OREANDA-NEWS. On 08 May 2009 JSC Pharmstandard (LSE: PHST LI, RTS: PHST RU) published its audited 2008 financial results and sales results for 1Q 2009. Gross profit for the year ended 31 December 2008 amounted to RUR 8,758 million (2007: RUR 6,852 million) representing 28% increase. Sales in 1Q 2009 increased by 38%.

2008 audited Financial Results

Key Highlights

·         Revenue growth +26%; total revenue RUR 14,336 million

·         Gross profit growth +28%; gross profit RUR 8,759 million or 61% of sales

·         EBITDA[1] growth +24%; EBIDTA RUR 6,049 million or 42% of sales

·         Net profit growth + 7%; net profit RUR 3,503 million or 24% of sales

Revenue

The total revenue in 2008 amounted to RUR 14,335.9 million, which is by 26% more than in 2007 (RUR 11,371.3 million). The sales of pharmaceutical products amount 92.5% of total sales while the sales of medical equipment account for the remaining 7.5%.

Pharmaceutical Products

Revenue from pharmaceutical products was RUR 13,260 million, compared to RUR 9,763 million in the prior year’s period, an increase of RUR 3,498 million or 36%.

The sales of OTC products grew by RUR 2,033.5 million or by 24% – from RUR 8,519.9 million in 2007 to RUR 10,553.4 million in 2008. This increase was achieved largely due to implementation of an active promotion strategy.  The main contribution can be attributed to the following products: Arbidol®, Terpincod®, Pentalgin® and Codelac®. The sales of Afobazol® over the 5 months of 2008 (the trademark, was acquired by Pharmstandard in 2008) achieved an impressive result of RUR 217.5 million.

The sales of prescription products (Rx) increased by RUR 1,449.4 million or by 122% – from RUR 1,188.2 million in 2007 to RUR 2,637.6 million in 2008. This increase was largely achieved due to the sales of Mildronate® (2008: RUR 1149 million). The organic sales growth in the Rx products segment (excluding Mildronate®) was equal to RUR 300.3 million or 25.2%. The organic growth of Rx products sales volume was materially influenced by the sales of Phosphogliv®, Cyclodol® and Biosulin®.

Medical Equipment & Disposables

In 2008, the sales of medical equipment and disposables dropped by RUR 553.0 million or by 33% and amounted to RUR 1,075.6 million against RUR 1,608.7 million in 2007. This decrease, however, cannot be interpreted as critical, since the high sales figures of 2007 were achieved mainly due to the fact that the Company was awarded a major government contract for sterilizers from the Directorate of the Federal Agency for the RF State Reserves. No similar tenders were held in 2008. Therefore, the analysis of the medical equipment segment trend over the period of 2007-2008 excluding the figures related to the above tender shows that the absolute decrease in the sales of medical equipment was equal to RUR 79.1 million or 7%.

This trend is mainly a result of the global recession, which lessened effective demand for high-priced equipment.

Cost of Sales

In 2008, the cost of goods sold by the Company increased by RUR 1,057.8 million or by 23% as compared to 2007 and amounted to RUR 5,577.5 million against RUR 4,519.7 million in 2007. In 2008, percentage of cost of sales in relation to total sales dropped to 38.9% against 39.7% in 2007 due to a considerable reduction of production overheads (by 10% or by RUR 80.6 million) achieved through the transfer of Masterlek products manufacturing to Pharmstandard own production facilities.

Gross Profit

The Company recorded a RUR 1,906.8 million or a 28% gross profit growth – from RUR 6,851.6 million in 2007 to RUR 8,758.4 million in 2008. Gross profit, as a percentage of revenue, achieved 61% comparing to 60% in 2007.

The main gross profit growth factors include (i) synergy effect achieved from the transfer of Arbidol®, Flukostat® and Phosphogliv® production to Pharmstandard own production facilities; and (ii) increased sales of highly cost-effective products.

Operating Expenses

Operating expenses increased by RUR 926.5 million or by 42% – from RUR 2,196.6 million in 2007 to RUR 3,123.1 million in 2008. The operating expenses to sales ratio increased from 19.3% in 2007 to 21.8% in 2008.

In 2008, operating expenses related to Sales and Distribution (S&D) increased by RUR 840.8 million (52%) and amounted to RUR 2,466.8 million against RUR 1,626.0 million in 2007, i.e. comprised 17.2% and 14.3%  of total sales, respectively. This relative increase occurred due to the allowances for impairment of receivables of one of the Company’s distributors CJSC Genesis in the amount of RUR 476.1 million in connection with the initiation of a bankruptcy procedure against that distributor.

In 2008, General and Administrative expenses (G&A) increased by RUR 85.7 million or by 15% and amounted to RUR 656.2 million against RUR 570.5 million in 2007. Labour costs are the major item of general and administrative expenses (61.4% of G&A).  As a percentage of sales, G&A expenses slightly decrease to 4.6% from 5.0%.

EBITDA

EBITDA increased RUR 1,167 million or 24% to RUR 6,049 million in 2008 from RUR 4,882 million in 2007.  EBITDA margin equals 42,3% which is  in small decrease  in comparison with EBITDA margin 42,9% in 2007.

Other Expenses, net and Interest Expenses, net

Other expenses in 2008 amounted to RUR 715.2 million or 5% of the total sales. Foreign exchange loss equal to RUR 524.8 million was the most significant item (3.7% of the total sales). The loss was caused by a considerable increase in the US dollar-rouble exchange rate in the fourth quarter 2008, resulting from the global financial crisis. An additional component of the other expenses item in 2008 was impairment of Afobazol® trademark amounting to RUR 140.5 million as of 31 December 2008. This impairment mainly resulted from increase of the discount rate applied in the trade mark valuation model from 13% to 18.1% for the first 10 years of the trademark’s useful economic life and declining thereafter. This increase in discount rate was a direct result of the current global financial crisis.

At the same time, this item shows the positive balance resulting from reimbursement of RUR 107.2 million promotional expenses primarily related to the Mildronate® Project.

In 2008, our interest expenses, net dropped by RUR 59 million or by 20% – from RUК 291.6  miion in 2007 to RUR 232.6 million in 2008 – due to the scheduled repayment of debts under the syndicated loan contract signed with the Citibank in December 2006. The contract stipulates full repayment of the debt in 2011.

Net Profit

In 2008, the Company’s net profit increased by RUR 239.9 million or by 7% and amounted to RUR 3,503.1 million against RUR 3,263.2 million in 2007, i.e. 24.4% and 28.7% to total sales, respectively. Net profit attributable to equity holders of the parent was RUR 3,504.0 million. Net loss attributable to minority shareholders was RUR 0.9 million.