Operating in a new reality
2012 – year of challenge
The first quarter of 2012 was a turning point for Poland's pharmaceutical industry as it brought a ten-to-twenty percent slump in the market compared with a year ago. On the other hand, Lithuania's wholesale pharmaceutical market rose by 4.2% on the prior year.
Hence, the start of the year proved to be one of the most demanding periods in more than 20 years of our operating history. With a 1% decline in consolidated sales revenue, exacerbated by a slight decline in margins, the Group's operating expenses were matched to a much lesser extent. We continue to bear costs of the required changes, including termination of the existing and launch of new loyalty programmes that would comply with the regulations in force as from the beginning of the year. As a result, EBITDA retreated by 27%, with net result having plunged by the staggering 70%.
The retail business was hit the hardest by the adverse regulatory changes. At the same time, it should be noted that the wholesale market is in for further 1ppt reductions in fixed margins, to be implemented at the beginning of 2013 and 2014. By introducing fixed prices for reimbursed medicines, the legislator took full responsibility for the price amounts, depriving wholesalers, pharmacies and patients of the option to buy drugs cheaper. Consequently, in Q1 2012, despite the lower average price tag on medicines sold in Poland, the actual price paid by customers was higher, thus restricting affordability of pharmaceuticals, particularly in less affluent social groups.
A full ban on pharmacy advertising (with drug advertising permitted) introduced by the Act has prevented pharmacies from promoting low-priced products, including cosmetics or hygiene supplies, among their customers. As a result, the existing customers are pushed to leave for competitors, most often heavily advertised foreign retail chains.
All these factors combined make the legal environment of wholesale and retail pharmaceutical distribution extremely demanding, and are bound to cause certain adjustments to the cost base over the long term. The Group has announced downsizing plans. So far, almost 130 members of the staff were given a notice of termination, with 150 other persons planned for redundancy.
Another option being considered is optimisation of the pharmacy chain in Poland, to be achieved by the sale of around 10% of the pharmacies.
We are set to continue our efforts to reduce the Group's net debt which already fell by almost PLN 46m at the end of March relative to the end of 2011 and by almost PLN 190m year on year. This helped improve our debt ratio despite the lower EBITDA.
The pharmaceutical business is subject to more stringent requirements in the area of logistics than many other industries. Extremely rigid technical and organisational standards are imposed on the market participants by the Polish law. To meet the exacting standards, a steady flow of capital investment in new technologies is required, which a business operating in a market that offers profit margins of below 1% can hardly provide.
Care for patient welfare
Despite the uncertainty prevailing on the market and the adverse legal context, the Pelion Healthcare Group continues its customer satisfaction-oriented efforts by providing the best-available product offering. Our key strengths include an extensive customer base and a pharmacy chain enjoying the highest brand recognition on the home market, additionally distinguished by a broad product mix, professional customer service and premium quality of services offered.
Our response to the new legal environment and growing customer expectations is the Pharmaceutical Care Programme (Program Opieki Farmaceutycznej or POF) implemented at the Dbam o Zdrowie pharmacies. Its purpose is to offer support to pharmacists in providing pharmaceutical care to customers through a documented process. The programme helps foster good relations and close interaction between patients and pharmacists, a prerequisite for proper pharmaceutical care. The POF offers patients personalised support in their drug therapies, access to healthcare education and pharmacist consultation. The POF's architecture is overseen by persons qualified in medicine and pharmacy, which warrants full compliance with the Pharmaceutical Chambers Act of January 10th 2008.
Each POF participant is granted access to the healthcare-dedicated website www.opiekafarmaceutyczna.com and the supporting hotline. All these tools combined enable patients to obtain advice on generic substitution.
The programme participants are offered attractive prices of non-refunded medicines, cosmetics and food supplements, gaining easier access to healthy lifestyle products.
Built based on the best solutions implemented in the developed countries, the POF has been adapted to fit the local context, match customer expectations and satisfy the legal requirements. To ensure compliance with the most rigid interpretations of the new law, no promotional activities have been undertaken with respect to the POF. Relevant information is available at our pharmacies only.
Pelion named "Well-Perceived Company"
Pelion S.A. was awarded the title of "Well-Perceived Company" by Business Centre Club. Overall, 16 companies from across Poland received the distinction.
The Regional Jury Panels responsible for the selection of best companies in their respective regions comprised the representatives of employers, the media, higher education institutions, and local governments.
The table below presents the Q1 2012 financial highlights, along with the year-on-year comparative data:
| Q1 2012 | Q1 2011 | Change | |
| Sales revenue (PLNm) | 1,663.3 | 1,680.4 | -1.0% |
| EBITDA (PLNm) | 28.2 | 38.8 | -27.3% |
| EBITDA margin (%) | 1.7 | 2.3 | -0.6pp |
| Operating profit (PLNm) | 18.6 | 31.0 | -40.0% |
| Operating margin (%) | 1.1 | 1.8 | -0.7pp |
| Net profit attributable to owners of the parent (PLNm) | 5.1 | 17.0 | -70.0% |
| Net margin (%) | 0.3 | 1.0 | -0.7pp |
| Earnings per share (PLN) | 0.43 | 1.40 | -69.3% |
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).
