Retail (pharmacy) business, owned through GHG, is the largest pharmaceuticals retailer and wholesaler in Georgia, with a 33% market share by revenue. The business consists of a retail pharmacy chain and a wholesale business that sells pharmaceuticals and medical supplies to hospitals and other pharmacies. The pharmacy chain has a total of 309 pharmacies, of which, 305 are in Georgia and 4 are in Armenia. GCAP owns 67%in the retail (pharmacy) business as of 30-Sep-20 (30-Jun-20: 47.3%) – reads the recent report on Georgia Capital PLC Q20 and 9M20 results.
According to the report, the pharmacy business continued to deliver growing revenues in 2020, reflecting both expansion and organic sales growth, with 3.6% and 5.1% same-store revenue growth rates in 3Q20 and 9M20, respectively. From April sales started to slow down after strong 1Q20 results, reflecting pandemic related behavioural change, as customers started to stock up on pharmaceuticals in March ahead of the lockdown. However, revenue rebounded in June and the trend continued in the third quarter. As a result, the business posted an 8.7% increase in net revenues in 3Q20 and overall, an 8.2% increase in 9M20, y-o-y. The business issued 7.0 million bills in 3Q20 and 20.4 million in 9M20, with average customer interactions of 2.3 million per month and the average bill size of GEL 15.6 in 3Q20 (up 9.9% y-o-y) and GEL 16.2 in 9M20 (up 15.6% y-o-y).
As the main numbers show, in 3Q20, the retail revenue share in total revenue was 73.0% (71.6% in 3Q19) and revenue from para-pharmacy as a percentage of retail revenue from pharma was up 4.0 ppts y-o-y (from 32.1% in 3Q19 to 36.1% in 3Q20). Revenues from sales in highmargin non-medication categories (personal care, beauty and other parapharmacy products) were up 20.8% y-o-y to GEL 43.9 million in 3Q20. The increase mainly related to increased sale of personal protective items such as disinfectants, masks etc. and summer promotions on parapharmacy products that slightly subdued the margins, down 1.8 ppts y-o-y to 31.2%, translating into a 0.7 ppts decrease in business gross margin to 25.0% in 3Q20. Overall, in 9M20, the retail revenue share in total revenue was 73.7% (71.2% in 9M19) and revenue from para-pharmacy as a percentage of retail revenue from pharma was 34.7% (30.9% in 9M19). Revenues from sales in non-medication categories, parapharmacy products, were up 21.0% y-oy to GEL 125.6 million in 9M20, with a 29.8% gross profit margin. In 9M20 the business gross margin improved by 0.5 ppts yo-y, reaching 25.8%.
As the report further explains, in 3Q20, the operating leverage was positive 1.6% excluding IFRS 16 impact, reflecting a well-managed cost base and translating into 8.0% y-o-y EBITDA growth with a 10.3% EBITDA margin. In 9M20, negative operating leverage 1.3% reflects: a) the 97.1% y-o-y decrease in other operating income due to gain from the sale of land in the prior year and b) increased rent expense of pharmacies due to GEL devaluation throughout the year (about 85% of rental contracts are denominated in US$ dollars), translating into 12.4% y-o-y increase in 9M20 general and administrative expense excluding IFRS 16 impact to GEL 34.1 million. The result was an 8.5% y-o-y growth in 9M20 EBITDA excluding IFRS 16, with a 10.5% EBITDA margin.
“Interest expense, excluding IFRS 16, was down 15.2% in 3Q20 y-o-y to GEL 2.6 million, translating into an 8.0% y-o-y reduction in 9M20 to GEL 8.2 million. As the inventory purchases are denominated in foreign currency (c.40% in EUR and c.30% in USD), depreciation of the local currency in 3Q20 and 9M20 resulted in FX loss of GEL 5.1 and GEL 9.7 million, respectively, excluding IFRS 16. The business posted GEL 7.2 million net non-recurring expense in 9M20, primarily related to one-off cost associated with GHG de-listing, of which GEL 4.9 million relates to acceleration of share-based expenses for employees – GCAP statement said - As a result, the business posted a GEL 0.1 million loss in 3Q20, excluding IFRS 16, which adjusted for FX loss and non-recurring expenses resulted in an 11.2% y-o-y increase in net profit to GEL 12.1 million for the quarter. In 9M20, the business posted GEL 20.4 million net profit excluding IFRS 16, which, if adjusted for FX loss and non-recurring expenses, resulted in an 8.3% yo-y increase in net profit to GEL 37.3 million”.
As for the cash flow and balance sheet, the report highlights that “the business’ strong operating cash flow with EBITDA to cash conversion ratio of 91.7% in 3Q20 and 96.8% in 9M20, coupled with decreased capex investments, resulted in an ending balance of cash and cash equivalents of GEL 35.9 million as of 30-Sep-20 (up from GEL 7.8 million at 31-Dec-19). Free cash flow profile significantly improved in 3Q20 to GEL 13.6 million from negative GEL 13.6 million in 3Q19, while 9M20 free cash flow was up almost three times y-o-y to GEL 44.6 million. Strong liquidity management was reflected in an improved leverage profile, with net debt being down 46.0% y-o-y as of 30-Sep-20”.
