• The Swedish pharmaceutical market increased by a modest rate of 2.3% in 2004. The total market amounted to EUR 2,656 million.
  
  
• Tamro Sweden’s net sales for the extended 13-month accounting year in 2004/2005 amounted to EUR 1,616 million. Comparable sales for the calendar year were EUR 1,510 (1,517) million, down 0.5% from the previous year’s corresponding period.

Operating environment and markets

On the whole, the Swedish pharmaceutical market continued to show a modest market growth in 2004. The total pharmaceuticals sales amounted to EUR 2,656 million at pharmacy purchasing prices (PPP), an increase of 2.3% from the previous year.

The main elements affecting the modest growth are still the overall impact of the patent expirations for some high-selling medicines in 2003 and the introduction of mandatory generic substitution, which has led to reduced prices for patent-expired medicines.

In 2004, the sales of parallel importers (PI) increased by 20% compared with the previous year, to EUR 277 million in PPP. As a consequence, PI accounted for 10.4% of total pharmaceuticals sales in Sweden, up by 1.6 percentage points from 2003.

The market in general was characterised by a state of uncertainty over the future development of the market structure, associated with the European Court of Justice’s (ECJ) forthcoming ruling in the case concerning the legality of the Swedish pharmacy monopoly. The opinion from the General Advocate of the ECJ was delivered on 25 May 2004 in the form of a preliminary ruling, in which the court found that the Swedish monopoly on retail sales of pharmaceuticals is not compatible with EU legislation and that the Swedish pharmacy market should be opened up for competition. The final ruling of the ECJ in the case is still pending.

As a result of the ECJ’s ruling, three major scenarios seem possible:

• a continued pharmaceutical retail monopoly
• a limitation of the monopoly to only Rx products
• a total dismantling of the monopoly.

The development of Apoteket’s internal distribution units, the distance pharmacies, continued but at a slower pace than expected, as did the volume growth. So far, the impact of the distance pharmacies on Tamro’s operations has been modest.

Instead of transferring responsibility for the medicine budgets to the county councils this year as planned, the Swedish Ministry of Health and Social Affairs decided to continue the present cost-sharing scheme between the county councils and the state for the next three years.

Financial performance and operations

Tamro Sweden’s average market share increased by 0.5 percentage points to 48.4%, and hence Tamro successfully defended its leading position on the Swedish pharma wholesale market. The increase was mainly attributable to new business agreements and the increased sales of parallel importers. In the financial year 2004/2005, Tamro’s net sales amounted to EUR 1,616 million, while sales for the calendar year were EUR 1,510 (1,517) million.

In the beginning of 2004, an important strategic decision was made to implement a structural change: the aim was to increase productivity in the company’s distribution and stock-keeping operations. A comprehensive restructuring programme was outlined in March 2004, resulting in the decision to gradually terminate Tamro’s operations in Malmö during the year and in the beginning of Q1 2005. At the same time it was determined that Tamro’s services in Stockholm and Göteborg would be extended. The phase-out of the Malmö operations has proceeded according to plan, and the costs and savings related to the restructuring programme have met the predefined goals.

Despite the slowing sales growth Tamro Sweden’s profitability remained stable, mainly as a result of measures taken to streamline the company’s cost structure and to enhance cost-effectiveness in operations.

The development of Tamro AB’s Internet-based business information services continued, and upgraded versions with new features were launched to support customers in developing their business operations.

Personnel

During the financial year, Tamro AB employed an average of 468 people (499), of whom 54% were women. The reduction in the number of employees was a result of the restructuring programme implemented within the company during the year.

A new comprehensive leadership and management development programme aiming at strengthening and enhancing the leadership skills of all managers and supervisors was launched in March 2004.

Outlook for 2005

The modest market development is expected to continue in 2005, and the growth of the pharmaceutical market is estimated at about 2–3%. Tamro Sweden’s restructuring programme will be completed in the beginning of 2005.

A number of efficiency gains and improvements resulting from the programme have already been obtained, and these effects are expected to be fully reflected in the company’s operational and financial performance in 2005.

The outcome of the decision of the European Court of Justice may trigger significant changes in the market structure and competitive situation. Although Tamro is well prepared to meet the decision of the ECJ and possible changes in the market structure, the company may face a need to adapt to a new market situation.