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Oriola-KD To Enter Growing Russian Pharmaceutical Retail And Wholesale Markets
Oriola-KD Corporation has signed an agreement to acquire a 75 percent share of the Moscow-based Russian pharmaceutical retail and wholesale companies Vitim & Co and Moron Ltd. The acquisition consideration is EUR 70 - 90 million based on the financial performance of the acquired companies in 2008. The closing of the transaction is expected to take place in April 2008. Oriola-KD has also agreed to acquire the remaining 25 percent share of the companies in 2010 at a value based on the financial performance of the companies in 2009.
The acquisition of Vitim and Moron is a major strategic step forward for Oriola-KD in investing in Russia's fast-growing pharmaceutical market. Vitim is operating in pharmacy retail in Moscow and the Moscow region under the well-known Stary Lekar brand. Moron is operating nationwide in pharmaceutical wholesale. The combination of Vitim and Moron provides Oriola-KD a unique opportunity to invest in the developing Russian pharmaceutical market. Oriola-KD is planning to invest considerably and offer its strong logistical know-how to strengthen the operations and their competitiveness in partnership with the founders and current owners Mr. Igor Yankov and Mr. Oleg Yankov. The founders will continue in their leading management role in Vitim and Moron and retain a 25 percent ownership in the Finnish-based holding company which will fully own the operating companies in Russia.
Pharmacy retail operations
Vitim, founded in 1999, has established growing pharmacy chain operations in Moscow and the Moscow region under the Stary Lekar brand, and it is the third largest pharmacy chain in Moscow with a market share of some 5 percent in 2007. The Stary Lekar brand has been rated as one of the best-known among Moscow's pharmacy chains. The pharmacy chain is based on a new pharmacy concept with modern sales and management technologies and a combined assortment of both pharmaceuticals and OTC products. Vitim currently operates some 140 pharmacies and employs 1600 persons. Net sales were EUR 76 million in 2007 (EUR 63 million in 2006) with EBIT of an estimated at EUR -3 million in 2007 (EUR 0 million in 2006) reflecting the rapid rate of new pharmacy openings. The operational pharmacies are clearly profitable and well-located. Vitim has invested heavily in expanding the pharmacy chain within the last few years and Oriola-KD is committed to continue the strong growth within the next few years. In 2008 net sales of Vitim are expected to grow strongly while the profitability will still be affected by the continuing establishment of new pharmacies.
Pharmaceutical wholesale operations
Moron, founded in 1996, is the primary supplier for Vitim and has established growing pharmaceutical wholesale operations to independent pharmacies, retail chains, regional wholesale companies and hospitals in Russia. Moron's market share in the Russian pharmaceutical wholesale market is around 5 percent having a strong position especially in Moscow and the Moscow region. In addition to Moscow and the Moscow region the wholesale operations cover eight active branches in Russia: Chelyabinsk, Irkutsk, Kazan, Nizhniy Novgorod, Saint Petersburg, Saratov, Tula and Voronezh. Moron employs 1800 persons and its net sales were EUR 296 million in 2007 (EUR 295 million in 2006) and EBIT after accounting adjustments is estimated to be slightly negative in 2007 (EUR 6 million in 2006). Moron has a solid history of profitable wholesale operations in Russia. The company opened a new modern main logistics centre in Moscow in early 2007. This move was a major step forward in developing Moron's operations even though it temporarily deteriorated net sales and EBIT of the company. Net sales and EBIT of Moron are expected to strongly improve in 2008 compared to 2007.
The interest bearing net debt of Vitim and Moron is some EUR 15 million at the time of signing.
Russian demand growing close to 20 percent annually
The value of the Russian pharmaceutical market based on the consumer prices including consumer healthcare products was approximately EUR 10 billion in 2006 and the market is estimated to grow close to 20 percent annually in 2008-2013. The current per capita spending on pharmaceuticals in Western Europe is approximately six times that of Russia. Market growth will be driven by growing consumer income, which will increase the consumption of more expensive, higher value-added medications purchased in modern pharmacies and delivered by distributors with developed infrastructure and sufficient working-capital funding. The market is also expected to grow due to an ageing population and increasing government spending in the healthcare sector.
"The acquisition of Vitim and Moron is a major strategic step forward for Oriola-KD in investing in Russia's fast-growing pharmaceutical retail and wholesale market. Oriola-KD is committed to invest considerably and offer its logistical know-how to strengthen the operations and continue the successful development of Vitim and Moron in close partnership with the founders. This strategic acquisition also further improves Oriola-KD's position to participate in the proposed Swedish pharmacy market deregulation," said Eero Hautaniemi, President and CEO, Oriola-KD Corporation.
About Oriola-KD Corporation
Oriola-KD Corporation is a leading company in Pharmaceutical and Healthcare Trade in Northern Europe. Invoicing in 2007 was EUR 2.5 billion and the number of personnel at the end of 2007 was 1300. Oriola-KD is listed on OMX Nordic Exchange Helsinki. For more information, visit www.oriola-kd.com.
Source: Oriola-KD Corporation press release