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Miniaturka

Financial results

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We maintain positive profitability ratios

In 2015, NEUCA Group recorded sales revenue growth of 6% and the pharmacy wholesale market rose by 5% . The combined share of NEUCA Group companies in the domestic pharmaceutical wholesale market in 2015 amounted to 29.3% (4Q 2015).

Our gross sales margin equalled 9.75% and was lower as compared to 2014 by 0.83 p.p. The increase in profitability was due to synergies in connection with the acquisition of the wholesale companies of ACP Pharma S.A. Group. The increase in sales profitability resulted also from improvements in the efficiency of trade marketing activities, from a rising importance of the services provided to producers as well as from a growing share of our own products and from acquisitions of entities from new business segments. In the fourth quarter 2015 our margin equalled 10.06% and was higher as compared to 2014 by 1.136 p.p.

In 2015, cost of sales amounted to PLN 364.1 m and were higher than in the same period last year by 10%.

In 2015, overhead expenses reached PLN 172.4 m and were higher by 5% as compared to 2014 (PLN 164.1 m in 2014). The increase in operating costs is the result of the combination with ACP Pharma Group and of the development of business areas other than the pharmacy wholesale business. A small increase in the cost of sales and in overhead expenses in the fourth quarter only (2.1% yoy) in relation to the increase in gross margin (9% yoy) is the result of a significant increase in cost effectiveness in the pharmacy wholesale area .




 

We improve financial flows

In 2014, NEUCA Group generated EBITDA + PLN 148.8 m and obtained positive cash flows from operating activities in the amount of + PLN 180.4 m. These funds were used among others for the acquisition of shares in subsidiaries PLN −38.5 m and for purchases of intangible assets and property, plant and equipment PLN −31.4 m.

On its financial activities the Group generated negative cash flows in the amount of PLN −91.9 m. Cash flows related to the repayment of loans and borrowings totalled PLN −23.8 m, to the repayment of financial lease liabilities PLN −11.9 m, and to the repayment of interest PLN −11.9 m. Additionally, the Group allocated PLN −26.6 m for the purchase of its own shares and the payment of dividends PLN −19.2 m. In 2015, there were no threats for NEUCA Group's ability to service its liabilities.

 

We improve liquidity

In 2015, there was an increase by about 11 days in the turnover of liabilities and extension of the operating cycle by 8 days which translated into a cash conversion cycle being by 3 days shorter than in 2014.

Working capital turnover

  2015 2014
Inventory turnover cycle (1) 56 50
Receivables turnover cycle (2) 48   46
Liabilities turnover cycle (3)  100  89
Operating cycle (1+2) 104  96
Cash conversion cycle (4−3)  4  7

 

Debt ratios

  31.12.2015 31.12.2014
Total debt ratio 0,80  0,82
Debt/equity ratio 4,08  4,53
Fixed capitals to fixed assets ratio 1,10 1,23
Short–term debt ratio 0,76 0,75
Long–term debt ratio  0,05 0,07

 

Structure of the balance sheet (in PLN '000)

  31.12.2015 31.12.2014
Fixed assets 589 502 22% 516 888 20%
Current assets 2 091 874 78% 2 048 689 80%
Total assets 2 681 376 2 566 577
Equity 528 189 20% 464 424 18%
Liabilities and provisions for liabilities 2 153 187 80% 2 102 153 82%
Total equity and liabilities 2 681 376 2 566 577

 

Ratio calculation methods:

gross sales margin gross profit on sales/sales revenues
EBITDA margin EBITDA for the period/sales revenues
margin on operating activities (EBIT) profit on operating activities for the period/sales revenues
net margin net profit for the period/sales revenues
return on assets (ROA) net profit/average assets
return on equity (ROE) net profit/average equity
inventory turnover cycle (closing balance of inventory/sales revenues) × number of days in the period
receivables turnover cycle closing balance of trade receivables/sales revenues × number of days in the period
liabilities turnover cycle (closing balance of trade liabilities/sales revenues) × number of days in the period
total debt ratio (long– and short–term liabilities + provisions for liabilities)/total equity and liabilities
debt to equity ratio (long– and short–term liabilities)/equity
fixed capitals to fixed assets ratio (equity + long–term liabilities)/fixed assets
short-term debt ratio short–term liabilities/total equity and liabilities
long–term debt ratio long–term liabilities/total equity and liabilities

 

Financial expenses, operating result and profit

We optimise operating and financial expenses

In 2015, financial expenses decreased compared to 2014 by 18% and amounted to PLN 14.4 m. The main reason for the decrease in financial expenses was a more limited use of external financing (primarily bank loans) and a reduction in financing costs (margins). In 2015, financial revenues decreased by 17% and amounted to PLN 15.9 m. The decrease was mainly due to a decrease in market interest rates.

In 2015, other operating revenues rose to PLN 16.4 m from PLN 14.1 m in 2014. A principal item under other operating revenues was the reversal of impairment write-offs on fixed assets (PLN 8.2 m). Other operating expenses decreased by 35% in 2015 to PLN 37.5 m . Main items under the other operating expenses include: costs related to shortages and liquidation of assets (PLN 14.6 m) as well as created impairment write–offs on receivables (PLN 10.9 m). The effect of the changes to the a/m value was an increase in operating profit in 2015 to PLN 119.4 m (56% yoy) which translated into an increase in the operating profitability by 0.55 p.p. In the fourth quarter 2015 the operating profit rose by 27% to PLN 24.7 m.

Sales revenues (in PLN '000)

  2015 2014 CHANGE
NEUCA GROUP 6 945 703 6 568 700 6%
NEUCA SA 6 801 585 6 250 478 9%

 

Key financial data (in PLN '000)

  2015 Q4 2015 2014 Q4 2014 CHANGE DURING THE YEAR CHANG DURING THE 4TH QUARTER
Sales revenue 6 945 703 1 714 416 6 568 700 1 779 689 6% −4%
Gross profit on sales 677 034 172 514 585 605 158 933 16% 9%
Gross sales margin 9,75% 10,06% 8,92% 8,93%  

Sales expenses 364 192 95 435 331 140 92 314 10% 3%
Overhead expenses 172 402 44 678 164 114 44 903 5% −1%
Other operating revenues 16 431 3 572 14 118 5 012 16% −29%
Other operating expenses 37 480 11 315 27 856 7 281 35% 55%
Profit on operating activities 119 391 24 658 76 613 19 447 56% 27%
Margin on operating activities 1,72% 1,44% 1,17% 1,09%    
EBITDA 148 810 32 138 104 536 28 640 42% 12%
EBITDA margin 2,14% 1,87% 1,59% 1,61%    
Financial revenues 15 920 7 192 19 240 7 560 −17% −5%
Financial expenses 14 134 3 590 17 165 4 315 −18% −17%
Other profit (loss) on investment activities        
Gross profit 121 177 28 260 78 688 22 692 54% 25%
Net profit 101 496 23 116 93 357 34 110 9% −32%
Net profit margin 1,46% 1,35% 1,42%      
Return on assets 3,87%   4,16%      
Return on equity 20,45%   21,34%      

 

Description of one–off factors and items

Impact of one–off items on EBIT, EBITDA, net profit

  2015 Q4 2015 2014 Q4 2014 CHANGE DURING THE YEAR CHANGE DURING THE 4TH QUARTER
EBIT 119 391 24 658 76 613 19 447 56%  27%
EBITDA  148 810 32 138 104 536 28 640  42%  12% 
 One–time items (gross) 1 000 0 7 537 2 500     
restructuring expenses  1 000 0 7 537  2 500    
 One–time items (net)*, 810  0 6 105 2 025    
restructuring expenses   810 0 6 105 2 025    
Adjusted EBIT 120 391 24 658 84 150 21 947 43% 12%
Adjusted EBITDA 149 810 32 138 112 073 31 140 34% 3%
Net profit 101 496 23 116 93 357 34 110 9% −32%
Created deferred tax assets     −13 151      
Adjusted net profit 102 306 23 116 86 311 36 135 19% −36%

In 2015, besides the one–off items listed under the Description of key economic and financial figures there were no other extraordinary items with a significant impact on the financial result of NEUCA Capital Group.

 

We actively manage our operating risk

Risks associated with the macroeconomic conditions

An economic slowdown in Poland may contribute to a lower growth rate of the pharmaceutical market, and ultimately may also adversely affect our sales. In particular, sales growth is likely to deteriorate in the segment of OTC drugs where the Group earns a higher gross sales margin which as a consequence could lead to worse financial results. The Group monitors conditions on the pharmaceutical market and its development perspectives on an ongoing basis and accordingly undertakes appropriate adaptations and adjustments corresponding with the anticipated demand for goods, products and services we sell.

Growing competition risk

Any possible decrease in average margins earned on the pharmacy wholesale market may adversely impact the Group's financial results. The uniform sales structure which is currently in place in the entire Group combined with centralized management of commercial terms and conditions should enable to actively manage levels of margins earned by all the Group's Companies.

Liquidity gap

The need to finance operating activities with bank credits exposes the Group to liquidity risk if such external funding is lost. The Group optimises working capital turnover on a current basis and keeps significant liquidity reserves in the form of unused credit limits. The Group did not either have any difficulties in being granted and maintaining credit limits.

Financial position of pharmacies

Too intense competition among the pharmacies (growing number of chain pharmacies), the deterioration of access to financing and a rather slight rise in economic growth and the changes introduced by the new Act on the reimbursement of medicines may worsen the financial situation of pharmacies and limit their ability to service their obligations which might negatively affect activities of NEUCA Group. The Group actively monitors the financial position of our customers and offers them all necessary financial, IT and marketing support.

Legal changes with regard to official margins, including standards and regulations applicable in the European Union

The new Act on the reimbursement of medicines (Act of May 12, 2011 on the reimbursement of medicines, special foodstuffs and medical devices) introduced significant changes in the legal environment of the Group. The Act provides among others for a reduction in the wholesale margin for reimbursable medicines to 5.66% in 2013 and 4.76% in 2014 and new retail margins, as well as a total ban on the use of any incentives when selling reimbursable medicines. Those legal changes may still largely affect the financial position of pharmacies and pharmaceutical distributors. A drop in the margins adversely affects the entire pharmaceutical industry, and smaller, independent pharmacies in particular. The decline in wholesale margins on reimbursable medicines drastically limited the profitability of this segment within the Group. The legal changes apply to all entities on the market, thus they do not worsen the Group's competitive position.

 

We deliver on our financial forecasts

NEUCA SA Board of Directors on March 23, 2015 publicly presented forecasts of net profit of NEUCA Group for 2015.

Forecast assumptions

1) Forecasted results of the Group (in PLN m):
The Group expects the net profit of PLN 100 m (excluding one–off items).

2) Period covered by the forecast:
The forecast covers the period from January 1, 2015 to December 31, 2015.

3) Forecast basis and essential assumptions:
Growth in the pharmacy wholesale market by 4% in 2015.

4) How the Group monitors the feasibility of the forecasted results:
The Group will monitor feasibility of the forecast by current analyses of the implementation of the Group's financial budget and analyses of the main external factors affecting the results of the issuer (including growth of the pharmacy wholesale market).

5)  Periods in which the Group will evaluate the possibility of achieving forecasted results and make adjustments, if any, to the forecasts presented, together with the description of the criteria used:
The Company will be assessing the feasibility of the forecasted results of the Group and of adjustments to the forecasts presented on a quarterly basis, after analyses of the actual financial results. Assessment criteria will include the degree of implementation of the Group's financial budget.

Forecasted results of the Group (in PLN m)

  Prediction Construction: Measurement % change
Net profit* 100 102,3 2,3 2,3%

* excluding one time items

 

We pursue our investment plans

In 2016, the Group intends to carry out investment plans for ca. PLN 43 m in total.

The planned investments include but are no limited to the construction of a medicine manufacturing plant, the automation of a subsequent warehouse, adaptations of warehouses to the new rules of the Good Distribution Practices, implementation of modernisation changes and improvements in the existing warehouses (access roads, ventilation and heating systems), IT systems, systems related to transport and relations with the customer, purchase of vehicles.

At the moment, NEUCA Group does not see any threats which may jeopardize our investment plan.

 

Internal factors important for the development of the company

PRODUCING A SATISFACTORY RETURN ON INVESTMENTS IN DRUG DISTRIBUTION – RELATED ACTIVITIES

We manage to consistently improve financial performance of NEUCA Group by further developing our own brand products, launching the medicine packaging process in Synoptis Industrial Sp. z o.o. and integrating operations of the acquired outpatient care clinics in order to benefit from synergy effects.

Efficiency of the reorganization process

As the Company's operations are characterised by low net margins, a strict control over expenses and an effective management of customers' profitability are of critical importance for the results. Efficiency improvements should also stem from the successful integration of the companies from ACP Pharma Group.

The ability to maintain market shares and to continue organic growth

NEUCA Group's strategy does not provide for its own chain of pharmacies in order to refrain from competing with its customers and to gain their loyalty.

 

External factors important for the development of the company

Growth of the pharmaceutical market in Poland translating directly into NEUCA Group sales growth

In recent years, the rate of growth of the market of pharmaceutical products was stable and exceeded 5% per annum. In 2012, the market fell by ca. 6% due to the introduction of significant legal changes in such areas as e.g. medicine reimbursement rules and maximum margins applied by the entities active in the wholesale and retail trading in medicines. 2013 marked a growth in the pharmacy wholesale market by 10%. In 2014, the growth rate returned stabilised at 5%. The forecasts indicate that a rising trend will continue on the pharmacy wholesale market due to a number of factors. The most important is the process of "aging" of the society (demographic factor) and a rising awareness (social factor). In 2016 the Group expects the pharmacy wholesale market to grow by 1–3%.

Changes in laws on trading in reimbursable drugs

Changes in the rules and principles for financing reimbursable medicines may substantially affect the Company's operations through, among others, fixed wholesale margins and capped margins of pharmacies.