Pharmaceutical Wholesalers

BRE Bank Securities

BRE Bank Securities

Update

6 September 2005

Pharmaceutical Wholesalers

Pharmaceutical Wholesalers

Poland

P/E 2005*

12.3

P/E 2006*

11.7

EV/EBITDA 2005*

10.2

EV/EBITDA 2006*

8.5

The end of price battles? The aggressive price policy of Torfarm brings the expected effects. The company reached the highest sales increase’ dynamics among all pharmaceutical distributors. Torfarm’s policy has influenced entire pharmaceutical wholesale market - this is reflected in the decrease of margin on sales for all distributors. Farmacol had the best performance from the entire group, maintaining its high net profit margin in 1H at the level of over 2%. PGF, the market leader, is still in process of restructuring Polish Farmacies and Cefarm Łódź. It will additionally aggravate the 2005 result. In this context Farmacol’s discount against PGF seems unjustified. Last but not least, high discount of Torfarm can be explained only with a low liquidity of the company – in our analysis we assume a 10% discount.

*average for analysed companies

Sector Description

According to IMS Health, in 1H 2005 the pharmaceutical market, calculated in the net sales prices of producers, increased by 9.3%. The change of the refund list in February, contributed to this fact. The biggest growth dynamics was reported in the first 4 months of the year. This result was achieved mainly thanks to bigger sales of antibiotics and refunded medicines. The growth dynamics decreased to 0.1% in July, com- PGF (HOLD, target price PLN 58.1) paring to the analogical period of the last year. IMS Taking the market share into consideration, PGF remains the leader. The forecasts the market growth of 5.9% this year.

company however, still suffers from the restructuring of the two acquired entities. The Management Board expects the investment to breakeven until the end of the year. In relation to the above, we assume the EBIT margin decline to 1.6% this year and cautiously an increase to 1.7% in 2006. After updating our forecasts, we evaluate the company at PLN 59.1. Due to the limited growth potential, we advise to hold the company’s shares.

Important Dates PGF 30.09 - publication of 1H report 14.11 - publication of 3Q report

Farmacol (ACCUMULATE, target price PLN 39.6) Farmacol is consequently realising the strategy of growth. Despite the decrease of margin on sales in 1H, the company slightly increased its net profit margin, thanks to better control over costs. We update our forecasts and assume sustaining EBIT margin at the level of 2.5% this year as well as the further growth in 2006. As a result of a slight margin on sales’ increase and controlling the costs, we expect it to grow to 2.7% in 2006. After updating our assumptions, we evaluate the company at PLN 39.6, which stands for 12% growth potential and we advise to accumulate the company’s shares.

Farmacol 30.09 - publication of 1H unconsolidated report 31.10 - publication of 1H consolidated report 14.11 - publication of 3Q consolidated report Torfarm 29.09 - publication of 1H report 04.11 - publication of 3Q report

Torfarm (ACCUMULATE, target price PLN 45.9) The aggressive price policy of the company results in the effective sales increase. This happens to the expense of low margins, therefore the company is traded with a discount against the remaining players. The low liquidity of shares also has an impact on the discount. In 2H we expect however, that the company’s activities that serve to improve the effectiveness, will enable EBIT margin increase to 0.6% this year and to 0.8% in 2006. 2Q was the first sign of profitability improvement. After updating our forecasts, we get PLN 55.1 from the valuation and after including the 10% discount, we evaluate the company at PLN 45.9 and advise to accumulate its shares.

PGF, Farmacol, Torfarm vs. WIG 135 PLN 125 115 105 95 85 75 65 04-08-26

PGF

Farmacol

Torfarm

WIG

04-12-22

05-04-19

Krzysztof Radojewski (48 22) 697 47 01 [email protected] www.brebrokers.com.pl

Valuation ratios price 05-08-15

2004

2005

2006

P/E

EV/ EBITDA

P/E

EV/ EBITDA

P/E

EV/ EBITDA

PGF

55,0

16,0

12,8

13,5

12,0

13,7

10,9

Farmacol

35,2

14,3

10,5

13,1

8,5

11,6

8,3

Torfarm

39,4

11,6

11,5

10,4

10,1

9,8

6,2

BRE Bank Securities does not rule out offering brokerage services to an issuer of securities being the subject of a recommendation. Information concerning a conflict of interest arising in 6 September 2005 connection with issuing a recommendation (should such a conflict exist) is located on the final page of this report.

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Summary of Analysis Strong and weak points of pharmaceutical distributors Company PGF

Farmacol Torfarm

Strong points Market leader – highest margins on sales, possibility of obtaining margins from the pharmacy chain, sales to hospitals, dividend payout Good control over general management costs, highest operating and net profit margins in the sector, strong balance sheet High dynamics of sales revenue growth

Weak points Drawn out restructuring of Apteki Polskie and Cefarm Łódź, high level of indebtedness, difficulties in limiting general management costs Debt not used to increase financial leverage, uncertainly regarding dividend payout Very low gross margin on sales and net profit margin, low liquidity of shares

Source: BRE Bank Securities

Dynamics of revenue growth Following the successful first half of the year, in which the entire pharmaceutical market increased by 9.3% (the pharmacy market grew by 8.8%, hospital market by 13.2%), the growth dynamics is expected to weaken. IMS forecasts a decline of pharmacy market growth’ dynamics to about 6% during the year 2005. We also forecast the continuation of relatively strong demand for drugs from hospitals, which should translate into 6-7% growth of the entire market. Despite the expectations of a weaker market growth dynamics in the second half of the year, we do not find necessary to lower our forecasts of sales growth for PGF and Farmacol (7.9% and 8.9% respectively). However, we are lowering the revenue forecast for Torfarm, which will tighten non-price related terms for the clients in order to improve its profitability.

Margins We expect the decline of the gross margin on sales to stop for all distributors. Activities undertaken by Torfarm suggest that the company intends to gradually regain the profitability that it lost during its aggressive market share gaining. This should translate into smaller downward pressure of the gross margin on sales for all pharmaceutical wholesalers. The 1H result was encumbered by the change in refund limits in February, which translated into the decrease of margin. The second quarter brought the increase of margin and we expect further improvement in this are in subsequent quarters. In the case of PGF and Farmacol, which own the largest number of pharmacies, we also see a slight possibility that realized margin on sales’ will improve, due to the positive effect of the growth of margins on the pharmacy market.

PGF In the first half of the year, the company suffered from the effects of the price battle with Torfarm as well as from the restructuring of Cefarm Łódź and Apteki Polskie. It should translate into a decline of gross margin on sales. The consolidation of acquired entities affected the operating result – since their inclusion in the PGF group in the middle of the last year, the operating margin has been systematically falling. We expect this trend to stop by the end of this year, and the investment will translate into a slight growth in profitability next year, which will cause a slight decline of EBIT margin to 1.6% this year (1.7% in 2004) and increase to 1.7% in 2006.

Farmacol The company confirmed its ability to control costs. The very good 2Q results increased the EBIT margin in 1H to 2.4% (2.3% in the analogous period of 2004). We expect the further improvement in this result and we expect the year-end EBIT margin to remain virtually unchanged from last year’s level of 2.5%. Due to a slight growth in the net margin on sales and cost controls, we expect the operating margin to increase in 2006 to 2.7%.

Torfarm The company adopted an aggressive price policy, which resulted in low margins. This is accompanied by focusing on client selection and controlling the level of accounts receivable, which we find positive aspect of growth. Thanks to the adopted strategy of short payment terms, the company noted the relatively smallest increase in the level of accounts receivable.

6 September 2005

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Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Despite this strategy, the gross profitability on sales improved (6.0%) in 1H in relation to the analogous period of the previous year (5.8%). However, the result on the operating level is encumbered with costs of introducing the MultiSystemApteka programme (PLN 2.2m in the first half of the year). We think that the prospects of the programme are good. According to the management board, the programme should stop generating losses by the end of the year and start generating profits in 2006. We forecast the programme will cease encumbering the operating result at mid-year. Despite this, we also forecast that the improvement in gross margin on sales will allow the EBIT margin to increase this year to 0.6%, and next year to 0.8%.

Valuation and Recommendations DCF valuation In the case of valuations by the DCF model the most important changes were: • the decline in the risk free rate from 6.0% to 4.5%, • updating the level of margins in accordance with that written above, • in the case of Torfarm, an additional decline of the sales revenue growth’ dynamics for this year. As a result of updating our models, the valuation of Farmacol noted the largest increase – 18%, to PLN 40.7. The valuation of PGF increased by 14% to PLN 57.3, and Torfarm’s valuation remained virtually unchanged.

DCF valuation Current valuation

Previous valuation

difference

PGF

57.3

50.4

14%

Farmacol

40.7

34.5

18%

51.3

51.1

0%

Torfarm Source: BRE Bank Securities

Comparative valuation The comparative valuation in relation to foreign distributors differs from the DCF valuation, depending on the company, and does not exceed 10%. The biggest difference occurs in the case of PGF, which could result from conservative assumptions adopted in the DCF model. The difference is insignificant in the case of the other companies, amounting to few percent.

Comparative valuation in relation to foreign distributors P/E

EBIT margin

EV/EBITDA

Price Currency

2005

2006

2005

2006

819.0

GBP

15.0

13.6

11.8

10.7

Andreae Noris

34.5

EUR

13.6

12.1

7.1

6.9

1.57%

Celesio

70.2

EUR

15.1

14.2

9.2

8.4

3.04%

8.7

7.8

Alliance Unichem

2.64%

OPG Groep

66.0

EUR

13.6

12.3

Sanacorp

33.0

EUR

12.4

12.9

Galenica

230.0

CHF

18.6

15.5

11.0

9.5

14.3

13.3

9.2

8.4

2.84%

MEDIAN

3.72% 1.37% 3.23%

PGF

58.9

PLN

58.2

53.3

60.8

63.4

1.62%

Farmacol

38.4

PLN

38.5

40.1

36.9

38.0

2.52%

Torfarm

50.8

PLN

54.2

53.6

42.2

53.2

0.60%

Source: Bloomberg, BRE Bank Securities

Basing on our updated forecasts for 2005 and 2006, we believe that among the three analysed distributors PGF remains the most expensive. However, the discount in the Farmacol valuation in relation to the leader has lowered significantly to several percent. We believe that maintaining the discount in the current situation, in which Farmacol is the most effective company among the distributors, is unjustified. PGF’s advantages are its market share and the ownership of the larger pharmacy chain. However the restructuring has lowered the company’s profitability, which indicates lack of the premium in relation to Farmacol, second on the market.

6 September 2005

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Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Valuation ratios Price P/E

2004 EV/EBITDA

P/E

2005 EV/EBITDA

P/E

2006 EV/EBITDA 10.9

PGF

55.0

16.0

12.8

13.5

12.0

13.7

Farmacol

35.2

14.3

10.5

13.1

8.5

11.6

8.3

39.4

11.6

11.5

10.4

10.1

9.8

6.2

Torfarm

Source: BRE Bank Securities

Recommendations We designate the final price as the average of the valuations obtained by the DCF method and the comparative method in relation to foreign distributors. Moreover, in the case of Torfarm, we assume a 10% discount in relation to the final valuation. The current valuations of PGF and Farmacol are higher than the previous ones. The difference is insignificant in the case of Torfarm. We have also adjusted recommendations, due to the change in prices since issuing our previous report.

Final valuation and recommendations DCF valuation

comparative valuation

target price

PGF

57.3

58.9

58.1

55.0

6%

hold

Farmacol

40.7

38.4

39.6

35.2

12%

accumulate

51.3

50.8

45.9

39.4

16.6%

accumulate

Torfarm

price difference recommendation

Source: BRE Bank Securities

6 September 2005

3

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

The Sales of Pharmaceuticals until July 2005 Good 1H The first six months of 2005 was a successful period for Polish pharmaceutical distributors. According to IMS Health, the entire pharmaceutical market, calculated in net producer sales prices, grew by 9.3% in the first half of 2005 in relation to the analogous period of the previous year. Factors driving the growth were antibiotics and refundable medicines. The demand of hospitals for medicines also increased. Sales to this group of clients increased by 13.2%. However, following the first four months of the year, the growth dynamics began to slow. Stronger price competition, particularly in the segment of refundable medicines, had an influence on this fact. June boosted the result for the entire first half of the year.

Weak July The dynamics of sales growth weakened significantly in July. According to IMS Health, sales in July grew only by 0.1% in relation to the analogous month of the last year. As a result, the dynamic of growth in the first six months of the year fell to 8.4%. Hospital purchases were exceptionally weak in the period, falling 2% in comparison with July 2004. An IMS Health representative explains this by the continuing poor financial condition of hospitals. On the other hand, all representatives of pharmaceutical wholesalers who sell to hospitals perceive them as a client group the significance of which will grow.

Value of the pharmacy market in Poland (wholesale prices)

18.0

15.00%

15.0 12.0

10.00%

9.0 6.0

5.00%

value dynamics

3.0 0.00%

0.0 2001 2002 2003 2004 2005F Source: BRE Bank Securities based on IMS data

Forecasts for 2005 Second half of the year IMS estimates that the market will grow approximately by 5.9% this year. This means that the sales dynamics will still be slowing in the second half of the year. The first signs of this slowdown were already visible in July. However, it is important to keep in mind that July and August are usually characterised by seasonality and weaker sales, as weather is important for the pharmaceutical sector. The situation in the sector will improve beginning in the fall. The segment of antibiotics is particularly susceptible to seasonality. Significant quantities of antibiotics are consumed in Poland, despite the fact that their use is often not justified. Taking these factors into consideration, a weaker third quarter and an improvement in the final months of the year can be expected. In our analyses, we assume year-end market growth of 6-7%,

New price promotions of pharmacies Aggressive price promotions of pharmacies (e.g., medicine for PLN 0.01) had an important influence on the market in the first half of the year. Chain pharmacies, which are able to obtain bigger rebates from wholesalers, particularly stand out in this regard. The mechanism of this phenomenon consists in pharmacies giving up part of their margin (e.g., 3.20 and instead of it sell the medicine for PLN 0.01), which persuades some clients to stock up the medicines. The remaining amount is refunded by the government, which considering the greater volume of sales allows decent margins to be generated. Beginning in September, other promotional campaigns can be expected, which will ensure further sales support in 4Q.

6 September 2005

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Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Legal regulations Regardless of the price of a drug on the pharmacy shelf, the government bears a fixed costs on its refunding. Therefore, price promotions artificially increase refund expenditures. Due to the fact that many medicines purchased for PLN 0.01 are eventually thrown away, these promotions are controversial. The government regulates the sale of drugs, introducing maximum officially fixed prices, but selling the drugs for PLN 0.01 is not forbidden. Due to the approaching parliamentary elections, this should not be expected to change this year. The Ministry of Health has come up with the idea of introducing maximum prices on medicines sold to hospitals. A list of 118 preparations has already been prepared with prices above which they cannot be sold to hospitals. This is to lower hospital costs by PLN 100m. Within the context of the entire sector, it is difficult to unequivocally evaluate the influence of the regulation of this type. Hospitals will certainly benefit, but producers will not. The effect exerted on wholesalers will depend on the rebates obtained from the manufacturers. Cheaper medicines sell in greater quantities, and pharmacies receive higher margins on them (the retail margin is digressive, and fixed above PLN 100, amounting to PLN 14). On the other hand, wholesalers bear greater storage and transport costs. However, it appears that such a move will have more positive than negative impact for pharmaceutical distributors.

Bird flu Bird flu could also become the main topic in the coming months. Sources vary on the scale of the threat of the global epidemic. However, preventive measures are being taken, which should lead to increase of the demand for inoculations and medicines for the flu.

Future trends According to PMR, drug sales in 2005-2007 will gradually increase at a rate of 5% annually, while the segment of generics will grow faster, about 7% annually (the market of original medicines will grow 1.5%). The moderate growth is due to the government’s policy of reducing refund expenditures. One of the representatives of a pharmaceutical wholesaler has different opinion. He believes that Poland joining the EU and greater patent protection as well as the increasing affluence of society opens the door in Poland to increase sales of expensive new preparations, and therefore leads to the market growth in terms of value. Therefore, it would appear possible to exceed a growth rate of 5% annually.

The Market of Pharmaceutical Distributors Market allocation Allocation of the market has remained unchanged for some time. According to IMS, PGF remains the leader with a 21% market share, followed by Farmacol with a 16% share. These two companies also have the highest profitability among publicly traded pharmaceutical distributors. Torfarm, Prosper and Orfe rank third, fourth and fifth, respectively. Increasing market share through organic development is long-term and laborious, of which Torfarm is convinced. According to IMS Health data, despite the growth of sales more than two-times higher than the competition, its market share in 1H 2005 remains virtually unchanged.

Estimated market share based on the value of goods sold PGF

Farmacol

Prosper

Torfarm

Others

21%

44% 16%

9%

10%

Source: Companies

6 September 2005

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Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

End of the price battles? Representatives of pharmaceutical wholesalers announce the coming end of prices battles. Torfarm’s price policy has affected the margins of all distributors, and therefore they are predict the end of the price battles. In connection to the above, distributors must develop encouragements for pharmacies other than price. The quality and speed of the service, payment terms, credit possibilities, loyalty programmes, and marketing programmes ensuring pharmacies the characteristic interior decorations, promotional materials, etc. will become more important. The majority of distributors have already started to develop these types of services.

Marketing programmes of pharmaceutical distributors Company PGF

Marketing programmes I Care about Health (visual displays, image supporting campaigns)

Financial support Cooperation with GE Money Bank (possibility of purchasing medicines on credit for pharmacy clients)

Farmacol

Pharmacy with Heart, Prescriptions in Every Price Range, Gold List

Torfarm

Pharmacy School of Management, Dr Pharmacy, MultiAptekaSystem, Modern Pharmacy

Loans to ensure pharmacies financial liquidity

Source: BRE Bank Securities

Pharmacy segment Margins in the pharmacy market are digressive, which means that the higher the price of a given medicine, the lower the realised margin in terms of percentage. Pharmacies achieve significantly higher margins on sales than distributors, but they also generate high operating costs (mainly wages and salaries, rent and others). Therefore, a pharmacy achieving a gross margin on sales of 5% is a satisfactory result. This is two-times higher margin than the margin on wholesale activity. Considering the share of pharmacies in the revenues of distributors (Farmacol 135 pharmacies – approximately 6% of revenues, PGF more than 300 – about 12% of revenues), it could be said that the influence of higher margins in the pharmacy segment on the overall margins achieved by distributors is limited, but positive.

Situation of hospitals improves The group of clients that is often underestimated are hospitals. However, according to recent IMS data, hospital purchases in the first half of this year increased by 13.2%. Considering the companies’ announcements, it is obvious that the hospital segment has bright prospects. Wholesalers are carefully selecting hospital clients, which will improve the collection of accounts receivable from this group of clients. There is a large group of hospitals that settle their accounts on time. According to the Minister of Health, the dynamics of health care facilities’ indebtedness is falling. Moreover, the act on social welfare and the restructuring of independent public health care facilities is bringing positive results. Bank Gospodarstwa Krajowego has received more than 200 loan applications for a total amount of more than PLN 800m so far, more than 90 of which have been finalised signing a bank loan. It is also important to mention the rapid development of private health services, which in the future will also account for a significant group of clients. Of the publicly traded distributors, PGF and Farmacol will benefit the most from the improvement of the situation for hospitals.

Consolidation The largest wave of consolidation on the market of pharmaceutical distributors occurred in 1995-2000. At that time, the 5 largest wholesalers increased their share in the market from 20% to more than 50%. In subsequent years the consolidation processes slowed – last year the combined share of the 5 largest wholesalers increased only by 1%. The five leaders currently control about 60% of the market, and the 12 top ranked wholesalers control as much as 90% of total distribution. Following the privatisation of the state-owned Cefarms, the number of potential takeover targets declined. Therefore, higher prices for further acquisitions can be expected. The Polish market is the seventh largest pharmaceutical market in Europe. There are some rumours about foreign distributors entering the Polish market. Among the potential candidates are Europe’s two largest players – Alliance Unichem and Celesio. The experience of other European markets show that, in the long term further concentration on the Polish market of

6 September 2005

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Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

pharmaceutical distributors can be expected as well as the reduction in the number of players, which will control the majority of the market. The largest entities with a chain of pharmacies (PGF and Farmacol) will be the most attractive for the acquiring firms (Orfe will soon be delisted). Considering the price for 1% of the market share, Farmacol has the highest valuation, followed by the market leader PGF. However, in regard to net profitability, PGF is the most expensive.

Price for 1% market share of discussed distributors Market share capitalisation

Price of 1% of market P/E 2005

PGF

21%

673

32

13.5

Farmacol

16%

824

51

13.1

Torfarm

9%

106

11

10.4

Prosper

10%

65

7

6.5*

Source: BRE Bank Securities, assuming a net profit of PLN 10m

Analysis of profitability Gross profit on sales margin The downward trend in the gross margin on sales was halted and remained fixed for some time. The influence of Torfarm’s price policy on the entire market is evident. This policy induced other wholesalers to lower their prices. The market leader, PGF, realises the highest spread, which can be explained by the possibility of negotiating larger discounts from producers. It is worth noting that, as a result of changes on the refund list, the realised margin on sales fell in the first quarter of the year. These losses were made up in the second quarter and therefore considering the realised margins, the 1H result is similar to the result noted in 1H 2004.

Gross profit on sales margin of selected distributors 14.0%

PGF

Farmacol

Torfarm

12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2001

2002

2003

2004

2005F

Source: BRE Bank Securities

Operating profit margin In the case of the operating profit margin Farmacol is moving out front. The company has the possibility of greater cost controls, and investments made in previous quarters are paying off. PGF is bearing the costs of restructuring Apteki Polskie and Cefarm Łódź. As mentioned above, despite the higher margin on sales, pharmacies also generate significant operating costs. This was reflected in the company’s results on the operating level. Torfarm’s weaker operating results should not be compared with the results of the remaining players due to the fact that the company is shortening payment terms and grants loans to pharmacies for financing purchases instead. This way the realisation of a part of the result was shifted below the operating level.

6 September 2005

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Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Operating profit margin of selected distributors 3.0% PGF

Farmacol

Torfarm

2.0%

1.0%

0.0% 2001

2002

2003

2004

2005F

Source: BRE Bank Securities

Net profit margin The companies noted a systematic improvement in net profitability. Torfarm is improving its net result through financial activity – the company grants pharmacies loans for financing. In turn, PGF is highly leveraged, which increases the company’s financial costs. Farmacol has the most transparent income statement. The company has no debt and therefore its result on financial activity has a limited influence on the total net financial result.

Net profit margin of selected distributors 3.00% PGF

Farmacol

Torfarm

2.00%

1.00%

0.00% 2001

2002

2003

2004

2005F

Source: BRE Bank Securities

6 September 2005

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Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

PGF DCF Model 2005F

2006F

2007F

2008F

2009F

revenues

3 932

4 166

4 414

4 633

4 863

5 105

dynamics

7.9%

6.0%

6.0%

5.0%

5.0%

EBIT margin EBIT

1.6% 63.5

1.7% 70.7

1.7% 75.7

1.7% 79.3

1.7% 84.4

tax rate

20%

20%

20%

20%

taxes

12.7

14.1

15.1

NOPLAT

50.8

56.5

60.6

amortisation investments in fixed assets and intangible fixed assets change in working capital

20.1

21.6

15.0

FCF

2010F 2011FP

2012F

2013F

2013F >2014F g=2%

5 308

5 520

5 739

5 968

5.0%

4.0%

4.0%

4.0%

4.0%

1.8% 93.7

1.9% 103.1

2.0% 111.0

2.1% 119.3

2.1% 127.1

20%

20%

20%

20%

20%

20%

15.9

16.9

18.7

20.6

22.2

23.9

25.4

63.5

67.6

74.9

82.5

88.8

95.5

101.7

24.0

25.0

26.2

24.2

19.4

17.3

16.4

16.4

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

-15.7

-12.7

-13.4

-11.8

-12.4

-13.1

-11.0

-11.4

-11.9

-12.3

40.3

50.4

56.2

61.6

66.,3

71.1

75.9

79.6

85.0

90.7

1141

risk free rate

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

5.6%

risk premium

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

cost of capital

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

10.6%

cost of debt

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

7.1%

debt / EV

50%

45%

40%

35%

30%

25%

20%

15%

10%

10%

10%

WACC

7.2% 1.00

7.4% 0.93

7.6% 0.87

7.9% 0.80

8.1% 0.74

8.3% 0.69

8.6% 0.63

8.8% 0.58

9.0% 0.53

9.0% 0.49

10.1%

40.3

47.0

48.6

49.4

49.2

48.7

47.9

46.2

45.2

44.3

556.9

beta

discount rate DCF sum of DCF and discounted terminal value (PLN m)

1023.7

net debt (PLN ‘000)

-300.0 723.7

goodwill (PLN m) number of shares (m)

12.6

price (PLN)

57.3

0%

1%

2%

3%

4%

3.6%

55.4

61.7

69.9

81.2

97.9

4.6%

51.3

56.4

62.8

71.4

83.2

5.6%

47.9

52.1

57.3

64.0

72.9

6.6%

45.1

48.6

52.9

58.3

65.2

7.6%

42.7

45.7

49.3

53.8

59.3

6 September 2005

9

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Income Statement (PLN ‘000) Net sales revenues Costs of products sold

2003 3568.7

2004 3643.2

2005F 3931.9

2006F 4165.9

2007F 4414.0

2008F 4633.2 -4217.9

-3214.3

-3281.4

-3564.2

-3776.9

-4010.7

Gross profit (loss) on sales

354.3

361.8

367.7

389.0

403.3

415.4

gross profit margin on sales

9.93%

9.93%

9.35%

9.34%

9.14%

8.96%

Costs of sales

-165.6

-207.3

-217.6

-226.3

-233.1

-238.9

-69.7

-89.5

-97.7

-101.6

-104.6

-107.7

Administrative costs Net profit (loss) on sales

119.1

65.1

52.5

61.1

65.6

68.7

net profit margin on sales

3.34%

1.79%

1.33%

1.47%

1.49%

1.48%

90.1

83.1

83.6

92.2

99.8

104.3

2.52%

2.28%

2.13%

2.21%

2.26%

2.25%

73.4

63.3

63.5

70.7

75.7

79.3

2.06%

1.74%

1.62%

1.70%

1.72%

1.71%

EBITDA EBITDA margin EBIT EBIT margin Financial revenues Financial costs Gross profit (loss) Taxes

36.7

33.6

31.2

31.4

31.3

31.5

-45.3

-33.5

-31.7

-31.7

-31.7

-31.7

64.7

58.6

63.0

70.3

75.4

79.2

-26.5

-16.6

-12.6

-14.1

-15.1

-15.8

Net profit (loss)

36.8

42.4

50.7

56.6

60.6

63.7

net profit margin

1.03%

1.16%

1.29%

1.36%

1.37%

1.37%

Balance Sheet (PLN ‘000) Fixed assets Intangible fixed assets: Tangible fixed assets: Long-term investments Current assets

2003 201.7

2004 367.1

2005F 362.0

2006F 355.4

2007F 346.4

2008F 336.5

5.6

31.6

31.9

31.1

29.4

28.1

178.2

234.4

229.0

223.2

215.9

207.2

13.6

14.4

14.4

14.4

14.4

14.4

1053.7

998.7

1089.3

1176.9

1272.8

1365.5

Inventories

409.4

484.5

523.3

554.7

588.0

617.4

Short-term accounts receivable

593.4

426.6

460.4

487.9

516.9

542.6

Short-term investments

16.0

41.7

41.7

41.7

41.7

41.7

Cash

34.9

45.8

63.9

92.7

126.3

163.8

1.9

2.2

2.2

2.2

2.2

2.2

Short-term deferred taxes and accruals Total assets

1257.3

1368.0

1453.5

1534.5

1621.4

1704.1

Shareholders’ equity

164.5

179.2

213.2

249.8

287.8

327.2

Liabilities, of which:

1047.5

1138.5

1190.1

1234.5

1283.4

1326.6

long-term credits and loans

117.8

294.0

294.0

294.0

294.0

294.0

short-term credits and loans

51.5

25.9

25.9

25.9

25.9

25.9

799.4

718.2

775.1

821.3

870.2

913.4

taxes

9.7

14.7

14.7

14.7

14.7

14.7

others

39.2

33.9

28.6

26.8

26.8

26.8

7.3

7.7

7.7

7.7

7.7

7.7

1257.3

1368.0

1453.5

1534.5

1621.4

1704.1

trade liabilities

Accruals and deferred income Total liabilities

6 September 2005

10

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Cash Flow Statement (PLN ‘000) Cash flow from operating activity

2003

2004

2005F

2006F

2007F

2008F

170.1

60.4

55.2

65.5

71.2

76.8

Net profit (loss)

36.8

42.4

50.7

56.6

60.6

63.7

Amortisation

16.6

19.8

20.1

21.6

24.0

25.0

Share in profit (dividends)

12.7

15.9

0.0

0.0

0.0

0.0

Change in working capital

116.6

-1.8

-15.7

-12.7

-13.4

-11.8

-5.7

-4.8

0.0

0.0

0.0

0.0

-12.5

-157.8

-15.0

-15.0

-15.0

-15.0

Other adjustments Cash flow from investment activity Inflows

47.1

61.6

0.0

0.0

0.0

0.0

-59.6

-219.3

-15.0

-15.0

-15.0

-15.0

Purchase of intangible and intangible fixed assets

21.4

6.7

0.0

0.0

0.0

0.0

Sale of investments in real estate and intangible fixed assets

-1.2

-0.2

-1.0

-1.0

-1.0

-1.0

-28.1

-102.0

0.0

0.0

0.0

0.0

0.0

-60.8

0.0

0.0

0.0

0.0

-145.5

108.3

-22.1

-21.7

-22.6

-24.3

322.3

393.8

0.2

0.3

0.0

0.0 0.0

Outflows

For financial assets Other investment expenditures Cash flow from financial activity Inflows Net inflows from share issue Credits and loans Outflows Dividend

2.0

1.2

0.2

0.3

0.0

137.6

137.9

0.0

0.0

0.0

0.0

-467.8

-285.5

-22.3

-22.0

-22.6

-24.3

-12.2

-24.5

-17.0

-20.3

-22.6

-24.3

-159.3

-92.1

0.0

0.0

0.0

0.0

-15.0

-17.9

0.0

0.0

0.0

0.0

4.3

1.9

0.0

0.0

0.0

0.0

Net cash flow

12.1

11.0

18.1

28.8

33.6

37.5

Opening cash balance

22.8

34.9

45.8

63.9

92.7

126.3

Closing cash balance

34.9

45.8

63.9

92.7

126.3

163.8

Repayment of credits and loans Interest Others

6 September 2005

11

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Farmacol DCF Model 2005F

2006F

2007F

2008F

2009F

2010F

2011F

2012F

2013F

revenues

3 059

3 302

3 498

3 672

3 854

4 045

4 206

4 373

4 547

dynamics

9.9%

7.9%

5.9%

5.0%

5.0%

5.0%

4.0%

4.0%

4.0%

4.0%

EBIT margin EBIT

2.5% 77.2

2.7% 87.9

2.6% 92.1

2.6% 97.2

2.6% 101.0

2.6% 106.5

2.7% 111.9

2.7% 118.3

2.7% 122.4

2.7% 128.5

tax rate

20%

20%

20%

20%

20%

20%

20%

20%

20%

20%

taxes

15.4

17.6

18.4

19.4

20.2

21.3

22.4

23.7

24.5

25.7

NOPLAT

61.7

70.4

73.7

77.8

80.8

85.2

89.5

94.7

97.9

102.8

amortisation investments in fixed assets and intangible fixed assets change in working capital

14.9

16.8

18.8

19.9

21.1

20.8

19.3

16.9

16.9

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

15.0

-43.2

-16.5

-13.4

-11.8

-12.4

-13.0

-10.9

-11.4

-11.8

-12.3

18.4

55.7

64.1

70.9

74.6

78.0

82.9

85.2

88.0

90.5

1073

FCF

2013F >2014F g=2% 4 728

risk free rate

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

5.6%

risk premium

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

cost of capital

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

10.6%

cost of debt

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

7.1%

debt / EV

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

WACC

9.5% 1.00

9.5% 0.91

9.5% 0.83

9.5% 0.76

9.5% 0.70

9.5% 0.64

9.5% 0.58

9.5% 0.53

9.5% 0.48

9.5% 0.44

10.6%

18.4

50.8

53.4

54.0

51.9

49.6

48.1

45.1

42.6

40.0

474.2

beta

discount rate DCF sum of DCF and discounted terminal value (PLN m)

928.1 25.1

net debt (PLN ‘000)

953.2

goodwill (PLN m) number of shares (m)

23.4

price (PLN)

40.7

0%

1%

2%

3%

4%

3.6%

40.3

43.2

46.9

51.9

59.1

4.6%

38.3

40.5

43.4

47.1

52.2

5.6%

36.6

38.4

40.7

43.6

47.4

6.6%

35.2

36.8

38.6

40.9

43.9

7.6%

34.0

35.3

36.9

38.8

41.1

6 September 2005

12

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Income Statement (PLN ‘000) Net sales revenues Costs of products sold Gross profit (loss) on sales gross profit margin on sales Costs of sales Administrative costs Net profit (loss) on sales net profit margin on sales EBITDA EBITDA margin EBIT

2003 2718.8

2004 2784.3

2005F 3059.4

2006F 3301.6

2007F 3498.0

2008F 3671.5

-2444.1

-2546.1

-2805.1

-3030.4

-3217.5

-3382.9

274.6

238.2

254.3

271.3

280.5

288.7

10.10%

8.56%

8.31%

8.22%

8.02%

7.86%

-173.2

-144.5

-149.3

-155.3

-159.9

-163.9

-36.0

-30.6

-37.8

-38.9

-40.1

-41.3

65.4

63.2

67.3

77.1

80.5

83.5

2.40%

2.27%

2.20%

2.34%

2.30%

2.27%

72.2

82.2

92.1

104.8

110.9

117.2

2.66%

2.95%

3.01%

3.17%

3.17%

3.19%

58.5

68.4

77.2

87.9

92.1

97.2

2.15%

2.46%

2.52%

2.66%

2.63%

2.65%

Financial revenues

14.3

17.2

9.9

8.0

7.8

8.5

Financial costs

-8.9

-5.2

-2.2

-1.2

-1.2

-1.2

EBIT margin

Gross profit (loss)

60.7

77.0

81.5

91.4

95.4

101.2

-18.3

-14.6

-16.3

-18.3

-19.1

-20.2

Net profit (loss)

39.0

57.8

62.9

70.8

74.0

78.7

net profit margin

1.44%

2.08%

2.06%

2.15%

2.12%

2.14%

Taxes

Balance Sheet (PLN ‘000) 2003 185.7

2004 185.3

2005F 182.2

2006F 177.2

2007F 170.3

2008F 162.2

0.8

0.2

1.0

1.0

0.2

-0.5

Tangible fixed assets:

105.8

114.0

113.4

111.5

108.5

104.3

Long-term investments

13.2

9.8

9.8

9.8

9.8

9.8

679.1

776.2

833.1

918.6

1000.8

1084.5

Fixed assets Intangible fixed assets:

Current assets Inventories

274.2

362.4

398.9

430.7

456.6

479.4

Short-term accounts receivable

358.1

338.3

371.8

401.2

425.1

446.2

Short-term investments

11.3

22.8

22.8

22.8

22.8

22.8

Cash

35.5

52.6

39.6

63.8

96.3

136.1

2.1

4.7

4.7

4.7

4.7

4.7

Short-term deferred taxes and accruals Total assets

866.9

966.2

1020.0

1100.5

1175.8

1251.5

Shareholders’ equity

258.5

317.6

345.4

381.2

420.1

463.7

Liabilities, of which:

547.4

584.2

610.2

655.0

691.3

723.4

long-term credits and loans

0.0

0.0

0.0

0.0

0.0

0.0

short-term credits and loans

18.9

19.6

19.6

19.6

19.6

19.6

503.0

539.4

566.0

610.8

647.1

679.2 6.6

trade liabilities taxes

6.9

6.6

6.6

6.6

6.6

others

16.4

9.4

8.8

8.8

8.8

8.8

27.4

27.8

27.8

27.8

27.8

27.8

866.9

966.2

1020.0

1100.5

1175.8

1251.5

Accruals and deferred income Total liabilities

6 September 2005

13

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Cash Flow Statement (PLN ‘000) Cash flow from operating activity

2003

2004

2005F

2006F

2007F

2008F

70.0

61.4

37.8

74.3

82.6

90.0

Net profit (loss)

40.1

57.8

62.9

70.8

74.0

78.7

Amortisation

13.6

13.8

14.9

16.8

18.8

19.9

Share in profit (dividends)

2.4

-0.2

0.0

0.0

0.0

0.0

Change in working capital

16.2

-10.2

-40.1

-13.4

-10.2

-8.7

Other adjustments

-0.2

0.0

3.1

3.1

3.1

3.1

-42.9

-14.1

-15.0

-15.0

-15.0

-15.0

Cash flow from investment activity Inflows

12.5

32.5

0.0

0.0

0.0

0.0

Outflows

-55.4

0.0

-4.0

-4.0

-4.0

-4.0

Purchase of intangible and intangible fixed assets

-43.8

-21.6

0.0

0.0

0.0

0.0

Sale of investments in real estate and intangible fixed assets

6.4

3.5

0.0

0.0

0.0

0.0

-43.8

-21.6

0.0

0.0

0.0

0.0

0.0

-18.7

0.0

0.0

0.0

0.0

-13.9

-19.7

-35.8

-35.1

-35.1

-35.1

Inflows

49.3

6.3

0.0

0.0

0.0

0.0

Net inflows from share issue

15.6

0.0

0.0

0.0

0.0

0.0

Credits and loans

33.2

4.8

0.0

0.0

0.0

0.0

-63.2

-26.0

-35.8

-35.1

-35.1

-35.1

For financial assets Other investment expenditures Cash flow from financial activity

Outflows Dividend

0.0

-0.6

-35.1

-35.1

-35.1

-35.1

-58.1

-21.4

0.0

0.0

0.0

0.0

Interest

-3.6

-2.0

0.0

0.0

0.0

0.0

Others

-0.1

-1.0

0.0

0.0

0.0

0.0

Net cash flow

13.2

27.6

-13.0

24.2

32.5

39.9

Opening cash balance

22.3

25.0

52.6

39.6

63.8

96.3

Closing cash balance

35.5

52.6

39.6

63.8

96.3

136.1

Repayment of credits and loans

6 September 2005

14

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Torfarm DCF Model 2005F 2006F 2007F 2008F

2009F 2010F 2011F 2012F 2013F 2013F >2014F g=2%

revenues

1 471

1 613

1 763

1 887

1 999

2 099

2 201

2 266

2 333

2 401

dynamics

12.4%

9.6%

9.3%

7.0%

6.0%

5.0%

4.9%

2.9%

2.9%

3.0%

EBIT

0.6% 8.8

0.8% 13.6

0.9% 15.5

0.9% 16.8

0.9% 17.8

0.9% 19.1

0.9% 20.2

0.9% 20.3

0.9% 20.5

0.9% 21.1

tax rate

19%

19%

19%

19%

19%

19%

19%

19%

19%

19%

EBIT margin

taxes

1.7

2.6

3.0

3.2

3.4

3.6

3.8

3.9

3.9

4.0

NOPLAT

7.2

11.0

12.6

13.6

14.4

15.5

16.3

16.5

16.6

17.1

amortisation investments in fixed assets and intangible fixed assets change in working capital

3.6

3.5

3.3

3.5

3.7

3.4

2.9

2.9

3.0

2.6

5.9

3.8

3.5

3.3

3.3

3.3

3.3

3.3

3.3

3.3

-5.3

3.9

3.5

3.5

-3.5

-3.5

-2.9

-2.3

-2.4

-2.5

FCF

-0.4

14.7

15.9

17.3

11.3

12.1

13.1

13.8

13.9

13.9

165

risk free rate

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

4.5%

5.6%

risk premium

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

5.0%

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

1.0

cost of capital

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

9.5%

10.6%

cost of debt

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

6.0%

0.0%

debt / EV

10%

10%

10%

10%

0%

0%

0%

0%

0%

0%

0%

WACC

9.0% 1.00

9.0% 0.92

9.0% 0.84

9.0% 0.77

9.5% 0.70

9.5% 0.64

9.5% 0.59

9.5% 0.54

9.5% 0.49

9.5% 0.45

10.6%

-0.4

13.4

13.4

13.4

8.0

7.8

7.7

7.4

6.8

6.2

74.0

beta

discount rate DCF sum of DCF and discounted terminal value (PLN m)

157.7

net debt (PLN ‘000)

-19.2

goodwill (PLN m)

138.5 2.7

number of shares (m)

51.3

price (PLN)

0%

1%

2%

3%

4%

3.6%

50.7

54.6

59.6

66.4

76.1

4.6%

47.9

51.0

54.9

59.9

66.8

5.6%

45.7

48.2

51.3

55.2

60.3

6.6%

43.8

45.9

48.4

51.5

55.5

7.6%

42.2

44.0

46.1

48.7

51.8

6 September 2005

15

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Income Statement (PLN ‘000) Net sales revenues

2003 1099.5

2004 1309.1

2005F 1471.3

2006F 1612.9

2007F 1762.7

2008F 1886.7

Costs of products sold

-979.2

-1179.8

-1385.0

-1518.4

-1658.9

-1775.4

120.2

129.3

86.3

94.5

103.8

111.3

10.94%

9.88%

5.87%

5.86%

5.89%

5.90%

Gross profit (loss) on sales gross profit margin on sales Costs of sales

-17.8

-17.5

-20.2

-21.4

-22.7

-24.2

Administrative costs

-46.2

-49.0

-56.4

-61.3

-66.6

-71.1

Net profit (loss) on sales net profit margin on sales EBITDA EBITDA margin EBIT

56.2

62.7

9.7

11.8

14.6

16.1

5.11%

4.79%

0.66%

0.73%

0.83%

0.85%

10.2

9.3

12.4

17.0

18.9

20.3

0.93%

0.71%

0.84%

1.06%

1.07%

1.08%

8.4

6.8

8.8

13.6

15.5

16.8

0.77%

0.52%

0.60%

0.84%

0.88%

0.89%

Financial revenues

10.8

13.3

11.9

1.3

1.2

1.2

Financial costs

-8.9

-8.3

-8.1

-1.4

-1.4

-1.4

Gross profit (loss)

10.4

11.9

12.6

13.5

15.3

16.5

Taxes

-2.9

-2.7

-2.4

-2.6

-2.9

-3.1

Net profit (loss)

7.5

9.2

10.2

10.9

12.4

13.4

net profit margin

0.68%

0.70%

0.70%

0.68%

0.70%

0.71%

2003 21.2

2004 35.2

EBIT margin

Balance Sheet (PLN ‘000) Fixed assets

2005F 38.0

2006F 38.2

2007F 38.4

2008F 38.2

Intangible fixed assets:

0.2

0.2

0.4

0.1

0.1

0.0

Tangible fixed assets:

13.0

22.5

25.2

25.7

25.9

25.8

Long-term investments Current assets Inventories Short-term accounts receivable Short-term investments

7.8

11.2

11.2

11.2

11.2

11.2

234.3

281.8

316.4

351.1

388.8

423.6

86.3

122.1

135.9

148.2

161.5

172.8

124.0

133.9

152.9

160.8

169.4

175.7

18.4

21.0

21.0

21.0

21.0

21.0

Cash

5.6

4.9

6.6

21.2

36.9

54.0

Short-term deferred taxes and accruals

0.5

1.8

1.8

1.8

1.8

1.8

Total assets

255.9

318.8

356.2

391.1

429.0

463.5

Shareholders’ equity

27.2

67.4

77.7

88.6

101.0

114.4

Liabilities, of which:

227.3

250.0

277.2

301.2

326.7

347.8

long-term credits and loans

0.0

15.7

15.7

15.7

15.7

15.7

short-term credits and loans

27.3

8.2

8.2

8.2

8.2

8.2

184.2

222.5

250.1

274.2

299.7

320.7

taxes

trade liabilities

0.8

0.0

0.0

0.0

0.0

0.0

others

0.6

0.6

0.6

0.6

0.6

0.6

1.4

1.3

1.3

1.3

1.3

1.3

255.9

318.8

356.2

391.1

429.0

463.5

Accruals and deferred income Total liabilities

6 September 2005

16

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Cash Flow Statement (PLN ‘000) Cash flow from operating activity

2003

2004

2005F

2006F

2007F

2008F

32.2

0.0

7.6

18.3

19.2

20.4

Net profit (loss)

7.5

9.2

10.2

10.9

12.4

13.4

Amortisation

1.8

2.5

3.6

3.5

3.3

3.5

Share in profit (dividends)

-3.8

-3.0

0.0

0.0

0.0

0.0

Change in working capital

23.0

-11.7

-6.2

3.9

3.5

3.5

0.7

0.0

-0.9

0.0

0.0

0.0

-13.2

-13.3

-5.9

-3.8

-3.5

-3.3

Other adjustments Cash flow from investment activity Inflows

25.7

36.6

0.0

0.0

0.0

0.0

-38.9

-49.9

-5.9

-3.8

-3.5

-3.3

Purchase of intangible and intangible fixed assets

-6.4

-3.4

0.0

0.0

0.0

0.0

Sale of investments in real estate and intangible fixed assets

2.1

36.6

0.0

0.0

0.0

0.0

-6.4

-3.4

0.0

0.0

0.0

0.0

Other investment expenditures

-27.7

-31.8

-1.5

-1.5

-1.5

-1.5

Cash flow from financial activity

-18.7

12.6

0.0

0.0

0.0

0.0

Inflows

2.9

32.6

0.0

0.0

0.0

0.0

Net inflows from share issue

0.0

31.1

0.0

0.0

0.0

0.0

Credits and loans

0.0

0.0

0.0

0.0

0.0

0.0

Outflows

-21.6

-20.0

0.0

0.0

0.0

0.0

Dividend

0.0

0.0

0.0

0.0

0.0

0.0

Repayment of credits and loans

-8.2

-3.7

0.0

0.0

0.0

0.0

Interest

-1.5

-3.2

0.0

0.0

0.0

0.0

Others

0.0

0.0

0.0

0.0

0.0

0.0

Net cash flow

0.3

-0.7

1.7

14.6

15.7

17.1

Opening cash balance

5.3

5.6

4.9

6.6

21.2

36.9

Closing cash balance

5.6

4.9

6.6

21.2

36.9

54.0

Outflows

For financial assets

6 September 2005

17

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

Institutional Sales and Research:

Analysts:

Tomasz Mazurczak tel. (+48 22) 697 47 35 DISA Director [email protected] Strategic Analysis

Witold Samborski tel. (+48 22) 697 47 36 Chief analyst Securities Broker [email protected] Construction, others

Michał Marczak tel. (+48 22) 697 47 38 DISA Deputy Director [email protected] Telecommunications, raw materials, metals, media, hotels

Przemysław Smoliński tel. (+48 22) 697 49 64 Analyst [email protected]

Grzegorz Domagała tel. (+48 22) 697 48 03 DISA Deputy Director

Jacek Borawski tel. (+48 22) 697 48 88 Senior Analyst [email protected] Technical Analysis

[email protected]

Sławomir Sklinda tel. (+48 22) 697 47 41 Analyst [email protected] Chemicals

Sales: Michał Skowroński tel. (+48 22) 697 49 68 [email protected]

Andrzej Lis tel. (+48 22) 697 47 42 Analyst [email protected] IT

Emil Onyszczuk tel. (+48 22) 697 49 63 [email protected] Marzena Łempicka tel. (+48 22) 697 48 95 [email protected]

Krzysztof Radojewski tel. (+48 22) 697 47 01 Analyst [email protected] Pharmaceuticals

Grzegorz Stępień tel. (+48 22) 697 48 62 [email protected] Dzielnicki Adrian tel. (+48 22) 697 48 82 [email protected]

Marta Jeżewska tel. (+48 22) 697 47 37 Analyst Marta.Jeż[email protected]

Joanna Niedziela tel. (+48 22) 697 48 54 [email protected]

Dom Inwestycyjny BRE Banku S.A. ul. Wspólna 47/49 00-950 Warszawa skr. pocztowa 21 www.dibre.com.pl

Aleksander Mazur tel. (+48 22) 697 48 69 [email protected]

Previous recommendations issued for Farmacol S.A. Recommendation Date issued Price on day of recommendation WIG on day of recommendation

Buy

Accumulate

2005-03-24

2004-08-17

29.60

29.60

26801.99

23623.21

Previous recommendations issued for PGF S.A. Recommendation Date issued Price on day of recommendation WIG on day of recommendation

Hold

Accumulate

2005-05-16

2004-08-17

51.90

57.10

25662.59

23623.21

Previous recommendations issued for Torfarm S.A. Recommendation

Accumulate

Accumulate

Date issued

2005-03-24

2004-11-05

Price on day of recommendation WIG on day of recommendation

6 September 2005

41.90

44.00

26801.99

25572.80

18

Securities BRE BRE BankBank Securities

Pharmaceutical Wholesalers

List of abbreviations and ratios contained in the report. EV – net debt + market value (EV – economic value) EBIT – Earnings Before Interest and Taxes EBITDA – EBIT + Depreciation and Amortisation PBA – Profit on Banking Activity P/CE – price to earnings with amortisation MC/S – market capitalisation to sales EBIT/EV – operating profit to economic value P/E – (Price/Earnings) – price divided by annual net profit per share ROE – (Return on Equity) – annual net profit divided by average equity P/BV – (Price/Book Value) – price divided by book value per share Net debt – credits + debt papers + interest bearing loans – cash and cash equivalents EBITDA margin – EBITDA/Sales Recommendations of BRE Bank Securities S.A. A recommendation is valid for a period of 6-9 months, unless a subsequent recommendation is issued within this period. Expected returns from individual recommendations are as follows: BUY – we expect that the rate of return from an investment will be at least 15% ACCUMULATE – we expect that the rate of return from an investment will range from 5% to 15% HOLD – we expect that the rate of return from an investment will range from –5% to +5% REDUCE – we expect that the rate of return from an investment will range from -5% to -15% SELL – we expect that an investment will bear a loss greater than 15% Recommendations are updated at least once every nine months.

The present report expresses the knowledge as well as opinions of the authors on day the report was prepared. The present report was prepared observing principles of methodological correctness and objectivity, on the basis of sources available to the public, which BRE Bank Securities S.A. considers reliable, including information published by issuers, shares of which are subject to recommendations. However, BRE Bank Securities S.A., in no case, guarantees the accuracy and completeness of the report, in particular should sources on the basis of which the report was prepared prove to be inaccurate, incomplete or not fully consistent with the facts. Recommendations are based on essential data from the entire history of a company being the subject of a recommendation, with particular emphasis on the period since the previous recommendation. Investing in shares is connected with a number of risks including, but not limited to, the macroeconomic situation of the country, changes in legal regulations as well as changes on commodity markets. Eliminating these risks is virtually impossible. BRE Bank Securities S.A. bears no responsibility for investment decisions taken on the basis of the present report or for any damages incurred as a result of investment decisions taken on the basis of the present report. It is possible that BRE Bank Securities S.A. renders, will render or in the past has rendered services for companies and other entities mentioned in the present report. This report was not transferred to the issuer prior to its publication. Copying or publishing the present report, in full or in part, or disseminating in any way information contained in the present report requires the prior written agreement of BRE Bank Securities S.A. Recommendations are addressed to all Clients of BRE Bank Securities S.A. The activity of BRE Bank Securities S.A. is subject to the supervision of the Polish Securities and Exchange Commission. Individuals who did not participate in the preparation of this recommendation, but had or could have had access to the recommendation prior to its publication, are employees of BRE Bank Securities S.A. authorised to access the premises in which recommendations are prepared, other than the analysts mentioned as the authors of the present recommendation. Strong and weak points of valuation methods used in recommendations: DCF – acknowledged as the most methodologically correct method of valuation; it consists in discounting financial flows generated by a company; its weak point is the significant susceptibility to a change of forecast assumptions in the model. Multiple – based on a comparison of valuation multipliers of companies from a given sector; simple in construction, reflects the current state of the market better than DCF; weak points include substantial variability (fluctuations together with market indices) as well as difficulty in the selection of the group of comparable companies.

6 September 2005

19