Report. Providing Brazil with well-being.

Transcription

1 Annual Report 2012 Providing Brazil with well-being.

2 Time for changes. Meet Brasil Pharma s new corporate brand. As one more step towards our strategy of strengthening our brand with nationwide presence, in 2013 we announced Brasil Pharma s new identity. A light and modern brand that embodies concepts that represent us really well, such as confidence, health, personal care, and well-being: this is how the new Brasil Pharma now presents itself, incorporating the s of the Brasil we are building together. As a result of the unification of our people, identity and dreams, the new brand strengthens the concept of a unique Brazilian company within our clients, employees, suppliers and shareholders. Our new identity reflects a dynamic, multifaceted company that has a big dream, namely to improve the quality of life of Brazilians, bringing health and well-being to our country.

3 BRAZIL Southeast South Northeast North Midwest GDP¹ 55.0% 16.0% 14.0% 5.0% 9.3% % GDP growth (CAGR 07-12) 2.9% 3.8% 3.8% 3.6% 3.8% Population² (% of 2010) 42.1% 14.3% 27.8% 8.4% 7.4% Market share - Pharma 2012³ 53.0% 17.1% 17.2% 4.4% 8.3% Notes: 1- GDP - IBGE data 2- Population -IBGE data 3- Market share pharma - IMS Health Roraima Amapá Amazonas Pará Maranhão Ceará Rio Grande do Norte Paraíba Piauí Pernanbuco Acre Rondônia Mato Grosso Tocantins Bahia Alagoas Sergipe Goiás Mato Grosso do Sul Minas Gerais Espírito Santo São Paulo Rio de Janeiro Paraná Rio Grande do Sul Santa Catarina GDP (R$/ tn) in Brazil E 2030E Population (million inhabitants) % over 60 years old 8.1% 10.0% 13.7% 18.7%

4 Market People over 60 years old spend on average 3X more than people between 20 to 59 years old Approximately Of those medicare beneficiaries 25% of the population has a health care plan 78% have a corporate health care plan Market Concentration³ (% gross revenues) Brand name drug 69.2% HPC Market¹ R$ 34.0 b CAGR last five years 11.6% Pharma Retail Market² R$ 49.6 b CAGR last five years 16.0% R$ 38.5 b CAGR last five years 13.2% Generic drug R$ 11.2 b CAGR last five years 30.9% 55.1% 44.9% 53.2% 46.8% 30.8% E Independent drugstore chains Medium/large drugstore chains Notes: 1 - HPC Market ABHIPEC Pharma Retail Market IMS Health ex-factory price 3 - Market Concentration ABRAFARMA and Company estimates Brasil Pharma 3,100,000,000 reais in gross revenues 17,000 employees 340 cities served 1 dream: to be the best drugstore chain in the country

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7 Summary 1. Letter from Management 2. Brasil Pharma 2.1 National Presence 2.2 Timeline 2.3 Company Profile 2.4 Our Culture 2.5 Awards and Recognitions 3. The Pharmaceutical Industry: Greater Demand, Greater Growth 4. Integration: The Strength of a Unique Company 4.1 Administrative: Shared Services Center (SSC) 4.2 Commercial 4.3 Operations 4.4 Cultural Integration: A Strong Brazilian Chain 5. Farmais The Industry s Largest Franchise Chain 6. Our People 6.1 Trainee Program 6.2 Climate Survey 6.3 Training 7. Social and Environmental Programs 7.1 Environmental Projects 7.2 Social Projects 8. Stock Market 9. Operational Performance 10. Closing Message from Management

8 1. Letter from Management From left to right 1) Renato Stefanoni Commercial Officer 2) Renato Lobo Investor Relations Officer 3) Cristina Caiuby Legal Officer 4) André Sá Chief Executive Officer 5) Sara Rezende Chief Financial Officer 6) Rodrigo Silveira Integration Officer 7) Gabriel Guioto People and Management Officer 8) Carlos Dutra Chief Investment Officer and Vice-President of Operations 8

9 We ended 2012 celebrating yet another year of growth. Our positive results were boosted by the increase in the Brazilian population s income and consequently the inclusion of new consumers of drugs, coupled with the aging of the population and the entry of new generic drugs into the market. Over the past 15 years, the pharmaceutical sector has shown resilience, acting as a leader in the retail sector in terms of growth, fueled by the basic characteristic of selling products for everyday use and low exposure to credit. It is our assessment that the growth seen in the Brazilian market is similar to that seen in the United States about 15 years ago. There, growth, consolidation, the opening of stores, geographic expansion, and professionalization were dominant themes between 1995 and In Brazil, this scenario began to take shape only in mid We currently see Brazil in a similar situation, with large chains increasing their market shares, organic growth, and mergers and acquisitions of medium and large groups. In this context, a great deal of discussion has taken place regarding the best growth strategy for the sector: organic or inorganic? However, very little discussion about doing one, followed by the other, has occurred. At Brasil Pharma, this has been our agenda. Over the last four years, our company opened the largest number of stores in the sector, showing that we have acquired, in addition to excellent points of sale, a great team of professionals with a wide capacity to open new stores, putting us in a leadership position in the markets in which we operate. We do not buy businesses in order to grow; rather, we buy businesses that we can grow after we have acquired them. This approach is exemplified by the two large acquisitions we made in 2012: Big Ben and Sant Ana. With these two large chains, we found ourselves with an exposure of roughly 60% of our business in the country s fastest-growing Northeastern and Northern regions. We remain true to our acquisition pillars, always seeking three factors: (i) market leadership, (ii) proven organic growth potential, and (iii) transactions that add value for our shareholders. We currently operate in four of the five Brazilian macro-regions; we are ranked first in three of them and second in the other. In 2012, we opened 96 stores, compared with an average of 97 over the last four years. This intense level of activity demonstrates that our acquisitions have given us a strong executive growth capacity, always bolstered by the strength of our regional brands. We are proud to be able to count on strong regional teams with knowledge of local markets and the loyalty and admiration of our clients in relation to our products and services. At this pace, we continue to dream of being the best drugstore chain in Brazil. Day by day, we get closer to making this a reality. We feel that the most important factor in achieving this goal is always being the first option. We want to be, and indeed we have to be, the first option for our clients in relation to their well-being, health, and convenience; the first option for our suppliers for the launch of products with national coverage and professionalism in execution at points of sale; the first option for our talented people when they are making career decisions; and the first option for our shareholders when choosing investments. With this dream in mind, in 2012 we concentrated our efforts on the integration process, with the great challenge of transforming excellent regional companies into a single exceptional and unique national company. As an essential part of this process, in March 2012 we inaugurated our Shared Services Center (SSC). Located in Brasilia (Federal District), the SSC centralizes our regional back-office activities, enabling great optimization of our structure and providing a base for continued growth with gains of scale in our administrative expenses. We also focused on the commercial area. Over the course of the year, we restructured the department, bringing in big names from the market and centralizing purchasing transactions in our head office, in São Paulo (SP), enabling unified communications with our supplier partners without losing the regional characteristics of our chains. At the other end, in the stores, integration has also been the key word in our restless pursuit for first place in the hearts and minds of our clients. In 2012, we invested in the integration of the store operations. In this sense, the various efforts ranged from standardization of the materials used in the construction and refurbishment of points of sale, to uniforms, sales force training and remuneration. We are fully conscious that none of this would be possible without an exceptional team. We believe that we have the best team in the industry, with a focus on profitability, performance, and in-depth knowledge of regional peculiarities. 9

10 2. Brasil Pharma We are one of the major players in the Brazilian retail pharmaceutical industry, with a presence in every one of the country s regions through large, local drugstore chains. More than 1,000 stores are distributed across 340 cities through five chains: Big Ben/Guararapes, Sant Ana, Rosário, Mais Econômica, and Farmais, the last one being the only franchise system in the Brazilian retail pharmaceutical industry. 2.1 National Presence Spread across Brazil, we own more than 700 Big Ben/Guararapes, Rosário, Mais Econômica, and Sant Ana stores, in addition to almost 400 franchised units of the Farmais chain. Find out a bit more about our national presence: X-Ray National Presence Owned Stores: 708 Franchises: cities 1,096 stores 16,629 employees By region Owned Stores North 117 Northeast 251 Midwest 130 Southeast South 210

11 2.2 Timeline Over four years, we have accumulated 186 years of history and expertise in regional retail pharmacy. Get to know more in our timeline: Brasil Pharma is born, with the ambition to become the leader in pharmaceutical retailing in Brazil. Consolidation: Beginning of the acquisition process of regional drugstore leaders around the country. Brasil Pharma enters the Midwest, Northeast, and Southeast regions through the Rosário, Guararapes, and Farmais brands. Brasil Pharma enters the Southern region through the acquisition of the Mais Econômica drugstore chain. Institutionalization and Brasil Pharma DNA construction: IPO, strengthening the Brasil Pharma name in the market. Presence in the North and stronger position in the Northeast region through the acquisition of Big Ben and Sant Ana drugstore chains. The phase of cultural and process integration takes off, focusing on the capture of synergies and dissemination of the Brasil Pharma culture. Inauguration of our Shared Services Center (SSC) in Brasília: centralization of back-office activities for our stores

12 2.3 Company Profile Our role in society lies at the very heart of our business: to provide health and well-being to people throughout the country. However, our motto is not just in these words. We truly believe in the importance of providing drugs and hygiene and personal care products to help people with their health, their personal care and their self-esteem. It is important to mention that the population s selfesteem comes not only from the products offered to consumers on our shelves, but also from the economic impact produced by the capilarity of our store chains, now spread across 19 Brazilian states and the country s Federal District. What we are talking about here is constant job creation and income generation generation over virtually all of Brazil. The numbers provide evidence of the important role we play in the regions where we operate: we already have 17,000 employees in our workforce and in 2012 alone, we provided roughly 1,300 talented young people with their first job opportunities. By opening new possibilities for a number of professionals, the great majority coming from the C and D classes, we are transforming the outlook for a new segment of consumers who are currently the main drivers of the domestic economy. Thus, the profile of our employees is young and diversified: 94% of them are under the age of 45, with women accounting for 66% of the workforce. 34% men 66% women Paying close attention to these figures, we make an effort to really know the people who build our business day after day. In 2012, the substantial amount of information generated by our survey Business Intelligence (BI) of People gave us a major benefit in relation to our main asset and we focused our actions in accordance with our employees concerns and needs. After all, because our business is built by our professionals and we now understand their profile, we truly know who Brasil Pharma is : 12 14,753 employees in stores 60% have been with the company for more than a year 66% are women More than 2,645 promotions 1.3 mil young people began their careers with Brasil Pharma

13 2.4 Our Culture Our Dream To be the best drugstore chain in the country, helping to create a healthier world Our Mission To provide health and well-being to our customers To create long-term partnerships with our suppliers To have the best working climate to develop our employees Our People Attitude to go beyond Ethics in everything we do Proud to belong Focus on results Meritocracy recognizing talent To be profitable for our shareholders We were born out of a dream to be the best drugstore chain in Brazil, helping to create a healthier world. In day-to-day terms, this dream is being built by the talent and dedication of 17,000 professionals who, together, throughout Brazil, play their parts and can claim a share of the credit for our growth. In 2012, we underwent an important process of transmitting our culture to employees in various Brazilian states working in different drugstore chains, each with its own peculiarities. Our culture was born out of this unique blend. Precisely the chains different regional origins give us our major competitive differential, in the same way that local seasonings are mixed together to produce an unprecedented result. At Brasil Pharma, this culture is made up not only of Our Dream, but also of Our Mission and Our People. These three basic pillars feed back into and help explain our professionals commitment and our success, in terms of the numbers. 13

14 OUR DREAM We believe that the size of the dream does not matter; the same amount of effort is required, whether you dream big or small. For this reason, we always prefer to dream big. Our dream carries the ambition of someone who likes to be big. We think only about big challenges, major achievements, and the great responsibility of someone who desires to be different and who aims to make the world a healthier place. OUR MISSION We want to always be the first option: for our clients, our suppliers, our shareholders, and our talented employees. For this reason, in our mission, we make serious commitments to each of our major stakeholders. We make these commitments the reason for our existance and we are certain that we will realize our dream through these commitments. We are already leaders in the Midwestern, Northern, and Southern regions, and we are ranked second in the Northeastern region. Our strategy, which is characterized by growth in areas where we already have a presence, coupled with the convenience sought by our clients, helps make our operations profitable, in addition to consolidating our presence. At the same time, and always with the goal of consolidating our position as being the first choice for our clients, we continue to bet increasingly on humanizing our customer service and showing concern for our customers health and well-being. We also foster collaborative partnership relationships with our suppliers. We believe in building by working together, guided by ethics, respect, and the commitment of both parties. We look for business partners who are willing to accompany our growth with the same confidence as our professionals and who are guided by the same objective of providing Brazilians with health and well-being. On these bases, we want to be the first option for suppliers. We also believe that we will increasingly be the first option for our employees. It cannot be any other way, because we are sure that our main differential is exactly this, our People. We already have a great team, with excellent professionals, and we will continue to bet on the Company s development by investing in the training and recognition of our employees. So that we are always the first option for talented people, now and in the future, we want to grow in size, boosted by our widespread distribution and geographical presence, and in strength, with an increasingly strong brand, which is a true reference point within the industry. This combination is our recipe for success: as a result of our efforts, our figures are increasingly positive and consistent, so that we are also the first option for our shareholders. OUR PEOPLE We like to go beyond the commonplace. Thus, to work for the Company, it is necessary to believe in the culture and to show Initiative to do more. We act properly and adopt an Ethical approach in everything we do. We are Proud to be part of a company that does not want to be just another one, but wants to be number one! For this reason, our work is Focused on results. 14 We adopt a Meritocracy approach to recognize and attract the most talented people. We are not just a chain of stores, but rather a chain of opportunities. We invest in making our employees into true professionals as well as in their futures. At Brasil Pharma, with knowledge, results, and merit, everybody can make it onto the Company s executive team. Fully aware of this universe of possibilities, our people grow at an accelerated pace, always driven by challenges.

15 2.5 Awards and Recognition The market has recognized our business model as well as the efforts and professionalism of our talented people. In 2012, in return for our results and our social and environmental practices, we received a number of very significant awards in the corporate area and in the regions where we operate. Awards in 2012 Corporate Boldest Business of the Year 2012 Mergers and Acquisitions Ig/Insper Best Investor Relations on an IPO IR Magazine Awards 2012 Northern Region Big Ben Pleasure in Working Award 4th position in the State of Pará Abrinq Stamp Child-Friendly Company 5th year in a row Northeastern Region Sant Ana Top of Mind Awards Drugstores and Pharmacies Category Midwestern Region Rosário Top of Mind Jornal de Brasília Largest in the Federal District (DF) Jornal de Brasília and Finance Secretariat of the Federal District Southeastern Region Farmais Afras Stamp of Low Carbon Franchise 2012 Southern Region Mais Econômica Symbol Trophy 2012 House of Representatives of the State of Rio Grande do Sul Brands and Leaders Award 2012 Diário Canoas Newspaper, Nova Ulbra, and CICS 15

16 3. The Pharmaceutical Industry Greater Demand, Greater GROWTH 15.65% 29.4 b 34.0 b HPC Market 15.62% 49.6 b 42.9 b Drug Market Well positioned in the country s five regions, we are an important agent in the consolidation of the Brazilian pharmaceutical market. In 2012, the rise of the C, D, and E social classes, coupled with growth in the country s employment indices, played an important part in the boom that the sector registered in Brazil. With job creation, rising incomes, and more information, the population has gradually begun to pay greater attention to well-being. People in these social strata now have greater access to health plans, and, of course, to doctors, which has resulted in an increase in the consumption of drugs. Fueled by the same factors, personal care with hygiene and beauty items is also becoming more important in Brazilian people s lives, producing an increase in the demand for products such as cosmetics. As a direct result of this favorable scenario, the pharmaceutical industry s growth has been boosted with strong figures. In 2012, according to IMS Health, the drug market s revenues were 15.6% higher than in the preceding year. Sales of hygiene and personal care products showed a similar pace of growth, with a 15.7% increase over the numbers reported in 2011, according to ABIHPEC. In addition to these social and economic changes, the pharmaceutical market has witnessed a number of important transformational processes. The trend toward consolidation of the retail sector, which has been marked by mergers of regional chains and growth in the penetration levels of large chains, is slowly beginning to alter the fragmented panorama of the Brazilian market, which remains dominated by family-owned companies. In addition to this trend, over the last few years, we have observed decreases in informality, with more professional staff, and welcome trends in terms of tax compliance and changes in the regulatory framework. This reality of consolidation and reduced informality can only benefit the consumer. More mindful of product quality and better informed regarding variety in brands and prices, consumers are becoming increasingly demanding. In this scenario of greater competition, chains that are better prepared and structured to take advantage of the growth in demand and to meet consumers requests, by offering clear differentials, such as better service, greater convenience, and lower prices, will stand out. In this context, we work every day toward spreading the Brasil Pharma standard of customer service and consumer experience throughout Brazil, achieving, in practice and in each and every store, our dream of being the first option in the retail pharmacy sector. 16

17 4. Integration: The Strength of a Unique Company Providing Brazil with health and well-being 2012 was a year of major challenges for us. In the first quarter, after the Sant Ana and Big Ben chains joined the group, we expanded our presence to Brazil s five regions, successfully meeting our initial objective of achieving a nationwide presence. The accelerated inorganic growth, by means of the acquisition of leading regional players with local performance expertise and significant growth potential, was essential to taking our first step toward industry consolidation based on an aggressive organic expansion plan. At the same time, our focus shifted toward the reinforcement and dissemination of our management profile and our identity throughout Brazil. The year was marked by the adoption of a series of measures, always bearing in mind the huge challenge of integrating the chains, strengthening our culture, and recognition of clients, suppliers, our talented people, and our shareholders. We make every effort to be seen not just as a chain of excellent regional companies, but rather as a large and unique Brazilian company. To transform this vision into reality, we adopted four main integration efforts: administrative (SSC), commercial, operations, and training and culture. All of these pillars are parts of our total focus on integrating our regional chains, bringing unique expertise in retail management to each of them. Over the next few pages, we present each of these efforts. Administrative (SSC) Commercial Operations Training & Culture Focusing on integrating our regional drugstore chains and bringing in retail management expertise 17

18 4.1 Administrative: The Shared Services Center (SSC) We opened our Shared Services Center (SSC) on March 5, 2012, after almost a year of studies and mapping of the administrative activities in each of the chains that make up Brasil Pharma. Strategically located in Brasília (Federal District), the country s central point, the SSC was born out of a major challenge: to carry out administrative support activities for all of our pharmacy chains. This bold initiative, with an aggressive schedule, has already produced major benefits for the Company. First, we simplified the administrative structure by concentrating all back-office activities of our chains under one roof, which resulted in significant cost savings. Additionally, centralization of the processes provides greater visibility of information and facilitates stimulation of the sharing of best administrative practices. From the regional operations perspective, the transfer of basic activities to the SSC has freed chains to focus their efforts on other functions, such as the management of points of sale and the opening of new stores. Understanding how our Shared Services Center works With a marked commitment to the schedule, by the end of 2012, the SSC s structure already had 286 employees operating the administrative systems for four of our five chains, in addition to Corporate. To complete the favorable picture, the employees ticket resolution ratio is 100%. However, a great deal remains to be done. Over the next two years, in addition to concluding the process of integrating the chains, the SSC will concentrate on implementing the SAP system, which will unify our chains back-office activities in such a way as to incorporate the activities of the finance and accounting departments. At the same time, we will continue to fine tune the activities that have already been carried out, seeking to continuously improve controls and the levels of management information generated. Plug-in Stages Future: Big Ben PAS 1 MAPPING ACTIVITIES Understanding the platform needs, design of scope, and processes. 18 SSC in Brasilia, DF 6 PAS PAS PAS - Service Outposts: PAS Rosário We have six PAS (Service Outposts) near our stores for activities that cannot be centralized in Brasilia, such as recruitment and admission of new employees and cash flow processes. PAS PAS SSC PAS Corporate and Farmais PAS Mais Econômica PAS PAS Sant ana PAS Activities 2 3 SSC Areas involved PLUG-IN CONTINUOUS IMPROVEMENT PAS Plugging the platform into SSC. Mirroring: activities running in parallel - SSC and platform - for 60 days, to mitigate errors. Through quality tools, constant pursuit of improvements in process and productivity gains. HUMAN RESOURCES FINANCE ADMINISTRATIVE FISCAL ACCOUNTING IT

19 4.2 Commercial Our Commercial Structure To strengthen our team and become even more prepared for the sector s great challenges and to keep up our constant growth, in 2012, we brought in seasoned executives with experience in the retail and pharmaceutical industries to structure our Commercial team. This team is now made up of the Procurement, Logistics, and Trade Marketing teams. 19

20 Procurement Negotiating at a national level Created in 2012, the new Purchasing structure enables us to create long-term partnerships with suppliers, turning our company into an important commercial intelligence center. The idea is to have visibility and access to trends in retail pharmacy at the national level and, at the same time, to maintain our understanding and customer service in relation to local demand. For this reason, the Procurement department was split into two cells. The first, located in the city of São Paulo, State of São Paulo, close to the industry, consists of the national negotiation team, which closes purchasing deals for Brasil Pharma s chains that have already been integrated. The second cell, which is no less important, is found in each of the chains and is responsible for contacts with local suppliers, in addition to accompanying the execution of actions at points of sale, such as special promotions and the correct placement of products in accordance with agreements with manufacturers. products from the industry and distributors for a total of 1,096 stores spread across almost the entire country. Improving the profitability of the mix: We believe that rather than just selling drugs, we offer our clients well-being and health. It was with this belief and our retail expertise that we began the process of analyzing and adjusting our product mix. The objective is clear: to make available to our clients, at any Brasil Pharma chain, the most sought-after lines and brands in each category, always respecting regional consumption characteristics. Relationship with the industry: We believe in long-lasting partnerships and relationships based on mutual trust between the parties. In August 2012, for example, at an informal meeting held in the city of São Paulo, State of São Paulo, we brought together more than 400 commercial partners and suppliers to present the new Commercial structure and our executives. Based on this model, during the year, we successfully concluded the Commercial integration of four of our five chains, all within the initial schedule. At the same time, we initiated actions aimed at improving the profitability of commercial negotiations, with a view to generating value for the Company and for our clients, always with the focus on being the first option. These initiatives involved the following fronts: Purchasing conditions: Taking into account our own stores and the franchises, we are the largest retailer in the pharmaceutical sector. To get an idea of this scale, at the end of the year, our group was buying drugs and hygiene and personal care Optimization of inventories: Offering variety with consumer intelligence is associated with the rapid replenishing of the stores. We seek to meet this objective so that we can always offer what the client is looking for without burdening our structure with high levels of inventories. To keep our clients happy, in 2012 we kept our inventory levels above what was desirable, avoiding lost sales due to interruption of supply. Over the course of the next few months, we intend to improve our automatic replenishment control and purchase request system, in this way optimizing, with the help of our market intelligence tools, the number of SKUs (stock keeping units) available at the stores. 20

21 Find out about our Purchasing and Distribution process Pharma Industry Long-term partnerships with the Industry Differentiated purchasing conditions Partnership in launching new products and promotional activities on a nationwide scale Distribution Centers (DC) Brasil Pharma DCs Five DCs in four of the five regions of Brazil Quick stock refill at our stores Purchases from the industry, providing better commercial conditions Stores Hygiene & Beauty Industry Distributors Brasil Pharma s stores 1,096 stores More than 337 cities represented in 19 states and the Federal District Bring health and well-being to more than 75 million Brazilians Partnerships with Distributors Supply of low-turnover products Emergency supplies in case of stock shortages at our distribution centers Special conditions for Farmais 21

22 Trade Marketing The art of organizing Keeping up with changes in the Purchasing sector, in 2012 we also initiated the process of the refurbishment and internal reorganization of our stores to improve our clients consumption experience and to increase the profitability of each point of sale. The changes began with the stores of the Sant Ana chain, in the State of Bahia, and, by 2014, should include 100% of our units. At Brasil Pharma, the art of organizing points of sale is meticulous and detailed. The exposure of the products and layout pattern of each store are defined according to differentiated selling strategies, which take into account the social and economic profiles of local clients, regional consumption characteristics, and each point s local competition. To cater to these different audience profiles, we divide our points of sale into three store standards: Popular, Standard, and Concept. Find out more about each of our store standards: POPULAR STORE STANDARD STORE CONCEPT STORE A store model characterized by The chain s most commonly-found Stores at prime locations, targeting strong promotional appeal. Located store model. It aims to cater to extremely demanding audience, at strategic points in urban centers, various audiences, offering organized where the purchase is made by it aims to cater to the general public, and standardized services. Makeup choice and intended at well-being. with good cost-benefit ratio. Focus: price, dispatch, promotions and Dermocosmetics stand out in the store layout. Focus: diversity, comfort, need Client service is undisturbed. Increased investment in furniture and finishing of civil works. Focus: product with high added value and quality 22

23 The mapping carried out by our Market Intelligence team aims to fit each point of sale into one of these three store standards. The mapping and grouping of stores by consumption pattern are also vital for the application of industry-related commercial strategies. Because we know each unit s public, we can improve the launch of new products, direct promotional materials, or stress the sale of specific lines in accordance with the profile and interest of each region s consumers. In Trade Marketing, the following step entails the application of tools necessary to make the best possible use of the sales space. To this end, in line with each unit s needs, we can invest in complete refurbishments entailing changing the shop front and putting in a new floor along with lighting, fixtures, and fittings; or in simpler reforms limited to adjustments of sales baskets and the management of product categories. That is, this task involves the intelligent organization of the items on exhibition in line with consumption incentives, which should be implemented in all stores, with or without refurbishment. The result is a better purchasing experience and work environment with more attractive stores that are better aligned with our clients desires and needs, in addition to better perceptions of price and quality. Logistics Operational excellence Presently, we own five distribution centers (DCs) that are located strategically to provide support to each of our chains. To ensure operational excellence in terms of storage, transport, and security, in 2012 we began the challenging task of renovating and bringing the DCs up to standard, with a focus on productivity and supporting the growth of our operations. Find out more about Brasil Pharma s distribution centers: Belém, PA 50,000 Skus 10,800 m² of storage area Jaboatão dos Guararapes, PE 13,000 Skus 3,240 m² of storage area Brsília, DF 13,000 SKUs 4,800 m² of storage area Canoas, RS 12,000 Skus 5,600 m² of storage area Camaçari, BA 15,000 Skus 9,000 m² of storage area 23

24 Commercial integration: a win-win situation Keeping strictly to our operational growth schedule, in 2012 we opened new units for two of our five DCs. The first, in Brasília, in the Federal District, came into operation in October to replace the previous DC located in Águas Claras, also in the Federal District, resulting in greater operational potential and storage capacity. With a useable area of 4,800 square meters and sufficient capacity to supply the entire Midwestern region, this venture strengthens the Rosário Group s operations and provides the necessary support for our regional growth. In turn, the modern DC located in Camaçari, in the State of Bahia, which was opened in November, has a useable area of 9,000 square meters and plays More for our employees a vital role in the support required for the growth of the Sant Ana chain, where sales performance in 2012 was negatively affected by a fire at its former DC. The gains can already be felt at the points of sale. Now, items requested by a store located in the State of Bahia can be delivered on the day after the request was made, improving speed and productivity for the chain. For the next few years, in addition to bringing the remaining three DCs up to standard, we face the challenge of standardizing operational processes at all of our DCs. The intention is that the five units will have the same systems, performance, and stock control indicators. 24 More for our suppliers In addition to being physically closer, with the centralization of contacts in the head office in São Paulo, our partners gain the chance of having access to the national market for coordinated new product launch activities. More for our clients At any Brasil Pharma store, our clients encounter quality, convenience, and excellent customer service. Applying intelligent retail management and always alert to major consumption trends, we provide Brazilians with well-being, helping to put our country onto another level of health and living well. Our 17,000 employees, who previously belonged to regional drugstore chains, are now part of one of the largest and most professional pharmaceutical retail chains in Brazil. We believe that the company is built by our people and that our success is related to our team s commitment and achievements. We firmly believe in a meritocracy and an owners culture, and we try to ensure that everyone has access to training and qualification activities so that they can continuously broaden their horizons in terms of professional growth. More for our shareholders We are fully aware that our shareholders play an essential part in our results. For this reason, our efforts are guided by decisions aimed at promoting the Company s sustainable growth, linked to maximizing the return on capital. All integration efforts that have been implemented so far should result in greater profitability per store, optimized inventory levels, and operational leverage. Read more about our performance over the year on page 42.

25 4.3 Operations Because we know that the pharmaceutical retail sector is regionalized, we try to gain an in depth understanding of the places where we operate, their populations, their peculiarities, and their desires. This is our mindset when running our regional operations. With strong brands, our chains are among the major regional leaders, always supported by a track record of trust and an understanding of local consumers needs. In total, we have a cumulative track record of more than 186 years of growth and expertise in the regional pharmaceutical sector. This characteristic makes us strong and capable of turning the dream of becoming the best drugstore chain in Brazil into reality. In this scenario, our store Operations teams have solid expertise in terms of regional operational management, backed by experience and local practice. With a great deal of communication with our Commercial department, coupled with in-depth knowledge of their consumers profiles and the competition in the area around each unit, these professionals run things on a dayto-day basis at the points of sale, contributing to their performance with regard to issues such as monitoring of sales targets, promotional activities, and discount strategies. The Operations team also plays a vital role in our chains growth. After all, the identification of new points of sale to support our bold expansion plan is another task that demands in-depth knowledge of the dynamics of local markets. Another factor crucial to our sales performance is the store manager. Thus, closely monitoring the work of these professionals to keep them motivated and aligned with the Company s strategic targets is also one of our Operations team s roles. We have an excellent local operations team and pioneering brands, most of which are market leaders in the regions where we operate. This unique positioning is also reflected in the best locations in terms of points of sale and strategic advantages over our competition, presently and in the future. Our regional knowledge of local trends, coupled with our understanding of our clients behavior, means that we are in a position to safely carry on with our accelerated expansion and growth plans in a way that is increasingly profitable and sustainable. Fábio Eirado Operations Manager Big Ben The manager is the owner of the local business; the success or failure of a store is directly connected to him. 25

26 Someone who lives in the region is in a much more favorable position to determine whether the ideal location of a store is on the righthand or left-hand corner of a street. Emílio Azevedo Operations Manager Rosário The team is a reflection of its coach, and the same thing is true with the store. Delmar Raguzonni Operations Manager Mais Econômica 26

27 4.4 Cultural Integration: A Strong Brazilian Chain Our growth-by-acquisition strategy requires constant alignment of the operation, coupled with an absolutely vital element, the consolidation of a strong chain around the construction and reinforcement of our unique culture. that there are no barriers to growth and that everyone can be promoted on the basis of their own merits and results. regarding the company s recent promotions, providing further reinforcement of our meritbased culture and an extra incentive regarding the possibilities for the growth of our talented people. For us, our unique culture is synonymous with our unique profile in terms of management, respect, and values that are shared by all of our employees and executives, particularly that of our unique dream. This means synergy in management consistency and in the communication and clarity of targets given to our employees, as well as in each employee s professional development. We believe that, by constructing and disseminating our culture and our values, we will achieve our dream of building a strong brand and serving as an industry leader that conveys the credibility and trust that Brazilians seek. To get there, we set up several important cultural integration taskforces. Find out more about a few of these: Culture Roadshow Because educating employees in 19 Brazilian states and in the country s Federal District about our unique culture is a major challenge, in 2012 we set up the Brasil Pharma Culture Roadshow. Through this initiative, over the course of the year, our executives visited Company stores throughout all five regions of the country to convey our values, to gain a better understanding of the reality and demands of each store, and to get closer to the sales force. Since this project began, our corporate officers have visited dozens of stores, giving each one a Brasil Pharma Culture Plaque. This initiative, which will continue until all of our stores have been visited, is an important means of bringing the company s senior management even closer to our employees throughout the country. By awarding the Plaque to units and reinforcing the importance that the Company attaches to the idea of a meritocracy, our officers show The Magazine Somos+ To share stories of success, news, and the latest information about the performance of each of our regional operations, and to present our new projects, in 2012 we launched the magazine Somos+. More than 17,000 copies are printed each month and distributed to all of our employees and executives. In addition to becoming better informed, our professionals find out about their colleagues in Brazil s various regions and receive up-to-date news Training and Culture We make great efforts to offer our clients the same consumption experience, regardless of the chain that they are visiting. We always want to be the first option when the question is well-being and health. To achieve this, we need the support of our commercial partners and, in particular, the belief and alignment of our employees and executives. We like dynamic, proactive people who know the industry well and share our values. A good professional, no matter what his/her position or job, needs to understand the importance of respect and care for clients and for his/her own team, being able to spread knowledge, as well as educate and encourage people. For this reason, we constantly promote training and professional education activities. Find out more about our activities for the training and development of executives and employees on page 29. Our Endorsement A brand is much more than a name, a logo, or even a slogan: it is a company s identity and, very often, its most valuable asset. We believe that our brand, which was constructed over the course of 2012 and will win over the market in 2013, embodies the set of associations that arouse exactly what we want in each consumer: trust, health, personal care, and well-being. Our new identity translates our belief into the well-being, strength of will, and determination of our employees. Our new brand is dynamic, modern, cheerful, 27

28 and objective, reflecting work that is based on results and the attitude to be a larger presence in our culture. The starting point of the new logo was a cross, a symbol that is universally known as an icon of the pharmaceutical sector. Our differentiation, with regard to our presence in all four corners of the country, was brought to mind by the symbol of the compass. Based on these icons, the new logo was created, representing an abstract mixture of the two elements that contains less-obvious organic traces. have received the Brasil Pharma endorsement. This means that the regional brands remain, although they are accompanied by an endorsement that the whole of Brazil already knows and trusts. This endorsement will also function as a reinforcement of the entire cultural and operational integration process that has been in progress since the beginning of To go with the remodeled logo, the new slogan Well-Being for Brazil reinforces our concept and a positioning that already translates into our Culture and our People. We want well-being to become the link between Brasil Pharma and our chains. Bit by bit, all internal and external disclosure materials have begun to communicate the new Brasil Pharma and all shop fronts of our more than 700 owned stores throughout Brazil 28

29 5. Farmais The industry s largest franchise chain 2012 was an important year for the operation of our Farmais franchise chain. We opened 52 new points of sale and closed 23, as the result of careful work to bring our franchise base up to standard. We ended the year with a franchise base of 388 stores, 222 of which were concentrated in the State of São Paulo. Over the course of the year, we focused on strengthening the brand and increasing its visibility, seeking to add value to the perception of our franchisees and, consequently, boost the chain s penetration. We also improved the process of defining the franchisee profile and the provision of management support in such a way as to create longerlasting, more stable partnerships. The result of our efforts was very positive and can already be seen in the satisfaction of our franchisees. More for our Franchisees: Purchases made with conditions negotiated for more than 1,000 stores greater margins. More attractive rates in terms of financial products. Team specialized in store management and trade marketing know-how to increase store turnover and brand visibility. Frequent training sessions for store teams. Support in connection with decisions related to legal, accounting, and regulatory matters. Significant investment in marketing. Motivational conventions for franchisees. 29

30 In the expansion front, we have begun a period of strong growth that we expect to continue for the next several years: in addition to increasing our franchisee base, we expect to see Farmais in other states outside the Southern, Southeastern, and Midwestern regions, where it currently operates. To support this plan, Farmais has already set up a team of supervisors who will monitor the expansion and work together with our new franchisees. The new growth strategy arises from an opportunity to gain market share in places where operating one of our own stores would not be justified, in addition to obtaining important market understanding in regions where we do not yet operate. This strategy will also have the advantage that we will be able to make use of know-how acquired in our own platforms within our franchise chain. 30

31 6. Our People We believe that our people are our major asset. Conscious of this reality, we invest heavily in the qualifications and in-house recognition of our employees, in the dissemination of our culture, in ensuring that our philosophy and our ethics become firmly ingrained, and especially in sharing our concern with our customers. Find out about some of our initiatives below: 6.1 Trainee Program In 2012, we began our second Trainee Program to train professionals on our business model. Publicized nationwide, the selection process included preliminary stages in Rio de Janeiro, Brasília, and São Paulo. From a total of more than 4,000 people who enrolled, ten young people with degrees in business administration, engineering, and marketing were selected, and had the opportunity to become acquainted with the diversity of our operations and our intense process of integration. With the 2012 Trainee Program, the young people selected spent the first six months operating in SSC projects and the second half of the year in sectors where they could be hired. At the end of the program, the trainees became analysts in the People, Projects, Controllership, Franchising, Logistics, Marketing, and Expansion areas. The results were so positive that we repeated the model for the 2013 Trainee Program, selecting ten young people from the country s five regions out of a total of more than 13,000 who enrolled, more than three times the number of those interested in the first year. 6.2 Climate Survey 2012 was also marked by the implementation of our very first Organizational Climate Survey. Developed using an internal methodology, the survey helped us to gain a better understanding of our People, bringing us even closer to our Mission to be the best work environment for the development of our employees. The survey was answered by 5,872 employees at all levels and from all of our chains, providing a detailed overview of information for our next actions, which will be implemented over the course of

32 6.3 Training We believe in a meritocracy and like to promote our talented people internally. For us, the opportunity for professional growth that we offer our employees is a differential and a major factor in internal motivation. This is not surprising because everyone ends up winning as a result of this model. Employees can count on a vast universe and opportunities in terms of job positions throughout Brazil, while the Company gets to work with people who are aligned with its values and who have accumulated diverse professional experience over the courses of their careers at Brasil Pharma. Under the Vendo+ umbrella, which is our corporate university, we offer training programs designed to improve the productivity of professionals and to open new horizons in terms of career progression for each of them. Training & Development Actions ,441 attendances in training 412,212 hours of training 32 The Customer Service and Sales Method book. In 2012, Vendo+ launched a book that has become our store bible. The book presents the employee with everything that he/she needs to carry out his/her function on a day-to-day basis and with the maximum input necessary to continuously increase productivity.

33 Rafaella Andrade Began her career in 2005 at Drogaria Rosário. Since 2010, she has been an HR Manager at Brasil Pharma. Brasil Pharma is where I learned everything, I ve matured professionally to an incredible degree in a short amount of time. I learn a lot here, both new techniques as well as the challenges of each of the country s regions. During the process of integrating the regional HR teams, we saw that each chain had its strong points to be incorporated in the process. This was the time when I learned the most! Brasil Pharma provided me with a level of new experiences and professional growth (during this one year s work) that many people don t have after having worked in the job market for many years. The company s changes and dynamism taught us to look for improvements and particularly to adapt to what we have. I gained a lot from working with people with different personalities and cultures, from various parts of the country, without even mentioning that it s always good to meet new people! Danilo Gonçalves Began his career at Brasil Pharma in 2011 as an intern and is now a Financial Planning Analyst. In the space of one year with the Company, he had a great deal of exposure to its operations: he accompanied the changeover in the system at Dro-garia Guararapes, he received in-depth experience in the financial area at Drogaria Big Ben, and he accompanied the inclusion of the chains in the SSC. 33

34 Brasil Pharma provides me opportunities for training, professional growth, and great friendships. We always receive recognition for our work and are encouraged to feel that we are the owners of the business. Here, we learn the value of development as a team and the importance of continuously learning more about our clients, increasing the company s profitability, and attracting more and more talented people. For example, in the sales force, we generally hire people to fill entry-level positions. With the growth obtained as a result of dayto-day experience and continuous training, we promote talented people who stand out the most. The natural order is to go from being a cashier to being a sales assistant, and then an assistant manager, until one gets to be the manager of a store. This process of going through a variety of positions in a unit provides Livio Silva Began his career in Brasil Pharma in 2007 at Drogaria Rosário. Held positions as a Pharmacist, Pharmaceutical Manager, Supervisor, and Regional Manager, and is now the General Sales Manager at Drogaria Sant Ana. professional exposure to situations that will be fundamental to an employee s ability to manage the business in each unit. For this reason, we invest heavily in the education and training of our in-house sales force. Everything is done so that the selection processes for leadership positions take place internally. Learning Matrix Sales Force 34 OFFICE BOY Average time in function = 4 months Courses attended: - Training for cashiers - Professional conduct CASHIER Average time in function = 8 months Courses attended: - Cashier s service and sales - Technical knowledge of products SHOP ASSISTANT Average time in function = 1 year Courses attended: - Brasil Pharma s service and sales method - Advanced qualification in product technique ASSISTANT MANAGER Average time in function = 6 months Courses attended: - Training for multipliers - Training for leadership MULTIPLIER Average time in function = 6 months Courses attended: - Development of multipliers - Process management MANAGER Average time in function = 2 years Courses attended: - Leadership development - Training for supervisors STORE SUPERVISOR Average time in function = 5 years Courses attended: - Development of supervisors - Training for executives

35 Always in alignment with the organization s objectives, our programs begin with a diagnosis based on competency gaps that requires reinforcement. Our model considers competencies as combinations of knowledge, skills, and attitudes expressed in a professional s performance that add value to the people and the organization. Our programs are brought together in Vendo+ and structured around four development axes: Corporate, Functional, Potential, and Development. Development Corporate Development of key competencies aligned with our values and strategy, enhancing knowledge and organizational culture. Functional Development of technical and behavioral competencies in functional areas. Potential Development of employees' potential, preparing them for complexity and/or strategic tasks. Development Provide personnel and professional complementary development. 35

36 Learn more about some of our Training and Development initiatives included in the Development Axes: Integration Events Each year, we hold our integration event to remind our team members about the strength of the union and to reinforce the idea that we are big at the regional level, but gigantic at the national level. In 2012, we brought together more than 200 employees for an immersion course on integration and dynamics, with lectures and debates about the company s direction for the next year. The course spanned three days and contained a healthy mixture of knowledge, determination, and results. We believe that a differential for our consistency in the delivery of better results lies in the precise alignment of targets and objectives. At Brasil Pharma, everyone knows that together we can do more because We re Brasil Pharma. Sales Marathon 36 The Brasil Pharma Sales Marathon is an internal campaign that has already become a symbol of our dreams, our mission, and our people. This comes as no surprise to us because it is in line with our main objective of becoming the first option for our clients, suppliers, and employees, and generating more profitability for our shareholders. The Marathon stimulates increased sales of certain products, mainly from the personal hygiene and beauty lines of suppliers who purchase quotas in the program. In reality, for the sales team, it means that the larger the supplier s quota for a determined product, the greater the weight in terms of the score in the sales competition, and, consequently, the greater the prize.

37 During a period of four months, the participants - sales people, store managers, pharmacists, regional managers, supervisors, and multipliers - make an effort to win cash prizes that help them achieve many of their dreams. At the end of each Marathon, in addition to the improved results on the part of the stores, we note a reinforcement of relationships with our suppliers, in addition to satisfied clients and employees who are increasingly motivated to sell and with that nice feeling that all their work and efforts were rewarded under the initiative s merit-based approach. Development of Regional Leadership In each of our chains, our efforts in terms of the training and development of regional leadership have generated good results. Presently, the team consists of four regional operational managers (North/Northeast, South, Midwest, and Bahia) who make up a solid management group, with the experience and local practices that are necessary for the job. To complete the model, the regional leadership also counts on the support of the founding partners of each chain as consulting partners. Executive Development Program In June 2012, we held the first Executive Training with participation by professionals from all of Brazil s regions. Based on content aimed at the management of people and processes, this event was conceived to help develop our future leaders and also to integrate our processes and spread the new culture of people and management. In 2012, 11 of the 20 participants in the program were promoted and thus became engaged in new challenges within the Company. Graduation of the first Executive Development Program Guarujá (SP) I m a new professional, with a box of tools and a pair of magic glasses to see the environment better. Ronaldo Machado Sales Manager Mais Econômica 37

38 In addition to being very knowledgeable, the leader should have good relationships, an understanding of the business, be objective and straightforward in, and focus management efforts on the achievement of targets. Gabriel Guioto People and Management Officer Development of the Multipliers Program One of the main actions implemented by Vendo+ is the development of the Multipliers Program. This initiative began in 2012 with the purpose of training salespeople and assistant managers to become instructors, spreading knowledge about customer service and sales methods to the rest of the team at the stores, in line with Brasil Pharma s standards. Inspired by an experiment adopted by the Rosário chain, the program is based on correcting potential deviations or productivity problems identified within each sales team. With 160 hours of theoretical training and 440 hours of practical development, it offers our employees the professional development necessary to increase individual and collective productivity. The results speak for themselves. In its very first year, the initiative generated positive results for 60 professionals from the Mais Econômica, Rosário, and Sant Ana sales teams, who increased their productivity by roughly 40% following the training. Encouraged by this success, we will extend this action to all chains over the next few months. 38

39 Stories of success and growth in the words of employees When did you start your story at Brasil Pharma? I was hired by GRD in 2007 as an office boy. Then, I became a cashier, then an administrative assistant and a sales assistant before I made it to the position of assistant manager. After less than two months in this position, I was invited to take part in the selection process to become a multiplier. Did you stop there? Of course not. We can t get too comfortable, especially with the opportunities that Brasil Pharma gives us. I did four immersion courses and, after I became a multiplier, I worked for nine months in the position and took a test for the position of manager of a medium-sized store. After a month on the job, I was transferred to a larger store, where I stayed for eight months until I took part in the selection process to become a supervisor and I became a Sales Supervisor at Rosario. Adriano Rone Martins Pessoa Regional Managert Sant Ana Bahia And how did you end up in Bahia? An opportunity arose for me to become a regional manager with Farmácias Sant Ana and I decided to go for the challenge. So, here I am now, a regional manager, in charge of 56 stores, four supervisors, and roughly a thousand employees. When did you first start at Sant Ana? I started in July 2004 as a security guard. Then, I became a cashier, then a sales assistant and after eight years, I did the multiplier course and then became a manager. What has Brasil Pharma done for you? Nowadays, I ve got a house, I ve raised my 17-year old daughter and paid for her studies. I ve achieved professional and financial goals and I ve learned that the client must always be our priority. For example, I myself don t provide customer service, I enchant. What have you noticed in terms of changes as a result of the integration of the chains? There are additional new opportunities for qualification and recognition and we ve always got the chance to grow. It just depends on our potential, because we are recognized and we can go all the way to the Executive Board. Antônio Rogério da Silva Alves Store Manager Sant Ana Bahia 39

40 7. Social and Environmental Programs Our dream of being the first option also brings great responsibilities. We are fully aware of the vital role that we play in the national economy, just as we recognize the importance of our attitudes towards our employees, our clients, our suppliers, civil society, and the environment. Thus, we seek to carry out actions that benefit all stakeholders with whom we interact in our areas of operation. On this front, 2012 was a remarkable year for us, with a number of initiatives related to sustainability. We undertook many things, from activities connected with the environment and communities, to internal transparency practices and a new code of conduct for our employees. Also, our concern for the well-being of Brazilians is reflected in the care we take in relation to the well-being of the planet. Find out about some of our projects: 7.1 Environmental Projects Low Carbon Program The Farmais Low Carbon Program is a pioneering practice in the franchising sector, conceived by the Sustainable Franchises Association (Afras) to encourage franchises to adopt sustainable practices in their operations, helping to preserve the environment by means of carbon offsets. At Farmais, we drew up a pilot project with help from Afras, Fábrica Éthica (Ethical Plant), and the Instituto Socioambiental (ISA; Social and Environmental Institute), and brought together four of the chain s franchises in the states of São Paulo, Minas Gerais, and Rio Grande do Sul. Each franchise measured its greenhouse gas emissions resulting from energy consumption, fuel, air travel, and solid and organic waste produced in the operational areas. In this way, an estimate was made of the number of trees that should be planted to offset these effects in accordance with the Fábrica Éthica consulting firm s methodology and the Green House Gases (GHG) Protocol. 40 At present, farmers are planting seedlings in the Xingu Basin region, between the states of Mato Grosso and Pará, in partnership with the region s Indians, who are compensated for collecting the seeds. The farmers, in turn, are doing their part by preserving riparian vegetation and local rivers. At the end of the program, each participating franchise receives a Green Store plaque. In 2013, during the second stage of the project, our franchisees will adopt actions to reduce emissions of these gases and we will encourage more franchisees to join the program. The aim is simple: to plant fewer trees as our operations become more sustainable. The offsetting is conducted annually, as is the awarding of the plaques.

41 41

42 7.2 Social Projects Social Small Change - Rosário Drogaria Rosário is aware of the importance of its contributions to the development of communities in which it operates and to the improvement of the quality of life of the inhabitants of Brasília (Federal District). Social Small Change is a project carried out in partnership with the Brazilian Association for Assistance for Families with Children who have Cancer and Blood Diseases (Abrace) and the CDL Foundation, and gives our clients the opportunity to donate the change they receive when they make purchases at our stores to charitable organizations. Abrace, for example, uses the money raised for activities for children with cancer, and the CDL Foundation invests in support for institutions that care for people in need R$ 218, R$ 315, For more information, see: Grandma s Tea Mais Econômica To raise awareness, Grandma s Tea is an activity aimed at the elderly audience, developed in the communities in which we operate in southern Brazil. Held once per month, Grandma s Tea offers an entire afternoon of fun and lectures for those who take part. Among the themes are explanations about the government program Farmácia Popular, the use of generic drugs, and products aimed at the elderly. Gym, dance, and drama classes complete the fun, which benefits the roughly 300 people who participate in each program. 42 Big Happy Day Big Ben In October, the Month of Children, our employees provide a day of merriment with playful activities and the distribution of toys to in-patients at three children s health institutions in the State of Pará. In 2012, this action benefited 300 children with serious health problems.

43 8. Stock Market 2012 was an important year for BPHA3. We made our second public offering and distribution of shares and we observed a marked increase in the stock s liquidity. IPO (06/24/2011) R$ million raised 24 million shares issued Price R$ 17.25/share (R$ 8.63 after the share split) Follow-on (06/21/2012) R$ million raised 52.8 million new shares issued Price R$ 9.25/share R$ R$ 9.50 R$ 8.62 R$ 7.98 Jun-2011 Jul-2011 Aug-2011 Sep-2011 Oct-2011 Nov-2011 Dec-2011 Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 Jun-2012 Jul-2012 Aug-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Share Split (12/23/2011) 159,699,158 shares issued after the share split End of the minimum lot (12/26/2012) End of the minimum lot of 10,000 shares. BPHA3 begins to be traded using the BM&FBovespa s standard lot (100 shares, with the odd-lot market being allowed) 69.5% appreciation for BPHA3 Market Cap 7.4% appreciation in the Ibovespa During the year, the stock also produced a solid return for our shareholders. We ended 2012 with a share price of R$ and a market cap of R$ 3.7 billion. The average daily trading volume during the 12 months was R$ 5.4 million, which rose to an average of R$ 14.0 million during the two months following the end of the minimum lot. R$ 1.4 bi R$ 3.7 bi

44 9. Operational Performance The year of 2012 was another year of growth and consolidation for the Company, due to the positive result of both the performance of the industry and our focus on execution. We ended the year with accelerated growth, with sales pushed by sound double digit organic growth and SSS (same store sales), thus meeting our revenue target set for By the end of December, we had 1,096 points of sale, of which 708 owned stores and 388 franchises. During the year, we completed the opening of 96 owned stores, number slightly below our target of 100 openings estimated for the period. As a result, we expanded our operations in all regions of Brazil, particularly in the North/Northeast, where 34 stores were opened, and in the Midwest, with 28 openings. We remain focusing our efforts on creating a solid Brazilian company, in the path towards our dream of becoming the country s best drugstore chain. In order to do so, we believe we are the first choice of our clients, suppliers, employees and talents, delivering consistent results and generating value to shareholders. We once again thank everyone for the confidence placed on us. Summary of Results (R$ 000) Var(%) Gross Revenues 2,558,435 3,094, % Gross Profit 801, , % % Gross Margin 31.3% 30.6% Ajusted EBITDA¹ 155, , % % Adjusted EBITDA Margin 6.1% 6.2% Adjusted Net Profit² 92,217 70, % % Adjusted Net Margin 3.6% 2.3% 44 Operating Indicators Number of employees 8,662 16,629 Average Ticket (R$) SSS (mature stores) 6.6% 8.2% SSS (total) 9.8% 14.1% Number of stores 737 1,096 Owned stores Franchises Owned Store growth Openings Closings Acquisitions Note: Proforma figures, assuming all of our drugstore chains integrated Brasil Pharma group since Excludes non-recurring expenses, results from equity accounting and profit sharing. 2 - Excludes non-recurring expenses, intangible assets (commercial establishments) amortization, brand amortization and income tax effect on non-recurring expenses.

45 Gross Revenues (In millions of Reais) Gross Profit and Gross Margin (In millions of Reais % of gross revenues) 30.1% 32.2% 31.4% 31.5% 30.2% 30.1% 30.7% 31.5% 31.3% 30.6% 3, , Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q Adjusted EBITDA¹ and adjusted EBITDA margin (In millions of Reais % of gross revenues) Adjusted Net Profit² and Adjusted Net Margin (In millions of Reais % of gross revenues) 4.6% 6.9% 6.5% 6.1% 5.3% 6.2% 6.5% 6.6% 6.1% 6.2% 2.1% 4.6% 3.6% 4.0% 1.4% 3.2% 3.3% 1.0% 3.6% 2.3% Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q Note: Proforma figures, assuming all of our drugstore chains integrated Brasil Pharma group since Excludes non-recurring expenses, results from equity accounting and profit sharing. 2 - Excludes non-recurring expenses, intangible assets (commercial establishments) amortization, brand amortization and income tax effect on non-recurring expenses. 45

46 10. Closing Message from Management Everything that we have built and achieved over the course of 2012 suggests a positive, healthy outlook. The path is full of challenges that will, no doubt, require ever-greater efforts and dedication on the part of our people, but nevertheless looks extremely encouraging for the next few years. Analyzing the industry s situation, our future agenda, and our employees spirit and level of preparation, we can see a number of opportunities for growth, whether of an organic nature or by acquisition. For these reasons, we continue to hold firm to our dream of being the best drugstore chain in Brazil. At the points of sale, where consumers can see the difference, we believe that the local adjustment of our product mix to regional characteristics and the credibility of our brands with our customers will continue to provide us with a marked competitive advantage to seize market opportunities that arise. Because we boast pioneering brands in the regions where we operate with many of them keeping pace with the growth of the cities in which they are located we are sure that we will always have local answers to national problems. This pioneering approach will continue to ensure that we have the best locations for our points of sale and unique knowledge of regional specifics and local trends, in addition to an in-depth understanding of different client profiles. In our industry, each market has a differentiated product mix, along with its own seasonal characteristics and price dynamics. For many years, we have been monitoring the nuances of each of these markets to offer our clients the most complete variety of cost-effective products, at the right time. We will continue to operate in this manner. Regarding consumption, because our company was created for the purpose of taking care of the health and well-being of our clients, we hold firm to our conviction that it is also necessary to take care of the planet on which we live. In 2013, we are continuing practices that were adopted over the course of 2012 and will continue to take new and important initiatives in terms of social and environmental responsibility. 46

47 Regarding what goes on behind the scenes of our operations, it is worth remembering that because we were heavily focused on integrating our operations in the SSC, in 2012 we opted to keep higher levels of inventories to prevent omissions in our level of service and to retain the loyalty of our regional customers. At our Distribution Centers and stores, we have programmed the major task of optimizing SKUs, unifying the supply of certain products to our regional operations. We are also investing a great deal of time and resources in developing technology and systems that will give us a long-term competitive advantage in the retail sector. To round things out, in 2013 the implementation of SAP should produce important future gains in terms of efficiency in managing our inventory levels. To support this agenda, we will further increase our investments in the training of our talented people. We believe that good people attract good people, and, with this in mind, we will also have a team that is more engaged and better prepared for the challenges that we are going to face. Our merit-based approach will also continue to dictate the rules in terms of our recognition actions, so that our employees are always looking at a broad horizon of professional growth will be the year in which our new brand will fully invade the streets and our stores and become our customers friend. This means that our regional brands will continue to have all of the strength and credibility that they already display, but that they will be accompanied by the endorsement of a nationwide brand that the whole of Brazil already knows and trusts. These efforts, which involve the entire Company, will have a unified final result: a unique standard of excellence in customer service and consumer experience for all of our clients throughout the whole of Brazil. The Brasil Pharma standard, the first option for customers, suppliers, employees, and investors of the country s best drugstore chain. 47

48 Credits This Annual Report was developed by Brasil Pharma. Areas involved: Investor Relations and People & Management. Graphic Project and Layout LOWBUDGET Send us your comments Your opinion on this Annual Report is very important for us. Please send your comments to