OREANDA-NEWS. July 02, 2010. OJSC Pharmacy Chain 36.6 [RTS:APTK;MICEX:RU14APTK1007] — the leading Russian pharmaceutical retailer announces audited FY 2009 and unaudited Q4 2009 financial results prepared in accordance with the International Financial Reporting Standards (IFRS).

Group highlights of 2009

Group revenue from ongoing operations1 decreased by 17.4% to RUR 21 061.5 mln as compared with FY2008;

Gross profit from ongoing operations1 decreased by 5.2% to RUR 8 301.4 mln and equaled to 39.4% of consolidated revenues;

Consolidated EBITDA from ongoing operations1 reached RUR 1 421.6 mln compared with RUR 699.9 mln in 2008, a 103.1% growth;

Group Net loss decreased from RUR 1 640.8 mln in 2008 to RUR 359.4 mln in 2009, a 78.1% improvement;

Underlying Net loss from ongoing operations1 (excluding sale of investments, disposal of discontinued operations, foreign exchange effect and gain on minority interest restructuring) decreased from RUR 1 782.2 mln in 2008 to RUR 821.3 mln in 2009, a 53.9% improvement;

The retail unit organically opened 23 stores and closed 131 stores in 2009.

Retail unit

Revenue

As compared to the relative period the year before, in 2009 sales of the Retail unit decreased by 23.3% in ruble terms from RUR 20 837.4 mln to RUR 15 984.8 mln driven by the closure of non-performing stores, partial shortages of products as a result of working capital decline and decrease in customer demand. In Q4 2009 versus Q4 2008 sales of the Retail unit decreased by 28.7% from RUR 5 071.9 mln to RUR 3 618.4 mln. In Q4 2009 versus Q3 2009 sales of the Retail unit increased by 2.5%.

Like-for-like sales2 in 2009 versus 2008 decreased by 17% in ruble terms driven by partial stock-outs and decline in customer traffic. L-f-L average check in 2009 compared with 2008 increased by 11% in ruble terms;traffic decreased by 25%. In Q4 2009 versus Q4 2008 L-f-L sales decreased by 21% in ruble terms, average check increased by 6% in ruble terms, traffic declined by 26%.

Gross margin

In 2009 gross margin in the Retail unit increased by 3.9% to 32.0% from 28.1% in 2008. Such significant growth was achieved by an increased share of Private label goods in retail sales, successful commercial activity in price-cuts from suppliers, improvement of pricing and assortment policies. In Q4 2009 gross margin increased by 2.7% to 33.3% from 30.6% in Q4 2008. Compared to Q3 2009, gross margin increased by 1.0%.

Selling, general and administrative expenses

Selling, general and administrative expenses dropped by 20.4% in ruble terms from RUR 6 841.5 mln in 2008 to RUR 5 443.1 mln in 2009 due to continuous implementation of the cost optimization programme. In Q4 2009, selling, general and administrative expenses decreased by 26.5% to RUR 1 278.6 mln from RUR 1 740.4 mln in Q4 2008. Compared with Q3 2009, SG&A costs decreased by 0.5%.

Despite the decrease in absolute numbers of SG&A costs, their share in overall sales increased by 1.0% in Q4 2009 compared with Q4 2008, and by 1.3% in 2009 compared with 2008 due to decline in revenues.

Trade accounts payable

Compared with 2008, trade accounts payable decreased by 37.5% from RUR 5 667.2 mln to RUR 3 540.1 mln in 2009 due to part of accounts payable recovery. Versus Q3 2009, in Q4 2009 trade accounts payable decreased by 30.1% in connection with partial repayment of indebtedness.

Inventory

Average days of turnover increased from 62 days at the end of Q4 2008 to 75 days as of the end of Q4 2009. Compared with Q3 2009 as at the end of Q4 2009 average days of turnover increased from 70 up to 75 days due to reduced level of seasonal sales in December 2009.

In absolute terms, inventory was reduced by 12.7% to RUR 2 336.4 mln as of the end of Q4 2009 compared with RUR 2 677.1 mln as of the end of Q4 2008.

Other businesses

Veropharm

For the latest update on FY 2009 performance please refer to the official press-release of the company as of May 13th, 2010.

ELC

Early Learning Center revenue reached RUR 332.4 mln (with RUR 166.2 mln consolidated by the Group), a 24% growth driven primarily by an increase in L-f-L sales. In Q4 2009 versus Q4 2008 ELC sales grew by 18.5% and reached RUR 130.8 mln (with RUR 65.4 mln consolidated by the Group). In 2009 EBITDA reached RUR 19.83mln, a 15.1% improvement, compared with RUR 17.23 mln in 2008.

As of the end of Q4 2009, the unit operated 13 stores.

Group financial debt

Group Financial Debt at the end of Q4 2009 increased by 69.5% to RUR 7 441.1 mln from RUR 4 389.2 mln at the end of Q4 2008 and from RUR 5 135.4 mln at the end of Q3 2009 as a result of converting minority interest into a long-term debt. At the end of Q4 2009, the Retail unit debt stood at RUR 6 488.2 mln with RUR 4 110.8 mln (63.4%) denominated in dollars.

Group financial costs

In 2009 versus 2008 consolidated financial costs grew by 8.0% to RUR 1 174.0 mln due to the financial costs associated with financial debt restructuring and fulfillment of obligations to suppliers. In Q4 2009 compared with Q4 2008 financial costs decreased by 23.1% and reached RUR 286.2 mln.

Investments

In 2009 the Group invested in fixed assets and intangible assets RUR 239 mln, whereas retail investments stood at RUR 104 mln.

Group net profit

Underlying Net loss from ongoing operations (excluding sale of investments, disposal of discontinued operations, foreign exchange effect and gain on minority interest restructuring) decreased from RUR 555.7 mln in Q4 2008 to RUR 43.0 mln in Q4 2009, a 92.3% improvement versus Q4 2008. Net loss decline resulted from SG&A reduction, gross margin growth, reduction of costs associated with impairment of goodwill, reduction of tax income and minority interest payments.

Underlying Net loss from ongoing operations (excluding sale of investments, disposal of discontinued operations, foreign exchange effect and gain on minority interest restructuring) decreased from RUR 1 782.3 mln in 2008 to RUR 821.3 mln in 2009, a 53.9% improvement.

Group Net loss decreased from RUR 1 640.8 mln in 2008 to RUR 359.4 mln in 2009, a 78.1% improvement, despite the fact that the total amount of Group Net loss in 2008 included income of disposal of discontinued operations, equaled to RUR 854.4 mln and gain on partial disposal of a subsidiary, equaled to RUR 352.9. mln. The stated above growth was driven by operational effectiveness improvement, i.e.: consolidated EBITDA increased by 84.7% and on the contrary the costs associated with impairment of goodwill significantly decreased (from RUR 686 mln in 2008 to RUR 60 mln in 2009). A considerable improvement was as well demonstrated by foreign currency exchange loss (from RUR 436.3 mln in 2008 to RUR 34.6 mln in 2009) and income tax expenses (from RUR 321.8 mln in 2008 to RUR 129.3 mln in 2009). Besides, due to minority interest restructuring, minority interest profit (i.e. Group loss) decreased from RUR 539.2 mln in 2008 to RUR 385.1 mln in 2009.

In 2009 restructuring of arrangement with consortium of investors was effected, which resulted in conversion of consortium share in Glazar Limited Company (reflected in FY 2008 results as a minority interest profit) together with a Standard Bank loan for the total amount of USD 25 mln into a USD 110 mln long-term debt with a maturity date till 2014. As a result, gain on restructuring of arrangement with consortium of investors in the amount of RUR 556.9 mln was reflected in consolidated profit and loss statement.

1 Ongoing operations’ results exclude operating results of EMC which was sold in May 2008.

2 The L-F-L reporting is executed for a selection of comparable stores, which are:

opened or acquired 24 months before the current reporting period, and

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

not closed in the current reporting period.

3 The share, consolidated by the Group is correspondingly RUR 9.9 mln and RUR 8.6 mln.