Moscow, Russia - October 9, 2003 – Pharmacy Chain 36.6 OJSC today announced its financial results for the six months ended June 30, 2003.
The first half of the year saw strong sales growth of 28.1% for the group to US$68.4 million compared to US$53.4 million in the first six months of 2002. Gross profit increased by 28.2% to US$26.4 million in the first six months of 2003 compared to US$20.6 million in the corresponding period in 2002, and gross margin remained steady at 38.6%. Consolidated EBITDA was US$4.8 million.
Operating income fell to US$3.1 million in the first half of 2003 compared to US$5.7 million in the first half of 2002, and the company experienced a net loss of US$944,000 compared to net income of US$2.2 million in the first six months of 2002. This was primarily due to costs related to the company’s rapid expansion of its retail chain and increased personnel costs as well as pricing pressures due to increased competition in the retail sector. In addition, International Accounting Standard (IAS) 29, which used to classify Russia as a hyperinflationary economy up to 2002, caused a non-recurrent US$1.7 million net monetary gain in the first six months of 2002.
Commenting on the financial results, Artem Bektemirov, Chief Executive Officer of Pharmacy Chain 36.6, said: “We are satisfied with sales growth in our core businesses of 28.1%. We expect the majority of pharmacies, scheduled to open this year, will be launched in the second half of 2003, which has increased start-up costs and SG&A expenses but will not yield immediate profit or contribute to this year’s revenue. By the end of September 2003, we launched 15 branded pharmacies, with a further 10 to be opened before the end of this year, which will increase the total number of the stores by approximately 50% compared to 2002. In the first half of 2003, we also witnessed an increase in competitive pricing, affecting all retailers in the marketplace. In addition, we have incurred extra commercial and management costs, developing and implementing programmes, aimed at increasing the company’s profitability in the future.”
In the company’s Pharmacies 36.6 retail business, sales increased 31.5% to US$35.6 million in the first six months of 2003 compared to US$27.1 million in the corresponding period of 2002. Gross profit grew 35.5% to US$11.2 million compared to US$9 million in the first half of 2002. Gross margins were average for the industry at 31.3%.
Average sales per square metre in the retail business amounted to US$3,592, an 18% increase on the average of 2002. The average purchase in ‘36.6’ branded pharmacies increased 6% compared to the average purchase of 2002.
Over the first six months of 2003 the company implemented a new incentive system in the retail business, which has reduced personnel turnover dapproximately by 50%. At the same time, the introduction of the new system coupled with wage inflation led to higher personnel costs during this period. Furthermore, increased labour costs in the regions also pushed up personnel expenditures in the manufacturing sector.
At Veropharm, the company’s manufacturing arm, sales increased 17.5% during the first six months of 2003 to US$22.8 million compared to US$19.4 million in the corresponding period of 2002. Gross profit increased 31% from US$9.9 million to US$13 million, while a pro-active promotional and advertising campaign contributed to gross margins reaching 56.8%, compared to 51% a year earlier, increasing marketing costs at the same time.
In April 2003, Veropharm received a Good Manufacturing Practice (GMP) quality assurance certificate from the World Health Organization (WHO), which enables Veropharm to supply its products through WHO channels.
Sergey Krivosheev, Chairman of the Board of Pharmacy Chain 36.6, said: “We remain committed to our long-term strategy of becoming Russia’s truly nationwide pharmacy chain. Over the past six months we have demonstrated significant sales growth. We have also launched our Moscow regional network with the opening of the first branded 36.6 pharmacy in August 2003. Our new high caliber management are taking all the necessary steps to ensure a return to profitability. We have also initiated the founding of the Russian Association of Pharmacy Chains in August 2003, which will give a new impetus to the retail healthcare sector country-wide and will serve as a strong platform in our combat against counterfeit medicines and will raise overall transparency.”
For further enquiries contact:
Pharmacy Chain 36.6
Anna Ionova,
Corporate Secretary
Tel: +7 095 792 5207
Email: ionova@oao366.ru
Shared Value Ltd Marina Kagan,
Partner
Tel: +44 207 321 5019 Mobile: +44 7775 99 2437 Email: mkagan@sharedvalue.net
1 half 2003 Key Financial Data
Consolidated (OAO “Pharmacy chain 36.6” and subsidiaries)
(Dollar amounts in thousands) |
6 m 2003 |
2002 |
6 m 2002* |
2001 |
Change (1h 2003 – 1h 2002) |
|
|
|
|
|
|
Sales |
68,379 |
118,724 |
53,377 |
105,003 |
28.1% |
Gross profit |
26,392 |
45,998 |
20,580 |
39,074 |
28.2% |
Gross margin, % |
38.6% |
38.7% |
38.6% |
37.2% |
|
Selling, general and administration expenses |
(23,026) |
(35,422) |
(14,611) |
(30,946) |
57.6% |
Research and Development expenses |
(296) |
(463) |
(308) |
(495) |
(3.9%) |
EBITDA |
4,832 |
16,426 |
9,357 |
11,813** |
(48.4%) |
Operating income |
3,069 |
10,113 |
5,661 |
7,633 |
(45.8%) |
Income tax expense |
(666) |
(2,210) |
(1,041) |
(2,476) |
36.0% |
Net income before extraordinary items |
(944) |
3,280 |
2,185 |
2,034 |
(143.2%) |
Gain on debt restructuring |
|
|
|
18,160 |
|
Net Income |
(944) |
3,280 |
2,185 |
20,194 |
|
|
|
|
|
|
|
Net Cash Flow from Operations |
|
3,603 |
|
(1,384) |
|
*Financial statements for six months 2002 are shown in line with the Company’s disclosure for the six months ended June 30, 2002
**Without extraordinary items in 2001
Retail Segment
(Dollar amounts in thousands) |
6 m 2003 |
2002 |
6 m 2002 |
2001 |
Change |
|
|
|
|
|
|
Sales |
35,634 |
58,836 |
27,095 |
49,094 |
31.5% |
Gross profit |
11,150 |
19,180 |
9,020 |
14,832 |
35.5% |
Gross margin, % |
31.3% |
32.6% |
33.3% |
30.2% |
|
Selling, general and administration expenses |
(11,794) |
(18,136) |
(7,914) |
(15,555) |
49.0% |
EBITDA |
202 |
3,305 |
2,366 |
893* |
(91.5%) |
EBITDA % |
0.5% |
5.6% |
8.7% |
1.8% |
|
Operating income |
(644) |
1,044 |
1,106 |
(722) |
|
Pharmaceutical Manufacturing Segment
(Dollar amounts in thousands) |
6 m 2003 |
2002 |
6 m 2002 |
2001 |
Change |
|
|
|
|
|
|
Sales |
22,842 |
43,874 |
19,434 |
41,724 |
17.5% |
Gross profit |
12,981 |
23,404 |
9,910 |
20,946 |
31.0% |
Gross margin, % |
56.8% |
53.3% |
51.0% |
50.2% |
|
Selling, general and administration expenses |
(8,043) |
(13,039) |
(4,981) |
(11,742) |
61.5% |
Research and Development expenses |
(296) |
(463) |
(308) |
(495) |
(3.9%) |
EBITDA |
5,916 |
13,516 |
6,566 |
9,109 |
(9.9%) |
EBITDA % |
25.9% |
30.8% |
33.8% |
21.8% |
|
Operating income |
4,642 |
9,901 |
4,620 |
8,709 |
0.5% |
PHARMACY CHAIN 36.6 OJSC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 6 MONTHS ENDED JUNE 30, 2003
(in US Dollars and in thousands)
|
6 months ended June 30, 2003 |
|
Year ended December 31, 2002 |
6 months ended June 30, 2002 |
|
(Unaudited) |
|
(Audited) |
|
|
|
|
|
|
NET SALES |
68,379 |
|
118,724 |
53,377 |
COST OF SALES |
(41,987) |
|
(72,726) |
(32,797) |
GROSS PROFIT |
26,392 |
|
45,998 |
20,580 |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
(23,026) |
|
(35,422) |
(14,611) |
RESEARCH AND DEVELOPMENT EXPENSES |
(296) |
|
(463) |
(308) |
OPERATING INCOME |
3,069 |
|
10,113 |
5,661 |
NON-OPERATING INCOME (EXPENSES): |
|
|
|
|
Interest expense |
(2,890) |
|
(6,166) |
(3,291) |
Net gain on monetary position |
|
|
|
1,673 |
Other non-operating expenses,net |
(692) |
|
2,395 |
(44) |
Foreign currency exchange loss |
212 |
|
(1,257) |
(606) |
Gain on debt restructuring |
- |
|
|
- |
INCOME BEFORE MINORITY INTERESTS AND INCOME TAX EXPENSE |
(301) |
|
5,085 |
3,393 |
Income tax expense |
(666) |
|
(2,210) |
(1,041) |
INCOME BEFORE MINORITY INTERESTS |
(967) |
|
2,875 |
2,352 |
Minority interests |
23 |
|
405 |
(167) |
|
|
|
|
|
NET INCOME |
(944) |
|
3,280 |
2,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PHARMACY CHAIN 36.6 OJSC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AT JUNE 30, 2003
(in US Dollars and in thousands)
|
June 30,
2003
(Unaudited) |
|
December 31, 2002
(Audited) |
|
June 30, 2002
(Audited) |
ASSETS |
|
|
|
|
|
NON-CURRENT ASSETS: |
|
|
|
|
|
Intangible assets, net |
11,054 |
|
10,841 |
|
10,659 |
Property, plant & equipment, net |
38,794 |
|
33,595 |
|
31,979 |
Other long-term assets |
2,876 |
|
856 |
|
800 |
|
|
|
|
|
|
Total non-current assets |
52,724 |
|
45,292 |
|
43,438 |
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
Inventories |
17,469 |
|
17,378 |
|
14,600 |
Accounts receivable (net of bad debt provisions) |
11,584 |
|
11,625 |
|
8,165 |
Other receivables and prepaid expenses |
9,187 |
|
9,087 |
|
6,024 |
Available-for-sale investments |
|
|
|
|
71 |
Cash & cash equivalents |
2,205 |
|
1,315 |
|
1,680 |
Total current assets |
40,445 |
|
39,405 |
|
30,540 |
|
|
|
|
|
|
TOTAL ASSETS |
93,170 |
|
84,697 |
|
73,978 |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY: |
|
|
|
|
|
Share capital |
13,193 |
|
159 |
|
1,015 |
Additional paid-in capital |
2,078 |
|
2,308 |
|
2,253 |
Other reserves |
(923) |
|
(325) |
|
(172) |
Retained earnings |
23,088 |
|
22,603 |
|
19,739 |
Total shareholders’ equity |
37,436 |
|
24,745 |
|
22,835 |
|
|
|
|
|
|
MINORITY INTERESTS |
2,241 |
|
2,119 |
|
2,583 |
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
Long-term debt |
13,520 |
|
13,325 |
|
9,317 |
Deferred income tax payable |
4,108 |
|
4,115 |
|
4,434 |
Total long-term liabilities |
17,629 |
|
17,440 |
|
13,751 |
|
57,306 |
|
44,304 |
|
39,169 |
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
Accounts payable |
10,849 |
|
10,929 |
|
10,053 |
Other payables and accrued expenses |
5,288 |
|
6,458 |
|
4,484 |
Current portion of long-term debt |
19,727 |
|
23,006 |
|
20,272 |
Total current liabilities |
35,864 |
|
40,393 |
|
34,809 |
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
93,170 |
|
84,697 |
|
73,978 |
|
|
|
|
|
|
Some of the information contained in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of Pharmacy Chain 36.6 OJSC, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not intend to update these statements to conform them to actual results. We refer you to the documents Pharmacy Chain 36.6 OJSC files from time to time with the Russian Federal Securities Commission. These documents contain and identify important factors, including those contained in the section captioned “Risk Factors” in our Offering Circular, dated January 30, 2003, that could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, potential fluctuations in quarterly results, and risks associated with our competitive environment, acquisition strategy, ability to develop new products or maintain market share, brand and company image, operating in Russia, volatility of stock price, financial risk management, and future growth.
Notes to Editors:
Pharmacy Chain 36.6 OJSC is a leading healthcare and pharmaceutical, retail and manufacturing group in Russia. The business was founded in 1991.
The company’s core business includes a fast-growing chain of pharmacies. The company currently has 55 branded stores in Moscow and Moscow Region, 15 of which were opened in 2003.
The company’s manufacturing subsidiary, Veropharm, currently owns three manufacturing facilities and is one of the country’s largest and fastest-growing domestic pharmaceutical producers. It was Russia’s largest manufacturer of plasters and oncology medicines, and third largest producer of vitamins in 2002. In the first half of 2003, Veropharm’s share of the Russian pharmaceutical market increased to 6.6%, compared to 5.6% a year earlier, according to Pharmexpert data.
OJSC Pharmacy Chain 36.6 has over 5,000 employees.
The company’s 36.6 name refers to the optimal body temperature in Celsius. According to a 2002 Moscow Gallup Media Survey, the company’s 36.6 brand was ranked No.1 in terms of retail brand awareness out of all retail stores that have appeared in Moscow since the dissolution of the Soviet Union.
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