TAMRO GROUP INTERIM REPORT 1.1.-30.9.2003

Interim report in brief:

- Tamro Group net sales amounted to EUR 3,067.8 (3,024.5) million, up 1.4%. Market growth during the first nine months remained relatively slow and was 4% in the Nordic countries.

- All business units, except Lithuania, exceeded their 9-month targets at operating profit level, leading to an operating profit of EUR 50.8 (41.5) million, up 22.4%, at Tamro Group level. The operating margin rose to 1.7 (1.4)%.

- The pre-tax profit amounted to EUR 42.9 (31.0) million, up 38.4% from the previous year's corresponding period. EPS was EUR 0.25 (0.21).

- Steady profit improvement is expected to continue also during the fourth quarter. This means a significant profitability improvement at full-year pre-tax level in 2003.

OPERATING ENVIRONMENT

The pharmaceutical wholesale market in the Nordic countries amounted to EUR 4.7 billion during January-September, leading to an average trading-day-adjusted growth rate of 4%. During the third quarter, the average growth rate slowed down to somewhat over 2%. The Swedish market stagnated, while the Finnish market continued to grow by over 6%.

The clear slowdown in market growth was largely due to the increased use of generic drugs based on mandatory substitution, which has been in effect in Sweden since October 2002 and in Finland since April 2003. In addition to mandatory generic substitution, the patent expirations of some top-selling products have caused heavy price revisions and reductions in branded drugs. These two trends were very clear in Sweden and Finland. In addition, the new reference price system in Norway and the price agreement between industry and government in Denmark on restraining health care costs calmed down growth. At the same time, new, more expensive medicines are being launched less frequently than before.

Overall market growth in the Baltic States was faster than in the Nordic countries, ending at an average of 6-7% during the first nine months of the year. According to the available market statistics, aggregated pharmaceutical wholesale in the Baltic States amounted to about EUR 340 million.


Tamro Group's position as the leading pharmaceutical wholesaler in Northern Europe remained strong, and its January-November market share in the Nordic countries was 47.0 (49.1)%.

CHANGES IN THE GROUP STRUCTURE

Pharm Tamda 77, Tamro's former subsidiary in Russia, has been consolidated to the Tamro Group until 30 April 2003 when the merger with the new Russian wholesaler took place. The Lithuanian company Litfarma ir partnerai, bought in December 2002, has been consolidated in the Group figures as from 1 January 2003. Litfarma was merged with Tamro UAB per 30 September 2003. Tamro Healthcare AB has been transferred from Tamro Sweden to the MedLab division as from 1 January 2003. Tamro's holding in Apokjeden has been calculated at the ownership share of 79.9%.

GROUP'S FINANCIAL PERFORMANCE

3Q July-September

The Group's third quarter net sales rose to EUR 997.2 (975.2) million, increasing by 2.3% from the corresponding period in the previous year. Tamro's sales development continued relatively slowly due to the non-consolidation of former Russian subsidiary Pharm Tamda 77's sales from 1 May 2003, the general slowdown of market growth in the Nordic countries, and also due to the weakening of the Norwegian currency against the euro.

The Group's operating profit in the third quarter was EUR 19.0 (12.7) million, an increase of 49.6% from the 3Q in the previous year. The operating profit margin was 1.9 (1.3)%. Development was particularly positive in Norway and Finland. Capital gains worth EUR 1.2 million are included from the sale of a property in Denmark.

The Group's ordinary profit before taxes grew to EUR 17.2 (8.8) million, increasing 95.5% from the year before. The growth is mainly based on extensive efficiency improvements and lower financing costs. Affiliated companies contributed a zero profit in the 3Q result.

Tax provisions have been booked at a rate of 32%. The minority interest was EUR -0.8 (0.9) million.


The net profit for the period July-September was EUR 10.9 (6.9) million. Earnings per share were EUR 0.10 (0.06).

The reporting period January-September

The Group's January-September net sales rose to EUR 3,067.8 (3,024.5) million, increasing 1.4% from the corresponding period a year earlier. Sales grew most favourably in Lithuania, +54%, and in Latvia, +10%. Revenues increased also in Norway, +4%, and in Denmark, +5%. In Sweden the comparable sales growth in euros was -1% after the internal transfer of Tamro Healthcare AB to Tamro MedLab division. Finland was 6% behind last year's sales due to changes in the principal structure compared to last year.

The Group's operating profit in January-September grew to EUR 50.8 (41.5) million, up 22.4% from the previous year. The year-to-date operating profit margin was 1.7 (1.4)%. All business units were profitable at the operating profit level. The main drivers in the significant boost in operating profit were efficiency improvements and lower operating costs, which offset the erosion of the gross margins in many countries. The biggest profit improvements took place in Norway, Finland, Latvia and Estonia.

The Group's ordinary profit before taxes grew to EUR 42.9 (31.0) million, an increase of 38.4% compared to the previous year. The result includes a EUR 0.1 (0.2) million loss from the affiliated companies in Norway and Denmark. Lower financing costs contributed by EUR 2.5 million to the improvement of the profit before taxes.

Tax provisions have been booked at a rate of 32%. The share of minority interest turned from EUR 2.7 million to a EUR -0.7 million loss, as the profitability of Apokjeden has improved substantially and the minority's holding in the company has decreased.

The net profit for the period January-September was EUR 28.5 (23.8) million. Earnings per share were EUR 0.25 (0.21).

OPERATIONS BY BUSINESS UNITS

Sweden

Aggregated pharmaceutical sales in Sweden grew in January-September to EUR 1,934 million, only 2.4% up from the corresponding period in the previous year (at constant exchange rates). During the third quarter the market growth stagnated to
-0.1%.

Tamro's January-September net sales in Sweden amounted to EUR 1,125.5 (1,138.9) million, down by 1.2% as a result of the internal transfer of Tamro Sweden's Healthcare unit to Tamro MedLab at the beginning of the year. Tamro Sweden's share of the Group net sales remained at 37%. Tamro Sweden's market share stayed at 48%. Tamro Sweden did not gain or loose any major contracts. The operating profit was slightly behind last year's level, mainly due to declining gross margins. Tamro Sweden employed an average of 504 (475) people.

The development of Tamro AB's value-added Internet-based information services for pharmacies and principals continued, and new versions were launched as an essential part of the Tamro brand identity in Sweden.

After the reporting period on 20 October Stefan, Åkesson, Managing Director for Tamro Sweden since 2002, resigned from his position. Tamro Group CEO Jo Langmoen took the role of Acting Managing Director until a permanent successor for Stefan Åkesson has been appointed.

Mandatory generic substitution, in force since October 2002 in Sweden, has led to over 3,800 price reductions among the 5,000 medicines sold in Sweden. The benefits for the Swedish County Council's healthcare budgets as well as for patients depend on how well Apoteket AB manages to keep the cheapest generics in stock. This brings new challenges both for wholesalers and generic manufacturers.

Denmark

The relatively modest market development has continued in the third quarter. The sales of pharmaceuticals through wholesalers grew to EUR 757 million in January-September, leading to a rise of 3.1% from the previous year's first nine months. The main reasons for this modest growth have been the price agreement between industry and government, whereby prices will not be increased above the average North European price level, and the strengthened generic competition.

Nomeco's January-September net sales were EUR 783.6 (746.6) million, up 5.0% from the previous year. Pharmaceutical sales accounted for about two-thirds of Nomeco's net sales. Nomeco's share of the Group net sales remained at nearly 26%. The company's market position has been stable, with a market share beyond 69%, and profitability has been according to plan.

Nomeco employed an average of 623 (619) people.

The increase in the number of pharmacies using Nomeco's VMI (Vendor Managed Inventory) concept has continued according to plan. Substantial resources are used to serve voluntary pharmacy chains. Nomeco serves three of the most important pharmacy chains, to which belong 200 of Denmark's 280 pharmacies. Nomeco provides the pharmacies with administration assistance as well as sales information concerning the product assortment in chains and optimisation of purchasing.

The sales of OTC drugs in supermarkets and other groceries are rising. According to the latest available statistics, sales from stores accounted for 12% of the total OTC sales in Denmark. The best selling product categories are anti-smoking products and painkillers. The sales of painkillers through retail stores represent 5% of the total product sales and in anti-smoking products the corresponding market share in stores is about 40%.

Finland

The pharmaceutical market growth rate in the Nordic countries was still the highest in Finland. During January-September, Finland's pharmaceutical market grew by 5.8% to EUR 1,104 million. The trading-day-adjusted growth was 6.3%.

During the third quarter, the prices of prescription medicines declined by nearly 5% as a result of mandatory generic substitution, which came into force in April 2003. This decline was compensated by a volume increase and newly launched medicines, so that the total sales of prescription medicines grew by almost 5% in July-September.

Tamro Finland's January-September net sales totalled EUR 462.2 (493.2) million, -6.3% compared to the previous year's corresponding period. As a consequence, the average market share of Tamro Finland was 40.0% during January-September. Tamro Finland's share of the Group net sales was 15%.

Tamro Finland has launched a new Internet-based service, Tamro Web Direct, for Finnish pharmacies. The service was created originally in Tamro Sweden and it gives the pharmacies real-time information about product availability and back-deliveries, among others.

Tamro Finland's profitability has remained clearly above last year's level and exceeded the targeted profit as well. During January-September, Tamro Finland employed an average of 313 (372) people, -16% less than a year ago.

After the reporting period on 16 October, it was announced that Tamro Finland and Pfizer, the leading pharmaceutical company in the world, had signed a long-term contract on distribution of Pfizer's human medicines, OTC products, as well as healthcare equipment and instruments in Finland. The contract will enter into force at the beginning of 2004. On 3 November it was announced that a distribution contract with Novartis Finland had been signed, too. The contract will enter into force at the beginning of 2004.

It has been calculated that mandatory generic substitution - launched in April 2003 - and the ensuing price competition have led to monthly savings of over EUR 4 million in governmental health care costs in Finland. This can mean savings of 5% in the total costs of reimbursable medicines.

Norway

The growth rate in pharmaceutical wholesale remained quite modest during the third quarter, and the January-September growth was only 3.6% compared to the previous year. Aggregated pharmaceutical wholesale in Norway amounted to EUR 871 million during the first nine months of 2003. The low growth rate is attributed to the price revisions started in January, to greater use of generics and to the reference price system that was introduced by the government in March.

Apokjeden Group's January-September net sales amounted to EUR 446.2 (427.9) million, up 4%, and comprised both pharmaceutical wholesale and retail sales. Due to the slow market development, the net sales were lower than targeted. Apokjeden's share of the Group net sales exceeded 14%.

During the third quarter Apokjeden Group's operating profit remained positive and better than forecasted despite the lower-than-estimated net sales. The main reasons behind the improving profitability were the higher gross margins and efficiency improvements. The fundamental restructuring of Apokjeden's financing has lowered the financial costs of the unit.

In September, Apokjeden converted seven partly owned pharmacies into subsidiaries. At the end of September, the total number of pharmacies in the Apotek1 chain is 203 of which 171 are totally or partly owned by Apokjeden. In Norway, 97% of the private pharmacies belong to one of the three pharmacy chains, of which Apokjeden's Apotek1 chain is the biggest with a 43% share of the pharmacy market, excluding hospital pharmacies.

Apokjeden Group employed an average of 1,423 (1,000) people, of whom 1,249 (821) worked in pharmacies.

The reform to broaden the assortment of deregulated OTC products outside pharmacies comes into effect on 1 November 2003 in Norway. Certain non-prescription OTC products are available in supermarkets, health food shops, petrol stations and similar outlets. On 4 November the Norwegian competition authorities started to investigate whether the four wholesalers in Norway had made any illegal price agreements.

Estonia

The pharmaceutical wholesale market in Estonia grew by 5-6% during the first nine months of the year. Tamro's net sales in Estonia were EUR 29.3 (30.3) million, a decrease of 3% compared to the same period in the preceding year. Tamro's net sales in Estonia include also the retail sales of the acquired pharmacies and represent 1% of the Group net sales. Tamro's share of the wholesale market was in the region of 30%. Tamro's own pharmacies accounted for about 6% of the whole pharmacy market.

Tamro Estonia employed an average of 133 (107) people, 61 (32) of whom worked in Tamro's 21 pharmacies. Despite the decrease in sales, the profitability of Tamro Estonia exceeded the targeted level and last year's level.

Efforts to forge co-operation among pharmacies have continued in close co-operation with Tamro's Pharmacy Council. The results have been good. By September, the Apteek1 chain already had 120 member pharmacies, including Tamro's 21 pharmacies and representing 27% of the pharmacy market.

Latvia

The pharmaceutical market in Latvia continued to grow at a rate of 11% during January-September 2003. Market consolidation towards pharmacy alliances continued and the chains now cover 70% of the market.

Tamro's net sales in Latvia during January-September were EUR 57.3 (51.9) million, up 10% from the previous year. The share of Tamro's Latvian operations in the Group net sales was 2%. The net sales include also the retail sales of Tamro's own pharmacy chain Gimenes Aptieka, which now comprises 29 pharmacies. The profitability of Tamro's operations in Latvia exceeded the targets and was clearly better than in the previous year. The main emphasis was on the further development of IT solutions and services for pharmacies.

Tamro's market share in wholesale distribution was nearly 28% and in retail 6%.

Tamro employed in Latvia an average of 252 (254) people, of whom 140 (142) worked in the 29 pharmacies of the Gimenes Aptieka chain. In early July, Dita Martinsone was appointed as Managing Director of Tamro's Latvian operations.

The Latvian parliament has approved adjustments in the VAT law. Accordingly, as of 1 January 2004, medicines will be subjected to a 5% tax rather than the planned 9% tax.

Lithuania

According to available statistics, the pharmaceutical market grew by 5% during January-September in Lithuania. Tamro's net sales in Lithuania were EUR 56.2 (36.4) million, representing 2% of the Tamro Group net sales. Tamro's operations accounted for 25% of Lithuanian wholesale distribution.

Tamro's operations in Lithuania employed an average of 173 (84) people. The profitability of merged UAB Tamro and of Litfarma ir partneriai bought in December last year lagged behind the profitability in 2002 and the target for the financial year 2003.

In August, Tamro acquired its first pharmacy in Lithuania, the Karoliniskiu pharmacy. Pharmacy chain formation has intensified in Lithuania.

The management of Tamro's operations in Lithuania changed at the end of July, when Stefan Pflug, Tamro Group Director of Logistics and member of Group management, was assigned as Acting Managing Director for UAB Tamro in Lithuania.

Northwestern Russia

In December 2002 Tamro entered into an agreement to swap its ownership in Pharm Tamda 77 for an 18% minority holding in the newly established federal wholesale company called ZAO ROSTA. The final closing of the deal took place during the second quarter. Therefore Pharm Tamda 77 was consolidated into Tamro Group figures only until 30 April 2003.

Tamro MedLab

Tamro MedLab's net sales totalled EUR 91.4 (63.9) million, up 43% compared to the previous year. The figure comprises also the net sales of Tamro Healthcare AB, which were transferred internally from Tamro Sweden to MedLab Group at the beginning of the year. MedLab Group represents 3% of the Group's net sales. Tamro MedLab's profitability was behind target, but slightly better than during the previous year.

Tamro MedLab employed an average of 272 (251) people in seven countries.

INVESTMENTS AND ACQUISITIONS

The Group's gross investments in January-September amounted to EUR 32.8 (76.1) million and consisted almost entirely of Apokjeden Group's investments in pharmacies in Norway.

FINANCING

The financial position of Tamro Group strengthened further during the third quarter of 2003. New committed bi-lateral back-stop facilities worth EUR 200 million were implemented in September to further support the active use of the EUR 200 million Commercial Paper Programme. The Group's net gearing improved to 32.6 (56.7)% and equity ratio to 35.3 (32.7)%.

Financial expenses were reduced further from the second quarter of 2003. Material benefits from recent interest rate cuts have now been achieved, and more stable development in financial expenses will be seen in the near future. The cost-efficient funding structure of Tamro Group will continue to keep the net financial expenses on a relatively advantageous level.

The net debt at the end of September 2003 totalled EUR 121.6 (208.2) million. The effective net debt, including the EUR 70.3 million receivables sold through the Asset Securitisation arrangement, was EUR 191.9 (208.2) million. The average effective net debt during the third quarter has been on slightly lower level than last year. The liquid assets contracted to EUR 11.1 (13.7) million due to improved cash management.

Free cash flow and net working capital

The free cash flow in the third quarter was EUR 30.2 (-55.6) million. The operative cash flow before net working capital changes and investments improved to EUR 21.9 (13.0) million. Net investments contracted to EUR 6.3 (19.1) million.

The cash flow change from the net working capital changes was EUR 14.6 (-49.5) million during the third quarter, and the net working capital at the end of the period totalled EUR 172.8 (248.5) million. The receivables sold at the end of the period were EUR 70.3 million and at the same level as in the first and second quarters.

The free cash flow in the January-September reporting period was EUR -13.5 (28.0) million. The operative cash flow before net working capital changes and investments improved to EUR 53.9 (39.7) million. Net investments contracted heavily to EUR 27.5 (76.9) million as the acquired number of pharmacies declined clearly from last year. The cash flow from the net working capital changes was EUR -39.9 (9.2) million. Last year's cash flow and net working capital were positively affected by extraordinary items.

Financial expenses

The Group's net financial expenses during the third quarter reduced to EUR 1.8 (3.8) million. The net interest expenses were EUR 1.9 (3.7) million and clearly below the second quarter level of EUR 2.5 million. The exchange rate losses were EUR 0.1 (0.1) million, and other financial income was EUR 0.2 (0.1) million.

The net financial expenses during the January-September reporting period were EUR 7.8 (10.3) million. The net interest expenses were EUR 7.3 (10.6) million. The exchange rate losses were EUR 0.3 (-0.2) million and other financial expenses 0.2 (-0.1) million.

PERSONNEL

The Group employed an average of 3,812 (3,376) people in January- September. Of these, an average of 2,085 (2,130) worked in pharmaceutical wholesale, an average of 1,455 (995) in pharmacies and an average of 272 (251) at Tamro MedLab. The amount of people working in pharmacies is growing continuously and was already 1,542 (1,252) at the end of September 2003. During January-September on average 87% of Tamro's personnel worked abroad.

TAMRO'S SHARES AND SHAREHOLDERS

The share capital of Parent Company Tamro Corporation on 30 September 2003 amounted to EUR 114,837,083, and it was divided into a total of 114,837,083 shares with a nominal value of EUR 1. Tamro Corporation shares are listed on the Helsinki Exchanges.

On 30 September 2003, 19.5% of Tamro Corporation's shares were in Finnish, 19.3% in Swedish and 39.6% in German ownership. In addition to that, another 21.3% of the shares were nominee holdings. Foreign ownership accounted thus for a total of 80.2% of Tamro's shares.

At the end of September 2003, the company held 341.000 (341.000) repurchased own shares corresponding to 0.3% of the month-end share capital.

The redemption process described earlier in this Interim Report was completed after the reporting period, and it changed the ownership structure. On 31 October, Tamro had 2,187 shareholders. The biggest shareholder is PHOENIX, who after the redemption process and tender offer owns 94.3% of the shares. Nominee registered shareholders have 4.0% of the shares and other shareholders 1.4%.

Share performance

The closing price at the end of September was EUR 4.45 (3.62), up 17.1% from the year-end and 22.9% from the end of September 2002. During the review period, the trading high reached EUR 4.60 (3.99) and the trading low was EUR 3.77 (3.35). In January-September a total of 4.6 (15.6) million shares changed hands, equivalent to 4.0 (13.6)% of the average number of all Tamro shares. This share turnover represented a market value of EUR 19.4 (59.6) million. The share turnover in volume decreased by 70.7% and the market value of the share turnover by 67.5%.

Tamro's market capitalisation at the end of September was EUR 509.5 (414.5) million compared with EUR 435.1 million at year-end 2002. The market capitalisation figure does not include own shares.

Permanent insiders' share holdings and options

At the end of the period, the Board Members held a total of 226,315 Tamro Corporation shares and 180,000 year 1997 option
rights. Share holdings include assets of dependents and significantly influenced companies, and they correspond to 0.2% of shares and voting rights. The Group management and the permanent insiders owned correspondingly a total of 5,180 shares, 199,500 year 1997 option rights and 567,000 year 2000 share option rights.

TAMRO'S BOARD OF DIRECTORS

Tamro Corporation was informed on 7 October that Göran Hultman, Apoteket AB's marketing director resigns from his position as member of Tamro's Board of Directors.

PROSPECTS FOR THE YEAR
Based on the market development during the first nine months of 2003, the value of the pharmaceutical market is expected to grow at a reduced annual speed of only 4-5%in the Nordic countries during 2003. This is half of the rate of the last five years.

Due to the slow market development, Tamro Group's net sales are expected to grow at an annual rate of only 2% in 2003. Despite the expected slower sales development, the relatively good financial development of the Company is expected to continue in all business units. Therefore the company repeats its earlier forecast of a significant improvement in pre-tax profit in 2003.