Summary of 2016 financial performance
In 2016, Pelion earned consolidated revenue of PLN 9.2bn, up 8.5% year on year. However, it did not translate into improved key performance indicators. 2017 will be a challenging year for the Company, mainly because of the planned changes in its legal environment.
In 2016, Pelion companies focused on improving sales. Despite the revenue growth, the Company reported lower net profit and EBITDA than in 2015: they declined by nearly 1 percentage point, with the net profit falling by PLN 80.6m and EBITDA by 34%. The year-on-year deterioration of financial performance was largely an effect of non-recurring events. The market uncertainty and concerns about unpredictable changes in legislation will continue into 2017, affecting growth prospects and value creation over time.
Pelion companies in 2016; challenges in 2017
In 2016, Polska Grupa Farmaceutyczna returned to the revenue growth path, generating PLN 5.1bn in sales. At the same time, its gross profit declined as a result of increased share of pharmacy chains in the customer base following the pharmacy market consolidation. Profitability of wholesale has been going steadily down since 2012, when the amended Drug Reimbursement Act came into force, introducing fixed prices and margins for reimbursable drugs. Growing gross profit will be Polska Grupa Farmaceutyczna’s principal objective in 2017. Another challenge will be to adjust its business to new regulations, including the planned implementation of the Integrated System for the Monitoring of Trade in Medicinal Products and of the National Medicines Verification Organisation, which will involve additional costs and requirements for the company.
As regards the retail business, the key difficulty in 2016 was the unfavourable regulatory landscape. The ‘Pharmacies to be run by pharmacists only’ rule and certain demographic and geographical restrictions on opening new pharmacies proposed in the draft amendment to the Pharmaceutical Law submitted by Members of the Parliament, present a real threat to the future of the pharmacy market in Poland. They may lead to the market destabilisation, heavy fragmentation, destruction of free market mechanisms in the sector, and − most of all − diminished value of pharmacies. This will have a direct negative effect on patients’ position, as the prices of medicines will grow and access to pharmacies will be hindered. Because the social, economic and business effects of the ‘Pharmacies to be run by pharmacists only’ regulation have not been assessed, the market players cannot adapt to the changes which are likely to fundamentally transform the market and its participants. Work on the proposed amendments is in progress, so the risks are still real and will certainly affect the company’s operations in 2017. Planned changes to the range of products sold at pharmacies may also have negative consequences. If the proposals to move some products (including certain dietary supplements) from the pharmacy to the FMCG market are actually adopted, this will take a heavy toll on pharmacies’ revenues.
In 2016, DOZ worked to improve drug availability and the quality of customer service. DOZ Apteki Dbam o Zdrowie pharmacies are trusted by patients as places where they receive information building their treatment awareness and are offered professional and reliable pharmaceutical care. DOZ pharmacies are also a stable employer for the largest group of pharmacists and pharmacy technicians in Poland. In 2016, the company also developed its website devoted to health, www.doz.pl.
The Lithuanian companies reported a major increase in yoy sales in 2016. The improvement was driven by the market growth and the sales and marketing policy implemented to better meet patients’ individual needs. Like in other pharmaceutical markets in Europe, there is a growing pressure in Lithuania for lowering the prices of reimbursable drugs.
In the health and beauty segment, efforts focused on adding new products and on improving the services, in cooperation with Polish manufacturers. In July 2016, the Natura beauty store chain launched its own loyalty scheme. The objectives for 2017 are to grow sales in the very competitive cosmetics market, improve performance, expand offering and ensure high quality of services to customers. One of the legislative challenges facing Natura will be the proposed amendments to the Cosmetic Products Act requiring the market participants to collect and report information on adverse effects of cosmetics. Failure to meet the obligation may result in the imposition of some of the EU’s highest fines.
Urtica and Pharmalink, which have formed the business segment of supplies to hospitals and logistics services since early 2016, increased their sales by 16.7% yoy. Opening of a new centre in Łódź for drug distribution to in-patient healthcare institutions was an important milestone in this business line in 2016. Products from the centre are delivered to hospital pharmacies to reach about every third hospital patient in Poland. In 2017, the companies will seek to improve margins, increase their market shares, and strengthen cooperation with manufacturers. A major challenge for this business line is the draft Hospital Network Act, since it will change the rules of financing of in-patient healthcare institutions as of October 1st 2017.
For Pelion, 2017 will be marked with efforts to improve financial performance and develop the business in line with the mission to promote long and quality life while relying on the fundamental values of quality, safety and innovation. Patients remain the focus of everything that Pelion does. The company is committed to offering the highest quality products and services to help them care for their health every day. However, its further growth will be largely determined by the legislative changes, as they involve various risks and uncertainties about the effects of the new regulations on the wholesale and retail business, which are difficult to predict and estimate.
The table below presents the Q4 2016 and 2016 full-year financial highlights, along with comparative year-on-year data:
| Q4 2016 | Q4 2015 |
Change Q4 2016 |
2016 | 2015 | Change 2016/2015* | |
| Revenue (PLNm) | 2,343.6 | 2,138.3 | +9.6% | 9,178.0 | 8,457.8 | +8.5% |
| Gross profit (PLNm) | 267.7 | 250.2 | +7.0% | 1,059.6 | 986.6 | +7.4% |
| Gross margin | 11.4% | 11.7% | -0.3 pp | 11.5% | 11.7% | -0.2 pp |
| EBITDA (PLNm) | 22.1 | 97.8 | -77.4% | 130.5 | 197.8 | -34.0% |
| EBITDA margin | 0.9% | 4.6% | -3.7 pp | 1.4% | 2.3% | -0.9 pp |
| Net profit attributable to owners of the parent (PLNm) | -17.8 | 65.9 | -83.8 | 5.0 | 85.5 | -80.6 |
| Net margin | -0.8% | 3.1% | -3.9 pp | 0.1% | 1.0% | -0.9 pp |
* Change calculated based on figures in PLN ‘000
For further information, please contact:
Pelion S.A. Press Office
Phone: (+48 42) 200 75 94
Fax: (+48 42) 200 75 35
Email: biuro_prasowe@pelion.eu
Pelion has operated on the market for twenty-seven years, starting out as 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. Today, Pelion is one of the largest groups operating in the healthcare markets in Poland and Lithuania. It provides services across all market segments (wholesale, retail sales and sales to hospitals), targeted at individual patients, pharmacies, hospitals, and manufacturers. As a holding company, Pelion S.A. oversees all areas of the Company’s operations, which are conducted by PGF S.A. and Pharmapoint Sp. z o.o. (wholesale), CEPD N.V. (retail sales), and PGF Urtica Sp. z o.o. and Pharmalink Sp. z o.o. (sales to hospitals and logistics services).
