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.

 

Risks and uncertainty factors 
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 made in the Swedish wholesale market will intensify competition, which may weaken the profitability of operations. The share of single channel distribution in the pharmaceutical wholesale market may decline rapidly, which may weaken the profitability of operations and lead to the restructuring of wholesale operations.
• Changes in share of parallel imports in Swedish pharmaceutical market may affect profitability of the Swedish wholesale and retail businesses.
• 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  Sweden as any changes in the value of  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
Oriola-KD’s strategic development projects  involve operational risks which may have an effect on Oriola-KD’s profitability.


Oriola-KD’s long-term financing agreement contains financial covenants concerning the ratio between Oriola- KD's net debt and rolling 12-month EBITDA and the Group’s gearing ratio. Weakening profitability of Oriola- KD’s business operations may affect Oriola-KD's ability to meet the financial covenants contained in the financing agreement.


 
Risk management 
The purpose of risk management is to help the Group to achieve its objectives. The risks threatening the achievement of the objectives can only be managed if they are identified and assessed.


The Board of Directors of Oriola-KD Corporation guides and supervises the planning and implementation of the risk management. The Board-appointed Audit Committee supervises risk management in the Group.
 

The President and CEO of the Oriola-KD and the Group Management Team have the operative responsibility for risk management. Risk management and the principles governing risk management and their development, coordination and monitoring are the responsibility of the Risk Management Steering Group, which is chaired by the Oriola-KD Group’s CFO.


Oriola-KD’s risk management policies are part of the Group’s management and reporting process and its different components. The purpose of the policies is to ensure that risks that may threaten Oriola-KD’s operations and the achievement of goals set can be comprehensively identified, assessed, managed and monitored throughout the Group.  Risk management is an integral part of Oriola-KD’s strategic process, governance and management system, decision-making, daily management, monitoring and reporting. Risk management is also a part of Oriola-KD’s internal control system.

 



The risk management process:

  1. Risk identification
  2. Evaluation of the likelihood of the risks occurring if the risks are not accounted for
  3. Evaluation of the consequences of the risks occurring, by calculating the cumulative financial losses during the strategy period
  4. Preparation of a risk management plan (measures helping to avoid risks, to make them less likely or to mitigate the consequences)
  5. Risk management is incorporated into the monitoring reports regularly submitted to the management

The Group Management Team and the Board of Directors receive yearly reports on the risk management situation.