Exceptionally challenging 2012 behind us
For 23 years now, the Pelion Healthcare Group has steadily built its presence on the healthcare market, with particular focus on the pharmaceutical distribution segment. This year marks the 15th anniversary of our IPO on the Warsaw Stock Exchange, which has fuelled the rapid development of our business. Today, we are one of the key players on the pharmaceutical distribution market in Poland and Lithuania. In 2012, we managed to maintain sales at 2011 levels despite a market downturn. However, our financial performance still leaves a lot to be desired. Despite considerable efforts – changes in the management of key business lines, reduction of the workforce by 500, cutting of approximately 2,000 employees' remuneration – our net profit declined by 30%, with the net margin squeezing in under 1%. Given that our operating margin came in at 1.5%, we are forced to further reduce investment spending and cut operating costs.
The healthcare sector is heavily regulated by the state, which serves the interests of both pharmaceutical distributors and customers. The regulator decides which medicines may be safely used and guarantees the safety of their production and distribution. 2012 saw the implementation of a new legal framework that, to a large degree, put the Polish pharmaceutical market in order. However, the new laws contains several provisions that we find particularly difficult to understand, as they hurt the interests of patients, who were supposed to be the key beneficiaries of the changes.
We can understand the intention, although we do not share it, of limiting sales of reimbursable drugs through the introduction of fixed retail prices for patients. However, we cannot grasp the idea behind imposing fixed rather than maximum prices in settlements between manufacturers and wholesalers. As a result, the government has created a situation where wholesalers pay manufacturers more than they would pay on market terms. This puts drug manufacturers in a privileged position, as their margins are state-protected, while distribution margins, despite being the smallest part of the drug price, are being cut. Such measures fail to deliver the objective behind the Drugs Reimbursement Act, i.e. lower drug prices for patients.
The full ban on pharmacy advertising is even harder to understand, because the regulator permits advertising of many of the products sold in pharmacies. As a result, a large portion of pharmacy sales is being transferred to retail chains, service stations or beauty shops, which can efficiently leverage their competitive edge over pharmacies through advertising. This legal regime does not curb medicine use in Poland, which was the regulator's goal behind the introduction of the ban on pharmacy advertising. It also demonstrates the government's short-sightedness, because pharmacies, unable to sell non-refundable products, will have to start covering their operating costs with margin generated on sales of reimbursable drugs only.
The examples cited above illustrate the highly discriminatory treatment of entities involved in pharmaceutical distribution in Poland, which ensure the safety of drug therapies and patients' access to medicines.
We can understand the intention, although we do not share it, of limiting sales of reimbursable drugs through the introduction of fixed retail prices for patients. However, we cannot grasp the idea behind imposing fixed rather than maximum prices in settlements between manufacturers and wholesalers. As a result, the government has created a situation where wholesalers pay manufacturers more than they would pay on market terms. This puts drug manufacturers in a privileged position, as their margins are state-protected, while distribution margins, despite being the smallest part of the drug price, are being cut. Such measures fail to deliver the objective behind the Drugs Reimbursement Act, i.e. lower drug prices for patients.
The full ban on pharmacy advertising is even harder to understand, because the regulator permits advertising of many of the products sold in pharmacies. As a result, a large portion of pharmacy sales is being transferred to retail chains, service stations or beauty shops, which can efficiently leverage their competitive edge over pharmacies through advertising. This legal regime does not curb medicine use in Poland, which was the regulator's goal behind the introduction of the ban on pharmacy advertising. It also demonstrates the government's short-sightedness, because pharmacies, unable to sell non-refundable products, will have to start covering their operating costs with margin generated on sales of reimbursable drugs only.
The examples cited above illustrate the highly discriminatory treatment of entities involved in pharmaceutical distribution in Poland, which ensure the safety of drug therapies and patients' access to medicines.
2012 was devoted to adjusting the organisation to this new reality
The largest number of optimisations were required in the retail segment, which is the most affected by the legislative changes. Despite reducing the number of pharmacies by 10% and cutting nearly 500 jobs, the retail segment in Poland posted a substantial loss, mainly on the back of fixed and low retail margins, set arbitrarily. Optimisation efforts were also undertaken in other business lines. We completed the centralisation of our network of warehouses, kept tight control of receivables and developed electronic communication channels with customers.
Change motivates us
The continually changing business environment creates new opportunities. Our challenge is to provide services to customers in better, cheaper and more efficient ways than we do today. Through pharmacies operating under the orange “Dbam o Zdrowie” logo, we intend not only to sell medicines, but also provide our customers with comprehensive pharmaceutical care, based on careful selection of the best products approved for distribution in Poland, and ensure that our pharmacists offer the best service. This traditional range of services is naturally complemented by the doz.pl website, a source of information on drugs that also allows patients to order medicines on-line. Every month, the website attracts 3 million visitors. In addition, we launched a mobile app, whose importance will grow in line with the soaring sales of smartphones.
A special offer was prepared for patients aged 60+, a very important group of customers to whom we offer special privileges. Modern technological solutions allow us to provide them with access to the most attractively-priced drugs available on the market in all parts of Poland. Approximately 1 million patients already benefits from this and we intend to invite five times more.
Also, in cooperation with a large insurance company, we rolled out the first private drug insurance in Poland.
A special offer was prepared for patients aged 60+, a very important group of customers to whom we offer special privileges. Modern technological solutions allow us to provide them with access to the most attractively-priced drugs available on the market in all parts of Poland. Approximately 1 million patients already benefits from this and we intend to invite five times more.
Also, in cooperation with a large insurance company, we rolled out the first private drug insurance in Poland.
Challenges for 2013
On January 1st 2013, the second of three scheduled reductions of the statutory margin on reimbursable drugs in the wholesale segment took effect. This imposed margin stands at 6%, which is below the break-even point of 6.6%. According to research carried out by PWC, the loss on distribution of reimbursable drugs in 2013 and 2014, when the next reduction is planned, will amount to PLN 88m and PLN 148m, respectively (data for entities with market share of up to 70%). Under such circumstances, maintaining the EBITDA margin at approximately 2.0% will be very difficult, let alone trying to drive the figure up. To compare, margin generated by Galenica, one of the European players, stands at 11.5%.
With the profitability of the pharmaceutical distribution business in Poland at such a low level, there are no prospects for new investment projects or job creation. Further reduction of the wholesale margin entails searching for savings, which will not be possible without lowering the quality of customer services. In such a situation, distributors are forced to look for new areas of operation, which may undermine the high standard of pharmaceutical distribution in Poland.
To face the challenges, the Group intends to optimise the processes between all business lines and leverage the resulting synergies. It is also looking for investment opportunities on foreign markets.
With the profitability of the pharmaceutical distribution business in Poland at such a low level, there are no prospects for new investment projects or job creation. Further reduction of the wholesale margin entails searching for savings, which will not be possible without lowering the quality of customer services. In such a situation, distributors are forced to look for new areas of operation, which may undermine the high standard of pharmaceutical distribution in Poland.
To face the challenges, the Group intends to optimise the processes between all business lines and leverage the resulting synergies. It is also looking for investment opportunities on foreign markets.
CSR
Operating in the healthcare sector, Pelion bears a great responsibility. As our sense of responsibility for patients, partners and the environment is the cornerstone of our business, we engage in various CSR projects. This is what prompted us to launch the Dbam o Zdrowie Foundation, which strives to remove barriers in access to medications for those most in need. This is also why we seek to preserve tradition by running pharmacy museums in Łódź and Lublin and publishing booklets devoted to the oldest pharmacies in Poland. And finally, this is why we organise the Łódź Maraton Dbam o Zdrowie. Our efforts have been noticed and appreciated – we were included in the group of 20 businesses listed in the Respect Index of socially responsible companies on the WSE.
The table below presents our 2012 financial highlights, along with year-on-year comparative data:
For further details please contact:
Renata Borkowska-Kubiak
Press Officer for Pelion S.A.
Tel. (+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 operated on the market for twenty-three years. Initially, it was a local pharmaceutical wholesaler. In 1998, the Company shares were floated on the Warsaw Stock Exchange. Proceeds from the initial public offering fuelled the Company’s dynamic growth and allowed it to embark on 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 and sale to hospitals) and are targeted at individual patients, pharmacies, hospitals and manufacturers. As a holding company, Pelion S.A. oversees all areas of the Group’s operations, which are conducted by PGF Hurt Sp. z o.o. and Pharmapoint 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).
The table below presents our 2012 financial highlights, along with year-on-year comparative data:
| Q1–Q4 2012 | Q1–Q4 2011 | Change | |
| Revenue (PLNm) | 6,685.5 | 6,569.9 | 1.8% |
| Operating profit (PLNm) | 100.8 | 96.4 | 4.6% |
| Operating margin (%) | 1.5% | 1.5% | 0.0pp |
| Net profit attributable to owners of the Parent (PLNm) | 55.9 | 80.2 | -30.3% |
| Net margin (%) | 0.8% | 1.2% | -0.4pp |
| Earnings per share (PLN) | 4.75 | 6.61 | -28.1% |
Renata Borkowska-Kubiak
Press Officer for Pelion S.A.
Tel. (+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 operated on the market for twenty-three years. Initially, it was a local pharmaceutical wholesaler. In 1998, the Company shares were floated on the Warsaw Stock Exchange. Proceeds from the initial public offering fuelled the Company’s dynamic growth and allowed it to embark on 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 and sale to hospitals) and are targeted at individual patients, pharmacies, hospitals and manufacturers. As a holding company, Pelion S.A. oversees all areas of the Group’s operations, which are conducted by PGF Hurt Sp. z o.o. and Pharmapoint 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).
