Pelion

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Strong position in all segments

2011 saw a number of unexpected developments, which had a material bearing on both global and Polish economy. However, neither these adverse developments nor the unfavourable and highly challenging business environment undermined the stable foundations of the Pelion Healthcare Group.

In 2011, the Group managed to strengthen its market position in all segments, as demonstrated by an over 13% increase in sales revenue, one of the strongest in recent years. Its consolidated net profit also grew at a target double-digit rate, coming in at PLN 80,231 thousand.

One of the 2011 achievements was large-scale deleveraging of the Group companies, which improved the debt ratios based on the consolidated balance sheet of the Pelion Healthcare Group.

Strong sales performance did not, however, translate into higher EBITDA, due, among other things, to unsatisfactory results posted by the retail business in Poland. It should be noted, though, that in 2011 the Lithuanian companies operating in the same segment delivered very strong performance, fully in line with earlier forecasts.

Solid foundations – fresh start

The landmark event in 2011 was the completion of the Group’s long-term structural reorganisation, as part of which all the four business lines have been organised into independent companies. Three of those lines, namely sales to hospitals (PGF Urtica), retail sales (CEPD N.V.) and services for manufacturers (Pharmalink), had already been organised in this way. In September 2011, the spin-off and transfer of the wholesale business to PGF Hurt, a subsidiary, was completed. Concurrently, Polska Grupa Farmaceutyczna S.A. changed its name to Pelion S.A.

In 2011, we successfully continued the restructuring of the retail line, which allowed us to centralise its business functions, standardise processes and develop individualised customer service. In 2011, the retail line, managed by CEPD N.V., added 208 new retail outlets to its network of pharmacies, which was already one of the largest in Europe. The Dbam o Zdrowie retail network operating in Poland was extended to include 133 new pharmacies. CEPD N.V.’s Lithuanian chain of pharmacies, under the names of Gintarine Vaistine and Norfos Vaistine, was extended to include 75 new outlets, of which 65 pharmacies were part of the Litfarma Vaistine network, purchased in July 2011. Thanks to the rapid expansion of its pharmacy network, CEPD N.V. has consolidated its leading position on the Polish market and established itself as a leader in Lithuania.

Following these changes, all the Group companies will build their value and brands independently. At the same time, as a group, they will leverage the synergies arising from presence in all segments of pharmaceutical distribution. The new organisation of the Group has allowed it to optimise management processes and - which is immensely important - to generate savings.

We are ready for changes

The streamlining of the Group’s structure coincided with our preparations for the coming into force of the amended Drugs Reimbursement Act. During the last six months of 2011, our efforts were focused on strengthening the position of the Pelion Healthcare Group across all segments, with a particular emphasis on enhancing the awareness and building the identity of the Dbam o Zdrowie brand. The adjustment of the Group’s operations to the new legislation was also a considerable challenge. In the retail line alone, removing the advertisement carriers for pharmacies, closing the loyalty programme operated at the Dbam o Zdrowie phamacies and amending the companies’ legal documents cost us nearly PLN 10m.

Thanks to the appropriate management policy, carefully thought out purchases and ongoing monitoring of the market situation, we began 2012 holding a steady course and without any concerns that the new reality would significantly affect our performance.

Innovation as a source of success

Since our inception, we have focused on innovation, being actively involved in modernising the pharmaceutical sector, and have initiated and implemented a number of innovative projects. For years, we have been the leader of the Polish e-pharmacy market. Every month, our website at www.doz.pl is visited by some three million patients. The website gives them access to an extensive database of healthcare information and an ability to order through the Internet a wide range of drugs and products available at pharmacies. It also allows patients to order prescription drugs, which is a unique solution on the Polish market. Over 100 thousand orders a month are already placed via the www.doz.pl website.

The www.pharmbook.pl website, which was launched last year and is addressed to pharmaceutical industry professionals, is also enjoying unabated interest. Its users may engage in business networking, participate in training programmes to raise their qualifications or exchange views on the discussion forum.

Being an inherent element of our everyday work, new technologies are necessary to meet the growing expectations of our customers and business partners. Thanks to the application of new technologies, we now have one of the most advanced, fully automated storage facilities and we use state-of-the-art sales and customer communications techniques.

Social commitment

The development strategy pursued by the Pelion Healthcare Group and the fact that we operate in the healthcare business impel us to act with the utmost care and responsibility. We make every effort to ensure that our business objectives facilitate the creation of joint value for our customers, shareholders and employees.

We carry out projects helping us to address the needs and expectations of our stakeholders in an increasingly effective way. The Pelion Healthcare Group believes that its primary responsibility in the CSR area is to ensure the availability of pharmaceuticals on the market. To this end, the I Care for My Health Foundation was established over five years ago, to eliminate barriers in access to pharmaceuticals. Since its inception, the Foundation has provided support to some 20 thousand individuals and to 50 Non-Profit Organisations. The aggregate value of aid provided by the Foundation in the form of vouchers for pharmaceutical purchases amounts to PLN 3m, including nearly PLN 600 thousand in 2011 alone.

With the youngest patients of oncology and haematology wards in mind, for 15 years now PGF Urtica, our subsidiary, has been running the “Urtica for Children” (Urtica Dzieciom) programme. In 2011, at the jubilee 15th charity auction, works made by children as part of art workshops called “Sunny Gallery” (Słoneczna Galeria), designed to mitigate the adverse effects of prolonged hospitalisation, were sold for a total of PLN 95 thousand. The funds were used to purchase medical equipment, equip ward rooms and day rooms, and buy games, toys and art materials for young patients. To date, this cause has received support of more than PLN 1m.

Taking pride in our roots, we also support and promote the tradition of Polish apothecaries by supporting Pharmacy Museums, looking after pharmacies of historical value and publishing monographs on individual pharmacies. Our publications in 2011 included books on Karol Ketschen’s pharmacy in Łódź, whose history dates back to 1828, and the “Pod Barankiem” pharmacy entered into the register of historical monuments of Kraków.

Last year, we launched the “Łódź Maraton - Dbam o Zdrowie” running event to promote healthy lifestyle, physical activity and modern forms of charity. The popularity of the first edition of the project (nearly 1,500 runners, including athletes who had participated in the world’s most prestigious marathons), and the opinion of the best organised mass running event, let us hope that our marathon will become a fixture in the calendar of Polish sports events, drawing more and more fans of running from across Poland and the world.

Plans for 2012

The Drugs Reimbursement Act effective since January 1st 2012 has utterly transformed the Polish pharmaceutical industry. The changes introduced by the Act are so fundamental that they may significantly alter the current market positions of individual businesses, while affecting their future financial performance. Like other market players, we will need to learn how to operate in the new legal environment. Given the recent changes, any precise financial forecasts for 2012 presented at this stage would carry a high degree of uncertainty. We keep monitoring the market, patients’ behaviour patterns and our Group companies’ market positions. At present, the market is in a transitional period marked by uncharacteristic behaviour of customers and other market participants, in particular in the area of reimbursable drugs, which is particularly affected by the recent changes. Despite the uncertain market environment, we will continue to seek to improve our performance, solidify our position across all segments and build sustainable value on the capital markets.

The table below presents the 2011 financial highlights, along with year-on-year comparative data:

  2011 2010 Change
Revenue (PLNm) 6,569,927 5,799,423 +13.3%
EBITDA (PLNm) 128,693 142,870 -9.9%
EBITDA margin (%) 2.0 2.5 -0.5ppt
Operating profit (PLNm) 96,368 112,712 -14.5%
Operating margin (%) 1.5 1.9 -0.4ppt
Net profit attributable to owners of the parent (PLNm) 80,231 70,663 +13.5%
Net margin (%) 1.2 1.2 +0ppt
Earnings per share (PLN) 6.61 5.76 +14.8%

For further details please contact:

Renata Borkowska-Kubiak

Spokesperson for Pelion S.A.

Landline: (+48 42) 200 79 19

Fax (+48 42) 613 35 35

Mobile: (+48) 785 858 991

E – mail: renata_borkowska-kubiak@pelion.eu

Pelion S.A., formerly Polska Grupa Farmaceutyczna S.A., has been present on the market for twenty-one years now. Initially, it was a local pharmaceutical wholesaler. In 1998, the Company made its debut on the Warsaw Stock Exchange. Proceeds from the initial public offering fuelled the Company’s dynamic growth and consolidation of the pharmaceutical wholesale market. Since its floatation, the Company has secured a top position among domestic distributors of medicinal products. Today, the Pelion Healthcare Group is one of the largest groups operating on the healthcare markets in Poland and Lithuania. Its services cover all market segments (wholesale, retail sale and sale to hospitals) and are targeted at individual patients, pharmacies, hospitals and manufacturers. As a holding company, Pelion S.A. carries out the owner's supervision over all areas of the Group's operations, which are managed by PGF Hurt Sp. z o.o. (wholesale), PGF Urtica Sp. z o.o. (sale to hospitals), CEPD N.V. (retail sale), and Pharmalink Sp. z o.o. (services for manufacturers).

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