OREANDA-NEWS. September 28, 2009. OJSC Pharmacy Chain 36.6 [RTS:APTK; MICEX:RU14APTK1007] the leading Russian pharmaceutical retailer announces unaudited Q2 and 1H 2009 financial results prepared in accordance with the International Financial Reporting Standards (IFRS).

Group highlights of Q2 2009

§                     Retail unit EBITDA improved by 119.2% in ruble terms versus Q2 2008;

§                     Group revenue from ongoing operations1 decreased by 14.2% tо RUR 5 592.8 mln;

§                     Gross profit from ongoing operations1 increased by 4.7% to RUR 2 365.5 mln, 42.3% of consolidated revenues;

§                     Consolidated EBITDA from ongoing operations1 reached RUR 611.9 mln from RUR 220.8 mln in Q2 2008, a 177.1% improvement;

§                     Underlying Net loss from ongoing operations1 (excluding foreign exchange effect and disposal of discontinued operations) decreased from RUR 447.7 mln in Q2 2008 to RUR 155.5 mln in Q2 2009, a 65.3% improvement;

§                     The retail unit organically opened 6 and closed 54 stores in Q2 2009.

Group consolidated financial results

 

period ends

 

 

 

 

 

 

Q2, mln RUR

Q1, mln RUR

 

 

 

 

 

 

2009

2008

ch, %

2009

2008

ch, %

Revenue

5 592,8

6 635,42

-15,7%

11 456,8

13 379,82

-14,4%

Retail

4 045,1

5 149,1

-21,4%

8 837,6

10 731,6

-17,6%

Veropharm

1 387,2

1 229,8

12,8%

2 300,1

2 072,2

11,0%

other

160,5

256,5

-37,43%

319,1

576,0

-44,6%

Gross profit

2 365,5

2 305,12

2,6%

4 446,2

4 363,42

1,9%

Retail

1 326,9

1 337,5

-0,8%

2 777,4

2 747,4

1,1%

% of sales

32,8%

26,0%

 

31,4%

25,6%

 

Veropharm

992,1

876,5

13,2%

1 582,4

1 406,2

12,5%

% of sales

71,5%

71,3%

 

68,8%

67,9%

 

other

46,5

91,1

-49,03%

86,4

209,8

-58,8%

EBITDA

611,9

251,12

-143,7%

823,7

231,62

255,7%

Retail (inc. Corp. center)

45,3

-235,4

-119,2%

83,6

-506,0

-116,5%

% of sales

1,1%

-4,6%

 

0,9%

-4,7%

 

Veropharm

563,0

462,4

21,8%

759,1

684,5

10,9%

% of sales

40,6%

37,6%

 

33,0%

33,0%

 

other

3,6

24,1

-85,13%

-19,0

53,1

-135,8%

Net profit

46,7

393,62

-88,15%

-601,8

-194,72

209,1%

Retail (inc. Corp. center)

-424,24

72,54

-685,15%

-1 180,54

-689,04

71,3%

Veropharm

468,2

310,8

50,6%

598,8

464,3

29,0%

other

2,7

10,3

-73,83%

-20,1

30,0

-167,0%

 

Retail unit

Revenue

As compared to the relative period the year before, Q2 2009 sales of the retail unit decreased by 21.4% in ruble terms from RUR 5 149.1 mln to RUR 4 045.1 mln driven by the closure of non-performing stores, partial shortages of products as a result of working capital decline and a decline in customer traffic. The decrease of sales in Q2 2009 versus Q1 2009 by 15.6% is attributable primarily to store closings (on net basis 43 stores were closed in Q1 and 48 in Q2), seasonal factors and lower consumer demand.

In 1H 2009 sales of the retail unit decreased by 17.6% in ruble terms from RUR 10 731.6 mln to RUR 8 837.6 mln.

Like-for-like sales6 in Q2 2009 versus Q2 2008 decreased by 16% in ruble terms driven by partial stock outs and a decline in customer traffic. L-f-L average check in Q2 2009 compared with Q2 2008 increased by 13% in ruble terms; traffic decreased by 25%.

Gross margin

The retail operations posted a considerable gross margin increase from 26.0% in Q2 2008 to 32.8% in Q2 2009. This represented a 2.5 pp increase versus Q1 2009. This result was achieved by increased share of private label in overall gross sales (6.9% of sales in Q2 2009 versus 3.6% in Q2 2008), increased discounts from suppliers and improved pricing and category management.

 

RETAIL UNIT

 

 

 

 

 

 

Q2, mln RUR

1H, mln RUR

 

 

 

 

 

 

2009

2008

ch, %

2009

2008

ch, %

 

 

 

 

 

 

 

Sales

4 045,1

5 149,1

-21,4%

8 837,6

10 731,6

-17,6%

Gross profit

1 326,9

1 337,5

-0,8%

2 777,4

2 747,4

1,1%

% of sales

32,8%

26,0%

 

31,4%

25,6%

 

 

Selling, general and administrative expenses

Selling, general and administrative expenses dropped by 17.5% in ruble terms from RUR 1 663.3 mln in Q2 2008 to RUR 1 371.7 mln in Q2 2009 due to closure of non-performing stores, significantly reduced headcount and decreased expenses for logistics, IT and consulting services. Compared with Q1 2009, SG&A decreased by 9%.

As a percentage of sales, SG&A increased by 1.6% in Q2 2009 versus Q2 2008 as the decline in sales outpaced management’s ability to reduce costs and foreign currency denominated lease Agreements increased their share of the overall expenses.

 

RETAIL UNIT

 

 

 

 

 

 

Q2, mln RUR

1H, mln RUR

 

 

 

 

 

 

2009

2008

ch, %

2009

2008

ch, %

 

 

 

 

 

 

 

SG&A

1 371,7

1 663,3

-17,5%

2 879,6

3 457,8

-16,7%

%

33,9%

32,3%

 

32,6%

32,2%

 

 

Q2 2009 store level performance of like-for-like stores demonstrated the following results:

RUR, mln

2Q 2009

2Q 2008

ch, %

 

 

 

 

 

 

 

 

 

Moscow

Regions

Total

Moscow

Regions

Total

Moscow

Regions

Total

 

 

 

 

 

 

 

 

 

 

Net Sales

1 356,4

1 629,2

2 985,6

1 460,2

2 102,6

3 562,8

-7,1%

-22,5%

-16,2%

Gross profit

505,5

484,9

990,4

496,1

534,9

1 031,0

1,9%

-9,3%

-3,9%

%

37,3%

29,8%

33,2%

34,0%

25,4%

28,9%

 

 

 

Store level expenses

337,0

288,9

625,9

290,4

326,9

617,3

16,0%

-11,6%

1,4%

%

24,8%

17,7%

21,0%

19,9%

15,5%

17,3%

 

 

 

Rent

150,5

100,5

251,0

113,7

105,8

219,5

32,4%

-5,0%

14,4%

Personnel

141,3

136,5

277,8

139,4

160,4

299,8

1,4%

-14,9%

-7,3%

Other

45,2

51,9

97,1

37,3

60,7

98,0

21,2%

14,5%

-0,9%

Store level
Operaring profit

168,5

196,0

364,5

205,7

208,0

413,7

-18,1%

-5,8%

-11,9%

%

12,4%

12,0%

12,2%

14,1%

9,9%

11,6%

 

 

 

Number of comparable stores

191

481

672

191

481

672

 

 

 

 

Store level net sales in Like-for-like stores decreased by 16.2% from RUR 3 562.8 mln in Q2 2008 to RUR 2 985.6 mln in Q2 2009 due primarily to the sales reduction in the regions as a result of partial stock-outs and traffic decline. Store level expenses in Like-for-like stores increased by 1.4 % in Q2 2009 versus Q2 2008. Significant rent increase in the Moscow region in Q2 2009 versus Q2 2008 is due to the exchange rate effect as most of the lease agreements in the reported like-for-like stores are dollar-based.

1H 2009 store level performance of like-for-like stores demonstrated the following results:

RUR, mln

1H 2009

1H 2008

ch, %

 

 

 

 

 

 

 

 

 

Moscow

Regions

Total

Moscow

Regions

Total

Moscow

Regions

Total

 

 

 

 

 

 

 

 

 

 

Net Sales

2 812,2

3 601,7

6 413,9

2 934,3

4 367,9

7 302,2

-4,2%

-17,5%

-12,2%

Gross profit

1 017,2

1 025,1

2 042,3

946,9

1 095,4

2 042,3

7,4%

-6,4%

0,0%

%

36,2%

28,5%

31,8%

32,3%

25,1%

28,0%

 

 

 

Store level expenses

702,8

605,2

1 308,0

657,3

648,3

1 305,6

6,9%

-6,6%

0,2%

%

25,0%

16,8%

20,4%

22,4%

14,8%

17,9%

 

 

 

Rent

306,0

210,7

516,7

255,6

210,5

466,1

19,7%

0,1%

10,9%

Personnel

292,7

287,8

580,5

288,7

316,7

605,4

1,4%

-9,1%

-4,1%

other

104,1

106,7

210,8

113,0

121,1

234,1

-7,9%

-11,9%

-10,0%

Store level
Operating profit

314,4

419,9

734,3

289,6

447,1

736,7

8,6%

-6,1%

-0,3%

%

11,2%

11,7%

11,4%

14,1%

9,9%

10,2%

 

 

 

Number of comparable stores

191

481

672

191

481

672

 

 

 

 

Trade accounts payable

Versus Q2 2008, trade accounts payable decreased by 19.4% from RUR 6 956.8 mln to RUR 5 606.7 mln at the end of Q2 2009. This y-o-y improvement resulted from payments to suppliers of proceeds from the sale of assets in 2H 2008 and a reduction in inventory levels. Versus Q1 2009, trade accounts payable decreased by 0.7%.

Inventory

Average days of inventory turnover decreased to 74 days at the end of Q2 2009 from 85 days at the end of Q2 2008 as the Company continues implementing its program aimed at reducing absolute inventory levels. Versus Q1 2009 average days of inventory turnover increased from 57 days due to seasonality.

In absolute terms, inventory has been reduced by 29% to RUR 2 358.5 mln at the end of Q2 2009 compared with RUR 3 321.0 mln at the end of Q2 2008.

Other businesses

Veropharm

For the latest update on 1H 2009 performance please refer to the official press-release of the company as of August 26th, 2009.

ELC

Early Learning Center revenue consolidated by the Group (which is 50% of the total revenue) reached RUR 37.6 mln, a 38.2% growth in Q2 2009 versus Q2 2008 in ruble terms driven primarily by an increase in L-f-L sales.

As of the end of Q2 2009, the unit operated 9 stores.

Group financial debt

Group Financial Debt at the end of Q2 2009 decreased to RUR 4 674.1 mln from RUR 5 686.5 mln at the end of Q2 2008 and from RUR 4 838.3 mln at the end of Q1 2009 as a result of partial payment of debts and the effect of the exchange rate. At the end of Q2 2009 the Retail unit debt stood at RUR 3 867.5 mln with 43% denominated in dollars and Veropharm debt stood at RUR 806.5 mln with 22% denominated in dollars. 97.6% of the Group’s debt is short-term.

Group financial costs

In Q2 2009 versus Q2 2008 financial costs grew by 22.4% and reached RUR 279.5 mln driven by increased interest rates and increased ruble equivalent of US dollar denominated financial expenses. In 1H 2009 versus 1H 2008 financial costs grew by 17.1% and reached RUR 580.6 mln.

In Q2 2009 financial costs decreased by 7.2% compared with Q1 2009 due to exchange rate effect and partial repayment of debt.

Investments

In Q2 2009 the Group invested RUR 70.2 mln where: retail investments (27.7 mln), investments on the store level at ELC (~10 mln) and Veropharm investments (27 mln).

Group net profit

Underlying Net loss from ongoing operations (excluding foreign exchange effect and disposal of discontinued operations) decreased from RUR 447.7 mln in Q2 2008 to RUR 155.5 mln in Q2 2009, a 65.3% improvement.

1 Ongoing operations results exclude operating results of EMC which was sold in May 2008.
2 Including operating results of EMC
3 Significant worsening of Other Revenue, Other Gross Profit, Other EBITDA and Other Net profit by 37.4%, 49.0%, 85.1% and 73.8% accordingly in Q2 2009 versus Q2 2008 is mainly due to the fact that the Company no longer consolidates the operation of the European Medical Center.
4 Retail net profit for Q2 2009, Q2 2008, 1H 2009, 1H 2008 includes RUR 248.8 mln, RUR 180.8 mln, RUR 349.6 mln and RUR 254.4 mln minority interest in Veropharm accordingly. Retail net profit for Q2 2008 and 1H 2008 also includes RUR 842.2 mln from disposal of discontinued operations
5 Such significant Net profit reduction in Q2 2009 versus Q2 2008 is due to the fact that Q2 2008 data includes RUR 842,2 mln from disposal of discontinued operations (EMC).
6 The L-F-L reporting is executed for a selection of comparable stores, which are:

·                     opened or acquired 24 months from the current reporting period, and

·                     neither rebranded nor reformatted or somehow significantly changed during last 24 months, and

·                     not closed in the current reporting period.