Stada Arzneimittel AG, Germany Strategic focus on markets with long-term growth potential
| Държава: | Германия |
| Кратка информация: | The strategy Strategic focus on markets with long-term growth potential The increasingly international orientation of business activities at STADA Arzneimittel AG and STADA’s Group companies are focused on the health care market, in particular the pharmaceutical market. For years, these markets have recorded a growing demand worldwide; also for the years to come, external analysts forecast further growth of these markets. The constant growth trends in the markets will be, in particular, medical progress increasing life expectancy in industrial countries and global population growth. Core segments Generics and Branded Products In the health care and pharmaceutical market, STADA concentrates on the development and marketing of products with active ingredients – generally active pharmaceutical ingredients – which are free from commercial property rights, particularly patents. Due to cost and risk aspects, STADA deliberately does not carry out any research into new active pharmaceutical ingredients. In accordance with this strategic alignment, Generics and Branded Products are the Group’s two core segments: Products for which the focus of sales and marketing is on a low pricing and/or on a cross-product and active-ingredient marketing concept are, in the scope of the Group’s segmentation, part of the core segment Generics; Products for which the specific product characteristics and in particular also the brand name of the respective product are at the forefront of marketing are part of the core segment Branded Products. Non-core activities comprise businesses and equity interests in fields outside the two core segments at STADA. These non-core activities are aimed at supplementing and supporting the Group’s business in the core segments. Challenging conditions Inherently linked to the historical and projected continuous growth of the markets in which STADA is active are also challenging conditions.1) The good growth opportunities thus attract intense competition. In addition, these markets are strongly characterized by regulatory influences. Because it is one of the central tasks of each country to provide as many of its citizens as possible with access to health care at acceptable cost. Therefore, the continuous increase in demand in the health care and pharmaceutical market leads to constant cost pressure in nearly all national health care systems, regularly entailing cost saving state regulation. The health care policy interventions in local regulatory framework conditions that must always be expected thus have a particularly strong effect on generics. Such interventions can have a curbing effect if, for example, a state regulates direct price reductions, but they can also have a stimulating effect if, for example, stronger regulatory incentives for the prescription of low-price generics are given in a national health care system. In addition to these industry-specific challenges, STADA also faces general business risks. Flexible and lean operative alignment STADA’s strategic response to this structural environment lies in a lean and above all flexible operative alignment. Rapid change in response to altering conditions with, at the same time, high cost sensitivity are decisive success factors for STADA, characterizing therefore the operative alignment in all of the Group’s functional areas. International sales infrastructure An essential factor for success of STADA’s business model is the international sales network which includes numerous nationally focused sales companies which are thus close to the market and are supported and monitored by central Group functions. Through its local sales presence in the individual national markets, which due to the different health care systems differ strongly, the Group is capable to take advantage of the respective structural growth potential for its own growth. In order to rapidly adapt to the frequent variations in structural conditions of the respective national health care markets, STADA’s local sales companies have a high level of sales autonomy. In individual national markets, STADA thereby also relies on sales companies which operate parallel to one another or focus on specific market segments if the respective market structures require this to take optimal advantage of the potential. Continuous portfolio expansion The continuous expansion of its product portfolio – visible in form of the high annual number of product launches within the Group – is a central success factor for STADA. In view of costs and regulatory requirements, the objective of the Group’s development activities that are based on many years of experience – also including the use of external development partners – is to provide the sales companies with a product portfolio that is always up to date. This applies in particular to generics for which the launch of new products promptly after expiration of the commercial property rights is one of the central operative success factors. For several years already, STADA has been selectively increasing the in-house development of important active pharmaceutical ingredients to reduce supply commitments, which are frequently associated with the use of external development partners, and thereby to optimize the procurement and production costs. Continuous cost optimization Particularly of its larger core segment Generics, STADA has a price-sensitive business model. Therefore, an important success factor of the Group is the continuous cost optimization. Within the framework of this ongoing cost optimization, one focus continues to be cost of sales. For reasons of flexibility and cost, STADA does not normally carry out its own production of raw or auxiliary materials, utilizing instead a worldwide network of raw materials suppliers. STADA has recourse to a flexible, international network of internal and external resources in the area of pharmaceutical production2). Here particularly the production facilities acquired and expanded over the last few years in the low-cost countries have made their corresponding contribution. Within the framework of the production strategy, the large production sites in South East Europe, Russia and Vietnam play a special role, as STADA – in view of the continuous cost optimization – is increasingly transferring production activities into these cost effective Group-owned production facilities. Due to the contracts that already exist, however, these are longer-term processes. With a view to the continuous cost optimization in the area of cost of sales, the Group will also continue these comprehensive transfer processes in the future. In 2009, the Group – with the involvement of external advisors – initiated the “STADA – build the future” project aiming to strengthen the mid and long-term earnings potential. In financial year 2010, STADA began the consistent implementation of this Group-wide project, which aims for a reduction of complex Group structures, more efficient centralized control of Group companies as well as an acceleration of the continuous cost optimization with a focus on the fields of cost of sales/production locations as well as organizational, reporting and personnel structures. In this context, the Group carried out a comprehensive reform of internal reporting lines in 2010. The reporting structure, previously mainly locally aligned, was changed to a primarily functional organizational structure for the areas of Finance as well as Production and Development and Procurement. In the reporting year, STADA centralized and streamlined previous service functions of the subsidiaries, such as product development, pharmaceutical approval, production, purchasing and procurement, quality management, information technology, strategic planning and finance under the uniform operational leadership of the Group. The centralization of the service functions, which also requires a new, accelerated reporting system, integrates the capacities and expertise of the subsidiaries more efficiently into the Group. At the same time, the STADA sales companies in the individual national markets remain decentrally organized, so that they continue to be responsible for their local sales. However, the individual corporate areas of the respective subsidiaries report directly to global line managers, who in their corporate function, are responsible for and control all processes and functions related to their area in the STADA Group, regardless of location or subsidiary. Due to this organization, the individual subsidiaries now have more direct access to the Group’s financial, personnel and knowledge-related resources. In the view of the Executive Board, STADA can use this central organizational structure to best counteract the challenges related to frequent regulation, continuous cost pressure and increasing importance of economies of scale effects, as this structure combines the advantages of flexible and local sales units i.e. operating independently in their respective markets with a central and therefore efficient organization in the operating area. This leads in turn to higher level of transparency and further cost optimization. The sale or abandonment of production facilities and outsourcing individual functional areas to third-party providers will also contribute to the continuous necessary adjustment of the organizational, reporting and personnel structures to economic requirements in the context of the "STADA - build the future" project. This will also result, in the short and mid-term, in significant staff reductions in all Company divisions and regions, which, including outsourcing and sales, involves approx. 800 full-time positions and thus approx. 10% of the personnel level in the Group as of the beginning of financial year 2010. The focus of the staff reductions will be outside of Germany. The implementation of “STADA – build the future“ is expected to be completed in 2013. The Group expects positive effects on earnings as a result of the project for EBITDA adjusted for one-time special effects and the correspondingly adjusted net income to a significant extent from the current financial year 2011 and mainly in 2012. By 2013, from today’s perspective, project-related investments of a total of approx. EUR 20 million as well as project-related expenditure for special write-offs, personnel expenses and consultancy services of a total of approx. EUR 50 million are expected (each including the past financial year 2010). The Group will recognize each of these project-related costs as a one-time special effect according to progression of the project. In the case of the sale of production facilities in Ireland and Russia, currently evaluated in the context of “STADA – build the future”, a significant expense in the low net double-digit million area would be expected for 2011. STADA transferred the Dutch packaging unit in Etten-Leur in 2010. According to the contracts agreed, the Group can draw on the capacities of the transferred unit for a transitional period at fixed costs to a variable extent determined by STADA. In the context of the transfer, the 113 employees were also transferred to the acquiring company. In addition, the Group implemented a restructuring of the sales of branded products in Italy in 2010, which led to a reduction of the relevant sales force. Measures in the context of the “STADA – build the future” project led to total expenses in the amount of EUR 16.2 million before taxes in 2010. STADA sold a small chemical plant in Serbia in the first quarter of 2011, as these activities do not belong to the Group’s core business. The Group introduced a functional consolidation of all German activities in the area of product development and quality management at the Bad Vilbel location. In this context, STADA negotiated with the Works Council a balancing of interests and social compensation plan for 15 employees at the Laichingen location. STADA initiated in the second quarter of 2011 the evaluation of a possible sale of the Irish production facility, which is expected to be completed by the end of the year. In addition, the evaluation of the sale of two Russian production facilities was also initiated in the second quarter. The successive transfer of the production volumes of these three production facilities to other STADA-owned production facilities, which has also already been initiated, will improve the utilization there and thus lower unit costs of the respective products in the medium term. If the respective facilities are sold, a significant expense in the low net double-digit million area is, however, initially to be anticipated, as expected and already announced in the context of the publication of the “STADA – build the future” project in 2010. In addition, in the course of further implementing the Group-wide cost efficiency program, STADA continued to restructure the sales model for the Russian market, in the process of which the number of local employees was reduced due to an increased concentration of sales activities there. Furthermore, the Serbian STADA subgroup remained a focus for measures to improve earnings in the context of the “STADA – build the future” project, which also include a further optimization in the number of employees there over the coming years. In the first half year of 2011, the expenses in the context of the “STADA – build the future” project amounted to a total of EUR 5.5 million before taxes. Cost optimization potential can also be expected in the sales area. For fully developed national sales companies, the continuous expansion of the current product portfolio is frequently possible without the additional need for sales capacities. This is associated with cost-reducing economy of scale effects. Furthermore, it is regularly assessed whether in case of changed demand mechanisms for Group products the sales capacity can be modified, adapted or reduced in the individual markets. STADA Group’s long-term targets taking into account the “STADA – build the future” project On June 7, 2010, in the second quarter of 2010, the STADA Executive Board adopted the long-term growth targets for the Group.3) According to these targets, STADA aims, in five years, i.e. in financial year 2014, to achieve EBITDA in the amount of approx. EUR 430 million. EBITDA of EUR 280.1 million was achieved in financial year 2009 – the last full financial year before publication of these long-term targets. From this, STADA calculates a value of approx. EUR 215 million for net income achievable in 2014. Net income of EUR100.4 million was achieved in 2009. From today’s perspective, Group sales are expected to reach approx. EUR 2.15 billion in 2014. Group sales of EUR 1.57 billion were achieved in 2009. This growth forecast by STADA is based on the following assumptions and framework conditions: predominantly organic growth no significant disposals with an effect on sales and earnings forward projection of current currency relations and the current interest rate level without consideration of one-time special effects forward projection of current regulatory conditions in the markets relevant for STADA range of the forecast plus/minus 5% Accelerated acquisition policy In addition to STADA’s organic growth, the Group’s acquisition policy is the basis of the sustainable and successful growth course. STADA can thereby rely on its many years of experience in selecting suitable acquisition objects as well as in integrating acquired products and companies into existing business activities. With a view to the continued concentration of processes in the industry, the Executive Board intends to complement the Group’s organic growth with further external growth impulses. Against this backdrop, STADA is again pursuing an accelerated approach to acquisition. The Group will focus on the one hand on the regional expansion of business activities with concentration on high-growth emerging markets. On the other hand, the expansion and internationalization of the Branded Products core segment, which is generally characterized by better margins and less regulatory intervention than the generics area, should be even further expanded. Additionally, the Executive Board still does not rule out cooperations with significant capital investments. Despite the accelerated approach to acquisition, the criteria of STADA’s acquisition policy remain strict and geared towards profitability and appropriateness of the purchase price. For larger projects such as acquisitions or cooperations with capital investments, appropriate capital measures continue to be imaginable in the future if the burden on the equity-to-assets ratio from such acquisitions or cooperations is too high. 1) For a comprehensive presentation of the risks for the Group anticipated by the Executive Board from today’s perspective: see “Risk Report” in the Annual Report 2010. 2) Pharmaceutical production: Conversion of pharmaceutical substances into a dosage form and its packaging into a finished pharmaceutical product, e.g. tablet. |
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