Strategy and Competitve Advantages

Competitive Advantages

Profarma’s competitive strengths include:

The pharmaceutical distribution market in Brazil is highly fragmented and requires consolidation to achieve additional efficiencies in the supply chain, and, in this picture, Profarma believes that it is well-positioned to benefit from this trend. Profarma’s ability to increase its market share in areas where it currently operate, its success in expanding into new geographical areas and its experience operating in new business areas, such as sales of products directly to hospitals and the distribution of vaccines, have enabled the Company to achieve a higher growth rate than the rest of the Brazilian market.
The Company has achieved significant gains in the scale of its business primarily due to its structured management model, which is based on investments in technology, automation and reducing and controlling operating expenses. In addition, through its continuous focus on efficiency, Profarma has low operating costs structure to ensure its competitiveness. As part of the Company’s focus on maintaining low operating costs, it outsourced the delivery of its products and rent the buildings where its distribution centers are located, focusing on investments that add value to its business and increase productivity.
Profarma’s operating model is based on aggressive performance goals for each of its areas, which the Company continually measures by objective financial and operating metrics. This model demands that Profarma continually reevaluates its processes, makes significant investments in technology – for example SAP (systems, applications and products in data processing) and BIS (business intelligence system), which have allowed Profarma to improve, consolidate and integrate its operating processes and managerial information – and conducts market research to evaluate customer satisfaction. This model provides Profarma with a complete understanding of the indicators of the quality of its services and a reliable means to leverage the Company’s business with its customers and suppliers.
Profarma offers support services to its customers and suppliers. Among these services its worth poiting out the EDI tool (electronic data interchange), that allows the customers to purchase products through an electronic ordering system, promotional campaigns, customer relations programs, including production of promotional materials for points of sale and customer loyalty programs. The services that the Company provides to its suppliers include sales incentive programs, the implementation of promotional campaigns, logistical and promotional support in introducing new products and assistance in retrieving products that are recalled from points of sale.
The Company recorded a compound annual growth rate in net revenues of 19.1% between 2004 and 2008. In this same period, the compound annual growth rate in Adjusted EBITDA was 13,7% and Profarma’s EBITDA Margin was 3.1%. In addition, due to the capital expenditures that Company has previously made, as well as the nature of its business, the maintenance and expansion of its activities will not require significant additional capital expenditures.
The Company has been a wholesale distributor of pharmaceutical products for 51 years, and each of its principal executives has been involved in the management of the Company or the wholesale pharmaceutical distribution industry for more than 10 years, having substantial technical, operating and market knowledge in their respective fields. Profarma’s corporate culture is focused on results and based upon solid values, objectives and transparent goals, with a management model that is focused on efficiency and profitability. This model allows the Company to attract, develop and retain talented and committed professionals, who are regularly evaluated.

Strategy

The Company seeks to become the largest and most profitable wholesale distributor of pharmaceutical products in Brazil through consistent and sustainable growth, maintaining low operating costs, enhancing its competitive advantages and maximizing value for its shareholders. The main components of its strategy include the following:

Profarma believes that its low cost structure, focus on quality, flexible commercial operations and its ability to grow each of its business areas ensure its competitiveness and allow consistent growth in the regions in which the Company currently operates and the expansion of its activities to other areas, including through the opening of new distribution centers, to gain further economies of scale and increase its bargaining power with suppliers. The Company regularly considers expansion opportunities by evaluating market research and existing local competitors.
The Company intends to expand its distribution business to private hospitals in Brazil, including in areas in which Profarma does not currently operate. In addition, Profarma intends to continue to expand to hospital segments that provide synergies with its business, such as the distribution of oncological products and surgical materials.
Profarma maintains a management model that evaluates the performance of its distribution centers by establishing goals, defining responsibilities and conducting appropriate follow-up. The Company believes that this model will continue to allow Profarma to focus on the efficiency of its operations and to maintain a low cost operating structure, thus yielding a higher level of competitiveness.
Profarma’s management has successful experience with strategic acquisitions, as it expanded its activities to the State of São Paulo in 1999 through the acquisition of KF Distribuidora de Produtos Farmacêuticos Ltda., a São Paulo-based wholesale pharmaceutical distributor. The Company believes that it will be able to use its experience with the successful integration of KF Distribuidora and its distribution centers to pursue other strategic acquisition opportunities in order to maintain and improve Proaframa’s market position and improve its profitability and competitiveness.
Profarma intends to continue to develop its portfolio of value-added services to enable the Company to efficiently service the demands of its customers and suppliers and to contribute to improving the efficiency of the pharmaceutical supply chain in Brazil. The Company believes that the continued increase of its portfolio of services will generate higher revenues and profits and will also enable it to further enhance the loyalty of its customers and suppliers, encouraging them to conduct business with Profarma on a preferred basis.

Indexes

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