The
much-publicised WTO Agreement to which Bangladesh is a signatory
becomes effective from January 2005. While this Agreement is
designed to boost global trade, the immediate impact on the
pharmaceutical and animal health industries in Bangladesh is likely
to be an increase in competition from imports rather than the
opening up of export markets. This asymmetry in trading
opportunities arises from the fact that most pharmaceutical and
animal health companies in this country must upgrade their
manufacturing facilities as a prerequisite to entering the more
lucrative yet regulated markets of the world.
Nevertheless, we have little choice but to operate on two fronts: We
must compete effectively against imports by building up brand
strength, and at the same time make preparations to extend our
business to the vast global market. In 2003, marketing expenditure
at Renata was increased by 43% specifically with the objective of
strengthening our brands. In this regard, I am pleased to note that
several Renata brands rocketed to market leadership position in
their respective product categories.
Also in 2003 there was considerable progress in the planning and
budgeting for upgrading existing manufacturing facilities and
establishing new plants. We will set up at least two world-class
pharmaceutical plants by the end of 2005. The Mirpur plant is also
expected to undergo substantial BMRE during the same time period.
Strong internal fund generation coupled with bank support implies
that financing of these projects shall take place without
difficulty.
We
increased our stake in BRAC-Renata Agro Industries Limited from 49%
to 99.99% at a cost of Taka 40 million. This poultry integration
consisting of a breeder operation, feed mill, and broiler
contract-growing is now a subsidiary of Renata Limited. From 2004,
this subsidiary will be known as Renata Agro Industries Limited.
I
now turn to the performance and outlook for each of our businesses:
ANIMAL HEALTH:
Although Renata continues to be the market leader in Animal Health,
our business performance did not match expectations in 2003. There
are two reasons for this debacle: First, the poultry industry
remained extremely turbulent for 10 months. During this time,
farmers economised on costs --- especially performance-enhancing
products. Second, many of our competitors offered massive discounts
and credit facilities to customers. In our experience, such
selling-practices increase sales at the expense of profit. We
therefore opted to protect profits rather than increase sales
through short-term and non-sustainable measures. However, because of
this position we sacrificed sales to large extent. Thus while the
market growth was 13%, our sales grew by only 10%.
We
signed a distributorship agreement with Evans Vanodine International
of the UK. This company specialises in formulating disinfectants for
animal farms. These products are expected to be available from the
second-half of 2004.
The
market-trend is likely to be very similar in 2004 in terms of growth
and selling practices. Our position on protecting profits will
remain unchanged --- even if it involves sacrificing the coveted No.
1 status.
PHARMACEUTICAL:
Your Company did very well in the pharmaceutical business. While the
market grew by only 6%, our domestic sales expanded by 22%. We were
among the fastest growing companies in the industry last year.
Importantly, almost all of that growth came from high-quality
prescription-backed sales.
Renata introduced 9 new products (in 28 formulations) in the market.
Of these introductions, 4 products moved to either market leadership
or no. 2 position within the first few months.
The
Trade Related Intellectual Property Rights (TRIPS) Agreement will be
activated for all countries except Least Development Countries
(LDCs) from January 1, 2005. Being in the LDC category, Bangladesh
is not obligated to enforce the terms of TRIPS before 2016. However,
TRIPS will restrict the portfolios of our raw material suppliers
elsewhere in the world. In effect, molecules on which the first
filing of patent has taken place in 1995 or later cannot be produced
without licensing from the inventor. Thus for these molecules,
companies in LDC countries will either have to enter into a
licensing arrangement with the inventor, or develop the know-how for
that specific chemical synthesis.
While TRIPS will have a minimal effect on our existing portfolio,
the Agreement could slowdown new product introduction in the coming
years. Hence, planning for TRIPS must start now. Accordingly from
2004, we will focus our attention to developing or obtaining the
technology for synthesising molecules affected by this Agreement.
CONTRACT-MANUFACTURING:
We
renewed agreements with BRAC and SMC for producing Oral Rehydration
Salt formulations. In 2003, “Fruity Saline” of SMC was added to the
contract-manufacturing portfolio. Contract-manufacturing has become
an important business for Renata. In 2003 this business contributed
Taka 14 million to net profit.
I
am pleased to note that the contract-manufacturing business is
diversifying. Based on agreement concluded in 2003, Renata will
manufacture sterile cephalosporin products on behalf of Eskayef
Limited --- a well-known pharmaceutical company in Bangladesh. This
arrangement shall come into force from the second quarter of 2004.
Concluding Remarks: Assuming that the political climate remains
relatively stable, we expect 2004 to be another good year for the
Company. Growth in turnover and net profit is expected to be of
similar magnitude to those of seen in 2003.
S.
H. Kabir
Chairman
May
30, 2004
