Cash-rich Penta to expand leading Czech pharma chain Dr.Max to China

Cash-rich Penta to expand leading Czech pharma chain Dr.Max to China
Dr.Max, the biggest pharmacy network in Czechia, increased its revenues by 8.1% y/y in 2017 to CZK16.1bn.
By Jaroslav Hroch in Prague April 18, 2018

Slovak/Czech financial group Penta Investments plans to invest part of a record CZK6.2bn (€245mn) consolidated net profit in expanding its Dr.Max brand pharmaceutical business to the Chinese market, the group’s partners told reporters in Prague on April 18.

“China is the second-biggest market for medicines with a turnover of $140bn and a network of 400,000 pharmacies. It is a long-distance run. We want to see the first success in five years,” Penta co-owner Jaroslav Hascak said.

Penta had its second-best year in the diverse group’s history in 2017, with operating profit up 19% y/y to a record-breaking CZK10.1bn, partner Marek Dospiva said. Sales grew 21% to CZK178bn and overall assets increased by 6% to CZK230bn.

The main contributors were Dr.Max – the biggest pharmacy network in Czechia, which increased its revenues by 8.1% y/y in 2017 to CZK16.1bn – and Czech sports betting company Fortuna Entertainment, while Prima Banka, Privatbanka and Penta Real Estate also performed well.

But the success of Dr.Max, in particular, led Penta to consider expanding to a new market – China.

“We want to take the path of organic growth, but of acquisitions of both smaller companies and big chains,” Dospiva said. “Acquisitions will be projected in 2018 results, but it is clear expansion in the foreign markets is the most important growth strategy of Penta.”

A banner year in Europe

In 2017 Penta invested CZK6.8bn in retail sale segment and entered Italy, Serbia and Romania, where the group bought local competitor A&D Pharma through Dr.Max. With 631 pharmacies in Romania now after the A&D Pharma takeover – plus the leading full-line wholesaler business, and more than 4,500 employees – Dr.Max is number one on that market and a truly Europe-wide player.

The transaction, confirmed by a Penta representative to bne Intellinews on December 11, 2017, has been estimated by Romanian media at around €300mn-€400mn. The acquisition of A&D Pharma is the biggest one-off investment in the history of Penta.

“But we haven’t lost our investment appetite – we are ready to go beyond the European borders,” Dospiva said. Meanwhile, Penta’s European operations expanded at a heady pace last year.

In Romania, Croatia and Spain, the Hattrick Sports Group was integrated successfully into Penta’s Fortuna Entertainment Group. Analysts noted on February 23, 2017 that the acquisition amounted to almost half Fortuna’s capitalisation at the time.

The following month, Penta announced it had added to its portfolio of Central European healthcare assets, gaining control of the Nemos Group, which operates several hospitals and clinics in the Czech Republic.

Last year, Penta also bought an ambulance service network in Poznan, Poland, and opened a new hospital in Michalovice, Slovakia. In Romania, Fortuna took over Bet Active Concept, Bet Zone, Public Slots and Slot Arena for 47mn.

Moreover, Penta in March continued to increase its share in Fortuna Entertainment, to 95.8%, in order to squeeze out remaining shareholders and delist Fortuna from the Prague and Warsaw bourses. Penta bought approximately 10.6% of shares from US investment management firm Franklin Templeton Investments. The price of the 5.5mn of shares hasn’t been made public.

Meanwhile, Aero Vodochody, the Czech aircraft company owned by Penta, continued with the development of a new turbofan-powered military trainer aircraft L 39 NG in 2017, and has now launched production.