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FINANCIAL PERFORMANCE

REVENUE

In 2015, Pelion generated consolidated revenue of

PLN 8,457.8m

up by

9.9%

year on year (with
Natura Sp. z o.o.’s revenue excluded, the growth rate would be +5.4%).

Sales in the Wholesale and Retail segments went up by

+4.3%

and

+24.7%

respectively

(with Natura Sp. z o.o.’s revenue excluded, the Group’s retail sales would grow by 7.8%)

At the same time, the Polish market for wholesale distribution of pharmaceuticals to pharmacies
and hospitals expanded by approximately +7.1%(1)

The pharmaceutical wholesale market in Lithuania grew by +3.7%(2) in the period

(1) Source: 2015 Yearbook of IMS Health (2) Source: IMS Health, 2015

Revenue from sale of merchandise accounted for the largest part of the Group’s revenue. Revenue from sale of products and services represented 4.3% of total revenue and included mostly revenue from sale of marketing services, services related to the direct distribution of products of Astra Zeneca UK Limited, as well as transport and logistics services.

In 2015, the Polish companies of the Pelion Group sold merchandise almost entirely to customers in Poland. The Group’s Lithuanian and UK companies traded on their respective home markets. Their sales accounted for 9.2% of Pelion’s total revenue from sale of merchandise.

The Group’s offering is addressed to patients, pharmacies, hospitals and other wholesalers. Similarly to previous years, wholesale accounted for an overwhelming proportion of merchandise sales, representing 68.8% of total revenue, including wholesale to hospitals, which accounted for ca. 17% of Pelion’s total turnover.

The pharmaceutical wholesale distribution sector is subject to seasonality: higher sickness rates are reflected in higher sales in the first and fourth quarters of a year. To some extent Pelion mitigates the seasonality of sales by broadening the range of products available at pharmacies (cosmetics, simple medical equipment), and also by expanding its geographical reach (e.g. popular tourist destinations in summer months). Total revenue in Q1 and Q4 2015 accounted for approximately 51.0% of total revenue posted in 2015.

In 2015, relations with suppliers were mainly the responsibility of PGF S.A., PGF Urtica Sp. z o.o. and DOZ Spółka Akcyjna Direct Sp. k., which worked with several hundred suppliers, none of whom accounted for more than 10% of total purchases. PGF S.A., as a distribution centre operating through regional companies, provides pharmacies with access to every pharmaceutical product that has been approved for sale in Poland.

GROSS PROFIT

Gross profit includes the profit generated by Natura Sp. z o.o. and Natura Marketing Sp. z o.o. of PLN 153.5m.

Gross profit margin = gross profit/revenue

DISTRIBUTION COSTS AND ADMINISTRATIVE EXPENSES

The y-o-y increase in distribution costs and administrative expenses by PLN 167.1m was attributable to incorporation into the Group of Natura Sp. z o.o. and Natura Marketing Sp. z o.o. in Q4 2014, which in 2015 added PLN 158.2m to distribution costs and administrative expenses (in 2014: PLN 29.1m).

SG&A ratio = (distribution costs and general and administrative expenses) / revenue

EBITDA

In 2015, the Group’s other income exceeded other expenses, which improved its operating profit by

(in 2014, net other income/expenses stood at PLN 16.9m).

Other income of PLN 104.6m was primarily attributable to the acquisition of control of Pharmena S.A., an associate (PLN 89.4m). Gain on disposal of non-financial non-current assets amounted to PLN 2.5m, including a PLN 5.1m gain on disposal of rights to manufacture a pharmaceutical, realised by the Eubioco Group. In 2015, the Eubioco Group generated revenue of PLN 43.6m and EBITDA of PLN 11.3m.

In 2014, gain on disposal of non-financial non-current assets was PLN 18.6m, which included a PLN 18.2m gain on disposal of a property located in Łódź under an operating sale-and-lease-back transaction. In 2015, other expenses included prospectus preparation costs of PLN 3.3m, written off on a one-off basis following the decision of the Management Board of Pelion’s subsidiary PGF S.A. to abandon the initial public offering of Polska Grupa Farmaceutyczna shares.

In 2015, net impairment losses on receivables amounted to PLN 6.9m. In 2014, net impairment losses on receivables amounted to PLN 11.0m, including PLN 5.8m of impairment loss recognised at UAB NFG.

EBITDA for 2015 stood at
PLN 197.8m
up PLN 46.3m year on year.
The EBITDA margin was
2.3%,
0.3 p.p. higher than in 2014.

FINANCE INCOME AND COSTS

In the reporting period,
the Pelion Group recorded
PLN 16.2m
in finance income

and
PLN 39.7m
in finance costs.

Finance income included primarily interest received (accounting for 56% of the Group’s finance income), while finance costs consisted mainly of interest on financial liabilities (nearly 82% of finance costs).

NET FINANCE COSTS

PROFIT BEFORE TAX AND NET PROFIT

In 2015, profit before tax amounted to
PLN 124.2m
and pre-tax profit margin was
1.5%
Net profit attributable to owners
of the parent amounted to
PLN 85.5m
and was 52.9% higher
on 2014 (PLN 55.9m).
Net margin was
1.0%,
0.3pp down year on year.

Non-recurring events with a material bearing
on the performance of Pelion

  • In Q3 2015, the Group recognised an impairment loss on the property, plant and equipment of its Lithuania-based subsidiary, of PLN 2.9m (equivalent of EUR 690 thousand). The impairment loss was recognised in connection with an understated valuation of the Group’s land expropriated by the Lithuanian government for public purposes. In the subsidiary’s opinion, the proposed compensation was grossly understated relative to the market value of the land, which is why the subsidiary brought a relevant legal action. At the same time, the subsidiary recognised an impairment loss in the amount equal to the difference between the carrying amount of the land and the amount of compensation proposed for its expropriation. In Q4 2015, the land was sold and the Group posted a loss in the amount of the impairment loss.
  • In Q4 2015, the Management Board of Pelion’s subsidiary PGF S.A. decided to abandon the initial public offering of Polska Grupa Farmaceutyczna shares. In 2015, one-off prospectus preparation costs of PLN 3.3m were charged to other expenses.
  • On December 23rd–28th 2015, Pelion S.A. acquired 360,000 shares in Pharmena S.A. and as at December 31st 2015 the Pelion Group held 4,398,542 shares in the company, representing 50.01% of total voting rights at its General Meeting. As a result of the transaction, the Pelion Group took control of Pharmena S.A., which previously had the status of an associate. The acquisition of control of Pharmena S.A. was accounted for in accordance with IFRS 3, p. 42. To account for the acquisition, the Pharmena S.A. shares held by the Pelion Group were measured at fair value (based on the average share price on December 28th 2015). The difference between the fair value of the Pharmena shares held by the Pelion Group and their historical acquisition cost was PLN 89.4m and was recognised as other income in the consolidated statement of profit or loss.

Earnings per ordinary share

In 2015, earnings per share were PLN 7.67, an increase of PLN 2.66 on 2014.

THE GROUP’S ASSETS

There were no major changes in the structure of assets in 2015 relative to the previous year, with current assets continuing to exceed non-current assets. As at December 31st 2015, current assets accounted for 62.6% of total assets (December 31st 2014: 64.8%). The key items of current assets were inventories and current receivables.

Non-current assets

As at December 31st 2015, non-current assets accounted for 37.4% of total assets (December 31st 2014: 35.2%). The main items under non-current assets were goodwill (20.3% of total assets), property, plant and equipment (9.6% of total assets), deferred tax assets (2.0% of total assets) and intangible assets (3.3% of total assets). Non-current financial assets are primarily loans advanced and interest on loans, representing 0.8% of total assets.

Current assets

As at December 31st 2015, current assets accounted for 62.6% of total assets (December 31st 2014: 64.8%). The key items of current assets were inventories and trade receivables. Working capital cycle as at December 31st 2015 was negative at -1 day, the same as at December 31st 2014.

As at the reporting date, the inventory cycle was 48 days and was shorter by two days than as at December 31st 2014. Inventories accounted for 32.3% of the Pelion Group’s assets, up 0.4pp year on year.

Inventory cycle = inventory as at December 31st 2015/ total revenue * 365 days

As at the end of 2015, trade and other receivables stood at PLN 735.4m, down by PLN 3.6m on December 31st 2014. Average collection period for trade and other receivables was 32 days as at December 31st 2015, down 3 days year on year.

Average collection period = trade and other receivables as at December 31st 2015/ total revenue * 365 days

Receivables from private pharmacies in Poland reached PLN 275.4m as at December 31st 2015 (including PLN 37.9m of past due receivables), having fallen by PLN 20.0m on the end of 2014. As at December 31st 2015, receivables due and payable accounted for 13.6% of all receivables from private pharmacies (December 31st 2014: 14.1%) and included over 60% of receivables past due by up to 30 days. Current financial assets of PLN 89.3m mainly included loans advanced and interest on loans (PLN 89.2m).

Sources of financing of the Group’s assets

As at December 31st 2015, 19.9% of assets were financed with the Parent’s equity. Liabilities and non-controlling interests accounted for 80.1% of equity and liabilities, down by 1.5pp year on year.

Liabilities and provisions for liabilities

Liabilities and provisions for liabilities (totalling PLN 2,723.1m) primarily included trade payables and other liabilities of PLN 1,865.9m, representing 54.6% of total equity and liabilities (December 31st 2014: 54.4%).

As at December 31st 2015, the average payment period was 81 days, down 5 days on December 31st 2014.

Average payment period = trade payables and other liabilities as at December 31st 2015 / total revenue * 365 days

As at December 31st 2015, liabilities under maturity reverse factoring agreements were PLN 208.6m (December 31st 2014: PLN 168.7m).

Financial liabilities

As at December 31st 2015, financial liabilities were PLN 570.8m (PLN 655.7m as at December 31st 2014), and included PLN 473.9m of non-current financial liabilities (13.9% of total equity and liabilities). As at the end of 2015, financial liabilities decreased by PLN 84.8m year on year, and represented 16.7% of total equity and liabilities (compared with 19.6% as at the end of 2014).

As at December 31st 2015, cash and cash equivalents fell by PLN 80.7m relative to December 31st 2014, while net debt decreased by PLN 4.1m, to PLN 384.5m at the end of 2015. The rise in EBITDA and slight reduction in debt contributed to lower debt ratios. Net debt/EBITDA ratio amounted to 1.9 (2014: 2.6). As at December 31st 2015, the net debt to equity ratio stood at 0.6, unchanged from December 31st 2014.

In 2015, the Group’s ability to meet its liabilities was not limited in any way. Similarly, no difficulties are expected in 2016 as regards timely payment of liabilities.

Financial liabilities and net debt

As at December 31st 2015, the liquidity ratios stayed flat relative to December 31st 2014:

Cash flows

In 2015, the Pelion Group generated positive cash flows from operating activities of PLN 122.4m, down by PLN 10.6m on 2014. Cash flows from investing activities were negative at PLN (55.9m). Cash flows from financing activities were also negative and stood at PLN (147.3m). In 2015, net cash flows were negative at
PLN -80.7m, and net cash at the end of the period stood at PLN 186.3m.

Share buyback

In 2015, there were no buybacks of shares. As at December 31st 2015, the Company held no treasury shares.

Use of issue proceeds

In 2015, Pelion operated a PLN 300m Note Issue Programme, under which long-term notes were issued. The value of notes issued under the programme was PLN 100m. The issued notes were not traded between the Group companies. As at December 31st 2015, the use of the Note Issue Programme, excluding related entities, comprised a total of PLN 100m of long-term notes maturing in November 2020.

Capital expenditure and development costs

The largest investments in property, plant and equipment were connected with the construction and modernisation of buildings and structures used by Pelion S.A. and other Group companies in their day-to-day operations, including extension of the logistics centre in Łódź. The investments were financed using internal and external sources of funding. Over the next 12 months, the Pelion Group intends to invest approximately PLN 78m in property, plant and equipment. These investments will primarily include extension and modernisation of logistics infrastructure, modernisation of buildings and structures, as well as purchase of IT hardware and software. In 2016, investments will be financed using internal and external sources of funding. There is no threat to the implementation of these plans.

Financial statements and notes in Excel