 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 Jun 2014   Level 1 Level 2 Level 3 Total ------------------------------------------------------------------------------- Assets Derivatives measured at fair value through profit and loss - 1.3 - 1.3 Liabilities Derivatives designated as hedges   - 1.3 - 1.3 Derivatives measured at fair value through profit and loss - 0.1 - 0.1 Contingent consideration   - - 14.6 14.6 ------------------------------------------------------------------------------- EUR million 30 Jun 2013   Level 1 Level 2 Level 3 Total ------------------------------------------------------------------------------- Assets Derivatives measured at fair value through profit and loss - 4.0 - 4.0 Derivatives designated as hedges   - 0.1 - 0.1 Liabilities Contingent consideration   - - 14.3 14.3 ------------------------------------------------------------------------------- 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 0.5 Foreign exchange rate differences -0.5 --------------------------------------- Carrying amount 30 Jun 2014 14.6 --------------------------------------- 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 Jun 2014 30 Jun 2013 31 Dec 2013 ------------------------------------------------------------------------------- Guarantees given 17.2 18.9 21.3 Mortgages on land and buildings - - - Mortgages on company assets 2.3 2.4 2.4 Other guarantees and liabilities 0.9 0.8 0.9 Accumulated interest on hybrid bond 1.0 - - ------------------------------------------------------------------------------- Total 21.4 22.2 24.6 ------------------------------------------------------------------------------- Leasing liabilities (operating liabilities) 1.0 2.6 2.6 Rent liabilities 70.4 84.2 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 25.2 (24.8) million against subsidiaries' trade payables and EUR 147.9 (77.7)  million against Oriola-KD Holding Sverige AB's external loan. Provisions On 30 June 2014 Oriola-KD had restructuring provisions totalling EUR 0.7 (0.0) 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 1-6 1-6 1- 12 -------------------------------------------------------------------- Pharmaceutical Trade  Finland and Baltics 207.8 220.0 425.3 Pharmaceutical Trade Sweden 597.0 578.2 1,194.4 Pharmaceutical Trade Russia 382.1 466.2 978.8 Net sales to other segments -0.0 -0.0 -0.0 -------------------------------------------------------------------- Group total 1,186.9 1,264.5 2,598.5   2014 2013 2013 Operating Profit, EUR million 1-6 1-6 1- 12 -------------------------------------------------------------------- Pharmaceutical Trade  Finland and Baltics 9.2 9.3 18.8 Pharmaceutical Trade Sweden 20.4 4.0 16.4 Pharmaceutical Trade Russia -90.8 -7.0 -8.3 Group Administration and Others -2.9 -4.4 -5.9 -------------------------------------------------------------------- Group total -64.1 2.0 21.0 Operating Profit excl. Non-recurring items, 2014 2013 2013 EUR million 1-6 1-6 1- 12 -------------------------------------------------------------------- Pharmaceutical Trade  Finland and Baltics 9.2 9.3 18.8 Pharmaceutical Trade Sweden 21.3 8.0 24.1 Pharmaceutical Trade Russia -19.3 -7.0 -8.0 Group Administration and Others -2.9 -4.4 -5.9 -------------------------------------------------------------------- Operating Profit excl. non-recurring items 8.3 6.0 29.0 -------------------------------------------------------------------- Non-recurring items -72.4 -4.0 -8.0 -------------------------------------------------------------------- Group total -64.1 2.0 21.0   2014 2014 2013 2013 2013 2013 Quarterly Net Sales, EUR million 4-6 1-3 10-12 7-9 4-6 1-3 ---------------------------------------------------------------------------- Pharmaceutical Trade  Finland and Baltics 107.0 100.8 109.4 96.0 112.5 107.5 Pharmaceutical Trade Sweden 298.5 298.5 300.5 315.7 304.5 273.7 Pharmaceutical Trade Russia 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 ---------------------------------------------------------------------------- Group total 593.1 593.9 679.6 654.4 652.1 612.3   2014 2014 2013 2013 2013 2013 Quarterly Operating Profit, EUR million 4-6 1-3 10-12 7-9 4-6 1-3 ---------------------------------------------------------------------------- Pharmaceutical Trade  Finland and Baltics 4.4 4.8 4.2 5.3 5.2 4.2 Pharmaceutical Trade Sweden 11.0 9.4 6.2 6.2 0.8 3.2 Pharmaceutical Trade Russia -85.0 -5.8 0.5 -1.9 -3.4 -3.6 Group Administration and Others -1.5 -1.3 -0.5 -1.0 -3.0 -1.4 ---------------------------------------------------------------------------- Group total -71.2 7.1 10.4 8.6 -0.3 2.3 Quarterly Operating Profit, 2014 2014 2013 2013 2013 2013 excl. non-recurring items, EUR million 4-6 1-3 10-12 7-9 4-6 1-3 ---------------------------------------------------------------------------- Pharmaceutical Trade  Finland and Baltics 4.4 4.8 4.2 5.3 5.2 4.2 Pharmaceutical Trade Sweden 11.3 10.0 7.9 8.2 4.9 3.2 Pharmaceutical Trade Russia -14.0 -5.4 0.8 -1.9 -3.4 -3.6 Group Administration and Others -1.5 -1.3 -0.5 -1.0 -3.0 -1.4 ---------------------------------------------------------------------------- Group total excl. Non-recurring items 0.2 8.1 12.4 10.6 3.7 2.3 ---------------------------------------------------------------------------- Non-recurring items -71.4 -1.0 -2.0 -2.0 -4.0 - ---------------------------------------------------------------------------- Group total -71.2 7.1 10.4 8.6 -0.3 2.3   2014 2013 2013 Net Sales by Market, EUR million 1-6 1-6 1- 12 -------------------------------------------------------------- Finland 185.1 199.4 382.9 Sweden 568.1 548.6 1,135.0 Russia 382.1 466.2 978.8 Baltic countries 20.7 19.6 38.8 Other countries 30.9 30.7 63.0 -------------------------------------------------------------- Group total 1,186.9 1,264.5 2,598.5   2014 2014 2013 2013 2013 2013 Quarterly Net Sales by Market, EUR million 4-6 1-3 10-12 7-9 4-6 1-3 ------------------------------------------------------------------------------- Finland 95.9 89.2 98.2 85.3 102.5 96.8 Sweden 283.7 284.4 283.0 303.5 289.5 259.0 Russia 187.6 194.6 269.8 242.7 235.2 231.1 Baltic countries 9.8 10.9 10.0 9.1 9.6 10.0 Other countries 16.1 14.8 18.7 13.7 15.3 15.4 ------------------------------------------------------------------------------- Group total 593.1 593.9 679.6 654.4 652.1 612.3 Espoo, 24 July 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.comTuomas 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 Oriola-KD Corporation's Interim Report for 1 January-30 June 2014: http://hugin.info/136732/R/1834913/637440.pdf This announcement is distributed by GlobeNewswire on behalf of GlobeNewswire clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Oriola-KD Oyj via GlobeNewswire [HUG#1834913]


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