Wednesday, September 24, 2014

Looking for Non-Zombies in Greece? Here Is One!

A friend of mine told me that her sister, a young chemical PhD, started a job with a company by the name of Pharmathen recently. So I looked up Pharmathen's website. What a surprise!

Founded in 1969, Pharmathen 'is focused on the development and marketing of pharmaceuticals, with a strong position in generics. With 3 state of the art research laboratories and 2 manufacturing units, Pharmathen is a completely vertically integrated company and its activities extend from the development of pharmaceutical products up to their distribution. The company’s human resources include more than 800 people who work in the sectors of Research & Development (R&D), production and distribution of drugs to more than 85 countries worldwide'.

The website has a separate section on Corporate Social Responsibility (CSR): 'It is important that our employees know about our commitment to social corporate responsibility, understand their responsibilities and keep up to date with our progress. Therefore we instantly inform our personnel regarding CSR practices at Pharmathen via emails, intranet services and our monthly newsletter. Through all these means they participate in CSR practices as they recognize that CSR is not only an enterprising issue but a personal issue'.

It soon got even better! Pharmathen also has a Vision and a Mission! The vision is 'to elevate the quality of people’s lives globally by providing novel and affordable pharmaceutical products. We aspire to be one of the best healthcare companies in the world, sustaining our impressive growth rates, securing customer preference and providing leading pharmaceutical innovations and solutions'. And the mission is 'to aim to be one of Europe’s leading Research & Development companies. Already one of the fastest growing generic companies in Europe, we aim to provide innovative, distinctive products and services that improve the lives of patients worldwide and satisfy customer needs. We will achieve this by employing the most advanced technologies available, by constantly enhancing our product portfolio and expanding our international presence'.

At this point, I became a bit suspicious. Websites, vision and mission statements fall into the category of softs facts; of 'stories', as investment bankers call it. It's easy to put together beautiful stories. It was about time that I looked at the hard facts, Pharmathen's financial statements for 2013.

Group sales were 178 MEUR, 10% higher than in 2012. Wait! Wasn't the Greek economy in recession during 2013? Well, 131 MEUR of total sales came from international operations (Pharmathen has a presence in over 80 countries!) but sales in Greece also increased by 6% (in a declining market!). A total of 22 MEUR was spent on R&D, which is about 12% of sales! Now, pharmaceutical companies have no choice but to spend a lot on R&D and 12% may be normal in the industry but one could compare the 12% to the 3% which the EU sets itself as a goal for R&D spending, which goal it always misses.

After paying for all of its expenses, Pharmathen posted a profit before taxes of 21 MEUR, or 12% of sales. That is a very high profitability! And since Pharmathen intends to be a good corporate citizen, they paid income taxes of 4 MEUR.

Pharmathen posted a net worth of 100 MEUR. With total assets of 204 MEUR, Pharmathen was financing almost half of its assets with net worth, an extremely high ratio. This, however, should be qualified a bit since Pharmathen posted goodwill of 41 MEUR among its assets. Such goodwill represents the excess which was paid over book value when acquiring companies. Where such companies are very profitable, such goodwill is justified. Still, even without goodwill, Pharmathen was still financing 36% of its assets with net worth! Pharmathen follows a policy of retaining a large portion of its profits in the company instead of paying it out as dividends. Thus, retained earnings of 42 MEUR account for almost half of net worth.

Finally, the most important 'Greek subject' --- debt. Pharmathen owed 68 MEUR to banks. Is that high? Well, that depends on how much debt a company can service. Pharmathen posted a free cash flow of 27 MEUR and interest expense was 7 MEUR. Put differently, free cash flow covered the interest expense by close to 4:1. Short-term debt was 38 MEUR of the total debt. When considering that Pharmathen had 54 MEUR of short-term trade receivables, one knows what short-term debt was financing. Not to mention the fact that the company also had a cash position of 18 MEUR. Current assets of 122 MEUR covered current liabilities of 74 MEUR 1,7 times. There is no worry to be had about Pharmathen's short-term debt service capacity. And the long-term debt of 29 MEUR contributed to the financing of property, plant and equipment of 38 MEUR. In short, there is no worry to be had about Pharmathen's indebtedness.

Pharmathen employed 867 people (up from 800 two years earlier), 577 of which have university degrees, and research scientists exceed 150. 49% of the employees are women and women account for 26% of management positions.

Below are some of the rankings which Pharmathen claims:

* among the top 50 most profitable companies in Greece
* among the top 100 largest Greek companies
* among the top 50 largest pharma R&D companies in the EU
* among the largest exporting companies in Greece
* among the "True Leaders" in Greece based on credibility

It took me a while to digest the above information. When I saw such a company during my active years in banking, I would hurry to the phone to make an appointment for a business development call. Before seeing the rankings, I would have expected Pharmathen to rank as No. 1 in Greece in all categories. But Pharmathen says it is 'among the top 50' or 'among the top 100'. Well, this can only mean that there are a lot of other non-zombies in the Greek economy. In fact, I would call them stars.

Who are the other stars? Why does one hear so little about them?


  1. Here a few more:

  2. Q: Free cash flow is 27 or almost 18 mil in 2013 for group ?

  3. Replies
    1. You are right, about free cash flow, star company.