2016 Integrated Report

Letter from the President

Ladies and Gentlemen,

On behalf of Pelion S.A. I present to you a report on our operations in 2016.

In 2016, Pelion continued its strong momentum from prior years, delivering revenue in excess of PLN 9bn. Our top-line performance is a testimony to an expanding customer base and trust we have established with our customers and patients. At the same time, our net profit totalled PLN 9.6m. This again makes us refrain from recommending dividend payment this year. However, I would like to stress that since the flotation of our shares on the Warsaw Stock Exchange, the market value of Pelion stock has almost doubled, and we have consistently demonstrated our commitment to sharing profits with shareholders.

Since its inception, Pelion has sought to achieve growth in line with the risk diversification principle. We strive to focus on healthcare as our core market and to span the entire pharmaceutical distribution chain. We have repeatedly embarked on new projects, hoping for their stable development. We have learnt our lessons, good and bad. In this year's letter to shareholders, Warren E. Buffett said that as is the case in marriage, business acquisitions often deliver surprises after the “I do’s.” We have made some challenging acquisitions, including the Natura beauty supply chain, which has yet to deliver returns. In the case of both our pharmacy chain and the Natura acquisition, we counted on past experience to help us navigate the difficult waters. But the unstable regulatory environment makes the task difficult. I have repeated over the years that our greatest challenge comes from the ever-changing law, which impedes growth and hurts the potential of firms like ours. I would like to emphasise once again that I do not understand why domestic wholesalers are made to pay more for drugs than pharmaceutical companies. Also, we can see some negative effects of the badly written law that bans pharmacy advertising. It is taking its toll on pharmacies in Poland, preventing any interaction with patients. The law passed through lobbying efforts has hit pharmacy owners and patients alike. This said, we had some good experiences too. We know a business can thrive in supportive and transparent environments, like Lithuania and the United Kingdom. We would like to bring experiences from these markets into Poland, and I do believe that lawmakers will not allow a situation where ownership constraints freeze growth of pharmacies.

Our goal for the future remains to offer our customers a comprehensive range of products and services that are innovative, safe, and reliable. We plan to expand our business lines as we believe that healthcare is a great challenge. We aim to work for the benefit of our industry with the support of a team deeply committed to their work.

We are a company taking responsibility for its actions, recognising the social and environmental impacts of its decisions. Hence the approach we take to our work and external environment. We take care to use our resources in a sustainable way, and we support the development of our staff and patients, sharing our knowledge in the field of healthcare. Our DOZ Foundation works to improve access to treatment for the most needy. We promote illness prevention and are an enthusiastic joint organiser of the DOZ Marathon running event in Łódź. The report we present to you today is our another integrated report that provides a full picture of our performance and the values we adhere to in running our business.

I would like to thank our Shareholders for the trust they place in us and our Supervisory Board for the kind cooperation and support they offer at all times.

I would also like to thank our staff for their unwavering commitment. My special thanks go to pharmacists, both our customers and the DOZ Apteka dbam o zdrowie chain staff, for their efforts in carrying out the mission of their profession. I believe that we are well positioned for growth in the years ahead.

Jacek Szwajcowski

CEO, President of the Management Board